Macroeconomics final review chapters 7,8 and 10-12 and Chapters 13-18
if the fed conducts open market purchases the money supply
increases and aggregate demand shifts right
when the Fed REDUCES the rate of money growth, it must take into account what
not only the long rn affects on inflation but the short run effects on output and employment
which tool of monetary policy does the federal reserve use most often
open market operation s
the argument that an increase in gov expenditures will have a larger impact on aggregate demand than tax cuts is based on the idea that
people will save part of a tax cut
the equipment and structures available to produce goods and services are called
physical capital
an economys production form takes the form Y=A F(L,K,H,N) -K represents the quantity of?
physical capital only
government purchases are said to have what
a multiplier effect on aggregate demand
an tax on imported goods is
a tariff
supply side econoists focus more than other economists on
how fiscal policy affects aggregate supply
money demand refers to
how much wealth people want to hold in liquid form
printing money to finance gov expenditures will
impose a tax on everyone that holds money
the long run aggregate supply curve shows that by itself a permanent change in aggregate demand would lead to a long run change in what
in the price level but NOT output
the principle of monetary neutrality implies that the increase in money supply will
increase price level but not real GDP
Y=C+I+G+NX is an identity b/c?
the equality holds due to the way the variables are defined (always holds)
net capital outflow measures what
the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic assets bought by foreigners
Keynes believed the economies experiencing high unemployment should adopt policies to
the interest rate effect
which of the following is correct about aggregate supply and demand in short/long run
the long run but not the short run; the aggregate supply curve is consistent with the idea that nominal variables do not affect real variables
which of the following is NOT a determinant of the long run level of real GDP
the price level
which of the following adjust to bring aggregate supply and demand into balance?
the price level and output
in the late 70s proponents of rational expectations in which people optimally use all available information when forcasting the future, argued that?
the sacrifice ratio was smaller than previously thought
the open economy macroeconomic model examines the determination of what
the trade balance and the exchange rate
In the late 60s, Milton Freidman and Edmund Phelps argued that
the trade off between inflation and unemployment did not apply in the long run this claim is consistent with monetary neutrality in the long run
a closed economy does not do what
trade with other market economies
The old adage "dont put all your eggs in one basket" is very similar to a modern bit of advice concerning financial matters
"diversify"
which of the following has been suggested as a cause of the great depression
-decline in money supply -decrease in stock prices -collapse of banking system
which of the following helps explain the slope of the aggregate demand curve
-the exchange rate effect -the wealth affect -the interest rate affect
which of the following is part of your economics professors human capital?
-the things she learned at some prestigious university -her copy of Mankiws text -powerpoint presentations
if P denotes the price of goods and services measured in terms of money, then
1/P measures the value of money in terms of goods and services
in the production function which of the following represents technology
A
higher saving is associated with what
a larger capital stock and a higher standard of living
other things the same an increase in price level makes the dollars people hold, worth?
LESS, so they can buy LESS
which of the following is correct identity
NCO=NX
The value of money falls as the price level does what?
RISES, because the number of $ needed to buy a representative basket of goods RISES
if the economy is at the point where the short run phillips curve intersects the long run phillips curve then what?
Unemployment EQUALS the natural rate and expected inflation equals actual inflation
if the production function has the constant returns to scale property, then it could be rewritten as
Y/L=AF(1, K/L,H/L,N/L)
which of the following is an example of US foreign portfolio investment
a US citizen buys bonds issued by the British gov
which of the following is an example of US foreign direct investment
a US furniture maker opens a plant in mexico
the federal funds rate is the interest rate that
banks charge one another for loans
suppose a shift in aggregate demand creates an economic contraction. if policy makers can respond with sufficient speed and precision they can offset the initial shift by shifting what where
aggregate demand right
which of the following alone can explain the change in the price level and output during WWII
aggregate demand shift right
what shift would cause stagflation
aggregate supply shifts left
a limit on the quantity of a good produced abroad that can be purchased domestically is called
an import quota
which of the following correctly explains the crowding out effect
an increase in government expenditures increases the interest rate and so reduces investment spending
according to the aggregate demand and supply model, in the long run an increase in the money supply lead to
an increase in price level but it does NOT change the real GDP
tax cuts and what
and increases in government expenditures shift the aggregate demand right
of the following theories, which help explain an upward sloping short run and vertical long run aggregate supply curve
both the sticky wage and misperceptions theories
when the US has a trade surplus which of the following is correct
capital is flowing out of the US and S>I meaning its sending savings abroad
which of the following can the fed do to change the money supply
change the reserves or the reserve ratio
the primary difference between commodity money and fiat money is that
commodity money has intrinsic value and fiat money doesnt
economists disagree that
costs of moderate inflation and disagree about the cost of reducing inflation
If the natural rate of unemployment is 5.2 percent and the actual rate of unemployment is 5.7 percent, then by definition there is what?
cyclical unemployment amounting to .5 percent of the labor force
the classical dichotomy refers to the idea that the supply of money
determines nominal variables but not real variables
trade policies
do not affect a countrys overall trade balance, but affect some firms or industries differently than others
in an open economy national saving equals
domestic investment plus net capital outflow
opponents of the using policy to stabilize the economy generally believe that what?
economic conditions can easily change between the start of a policy action and when it takes affect
high unexpected inflation has a greater cost
for savers in high income tax brackets than for savers in low income tax brackets
unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills is called?
frictional unemployment
despite its status as one of the richest countrys in the world Japan
has few natural resources
efficiency wage theory suggests that paying does what ?
high wages might be profitable b/c they raise the efficiency of a firms workers
the real interst rate is 8 percent and the nominal interest rate is 10.5 percent-is there inflation or deflation? what is the inflation or deflation rate?
inflation at 2.5 percent
the bond market, stock market, banks, pension funds, and insurance companies are all financial what?
institutions
if the budget deficit were reduced what would happen ?
interest rates would decrease and investment would increase
Suppose a country increases trade restrictions. This country would be pursuing what?
inward policy, which economists believe has beneficial affects on the econ
the classical theory of inflation
is also known as the quantity theory of money
in the long run, inflation does what
is primarily determined by the rate of money supply growth while unemployment is primarily determined by labor market factors
The catch up affect refers to the idea that
it is easier for a country to grow fast and so catch up if it starts out relatively small
what is not an explanation for the existance of structural unemployment
job research
a depreciation of US real exchange rate induces US consumers to buy
more domestic goods and fewer foreign goods
other things the same, if the US interest rate falls the US will want to purchase
more foreign assets which increases the quantity of loanable funds demanded
which is correct about Real GDP
real GDP is the variable most commonly used to measure short run economic fluctuations. it is almost impossible to predict these fluctuations with much accuracy
a nations standard of living is best measured by
real GDP per person
the regional federal reserve banks
regulate banks in their regions
In the long run, fiscal policy primarily affects
saving, investment and growth. In the short run it affects primarily aggregate demand
a 1977 amendment to the Federal Reserve act of 1913 did what
says that Fed reserve should promote price stability and max employment but does not specifically say how the fed reserve should weight these goals
the fisher effect
says that there is a one for one nominal adjustment of the interest rate to the inflation rate
to decrease the money supply the fed can
sell gov bonds or increase the discount rate
in the mid 70s the price of oil rose dramatically; what did this do
shifts the aggregate supply left
evidence from research studies by economists
shows that increased unemployment benefits decrease the job search efforts of the unemployed
a problem that the fed faces when it attempts to control the money supply is that
since the US has a fractional reserve banking system the amount of money in the economy depends in part on the behaviors of depositors and bankers
unemployment that results because the number of jobs available in some labor markets may be insufficient to give a job to everyone who wants one is called what?
structural unemployment
in order to understand how the economy works in short run we need to what
study a model in which real and nominal variables interact
an understanding of how to produce the best ways to produce goods and services is called
technology
the supply of money increases when
the FED makes open market purchases
A W Phillips discovery of a particular relationship b/w unemployment and inflation for the United Kingdom
was quickly extended to other countrys by researchers