Unit #7 ch 18,19,21,22

A goal of monetary policy and fiscal policy is to

offset shifts in aggregate demand and thereby stabilize the economy.

Which of the following does purchasing-power parity imply?

The purchasing power of the dollar is the same in the U.S. as in foreign countries.

Other things the same, if the exchange rate changes from .8 euros per dollar to .9 euros per dollar, the dollar

appreciates so U.S. goods become more expensive relative to foreign goods.

Net capital outflow equals the purchase of

foreign assets by domestic residents - the purchase of domestic assets by foreign residents

During a recession, unemployment ​

increases

Which part of real GDP fluctuates most over the course of the business cycle?

investment expenditures

One determinant of the long-run average unemployment rate is the

minimum wage, while the inflation rate depends primarily upon the money supply growth rate.

Real GDP

moves in the opposite direction as unemployment.

International trade

raises the standard of living in all trading countries.

The theory by which people optimally use all available information when forecasting the future is known as

rational expectations

f the government repeals an investment tax credit and increases income taxes,

real GDP and the price level fall.

The lag problem associated with monetary policy is due mostly to

the fact that business firms make investment plans far in advance.

The positive feedback from aggregate demand to investment is called

the investment accelerator.

Critics of stabilization policy argue that

the lag problem ends up being a cause of economic fluctuations.

Aggregate demand includes

the quantity of goods and services households, firms, the government, and customer abroad want to buy.

Sticky wages leads to a positive relationship between the actual price level and the quantity of output supplied in

the short run, but not the long run.

A decrease in expected inflation shifts

the short-run Phillips curve left.

When production costs rise

the short-run aggregate supply curve shifts to the left.

The long-run aggregate supply curve shifts left if

there is a natural disaster.

An decrease in taxes shifts aggregate demand

to the right. The larger the multiplier is, the farther it shifts.

A favorable supply shock will cause

unemployment to fall and the short-run Phillips curve to shift left.

Nominal exchange rates

vary substantially over time.

An increase in the inflation rate permanently reduces the natural rate of unemployment.

False

Which of the effects listed below increases the quantity of goods and services demanded when the price level falls and decreases the quantity of goods and services demanded when the price level rises?

All of the above are correct.

According to the Phillips curve, policymakers could reduce both inflation and unemployment by

None of the above is correct.

Which of the following shifts aggregate demand to the right?

None of the above is correct.

A rightward shift of the short-run aggregate-supply curve results in a more favorable trade-off between inflation and unemployment.

True

Wages tend to be sticky

because of contracts, social norms, and notions of fairness.

If expected inflation is constant and the nominal interest rate decreases by 2 percentage points, then the real interest rate

decreases by 2 percentage points.

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as

e(P/P*),

A country with negative net exports has a trade surplus.

False

A country purchases more goods and services from residents of foreign countries than residents of foreign countries purchase from it. This country has

a trade deficit and negative net exports.