ECON 3

If the MPC is 0.50 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $135 billion will eventually shift the aggregate demand curve to the right by

1/(1-0.50)=2*135=$270 billion

If the price level increased from 115 to 135, then what was the inflation rate?

135-115=20 20/115=17.4%

A country has domestic investment of $215 billion. Its citizens purchase $635 billion of foreign assets and foreign citizens purchase $310 billion of its assets. What is national saving?

635-310+215-$540 billion

During some year a country had exports of $75 billion, imports of $80 billion, and domestic investment of $115 billion. What was its saving during the year?

75-80+115=$110 billion

Imagine that in the current year the economy is in long-run equilibrium. Then stock prices fall more than expected and stay low for some time.

Aggregate demand shifts left.

In 2008, the United States was in recession. Which of the following things would you not expect to have happened?

Increased real GDP

Which of the following is consistent with the idea that high money supply growth leads to high inflation?

The quantity theory and data from classic hyperinflations that occurred during the 1920s in Austria, Hungary, Germany, and Poland.

Which of the following would not be an expected response from a decrease in the price level and so help to explain the slope of the aggregate-demand curve?

With prices down and wages fixed by contract, Fargo Concrete Company decides to lay off workers.

The classical dichotomy and monetary neutrality are represented graphically by

a vertical long-run aggregate-supply curve.

If the interest rate is above the Fed's target, the Fed should

buy bonds to increase the money supply.

Suppose there was a large increase in net exports. If the Fed wanted to stabilize output, it could

decrease the money supply, which will increase interest rates.

A Chinese company exchanges yuan (Chinese currency) for dollars. It uses these dollars to purchase scrap metal from a U.S. company. As a result of these transactions, Chinese net exports

decrease, and U.S. net capital outflow decreases.

During the 2008 financial crisis velocity decreased. This means that the rate at which money changed hands

decreased. Other things the same, a decrease in velocity decreases the price level.

Suppose that initially the economy is in equilibrium at r1 and e3. If the government removes import quotas, the exchange rate will move to

e2.

An increase in household saving causes consumption to

fall and aggregate demand to increase.

In recent years, the Federal Reserve has conducted policy by setting a target for the

federal funds rate.

Net exports of a country are the value of

goods and services exported minus the value of goods and services imported.

Suppose that the real return from operating factories in Canada rises relative to the real rate of return in the United States. Other things the same, this will

increase U.S. net capital outflow and decrease Canadian net capital outflow.

The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected, production is

more profitable and employment and output rises.

In the short run, an increase in the costs of production makes

output rise and prices fall.

When the Federal Reserve decreases the federal funds target rate, the lower rate is achieved through

purchases of government bonds, which reduces interest rates and causes people to hold more money.

In 2002, it looked like the Argentinian government might default on its debt (which eventually it did). The open-economy macroeconomic model predicts that this should have

raised Argentinean real interest rates and caused the Argentinean currency to depreciate.

If purchasing-power parity holds, then the value of the

real exchange rate is equal to one.

In the open-economy macroeconomic model, the price that balances supply and demand in the market for foreign-currency exchange is the

real exchange rate.

A country's trade balance will fall if either

saving falls or investment rises

Suppose that U.S. firms desire to purchase more equipment and build more factories and stores in the United States. The effects of this are illustrated by

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

Liquidity preference theory is most relevant to the

short run and supposes that the interest rate adjusts to bring money supply and money demand into balance.

The velocity of money is

the average number of times per year a dollar is spent.

When the money supply curve shifts from MS2 to MS1,

the equilibrium value of money increases.

The Employment Act of 1946 states that

the government should promote full employment and production.

Which of the following can a country increase in the long run by increasing its money growth rate?

the nominal wage (not real)

Suppose the current equilibrium interest rate is r2. If the Federal Reserve increases the money supply, and the price level does not change,

there will be an increase in the equilibrium quantity of goods and services demanded.