Macro Final

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

decrease

An increase in the price level results in a(n) ____ in the quantity of real GDP demanded because ____

decrease/a higher price level reduces consumption, investment, and net exports

Ariel is a Canadian citizen who works in Montreal, Canada and owns a winter home in Palm Beach, Florida. When Ariel spends the winters in Palm Beach, an increase in the value of the Canadian dollar relative to the US dollar should

help Ariel as each Canadian dollar of her salary is now worth more US dollars

International trade

helps consumers but hurts firms that are less efficient than their foreign competitors

Not a way for a country to promote long-run economic growth

imposing stricter regulations to limit foreign direct investment

Inflation tends to _____ during the expansion phase of the business cycle and _____ during the recession phase of the business cycle

increase/decrease

If a person withdraws $500 from their savings account and puts it in their checking account, then M1 will ____ and M2 will _____

increase/not change

When the government runs a budget deficit, we would expect to see that

investments will fall

A supply curve

is a curve that shows the relationship between the price of a product and the quantity of the product supplied

Under a floating exchange rate, the exchange rate

is determined by the interaction of supply of the currency and demand for the currency

Suppose the required reserve ratio is 20%. If banks are conservative and choose not to loan all of their excess reserves, the real-world deposit multiplier is

less than 5

Contractionary monetary policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ____ and real GDP to be ____

lower/lower

Contributes to the efficiency of markets

markets promote competition and voluntary exchange

An increase in government purchases of $200 billion will shift the aggregate demand curve to the right by

more than $200 billion

According to the saving and investment equation, if net foreign investment rises by $60 million

national saving will increase by $60 million

An example of an active fiscal policy

a tax cut designed to stimulate spending passed during a recession

Not an assumption made by the dynamic model of aggregate demand and aggregate and supply

aggregate demand and potential real GDP decrease continuously

Money is

an asset that people are willing to accept in exchange for goods and services

_____ a nation's production possibilities frontier represents economic growth

an outward shift of

Lack of investment in strong education and health care systems

causes a deterioration in human capital and a decline in labor productivity

Economics is the study of the _______ people make to attain their goals, given their ______ resources.

choices/scarce

A country with no trade and no borrowing and lending relationships with other countries is known as a(n)

closed economy

Not an advantage to a country of choosing to fix its exchange rate against a major currency, rather than choosing a floating exchange rate

pegging allows the country more flexibility in conducting monetary policy

Households

purchase final goods and services in the product market

The GDP deflator is the

ratio of nominal GDP to real GDP multiplied by 100

An assumption economists make about human behavior

rational behavior is useful in explaining choices people make even though people may not behave rationally all the time

Because of the productivity slowdown in the United States from the mid-1970s through the mid-1990s

real GDP per capita grew more slowly

Reducing the marginal tax rate on income will

reduce the tax wedge faced by workers and increase labor supplied

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

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

The drawback to calculating real GDP using base-year prices if that

relative prices change over time and these changes are not reflected in base-year, and this distorts GDP

According to the ____ Phillips curve, the unemployment rate and the inflation rate are negatively related

short-run

The automatic budget surpluses and budget deficits that occur in the federal budget over the business cycle

stabilize the economy

If rapid increases in oil prices caused price levels to increase and real GDP to decrease in the short run, the economy would experience

stagflation

The loanable funds market is in equilibrium. As a result of an increase in the government budget deficit, the ____ for loanable funds will ____, thereby _____ the equilibrium real interest rate and _____ the equilibrium quantity of loanable funds

supply/fall/increasing/decreasing

What two factors are the keys to determining labor productivity?

technology and the quantity of capital per hour worked

If actual inflation is less than expected inflation, what is the relationship between the actual real wage and the expected real wage

the actual real wage is higher than the expected real wage

A negative supply shock in the short run causes

the aggregate supply curve to shift to the left

In september, buyers of silver expect that the price of silver will rise in october. What happens in the silver market in September, holding all else constant?

the demand curve shifts to the right

When the market value of the dollar rises relative to other currencies around the world, we say that

the dollar has appreciated

How would an increase in the US federal budget deficit affect the exchange rate in the market for dollars?

the exchange rate will increase

Suppose the government launches a successful advertising campaign that convinces workers with high school degrees to quit their jobs and become full time college students. This would cause

the labor force participation rate to decrease

Monetary policy refers to the actions the Federal Reserve takes to manage

the money supply and interest rates to pursue its economic obectives

A monetary growth rule means that

the money supply should grow at a constant rate

The real rate of interest is

the nominal interest rate minus the inflation rate

_______ shows that if all resources are fully and efficiently utilized, more of one good can be produced only by producing less of another good

the production possibilities frontier model

The main result of the monetarist model is that

the quantity of money should be increased at a constant rate

Workers and firms both expect that prices will be 2.5% higher next year than they are this year. As a result,

the short-run aggregate supply curve will shift to the left as wages increase

If interest rates in the US rise

the value of the dollar will rise as the foreign investors increase their holdings of US investments

What causes the unemployment rate as measured by the Bureau of Labor Statistics to overstate the true extent of joblessness

unemployed persons falsely report themselves to be actively looking for a job

If Norwegian workers are more productive than Albanian workers, then trade between Norway and Albania

will take place so long as each country has a comparative advantage in a good or service that buyers in the other country want

According to the quantity theory of money, if the money supply grows at 20% and real GDP grows at 5%, then the inflation rate will be

15%

What actions could the Federal Reserve take to achieve consistent growth in real GDP at 4 percent per year

The Fed has no direct control over real GDP in the long run, so there are no actions it could take to achieve the goal

Formula for unemployment rate

[unemployment/labor force(unemployment+employment)]x100

How can freedom of the press promote economic growth?

a free press can act as a watchdog for corruption, increasing chances for economic growth

The labor force equals the number of people

employed plus unemployed

In the circular flow model, the value of total income for an economy ____ the value of total production

equals

What type of goods are directly counted in GDP

finished products ready for consumption