Download Quiz 2

ECO 212
Fall 2012
Quiz 2
Instructions: Select the best answer to the following questions:
1.
If a 100 gram gold coin is more valuable than 100 grams of loose gold nuggets,
then the king can require a person to submit 110 grams of gold in order to receive in
return a 100 gram gold coin. The profit the king then makes is called:
a.
b.
c.
d.
e.
seigniorage
Gresham’s Law.
arbitrage.
parity
barter
Exchange Rate
GBP/peso
Supply of pesos
Demand
for pesos
Quantity of pesos
2.
The diagram above shows the supply and demand for Mexican pesos in the
foreign exchange market in which pesos are exchanged for British pounds (GBP). Mexico
and Great Britain are using the gold standard system, and the official prices of gold are
GBP 10 per gram of gold in Britain and 30 pesos per gram in Mexico. Which statement
below is true?
a.
the equilibrium exchange rate is 1/4 GBP per peso.
b.
because supply of pesos does not equal demand for pesos at the official echange
rate, there is an arbitrage opportunity.
c.
15 grams of gold will move from Great Britain to Mexico.
d.
15 pesos worth of gold will move from Mexico to Great Britain.
e.
Mexico’s exports of goods, services, and assets will not be equal to its imports of
goods, services, and assets.
3.
The United States’ space agency NASA recently landed a robot to explore the
surface of the planet Mars to look for signs of life. If life is found, and the next robot is
sent to search for evidence that Martians have invented money, the new robot will have
an instrument designed to detect something that is:
a.
b.
c.
d.
e.
used by Martian life as a store of value
used by Martian life as a medium of exchange.
used by Martian life as a unit of account.
used by Martial life for all 3 purposes above.
none of the above.
4.
If AUBG students use the “full-class permission” slips used in add/drop week as a
form of money, and each permission slip has the same value as a unit of money, but there
are different numbers of students on the professors’ waiting lists as follows:
Prof. Gurov
Prof. Cohen
Prof. Sullivan
Prof. Levchev
30 students on waiting list
25 students on waiting list
2 students on waiting list
50 students on waiting list
An alert student of money and banking would predict that the permission slips used most
frequently to make exchanges would be those of _____. This is an application of _____.
a.
b.
c.
d.
e.
Prof. Levchev
Prof. Sullivan
Prof . Gurov
Prof. Levchev
Prof. Cohen
supply and demand
Gresham’s Law
law of diminishing returns
pen is mightier than the sword
arbitrage.
5.
Whenever a country has imports of goods and services that are greater in value
than its exports of goods and services, then it has a ____ and therefore it must:
a.
b.
c.
d.
e.
merchandise trade surplus
merchandise trade deficit
current account deficit
current account deficit
current account surplus
raise its official price of gold
increase its exports.
reduce its imports of goods and services
export more assets than it imports.
have a capital account deficit
6.
Under the gold standard system, a country that is importing gold must:
a.
b.
c.
d.
e.
raise its official price of gold.
lower its official price of gold.
expand its money supply, causing domestic prices and incomes to rise.
reduce its money supply, causing domestic prices and incomes to fall.
none of the above.