Econ Exam 3

us foreign portfolio investment

US citizen buys bonds issued by the British government

direct foreign investment

US company opens and auto parts factory in Canada

economy's GDP can be expressed by

Y = C + I + G + NX

crowding effect

an increase in government expenditures increases the interest rate and so reduces investment spending

which of the following would shift the long-run aggregate supply curve right

an increase in the capital stock, but not an increase in the price level

changes in nominal variables are determined mostly by the quantity of money and the monetary system according to

both the classical dichotomy and the quantity theory of money.

monetary policy

can be described either in terms of money supply or in terms of the interest rate

When the price level falls, the number of dollars needed to buy a representative basket of goods

decreases, so the value of money rises.

If a country sells fewer goods and services abroad than it buys from other countries, it is said to have a trade

deficit and negative net exports

An increase in household saving causes consumption to

fall and aggregate demand to decrease.

If households view a tax cut as temporary, then the tax cut

has less of an effect on aggregate demand than if households view it as permanent.

real interest rate

nominal interest rate - inflation rate

According to the classical dichotomy, which of the following is influenced by monetary factors?

nominal wages

Inflation can be measured by the

percentage change in the consumer price index

which of the following is not a determinant of the long-run level of real GDP

price level

An increase in the money supply will

reduce interest rates, decreasing investment and increasing aggregate demand

Using the liquidity-preference model, when the Federal Reserve decreases the money supply,

the equilibrium interest rate increases.

an increase in the expected price level shifts

the short-run aggregate supply curve to the left but does not affect the long-run aggregate supply curve.

The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for

the slope of the aggregate-demand curve.

M=2000 P=2.25 Y=6000 find the velocity

P x Y / M 2.25 x 6000 / 2000 = 6.75

the multiplier effect states that there are additional shifts in aggregate demand from expansionary fiscal policy, because it

increases income and thereby increases consumer spending

Net capital outflow

is always equal to net exports

The cost of changing price tags and price listings are known as

menu costs