ECON Review 3
A country purchases $3 billion of foreign-produced goods and services and sells $2 billion of domestically produced goods and services to foreign countries. It has exports of
2 billion and a 1 billion deficit
The nominal interest rate is 5% and the inflation rate is 2%. What is the real interest rate?
3 percent
if M= 2,000, P=2.25, Y=6000 what is velocity
6.75 (PY/M)
What is an example of U.S foreign portfolio investment?
A US citizen buys bonds issued by the British Government
An open economy's GDP can be expressed by
Y = C + I + G + NX
What is an example of U.S foreign direct involvement?
a US company opens an auto parts factory in Canada
What would shift the long run aggregate supply curve to the 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 the money supply or in terms of the interest rate
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 exports
An increase In household savings 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
What is the crowding out effect?
increase in government expenses increases the interest rate and so reduces investment spending
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
When the price level falls, the number of dollars needed to buy a represenative basket of goods
increases, so the value of money rises
Net Capital outflow is
is always equal to net exports
The cost of changing price tags and price listing are known as
menu costs
Inflation can be measured by
percent change in the consumer price index
An increase in the money supply will
reduce interest rates, increasing investment and aggregate demand.
Using the liquidity preference model, when the federal reserve decreases the money supply
the equilibrium interest rate increases
According to the classical dichotomy, which of the following increases when the money supply increases?
the nominal wage
Which of the following is not a determinant of the long run level of real GDP
the price level
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