Econ final exam homework questions

The recession of 2007dash-2009 affected the components of the national income identity by primarily affecting

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

What is the yield curve?

the difference between short term and long term bond yields

the post recession wage is ______ the pre-recession wage -above, below, the same

above

If an economic shock decreases labor demand, equilibrium employment _______ and real GDP _______

falls; falls

When governments increase expenditures it is known as____

expansionary fiscal policy

The supply curve for dollars shows the relationship between_______?

the quantity of dollars supplied and the exchange rate

Other than open market​ operations, what tools does the Federal Reserve use to manipulate interest rates in the​ economy?

-changing the reserve requirement, changing the interest rate paid on reserves deposited at the Fed, quantitative easing, lending from the discount window

Which of the following are correct assertions about countercyclical fiscal policy: True or False 1. It is conducted by the Federal Reserve System. 2. It uses changes in government expenditure and taxes to increase the growth rate of GDP. 3. Expansionary fiscal policy uses lower government expenditure to increase the growth rate of real GDP. 4. Contractionary fiscal policy uses lower government expenditure to decrease the growth rate of real GDP.

1. false 2. true 3. false 4. true

Following the Fed's successful open market purchase, the process that ensues is given by_______ A. ​Short-term interest rates fallfallright arrow→​Long-term interest rates fallfallright arrow→Demand for goods and services increasesincreasesright arrow→Labor demand shifts rightright. Your answer is correct.B. ​Short-term interest rates riseriseright arrow→​Long-term interest rates riseriseright arrow→Demand for goods and services decreasesdecreasesright arrow→Labor demand shifts leftleft. C. ​Short-term interest rates fallfallright arrow→​Long-term interest rates riseriseright arrow→Demand for goods and services decreasesdecreasesright arrow→Labor demand shifts rightright. D. ​Long-term interest rates fallfallright arrow→​Short-term interest rates fallfallright arrow→Demand for goods and services increasesincreasesright arrow→Labor demand shifts rightright.

A

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

A

The supply curve for dollars slopes upward because when the dollar_______? A. appreciatesappreciates in​ value, goods from abroad become relatively lessless expensive in the United​ States, causing moremore people to sell​ (supply) dollars to buy the foreign currency. B. appreciatesappreciates in​ value, goods from abroad become relatively lessless expensive in the United​ States, causing fewerfewer people to sell​ (supply) dollars to buy the foreign currency. C. depreciatesdepreciates in​ value, goods from abroad become relatively lessless expensive in the United​ States, causing moremore people to sell​ (supply) dollars to buy the foreign currency. D. appreciatesappreciates in​ value, goods from abroad become relatively moremore expensive in the United​ States, causing fewerfewer people to sell​ (supply) dollars to buy the foreign currency.

A

Which of the following statements correctly describes features/ implications of real business cycle (RBC) theory. -A. It suggests that technological progress is an important determinant of longdash-term fluctuations in growth. Your answer is correct.B. Proponents of RBC theory tend to understate the importance of changing input pricesdash-e.g. the price of oil. C. It suggests that technological regress can easily explain situations in which real GDP​ falls, e.g. the Great Depression. D. It is the school of thought that emphasizes the role of changes in technology and expectations about the future.

A

Which of the following statements is an explanation as to why the government expenditure multiplier might be smaller than 1​ (and even​ 0): A. Government spending​ "crowds out" private spending by raising real interest rates. Your answer is correct.B. Government spending​ "crowds out" private spending by raising real interest rates which shifts labor demand to the right. C. Government spending necessarily displaces private spending​ dollar-for-dollar according to the national income accounting identity. D. Government spending is most likely to​ "crowd out" private spending when the economy is in a deep recession.

A

Which of the following are consequences of an economic expansion when the labor market is already close to full employment? A. The optimism or other factors that originally triggered the boom may get reversed at some point and create negative multiplier effects. B. To increase their popularity during​ elections, policymakers are encouraged to control economic booms in order to limit the potential negative effects. C. The boom is likely to generate a great deal of wage inflation and very little employment and output growth. D. The Phillips curve tradedash-off is favorable when an economy is approaching full employment.

A and C

The investment by foreign countries into the U.S. increases due to a recent change in the economy. Which of the following could have been the possible​ change? A. A rise in the real interest rate. B. An increase in net exports. C. A fall in the real interest rate. D. An increase in investment in foreign countries by the U.S.

A. a rise in the real interest rat

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 asset prices​ and, as a​ consequence, rapid growth in private spending. If spending grows faster than real​ GDP, inflation will occur. B. 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. Your answer is correct.C. 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. D. 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.

B

Examples of transfers to foreigners include__________ A. 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. D. A Chinese oil worker giving a one week training class in Nigeria and bringing his income from the class home.

B & C

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 increase in capital flows adds to the recipient​ country's GDP. C. Technology transfer ultimately improves productivity in the recipient country. Your answer is correct.D. 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 current account is a measure of ______ A. trade flows between countries. B. net assets held by domestic residents. C. payments into and out of the country. D. net foreign direct investment.

C

The demand curve for dollars slopes downward because when the dollar________ A. appreciatesappreciates in​ value, U.S. goods become relatively moremore expensive​ abroad, causing moremore people to buy dollars. B. depreciatesdepreciates in​ value, U.S. goods become relatively moremore expensive​ abroad, causing fewerfewer people to buy dollars. C. appreciates in​ value, U.S. goods become relatively more expensive​ abroad, causing fewer people to buy dollars. D. appreciatesappreciates in​ value, U.S. goods become relatively lessless expensive​ abroad, causing moremore people to buy dollars.

C.

How does the zero lower bound on interest rates affect the working of monetary​ policy? 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. D. All of the above.

D

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

D

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

a & d

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

a payment received for assets owned

If oil, which is a major input to most production processes, abruptly jumps in prince, the impact on the economy would be similar to________

a productivity decrease, with a resultant decrease in real GDP

A multiplier is _________

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

an economic expansion begins________

at the end of a recession

Which of the following statements about current account deficits are correct. (check all that apply) A. A current account deficit is considered abnormal for an economy. B. A U.S. current account deficit enables foreign residents to buy U.S. assets more easily. Your answer is correct.C. If net exports are​ negative, then there is a current account deficit in the economy. D. Incomedash-based payments to foreigners should be greater than incomedash-based payments from foreigners for a current account deficit.

b and d

A variable identified as real is one that is measured _______ dollars.

base-year

The purpose of countercyclical policy is to A. reduce the intensity of economic fluctuations. B. promote greater equity in the distribution of income. C. smooth the growth rates of​ employment, GDP, and prices. D. all of the above. E. A and C are correct.

both a and c

How does a change in a​ country's real exchange rate affect its net​ exports? A. When a​ country's real exchange rate appreciatesappreciates​, it imports moremore and exports lessless​, causing its net exports to riserise. B. When a​ country's real exchange rate appreciatesappreciates​, it imports lessless and exports moremore​, causing its net exports to fallfall. C. When a​ country's real exchange rate appreciatesappreciates​, it imports moremore and exports lessless​, causing its net exports to fallfall. Your answer is correct.D. The real exchange rate does not impact a​ country's net exports.

c.

In general, career choices that individuals make are a consequence of...

comparative advantage

Recessions are periods in which the economy ________, while economic expansions are defined as the periods________

contracts; between recessions

During recessions, firms typically prefer to achieve a reduction in employment by _______. But if this is not sufficient for reducing employment quickly, they would have to_______

cutting back new hiring; engage in mass layoffs

In practice, the risk associated with a negative interest rate are: A. If banks absorb the cost of negative rates​ themselves, that squeezes theie profits and might make them even less willing to lend B. if more and more central banks use negative rates as a stimulus​ tool, there's concern the policy might ultimately lead to a currency war of competitive devaluations. C. If banks make more customers pay to hold their​ money, the amount of bank deposits might go​ down, robbing lenders of a crucial source of funding D. All of the above

d.

Quantitative easing is..... 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. D. all of the above.

d.

countercyclical policy that seeks to reduce GDP growth and the level of employment is appropriate when __________

excessively optimistic sentiments about the economy are prevalent; the economy is experiencing inflation

When central banks increase the money supply and take steps to lower interest rates it is known as_____

expansionary monetary policy

According to the Taylor rule, the Fed should raise the federal funds interest rate when ________

fed's inflation rate target falls, output gap rises, inflation rate rises, fed's long run target for the federal funds rate rises

Which of the following illustrates the concept of a self-fulfilling prophecy?

firms expect an increase in demand in the future and so hire additional workers now, which leads to an increase in consumption demand

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

gifts made to foreigners by domestic residents

If wages were flexible, employment would have been ______ employment with rigid wages

higher than

Contractionary monetary policy leads to a ______ real interest rate. This causes the economy to ______ along the downward sloping line summarizing the relationship between the real interest rates and net exports. The change in the real interest rate also brings about an ______ in the real exchange rate. In equilibrium, net exports_______.

higher; move up; an increase; decline

While economic booms are generally positive, they also have a dark side. This is because__________

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 demand, causing a recession rather than a gentle fall to pre-boom levels

The fall in housing prices resulted in _______, leading to enormous __________, disrupting the banks ability and willingness to make loans to _________

increased defaults; bank losses; consumers and firms

Okun's Law .....

is usually an accurate representation of the data

What is a mortgage backed security?

it is a bond backed by several mortgages pooled together

According to the concept of persistence in the rate of growth, if the economy contracts this quarter it will__________

likely contract next quarter

What are these examples of ? - 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 - 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

multiplier

The average number of initial applications for unemployment insurances is likely to be ______ with real GDP -positively, negatively or uncorrelated

negatively

What is a NINA loan

no income no asset loan

The national income identity shows that______

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

The ​Evidence-Based Economics in the chapter identifies three key factors that caused the recession of 2007dash-2009. How would​ Keynes's concept of animal spirits explain the creation of a housing​ bubble?

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

When it comes to monitoring inflation, the federal reserve watches the :

personal consumption expenditure deflator

When workers are laid off, what happens to physical capital?

physical capital becomes less productive, leading firms to reduce capacity utilization

Consumer sentiment is likely to be ______ with real GDP -positively, negatively or uncorrelated

positively

The S&P 500 stock index is likely to be ______ with real GDP --positively, negatively or uncorrelated

positively

The amount of new building permits for residential buildings is likely to be ____________ with real GDP. -positively, negatively or uncorrelated

positively

The amount of new orders for capital goods unrelated to defense is likely to be _________ with real GDP. -positively, negatively or uncorrelated

positively

The average weekly hours worked by manufacturing workers is likely to be ________ with real GDP - positively, negatively or uncorrelated

positively

Comparative advantage is the ability to..?

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

lower interest rates can also

push prices higher

Suppose the Fed conducts an open market purchasepurchase. Such an action would be called for if the economy faced the possibility of______

recession

In theory, interest rates below zero should..

reduce borrowing costs for companies and households

Economic fluctuations are

short-run changes in the growth of GDP

Negative interest rate_____

signal that traditional monetary policy options have proven ineffective

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

smaler than

lowering interest rates is a common monetary policy tool used to:

stimulate economic growth

The fed's open market purchase impacts the federal funds market shown on the right by shifting the ________ reserves

supply of

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

technology changes

According to Keynes's view on animal spirits,________

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

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

the larger increase in the price of housing assets did not reflect the true long-run value of assets

One major difference between modeling economic busts and booms is that?

there is no issue of rigid nominal wages when modeling booms

In the United States, recessions are usually defined as__________

two consecutive quarters of negative growth in real gdp

Okuns law states that.....

when growth in real GDP is below 2%, unemployment drops and when it is below 2% , unemployment increases