Econ Mid 3

Using the equation of exchange, if velocity is stable in the long run, the inflation rate, (%∆P) can be expressed as

%∆P = %∆M - %∆Y

16) Referring again to the graph above. At which point is the actual rate of unemployment equal to the natural rate of unemployment? A) A B) B C) C D) all of the above

A) A

16) Referring again to the graph above. At which point is the unemployment rate equal to the natural rate of unemployment? A) A B) B C) C D) There is insufficient information on the graph to answer this question.

A) A

9) Referring to the graph above. Suppose the economy is in short-run equilibrium below potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibrium. Using the static AD-AS model in the figure above, this would be depicted as a movement from A) A to B. B) B to C. C) C to B. D) B to A. E) A to E.

A) A to B.

22) If the United States has a current account deficit and the capital account is zero, which of the following must be true? A) The balance on the financial account must equal the balance on the current account. B) Net foreign investment must be negative as well. C) Domestic private saving must be less than net foreign investment. D) Domestic public saving must be less than net foreign investment.

B) Net foreign investment must be negative as well.

2) Using the money demand and money supply model, an open market sale of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to A) increase. B) decrease. C) not change. D) increase, then decrease.

A) increase.

18) An open economy is an economy that has A) interactions in trade or finance with other economies. B) its own stock market. C) governmental regulations regarding public information that is included in corporate finance reports. D) governmental regulations regarding the number of hours retail establishments must remain open on a daily basis.

A) interactions in trade or finance with other economies.

3.In the figure above, if the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to A) lower interest rates. B) raise interest rates. C) lower income taxes. D) raise income taxes.

A) lower interest rates.

4) In the figure above, if the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to A) lower interest rates. B) raise interest rates. C) lower income taxes. D) raise income taxes.

A) lower interest rates.

19) Which of the following would result in a trade deficit for the United States? A) Exports of goods = $450 billion Imports of goods = $400 billion Exports of services = $200 billion Imports of services = $250 billion B) Exports of goods = $450 billion Imports of goods = $450 billion Exports of services = $200 billion Imports of services = $250 billion C) Exports of goods = $450 billion Imports of goods = $460 billion Exports of services = $200 billion Imports of services = $100 billion D) Exports of goods = $450 billion Imports of goods = $490 billion Exports of services = $200 billion Imports of services = $100 billion

B

27) The inflation rate target has traditionally been __________, but central banks are now considering going above the target, according to recent reports. A) 1% B) 2% C) 5% D) 0% Extra credit

B) 2%

14) Alejandro expects the price level to rise from 105 this year to 108 next year. If the price level rises to 110 next year instead of 108, which of the following will occur? A) Alejandro's real wage remains unchanged. B) Alejandro's real wage falls. C) Alejandro's real wage rises. D) Alejandro's real wage may rise or fall, depending on the unemployment rate.

B) Alejandro's real wage falls.

9) Suppose the economy is in short-run equilibrium above potential GDP and wages and prices are rising. If contractionary policy is used to move the economy back to long run equilibrium, this would be depicted as a movement from ________ using the static AD-AS model in the figure above. A) D to C B) C to B C) A to E D) B to A E) E to A

B) C to B

22) How does an increase in the budget deficit affect the demand for dollars on the foreign exchange market? A) The demand for dollars falls. B) The demand for dollars rises. C) The budget deficit has no impact on the foreign exchange market. D) There will be movement along the demand curve to a lower quantity demanded.

B) The demand for dollars rises.

21) How will contractionary monetary policy in Japan affect the demand and supply of the Japanese yen in the foreign exchange market? A) The demand for the yen will fall, and the supply of the yen will increase. B) The demand for the yen will increase, and the supply of the yen will fall. C) The demand for the yen will fall, and the supply of the yen will fall. D) The demand for the yen will increase, and the supply of the yen will increase.

B) The demand for the yen will increase, and the supply of the yen will fall.

5) Contractionary monetary policy on the part of the Fed results in A) an increase in the money supply, an increase in interest rates, and an increase in GDP. B) a decrease in the money supply, an increase in interest rates, and a decrease in GDP. C) an increase in the money supply, a decrease in interest rates, and an increase in GDP. D) a decrease in the money supply, a decrease in interest rates, and a decrease in GDP.

B) a decrease in the money supply, an increase in interest rates, and a decrease in GDP.

13) According to the short-run Phillips curve, if unemployment is 3.2% and inflation is 1.3%, an increase in the inflation rate might result in which of the following? A) an increase in the unemployment rate to 3.4% B) a decrease in the unemployment rate to 3.0% C) a decrease in the demand for labor in the economy D) a return to the original inflation rate of 1.3%

B) a decrease in the unemployment rate to 3.0%

17) Deflation refers to A) a decrease in the rate of inflation. B) a falling price level. C) Both A and B are correct. D) None of the above is correct.

B) a falling price level.

10) To combat a recession with discretionary fiscal policy, Congress and the president should A) decrease government spending to balance the budget. B) decrease taxes to increase consumer disposable income. C) lower interest rates and increase investment by increasing the money supply. D) raise taxes on interest and dividends, but not on personal income.

B) decrease taxes to increase consumer disposable income.

2) Using the money demand and money supply model, an open market purchase of Treasury securities by the Federal Reserve would cause the equilibrium interest rate to A) increase. B) decrease. C) not change. D) increase if the economy is in a recession.

B) decrease.

5.If the Fed lowers its target for the federal funds rate, this indicates that A) the Fed is pursuing an expansionary monetary policy. B) the Fed is pursuing a contractionary monetary policy. C) the Fed is attempting to combat inflation. D) the Fed is concerned that the growth in aggregate demand will exceed potential GDP.

B) federal taxes and purchases that are intended to achieve macroeconomic policy objectives.

17) If expected inflation falls, the long-run Phillips curve will A) shift to the right. B) not be affected. C) shift to the left. D) become negatively sloped.

B) not be affected.

6) In the figure above, if the economy is at point A, the appropriate monetary policy by the Federal Reserve would be to A) lower interest rates. B) raise interest rates. C) lower income taxes. D) raise income taxes.

B) raise interest rates.

3) The ability of the Federal Reserve to use monetary policy to affect economic variables such as real GDP ultimately depends upon its ability to affect A) tax rates. B) real interest rates. C) nominal inflation rates. D) foreign exchange rates.

B) real interest rates.

14) If actual inflation is greater than expected inflation, A) real wages rise. B) real wages fall. C) the Phillips curve is a vertical line. D) the unemployment rate rises.

B) real wages fall.

13) The curve showing the short-run relationship between the unemployment rate and the inflation rate is called A) the monetary policy curve. B) the Phillips curve. C) the Sargent curve. D) the unemployment curve.

B) the Phillips curve.

12) For the federal deficit to be lowered, A) the federal government must decrease its spending and increase net exports. B) the federal government's expenditures must be lower than its tax revenue. C) the Federal Reserve must raise interest rates and lower the required reserve ratio. D) the Federal Reserve must reduce the money supply.

B) the federal government's expenditures must be lower than its tax revenue.

1) Monetary policy refers to the actions the Federal Reserve takes to manage A) the money supply and income tax rates to pursue its economic objectives. B) the money supply and interest rates to pursue its economic objectives. C) income tax rates and interest rates to pursue its economic objectives. D) government spending and income tax rates to pursue its economic objectives

B) the money supply and interest rates to pursue its economic objectives.

22) If national saving increases, ________. (Assume that the capital account is zero and net transfers are zero.) A) the sum of domestic investment and net exports must decrease B) the sum of domestic investment and foreign investment must increase C) the sum of domestic investment and foreign investment must decrease D) foreign investment must decrease to cover the gain

B) the sum of domestic investment and foreign investment must increase

27) If interest rates in the United States rise, A) the value of the dollar will fall as foreign investors sell their U.S. investments. B) the value of the dollar will rise as the foreign investors increase their holdings of U.S. investments. C) the value of the dollar will fall as foreign investors increase their holdings of U.S. investments. D) the value of the dollar will rise as foreign investors sell their U.S. investments.

B) the value of the dollar will rise as the foreign investors increase their holdings of U.S. investments.

27) What is one of the current factors mentioned in class that might work against global economic growth? A. Increased sales of semiconductors B. China's debt burden C. Loosening monetary policy by central banks in the U.S. and EU D. High unemployment in developed countries such as the U.S.

B. China's debt burden

20) If the dollar appreciates against the Mexican peso, A) Mexican imports to the U.S. become more expensive. B) U.S. exports to Mexico become less expensive. C) U.S. exports to Mexico become more expensive. D) The value of Mexican imports to the United States does not change.

C) U.S. exports to Mexico become more expensive.

18) When individuals use ________ about an economic variable to make a decision, expectations are rational. A) only historical information B) only information announced by the Fed C) all available information D) only information garnered in the private sector

C) all available information

12) An economic expansion tends to cause the federal budget deficit to ________ because tax revenues ________ and government spending on transfer payments ________. A) increase; rise; falls B) increase; fall; rises C) decrease; rise; falls D) decrease; fall; rises

C) decrease; rise; falls

10) Poorly timed discretionary policy can do more harm than good. Getting the timing right with fiscal policy is generally A) less difficult than with monetary policy. B) far less difficult than with monetary policy. C) more difficult than with monetary policy. D) about the same difficulty as with monetary policy.

C) more difficult than with monetary policy.

11) Poorly timed discretionary policy can do more harm than good. Getting the timing right with fiscal policy is generally A) less difficult than with monetary policy. B) far less difficult than with monetary policy. C) more difficult than with monetary policy. D) about the same difficulty as with monetary policy

C) more difficult than with monetary policy.

24) When the value of a currency is determined ________, the exchange rate system is defined as managed float. A) only by supply and demand B) by its issuing government C) mostly by supply and demand, but with occasional government intervention D) by its issuing government, with occasional readjustments in value

C) mostly by supply and demand, but with occasional government intervention

23) Monetary policy has a ________ effect on aggregate demand in a(n) ________ economy, and fiscal policy has a ________ effect on aggregate demand in a(n) ________ economy. A) weaker; open; weaker; open B) weaker; closed; weaker; closed C) stronger; open; weaker; open D) stronger; closed; weaker; open

C) stronger; open; weaker; open

19) The balance of trade is defined as A) the difference between the balance of the current account and the balance of the capital account. B) the difference between the value of the goods and services a country exports and the value of the goods and services a country imports. C) the difference between the value of the goods a country exports and the value of the goods a country imports. D) the difference between the balance of the current account and the balance of the financial account.

C) the difference between the value of the goods a country exports and the value of the goods a country imports.

15) Refer to the above figure. Suppose the economy is at point A in the figure above. Which of the following is true? A) The short-run Phillips curve will shift to the right. B) The short-run Phillips curve will shift to the left. C) The long-run Phillips curve will shift to the left. D) Actual inflation and expected inflation are the same. E) The long-run Phillips curve will shift to the right.

D) Actual inflation and expected inflation are the same.

15) Suppose the economy is at point A in the figure above. Which of the following is true? A) The short-run Phillips curve will shift to the right. B) The short-run Phillips curve will shift to the left. C) The long-run Phillips curve will shift to the left. D) Actual inflation and expected inflation are the same. E) The long-run Phillips curve will shift to the right.

D) Actual inflation and expected inflation are the same.

7) Refer to the figure above. An increase in taxes would be depicted as a movement from ________, using the static AD-AS model in the figure above. A) E to B B) B to C C) A to B D) B to A E) C to D

D) B to A

25) In the sequence of events shown in the documentary on the meltdown of the financial sector, the government stepped in to try to save _____________________ at first, and then proceeded to let ______________________ fail. A) AIG; Lehman Brothers B) Bear Stearns; Fannie Mae C) Fannie Mae; Freddie Mac D) Bear Stearns; Lehman Brothers

D) Bear Stearns; Lehman Brothers

7) Which of the following would be classified as fiscal policy? A) The federal government passes tax cuts to encourage firms to reduce air pollution. B) The Federal Reserve cuts interest rates to stimulate the economy. C) A state government cuts taxes to help the economy of the state. D) The federal government cuts taxes to stimulate the economy. E) States increase taxes to fund education.

D) The federal government cuts taxes to stimulate the economy.

13) According to the short-run Phillips curve, which of the following would result in low rates of unemployment? A) weak increases in aggregate supply B) a lower inflation rate C) weak increases in aggregate demand D) a higher inflation rate

D) a higher inflation rate

26) Purchasing power parity is the theory that, in the long run, exchange rates should be at a level such that equivalent amounts of any country's currency A) will equalize nominal interest rates across countries. B) are valued inversely relative to the size of its GDP. C) should earn the same real rate of return. D) allow one to buy the same amount of goods and services.

D) allow one to buy the same amount of goods and services.

7) Which of the following is an objective of fiscal policy? A) energy independence from Middle East oil B) health care coverage for all Americans C) discovering a cure for AIDs D) high rates of economic growth

D) high rates of economic growth

23) If the Fed pursues an expansionary monetary policy, assuming no crowding out, investment in the United States will ________ and net exports will ________. A decrease; decrease B) decrease; increase C) increase; decrease D) increase; increase

D) increase; increase

3) If the Fed raises the interest rate, this will ________ inflation and ________ real GDP in the short run. A) reduce; raise B) increase; lower C) increase; raise D) reduce; lower

D) reduce; lower

Which of the following would be classified as fiscal policy?

The federal government cuts taxes to stimulate the economy

Suppose an economy is operating with an inflationary gap. In this case, policymakers would seek to move the economy

back down the Phillips curve toward an unemployment rate that is closer to the natural rate of unemployment.,

The balance between spending flows into a country and spending flows out of that country is called a country's

balance of payments,

When the Fed lowers the target rate of interest for federal funds, it

buys government bonds.,

As discussed in the Week 10 article, non-interest bearing accounts had other features that created an incentive for corporate customers to keep their money in the account, such as:

credits to cover fees on other bank products,

Government tax and expenditure policies that affect real GDP are called

fiscal policy,

An exchange rate system in which governments and central banks do not participate in the currency market is a(n)

free-floating exchange rate system

If actual inflation is less than expected inflation, actual real wages will be ________ expected real wages and unemployment will ________.

greater than; rise,

Which of the following result from a change in the money supply brought about by an open market sale?

higher interest rate, decreased demand for investment,

An increase in the interest rate

increases the opportunity cost of holding money

Expansionary fiscal policy ________ the price level and ________ equilibrium real GDP.

increases; increases,

The current account

keeps track of all spending flows on imports and exports of goods and services

Poorly timed discretionary policy can do more harm than good. Getting the timing right with fiscal policy is generally

more difficult than with monetary policy,

The money demand curve, with the interest rate on the vertical axis, has a

negative slope,

According to the short-run Phillips curve, the unemployment rate and the inflation rate are

negatively related

A period marked by rising unemployment and high inflation is called a

stagflation phase

What are the two policy making bodies of the Federal Reserve?

the Board of Governors and the Federal Open Market Committee,

Recognition lags in fiscal policy stem largely from

the difficulty of collecting economic data in a timely and accurate fashion.,

Each point on a Phillips curve is a different combination of

the inflation rate and the unemployment rate.,

At the point where actual inflation is equal to expected inflation

the short-run Phillips curve intersects the long-run Phillips curve

If workers and firms raise their inflation expectations,

the short-run Phillips curve will shift upward

6) If the Fed pursues expansionary monetary policy then A) the money supply will decrease, interest rates will rise and GDP will fall. B) the money supply will decrease, interest rates will fall and GDP will fall. C) the money supply will increase, interest rates will rise and GDP will rise. D) the money supply will increase, interest rates will fall and GDP will rise

D) the money supply will increase, interest rates will fall and GDP will rise.

19) The balance of payments includes all of the following accounts except A) the current account. B) the financial account. C) the capital account. D) the national debt account.

D) the national debt account.

17) If the long-run aggregate supply curve is vertical, A) the economy stays at the natural rate of inflation in the long run. B) the short-run Phillips curve must be vertical. C) unemployment and inflation are positively related in the long run. D) the trade-off between unemployment and inflation cannot be permanent.

D) the trade-off between unemployment and inflation cannot be permanent.

According to the short-run Phillips curve, which of the following would result in low rates of unemployment?

a higher inflation rate,

28) Which of the following explains why purchasing power parity does not completely explain long-run fluctuations in exchange rates? A) Some goods and services produced in any country are not traded internationally. B) Consumer preferences for goods and services across countries are very similar. C) Most countries do not impose barriers to trade. D) Most countries have free markets with little, if any, government regulation.

A) Some goods and services produced in any country are not traded internationally.

14) Refer to the above figure. Suppose the economy is at point B in the figure above. Which of the following is true? A) The expected rate of inflation is 3%. B) The natural rate of unemployment is 3.8%. C) The current unemployment rate is 5%. D) The economy is producing at potential GDP. E) Expected inflation and actual inflation are the same.

A) The expected rate of inflation is 3%.

12) If the federal government's expenditures are less than its tax revenues, then A) a budget surplus results. B) a budget deficit results. C) the budget is balanced. D) No conclusion can be drawn here regarding the budget surplus or deficit without information regarding government purchases versus other outlays.

A) a budget surplus results.

8 The increase in the amount that the government collects in taxes when the economy expands and the decrease in the amount that the government collects in taxes when the economy goes into a recession is an example of A) automatic stabilizers. B) discretionary fiscal policy. C) discretionary monetary policy. D) automatic monetary policy.

A) automatic stabilizers.

8) The increase in government spending on unemployment insurance payments to workers who lose their jobs during a recession and the decrease in government spending on unemployment insurance payments to workers during an expansion is an example of A) automatic stabilizers. B) discretionary fiscal policy. C) discretionary monetary policy. D) automatic monetary policy.

A) automatic stabilizers.

10) Tax increases on business income decrease aggregate demand by decreasing A) business investment spending. B) consumption spending. C) government spending. D) wage rates.

A) business investment spending.

8) Which of the following would be most likely to induce Congress and the president to conduct expansionary fiscal policy? A significant A) decrease in investment spending. B) decrease in oil prices. C) increase in consumption spending. D) increase in net exports.

A) decrease in investment spending.

4) From an initial long-run macroeconomic equilibrium, if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply, then the Federal Reserve would most likely A) decrease interest rates. B) increase interest rates. C) decrease income tax rates. D) increase income tax rates.

A) decrease interest rates.

4.In the dynamic AD-AS model above, if the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues no policy, then at point B A) firms are producing above capacity. B) there is pressure on wages and prices to fall. C) the unemployment rate is greater than the natural rate of unemployment. D) incomes and profits are falling.

A) firms are producing above capacity.

24) If a country's currency is determined only by the demand and supply for that country's currency, the country is said to have a A) floating exchange rate. B) fixed exchange rate. C) gold standard. D) managed float.

A) floating exchange rate.

5) Your roommate is having trouble grasping how monetary policy works. Which of the following explanations could you use to correctly describe the mechanism by which the Fed can affect the economy through monetary policy? Increasing the money supply A) lowers the interest rate, and firms increase investment spending. B) causes people to spend more because they know prices will rise in the future. C) raises the interest rate and consumers decrease spending on durable goods. D) lowers the interest rate, raises the value of the dollar, lowers the prices of exports, and raises net exports.

A) lowers the interest rate, and firms increase investment spending.

11) As the tax wedge associated with a given economic activity gets smaller, we would expect A) more of that economic activity to occur. B) the distortions caused by taxes on that activity to be greater. C) people to engage in less of that particular activity. D) no change in the practice of that activity until the tax wedge ultimately disappears.

A) more of that economic activity to occur.

9) Economists refer to the series of additional increases in consumption spending that result from an initial increase in government expenditures as the ________ effect. A) multiplier B) expenditure C) consumption D) aggregate demand

A) multiplier

25) In the United States today, how much gold will the Federal Reserve give you in exchange for $1? A) none B) $1 worth of gold (based on the market price of an ounce of gold at the time you redeem the gold) C) 1 ounce of gold D) 1/35th of an ounce of gold

A) none

24) When the value of a currency is determined ________, the exchange rate system is defined as a floating exchange rate system. A) only by supply and demand B) by its issuing government C) mostly by supply and demand, but with occasional government intervention D) by its issuing government, with occasional readjustments in value

A) only by supply and demand

23) Suppose the Fed pursues a policy that leads to higher interest rates in the United States. How will this policy affect real GDP in the short run if the United States is an open economy? This policy A) reduces investment spending, consumption spending and net exports, all of which reduce GDP. B) reduces investment spending and consumption spending, both of which reduce GDP. Net exports rise which increases GDP. C) reduces investment spending and consumption spending, both of which reduce GDP. Net exports fall which increases GDP. D) increases investment spending, consumption spending, and net exports, all of which increase GDP.

A) reduces investment spending, consumption spending and net exports, all of which reduce GDP.

25) In the sequence of events shown in the documentary on the meltdown of the financial sector, the government was first concerned with _________, and ultimately their concern for ________________ prevailed. A) systemic risk; moral hazard B) principle-agent problem; systemic risk C) moral hazard; systemic risk D) moral hazard; insider trading

A) systemic risk; moral hazard

20) When the market value of the dollar rises relative to other currencies around the world, we say that A) the dollar has appreciated. B) the dollar has depreciated. C) the demand for dollars has increased. D) the supply of dollars has increased.

A) the dollar has appreciated.

20) When the market value of the dollar rises relative to other currencies around the world, we say that A) the dollar has appreciated. B) the dollar has depreciated. C) the demand for dollars has increased. D) the supply of dollars has increased.

A) the dollar has appreciated.

15) Referring to the graph above. Suppose the Fed used expansionary policy to push short-run equilibrium to point B. If the short-run equilibrium remained at point B long enough, A) the short-run Phillips curve would shift up. B) the short-run Phillips curve would shift down. C) the economy would move back to point A. D) the economy would stay at point B in the long run.

A) the short-run Phillips curve would shift up.

26) The tax cuts proposed by President Trump make sense if: A. the economy is in an expansion. B. you believe in supply side economics. C. the cuts go to the richest. D. they don't make sense under any circumstances.

B. you believe in supply side economics.

Which of the following is an advantage of automatic stabilizers?

Because they affect disposable personal income directly, automatic stabilizers act swiftly to reduce the degree of changes in real GDP.,

The notion that there is a tradeoff between inflation and unemployment is expressed as a

Phillips curve

11) The use of fiscal policy to stabilize the economy is limited because A) changes in government spending and tax rates have a small effect on aggregate demand. B) changes in government spending and tax rates have a small effect on interest rates. C) the legislative process can be slow, which means that it is difficult to make fiscal policy actions in a timely way. D) the Internal Revenue Service (IRS) resists changes in tax rates because of all the changes they would have to make to the tax code.

C) the legislative process can be slow, which means that it is difficult to make fiscal policy actions in a timely way.

21) If national saving decreases, A) the sum of domestic investment and net exports must increase. B) the sum of domestic investment and foreign investment must increase. C) the sum of domestic investment and foreign investment must decrease. D) foreign investment must increase to cover the loss.

C) the sum of domestic investment and foreign investment must decrease.

21) When Americans increase their demand for Japanese goods, A) the demand for dollars will rise, and the demand for yen will rise. B) the demand for dollars will fall, and the demand for yen will fall. C) the supply of dollars will rise, and the demand for yen will rise. D) the supply of dollars will fall, and the demand for yen will fall.

C) the supply of dollars will rise, and the demand for yen will rise.

If Canada has a financial account deficit, it means that

Canadian residents purchase more foreign assets than foreigners purchase Canada's assets

Monetary policy refers to the actions the A) President and Congress take to manage the money supply and interest rates to pursue their economic objectives. B) Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives. C) President and Congress take to manage government spending and taxes to pursue their economic objectives. D) Federal Reserve takes to manage government spending and taxes to pursue its economic objectives.

Federal Reserve takes to manage the money supply and interest rates to pursue its macroeconomic policy objectives.

Which of the following affects the quantity of U.S. dollars demanded in the currency market?

Foreign purchases of U.S. goods and services

Which of the following is possible with international trade?

I. Countries that engage in trade can consume at a point outside their respective production possibilities curves. II. Global production will be increased. III. World resources will be used more efficiently.

Which of the following are monetary policy goals？ I. maintain high interest rates II. keep unemployment rates low III. reduce the size of the banking sector IV. prevent high rates of inflation

II. keep unemployment rates low IV. prevent high rates of inflation

When the Fed sells bonds in the open market, we can expect interest rates to rise. the inflation rate to rise interest rates to fall.. the nominal interest rate to fall, but the real interest rate to rise., No Answer

Interest rate to rise

What is an automatic stabilizer?

It refers to any government program that tends to reduce fluctuations in GDP automatically.

The interest rate that banks charge other banks for overnight loans is the

federal funds rate

In the short run, an increase in net exports causes

an increase in real GDP and the price level.,

Refer to the figure above. If real GDP is equal to Yr, there is

an inflationary gap

From an initial long-run equilibrium, if aggregate demand grows faster than long-run and short-run aggregate supply, then Congress and the president would most likely

decrease government spending.

From an initial long-run macroeconomic equilibrium, if the Federal Reserve anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply, then the Federal Reserve would most likely

decrease interest rates

An increase in individual income taxes ________ disposable income, which ________ consumption spending.

decreases; decreases

A lower price level in the United States.

encourages U.S. exports and reduces U.S. imports.

Net exports equal

exports − imports (NX= X-M)

16) When individuals use all available information about an economic variable to make a decision, expectations are A) underestimates of reality. B) accurate. C) rational. D) overestimates of reality.

rational

If the Fed raises the interest rate, this will ________ inflation and ________ real GDP in the short run. A) reduce; raise B) increase; lower C) increase; raise D) reduce; lower

reduce; lower

As the incomes in foreign nations rise, their imports from the United States will

rise