ECO Exam 3 Study Guide
A country purchases $3 billion of foreign-produced goods and services and sells $2 billion of domestically produced goods and services to foreign countries. It has exports of
$2 billion and a trade deficit of $1 billion
The nominal interest rate is 5 percent and the inflation rate is 2 percent. What is the real interest rate?
3 percent
If M=2,000, P=2.25, and Y=6,000, what is velocity?
6.75
Which of the following is an example of U.S. foreign direct investment?
A U.S company opens an auto parts factory in Canada
Which for the following is an example of U.S. foreign portfolio investment?
A U.S. citizen buys bonds issued by the British government
Which of the following correctly explains the crowding-out effect?
An increase in government expenditures increases the interest rate and so reduces investment spending
Which of the following would shift the long-run aggregate supply curve right?
An increase in the capital stock, but not an increase in the price level
The costs of changing price tags and price listings are known as
Menu costs
According to the classical dichotomy, which of the following increases when the money supply increases?
The nominal wage
An open economy's GDP can be expressed by
Y=C+I+G+NX
Changes in the nominal variables are determined mostly but the quantity of money and the monetary system according to
both the classical dichotomy and the quantity theory of money
Monetary policy
can be described either in terms of the money supply or in terms of the interest rate
When the price level falls, the number of dollars needed to buy a representative basket of goods
decreases, so the value of money rises
If a country sells fewer goods and services abroad than it buys from other countries, it is said to have a trade
deficit and negative net exports
An increase in household saving causes consumption to
fall and aggregate demand to decrease
If households view a tax cut as temporary, then the tax cut
has less of an effect on aggregate demand than if households view it as permanent
The multiplier effect states that there are additional shifts in aggregate demand from expansionary fiscal policy, because it
increases income and thereby increases consumer spending
Net capital outflow
is always equal to net exports
Inflation can be measure by the
percentage change in the consumer price index
An increase in the money supply will
reduce interest rates, increase investment and aggregate demand
In Figure 33-3, point B represents a
short-run equilibrium, and Point A represents a long-run equilibrium
Using the liquidity-preference model, when the Federal Reserve decreases the money supply,
the equilibrium interest rate increases
Which of the following is not a determinant of the long-run level of real GDP?
the price level
An increase in the expected price level shifts
the short-run aggregate supply curve to the left but does not affect the long-run aggregate supply curve
The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for
the slope of the aggregate-demand curve
