Econ 110: chpt 18, 19, 20

A country has national saving of $90 billion, government expenditures of $30 billion, domestic investment of $50 billion, and net capital outflow of $40 billion. What is its demand for loanable funds?

$90 billion

Suppose that a country imports $90 million worth of goods and services and exports $80 million worth of goods and services. What is the value of net exports?

- $10 million

If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $3 in the U.S. and 6 pesos in Argentina what is the real exchange rate?

2

In the US a candy bar costs $1. If the nominal exchange rate were 6 Chinese yuan per dollar and the real exchange rate were 1.2, then, what would be the price of a candy bar in China?

5 yuan

Purchasing-power parity implies that the nominal exchange rate given as foreign currency per unit of US currency must rise if the price level(S) in A. foreign countries rise. B. the United States rises. C. all countries rise. D. all countries fall.

A foreign countries rise

If US citizens decide to save a larger fraction of their incomes, the real interest rate A. decreases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow increases. B. decreases, the real exchange rate of the dollar appreciates, and U.S. net capital outflow decreases. C. increases, the real exchange rate of the dollar appreciates, and U.S. net capital outflow decreases. D. increases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow increases.

A. decreases, the real exchange rate of the dollar depreciates, and US net capital outflow increases

Refer to Figure 33-1. If the economy starts at C, in the short run an increase in the money supply moves the economy to point

B ( shifts short-run aggregate demand right)

In the open-economy macroeconomic model, if investment demand decreases, then A. net exports and the real exchange rate rise. B. net exports rise and the real exchange rate falls. C. net exports fall and the real exchange rate rises. D. net exports and the real exchange rate fall.

B, net exports rise and the real exchange rate falls

If output above its natural rate, then according to sticky-wage theory A. workers and firms will strike bargains for higher wages. This increase in wages shifts the short-run aggregate supply curve right. B. workers and firms will strike bargains for higher wages. This increase in wages shifts the short-run aggregate supply curve left. C. workers and firms will strike bargains for lower wages. This decrease in wages shifts the short-run aggregate supply curve right. D. workers and firms will strike bargains for lower wages. This decrease in wages shifts the short-run aggregate supply curve left.

B. workers and firms will strike bargains for higher wages. This increase in wages shifts the short-run aggregate supply curve left.

Which of the following would cause investment spending to increase and aggregate demand to shift right? A. an increase in the money supply, but not an investment tax credit B. an investment tax credit, but not an increase in the money supply C. both an increase in the money supply and an investment tax credit D. None of the above are correct.

C. both an increase in the money supply and an investment tax credit

Part of the explanation for why the aggregate-demand curve slopes downward is that a decrease in the price level A. decreases the real value of money. B. increases the real value of the dollar in foreign exchange markets. C. decreases the interest rate. D. All of the above are correct.

C. decreases the interest rate

Refer to Figure 34-9. Suppose the economy is currently at point D. To restore full employment, the appropriate fiscal response A. requires the central bank to purchase government bonds, which will increase the money supply. B. is a reduction in government purchases. C. is a reduction in taxes. D. requires the central bank to sell government bonds, which will reduce the money supply.

C. is a reduction in taxes

A country has a trade deficit. Which of the following must also be true? A. net capital outflow is positive and domestic investment is larger than saving B. net capital outflow is positive and saving is larger than domestic investment C. net capital outflow is negative and domestic investment is larger than saving D. net capital outflow is negative and saving is larger than domestic investment

C. net capital outflow is negative and domestic investment is larger than saving

A US imposed quota on automobiles would shift A. both the demand and supply curves in the market for foreign-currency exchange right. B. both the demand and supply curves in the market for foreign-currency exchange right. C. only the demand curve in the market for foreign-currency exchange right. D. only the supply curve in the market for foreign-currency exchange right.

C. only the demand curve in the market for foreign-currency exchange

Which of the following does purchasing-power parity conclude should equal 1? A. both the nominal and the real exchange rate. B. the nominal exchange rate but not the real exchange rate C. the real exchange rate but not the nominal exchange rate D. neither the nominal exchange rate nor the real exchange rate

C. the real exchange rate but no the nominal exchange rate

In 2001, the United States was in recession. Which of the following things would you not expect to have happened A. increased layoffs and firings B. a higher rate of bankruptcy C. increased claims for unemployment insurance D. increased investment spending

D. increased investment spending

Refer to Figure 34-9. Suppose the economy is currently at point A. To restore full employment, the appropriate monetary response A. requires the central bank to purchase government bonds, which will increase the money supply. B. is a reduction in government purchases. C. is a reduction in taxes. D. requires the central bank to sell government bonds, which will reduce the money supply.

D. requires the central bank to sell government bonds, which will reduce the money supply

If a country has a trade deficit then

S < I and Y < C + I + G

Refer to Figure 32-5. In the market for foreign-currency exchange, the effects of a increase in the budget surplus can be illustrated as a move from j to

k

If the purchasing-power parity holds, the price level in the US is 250, and the price level in Japan is 260, which of the following is true? A. the real exchange rate is 250/260 B. the real exchange rate is 260/250 C. the nominal exchange rate is 250/260 D. the nominal exchange rate is 260/250

the nominal exchange rate is 260/250

The classical dichotomy and monetary neutrality are represented by A. an upward-sloping long-run aggregate-supply curve. B. a vertical long-run aggregate-supply curve. C. an upward-sloping short-run aggregate-curve. D. a downward-sloping aggregate-demand curve.

B. a vertical long-run aggregate supply curve

Case 1. Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tension, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time. Which curve shifts and in which direction? A. aggregate demand shifts right B. aggregate demand shifts left C. aggregate supply shifts right. D. aggregate supply shifts left.

B. aggregate demand shifts left

A country has private saving of $100 billion, public saving of -$30 billion, domestic investment of $50 billion, and net capital outflow of $20 billion. What is its supply of loanable funds?

$70 billion

An Egyptian tourist is trying to decide if a watch for sale in the U.S. is a good deal and so wants to convert the price in U.S. dollars to Egyptian pounds. If the exchange rate is 5 Egyptian pounds per U.S. dollar, a watch hat costs $25 US dollars costs

125 Egyptian pounds

A country sells more to foreign countries than it buys from them. It has A. a trade surplus and positive net exports. B. a trade surplus and negative net exports. C. a trade deficit and positive net exports. D. a trade deficit and negative net exports.

A. a trade surplus and positive net exports

Which of the following shifts the long-run aggregate supply curve to the right? A. an increase in capital stock. B. an increase in the money supply C. an increase in consumer confidence D. tighter restrictions on international trade

A. an increase in capital stock

Other things the same, if the exchange rate changes from 6 Chinese yuan per dollar to 7 Chinese yuan per dollar, then the dollar A. appreciates and buys more Chinese goods. B. appreciates and buys fewer Chinese goods. C. depreciates and buys more Chinese goods. D. depreciates and buys fewer Chinese goods.

A. appreciates and buys more Chinese goods

The interest rate in a country goes up while the value of its currency falls. This might be due to A. capital flight B. investment incentives C. government borrowing D. government lending

A. capital flight

A U.S. firm buys bonds issued by a technology center in India. This purchase is an example of U.S. A. foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow. B. foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow. C. foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow. D. foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow.

A. foreign portfolio investment. By itself is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow

A country went from a government budget deficit to a surplus, national saving would A. increase, shifting the supply of loanable funds right. B. increase, shifting the supply of loanable funds left. C. decrease, shifting the demand for loanable funds right. D. decrease, shifting the demand for loanable funds left.

A. increase, shifting the supply of loanable funds right

When the US real interest rate falls, purchasing US assets becomes A. less attractive and so U.S. net capital outflow rises. B. less attractive and so U.S. net capital outflow falls. C. more attractive and so U.S. net capital outflow rises. D. more attractive and so U.S. net capital outflow falls.

A. less attractive and so US net capital outflow rises

Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners. A. more willing to purchase U.S. bonds, so U.S. net capital outflow would fall. B. more willing to purchase U.S. bonds, so U.S. net capital outflow would rise. C. less willing to purchase U.S. bonds, so U.S. net capital outflow would fall. D. less willing to purchase U.S. bonds, so U.S. net capital outflow would rise.

A. more willing to purchase U.S. bonds, so U.S. net capital outflow would fall

During recessions, automatic stabilizers tend to make the government's budget A. move toward deficit. B. move toward surplus. C. move toward balance. D. not necessarily move the budget in any particular direction.

A. move toward deficit

If a country has Y > C + I + G, then it has A. positive net capital outflow and positive net exports. B. positive net capital outflow and negative net exports. C. negative net capital outflow and positive net exports. D. negative net capital outflow and negative net exports.

A. positive net capital outflow and positive net exports

If the supply dollars in the market for foreign-currency exchange shifts left, then the exchange rate A. rises and the quantity of dollars exchanged falls. B. rises and the quantity of dollars exchanged does not change. C. rises and the quantity of dollars exchanged rises. D. falls and the quantity of dollars exchanged does not change.

A. rises and the quantity of dollars exchanged falls

If a country raises its budget deficit, then in the market for foreign-currency example A. supply shifts left. B. supply shifts right. C. demand shifts left. D. supply shifts right.

A. supply shifts left

If the demand of loanable funds shifts left, then A. the real interest rate and the equilibrium quantity of loanable funds both fall. B. the real interest rate falls and the equilibrium quantity of loanable funds rises. C. the real interest rate and the equilibrium quantity of loanable funds both rise. D. the real interest rate rises and the equilibrium quantity of loanable funds falls.

A. the real interest rate and the equilibrium quantity of loanable funds both fall

Refer to Figure 33-5. The shift of the short-run aggregate-supply curve from SRAS(1) to SRAS(2) A. could be caused by an outbreak of war in the Middle East. B. could be caused by a decrease in the price of energy. C. causes the economy to experience an increase in the unemployment rate. D. causes the economy to experience stagflation.

B. could be caused by a decrease in the price of energy

Aggregate demand shifts left when the government A. decreases taxes. B. cuts military expenditures. C. creates a new investment tax credit D. None of the above is correct.

B. cuts military expenditures

A German firm purchases a bond issued by United Express, a U.S. delivery company. As a result what happens to U.S. net capital outflow? A. We cannot calculate the effects bases on this information. B. It falls. C. It is unchanged. D. It rises.

B. it falls

In the open-economy macroeconomic model, if a country's supply of loanable funds shifts right, then A. net capital outflow rises, so the supply curve in the foreign exchange market shifts left. B. net capital outflow rises, so the supply curve in the foreign exchange market shifts right. C. net capital outflow falls, so the supply curve in the foreign exchange market shifts right. D. net capital outflow falls, so the supply curve in the foreign exchange market shifts left.

B. net capital outflow rises, so the supply curve in the foreign exchange market shifts right

Which of the following is an example of U.S. foreign direct investment? A. A Swedish car manufacturer opens a plant in Tennessee. B. A Dutch citizen buys shares of stock in a U.S. company. C. A U.S. based restaurant chain opens new restaurants in India. D. A U.S. citizen buys stock in companies located in Japan.

C. A U.S. based restaurant chain opens new restaurants in India

Which of the following shifts short-run aggregate supply right? A. an increase in the price of oil B. an increase in wages C. a decrease in the price of oil D. an increase in the actual price level

C. a decrease in the price of oil

The purchase of U.S. government bonds by Egyptians is an example of A. U.S. imports. B. U.S. exports. C. foreign portfolio investment by Egyptians. D. foreign direct investment by Egyptians.

C. foreign portfolio investment by Egyptians

Other things the same, an increase in the US real interest rate induces A. Americans to buy more foreign assets, which increases U.S. net capital outflow. B. Americans to buy more foreign assets, which reduces U.S. net capital outflow. C. foreigners to buy more U.S. assets, which reduces U.S. net capital outflow. D. foreigners to buy more U.S. assets, which increases U.S. net capital outflow.

C. foreigners to buy more US assets, which reduces US net capital outflow

In the open economy macroeconomics model, the price that balances supply and demand in the market for foreign-currency exchange model is the A. nominal exchange rate. B. nominal interest rate. C. real exchange rate. D. real interest rate.

C. real exchange rate

The ability to profit by purchasing wheat in the US and selling it in China implies that the A. nominal exchange rate is less than 1. B. nominal exchange rate is greater than 1. C. real exchange rate is less than 1. D. real exchange rate is greater than 1.

C. real exchange rate is less than 1

Consider an identical basket of goods in both the US and Taiwan. For a given nominal exchange rate, in which case is it certain that the US real exchange rate with Taiwan falls? A. the price of the basket of goods rises in the U.S. and Taiwan. B. the price of the basket of goods rises in the U.S. and falls in Taiwan. C. the price of the basket of goods falls in the U.S. and rises in Taiwan. D. the price of the basket of goods falls in both the U.S. and Taiwan.

C. the price of the basket of goods falls in the US and rises in Taiwan

Refer to Figure 33-4. If the economy is in long-run equilibrium, then an adverse shift in aggregate supply would move the economy from C to __ in the short run and ____ in the long run

D (SRAS shift left) , C (SRAS shift back to right)

Which of the following is always correct in an open economy? A. S = I B. S = NX + NCO C. S = NCO D. S = I + NCO

D. S = I +NCO

Other things the same, if the exchange rate changes from .8 euros per dollar to .9 euros per dollar, the dollar A. depreciates so U.S. goods become less expensive relative to foreign goods. B. depreciates so U.S. goods become more expensive relative to foreign goods. C. appreciates so U.S. goods become less expensive relative to foreign goods. D. appreciates so U.S. goods become more expensive relative to foreign goods.

D. appreciates so U.S. goods become more expensive relative to foreign goods

Suppose there was a large increase in net exports. If the Fed wanted to stabilize output, it could A. increase the money supply, which will reduce interest rates. B. decrease the money supply, which will reduce interest rates. C. increase the money supply, which will increase interest rates. D. decrease the money supply, which will increase interest rates.

D. decrease the money supply, which will increase interest rates

If US citizens decide to save a smaller fraction of their incomes, US domestic investment A. increases, and U.S. net capital outflow increases. B. increases, and U.S. net capital outflow decreases. C. decreases, and U.S. net capital outflow increases. D. decreases, and U.S. net capital outflow decreases.

D. decreases, and US net capital outflow decreases

In an open economy, the source for the demand for loanable funds is A. national saving. B. national saving + net capital outflow. C. investment D. investment + net capital outflow

D. investment + net capital outflow

An economic expansion caused by a shift aggregate demand remedies itself over time as the wage level A. falls, shifting aggregate demand right. B. rises, shifting aggregate demand left. C. falls, shifting aggregate supply right. D. rises, shifting aggregate supply left.

D. rises, shifting aggregate supply left

Case 1. Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tension, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time. What happens to the expected price level and what's the result for wage bargaining? A. The expected price level rises. Bargains are struck for higher wages. B. The expected price level rises. Bargains are struck for lower wages. C. The expected price level falls. Bargains are struck for higher wages. D. The expected price level falls. Bargains are struck for lower wages.

D. the expected price level falls. Bargains are struck for lower wages.

Case 1. Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tension, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time. How is the new long-run equilibrium different from the original one? A. both price and real GDP are higher. B. both price and real GDP are lower. C. the price level is the same and GDP is lower. D. the price level is lower and real GDP is the same.

D. the price level is lower and real GDP is the same

If the supply of loanable funds shifts left, then A. the real interest rate and the equilibrium quantity of loanable funds both fall. B. the real interest rate falls and the equilibrium quantity of loanable funds rises. C. the real interest rate and the equilibrium quantity of loanable funds both rise. D. the real interest rate rises and the equilibrium quantity of loanable funds falls.

D. the real interest rate rises and the equilibrium quantity of loanable funds falls

Refer to Figure 32-5. The initial effect of an increase in the budget deficit in the loanable funds market can be illustrated as a move from

b to a