Sorich Macro exam december 2022

According to the long-run Phillips curve, in the long run monetary policy influences

the inflation rate but not the unemployment rate.

Imagine that in the current year the economy is in long-run equilibrium. Then the federal government reduces its purchases of goods by 50%. Which curve shifts and in which direction?

Aggregate demand shifts left.

Proponents and opponents of balanced-budget policies agree that the government debt cannot continue to increase forever.

False

If a central bank increases the money supply in response to an adverse supply shock, then which of the following quantities moves closer to its pre-shock value as a result?

Output but not the price level

A year ago a country reduced the tax rate on all interest income from 40% to 10%. During the year private saving was $600 billion as compared to $500 billion the year before the tax reform. Taxes collected on interest income fell by $150 billion. Assuming no other changes in government revenues or spending which of the following is correct?

The substitution effect was larger than the income effect; national saving fell

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.

Economists who are skeptical about the relevance of "liquidity traps" argue that

a central bank continues to have tools to stimulate the economy, even after its interest rate target hits its lower bound of zero.

Figure 35-5 Refer to Figure 35-5. A significant increase in the world price of oil could explain

both the shift of the aggregate-supply curve from AS1 to AS2 and the shift of the Phillips curve from PC1 to PC2.

from 2001 to 2005 there was a dramatic rise in the value of houses. if this rise made homeowners feel wealthier then it would have shifted aggregate

demand right

The national debt

exists because of past government budget deficits.

The only way to rationalize an upward slope for the short run aggregate supply curve is to argue that wages are sticky in the short run

false

an increase in the money supply causes output to rise in the long run

false

In the early 1980s the Fed tightened monetary policy. Over the next few years inflation

fell but unemployment rose temporarily.

which of the following would not be directly included in aggregate demand

governments tax collection

A politician blames the Federal Reserve for being "soft on unemployment" and claims that a permanently higher money supply growth rate will lead to a permanent reduction in the unemployment rate. The politician's argument is

inconsistent with the long-run Phillips curve. Further, the long-run Phillips curve implies that such a policy would increase inflation.

According to traditional Keynesian analysis, if the economy is in a recession,

increases in government purchases are more effective than decreases in taxes.

When the interest rate increase, the opportunity cost of holding money

increases, so the quantity of money demanded decreases.

If inflation falls, people choose to put in

less effort to keep money balances low. When inflation is unexpectedly low it redistributes wealth from borrowers to lenders.

A significant example of a temporary tax cut was the one announced in 1992 by President George H. W. Bush. The effect of that tax cut on consumer spending and aggregate demand was

likely smaller than if the cut had been permanent.

If the MPC is 0.50 and there are no crowding-out or accelerator effects, then an initial increase in aggregate demand of $95 billion will eventually shift the aggregate demand curve to the right by

$190 billion.

Other things the same which fo the following would caise the reak exchange rate to rise

-Both an increase in the real interest rate and an increase in foreign demand for US goods and services

A us grocery chain borrows money to buy a warehouse in ohio and another in italy. Borrowing for which warehouses is included in the demand for loanable funds in the united states

-Both the one in ohio and the one in Italy

An increase in the government budget deficit shifts the supply of domestic currency in the market for foreign exchange to the right

-False

If Argentina suffers from capital flight, Argentina domestic investment and argentinean net exports will both decline

-False

In the open economy macroeconomic the supply of dollars in the market for foreign currency exchange is upward sloping

-False

The purchase of a capital asset adds to the demand for loanable funds only if that asset is a domestic one

-False

Other things the same a higher real interest rate

-Raises the quantity of loanable funds supplied

In the open economy macroeconomic model a higher domestic interest rate reduces the quantity of loanable finds demanded

-True

In an open economy national saving equals

-domestic investment plus net capital outflow

If US net exports are negative then net capital outflow is

-negative, so american assets bought by foreigners are greater than foreign assets bought by americans

Figure 32-3 Refer to the following diagram of the open economy macroeconomic model to answer the questions that follow

-net capital outflow+domestic investment=national savings

At the equilibrium real interest rate in the open economy macroeconomic model

-net capital outflow+domestic investment=saving

Other things the same in the open economy macroeconomic model if the real exchange rate rises the

-quantity of dollars demanded falls

Suppose an economy's marginal propensity to consume (MPC) is 0.6. Then 1 + MPC + MPC2 + MPC3 = 2.176 and, if we continued adding up terms in this geometric series, we would get closer and closer to the multiplier value of

2.5

Scenario 34-2. The following facts apply to a small economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. Refer to Scenario 34-2. In response to which of the following events could aggregate demand increase by $1,500?

A stock-market boom stimulates consumer spending by $550, and there is a small operative crowding-out effect.

Other things constant, which of the following would increase unemployment and reduce inflation?

Businesses become pessimistic about the future of the economy.

For a country such as the U.S., the wealth effect exerts a very important influence on the slope of the aggregate-demand curve, since U.S. wealth is large relative to wealth in most other countries.

False

The automatic stabilizers in the U.S. economy are sufficiently strong to prevent recessions.

False

The laws that created the Fed give it some specific recommendations about what goals it should pursue so it has little discretion in making policy.

False

The natural rate of unemployment is the same as the socially optimal rate of unemployment.

False

The short-run Phillips curve is based on the classical dichotomy.

False

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

Federal funds rate

Suppose economic growth in Japan increases U.S. net exports at every price level. Which of the following would you expect to occur in the U.S. as a result of this change?

In the short run, unemployment will decrease and inflation will rise.

If unemployment is above its natural rate, what happens to move the economy to long-run equilibrium?

Inflation expectations fall, which shifts the short-run Phillips curve to the left.

Which of the following is not an argument by those who oppose tax law changes to encourage saving?

Saving is not an important determinant of a nation's ability to produce output.

In the market for foreign currency exchange capital flight shifts the...

Supply curve right

If the quantity of loanable funds supplied is greater than the quantity demanded then there is a

Surplus of loanable funds and the interest rate will fall

Both the multiplier effect and the investment accelerator tend to make the aggregate-demand curve shift further than it does due to an initial increase in government expenditures.

True

If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money supply, then in the short run the Federal Reserve's action will raise inflation and lower unemployment.

True

In liquidity preference theory, an increase in the interest rate, other things the same, decreases the quantity of money demanded, but does not shift the money demand curve.

True

In most of the 1970s, the Fed's policy created expectations of high inflation.

True

In principle, the government could increase the money supply or increase government expenditures to try to offset the effects of a wave of pessimism about the future of the economy.

True

It is possible that the cost of inflation reduction might be quite large compared to the annual costs of moderate inflation.

True

Other things the same, an increase in aggregate demand reduces unemployment and raises inflation in the short run.

True

People's skepticism about central bankers' announcements of their intentions stems from the fact that policymakers may act in a fashion that is time inconsistent.

True

Social Security transfers wealth from younger generations to older generations.

True

The downward slope of aggregate demand curve is based on logic that as the price level rises consumption, investment, and net exports all fall.

True

suppose workers notice a fall in their nominal wage but are slow to notice that the price of things they consume have fallen by the same percentage they may infer that the reward to working is temporarily.

low and so supply a smaller quantity of labor.

One determinant of the long-run average unemployment rate is the

minimum wage, while the inflation rate depends primarily upon the money supply growth rate.

Figure 33-2 Refer to Figure 33-2. If the economy starts at O and moves to R in the short run, the economy

moves to Q in the long run

a goal of monetary policy and fiscal policy is to.

offset shifts in aggregate demand and thereby stabilize the economy

The time inconsistency of policy implies that

people expect Fed policy to be more inflationary than the Fed claims.

Figure 33-5 Refer to Figure 33-5. If the economy starts at Point R, then a recession occurs at

point p

Scenario 35-1 Suppose that in the first half of June 2022, the effects of a housing and financial crisis and an increase in world prices of oil and foodstuffs were affecting the economy. Refer to Scenario 35-1. In the short-run the effects of the housing and financial crises

reduce the inflation rate and raise the unemployment rate.

In 2009, Congress and President Obama approved tax cuts and increased government spending. According to the short-run Phillips curve these policies should have

reduced unemployment and raised inflation.

Some economists argue that since inflation

reduces the real value of fixed nominal wages, a little inflation may make it easier for labor markets to adjust.

In countries that have high minimum wages and require a lengthy and costly process to get permission to open a business,

reducing the minimum wage and the time and cost to open a business would both shift the long-run aggregate supply curve to the right.

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation, the short-run Phillips curve will remain far to the

right, and the sacrifice ratio will be high.

Figure 34-5 Refer to Figure 34-5. An increase in taxes will

shift aggregate demand from AD2 to AD3.

Which of the following might stabilize an economy that is at risk of inflation?

the Fed to sell government bonds.

Imagine that in the current year the economy is in long-run equilibrium. Then the federal government reduces its purchases of goods by 50% In the long run, what happens to the expected price level and what impact does this have on wage bargaining?

the expected price level falls. New wage contracts are negotiated at lower wages.

Classical economist David Hume observed that as the money supply expanded after gold discoveries it took some time for prices to rise and in the meantime the economy enjoyed higher employment and production. This is inconsistent with monetary neutrality because monetary neutrality would mean that

the prices should have risen, but production should not have changed.

aggregate demand includes

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

The recession of 2008-2009 was associated with a fall in the housing prices which shifted aggregate demand to the left

true

the recession of 2008-2009 was in many ways the worst macroeconomic event in more than half a century

true