Econ Final
If the Fed conducts open-market purchases, the money supply
increases and aggregate demand shifts right.
Which of the following is not a tool of monetary policy?
increasing the government budget deficit
When the Fed decreases the money supply, we expect
interest rates to rise and stock prices to fall.
Recession come at
irregular intervals. During recessions investment spending falls relatively more than consumption spending.
If the economy is initially at long-run equilibrium and aggregate demand declines, then in the long run the price level
is lower and output is the same as the original long-run equilibrium.
The inflation rate is defined as the
percentage change in the price level from the previous period.
If the Fed conducts open-market purchases, then which of the following quantities increase(s)?
prices and investment spending, but not interest rates
Most economists believe that fiscal policy
primarily affects aggregate demand.
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 rises.
Which of the following is not included in aggregate demand?
purchases of stock and bonds
If the real exchange rate between the U.S. and Argentina is 1, then
purchasing power parity holds, and the amount of dollars needed to buy goods in the U.S. is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina.
The aggregate demand and aggregate supply graph has
quantity of output on the horizontal axis. Output can be measured by real GDP.
The nominal exchange rate is the
rate at which a person can trade the currency of one country for another
The nominal exchange rate is the
rate at which a person can trade the currency of one country for another.
The model of short-run economic fluctuations focuses on the price level and
real GDP
Suppose the economy is in long-run equilibrium. Senator A succeeds in getting taxes raised. At the same time, Senator B succeeds in getting major new restrictions on logging enacted. In the short run
real GDP will fall and the price level might rise, fall, or stay the same.
The aggregate quantity of goods and services demanded changes as the price level rises because
real wealth falls, interest rates rise, and the dollar appreciates.
Stagflation exists when prices
rise and output falls.
Other things the same, if the price level rises, then domestic interest rates
rise, so domestic residents will want to hold fewer foreign bonds.
Other things the same, when the price level rises, interest rates
rise, so firms decrease investment.
Other things the same, a higher interest rate induces people to
save more, so the supply of loanable funds slopes upward.
If there is a trade deficit, then
saving is less than domestic investment and Y < C + I + G.
In the long run, fiscal policy primarily affects
saving, investment, and growth. In the short run, it affects primarily aggregate demand.
Suppose there were a large increase in net exports. If the Fed wanted to stabilize output, it could
sell bonds to decrease the money supply.
Suppose that the Federal reserve is concerned about the effects of rising stock prices on the economy. What could it do?
sell bonds to raise the interest rate
Economic expansions in Germany and Japan would cause
the U.S. price level and real GDP to rise.
You are planning a graduation trip to Nepal. Other things the same, if the dollar appreciates relative to the Nepalese rupee, then
the dollar buys more rupees. Your purchases in Nepal will require fewer dollars.
As the price level falls,
the exchange rate rises, so net exports rise.
In recent years, the Federal Reserve has conducted monetary policy by setting a target for
the federal funds rate.
The discovery of a large amount of previously-undiscovered oil in the U.S. would shift
the long-run aggregate-supply curve to the right.
Which of the following is not an automatic stabilizer?
the minimum wage
During some year a country had exports of $50 billion, imports of $35 billion, and purchased $30 billion of foreign assets. What was the value of domestic assets purchased by foreigners?
$15 billion
If the exchange rate is 125 yen = $1, a bottle of rice wine that costs 2,500 yen costs
$20
A country has $60 million of saving and domestic investment of $40 million. Net exports are
$20 million.
Which government agency is responsible for conducting monetary policy in the U.S.?
The Federal Reserve
If the stock market crashes, then
aggregate demand decreases, which the Fed could offset by increasing the money supply.
The multiplier effect is exemplified by the multi;red impact on
aggregate demand of a given increase in government purchases.
The long-run aggregate supply curve would shift right if the government were to
decrease the minimum-wage.
Suppose a fall in stock prices makes people feel poorer. The decrease in wealth would induce people to desire
decreased consumption, shifting the aggregate-demand curve to the left.
Other things the same, if the price level is lower than expected, then some firms believe that the relative price of what they produce has
decreased, so they decrease production.
If the Fed conducts open-market sales, the money supply
decreases and aggregate demand shifts left.
When taxes increase, consumption
decreases, so aggregate demand shifts left.
Other things the same, if the exchange rate changes from 125 yen per dollar to 115 yen per dollar, the dollar has
depreciated and so buys fewer Japanese goods.
Other things the same, if the exchange rate changes from 41 Thai bhat per dollar to 35 Thai bhat per dollar, then the dollar has
depreciated and so buys fewer Thai goods.
An economic contraction caused by a shift in aggregate demand causes prices to
fall in the short run, and fall even more in the long run.
Other things the same, during recessions taxes tend to
fall. The fall in taxes stimulates aggregate demand.
During recessions investment
falls by a larger percentage than GDP.
Permanent tax cuts shift the AD curve
farther to the right than do temporary tax cuts.
Net capital outflow is defined as the purchase of
foreign assets by domestic residents minus the purchase of domestic assets by foreign residents.
A U.S. firm buys bonds issued by a technology center in India. This purchase is an example of U.S.
foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow.
Fiscal policy refers to the idea that aggregate demand is affected by changes in
government spending and taxes.
Other things the same, if the price level rises by 2% and people were expecting it to rise by 5%, then some firms have
higher than desired prices which depresses their sales.
The long-run aggregate supply curve shifts right if
immigration from abroad increases. the capital stock increases. technology advances.
Fiscal policy affects the economy
in both the short and long run.
Which of the following shifts short-run, but not long-run aggregate supply right?
a decrease in the expected price level
Which of the following shifts aggregate demand to the left?
a decrease in the money supply
Oceania buys $40 of wine from Escudia and Escudia buys $100 of wool from Oceania. Supposing this is the only trade that these countries do. What are the net exports of Oceania and Escudia in that order?
$60 and -$60
In an open economy, gross domestic product equals $2,450 billion, consumption expenditure equals $1,390 billion, government expenditure equals $325 billion, investment equals $510 and net capital outflow equals $225 billion. What is national saving?
$735 billion
If the exchange rate is 5 units of Peruvian currency per dollar and a hotel room in Lima costs 300 units of Peruvian currency, then how many dollars do you need to get a room?
60 and your purchase will increase Peru's net exports.
In the United States, a three-pound can of coffee costs about $5. If the exchange rate is about 0.6 euros per dollar and a three-pound can of coffee in Belgium costs about 4 euros. What is the real exchange rate?
3/4 cans of Belgian coffee per can of U.S. coffee
In the U.S. a candy bar costs $1. The nominal exchange rate is 6 Chinese yuan per dollar. If the real exchange rate is 1.2, then, what is the price of a candy bar in China?
5 yuan
The exchange rate is 1.5 Bosnian markas per U.S. dollar. The price of a refrigerator in Bosnia is 1,200 markas while in the U.S. it is $1,000. The real exchange rate is
5/4
Suppose a Starbucks tall-latte cost $4.00 in the United States and 3.20 euros in the Euro area. Also, suppose a McDonald's Big Mac costs $3.50 in the United States and 2.45 euros in Euro area. If the nominal exchange rate is .80 euros per dollar, which goods have prices that are consistent with purchasing power parity?
Neither the tall-latte nor the Big Mac.
Which of the following would cause prices to fall and output to rise in the short run?
Short-run aggregate supply shifts right.
If U.S. exports are $150 billion and U.S. imports are $100 billion, which of the following is correct?
The U.S. has a trade surplus of $50 billion.
Which of the sentences concerning the aggregate demand and aggregate supply model is correct?
The aggregate supply curve shows the quantity of goods and services that households, firms, and the government want to buy at each price.
Which of the following does NOT add to U.S. GDP?
The federal government sends a Social Security check to your grandmother.
U.S. based John Deere sells machinery to residents of South Africa who pay with South African currency (the rand).
This increases U.S. net capital outflow because the U.S. acquires foreign assets.
When Claudia, a U.S. citizen, purchases a handbag made in France, the purchase is
a U.S. import and a French export
The price level rises in the short run if
aggregate demand shifts right or aggregate supply shifts left.
Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift
aggregate demand to the right.
The multiplier effect
amplifies the effects of an increase in government expenditures, while the crowding-out effect diminishes the effects.
Which of the following policy actions shifts the aggregate-demand curve to the left?
an increase in taxes
Which of the following shifts aggregate demand to the left?
an increase in the price level
Tax cuts
and increases in government expenditures shift aggregate demand right.
If purchasing-power parity holds, a dollar will buy
as many goods in foreign countries as it does in the United States.
If Congress cuts spending to balance the federal budget, the Fed can act to prevent unemployment and recession by
buying bonds to increase the money supply
Supply-side economists believe that changes in government purchases affect
both aggregate demand and aggregate supply.
Suppose that some people are counted as unemployed when, to maintain unemployment compensation, they search for work only at places where they are unlikely to be hired. If these individuals were counted as out of the labor force instead of as unemployed, then
both the unemployment rate and labor-force participation rate would be lower.
Which of the following Fed actions would both increase the money supply?
buy bonds and lower the reserve requirement
Domestic saving must equal domestic investment in
closed, but not open economies.
Bob, a Greek citizen, opens a restaurant in Chicago. His expenditures
decrease U.S. net capital outflow, but increase Greek net capital outflow.
Sonya, a citizen of Denmark, produces boots and shoes that she sells to department stores in the United States. Other things the same, these sales
decrease U.S. net exports and increase Danish net exports.
In order to include many different goods and services in an aggregate measure, GDP is computed using, primarily,
market prices
A depreciation of the U.S. real exchange rate induces U.S. consumers to buy
more domestic goods and more foreign goods.
Other things the same, if a country saves less, then
net capital outflow falls, so net exports fall
A Japanese firm buys lumber from the United States and pays for it with yen. Other things the same, Japanese
net exports decrease, and U.S. net capital outflow increases.
Which of the following can explain the upward slope of the short-run aggregate supply curve?
nominal wages are slow to adjust to changing economic conditions
Which type(s) of economies interact with other economies?
only open economies
A decrease in the expected price level shifts
only the short-run aggregate supply curve right.
Other things the same, if the capital stock increases, then in the long run
output is higher and prices are lower
Suppose the economy is in long-run equilibrium. In a short span of time, there is a decline in the money supply, a tax increase, a pessimistic revision of expectations about future business conditions, and a rise in the value of the dollar. In the short run, we would expect
the price level and real GDP both to fall.
The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if
the price level is higher than expected making production more profitable.
Aggregate demand includes
the quantity of goods and services households, firms, the government, and customer abroad want to buy.
The term crowding-out effect refers to
the reduction in aggregate demand that results when a fiscal expansion causes the interest rate to increase.
Real and nominal variables are highly intertwined, and changes in the money supply change real GDP. Most economists would agree that this statement accurately describes
the short run, but not the long run.
When production costs rise,
the short-run aggregate supply curve shifts to the left.
The primary argument against active monetary and fiscal policy is that
these policies affect the economy with a long lag.
During periods of expansion, automatic stabilizers cause government expenditures
to fall and taxes to rise.
Which of the following will both make people spend more?
wealth rises and interest rates fall.
