ECON 252 - FINAL

What's the equation for Net Factor Payments from Foreigners?

(Factor payments from foreigners) - (Factor payments to foreigners)

What's the equation for Current Account?

(Net exports) + (Net factor payments from foreigners) + (Net transfers from foreigners)

What's the equation for Net Exports?

(Payments from abroad for exports) - (Payments to foreigners for imports)

What's the equation for Net Transfers from Foreigners?

(Transfers from Foreigners) - (Transfers to foreigners)

During economic recovery in the medium run, market forces from:

(a) Inventory rebuilding (b) Households return to the market and start spending (c) Healthier firms purchase bankrupt firms (d) Technological advances (e) Financial intermediation

The M2 money supply is defined to include​ what 5 things?

- Currency in circulation - checking accounts - savings accounts - traveler's checks - money market accounts

REGULATION: The central bank is the key regulator of banks, particularly large banks by doing what 3 things?

- It audits the financial statements of large banks. - It monitors the amount of shareholders' equity of these large private banks - It requires them to perform a "stress test" periodically.

Progressive income taxes are an example of ____________ countercyclical components of fiscal policy. A tax rebate like cash for clunkers is an example of ____________ countercyclical components. A ____________ ____________.

- automatic - discretionary - progressive tax

A​ country's exports less its imports is called the trade ____________ For the United​ States, this number is ____________ and called a trade ____________.

- balance - negative - deficit

Factor payments are recorded in the ____________ account. Assuming this account holds a​ surplus, the corresponding debit is recorded in the ____________ account.

- current - financial

If expansionary monetary policy pushed interest rates into negative​ territory, then money would be a ______________ asset that ______________ be saved. Such a policy would likely ______________ the risk of asset bubbles.

- depreciating - would not - increase

A Japanese company opening a factory in Singapore is an example of ____________ that would directly benefit the citizens of ____________. The company's actions would ____________ cross-country interdependence.

- foreign direct investment - Singapore - increase

An open economy ____________, and a closed economy ____________.

- freely trades with the rest of the world - does not trade with the rest of the world

Crowding out occurs when ____________ borrowing displaces ____________ borrowing. Since expansionary fiscal policy should only take place during times of ____________, it seems worth the risk for many policy makers.

- government - private - recession

Depending on its policy​ needs, the Fed can increase net exports by ____________ domestic interest​ rates, or it can lower net exports by ____________ domestic interest rates.

- lowering - raising

What is Money Aggregate 1 or M1?

- mainly currency in circulation - traveler's checks - balances held in checking accounts

Over the past​ century, the United States has become ____________ dependent on imports, which ____________ its overall GDP.

- more - decreases

Imports are goods and services that are ____________, and exports are goods and services that are ____________.

- produced abroad and consumed domestically - produced domestically and consumed abroad

What variables move positively (positive co-movement) with GDP?

- real consumption - real investment - employment

Through open market​ operations, the Fed can ______________ by buying up Treasury bonds from the public. Through quantitative​ easing, the Fed prints extra money in order to ______________ ​long-term bonds and ______________ the long-term interest rate.

- reduce the short-term interest rate - buy - reduce

The appreciation of the real exchange rate ____________ net exports and causes ____________ in GDP.

- reduces - a decline

Expansionary policy can be achieved through ____________ in income taxes. This change in taxes ____________ have multiplier​ effects, but will likely have to be ____________ than​ expenditure-based fiscal policy injections.

- reductions - can - larger

Net capital outflows are defined as ____________ minus foreign investment. When the real interest rate starts to​ decline, net capital outflows increase and net exports ____________ as domestic products become ____________ expensive to purchase.

- savings - increase - less

What 3 key factors appear to have played central roles in causing the recession of 2007-2009?

1) A fall in housing prices, which caused a collapse in new construction 2) A sharp drop in consumption 3) Spiraling mortgage defaults that caused many bank failures, leading the entire financial system to freeze up

At the beginning of a recession, the labor demand curve shifts to the left due to:

1) A fall in output prices 2) A decrease in output demand 3) A decrease in labor productivity 4) A rise in other input prices

What are 2 possible reasons the nominal GDP increases?

1) An increase in the price level 2) An increase in real GDP

In downward wage rigidity how does a shock play out in the short run?

1) An initial shock shifts the labor demand curve to the left. 2) Downward wage rigidity leads to reductions in employment. 3) By lowering household income, multipliers will shift the labor demand curve further to the left. 4) As a result, employment will decrease further, to the trough of the business cycle.

What are the 4 tools the Fed has available to impact bank reserves?

1) Changing the reserve requirement 2) Changing the interest rate paid on reserves deposited at the Fed 3) Lending from the discount window 4) Quantitative easing

Economic fluctuations have three key properties:

1) Co-movement of many macroeconomic variables 2) Limited predictability of fluctuations 3) Persistence in the rate of economic growth

The demand curve for BANK RESERVES shifts when one of the following five changes occurs:

1) Economic expansion or contraction 2) Changing liquidity needs 3) Changing deposit base 4) Changing reserve requirement 5) Changing interest paid by the Fed for deposits at the Fed

During economic recovery in the medium run, what are 2 government policies?

1) Expansionary monetary policy (will lower interest rates and raise inflation) 2) Fiscal policy (increase government spending and/or lower taxes

What are 3 different forms of exchange rates?

1) Flexible (floating) exchange rate 2) Fixed exchange rate 3) Managed exchange rate

What are 2 costs association with Deflation?

1) High real interest rates than can't be offset by lowering the nominal interest rate 2) Real burden of debt, which is fixed in nominal terms, rises when prices fall.

What are 3 functions of a central bank?

1) Indirectly control the money supply 2) Control certain key interest rates 3) Monitor financial institutions

(MANAGEMENT OF MACROECONOMIC FLUCTUATIONS BY MANIPULATING THE QUANTITY OF BANK RESERVES) The central bank manipulates the quantity of bank reserves in order to do what 3 things?

1) Influence short-term interest rates, especially the federal funds rate 2) Influence the money supply and the inflation rate 3) Influence long-term real interest rates

The central bank is the government institution that does what 3 things?

1) Monitors financial institutions 2) Controls certain key interest rates 3) Indirectly controls the money supply

What are 2 things government programs can suffer from?

1) Policy waste 2) Policy lags

There are three different schools of thought on the sources of economic fluctuations:

1) Real business cycle theory emphasizes changes in productivity and technology 2) Keynesian theory focuses on business and consumer expectations of the future. 3) Financial and monetary theory looks at changes in prices and interest rates.

The Fed engages in what 3 activities to achieve the dual mandate?

1) Regulation 2) Interbank Transfers 3) Management of Macroeconomic Fluctuations by Manipulating the Quantity of Bank Reserves

What two alternative strategies do the Federal Reserve choose from when it implements monetary policy?

1) The Federal Reserve can keep reserves fixed, even when the demand curve shifts, and thus allow the federal funds rate to fluctuate. 2) The Federal Reserve can supply more or less reserves to keep the federal funds rate constant. The Fed targets the federal funds rate in this case).

What are 3 of the issues with bitcoins replacing major​ currencies?

1) The value of a bitcoin is highly volatile and so people that hold them may lose money. 2) Bitcoin deposits are not insured by the government. 3) Fiat money is generally worthless without a government decree that it is legal tender.

What are the 3 parts the Fed is composed of?

1) Twelve Federal Reserve district banks throughout the country 2) A 7-member Board of Governors in Washington D.C. 3) A 12-member Federal Open Market Committee, composed of 5 regional bank presidents and the 7 board members

What are 2 specific fiscal policies are directly targeted at the labor market?

1) Unemployment insurance 2) Wage subsidies

In prison camps during World War​ II, and in some prisons​ today, cigarettes circulate among prisoners. For​ example, an iPod might cost two cartons of​ cigarettes, whereas a magazine might only cost two cigarettes. Which 3 functions of money are cigarettes fulfilling in this​ case?

1) Unit of account 2) Store of Value 3) Medium of exchange

What are the 3 costs associated with​ inflation?

1) Unproductive policies such as price controls, which may be due to voter dissatisfaction 2) Logistical costs related to the need to frequently change prices 3) Uncertainty about the aggregate price level, which can distort prices and make planning difficult

What 2 things are included in bank reserves for private​ banks?

1) Vault cash 2) Deposits at the central bank

What are 3 ways multipliers can reduce labor demand further?

1) a fall in asset prices 2) a rise in mortgage defaults 3) a rise in household and firm bankruptcies

What are 3 factors that would shift the demand curve for reserves?

1) changing deposit base 2) economic expansion or contraction 3) anticipated liquidity shocks

What are 2 social benefits Inflation generates?

1) government revenue from printing currency 2) economic activity

What are 3 reasons Inflation imposes social costs?

1. Inflation Tax: Decline in value of cash holdings due to inflation 2. Raising logistical costs: frequent price changes (menu costs) 3. Distorting relative prices

The Fed uses monetary policy to pursue what two key goals? What are these goals called?

1. Low and predictable levels of inflation 2. Maximum (sustainable) levels of employment Dual Mandate

What are the 3 functions money serves in the modern economy?

1. medium of exchange. 2. store of value. 3. unit of account (measure of relative value).

The Federal Reserve System was established in ____________ after a series of ____________.

1913; banking crises

What's the FED's target inflation?

2%

If the anticipated inflation rate is 1.50 percent and the nominal interest rate is 3.75 ​percent, the real interest rate is ________ percent. ​(Round your response to two decimal places.​)

2.25% (Long-term expected real interest rate​ = Long-term nominal interest rate - ​Long-term expected inflation rate; 3.75 - 1.50 = 2.25)

A U.S. traveler to China exchanges ​$200 for 1,420 yuan. The nominal​ yuan-per-dollar exchange rate is __________. ​(Round your response to two decimal places.​)

7.10

Central banks undertake quantitative easing programs to​ ____________. (multiple) A. more forcefully and directly impact the interest rates relevant for investment decisions. B. give a boost to the prices of publicly traded equities. C. work around the problems when​ short-term nominal interest rates approach zero.

A & C

Why would central banks want to clamp down when the economy is​ growing? (multiple) A. To block the formation of unsustainable speculative asset bubbles. B. To curtail excessive profits in the banking system. C. To prevent inflationary forces from gathering momentum.

A & C

Which of the following is an example of foreign direct​ investment? ​(Check all that apply.​) A. A Chinese company opens a factory in Nigeria that is jointly owned with a Nigerian company. B. A German resident purchases a share of Google stock. C. Ford Motor Company buys a factory from Toyota in​ Marysville, Ohio. D. A U.S. company opens a factory in India.

A & D

What is Hyperinflation?

A situation of extreme inflation where prices double within 3 years

What is Deflation?

A situation of falling prices

What is Inflation?

A situation of rising prices

What is the Managed exchange rate?

A system between the flexible and fixed exchange rates.

The nominal exchange rate between two currencies is defined as the​ ____________. A. number of units of foreign currency that can be purchased with one unit of domestic currency. B. price of one​ country's currency in units of another​ country's currency. C. ​inflation-adjusted value of the domestic currency relative to the previous year.

A&B

Which of the following statements is true of comparative​ advantage? A. A country has a comparative advantage in the production of a good if it has a lower opportunity cost of producing that good. B. A country has a comparative advantage if it can produce more units of a good per hour than other countries. C. A country has a comparative advantage if it can produce less units of a good per hour than other countries. D. A country has a comparative advantage in the production of a good if it has a higher opportunity cost of producing that good.

A. A country has a comparative advantage in the production of a good if it has a lower opportunity cost of producing that good.

How does a fixed exchange rate differ from a managed exchange​ rate? A. A fixed exchange rate is set at a​ long-run value determined by the​ government, while a managed exchange rate can vary day to day depending on government actions. B. A managed exchange rate involves government​ intervention, while a fixed exchange rate does not. C. A fixed exchange rate involves government​ intervention, while a managed exchange rate does not. D. A managed exchange rate is set at a​ long-run value determined by the​ government, while a fixed exchange rate can vary day to day depending on government actions.

A. A fixed exchange rate is set at a​ long-run value determined by the​ government, while a managed exchange rate can vary day to day depending on government actions.

Briefly explain how an increase in the quantity of reserves that commercial banks hold at the Federal Reserve could lead to inflation. A. An increase in reserves triggers a multiple expansion of bank loans and​ deposits, which generates an increase in the stock of money. If the money supply grows faster than real​ GDP, inflation will occur. B. An increase in the reserves that commercial banks hold at the Federal Reserve enables the central bank to increase its bond purchases from​ investors, giving the bond sellers more discretionary income. The higher incomes fuel more spending on goods and​ services, forcing the price level higher. C. An increase in reserves triggers a multiple expansion of bank loans and​ deposits, which generates an increase in asset prices​ and, as a​ consequence, rapid growth in private spending. If spending grows faster than real​ GDP, inflation will occur. D. An increase in reserves enables the central bank to increase the amount of money in​ circulation, and with more money in​ circulation, inflation becomes inevitable.

A. An increase in reserves triggers a multiple expansion of bank loans and​ deposits, which generates an increase in the stock of money. If the money supply grows faster than real​ GDP, inflation will occur.

Using the concept of the zero lower​ bound, which of the following problems is likely to arise for the Fed while using countercyclical monetary​ policies? A. During a​ recession, the Fed will not be able to lower interest rates beyond a certain limit to mitigate unemployment and deflation. B. During a​ recession, the Fed will not be able to increase the reserve requirement beyond a certain point to mitigate unemployment and deflation. C. During a​ recession, the Fed will not be able to lower tax rates to zero to mitigate unemployment and deflation.

A. During a​ recession, the Fed will not be able to lower interest rates beyond a certain limit to mitigate unemployment and deflation.

What is a​ mortgage-backed security? A. It is a bond backed by several mortgages pooled together B. It is a mortgage insured against any losses C. It is a mortgage backed by a bond if the borrower defaults D. It is a bond insured against any losses

A. It is a bond backed by several mortgages pooled together

According to the Taylor​ rule, should the Fed raise or lower the federal funds rate when the output gap is positive? A. It should raise the federal funds rate. B. It should lower the federal funds rate. C. Gaps are​ self-correcting, so it should do neither. D. It should do neither and instead let fiscal policy close the gap.

A. It should raise the federal funds rate.

For​ Belgium, the opportunity cost of producing 1 million pounds of chocolate is 250,000 gourmet​ pastries, whereas for Italy the opportunity cost is 750,000 gourmet pastries. Given the information​ above, a possible loser from trade is​ ____________. A. Italian chocolate makers. B. Italian pastry consumers. C. Belgian chocolate makers. D. Belgian pastry consumers.

A. Italian chocolate makers.

Which of the following best relays the events of the 2007-2009 recession after the bust in housing​ prices? A. Mortgage​ foreclosures, a credit​ contraction, a leftward shift in the demand for​ labor, and a strong drop in consumption B. Mortgage​ foreclosures, a credit​ expansion, a rightward shift in the demand for​ labor, and an increase in consumption C. Mortgage​ foreclosures, a credit​ contraction, a rightward shift in the demand for​ labor, and an increase in consumption D. Mortgage​ foreclosures, a credit​ expansion, a leftward shift in the demand for​ labor, and a strong drop in consumption

A. Mortgage​ foreclosures, a credit​ contraction, a leftward shift in the demand for​ labor, and a strong drop in consumption

What does the current account​ include? ​(Multiple) A. Net factor payments from abroad. B. Net exports. C. Net transfers from abroad. D. Net change in domestic assets held by foreigners.

A. Net factor payments from abroad. B. Net exports. C. Net transfers from abroad.

How would​ Keynes's concept of animal spirits explain the creation of a housing​ bubble? A. People believed that a house was a worthwhile​ investment, which led to an increased demand for housing and thus pushed prices up. This confirmed to people that housing was a worthwhile​ investment, which led to more​ demand, resulting in an upward spiral driven by optimism. B. Home builders reduced their level of construction and​ investment, which led to higher prices and profits due to decreased​ supply, and as inventory​ declined, prices continued to climb. C. With an expanding​ economy, real wages were driven​ up, leading to higher demand for​ housing, which expanded the economy further and drove up wages​ again, resulting in an upward spiral driven by optimism. D. The increase in mortgage defaults led to reduced lending by​ banks, which in turn reduced demand for​ housing, leading to more defaults and higher prices for those who could buy as banks attempted to recoup losses.

A. People believed that a house was a worthwhile​ investment, which led to an increased demand for housing and thus pushed prices up. This confirmed to people that housing was a worthwhile​ investment, which led to more​ demand, resulting in an upward spiral driven by optimism.

What are the two models that are used to describe inflationary​ expectations? A. Rational expectations. B. Adaptive expectations. C. ​Belief-formed expectations. D. Real expectations.

A. Rational expectations. B. Adaptive expectations.

What are the automatic and discretionary components of fiscal​ policy? A. The automatic components do not require deliberate action on the part of the​ government, while the discretionary components do. B. The automatic components are those fiscal actions that require accommodation from monetary​ policy, while the discretionary components do not. C. The automatic components are limited to government​ expenditures, while the discretionary components entail changes in both taxes and expenditures. D. The automatic components stimulate the​ economy, while the discretionary components serve purposes unrelated to the health of the overall economy.

A. The automatic components do not require deliberate action on the part of the​ government, while the discretionary components do.

How does the confluence of the zero lower bound and restrictions on the fiscal deficit cause problems for countercyclical macroeconomic​ policy? A. The government will not be able to lower tax rates to control recession in an economy. B. The government will not be able to lower its spending to control recession in an economy. C. The government will not be able to lower interest rates to control recession in an economy.

A. The government will not be able to lower tax rates to control recession in an economy.

Which of the following is true of the relationship between a​ country's financial account and its current​ account? A. The sum of the current account and the financial account is zero. B. The sum of the current account and the financial account is less than one. C. The sum of the current account and the financial account is greater than one.

A. The sum of the current account and the financial account is zero.

What does it mean to say that an economic fluctuation involves the​ co-movement of many aggregate macroeconomic​ variables? A. These variables grow or contract together during booms and recessions. B. These variables grow during booms and contract during recessions. C. Real variables move in the same direction as the economic​ fluctuation, whereas nominal variables move opposite. D. Economic fluctuations in one period lead to movement of these variables in the next period.

A. These variables grow or contract together during booms and recessions.

Which of the following are ways that domestic residents can receive​ income-based payments from​ foreigners? ​(Multiply​) A. Upper A person renting an apartment in Berlin comma Germany comma pays rent to the owner comma who is a U.S. resident. B. The Chinese government sends money and medical supplies to Miami residents after a hurricane. C. Apple corporation pays a stock dividend to a resident of India. D. Upper A resident of Norway buys a guitar while on vacation in Nashville comma Tennessee. E. Upper A Canadian citizen working in Seattle comma Washington comma sends money to his parents in Calgary.

A. Upper A person renting an apartment in Berlin comma Germany comma pays rent to the owner comma who is a U.S. resident. B. The Chinese government sends money and medical supplies to Miami residents after a hurricane. D. Upper A resident of Norway buys a guitar while on vacation in Nashville comma Tennessee.

Which of the following are sources of​ income-based payments that domestic residents make to​ foreigners? ​(Multiple​) A. Upper A resident of Maryland buys a car produced by Toyota in Japan. B. The U.S. government sends medical supplies to Ghana. C. The Chinese government sends money and medical supplies to Miami residents after a hurricane. D. Upper A person renting an apartment in Berlin comma Germany comma pays rent to the owner comma who is a U.S. resident. E. Upper A student who rents an apartment in Chicago pays rent to the owner who is a British resident.

A. Upper A resident of Maryland buys a car produced by Toyota in Japan. B. The U.S. government sends medical supplies to Ghana. E. Upper A student who rents an apartment in Chicago pays rent to the owner who is a British resident.

How does a change in a​ country's real exchange rate affect its net​ exports? A. When a​ country's real exchange rate appreciates, it imports more and exports less, causing its net exports to fall. B. When a​ country's real exchange rate appreciates, it imports less and exports more, causing its net exports to fall. C. When a​ country's real exchange rate appreciates, it imports more and exports less, causing its net exports to rise. D. The real exchange rate does not impact a​ country's net exports.

A. When a​ country's real exchange rate appreciates, it imports more and exports less, causing its net exports to fall.

The factors that would shift the demand curve for reserves include​ ____________. A. a changing deposit base. B. an economic expansion or contraction. C. the federal funds rate. D. an anticipated change in inflation. E. anticipated liquidity shocks.

A. a changing deposit base. B. an economic expansion or contraction. E. anticipated liquidity shocks.

Hyperinflation is​ ____________. A. a doubling of the price level within three years. B. a doubling of the price level within three months. C. inflation rates in excess of 50 percent per month. D. inflation rates that fluctuate by ​+/- 50 percent.

A. a doubling of the price level within three years.

Contractionary monetary policy can lead to an​ economy-wide recession through​ ____________. A. an increase in the real interest​ rate, leading to an increase in production costs and therefore lower demand for labor. B. a reduction in the real interest​ rate, leading to a decrease in production costs and therefore lower demand for labor. C. a reduction in the price​ level, leading to a reduction in employment because of downward wage rigidity. D. an increase in the price​ level, leading to a reduction in employment because of downward wage rigidity.

A. an increase in the real interest​ rate, leading to an increase in production costs and therefore lower demand for labor. C. a reduction in the price​ level, leading to a reduction in employment because of downward wage rigidity.

During the oil shocks of the 1970s and​ 1980s, price controls were imposed to control rising fuel prices and slow down inflation. Price controls like these often result in​ ____________. A. an inefficient solution to inflation by creating disruptions in supply and a shortage of goods. B. no clear overall impact on​ society, since the nominal wage is likely to increase at the same rate as the price level. C. an efficient solution to inflation by controlling the prices of goods and thus slowing growth of the money supply. D. a situation in which everyone​ wins; with a higher quantity​ demanded, firms sell more and consumers pay a lower price.

A. an inefficient solution to inflation by creating disruptions in supply and a shortage of goods.

Central banks undertake quantitative easing programs to​ ____________. (multiple) A. work around the problems when​ short-term nominal interest rates approach zero. B. give a boost to the prices of publicly traded equities. C. more forcefully and directly impact the interest rates relevant for investment decisions.

A. and C.

Money functions as a medium of exchange when you​ ___________. A. buy jeans at the mall. B. use it to compare two cars that are different prices. C. trade a cup of sugar for five eggs. D. trade action figures for a rare comic book that you expect will increase in value.

A. buy jeans at the mall.

The Taylor rule states that​ ___________. A. central banks should set their policy rates​ (in the United​ States, the federal funds​ rate) according to a formula that incorporates the​ long-term target for the policy​ rate, the output​ gap, and the deviation of inflation from its target. B. central banks should set their money supply growth rates according to a formula that incorporates the real GDP growth rate and the rate of change in the velocity of money. C. central banks should set the quantity of their actual money stocks according to a formula that incorporates a fixed price for gold and an index of the​ country's exchange rate. D. central banks should set their policy rates​ (in the United​ States, the federal funds​ rate) according to a formula that incorporates the​ long-term target for the policy​ rate, the inflation​ rate, and the unemployment rate.

A. central banks should set their policy rates​ (in the United​ States, the federal funds​ rate) according to a formula that incorporates the​ long-term target for the policy​ rate, the output​ gap, and the deviation of inflation from its target.

In​ general, the government should finance only those public projects that​ ____________. A. deliver benefits greater than the opportunity costs. B. focus only on infrastructure. C. result in losses when financed by the market. D. carry an extended implementation time.

A. deliver benefits greater than the opportunity costs.

The demand curve for dollars slopes downward because when the dollar​ ____________. A. depreciates in​ value, U.S. goods become relatively less expensive​ abroad, causing more people to buy dollars. B. appreciates in​ value, U.S. goods become relatively less expensive​ abroad, causing more people to buy dollars. C. depreciates in​ value, U.S. goods become relatively less expensive​ abroad, causing fewer people to buy dollars. D. depreciates in​ value, U.S. goods become relatively more expensive​ abroad, causing fewer people to buy dollars.

A. depreciates in​ value, U.S. goods become relatively less expensive​ abroad, causing more people to buy dollars.

A currency is said to depreciate against a foreign currency when the nominal exchange rate goes​ ____________. A. down, meaning the domestic currency now buys less of the foreign currency. B. up, meaning the domestic currency now buys more of the foreign currency. C. up, meaning the domestic currency now buys less of the foreign currency. D. down, meaning the domestic currency now buys more of the foreign currency

A. down, meaning the domestic currency now buys less of the foreign currency.

Real business cycle theory​ ____________. A. emphasizes the role of changing productivity and technology in causing economic fluctuations. B. emphasizes the role of sentiments that create the​ self-fulfilling prophecies that drive economic fluctuations. C. explains how monetary factors drive business cycles. D. explains how initial economic shocks are amplified through the multiplier process.

A. emphasizes the role of changing productivity and technology in causing economic fluctuations.

The duration of an economic fluctuation​ ____________. A. has limited predictability. B. is completely predictable. C. is completely unpredictable. D. is predictable but only in developed economies with good data.

A. has limited predictability.

If an economic boom is​ present, it is likely to be represented by a​ ____________. A. movement up the Phillips curve. B. movement down the Phillips curve. C. shift to the right of the Phillips curve. D. shift to the left of the Phillips curve.

A. movement up the Phillips curve.

The trade balance is known as​ ___________. A. net exports. B. the current account balance. C. the terms of trade. D. the balance of payments.

A. net exports.

The current account is a measure of​ ____________. A. payments into and out of the country. B. trade flows between countries. C. net assets held by domestic residents. D. net foreign direct investment.

A. payments into and out of the country.

Comparative advantage is the ability to​ ____________. A. produce a good or service at the lowest opportunity cost per unit than any other producer. B. produce a good or service that generates a higher total profit than any other producer. C. produce more of a good or service in a given period of time at the lowest cost per unit than any other producer. D. produce more of a good or service in a given period of time than any other producer.

A. produce a good or service at the lowest opportunity cost per unit than any other producer.

During an economic​ expansion, the demand curve for reserves will​ ____________. A. shift​ rightward, as banks make more loans. B. result in a reduction in the federal funds rate due to a decrease in the quantity demanded. C. shift​ leftward, as banks make more loans. D. result in a reduction in the federal funds rate due to an increase in the quantity demanded.

A. shift​ rightward, as banks make more loans.

Which of the following shows the purpose of countercyclical policy is to​ ____________(multiple). A. smooth the growth rates of​ employment, GDP, and prices. B. promote greater equity in the distribution of income. C. reduce the intensity of economic fluctuations.

A. smooth the growth rates of​ employment, GDP, and prices. C. reduce the intensity of economic fluctuations.

Countercyclical policy that seeks to raise GDP growth and the level of employment is appropriate when​ ____________ (multiple). A. the nation has an international trade surplus. B. the economy is experiencing a recession. C. excessively pessimistic sentiments about the economy are prevalent.

A. the nation has an international trade surplus. B. the economy is experiencing a recession. C. excessively pessimistic sentiments about the economy are prevalent.

Deflation is​ ____________. A. the rate of decrease of the overall price level in the economy. B. a decrease in nominal GDP. C. a decrease in the inflation rate. D. a decrease in real GDP.

A. the rate of decrease of the overall price level in the economy.

The Federal Reserve influences the long-run real interest rate through ____________. A. the​ short-term federal funds rate. B. the​ long-term federal funds rate. C. the discount rate. D. adjustments to expected inflation.

A. the​ short-term federal funds rate.

The trade balance is defined as the​ ___________. A. value of a​ country's exports minus the value of its imports. B. value of a​ country's exports plus the value of its imports. C. value of a​ country's imports minus the value of its exports. D. ratio of imports plus exports to GDP.

A. value of a​ country's exports minus the value of its imports.

Assume a government expenditure multiplier of 1.2 . Fiscal policy could theoretically fix a recessionary output gap of ​$800.4 billion with a​ ____________. A. ​$667 billion increase in government spending B. ​$67 billion decrease in consumption C. ​$960.5 billion increase in government spending D. ​$67 billion increase in consumption

A. ​$667 billion increase in government spending

According to the Taylor​ rule, the Federal Reserve should lower the federal funds rate when the​ ____________. ​(multiple) A. ​Fed's long-run target for the federal funds rate falls B. exchange rate rises C. inflation rate falls D. ​Fed's inflation rate target rises E. output gap falls

A. ​Fed's long-run target for the federal funds rate falls C. inflation rate falls D. ​Fed's inflation rate target rises E. output gap falls

Has trade been increasing or decreasing over the past few​ decades? A. ​Increasing, as this is evidenced by the increase in the ratio of imports and exports to GDP. B. Increasing in absolute terms but decreasing in terms of the ratio of imports and exports to GDP. C. More or less the​ same, as this is evidenced by the ratio of imports and exports to GDP. D. ​Decreasing, as this is evidenced by the increase in the ratio of imports and exports to GDP.

A. ​Increasing, as this is evidenced by the increase in the ratio of imports and exports to GDP.

When labor demand shifts left at the start of the​ recession, the ultimate impact on employment and GDP will​ be: A. ​Negative, and larger if wages are fairly rigid. B. ​Positive, and smaller if wages are very flexible. C. ​Positive, and larger if wages are very flexible. D. ​Negative, and smaller if wages are fairly rigid.

A. ​Negative, and larger if wages are fairly rigid.

What type of students were​ for-profits universities trying to​ enroll? A. ​Subprime, marginal​ low-income students and working adults that traditional higher education has given up on. B. The best​ high-school graduates in their states C. The students with the highest likelihood of finding a job and succeed in it D. The same recent​ high-school graduates as traditional higher education institutions

A. ​Subprime, marginal​ low-income students and working adults that traditional higher education has given up on.

Does the effectiveness of monetary policy depend on inflation​ expectations? Explain. A. ​Yes, the central​ bank's ability to influence the​ long-term expected real interest rate is partly determined by the​ public's long-term expectations of the inflation rate. B. ​No, inflation expectations do not affect nominal interest​ rates, and these are the rates monetary policy directly impacts. C. ​No, the effectiveness of monetary policy is solely determined by the supply of reserves from the central bank and the demand for reserves from private banks. D. ​Yes, long-term inflation expectations can interfere with the central​ bank's control over the​ short-term nominal interest rate.

A. ​Yes, the central​ bank's ability to influence the​ long-term expected real interest rate is partly determined by the​ public's long-term expectations of the inflation rate.

The economist Alan Blinder said that any economist who mows his own lawn probably has not understood the concept of comparative advantage. Would you agree with Professor​ Blinder? A. ​Yes, the opportunity cost of the​ economists' time is very​ high, so they should hire others to do those activities. B. ​No, because he is forgetting about the utility involved in performing those activities. C. ​No, comparative advantage only relates to​ trade, not​ individuals' activities. D. ​Yes, the economists likely do not have an absolute advantage in those other activities.

A. ​Yes, the opportunity cost of the​ economists' time is very​ high, so they should hire others to do those activities.

Quantitative easing is​ ____________.(multiple) A. the central​ bank's purchase of​ long-term bonds in the open market. B. a variation on the central​ bank's traditional manner of conducting open market operations. C. an attempt by the central bank to more directly impact​ long-term interest rates.

All of the above

How does the zero lower bound on interest rates affect the working of monetary​ policy (multiple)? A. It makes the implementation of expansionary monetary policy more difficult since it effectively blocks the central​ bank's use of its primary tool. B. It complicates the formulation of expansionary monetary policy because it forces the central bank to rely on nontraditional and less familiar tools such as quantitative easing. C. It reduces the effectiveness of monetary policy by impairing the ability of the public​ (including investors) to understand the central​ bank's actions and signals.

All the above

How much money was there in the Global Pool of​ Money? A. 60 trillion dollars B. 70 trillion dollars C. 80 trillion dollars D. 50 Trillion dollars

B. 70 trillion dollars

Which of the following is an example of foreign direct​ investment? ​(Check all that apply.​) A. Ford Motor Company buys a factory from Toyota in​ Marysville, Ohio. B. A Chinese company opens a factory in Nigeria that is jointly owned with a Nigerian company. C. A U.S. company opens a factory in India. D. A German resident purchases a share of Google stock.

B. A Chinese company opens a factory in Nigeria that is jointly owned with a Nigerian company. C. A U.S. company opens a factory in India.

Which of the following key factors can help explain the Great Recession of 2007dash ​2009? A. A fall in the value of the stock market. B. A reduction in consumer​ wealth, curtailing spending. C. An increase in mortgage​ defaults, negatively impacting banks. D. A fall in housing prices. E. A reduction in new home​ construction, leading to a decrease in labor demand. F. An increase in inflation. G. Increased trade​ protectionism, decreasing net exports.

B. A reduction in consumer​ wealth, curtailing spending. C. An increase in mortgage​ defaults, negatively impacting banks. D. A fall in housing prices. E. A reduction in new home​ construction, leading to a decrease in labor demand.

How does comparative advantage in trade differ from absolute​ advantage? A. Absolute advantage looks at revenue per unit of goods or services that a producer can​ make, whereas comparative advantage looks at the profit per unit of the goods or services that a producer can make. B. Absolute advantage looks at the number of goods or services that a producer can​ make, whereas comparative advantage looks at the opportunity cost of the goods or services that a producer can make. C. Absolute advantage looks at the opportunity cost of the goods or services that a producer can​ make, whereas absolute advantage looks at the number of goods or services that a producer can make. D. Absolute advantage looks at total revenue that a producer can​ make, whereas comparative advantage looks at total profit that a producer can make.

B. Absolute advantage looks at the number of goods or services that a producer can​ make, whereas comparative advantage looks at the opportunity cost of the goods or services that a producer can make.

Which of the following is true of the relationship between consumer sentiment and a​ recession? A. A dip in consumer sentiment is always followed by a recession in an economy. B. Both directions of causality between consumer sentiment and recession are present in an economy. C. A recession is always followed by a dip in consumer sentiment in an economy.

B. Both directions of causality between consumer sentiment and recession are present in an economy.

Other than open market​ operations, what tools does the Federal Reserve use to manipulate interest rates in the​ economy? A. Changing the magnitude of federal transfer payments. B. Changing the interest rate paid on reserves deposited at the Fed. C. Lending from the discount window. D. Changing the reserve requirement. E.Quantitative easing.

B. Changing the interest rate paid on reserves deposited at the Fed. C. Lending from the discount window. D. Changing the reserve requirement. E.Quantitative easing.

Which of the following shows the correct sequence of events from an initial shock to consumption and the resulting multiplier​ effects? A. Investment​ declines, firms' revenue​ rises, labor demand shifts​ right, unemployment​ falls, asset prices​ fall, and the multiplier effects continue their cycle. B. Consumption​ declines, firms' revenue​ falls, labor demand shifts​ left, unemployment​ rises, and the multiplier effects continue their cycle. C. Investment​ declines, firms' revenue​ falls, labor demand shifts​ left, unemployment​ rises, asset prices​ rise, and multiplier effects continue their cycle. D. Consumption​ declines, firms' revenue​ falls, labor demand shifts​ right, unemployment​ falls, and the multiplier effects continue their cycle.

B. Consumption​ declines, firms' revenue​ falls, labor demand shifts​ left, unemployment​ rises, and the multiplier effects continue their cycle.

Examples of transfers to foreigners include​ ____________. ​(Multiple​) A. A Chinese oil worker giving a one week training class in Nigeria and bringing his income from the class home. B. Donations by the U.S. government to countries after the Indian Ocean tsunami in 2004. C. A British citizen permanently residing in New Zealand while sending money home to his parents in London. D. A Canadian citizen sending payment to a French winery for a bottle of Bordeaux wine.

B. Donations by the U.S. government to countries after the Indian Ocean tsunami in 2004. C. A British citizen permanently residing in New Zealand while sending money home to his parents in London.

Which one was the first major central bank to adopt negative interest​ rates? A. Denmak B. European Central Bank C. Sweden D. Japan

B. European Central Bank

Which of the following statements best describes the relationship between nominal exchange rates and real exchange​ rates? A. In most​ circumstances, the nominal and real exchange rates only appreciate together. B. In most​ circumstances, the nominal and real exchange rates appreciate and depreciate together. C. Nominal and real exchange rates​ co-move in the long run only. D. There is no correlation in movement between nominal and real exchange rates.

B. In most​ circumstances, the nominal and real exchange rates appreciate and depreciate together.

Which series of events would result in a decrease in the inflation​ rate? A. Lower the reserve​ requirement, which decreases the federal funds rate and decreases the demand for​ loans, which in turn reduces money supply growth and reduces the rate of inflation. B. Increase the reserve​ requirement, which increases the federal funds rate and decreases the demand for​ loans, which in turn reduces money supply growth and reduces the rate of inflation. C. Increase the reserve​ requirement, which decreases the federal funds rate and decreases the demand for​ loans, which in turn reduces money supply growth and reduces the rate of inflation. D. Lower the reserve​ requirement, which increases the federal funds rate and decreases the demand for​ loans, which in turn reduces money supply growth and reduces the rate of inflation.

B. Increase the reserve​ requirement, which increases the federal funds rate and decreases the demand for​ loans, which in turn reduces money supply growth and reduces the rate of inflation.

What is foreign direct​ investment? A. Investments by foreign individuals and companies that do not generate an ownership stake in domestic businesses. B. Investments by foreign individuals and companies that generate an ownership stake in domestic businesses. C. Purchases by foreign individuals and companies in domestic government and corporate bonds. D. Purchases by domestic individuals and companies in foreign government and corporate bonds.

B. Investments by foreign individuals and companies that generate an ownership stake in domestic businesses.

____________ used the concepts of animal spirits and sentiment to explain economic fluctuations. A. Irving Fisher. B. John Maynard Keynes. C. Milton Friedman. D. Arthur Cecil Pigou.

B. John Maynard Keynes.

What are the important mechanisms that reverse the effects of a recession in a modern​ economy? ​ A. The multipliers on wages and employment return to normal. B. Labor demand increases due to expansionary government policies. C. Labor demand increases due to market forces. D. Labor supply increases due to an increase in real wages.

B. Labor demand increases due to expansionary government policies. C. Labor demand increases due to market forces.

Which of the following characteristics of economic fluctuations does the Great Depression​ illustrate? A. Bank volatility. B. Limited predictability. C. Persistence. D. Stock market volatility. E. ​Co-movement in economic aggregates.

B. Limited predictability. C. Persistence. E. ​Co-movement in economic aggregates.

Which of the following is an example of countercyclical monetary policy for controlling​ inflation? A. Increase bank reserves and increase interest rates B. Lower bank reserves and increase interest rates C. Increase tax rates and reduce spending D. Lower tax rates and increase spending

B. Lower bank reserves and increase interest rates

According to economic​ theory, an increase of the nominal exchange rate of the Dollar against other​ currencies: A. Makes US exports relatively more expensive and US imports​ cheaper, reducing the trade deficit B. Makes US exports relatively more expensive and US imports​ cheaper, increasing the trade deficit C. Makes US exports relatively cheaper and US imports more​ expensive, reducing the trade deficit D. Makes US exports relatively cheaper and US imports more​ expensive, increasing the trade deficit

B. Makes US exports relatively more expensive and US imports​ cheaper, increasing the trade deficit

What is a NINA​ loan? A. No Interest never accrued loan B. No Income no Asset Loan C. No Interest no Asset Loan D. No Income never Accrued Loan

B. No Income no Asset Loan

Other than open market​ operations, what tools does the Federal Reserve use to manipulate interest rates in the​ economy? ​(multiple) A. Changing the magnitude of federal transfer payments. B. Quantitative easing. C. Changing the interest rate paid on reserves deposited at the Fed. D. Lending from the discount window. E. Changing the reserve requirement.

B. Quantitative easing. C. Changing the interest rate paid on reserves deposited at the Fed. D. Lending from the discount window. E. Changing the reserve requirement.

Which of the following are possible benefits of​ inflation? A. The introduction of price controls could make goods more affordable. B. Revenue is generated to the government when it prints money. C. There may be a reduction in real wages. D. There may be a reduction in the real interest rate. E. There are no benefits to inflation.

B. Revenue is generated to the government when it prints money. C. There may be a reduction in real wages. D. There may be a reduction in the real interest rate.

​___________ are the primary source of government revenues. A. Tariffs B. Tax receipts C. Subsidies

B. Tax receipts

What market forces might cause the labor demand curve to shift back to the​ right? A. Wage rigidity decreases. B. Technological advances encourage firms to expand their activities. C. The banking system recuperates and businesses are again able to use credit to finance their activities. D. Excess inventory has been sold off.

B. Technological advances encourage firms to expand their activities. C. The banking system recuperates and businesses are again able to use credit to finance their activities. D. Excess inventory has been sold off.

How does foreign direct investment benefit the recipient​ country? A. The increase in capital flows adds to the recipient​ country's GDP. B. Technology transfer ultimately improves productivity in the recipient country. C. The recipient country must remove internal market barriers to allow FDI to make a general increase in production within the​ country, which leads to higher GDP per capita. D. The increased production capacity leads to larger exports and therefore higher GDP per capita.

B. Technology transfer ultimately improves productivity in the recipient country.

Which of the following is true about the equilibrium federal funds​ rate? A. The equilibrium federal funds rate is constant because of structural forces. B. The Fed can increase the equilibrium federal funds rate by decreasing the supply of reserves. C. The Fed can increase the equilibrium federal funds rate by decreasing reserve demand. D. The equilibrium federal funds rate is determined at the point where money demand exceeds money supply.

B. The Fed can increase the equilibrium federal funds rate by decreasing the supply of reserves.

Which of the following is true of a​ country's financial​ account? A. The financial account is the sum of net​ exports, net factor payments from​ abroad, and net transfers from abroad. B. The financial account is the increase in domestic assets held by foreigners minus the increase in foreign assets held domestically. C. The financial account is an excess of imports over exports.

B. The financial account is the increase in domestic assets held by foreigners minus the increase in foreign assets held domestically.

When are people more likely to enroll in​ for-profit schools? A. When the economy is in an​ expansion, because the opportunity cost of going to school is high. B. When the economy is in a​ recession, because the opportunity cost of going to school is low. C. When the economy is in an​ expansion, because the opportunity cost of going to school is low. D. When the economy is in an​ recession, because the opportunity cost of going to school is high.

B. When the economy is in a​ recession, because the opportunity cost of going to school is low.

Under a flexible exchange​ rate, an increased demand for domestic products by foreign buyers causes​ ____________. A. a movement down the demand curve for dollars and a decrease in the equilibrium nominal exchange rate. B. a rightward shift of the demand curve for dollars and an increase in the equilibrium nominal exchange rate. C. a movement up the demand curve for dollars and an increase in the equilibrium nominal exchange rate. D. a leftward shift of the demand curve for dollars and a decrease in the equilibrium nominal exchange rate.

B. a rightward shift of the demand curve for dollars and an increase in the equilibrium nominal exchange rate.

An open market operation is​ ____________. A. the process of selling​ Fed-issued IOUs between banks. B. an exchange between a private bank and the Federal Reserve where the Fed buys or sells government bonds to private banks. C. where a bank borrows reserves or bonds from the Federal​ Reserve's discount window. D. an exchange between private banks where the banks buy or sell bonds to each other.

B. an exchange between a private bank and the Federal Reserve where the Fed buys or sells government bonds to private banks.

An example of a multiplier is when​ ____________. ​ A. a decrease in labor demand with rigid wages causes a larger increase in unemployment than the same decrease with flexible wages. B. an increase in business confidence causes firms to increase production and hire​ employees, leading to an increase in household​ spending, causing firms to further increase production and employment. C. a reduction in business investment is offset by increases in consumption and net exports. D. a drop in consumer confidence reduces household​ spending, causing firms to cut production and lay off​ employees, leading to a greater reduction in household spending.

B. an increase in business confidence causes firms to increase production and hire​ employees, leading to an increase in household​ spending, causing firms to further increase production and employment. D. a drop in consumer confidence reduces household​ spending, causing firms to cut production and lay off​ employees, leading to a greater reduction in household spending.

Expansionary monetary policy would include​ ____________. A. a decrease in reserve​ demand, an increase in the federal funds​ rate, an increase in lending capacity​ (reserves) of the​ banks, and an increase in liabilities​ (bonds) for the Fed. B. an increase in the supply of​ reserves, a reduction in the federal funds​ rate, an increase in lending capacity​ (reserves) of the​ banks, and an increase in liabilities​ (bonds) for the Fed. C. an increase in reserve​ demand, a reduction in the federal funds​ rate, an increase in lending capacity​ (reserves) of the​ banks, and a decrease in liabilities​ (bonds) for the Fed. D. an increase in the supply of​ reserves, a reduction in the federal funds​ rate, a decrease in lending capacity​ (reserves) of the​ banks, and an increase in liabilities​ (bonds) for the Fed.

B. an increase in the supply of​ reserves, a reduction in the federal funds​ rate, an increase in lending capacity​ (reserves) of the​ banks, and an increase in liabilities​ (bonds) for the Fed.

The demand curve for dollars slopes downward because when the dollar​ ____________. A. appreciates in​ value, U.S. goods become relatively less expensive​ abroad, causing more people to buy dollars. B. appreciates in​ value, U.S. goods become relatively more expensive​ abroad, causing fewer people to buy dollars. C. depreciates in​ value, U.S. goods become relatively more expensive​ abroad, causing fewer people to buy dollars. D. appreciates in​ value, U.S. goods become relatively more expensive​ abroad, causing more people to buy dollars.

B. appreciates in​ value, U.S. goods become relatively more expensive​ abroad, causing fewer people to buy dollars.

All of the following are included when calculating M2 as a measure of the money supply except​ ___________. A. checking accounts. B. bonds. C. currency in circulation. D. savings accounts.

B. bonds.

An economic expansion that occurs close to full employment​ ____________. A. can increase real​ wages, but not nominal wages. B. can cause inflation with very little employment and output growth. C. can increase nominal​ wages, but not price levels. D. will not be accompanied by any multiplier effects.

B. can cause inflation with very little employment and output growth.

When Governements increase expenditures it is known​ as; A. expansionary monetary policy. B. expansionary fiscal policy. C. Contractionary fiscal policy. D. contractionary monetary policy.

B. expansionary fiscal policy.

When central banks increase the money supply and take steps to lower interest rates it is known​ as; A. contractionary monetary policy. B. expansionary monetary policy. C. expansionary fiscal policy. D. an inflation hawk stance.

B. expansionary monetary policy.

An Indian construction worker who goes to Dubai for three months to work for a Russian hotel builder would be an example of​ ____________. A. transfers to foreigners. B. factor payments from foreigners. C. transfers from foreigners. D. factor payments to foreigners.

B. factor payments from foreigners.

Transfers to foreigners are​ ____________. A. payments of any type made to foreign citizens regardless of residency. B. gifts made to foreigners by domestic residents. C. payments made in exchange for goods or services. D. the total earnings of foreign citizens who work domestically.

B. gifts made to foreigners by domestic residents.

Inflation is the​ ____________. A. ratio of money supply to nominal GDP. B. growth rate of the overall price level in the economy. C. growth rate of real GDP. D. growth rate of nominal GDP.

B. growth rate of the overall price level in the economy.

The Federal Reserve conducts open market operations when it wants to​ ____________. A. influence the discount rate. B. influence the federal funds rate. C. change the liquidity levels of banks. D. change the level of reserves it holds for banks.

B. influence the federal funds rate.

The supply curve for reserves is​ vertical, or perfectly​ inelastic, because​ ____________. A. it is set by Fed policy and responds to the federal funds rate. B. it is set by Fed policy and does not respond to the federal funds rate. C. it automatically decreases when the Fed buys government bonds from private banks. D. it responds automatically to demand.

B. it is set by Fed policy and does not respond to the federal funds rate.

Negative Interest Rates​ _______________________ A. reward banks that hoard cash instead of extending loans to businesses B. signal that traditional monetary policy options have proven ineffective C. are standard tools of monetary policy D. have proven very effective in the past

B. signal that traditional monetary policy options have proven ineffective

Lowering interest rates is a common monetary policy tool used​ to; A. lower inflation. B. stimulate economic growth. C. decrease government borrowing costs.

B. stimulate economic growth.

All of the following statements are true except​ ____________. A. tariffs can be used in place of quotas. B. tariffs can be used to make domestic products less competitive. C. tariffs can be used to punish trading partners. D. tariffs can be used in place of income taxes to increase government revenue.

B. tariffs can be used to make domestic products less competitive.

The recession of 2007-2009 affected the components of the national income identity by primarily affecting​ ____________. A. the G component as the government attempted to offset the fall in demand through increased spending. B. the C and I components through a reduction in consumer wealth and a drop in housing construction. C. all components of the national income identity equally in terms of percentage changes. D. the NX component due to an appreciation of the U.S. dollar and secondarily affecting the C and I components as consumers purchased fewer imports and businesses produced fewer goods for export.

B. the C and I components through a reduction in consumer wealth and a drop in housing construction.

According to the Taylor​ rule, the federal funds rate should increase by 1 percentage point if​ ____________. A. actual GDP is 1.5 percent less than trend GDP. B. the output gap increases by 2 percent. C. the inflation rate increases by 1.5 percent. D. potential GDP is 1 percent higher than actual GDP.

B. the output gap increases by 2 percent.

One major difference between modeling economic busts and booms is that​ ____________. A. multipliers have a much smaller effect when modeling busts. B. there is no issue of rigid nominal wages when modeling booms. C. technological changes have a much larger​ short-run effect for busts. D. rigid wages are a much larger factor when modeling booms.

B. there is no issue of rigid nominal wages when modeling booms.

In the United​ States, recessions are usually defined as​ ____________. A. any period of negative growth in real GDP. B. two consecutive quarters of negative growth in real GDP. C. two consecutive quarters of negative growth in nominal GDP. D. two consecutive months of negative growth in real GDP.

B. two consecutive quarters of negative growth in real GDP.

According to the Taylor​ rule, the Federal Reserve should raise the federal funds rate when the​ ____________. ​(multiple) A. exchange rate falls B. ​Fed's long-run target for the federal funds rate rises C. ​Fed's inflation rate target falls D. output gap rises E.inflation rate rises

B. ​Fed's long-run target for the federal funds rate rises C. ​Fed's inflation rate target falls D. output gap rises E.inflation rate rises

Which of the following would not likely contribute to business cycle​ fluctuations? A. The Fed deciding to contract M2 via open market operations B. ​Long-term interest rates that closely follow​ short-term rates C. Improvements to AI software that increase assembly line productivity significantly D. The fear of an impending war

B. ​Long-term interest rates that closely follow​ short-term rates

Economic fluctuations are​ ____________. A. changes to the trend line of GDP growth. B. ​short-run changes in the growth of GDP. C. economic shocks characterized by downward wage rigidity and multipliers. D. ​long-run changes in the growth of GDP.

B. ​short-run changes in the growth of GDP.

In​ general, how can a decrease in the real interest rate affect a​ country's current account and financial​ account? A. It causes both the current account and the financial account to weaken B.It causes the current account to strengthen and the financial account to weaken C. It causes both the current account and the financial account to strengthen D. It causes the current account to weaken and the financial account to strengthen

B.It causes the current account to strengthen and the financial account to weaken

Is inflation good or bad?

Both

How does a flexible exchange rate differ from a managed exchange​ rate? A. A flexible exchange rate involves government​ intervention, while a managed exchange rate does not. B. A managed exchange rate is set at a​ long-run value determined by the​ government, while a flexible exchange rate can vary day to day depending on government actions. C. A managed exchange rate involves government​ intervention, while a flexible exchange rate does not. D. A flexible exchange rate is set at a​ long-run value determined by the​ government, while a managed exchange rate can vary day to day depending on government actions.

C. A managed exchange rate involves government​ intervention, while a flexible exchange rate does not.

What is foreign direct​ investment? A. Purchases by foreign individuals and companies in domestic government and corporate bonds. B. Purchases by domestic individuals and companies in foreign government and corporate bonds. C. Investments by foreign individuals and companies that generate an ownership stake in domestic businesses. D. Investments by foreign individuals and companies that do not generate an ownership stake in domestic businesses.

C. Investments by foreign individuals and companies that generate an ownership stake in domestic businesses.

What policies could the government and the central bank use to achieve the goal of slowing down the economic​ expansion? A. The government could impose wage and price​ controls, while the central bank could raise interest rates. B. The government could reduce the value of the dollar and the central bank could retire currency from circulation. C. The government could raise taxes​ and/or reduce​ expenditures, while the central bank could raise interest rates. D. The government could lower taxes​ and/or raise​ expenditures, while the central bank could lower interest rates.

C. The government could raise taxes​ and/or reduce​ expenditures, while the central bank could raise interest rates.

Why is the rise in housing prices between the late 1990s and 2006 characterized as a bubble by some​ economists? A. Houses became too expensive for ordinary people to buy. B. The rate of home foreclosures increased over its​ long-run average. C. The large increase in the price of housing assets did not reflect the true​ long-run value of the assets. D. Speculators had purchased houses strictly to sell later at a higher price.

C. The large increase in the price of housing assets did not reflect the true​ long-run value of the assets.

Under which of the following scenarios is a trade deficit likely to be bad for an​ economy? A. When a trade deficit allows an economy to import capital goods to improve productivity capacity B. When a trade deficit leads to lower dependency on imported goods C. When there is a lack of national redistribution policy in an economy D. When the gains from trade are distributed equally in an economy

C. When there is a lack of national redistribution policy in an economy

All of the following individuals would be negatively impacted by rising inflation except​ ____________. A. a retiree on a fixed pension. B. the shareholders of a company that deal mostly in exports. C. a homeowner with a​ fixed-rate mortgage. D. a business owner who pays annual​ cost-of-living bonuses.

C. a homeowner with a​ fixed-rate mortgage.

A factor payment is​ ____________. A. a payment in exchange for goods or services. B. the payment of a gift received from a foreign resident or government. C. a payment received for assets owned. D. the money exchanged for purchasing a financial​ asset, such as a bond.

C. a payment received for assets owned.

If​ oil, which is a major input to most production​ processes, abruptly falls in​ price, the impact on the economy would be similar to​ ____________. A. an economic multiplier decrease​, with a resultant decrease in real GDP. B. a productivity decrease, with a resultant decrease in real GDP. C. a productivity increase, with a resultant increase in real GDP. D. an economic multiplier increase​, with a resultant increase in real GDP.

C. a productivity increase, with a resultant increase in real GDP.

A multiplier is​ ____________. A. a change in expectations about future economic activity. B. a change in productivity that leads to increases in aggregate economic activity. C. an economic mechanism that causes an initial shock to be amplified by​ follow-on effects. D. a factor that causes a change in the money supply to generate activity larger than the change in the money supply.

C. an economic mechanism that causes an initial shock to be amplified by​ follow-on effects.

The Federal Reserve is referred to as the​ "lender of last​ resort" because​ ____________. A. only the Federal Reserve is allowed to lend money to​ banks, since it is the​ "bank for​ banks." B. the Federal Reserve changes the supply of reserves so only the Fed can increase the reserves available to banks. C. banks borrow from the​ Fed's discount window when other banks​ won't lend to them. D. the Federal Reserve is the only bank with enough liquidity to lend to other banks.

C. banks borrow from the​ Fed's discount window when other banks​ won't lend to them.

While economic booms are generally​ positive, they also have a dark side. This is because​ ____________. A. politicians often like to​ "fan the​ flames" of booms to increase their​ popularity, especially during an election year. B. firms may decide to increase worker productivity at the expense of hiring new​ workers, leading to an increase in​ firms' profits but not an increase in employment. C. if the economy is close to full employment and full capacity utilization before the beginning of the​ boom, the economy might eventually experience a leftward shift in labor​ demand, causing a recession rather than a gentle fall to​ pre-boom levels. D. workers will continue to demand higher wages as labor demand shifts to the​ right, leading to a decrease in​ firms' profits and a decrease in business investment.

C. if the economy is close to full employment and full capacity utilization before the beginning of the​ boom, the economy might eventually experience a leftward shift in labor​ demand, causing a recession rather than a gentle fall to​ pre-boom levels.

The financial account measures the​ ____________. A. amount of money and other financial assets held in domestic bank accounts by foreigners. B. net increase in foreign assets held domestically. C. net increase in domestic assets held by foreigners. D. change in trade flows between countries.

C. net increase in domestic assets held by foreigners.

Inflation can have a positive effect on production if​ ___________. A. seigniorage is used extensively. B. nominal interest rates adjust. C. nominal wages do not adjust. D. price controls are instilled.

C. nominal wages do not adjust.

The national income identity shows that​ ___________. A. economic fluctuations are directly related to the movement of real variables. B. nominal variables are linked to real variables through inflation. C. output is a function of​ consumption, investment, government​ spending, and net exports. D. the growth rate of real GDP is inversely related to the unemployment rate.

C. output is a function of​ consumption, investment, government​ spending, and net exports.

Lower interest rates can​ also; A. push prices lower. B. lead to stagnation. C. push prices higher. D. none of these

C. push prices higher.

In​ theory, interest rates below zero should​ _______________ A. decrease demand for loans B. increase borrowing costs for companies and households C. reduce borrowing costs for companies and households D. have no effect in the real economy

C. reduce borrowing costs for companies and households

Using sophisticated statistical​ techniques, economists can usually predict​ ____________. A. the end of an expansion. B. the beginning of a recession. C. the end of a recession. D. the​ co-movement of macroeconomic variables.

C. the end of a recession.

The supply curve for dollars shows the relationship between​ ___________. A. the exchange rate and the domestic inflation rate. B. the exchange rate and the foreign inflation rate. C. the quantity of dollars supplied and the exchange rate. D. how many dollars the government supplies and how many dollars domestic consumers demand.

C. the quantity of dollars supplied and the exchange rate.

The quantity theory of money assumes that​ ____________. A. in the short​ run, velocity is stable. B. in the long​ run, velocity fluctuates with real GDP. C. the ratio of money supply to nominal GDP is exactly constant. D. the ratio of money supply to nominal GDP grows over time.

C. the ratio of money supply to nominal GDP is exactly constant.

The total amount owed by the U.S. government is known as​ the: A. total deficit. B. budget shortage. C. total debt.

C. total debt.

What proportion of the revenue of​ for-profits colleges comes from federal student loans and​ grants? A. ​80% B. ​40% C. ​90% D. ​60%

C. ​90%

Are multinational companies harming factory workers in the developing world by hiring them at low​ wages? A. ​Yes, because working conditions are terrible and​ don't come close to developed country standards. B. ​No, factory workers have better working conditions and higher wages than those working in the agricultural sector. C. ​Uncertain, because it is unclear as to whether the positives outweigh the negatives. D. ​No, if consumers want cheaper​ goods, companies will have to set up factories in the developing world.

C. ​Uncertain, because it is unclear as to whether the positives outweigh the negatives.

Are the predictions of the quantity theory of money borne out by historical​ data? A. ​Yes, the​ short-run data show a​ one-for-one growth rate of money supply and inflation. B. ​No, the data show many outliers such as​ Argentina, Nicaragua, and Poland. C. ​Yes, the​ long-run data show a​ one-for-one growth rate of money supply and inflation. D. ​No, countries that experience hyperinflation break the relationship between the growth rate of money supply and inflation.

C. ​Yes, the​ long-run data show a​ one-for-one growth rate of money supply and inflation.

During an economic downturn of any​ duration, _____________. A. consumption and unemployment increase while GDP and investment decrease. B. ​consumption, investment,​ GDP, and unemployment all decrease. C. ​consumption, investment, and GDP decrease while unemployment increases. D. ​consumption, investment,​ GDP, and unemployment all increase.

C. ​consumption, investment, and GDP decrease while unemployment increases.

How many students are enrolled in for profit colleges around the​ country? A. half a million B. 2.2 million C. 1 million D. 1.8 million

D. 1.8 million

Which of the following statements is true about economic​ fluctuations? A. Economic fluctuations are fairly easy to predict. B. Once in an​ expansion, the probability of recession increases. C. Recessions are always short and therefore harder to see coming. D. Investment and business expansion would show​ co-movement.

D. Investment and business expansion would show​ co-movement.

When workers are laid​ off, what happens to physical​ capital? A. Physical capital becomes more​ productive, leading firms to increase capacity utilization. B. Capacity utilization does not change. C. Laborers become more​ productive, leading firms to increase capacity utilization. D. Physical capital becomes less​ productive, leading firms to reduce capacity utilization.

D. Physical capital becomes less​ productive, leading firms to reduce capacity utilization.

How does foreign direct investment benefit the recipient​ country? A. The increased production capacity leads to larger exports and therefore higher GDP per capita. B. The recipient country must remove internal market barriers to allow FDI to make a general increase in production within the​ country, which leads to higher GDP per capita. C. The increase in capital flows adds to the recipient​ country's GDP. D. Technology transfer ultimately improves productivity in the recipient country.

D. Technology transfer ultimately improves productivity in the recipient country.

Which of the following would be true for the banking system if there were no government​ regulation? A. The money supply would never fluctuate. B. Bank owners would bear all the risks of bank failures. C. Borrowers would bear all the risks of bank failures. D. The money supply would be determined by individual banks.

D. The money supply would be determined by individual banks.

A multiplier is​ ____________. A. a factor that causes a change in the money supply to generate activity larger than the change in the money supply. B. a change in expectations about future economic activity. C. a change in productivity that leads to increases in aggregate economic activity. D. an economic mechanism that causes an initial shock to be amplified by​ follow-on effects.

D. an economic mechanism that causes an initial shock to be amplified by​ follow-on effects.

To support an undervalued​ currency, a foreign government would need to​ ____________. A. sell dollars and sell its local currency. B. sell dollars and buy its local currency. C. buy dollars and buy its local currency. D. buy dollars and sell its local currency.

D. buy dollars and sell its local currency.

According to his theory of animal spirits and​ sentiment, changes in sentiment cause economic fluctuations through​ ____________. A. decreases in offsetting movements in exports and imports. B. changes in government expenditure. C. changes in productivity. D. changes in household consumption and firm investment.

D. changes in household consumption and firm investment.

In​ general, career choices that individuals make are a consequence of​ ____________. A. absolute advantage. B. competitive advantage. C. specialization. D. comparative advantage.

D. comparative advantage.

Developing countries often appeal to foreign investors due to the extremely low wages they can pay in those countries. The best way to reverse this tactic is for the​ business's home country to​ ____________. A. use legal action to close down businesses that use​ low-wage foreign labor. B. instill tariffs to decrease the profits of businesses producing in​ low-wage countries. C. enforce a minimum wage that is equal to the wage within its own country. D. encourage businesses to make the labor conditions in developing countries known to their customers.

D. encourage businesses to make the labor conditions in developing countries known to their customers.

The federal funds rate is the​ ____________. A. interest rate at the discount window where banks obtain overnight loans of reserves from one another. B. interest rate at the discount window where banks obtain overnight loans of reserves from the Federal Reserve. C. interest rate in the federal funds market where banks obtain overnight loans of reserves from the Federal Reserve. D. interest rate in the federal funds market where banks obtain overnight loans of reserves from one another.

D. interest rate in the federal funds market where banks obtain overnight loans of reserves from one another.

While the inverse relationship between unemployment and real GDP growth is unquestionable over​ time, it is not always proportional because​ ____________. A. ​pre-recession workers slow down the production process. B. ​Okun's Law speeds up the hiring process. C. ​pre-recession workers speed up the hiring process. D. labor hoarding slows down the hiring process.

D. labor hoarding slows down the hiring process.

Hyperinflation is most likely caused by​ ____________. A. large budget deficits financed by borrowing from the public. B. an increase in the prices of everyday goods. C. recessions or depressions. D. large budget deficits financed by printing more money.

D. large budget deficits financed by printing more money.

According to the concept of persistence in the rate of​ growth, if the economy grows this​ quarter, it will​ ____________. A. likely contract next quarter B. definitely contract next quarter C. definitely grow next quarter D. likely grow next quarter

D. likely grow next quarter

Contractionary monetary policy would​ ____________. A. attempt to increase the stock of money. B. attempt to increase tax rates. C. most likely be used for inflation above 2 percent but less than 5 percent. D. most likely be implemented for inflation above 2 percent.

D. most likely be implemented for inflation above 2 percent.

The national income identity shows that​ ___________. A. economic fluctuations are directly related to the movement of real variables. B. nominal variables are linked to real variables through inflation. C. the growth rate of real GDP is inversely related to the unemployment rate. D. output is a function of​ consumption, investment, government​ spending, and net exports.

D. output is a function of​ consumption, investment, government​ spending, and net exports.

The funds that are lent in this market are​ ____________. A. withdrawals at the Federal Reserve Bank. B. seignorage for the Federal Reserve. C. deposits at the lending bank. D. reserves at the Federal Reserve Bank.

D. reserves at the Federal Reserve Bank.

The purpose of a wage subsidy during times of high unemployment is to​ ____________. A. shift labor demand to the​ right, increase​ employment, reduce the equilibrium​ wage, increase household​ income, and increase consumption. B. shift labor demand to the​ left, increase​ employment, increase the equilibrium​ wage, increase household​ income, and increase consumption. C. shift labor demand to the​ left, decrease​ employment, increase the equilibrium​ wage, increase household​ income, and increase consumption. D. shift labor demand to the​ right, increase​ employment, increase the equilibrium​ wage, increase household​ income, and increase consumption.

D. shift labor demand to the​ right, increase​ employment, increase the equilibrium​ wage, increase household​ income, and increase consumption.

Trade allows buyers and sellers to exploit gains from specialization because it allows sellers to​ ____________. A. specialize in the production of the good or service for which they have an absolute advantage and buy goods and services for which they do not have an absolute advantage. B. develop an absolute advantage in the production of goods and​ services, which eventually forces buyers to pay higher prices for those goods and services. C. develop comparative advantages in the production of goods and services through the employment of​ low-wage workers, allowing them to sell their goods and services at a lower cost to buyers. D. specialize in the production of the good or service for which they have a comparative advantage and buy goods and services for which they do not have a comparative advantage.

D. specialize in the production of the good or service for which they have a comparative advantage and buy goods and services for which they do not have a comparative advantage.

Tariffs are​ ___________. A. financial incentives given to domestic producers on exported goods and services. B. taxes levied on both domestically produced goods and services and imports. C. taxes levied on domestically produced goods and services only. D. taxes levied on imports only.

D. taxes levied on imports only.

A​ country's financial account includes​ ____________. ​(Multiple) A. transfers to foreigners. B. payments to foreigners for imports. C. transfers from abroad. D. the change in foreign assets held domestically. E. the change in domestic assets held by foreigners.

D. the change in foreign assets held domestically. E. the change in domestic assets held by foreigners.

According to​ Keynes's view on animal​ spirits, ____________. A. the economy will fluctuate in line with the underlying economic fundamentals. B. downward wage rigidity could lead to pessimism in the​ economy, resulting in the​ self-fulfilling prophecy of a decline in economic output. C. technological breakthroughs could cause rapid increases in output. D. the economy could fluctuate beyond the level that could be explained by the underlying economic fundamentals.

D. the economy could fluctuate beyond the level that could be explained by the underlying economic fundamentals.

The demand curve for dollars shows the relationship between​ ____________. A. how many dollars the government supplies and how many dollars domestic consumers demand. B. the exchange rate and the domestic inflation rate. C. the exchange rate and the foreign inflation rate. D. the quantity of dollars demanded and the exchange rate.

D. the quantity of dollars demanded and the exchange rate.

The demand curve for dollars shows the relationship between​ ____________. A. how many dollars the government supplies and how many dollars domestic consumers demand. B. the exchange rate and the foreign inflation rate. C. the exchange rate and the domestic inflation rate. D. the quantity of dollars demanded and the exchange rate.

D. the quantity of dollars demanded and the exchange rate.

The supply curve for dollars shows the relationship between​ ___________. A. the exchange rate and the foreign inflation rate. B. the exchange rate and the domestic inflation rate. C. how many dollars the government supplies and how many dollars domestic consumers demand. D. the quantity of dollars supplied and the exchange rate.

D. the quantity of dollars supplied and the exchange rate.

​Okun's Law states that​ ____________. A. during​ recessions, firms tend to not lay off workers if they believe the slowdown will be temporary. B. when growth of GDP is​ positive, it tends to be positive in subsequent quarters. C. when growth in real GDP is below​ 2%, unemployment drops and when it is above​ 2%, unemployment increases. D. when growth in real GDP is above​ 2%, unemployment drops and when it is below​ 2%, unemployment increases.

D. when growth in real GDP is above​ 2%, unemployment drops and when it is below​ 2%, unemployment increases.

Does the effectiveness of monetary policy depend on inflation​ expectations? Explain. A. ​No, inflation expectations do not affect nominal interest​ rates, and these are the rates monetary policy directly impacts. B. ​No, the effectiveness of monetary policy is solely determined by the supply of reserves from the central bank and the demand for reserves from private banks. C. ​Yes, long-term inflation expectations can interfere with the central​ bank's control over the​ short-term nominal interest rate. D. ​Yes, the central​ bank's ability to influence the​ long-term expected real interest rate is partly determined by the​ public's long-term expectations of the inflation rate.

D. ​Yes, the central​ bank's ability to influence the​ long-term expected real interest rate is partly determined by the​ public's long-term expectations of the inflation rate.

Economic fluctuations are​ ____________. A. ​long-run changes in the growth of GDP. B. changes to the trend line of GDP growth. C. economic shocks characterized by downward wage rigidity and multipliers. D. ​short-run changes in the growth of GDP.

D. ​short-run changes in the growth of GDP.

SIMILAR or DIFFERENT between monetary and fiscal policies The entities​ (or authorities) that oversee them.

Different

SIMILAR or DIFFERENT between monetary and fiscal policies The manner​ (or ways) in which they work.

Different

The net flows in the financial account​ ____________. A. are smaller in absolute value than the net flows in the current account. B. are equal to the net change in trade. C. are larger in absolute value than the net flows in the current account. D. are equal to the net changes in factor payments and transfers from abroad. E. exactly offset the net flows in the current account.

E. exactly offset the net flows in the current account.

What does money as an asset allow?

Enables people to transfer purchasing power into the future

True or False The U.S. government typically runs a budget surplus.

False

True or False: The sum of M2 and real GDP represents the gross wealth of the United States.

False

True or False: When the nominal wage​ increases, workers know that their buying power​ (over goods and​ services) is unambiguously higher.

False

What is the central bank of the United States?

Federal Reserve Bank (Fed)

What is the U.S. dollar and other national currencies examples of?

Fiat Money

How does fiat money differ from commodities like gold and silver that were used as​ money?

Fiat money is intrinsically​ worthless, whereas gold and silver have intrinsic value

If fiat money is intrinsically​ worthless, then why is it​ valuable?

Fiat money is used as legal tender by government decree and other people will accept it as payment for transactions

Who is regarded as the champion of hands-off capitalism?

Friedrich Hayek

What is liquidity

Funds that are available for immediate payment

A recession is defined as at least two quarters of negative ___________.

GDP growth

What is the equation for Growth Rate of Nominal GDP?

Growth Rate of Nominal GDP = Growth Rate of Real GDP + Inflation rate

Income-Based Payments from Foreigners What are Factor Payments from Foreigners?

Income from assets that domestic residents own in foreign countries

What is the equation for Inflation Rate?

Inflation Rate = Growth Rate of Money Supply - Growth Rate of Real GDP

COMPARATIVE ADVANTAGE Lebron James: - Basketball points per season = 2,000 - Baseball hits per season = 40 Billy Benchwarmer: - Basketball points per season = 60 - Baseball hits per season = 20

Lebron James has a comparative advantage in basketball since he can produce points at a lower opportunity cost. Billy Benchwarmer has a comparative advantage in baseball since he can produce hits at a lower opportunity cost.

ABSOLUTE ADVANTAGE Lebron James: - Basketball points per season = 2,000 - Baseball hits per season = 40 Billy Benchwarmer: - Basketball points per season = 60 - Baseball hits per season = 20

Lebron James has absolute advantage in both sports

What are the two main official measures of money stock called?

Monetary Aggregates

What are the 3 activities the central bank performs known as?

Monetary Policy

What is a potential problem of restricting the creation of bitcoins to a total of 21 million​ bitcoins?

Monetary authorities cannot undertake expansionary monetary policy to stimulate the economy during recessions.

What happens when net exports increase?

Net capital outflows will increase

Does a closed economy trade with the rest of the world?

No

Does fiat currency meet all the required functions of money?

No

Would a dollar bill that is exchangeable for a certain amount of silver be considered fiat currency?

No

What is the equation for Velocity?

Nominal GDP / Money supply

What is the equation for Real Interest Rate?

Nominal Interest Rate - Inflation Rate

Income-Based Payments to Foreigners What are Factor Payments to Foreigners?

Paying income on assets that foreign residents own in the domestic economy

What does the Supply Curve for Reserves do?

Plots the quantity of reserves supplied by the Federal Reserve through open market operations

What's another name for this?

Pro-cyclical

____________ wages are ____________ wages divided by a measure of overall prices​ (price index). If nominal wages are downwardly​ rigid, real wages ____________ be. If inflation raises the price​ index, real wages will ____________ and nominal wages will remain constant.

Real; nominal; will also; decrease

Under inflation, what can change?

Relative Prices, such as real wage and real interest rate

SIMILAR or DIFFERENT between monetary and fiscal policies The aspect of the labor market they impact.

Similar

SIMILAR or DIFFERENT between monetary and fiscal policies The result their implementation seeks to achieve.

Similar

What is the significance of the real wage as it relates to​ inflation?

Since an increase in inflation reduces the real wage that firms must​ pay, firms are more willing to hire​ workers, thus stimulating economic activity

What happens in an open market purchase?

The Fed buys government bonds from private banks and in return gives the private banks more reserves

What is the dual mandate of the Federal Reserve​ Bank?

The Fed is charged with maximizing employment and moderating inflation

What happens in an open market sale?

The Fed sells government bonds to private banks, and in return the private banks give some of their reserves

What does Quantity Theory of Money assume?

The circulation rate of money (velocity) is constant in the LONG RUN

What is the Flexible (floating) exchange rate?

The government does not intervene in the foreign exchange market

What is the Fixed exchange rate?

The government fixes a value and intervenes to maintain that value.

If the inflation rate is positive, what must be​ true?

The growth rate of real GDP < the growth rate of money supply

What is the Federal Funds Market?

The market where banks borrow and lend reserves to one another

What is the Federal Funds Rate?

The overnight (24-hour) interest rate charged in this market

Income-Based Payments from Foreigners What are Transfers from Foreigners?

Transfers from individuals who reside abroad or from foreign governments

Income-Based Payments to Foreigners What are Transfers to Foreigners?

Transfers to individuals who reside abroad or to foreign governments

True or False Japan has experienced years of deflation.

True

Assume that an American worker can produce 15 cars per year or 5 tons of grain per​ year, whereas a Japanese worker can produce 5 cars per year or 10 tons of grain per year. Assume labor is the only input used in car and grain production. Who has the absolute advantage in production of cars and grain?

U.S.; Japan

Who has Comparative advantage of cars and grains?

U.S.; Japan

Does an open economy trade with the rest of the world?

Yes

Suppose a U.S. citizen lives and works in Nigeria. The U.S. citizen would be considered ___________ in the U.S. international transactions accounts.

a foreigner

What is an expansion?

a period of positive growth

In this​ way, a change in net exports has led to a larger ____________ than the direct effect of the change in net exports.

aggregate economic contraction

What is co-movement?

aggregate macroeconomic variables grow/contract together during booms/busts, exhibiting a pattern of positive or negative co-movements

What is the aim of expansionary policy?

aims to reduce the severity of an economic recession by shifting labor demand to the right and "expanding" economic activity (GDP)

Countries peg their exchange rates at a level that overvalues their own currency to​ _________. (multiple) A. keep inflation in check by making foreign goods more attractive to domestic consumers. B. make debts to foreign lenders easier to pay off for domestic borrowers. C. keep up the perception of​ strength, since a drop in the relative value of the currency may be seen as a failure of government policies.

all the above

How does the zero lower bound on interest rates affect the working of monetary​ policy? (multiple) A. It makes the implementation of expansionary monetary policy more difficult since it effectively blocks the central​ bank's use of its primary tool. B. It reduces the effectiveness of monetary policy by impairing the ability of the public​ (including investors) to understand the central​ bank's actions and signals. C. It complicates the formulation of expansionary monetary policy because it forces the central bank to rely on nontraditional and less familiar tools such as quantitative easing.

all the above

Quantitative easing is​ ____________. (multiple) A. a variation on the central​ bank's traditional manner of conducting open market operations. B. an attempt by the central bank to more directly impact​ long-term interest rates. C. the central​ bank's purchase of​ long-term bonds in the open market.

all the above

When is the output​ gap, defined as the percent difference between GDP and potential​ GDP, positive? (multiple) A. When the​ economy's capacity to produce is exceeded by its actual production. B. When the economy experiences an inflationary boom. C. When actual real GDP rises above potential GDP.

all the above

What is Fiat Money?

an asset that's used as legal tender by government decree and isn't backed by a physical commodity like gold

What is an open market operation?

an exchange between a private bank and the Federal Reserve where the Fed buys or sells government bonds to private banks

The change in the real interest rate also brings about ____________ in the real exchange rate.

an increase

In theory, what could play the role of fiat money?

any object in limited supply

What are automatic countercyclical components?

aspects of fiscal policy that automatically partially offset economic fluctuation

What are discretionary countercyclical components?

aspects of fiscal policy that policymakers deliberately enact in response to economic fluctuations

An economic expansion begins​ ____________.

at the end of a recession

What is Counter-cyclical Policies?

attempt to reduce the intensity of economic fluctuations and smooth the growth rate of employment, GDP and prices

What is another term for Economic Fluctuations?

business cycles

What are multipliers?

can amplify the effects of any economic shock, and can reduce labor demand further

Who conducts Countercyclical monetary policy?

central bank (Fed)

How can we examine the business cycle?

comparing the path of real GDP to a trend line

The primary reason that people use money is to​ ____________.

conduct market transactions in a modern economy

Suppose the Fed wants to implement an ​anti-inflation monetary policy. The Fed should _____________ lending from its discount window.

contract

In equilibrium, net exports ____________.

decline

Demand for aircraft parts supplied by U.S. producers.

decrease

If expectations about inflation rise and the nominal interest rate remains​ unchanged, the expected real interest rate will ______________.

decrease

U.S. net exports.

decrease

​Brazil's demand for aircraft parts from the U.S.

decrease

If the federal funds rate​ decreases, then the opportunity cost to a bank of holding reserves ______________, and as such, the quantity of reserves ______________.

decrease; increase

When the Fed sells government bonds to private banks, it ______________ the electronic reserves that banks hold.

decreases

When the Fed sells government bonds to private banks, it _______________ the electronic reserves that banks hold.

decreases

What is the result of the Fed increasing the supply of bank reserves through open market purchases?

decreases the federal funds rate

During​ recessions, there is​ a(n) _____________ in consumer sentiment.

dip

The​ long-term real interest rate moves _____________ with the federal funds rate. If the federal funds rate​ falls, the​ long-term nominal interest rate ____________ and inflation expectations respond ______________.

directly; falls; minimally

What happens to the domestic currency when a nominal exchange rate rises?

domestic currency is appreciating

What happens to the domestic currency when a nominal exchange rate falls?

domestic currency is depreciating

PERSISTENCE What is not random, but persistent?

economic growth

What is money?

economic term for assets that are used to make and receive payments when buying and selling goods and services

What is a recession?

episodes of negative economic growth lasting at least two quarters

What's the equation for net exports (trade balance)?

exports - imports

If an economic shock decreases labor​ demand, equilibrium employment ____________ and real GDP ____________.

falls; falls

Changing corporate tax rates is an example of countercyclical ____________ policy. policy. If the government lowers corporate tax​ rates, its goal would be a ____________ shift of the ____________ curve.

fiscal rightward labor demand

A recession impacts employment less severely when wages exhibit downward _____________.

flexibility

What is liquidity?

funds that can be used immediately to conduct transactions

Contractionary monetary policy leads to a ____________ real interest rate.

higher

What do expansionary fiscal policies use?

higher government expenditure and lower taxes to increase the growth rate of real GDP

When does a producer have an absolute advantage when producing a good?

if the producer can produce more units per hour compared to other producers

When does a producer have an comparative advantage when producing a good?

if the producer has a lower opportunity cost compared to that of other producers

What is Money Aggregate 2 or M2?

includes everything in M1 plus - saving deposits - small time deposits (less than $100,000) - money market deposit accounts

Suppose the Fed wants to implement an ​anti-inflation monetary policy. The Fed should _____________ the interest rate paid on reserves deposited at the Fed.

increase

If a country enacts fiscal policy to alleviate a recession by lowering taxes and increasing government​ spending, this will likely _____________ the deficit and ____________ the risk of inflation

increase; increase

Nominal GDP can increase when prices ______________, real GDP ______________, or ________________ increase.

increase; increase; both price and real GDP

The fall in housing prices resulted in ____________, leading to enormous ____________, disrupting the banks' ability and willingness to make loans to ____________.

increased defaults; banks losses; consumers and firms

If a​ bank's excess reserves​ increase, then its liquidity ______________. If the reserve requirement increases, excess reserves will ______________.

increases; decreases

What is the result of the Fed decreasing the supply of bank reserves through an open market sale?

increasing the federal funds rate

The Federal Reserve conducts open market operations when it wants to​ ____________.

influence the federal funds rate

What is the federal funds rate?

interest rate in the federal funds market where banks obtain overnight loans of reserves from one another

What are Foreign Direct Investment?

investments by foreign individuals and companies in domestic firms and businesses

Partial recovery occurs while downward wage rigidity ____________ in effect. Full recovery​ (full employment) occurs when labor demand shifts to an equilibrium wage that is ____________ the rigid wage.

is still; greater than

Partial recovery from recession in the medium run ____________ possible with natural market forces. Recovery ____________ be possible via a fiscal policy tax cut.

is; would

When the demand for labor​ falls, the fall in employment is ___________ when real wages are flexible and ___________ when wages are downwardly rigid.

limited; amplified

What do Investment decisions depend on?

long-term expected real interest rates

With downward rigid​ wages, a shift in the labor demand curve will translate into ____________ in the U.S. that will ultimately ____________ consumption.

lower employment; reduce

What do contractionary fiscal policies use?

lower government expenditure and higher taxes to reduce the growth rate of real GDP

What does an expansionary monetary policy do?

lowers short- term interest rates to increase economic activity

This causes the economy to ____________ along the​ downward-sloping line summarizing the relationship between the real interest rates and net exports​ (net capital​ outflows).

move up

The average number of initial applications for unemployment insurance is likely to be ___________ with real GDP.

negatively correlated

During a recession, what will happen when there's a leftward shift in the labor demand curve?

no change in the wage rate and a decrease in the quantity of labor, resulting in a decrease in real GDP

When does crowding out occur?

occurs when rising government expenditures partially or even fully displace expenditures by households and firms

Consumer sentiment is likely to be ___________ with real GDP.

positively correlated

The amount of new building permits for residential buildings is likely to be ___________ with real GDP.

positively correlated

The amount of new orders for capital goods unrelated to defense is likely to be ___________ with real GDP.

positively correlated

The average weekly hours worked by manufacturing workers is likely to be ___________ with real GDP.

positively correlated

The​ S&P 500 stock index is likely to be ___________ with real GDP.

positively correlated

Suppose the Fed wants to implement an ​anti-inflation monetary policy. The Fed should _____________ the reserve requirement.

raise

LIMITED PREDICTABILITY Why is it impossible to forecast during an expansion when the expansion will end?

recessions and expansion don't follow a repetitive, easily predictable pattern

The funds that are lent in this market are​ ____________.

reserves at the Federal Reserve Bank

As a new expansion in the business cycle​ starts, we can expect the aggregate labor demand curve to shift to the ____________. This will be met with ____________ in real GDP and a movement ____________ the aggregate production function.

right; an increase; up

Suppose the Fed wants to implement an ​anti-inflation monetary policy. The Fed should conduct an open market _____________ of Treasury bonds.

sale

Labor demand curve of aircraft parts producers in the U.S.

shifts to the left

If wages are flexible, the decrease in employment and real GDP will be _______________ the decrease if wages are rigid.

smaller than

Fiat Money is...

something that is used as legal tender by government decree and is not backed by a physical commodity

What does money allow?

specialization so people don't have to produce their own food, clothing, and shelter

By affecting certain key interest​ rates, the Fed can indirectly control the money ___________. The​ Fed's dual mandate is to maintain ___________ levels of inflation while allowing for sustainable levels of ___________.

supply; low; GDP growth

According to real business cycle​ theory, the economic impact of changing input prices is similar to the economic impact from​ ____________.

technology changes

A central bank is the government institution​ ____________.

that runs a​ country's monetary system

Who are U.S. monetary policy decisions are made​ by?

the Federal Reserve Bank

What is Velocity?

the circulation rate of money

What are Net Capital Outflows?

the difference between investment by the U.S. in foreign countries and foreign investment in the U.S.

What will happen the following quarter when the economy is contracting?

the economy will probably keep contracting

What is the inflation rate?

the gap between the growth rate of money supply and the growth rate of real GDP.

What is the foreign exchange market?

the global financial market in which currencies are traded and nominal exchange rates are determined

What is the Financial Account?

the increase in domestic assets held by foreigners minus the increase in foreign assets held domestically

What is Current Account?

the net flow of payments made to domestic residents from foreign residents on goods and services, factor payments, and transfers

What is the nominal exchange rate?

the price of one (domestic) country's currency in units of another (foreign) country's currency e = Units of foreign currency / 1 unit of domestic currency

A country has a trade deficit when ___________ and a trade surplus when ___________.

the value of exports is less than the value of imports; the value of imports is less than the value of exports

When do expansions occur?

they are periods between recessions; they begin at the end of one recession and continue until the start of the next recession

How can the Fed decrease the supply of bank reserves?

through an open market sale

How does trade increase the efficiency of production?

through gains from specialization

How does the Fed influence the federal funds rate?

through open market operations

How can the Fed increase the supply of bank reserves?

through open market purchases

What is Real GDP?

total value of production using fixed prices taken from a particular base year

What is Nominal GDP?

total value of production using the prices from the same year the output was produced

Specialization on works with...

trade

What's another term for net exports?

trade balance

What is it called when the trade balance is negative?

trade deficit

What is it called when the trade balance is positive?

trade surplus

What variable move negatively with real GDP?

unemployment

What is the aim of Contractionary policy?

used to slow down the economy when it grows too fast, or "overheats"

Do these checks constitute​ money?

​No, because checks simply represent a means of access to​ money, not money itself.

Over the last 50​ years, credit cards have become an increasingly popular way for people to purchase goods and services. Are credit cards​ money?

​No, because you credit cards are not assets.

What is real wage?

​inflation-adjusted wage