Econ

According to the law of one price, if a particular bottle of perfume costs $2 in the United States and 200 yen in Japan, and if transaction costs are zero, the exchange rate should be

100 yen per dollar

A reduction in tax rates may not stimulate the economy if

The tax cut is temporary and does not change permanent disposable income

Suppose taxes decrease by $100 billion. If everything else stays constant and the marginal propensity to consume is 0.8, the value of equilibrium output increases by

$400 billion

The reserve requirement is 10 percent. Mary takes $1,000 that she has held in currency in a shoebox and deposits it in the bank. In this case, the money supply can change by as much as

$9,000

If the nominal GDP increases by 10 percent when the inflation rate is 4 percent, then the increase in real GDP is

6 percent

In the short run, which of the following will most likely lead to a decrease in aggregate demand?

A decrease in consumer confidence

One justification for a personal income tax cut is to increase the labor supply. Given that this policy will increase aggregate demand and supply, there will be an inflationary pressure if

Aggregate demand grows more rapidly than aggregate supply

The Fed uses monetary policy to

Alter the money supply

A tariff imposed on foreign cars imported into the United States will

Be a benefit to domestic producers

Why is the long-run Phillips curve vertical?

Because any level of inflation can occur at the full-employment rate of unemployment in the long-run

If the inflation rate increased unexpectedly this year, and is expected to increase again next year, the market price of existing bonds and the interests paid by the initial borrower will

Bond Price: decrease, Interest Paid: no change

If the U.S. dollar decreases in value relative to the British pound

British bicycles will become more expensive in the United States

Which of the following events would be most likely to increase both aggregate demand and long run aggregate supply?

Businesses build more factories and increase capacity

Economists believe that unemployment is

Comprised of voluntary and involuntary elements

Suppose country A has a production possibilities frontier (PPF ) that is completely inside of country B's PPF. This means that

Country B can produce more of each good than can country A

If a person loses her job because the economy dips into a recession, this is an example of...

Cyclical unemployment

If the economy is in long-run equilibrium, there is no

Cyclical unemployment

Which of the following policies would definitely not discourage exports?

Decreasing the discount rate

In a nation, the current level of investment

Effects further capacity to produce

Relative to the price level in the United States, how will an increase in the price level in Japan affect US exports to Japan and the dollar's value, compared to the yen?

Exports: increase, Value of the Dollar: increases

Which of the following combinations of fiscal and monetary policies would have the greatest effect on inflation?

Fiscal Policy: decrease G spending, Monetary Policy: sell bonds

Graphically, economic growth can be represented by I. A rightward shift of the production possibilities curve II. A rightward shift of the long run AS curve III. A rightward shift of the AD curve

I and II

If the unemployment rate drops after the labor force has increased substantially, which of the following must be true? I. There are more people working in the labor force. II. There are fewer people unemployed III. A higher percentage of the labor force is working

I and III

In the short run, which of the following would be the biggest problem with the monetarists' view of constant growth of the money supply?

Inconstant velocity

Which of the following events would lessen the effect of an expansionary monetary policy by the Fed?

Increased excess reserves

All else being equal, which of the following effects is most likely in an open economy, when the government deficit spends?

Interest rates: increase, Investment: decrease, Exports: decrease

When an economy is operating at full capacity,

It is producing the output with the highest value possible

An increase in which of the following will most likely cause economic growth in the future

Level of investment

A contractionary fiscal policy would be the one that

Lowers government spending and/or raises taxes

Which of the following combinations of actions by the Fed will have the greatest expansionary effect?

Open Market Operations: buy bonds, Discount Rate: decrease, Reserve Requirement: decrease

In a small country, the GDP was $500 billion in year one, and $510 billion in year two. Inflation was one percent, and the population increased by 10 percent. We can conclude that

Per capita real GDP decreased

According to flexible wages and prices model, an increase in the money supply in the long run will

Price Level: increase, Output: no change, Nominal Wages: increase

Changes in all of the following except one will shift aggregate demand. Which one will not cause a shift in aggregate demand

Prices

Which of the following does not characterize the classical view of the economy?

Prices and wages do not automatically adjust in the short run

If monetary policy is to be effective at prompting a short-run increase in aggregate demand and a long-run increase in aggregate supply, investment must be

Sensitive to interest rates and include increase in capital stock

The marginal propensity to consume (MPC) represents the

Share of any additional disposable income spend on consumption

Which of the following would be inconsistent with the Phillips curve?

Stagflation

Let's assume that recent oil prices are higher than normal. What effect with this have on aggregate supply?

The AS curve will shift to the left

Suppose a Mexican worker can build 12 wheels or paint one frame in an hour. A Canadian worker can build eight wheels or paint two frames in an hour. Which of the following statements is true?

The Mexican worker has a comparative advantage in wheel production

A defining characteristic of long-run AD/AS equilibrium is

The economy operates at full employment

Which of the following lessens the impact of decreased output in the short run, without requiring action by the policy makers?

The existing tax rate

When a firm decides to invest in new capital, it looks at

The interest rate and the return on investment

The unemployment rate will increase whenever there is a(n)

increase in the number of persons classified as unemployed