Econ Exam #4

Based on these data, the nominal exchange rate equals approximately ______ reals per Swiss franc or, equivalently, ______ Swiss francs per real.

1.053; 0.950

A leftward shift of the AS curve indicates:

A decreases in aggregated supply

When actual output is less than potential output, there is ______ output gap and the rate of inflation will tend to ______.

A recessionary; decrease

A positive demand shock will shift the _____ curve to the _____.

AD; right

Inflation inertia is the tendency for inflation to:

Change relatively slowly from year to year

Government policy actions intended to increase planned spending and output are called _____ policies.

Expansionary

A demand shock is a change in planed spending that is:

Not caused by changes in output or changes in the inflation rate.

The economy is in short-run equilibrium:

When the Ad and As curves intersect at a level of real GDP that is above or below Y*

The aggregated supply curve will shift downward in response to:

a decrease in the expected rate of inflation

A large increase in oil prices is an example of:

a negative inflation shock

A large decrease in oil prices is an example of:

a positive inflation shock

An example of negative inflation shock is:

a significant rise in oil prices

The basic Keynesian model is built on the key assumption that:

aggregated demand is the key driver of production, or output and GDP, for an economy

Starting from potential output, if consumer confidence decreases and consumers decide to spend less, then this will shift the _____ curve to the left and generate _____.

aggregated demand; a recessionary output gap

Starting from potential output, if consumer confidence increases and consumers decide to spend more, then this will shift the ______ curve to the right and generate _______________.

aggregated demand; an expansionary output gap

As the available technology improves, _____ shift to the ______.

aggregated supply; right

The marginal propensity to consume (mpc) is the:

amount by which consumption increases when disposable income increases by $1

Suppose that the economy is initially in equilibrium with out Y2 and inflation rate of π3. An increase in military spending will generate: (Quiz Ch. 13 #33 picture)

an expansionary gap

When actual output exceeds potential output, there is ______ output gap and the inflation rate will ______.

an expansionary; exceed the expected rate of inflation

When actual output exceeds potential output there is ______ output gap and the rate of inflation will tend to ______.

an expansionary; increase

People's expectations of future inflation that do not change even if inflation rises temporarily are called ______ inflationary expectations.

anchored

Which of the following policies is likely to enhance a central bank's credibility?

announce inflation targets

An increase in the nominal exchange rate, e, defined as the number of units of the foreign currency that one unit of the domestic currency will buy, indicates that the domestic currency has ________ relative to the foreign currency.

appreciated

An increase in the value of a currency relative to other currencies is called a(n):

appreciation

Central banks independence refers to situations in which central bankers:

are insulated from short-term political considerations

Provisions in the law that imply automatic increases in government spending or decreases in taxes when real output declines are called

automatic stabilizers

Total taxes paid divided by total before-tax income is called the:

average tax rate

The AD curve can be shifted by:

both fiscal and monetary policy

The bursting of the housing bubble in 2006 caused ______ to cut back on their spending, thereby shifting the AD curve ______.

business and households; left

Net capital outflows equal:

capital outflows minus capital inflows

In the Keynesian model, it is assumed that, when demand for a firm's product changes, the firm:

changes production levels to meet the demand

The largest component of aggregated expenditure is:

consumption

The four components of aggregated expenditure are:

consumption, investment, government purchases, and net exports

Government policy actions intended to decrease planned spending and output are called _____ policies.

contractionary

Long-run equilibrium in the economy: (Quiz Ch. 13 #28 picture)

could occur if AS shifts downward and to the right

The two negative demand shocks that caused the Great Recession were:

declining house prices and the 2008 financial panic

The credibility of monetary policy is the:

degree to which the public believes that central bank's promises to keep inflation low, even if doing so may impose short-run costs

The inside leg of macroeconomics policy is the:

delay between when a policy change is needed and the policy is implemented

Then the nominal exchange changes from 120 yen per dollar to 110 yen per dollar, the dollar has:

depreciated

A decrease in the value of a currency relative to other currencies is called a(n):

depreciation

The self-correcting tendency of the economy means that rising inflation eventually eliminates:

expansionary gaps

The economy pictured in the figure has a(n) _____ gap with a short-run equilibrium combination of the price level and output indicated by point _____.

expansionary; A

Starting from potential output, if firms become more optimistic about the future and decide to increase their investment in new capital, then this will generate a(n) _____ gap and inflation will ______.

expansionary; increase

A country's trade surplus occurs when:

exports exceed imports

Relative to workers in Western Europe, workers in the US:

face lower marginal tax rate and work more hours per year

THe principal of demanders of US dollars in the foreign exchange market are:

foreigners wishing to purchase US goods or assests

Starting from long-run equilibrium, a negative inflation shock results in a short-run equilibrium with ______ inflation and ______ output.

higher;lower

A trade deficit occurs when:

imports exceed exports

Most economists believe that the reduced variability of inflation in the US is the result of:

improved monetary policymaking by the Fed.

Lower taxes on interest income:

increase growth rates by increasing saving and thus investments

In the basic Keynesian model, an increase in government purchases:

increases short-run equilibrium

Following an adverse inflation shock the economy will return to potential more rapidly if:

inflationary expectations are anchored

The larger the mpc, the ______ the government-expenditure multiplier and the ______ the effect of a change in government spending on short-run equilibrium output.

larger;larger

Evidence from work hours and marginal tax rates in different countries suggest that:

lower marginal tax rates encourage more work hours

The inside lag is relatively shorter for _____ policy and the outside leg is relatively shorter for _____ policy.

monetary;fiscal

The greater the credibility of monetary policy the _____ likely inflationary expectations are to be anchored and the _____ the recessions caused by adverse inflation shocks.

more;shorter

Firms suddenly becoming pessimistic about future business prospects is an example of a ________ demand shock, which would shift the AD curve to the _______.

negative; left

The delay between the date a policy change is implemented and the date when most of its effects have occurred in the economy is called the:

outside leg

An increase in the interest rate directly affects ______, but also has an indirect effect on _______ because of its effect on exchange rates.

planned consumption and investment; net exports

An economy with a trade deficit must also have:

positive net capital inflows

An economy with a trade surplus must also have:

positive net capital outflows

A sudden increase in household wealth is an example of a _____ demand shock, which would shift the AD curve to the ______.

positive; right

The law of one price states that if transportation costs are relatively small, then the:

price of an internationally traded commodity must be the same in all locations

From the point of view of a particular country, capital inflows are:

purchases of domestic assets by foreigners

From the point of view of a particular country, capital outflows are:

purchases of foreign assets by domestic households or firms

International capital flows are:

purchases or sales of real and financial assets across international borders

The theory that nominal exchange rates are determined so that the law of one price holds is called:

purchasing power parity

The nominal exchange rate is the:

rate at which two currencies can be traded for each other

The self-correcting tendency of the economy means that falling inflation eventually eliminates:

recessionary gaps

For an economy starting at potential output, a decrease in consumption and investment expenditure in the short run results in a:

recessionary output gap

Starting from potential output, if consumer confidence decreases and consumers decide to spend less, then this will generate a(n) ______ gap and inflation will _____.

recessionary; decrease

The economy pictured in the figure has a(n) _______ gap with a short-run equilibrium indicated by point ______. (Quiz Ch. 13 #27 picture)

recessionary; point A

The basic Keynesian model, a tax increase:

reduces short-run equilibrium output

An increase in aggregated supply is usually shown by a ______ shift of the As curve.

rightward

The AD curve _____ because, holding all else constant an increase in ______ causes C, I^P and NX to fall.

slopes downward; the inflation rate

Policymaker's use of stabilization policy to eliminate output gaps is more appropriate when an economy self corrects very _____ and when the output gap is very _____.

slowly;large

A circle of low expected inflation leads to _______ increases in wages and costs and to ______ actual inflation.

small;low

US firms wishing to purchase European goods and services are _________ the foreign exchange market.

suppliers of US dollars in

Fiscal policy includes:

tax policy and government expenditures

The marginal tax rate is:

the amount by which taxes increase when before-tax income rises by an additional dollar

The nominal exchange rate, e, is defined as the number of units of:

the foreign currency that one unit of domestic currency will buy

The effect of a one-unit increase in government expenditure on short-run equilibrium output is called

the government-expenditure multiplier

The time between when Congress decides to cut taxes to stimulate aggregated demand and when the tax cuts are implemented is an example of:

the inside lag in fiscal policy

The time between when the Federal Reserve policymakers decide to close an output gap and when they act to change the fed funds rate is an example of:

the inside leg in macroeconomic policy

The speed at which an economy returns to potential following an adverse inflation shock depends on;

the public's expectations of how the Federal Reserve will act

A country's trade balance equals:

the value of exports minus the value of imports

The economy is in long-run equilibrium:

when the AD and AS curves intersect at potential output Y*