Econ Final

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Which of the following is consistent with capital flight from Mexico?

The real exchange rate of the peso depreciates from E1 to E0

Which of the following would cause prices and real GDP to rise in the short run?

aggregate demand shifts right

Which of the following would cause stagflation?

aggregate supply shifts left

Velocity is computed as

(P X Y)/M

If the reserve ratio is 4 percent, the money multiplier is

25

Supposing that the Mexican economy starts at r0 and E1. Which of the following is consistent with the effects of capital flight?

All of the above

A decrease in Y from Y1 to Y2 is explained as follows

An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to Md2; this shift of MD causes r to increase r1 to r2; and this increase in r causes Y to decrease Y1 to Y2

Which of the following correctly explains the crowding out effect?

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

An increase in the money supply would move the economy from C to

B in the short run and A in the long run

Which of the following is a correct way to measure productivity

Divide the quantity of output by the number of hours worked

Which of the following statements is not correct?

Malthus argued that charity and government aid was an effective way to reduce poverty

The classical dichotomy argues that changes in the money supply

affect nominal variables, but not real variables

A budget deficit

changes the supply of loanable funds

The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is called the

classical dichotomy

If the Kenyan nominal exchange rate declines, and the prices are unchanged in Kenya and abroad, then the Kenyan real exchange rate

declines

To increase the money supply, the Fed could

decrease the reserve requirement

Assume the money market is originally in equilibrium. If the price level increases, then according to liquidity preference theory there is an excess

demand for money until the interest rate increases

If the country raises its budget deficit, the net capital outflow

falls, so the supply of its currency shifts left in the market for foreign currency exchange

When Mexico suffered from capital flight, the US real interest rate

fell and the real exchange rate appreciated

Under a fractional reserve banking system, banks

generally lend out majority of funds deposited

A haircut costs 200 pesos in Mexico and $20 in the US. The exchange rate is 12.5 pesos per dollar. The real exchange rate is

greater than one. Haircuts in Mexico are cheaper than in the US

Keynes believed that economies experiencing high unemployment should adopt policies to

increase aggregate demand

To reduce the effects of crowding out caused by an increase in govt expenditures, the Fed could

increase money supply by buying bonds

Money neutrality implies that an increase in the quantity of money will

increase the price level

When the money market is drawn with the value of money on the vertical axis

money demand slopes down and money supply is vertical

When the real exchange rate for the dollar appreciates, US goods become

more expensive relative to foreign goods, which makes exports fall and imports rise

If net exports are positive, then

net capital outflow is positive, so foreign assets bought by Americans are greater than American assets bought by foreigners

Country A and country B both increase their capital stock by 1 unit. Output in country A increases by 15 while output in country B increases by 12. Other things the same, diminishing returns implies that country A is

poorer than country B. If country A adds another unit of capital, output will increase by less than 15 units

Suppose the Mexican economy starts at r0 and E1. Which of the following new equilibrium is consistent with capital flight?

r1 and E0

What does Y represent on the horizontal axis of the right hand graph?

real output

Economic variables whose values are measured in goods are called

real variables

If the money-supply curve MS on the left-hand graph were to shift to the right, this would

represent an action taken by the Federal Reserve

Liquidity preference theory is most relevant to the

short run and supposes that the interest rate adjusts to bring money supply and money demand into balance

The supply of money increases when

the Fed makes open market purchases

When the money supply curve shifts from MS1 to Ms2, the graph shows that

the equilibrium price level increases

When the money supply curve shifts from MS1 to Ms2

the equilibrium value of money decreases

As we move from one point to another along the money-demand curve MD1

the price level is fixed at P1

What is measured on the horizontal axis of the left hand graph?

the quantity of money

If the economy starts at C, an increase in the money supply moves the economy

to A in the long run


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