EC 202 Final- Ch. 12-15

33) Which of the following would be a "multiplier effect" resulting from the decrease in home construction after 2006? A) A decrease in real interest rates B) A decrease in the demand for home appliances C) A decrease in the demand for home mortgages D) A decrease in employment in the home construction industry

B

35) When the real exchange rate depreciates, U.S. goods become ________ for foreign countries and U.S. exports ________. A) less expensive; decrease B) less expensive; increase C) more expensive; decrease D) more expensive; increase

B

27) If the value of the government expenditure multiplier is 1.5, which of the following is true? A) A $1 increase in government expenditure increases GDP by $.50. B) A $1 increase in government expenditure increases GDP by $2.50. C) A $1.50 increase in government expenditure increases GDP by $1.50. D) A $1 increase in government expenditure increases GDP by $1.50.

D

12) Which of the following is an example of a capital outflow from the U.S.? A) A U.S. bank buys British government bonds. B) General Motors (a U.S. company) buys auto parts from a Canadian firm C) A sports arena in Chicago is sold to Japanese buyers. D) A Chinese company buys a shopping mall in Boston

A

13) West Lansing is an open economy with a GDP of $100. Consumption is $50, government purchases are $10, exports are $20, and net capital outflow is $15. What is investment? A) $25 B) $20 C) $40 D) There is not enough information to say.

A

18) Which statement is true about the Fed, reserves, and the money supply? A) Because banks currently hold a lot of excess reserves, they could increase lending to the public, which would expand the money supply. B) M2 is currently as large as it could be given the amount of reserves in the system. C) By controlling the supply of reserves, the Fed controls the M2 money supply quite precisely. D) When the Fed increases the interest rate it pays on reserves, it gives banks a greater incentive to loan them out to businesses and consumers.

A

19) The Phillips curve describes a relationship between ________. A) the unemployment rate and inflation B) wages and the quantity of labor supplied C) wages and inflation D) wages and the quantity of labor demanded

A

22) Which of these ideas is not associated with Keynesian economics? A) Monetary policy can be helpful in a recession but fiscal policy will only make things worse. B) Downward-rigid wages lead to larger fluctuations in employment than if wages were flexible. C) Changes in consumer or business attitudes can lead to fluctuations in aggregate demand. D) A change in demand, for whatever reason, will be amplified by multiplier effects.

A

23) Which statement about the Phillips curve relationship is not correct (or are they all correct)? A) Recent movements (over the last three years) of unemployment and inflation are highly consistent with traditional views of the Phillips curve. B) Recent statements by the Fed chair indicate a concern that further reductions in unemployment might lead to an increasing inflation rate. C) Some economists have questioned whether the Phillips curve relationship still exists. D) All of the above are correct.

A

25) Which of the following economic variables is most directly affected when the central bank adopts a countercyclical monetary policy? A) Interest rates B) Transfer payments C) Government spending D) Tax rates

A

28) Which of the following statements is correct for an open economy with a trade surplus? A) The trade surplus implies that the country's national saving is greater than its investment. B) The trade surplus must be matched by a trade deficit in the following year. C) The trade surplus must be offset by negative net capital outflow. D) None of the above is correct.

A

3) Everything else being equal, if the dollar appreciates against the Chinese yuan, ________. A) China will export more to and import less from the United States B) China will stop trading with the United States C) the Chinese government will sell yuan in the foreign exchange market D) China will import more from and export less to the United States

A

30) Which of the following is true according to Okun's Law? A) The unemployment rate remains constant when the growth rate of real GDP is 2 percent. B) The unemployment rate remains constant if real GDP remains constant. C) The unemployment rate is zero when the growth rate of real GDP is exactly 1 percent. D) The unemployment rate declines when the growth rate of real GDP is below 2 percent.

A

33) Everything else being equal, a depreciation of the dollar against the yuan ________. A) will lead to a decrease in the quantity of dollars supplied in the foreign exchange market B) will lead to an increase in the quantity of dollars supplied in the foreign exchange market C) can either lead to an increase or a decrease in the quantity of dollars supplied, depending on the magnitude of the depreciation D) will not affect the quantity of dollars supplied in the foreign exchange market

A

34) Which of the following is likely to occur when the U.S. dollar is undervalued relative to the peso? A) The demand for dollars in exchange for pesos will exceed the supply of dollars in exchange for pesos. B) The net exports of Mexico will increase. C) The dollar will depreciate against the peso. D) There will be an excess supply of dollars at the pegged exchange rate in the foreign exchange market.

A

37) An undervalued domestic currency ________. A) makes imports more expensive for domestic consumers B) benefits all the economic agents in the country C) harms all the economic agents in the country D) makes imports less expensive for domestic consumers

A

38) If a Japanese toy costs 20 yen and the yen per dollar exchange rate is 5, what is the dollar price of the Japanese toy? A) $4 B) $40 C) $100 D) $5

A

41) An economist says she believes the government expenditure multiplier is .8. This means that she believes that a $1 billion increase in G will A) involve enough crowding-out that the net effect on real GDP will be smaller than the change in G. B) have no effect on employment other than those jobs created directly by the additional government spending. C) increase real GDP by $1 billion plus an additional $0.8 billion. D) lead to a reduction in real GDP (because the multiplier is less than 1).

A

47) If the aggregate price level ________, but nominal wages stay fixed, real wages ________. A) rises; fall B) falls; remain fixed C) falls; fall D) rises; remain fixed

A

6) When George Soros was betting that the British pound would depreciate A) he borrowed pounds and bought German marks with them. B) he borrowed German marks and bought pounds with them. C) he was expecting the mark per pound exchange rate to rise. D) both A and C are correct.

A

9) Which statement is false? A) The amount of excess reserves held by the U.S. banking system increased after 2008 but has now fallen almost to zero. B) The zero lower bound applies more to nominal interest rates than it does to real interest rates, assuming there is some inflation C) Fed policy towards the federal funds rate brought it very close to the zero in 2009 and did not change until December 2015 D) Some central banks are paying negative nominal interest rates on reserves, but the Fed has not adopted this policy.

A

29) If I keep $1,000 under my mattress, which statement is false? A) I earn a zero nominal interest rate. B) My nominal interest rate depends on the rate of inflation. C) My real interest rate depends on the rate of inflation. D) If the inflation rate is positive, I earn a negative real interest rate.

B

32) What effect did the declines in housing prices in the United States in the late 2000s have on the banking sector? A) Banks became increasingly willing to lend money to borrowers. B) The resulting consumer mortgage defaults resulted in large losses for banks. C) The resulting consumer mortgage defaults resulted in large profits for banks. D) Most banks made a lot of money by betting against housing prices, leading to a general increase in bank profits.

B

1) What is true about the real exchange rate and the nominal exchange rate? A) All else equal, an increase in our price level makes our real exchange rate fall. B) They move together if the two countries experience equal inflation rates. C) They generally move in opposite directions. D) The real exchange rate is the rate at which one country's currency trades for another's.

B

10) The Taylor rule says that the ________ is, the lower should be the target for the federal funds rate. A) higher the inflation rate B) lower (more negative) the output gap C) higher the volume of bank reserves D) higher the supply of money

B

11) The economy is in a recession. Traditionally, the Fed would take action to stimulate economic activity by ________. A) increasing short-term interest rates B) lowering short-term interest rates C) lowering long-term interest rates D) increasing long-term interest rates

B

12) Which of the following is not an example of an automatic stabilizer? A) Revenue from income taxes increases when output is high and unemployment is very low. B) When a war ends, legislators choose to reduce military spending. C) More unemployment benefits are paid out when more people become unemployed. D) Under the Affordable Care Act, more people get subsidized health care during a recession.

B

16) Assume that the dollar price of a basket of goods in the United States is $3 and the dollar price of the same basket of goods in China is $5. In addition, the yuan price of the same basket in the United States is 20 yuan. Given this information, the yuan price of the basket in China is ________. A) 30.50 yuan B) 33.33 yuan C) 105.50 yuan D) 26.50 yuan

B

17) What is true about the current state of the unemployment rate in the U.S.? A) According to official statistics it is about 6 percent. B) It has remained steady in recent months. C) It has been slowly increasing over the last few months. D) Although it has declined since the Great Recession, it is still above the natural rate.

B

18) An increase in the value of the foreign currency in terms of the domestic currency means that ________. A) the domestic currency has appreciated and the nominal exchange rate has fallen B) the foreign currency has appreciated and the nominal exchange rate has fallen C) the foreign currency has appreciated and the nominal exchange rate has risen D) the domestic currency has depreciated and the nominal exchange rate has risen

B

19) Which of the following is most likely to cause a rightward shift of the demand curve for dollars in exchange for the Chinese yuan? A) A decrease in the demand for Chinese products in the United States B) An increase in the demand for U.S. products in China C) A decrease in the demand for U.S. products in China D) An increase in the demand for Chinese products in the United States

B

2) Which of the following is not consistent with mainstream economic views about the effects of trade restrictions? A) If a trade restriction reduces some imports into the US without affecting NCO, it is likely to cause the dollar to appreciate. B) Putting a tariff (import tax) on Mexican goods cannot affect our imports from Mexico. C) Unless trade policies affect NCO, they cannot affect NX. D) Most economists would agree with all of the above.

B

21) Everything else being equal, an appreciation of the dollar against the yuan ________. A) will lead to an increase in the quantity of dollars demanded B) will lead to a decrease in the quantity of dollars demanded C) will not affect the quantity of dollars demanded D) can either lead to an increase or a decrease in the quantity of dollars demanded, depending on the magnitude of the appreciation

B

23) If the Mexican government wants to keep the peso overvalued against the dollar, it will need to ________ in the foreign exchange market. A) buy both dollars and pesos B) buy pesos in exchange for dollars C) buy dollars in exchange for pesos D) sell both dollars and pesos

B

26) If domestic residents of other countries purchase $600 billion of U.S. assets and U.S residents purchase $500 billion of foreign assets, then U.S. net capital outflow is A) -$100 billion and the U.S has a trade surplus. B) -$100 billion and the U.S has a trade deficit. C) $100 billion and the U.S has a trade surplus. D) $100 billion and the U.S has a trade deficit.

B

27) If a country were to reduce its national saving, but its domestic investment remained the same, then which of the following would rise? A) net exports and net capital outflow B) neither net exports nor net capital outflow C) net exports but not net capital outflow D) net capital outflow but not net exports

B

38) Which of these is not a part of the Fed's plan for "normalizing" monetary policy? A) Selling off many of the long-term bonds it purchased during and after the Great Recession. B) Limiting the number of times it meets to consider policy changes to twice a year. C) Moving the federal funds rate toward a more nomal level, away from the zero lower bound. D) Reducing the amount of reserves in the system, so that banks are not holding so many excess reserves.

B

4) Suppose that the government of an open economy decides to increase taxes to reduce its budget deficit. In the credit market, this action would be expected to A) increase demand for credit, leading to a rise in real interest rates and a decrease in net capital outflow. B) reduce demand for credit, leading to a fall in real interest rates and an increase in net capital outflow. C) increase demand for credit, leading to a fall in real interest rates and an increase in net capital outflow. D) reduce demand for credit, leading to a rise in real interest rates and a decrease in net capital outflow.

B

41) If a currency is said to be undervalued relative to the dollar, then the dollar is understood to be worth ________. A) more of that currency than it would have been under a fixed exchange rate regime B) more of that currency than it would have been under a flexible exchange rate regime C) more of that currency than it would have been under a managed exchange rate regime D) less of that currency than it would have been under a fixed exchange rate regime

B

42) When Walmart sells toys imported from China, ________. A) the U.S. consumers pay in yuan, and the workers who produce the toys are also paid in yuan B) the U.S. consumers pay in dollars, while the workers who produce the toys are paid in yuan C) the U.S. consumers pay in yuan, while the workers who produce the toys are paid in dollars D) the U.S. consumers pay in dollars, and the workers who produce the toys are also paid in dollars

B

45) A clothing brand company in the United States opens a factory in Bangladesh. This is an example of a(n) ________. A) import by the United States B) foreign direct investment in Bangladesh C) export to Bangladesh D) foreign portfolio investment in Bangladesh

B

5) On a graph with real consumption growth on the x-axis and real investment growth on the y-axis, our book showed each year's values for the United States as a separate point. What did the overall trend in this graph look like? A) A downward-sloping line B) An upward-sloping line C) A vertical line D) A horizontal line

B

7) The idea of downward wage-rigidity A) implies that the labor supply curve is vertical. B) applies to nominal wages, not real wages. C) applies to real wages, not nominal wages. D) applies to both nominal and real wages.

B

Scenario: A country imported goods and services worth $40 billion and exported goods and services worth $37.8 billion during a particular year. 40) Refer to the scenario above. This scenario implies that the country experienced a ________ during that year. A) positive net capital outflow B) trade deficit C) trade surplus D) budget surplus

B

20) A U.S. company selling cameras to a Japanese company is an example of a(n) ________. A) export to the United States B) foreign direct investment by the United States C) import by Japan D) transfer payment to the United States

C

20) Keynes used the term "animal spirits" to describe the ________. A) role of technology in causing economic fluctuations. B) changes in human capital that cause economic fluctuations. C) altruistic nature of consumers and firms. D) psychological factors that affect the mood of consumers and businesses.

D

1) Economic growth is said to be persistent, meaning that if the economy is in an expansion this quarter, it will probably A) experience zero growth next quarter B) experience negative growth next quarter C) experience positive growth next quarter D) be completely unpredictable next quarter

C

11) Technical support provided by an Indian firm to a multinational company headquartered in New York is an example of a(n) ________. A) capital account transaction B) import of services by India C) export of services by India D) transfer payment to the United States

C

13) Which of the following statements is true? A) Countercyclical monetary policy stimulates an economy during a recession by shifting the labor supply curve to the left. B) Countercyclical monetary policy stimulates an economy during a recession by shifting the labor demand curve to the left. C) Countercyclical monetary policy stimulates an economy during a recession by shifting the labor demand curve to the right. D) Countercyclical monetary policy stimulates an economy during a recession by shifting the labor supply curve to the right.

C

15) Suppose that real interest rates in the U.S. fall relative to real interest rates in other countries. This decline would make foreigners A) less willing to purchase U.S. assets, so U.S. net capital outflow would fall. B) more willing to purchase U.S. assets, so U.S. net capital outflow would increase. C) less willing to purchase U.S. assets, so U.S. net capital outflow would increase. D) more willing to purchase U.S. assets, so U.S. net capital outflow would fall.

C

2) Why is there thought to be a zero lower bound on interest rates? A) No one would lend at a negative real rate if they can hold cash instead. B) No one would want to borrow at a negative nominal rate. C) No one would lend at a negative nominal rate if they can hold cash and earn zero. D) No one would want to borrow at a negative real rate.

C

21) The food processing industry in Richland accounts for 20 percent of its GDP. Which of the following will happen if firms in this industry become pessimistic about the future demand for their products? Assume that consumption and government expenditure remain unchanged. A) Richland's interest rate will increase. B) Richland's inflation rate will increase. C) Richland's GDP will fall because of a decline in investment. D) Richland's unemployment rate will fall.

C

24) The depreciation of the pound on Black Wednesday led to a decrease in the pound exchange rate, a(n) ________ in net exports and a(n) ________ in aggregate economic activity. A) increase; decrease B) decrease; decrease C) increase; increase D) decrease; increase

C

25) Over the last two decades, the U.S. has had imports greater than exports in every year. Which statement is true? A) The trade balance does not imply anything about the relationship between national saving and investment B) National saving was greater than investment in each year. C) Investment was greater than national saving in each year. D) Net capital outflow was positive in each year.

C

26) If a $10 increase in government expenditure produces a change of $17 in GDP, the value of the government expenditure multiplier is ________. A) 0.7 B) 2.7 C) 1.7 D) 170

C

3) Suppose we are plotting the relationship between the change in the unemployment rate and the growth rate of real GDP. If the change in the unemployment rate is measured along the vertical axis and the growth rate of real GDP is measured along the horizontal axis, Okun's law tells us we will get ________. A) a horizontal line B) an upward-sloping line C) a downward-sloping line D) a vertical line

C

31) Which of the following was most unusual about monetary policy during and after the Great Recession? A) The government undertook expansionary fiscal policy on a large scale through the ARRA. B) The Fed was concerned about reducing unemployment while keeping inflation low. C) The Fed used quantitative easing to influence long-term interest rates. D) The Fed undertook policies to lower the federal funds rate.

C

32) When the US experiences more inflation than Japan, the real exchange rate of Japanese goods for American goods ________. A) depreciates. B) appreciates only if the nominal exchange rate depreciates. C) appreciates even if the nominal exchange rate is constant . D) appreciates only if the nominal exchange rate appreciates .

C

34) If the federal funds rate is set by the Taylor rule and the inflation rate increases by 3 percentage points, everything else remaining unchanged, the federal funds rate should ________. A) decrease by 1.5 percentage points B) decrease by 3 percentage points C) increase by 4.5 percentage points D) increase by 3 percentage points

C

37) Traditionally, if the Fed wanted to decrease the federal funds rate, it would A) decrease the demand for bank reserves B) decrease the supply of bank reserves C) increase the supply of bank reserves D) increase the demand for bank reserves

C

4) Which of the following is true? A) Unemployment growth tends to be high when GDP growth is high. B) Investment growth tends to be high when GDP growth is low. C) Investment growth tends to be high when consumption growth is high. D) Consumption growth tends to be high when GDP growth is low.

C

44) If China wants to encourage exports and discourage imports it could A) buy more dollars with yuan to make the yuan stronger. B) sell more dollars for yuan to make the yuan stronger. C) buy more dollars with yuan to make the yuan weaker. D) sell more dollars for yuan to make the yuan weaker.

C

45) The Taylor rule deals with A) lowering the federal funds rate whenever inflation begins to accelerate. B) when to adopt a policy of quantitative easing. C) balancing the Fed's two objectives of high employment and low inflation. D) choosing a growth rate of the money supply.

C

49) Countercyclical policies ________. A) are exclusively the responsibility of the Fed. B) increase the intensity of economic fluctuations in an economy. C) are intended to smooth the rate of growth of an economy over time. D) are likely to lead to hyperinflation.

C

5) One dollar could be exchanged for 55 rupees in 2013 and for 60 rupees in 2014. This implies that the ________. A) rupee appreciated in 2014 B) real exchange rate did not change in 2014 C) dollar appreciated in 2014 D) nominal exchange rate did not change in 2014

C

50) If employers are provided a subsidy of $1 per hour for hiring workers, we expect that ________. A) labor supply will increase B) labor demand will decrease C) employment will increase D) the equilibrium real wage will decrease

C

8) What effect did falling housing prices after 2006 have on investment in residential construction? A) The lower prices attracted more investors, resulting in more residential construction. B) The lower prices decreased investment in residential construction for about a year, then attracted more investors, resulting in more residential construction. C) The lower prices decreased investment in residential construction. D) It had no effect; residential construction continued at the same pace it had over the previous decade.

C

Scenario: Suppose India borrows $10,000 from the United States at the beginning of 2016. The flexible exchange rate is 50 Indian rupees per dollar. 31) Refer to the scenario above. If India pegs the exchange rate at 70 rupees per dollar, it will require ________ rupees to repay the loan in dollars. A) 70,000 B) 7,000 C) 700,000 D) 70

C

16) Which factor associated with business cycles was present in the Great Depression? A) Co-movement between consumption and investment B) Persistence in the rate of growth C) Multiplier effects in both the contractionary and expansionary phase D) All of the above

D

10) Everything else equal, when U.S. exports ________, net capital outflows ________. A) decrease; increase B) decrease; are unaffected C) increase; decrease D) increase; increase

D

14) Suppose that U.S. mutual funds decide to increase their financial investments in Chinese companies. This action A) increases the demand for dollars in the market to exchange for yuan. B) can only happen if there is an equal increase in Chinese investments in the U.S. C) reduces net capital outflow from the U.S. but has no effect on the market to exchange dollars for yuan. D) increases the supply of dollars in the market to exchange for yuan.

D

17) Which of the following is another way of saying net capital outflow? A) I - S B) foreign purchases of domestic assets - domestic purchases of foreign assets C) Y - C - G D) S - I

D

28) Which of these is not implied by downward wage-rigidity? A) In a recession, the supply of labor in effect becomes horizontal at the current nominal wage. B) The effect on employment of a drop in demand will be larger than if wages were flexible. C) Seeing a drop in demand, businesses are more likely to reduce employment than to reduce wages. D) If the economy is in recession, expansionary fiscal policy will immediately raise wages.

D

29) If a market basket that costs $1000 in the U.S. costs 600 pounds in the UK, then the real exchange rate of British goods for U.S. goods is A) 10/6 B) 6/10 C) 1 D) 10/6 times the nominal exchange rate of pounds per dollar

D

36) In the mid-2000s, U.S. housing prices experienced a bubble. What does a bubble in housing prices refer to? A) Falling asset prices trending toward the true long-run value of the asset B) Rising asset prices trending toward the true long-run value of the asset C) Low asset prices that do not reflect the true long-run value of the asset D) Rising asset prices not due to increases in the true long-run value of the asset

D

36) Suppose a country's currency is "overvalued" relative to the dollar. Which of these is true? A) To keep the currency from depreciating the country will have to sell dollars. B) Depreciation would increase the cost of imports for that country's consumers. C) Depreciation would make it more expensive to pay back loans that were borrowed in dollars. D) All of the above are true.

D

40) Which of the following is likely to be true when an economy is in an expansion and the output gap is zero? A) The inflation rate is negative. B) The size of the government expenditure multiplier is large. C) The unemployment rate is high. D) The size of the government expenditure multiplier is small.

D

42) Which of the following best reflects the discussion in class about the real business cycle theory? A) It is the best available theory for understanding the Great Recession. B) It focuses mainly on changes in demand as the reason for short-run fluctuations. C) It emphasizes how bursting of financial bubbles can lead to recessions. D) Because we do not expect technology to go backward, this theory may not be very helpful for understanding recessions.

D

43) Everything else being equal, an increase in the demand for dollars in exchange for pesos will cause the dollar ________ the quantity of dollars being traded in the foreign exchange market. A) to depreciate against the peso and will increase B) to appreciate against the peso and will decrease C) to depreciate against the peso and will decrease D) to appreciate against the peso and will increase

D

43) In the time since the Great Depression up until the present, real GDP in the U.S. deviated most from its trendline (in either a positive or negative direction) A) during the disinflation of the 1980s. B) during the Great Recession. C) during the oil price shocks of the 1970s. D) during World War II.

D

44) Which of the following is an example of discretionary fiscal policy intended to increase demand during a recession? A) An increase in tax rates to increase revenue B) A decrease in transfer payments to unemployed workers C) A decrease in money supply to lower the federal funds rate D) A temporary tax cut to boost consumption

D

46) Keynesian multiplier effects A) are larger for an increase in expenditure than for a tax cut of equal size. B) of expansionary fiscal policy are larger when the economy is in a deep recession. C) help explain why movements in real GDP, in either direction, tend to be persistent. D) All of the above are true.

D

48) In an economy in recession with downward wage-rigidity, mild inflation A) raises the real wage and in that way stimulates consumption. B) always leads to higher unemployment. C) has no effect on either the nominal wage or the real wage. D) can help increase employment by lowering the real wage.

D

6) What do countercyclical fiscal and monetary policies have in common? i) They are both used to reduce economic fluctuations. ii) They both work primarily by shifting the labor supply curve. A) i) and ii) are both true B) i) and ii) are both false C) i) is false and ii) is true D) i) is true and ii) is false

D

Scenario: A country imported goods and services worth $40 billion and exported goods and services worth $37.8 billion during a particular year. 39) Refer to the scenario above. The country's net exports during that year were ________. A) $92.4 billion B) $1.2 billion C) $77.8 billion D) $2.2 billion

D

Scenario: Suppose India borrows $10,000 from the United States at the beginning of 2016. The flexible exchange rate is 50 Indian rupees per dollar. 30) Refer to the scenario above. The amount of the loan in rupees is ________. A) 10,000 B) 50 C) 30,000 D) 500,000

D