Download Quiz 3

ECON 203 – Quiz 3 - Key
1. In symbols, the equation of exchange says
MsV = PY
2. High interest rates will stimulate investment, for people will want to consume less.
False
3. A budget deficit occurs when
government expenditures are greater than tax receipts during a year
4. Assume a relatively small country is running a governmental budget deficit, has a domestic
interest rate above the world interest rate, and is open to borrowing/lending in the
international market. If this country balances its governmental budget,
borrowing from the international market falls
5. An increase in a nation’s capital stock (amount of capital employed by firms)
makes labor more productive and hence firm’s demand more labor.
6. Savers
supply money to the market for loanable funds; borrowers demand money from the
market for loanable funds.
7. When the loanable funds market is in equilibrium
then Y must equal C + I + G + (X-M).
8. According to the neutrality of money, an increase in the money supply will raise ___________.
the price level
9. When international interest rates are below domestic interest rates and a country is open to the
flow of financial capital
domestic agents lend to foreign agents and domestic interest rates increase
10. From our basic model, an increase in labor demand leads to
an increase in the wage rates, the number of people, and GDP.
11. A secondary effect of an increase in labor demand is
a decrease in the price level and interest rate
12. The average number of times that a dollar is transacted in a year is known as
Velocity
13. The effect of an increase in governmental budget deficit over time is
increased interest rates and less investment
14. What variables are assumed constant along a production possibilities frontier?
capital, technology, and time