MACRO FINAL
The concept of purchasing power parity implies that the:
Big Mac should cost about the same in all countries.
Adaptive Expectations theory:
Describes the assumption that people are backward-looking.
Rational Expectations theory:
Describes the assumption that people are forward-looking.
The twin goals of monetary policy are:
Economic growth with low unemployment and stable prices with moderate long-term interest rates.
Collateralized debt obligations
Financial instruments backed by a collection of mortgages
Which statement about inflation targeting is true?
If the FED pursues an inflation target, it increases the money supply when the actual inflation rate is below the target inflation rate.
If the dollar depreciates relative to the yuan, then American exports to China will:
Increase
One of the problems with deflation is that it:
Increases the real value of existing debt.
The short-run Phillips curve holds _____ constant.
Inflationary expectations
A credit default swap:
Is the same as insurance against a default.
A Leveraged Account:
Magnifies both gains and losses
In a Liquidity Trap:
Monetary policy is ineffective in changing income and output.
The Phillips curve tradeoff worsened in the 1970s because of:
Oil Shocks
What occurs during a negative demand shock?
Output and price level decrease.
In a jobless recovery:
Output begins to rise but employment growth does not.
Stagflation
Simultaneous rising of inflation and rising of unemployment
Capital Account
Summarizes the flow of money into and out of domestic and foreign assets.
The Taylor Rule:
Targets the federal funds rate
The phenomenon that interest rates may be so low that increases in the money supply will have no impact on aggregate demand is called:
The Liquidity Trap
The stagflation of the 1960s and 1970s showed policymakers that:
The Phillips curve could shift over time.
The Taylor rule suggests that:
The federal funds target rate should be equal to 2% + the inflation rate + one-half the inflation gap + one-half the output gap.
Phillips Curve
The graph that shows the tradeoff between inflation and money wages.
Money Illusion
The misperception that one is wealthier; occurs when money supply grows.
Monetary policy deals with how:
The money supply is controlled to target interest rates.
Nominal Exchange Rate
The price of one country's currency for another's.
Which of these was NOT a factor leading to the financial crisis of 2007-2009?
The public lacked faith in the ability of the U.S Treasury to pay government bonds.
The difference between the nominal and real exchange rates is that:
The real exchange rate takes relative purchasing power into account, while the nominal rate does not.
The Long-run Phillips curve shows:
The relationship between inflation and unemployment when the actual inflation rate and the expected inflation rate are equal.
Adaptive Expectations Theory
The use of past rates of inflation ONLY to form expectations of inflation.
______ on credit by households and _______ interest rates set in motion the events that led to the 2007-2009 financial crisis.
Underspending; low
Currency Depreciation
When the value of a currency falls relative to other currencies.
Foreign aid transfers are part of the _____ account.
current
If American farmers sell corn to a Russian grain dealer, then the ____account is _____.
current; credited
The balance of trade is:
exports of goods and services minus imports of goods and services
If the economy is facing inflationary pressures, the Federal Reserve will:
raise interest rates.