Macro Economics Final 2040

The term hyperinflation refers to

a period of very high inflation

Which of the following would both shift aggregate demand right?

government expenditures increase and the money supply increases

The long-run aggregate supply curve shifts right if

immigration from abroad increases, the capital stock increases, & technology advances

Most economists believe that money neutrality holds

in the long run but not the short run

Most economists believe that classical macroeconomic theory is a good description of the economy

in the long run, but not in the short run

According to the misperceptions theory of aggregate supply, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, then the firm would believe that the relative price of what it produced had

increased, so it would increase production

When the price level rises, the number of dollars needed to buy a representative basket of goods

increases, so the value of money falls

The interest-rate effect

is the most important reason, in the case of the United States, for the downward slope of the aggregate-demand curve

Which of the following rises during recessions?

layoffs but not consumer spending

Other things the same, an increase in the price level makes consumers feel

less wealthy, so the quantity of goods and services demanded falls

Other things the same, an increase in the price level makes the dollars people hold worth

less, so they can buy less

The sticky-price theory of the short-run aggregate supply curve says that when the price level is higher than expected, some firms will have

lower than desired prices which leads to an increase in the aggregate quantity of goods and services supplied

The effect of an increase in the price level on the aggregate demand curve is represented by a

movement to the left along a given aggregate-demand curve

If the economy starts at A and moves to D in the short run, the economy

moves to C in the long run

If the economy is at A and there is a fall in aggregate demand, in the short run the economy

moves to D

If a country raises its budget deficit, then its

net capital outflow and net exports fall

In the open-economy macroeconomic model, if the U.S. interest rate rises then its

net capital outflow falls, so the supply of dollars in the market for foreign exchange shifts left

In the open-economy macroeconomic model, if investment demand increases, then

net exports fall and the real exchange rate rises

If foreigners want to buy more U.S. bonds, then in the market for foreign-currency exchange the exchange rate

net exports rise and the real exchange rate falls

According to the assumptions of the quantity theory of money, if the money supply increases by 5 percent, then

nominal GDP would rise by 5 percent, real GDP would be unchanged

If the Fed purchases bonds in the open market, then the money supply curve shifts right. A change in the price level does

not shift the money supply curve

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

production is less profitable and employment falls

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

When real GDP falls, the rate of unemployment

rises

As the price level rises, the exchange rate

rises, so exports fall and imports rise

The aggregate demand curve shifts right if either

speculators lose confidence in U.S. assets or foreign countries enter into recession

In order to understand how the economy works in the short run we need to

study a model in which real and nominal variables interact

An increase in the U.S. government budget deficit shifts the

supply of loanable funds left and decreases investment spending

Net exports are affected by

tastes of consumers, prices of goods at home and abroad, the incomes of consumers at home and abroad, and the government policies toward international trade

The imposition of an import quota shifts

the demand for currency right, so the exchange rate rises

What effects help to explain the slope of the aggregate-demand curve?

the exchange rate effect, the wealth effect, the interest-rate effect

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

the inflation rate and nominal interest rates

Which of the following is correct concerning the open-economy macroeconomic model?

the net-capital-outflow curve slopes downward

When the money market is drawn with the value of money on the vertical axis, if the money supply rises

the price level rises and the value of money falls

Aggregate demand includes

the quantity of goods and services households, firms, the government, and customers abroad want to buy

When the interest rate is above the equilibrium level

the quantity of money that people want to hold is less than the quantity of money that the Fed has supplied, people respond by buying interest-bearing bonds or by depositing money in interest-bearing bank accounts, bond issuers and banks respond by lowering the interest rates they offer

Which of the following effects provide incentives for consumers to spend less when the price level rises?

the wealth effect and the interest-rate effect

If the economy starts at C, an increase in the money supply moves the economy

to A in the long run

An increase in the money supply would move the economy from C to

to B in the short run and A in the long run

Another name given to Net Exports

trade balance

Which of the following typically rises during a recession?

unemployment

The long-run aggregate supply curve shifts right if technology

improves

A paperback book in the U.S. costs $6. In Chile it costs 4 pesos. If the nominal exchange rate is 1/2 peso per dollar, what is the real exchange rate?

3/4

Based on the quantity equation, if Y = 3,000, P = 4, and V = 3, then M =

4,000

The economy would be moving to long-run equilibrium if it started at

D and moved to C

Other things the same, when the government spends more, the initial effect is that

aggregate demand shifts right

Which of the following shifts both the short-turn and long-run aggregate supply right?

an increase in the capital stock

According to the aggregate demand and aggregate supply model, in the long run an increase in the money supply leads to

an increase in the price level but does not change real GDP

When Mexico suffered from capital flight in 1994, Mexico's net capital outflow

and net exports increased

Which of the following decreases in response to the interest-rate effect from an increase in the price level?

both investment and consumption

Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time. 20.Refer to Financial Crisis. What happens to the price level and real GDP in the short run?

both the price level and real GDP fall

People hold money primarily because it

can directly be used to buy goods and services

Suppose a stock market crash makes people feel poorer. This decrease in wealth would induce people to

decrease consumption, which shifts aggregate demand to the left

According to the mis-perceptions theory of the short-run aggregate supply curve, if a firm thought that inflation was going to be 4 percent and actual inflation was 2 percent, then the firm would believe that the relative price of what it produces had

decreased, so it would decrease production

When net capital outflow is positive it means

domestic residents are spending more on foreign assets than foreigners are spending on domestic assets

If Y and V are constant and M doubles, the quantity equation implies that the price level

doubles

If P = domestic prices, P* = foreign prices, and e is the nominal exchange rate, which of the following is implied by purchasing-power parity?

e = P*/P