ECN Final

Which pair of GDP growth rates and unemployment rates is realistic?

3% and 5%

Domestic investment plus net capital outflow is represented by the

demand curve in panel a

Aggregate demand shifts left if

government purchases decrease and shifts left is stock prices fall

Historically, as recessions have ended the unemployment rate declined

gradually to a rate of about 5-6%

The effect of an increase in the price level on the aggregate-demand curve is represented by a

movement to the left along a given aggregate-demand curve

If a country raises its budget deficit, then its

net capital outflow and net exports fall

according to classical macroeconomic theory, changes in the money supply affect

price level, but not real GDP

According to the classical model, an increase in the money supply causes

prices to rise in the long run

An increase in the budget surplus

raises net exports and domestic investment.

Which of the following is most commonly used to monitor short-run changes in economic activity?

real GDP

If the supply of loanable funds shifts right, then

the real interest rate falls and the equilibrium quantity of loanable funds rises

The government of Blenova considers two policies. Policy A would shift AD right by 500 units while policy B wouldshift AD right by 300 units. According to the short-run Phillips curve, policy A will lead

to a lower unemployment rate and a higher inflation rate than policy B

An decrease in taxes shifts aggregate demand

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

The short-run Phillips curve shows the combinations of

unemployment and inflation that arise in the short run as aggregate demand shifts the economy along theshort-run aggregate supply curve

If there is a surplus in the U.S. loanable funds market, then

NCO + I < S

The curve in panel b shows that as the interest rate rises,

NCO falls

When monetary and fiscal policymakers expand aggregate demand, which of the following costs is incurred in the short run?

The money supply increases less rapidly

If interest rates rose more in Japan than in the U.S., then other things the same

U.S. citizens would buy more Japanese bonds and Japanese citizens would buy fewer U.S. bonds.

If money demand shifted to the right and the Federal Reserve desired to return the interest rate to its original value, it could

buy bonds to increase the money supply

Trade policies

do not affect a country's overall trade balance, but affect some firms or industries differently than others

An increase in household saving causes consumption to

fall and aggregate demand to decrease

If interest rates rise in the U.S., then other things the same

foreigners would buy more U.S. bonds which reduces the quantity of loanable funds demanded in the U.S.

In the short run, a decrease in the money supply causes interest rates to

increase, and aggregate demand to shift left

If the Fed conducts open-market purchases, the money supply

increases and aggregate demand shifts right

When aggregate demand shifts rightward along the short-run aggregate-supply curve, inflation

increases and unemployment decreases

In the long run

inflation depends primarily upon the money supply growth rate.

When the money supply decreases

interest rates rise and so aggregate demand shifts left.

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

investment expenditures

If a government has a budget surplus, then public saving

is positive and increases national saving

If a country places tariffs on imported goods, then

its currency appreciates which reduces exports

Real GDP

measures economic activity and income

According to liquidity preference theory, a decrease in the price level shifts the

money demand curve leftward, so the interest rate decreases

Monetary policy and fiscal policy influence

output in the short run only

According to classical macroeconomic theory,

output is determined by the supplies of capital and labor and the available production technology.

The model of aggregate demand and aggregate supply explains the relationship between

real GDP and price level

Microeconomic substitution is impossible for the economy as a whole because

real GDP measures the total quantity of goods and services produced by all firms in all markets.

Most economists believe that in the short run

real and nominal variables are highly intertwined and that money can temporarily move real GDP away from its long-run trend

When we say that economic fluctuations are "irregular and unpredictable," we mean that

recessions do not occur at predictable intervals

An increase in the budget deficit makes domestic interest rates

rise because the supply of loanable funds shifts left

Suppose that U.S. firms desire to purchase more capital in the U.S. The effects of this could be illustrated by

shifting the demand curve in panel a to the right and the supply curve in panel c to the left

If the U.S. raised its tariff on tires, then at the original exchange rate there would be a

shortage in the market for foreign-currency exchange, so the real exchange rate would appreciate.

National saving is represented by the

supply curve in panel a.

The imposition of an import quota shifts

the demand for currency right, so the exchange rate rises.

The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for

the slope of the aggregate-demand curve