Econ 111 Final

A country has domestic investment of $235 billion. Its citizens purchase $610 billion of foreign assets and foreign citizens purchase $300 billion of its assets. What is national saving? $310 billion $545 billion $235 billion $300 billion

$545 billion - national Savings (s) - S= I+NX - I= Domestic investment = $235 billion - NX= Net exports =$300 billion ----S= $235 billion + $300 billion = 545 Billion

A country has national saving of $60 billion, government expenditures of $40 billion, domestic investment of $10 billion, and net capital outflow of $45 billion. What is its supply of loanable funds? $40 billion $100 billion $60 billion $105 billion

$60 billion S=I+NX I= domestic investments NX= exports - imports

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. Aggregate demand shifts right. Aggregate supply shifts left. Aggregate supply shifts right.

Aggregate demand shifts left - government decreases its demand total demand. - aggregate demand will decrease and - decrease in demand is shown by shifting the demand curve to left - increase in demand is shown by shifting the demand curve to right.

The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for the slope of short-run aggregate supply. the slope of long-run aggregate supply. the slope of the aggregate-demand curve. shifts in the aggregate-demand curve.

the slope of the aggregate-demand curve

Which of the following would cause stagflation? Aggregate demand shifts right. Aggregate demand shifts left. Aggregate supply shifts right. Aggregate supply shifts left.

Aggregate supply shifts left. - Stagflation is a situation which is a combination of both inflation and stagnation of the economy. - When the economy's supply curve shift to the left, the price level to increase which is a part of the inflation and also the real GDP declines which is a part of the stagnation. Thus, left shift of the aggregate supply curve causes the stagflation.

Other things the same, which of the following would cause the real exchange rate to rise? Both an increase in the real interest rate and an increase in foreign demand for U.S. goods and services. An increase in the real interest rate, but not an increase in foreign demand for U.S. goods and services. An increase in foreign demand for U.S. goods and service, but not an increase in the U.S. real interest rate. Neither an increase in the U.S. real interest rate nor an increase in the demand for U.S. goods and services.

Both an increase in the real interest rate and an increase in foreign demand for U.S. goods and services - Factors -- interest rate increases - More money staying in the country -- US goods demand increases - More money coming into the country

People had been expecting the price level to be 120 but it turns out to be 122. In response Robinson Tire Company increases the number of workers it employs. What could explain this? Both sticky price theory and sticky wage theory Sticky price theory but not sticky wage theory Sticky wage theory but not sticky price theory Neither sticky wage theory nor sticky price theory

Both sticky price theory and sticky wage theory

In 2008, the United States was in recession. Which of the following things would you not expect to have happened? Increased layoffs and firings A higher rate of bankruptcy Increased claims for unemployment insurance Increased real GDP

Increased real GDP

Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. What would happen to the dollar? It would appreciate in foreign exchange markets making U.S. goods more expensive compared to foreign goods. It would appreciate in foreign exchange markets making U.S. goods less expensive compared to foreign goods. It would depreciate in foreign exchange markets making U.S. goods more expensive compared to foreign goods. It would depreciate in foreign exchange markets making U.S. goods less expensive compared to foreign goods.

It would appreciate in foreign exchange markets making U.S. goods more expensive compared to foreign goods.

Suppose the economy starts at R. Stagflation would be consistent with the move to P1 and Y1. P1 and Y3. P3 and Y1. P3 and Y3.

P3 to Y1 - refer to question 40

Suppose the economy starts at Point R. If aggregate demand increases from AD2 to AD3, then in the short run the economy moves to Point O. Point Q. Point P. Point S.

Point O. - see question 36

If the economy is in long-run equilibrium, then an adverse shift in short-run aggregate supply would move the economy from O to P. Q to R. P to O. R to Q.

Q to R. - see question 34

In the open-economy macroeconomic model, the market for loanable funds identity can be written as S = I. S = NCO. S + I = NCO.

S = I + NCO.

Which of the following is not a determinant of the long-run level of real GDP? The price level The amount of capital used by firms Available stock of human capital Available technology

The price level

If real interest rates rose more in Canada than in the United States, then other things the same U.S. citizens would buy more Canadian bonds and Canadians would buy more U.S. bonds. U.S. citizens would buy more Canadian bonds and Canadians would buy fewer U.S. bonds. U.S. citizens would buy fewer Canadian bonds and Canadians would buy fewer U.S. bonds. U.S. citizens would buy fewer Canadian bonds and Canadians would buy more U.S. bonds.

U.S. citizens would buy more Canadian bonds and Canadians would buy fewer U.S. bonds.

The natural level of output occurs at Y1 Y2. Y3. both Y1 and Y3.

Y2. (refer to question 28) - SRAS1 and AD1 equilibrium - natural = original equilibrium

When Mexico suffered from capital flight in 1994, Mexico's net capital outflow and net exports decreased. and net exports increased. increased while net exports decreased. decreased while net exports increased.

and net exports increased. - capital flight = large demand loss for products in country

Economic expansions (boom) in Canada would cause the U.S. price level and real GDP to rise. and real GDP to fall. to rise and real GDP to fall. to fall and real GDP to rise.

and real GDP to rise.

The initial effect of an increase in the budget deficit in the loanable funds market shown in graph (a) can be illustrated as a move from a to b b to a a to c d to a

b to a - deficit in loanable funds = less quantity = shift left

The shift of the short-run aggregate-supply curve from SRAS1 to SRAS2 could be caused by an outbreak of war in the Middle East. could be caused by a decrease in the expected price level. causes the economy to experience an increase in the unemployment rate. causes the economy to experience stagflation.

could be caused by a decrease in the expected price level. - see question 35

If a country places tariffs on imported goods, then its currency appreciates which reduces exports leaving the trade balance unchanged. currency appreciates which increases exports improving the trade balance. currency depreciates which reduces exports leaving the trade balance unchanged. currency depreciates which increases exports improving the trade balance.

currency appreciates which reduces exports leaving the trade balance unchanged. - tariff = more money domestically, less imports and exports = no change to trade balance

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. demand left. supply right. supply left.

demand right.

In an open economy, national saving equals domestic investment plus net capital outflow. domestic investment minus net capital outflow. domestic investment. net capital outflow.

domestic investment plus net capital outflow.

If the real exchange rate for the dollar is above the equilibrium level, the quantity of dollars supplied in the market for foreign-currency exchange is greater than the quantity demanded and the dollar will appreciate. greater than the quantity demanded and the dollar will depreciate. less than the quantity demanded and the dollar will appreciate. less than the quantity demanded and the dollar will depreciate.

greater than the quantity demanded and the dollar will depreciate. - Above equilibrium on supply curve - supplied > demanded --value depreciates

The economic boom of the early 1940s resulted mostly from increased government expenditures. falling prices of oil and other natural resources. an increase in the growth rate of the money supply. rapid developments in transportation, electronics, and communication.

increased government expenditures.

When the Fed buys bonds the supply of money increases and so aggregate demand shifts right. decreases and so aggregate demand shifts left. decreases and so aggregate demand shifts right. increases and so aggregate demand shifts left.

increases and so aggregate demand shifts right.

In the market for foreign-currency exchange, the effects of an increase in the budget surplus shown in graph (c) can be illustrated as a move from j to g h i k

k - refer to question 16 - budget surplus on demand slope = shift right (down)

The sticky-price theory of the short-run aggregate supply curve says that if the price level rises by 5% while firms were expecting it to rise by 2%, then some firms with high menu costs will have higher than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied. higher than desired prices, which leads to a decrease in the aggregate quantity of goods and services supplied. lower than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied. lower than desired prices, which leads to a decrease in the aggregate quantity of goods and services supplied.

lower than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied. -Sticky-price theory:some sellers set prices in nominal terms that do not adjust quickly in response to changes in the aggregate price level --

Because a government budget deficit represents negative public saving, it increases national saving. positive public saving, it increases national saving. positive public saving, it decreases national saving. negative public saving, it decreases national saving

negative public saving, it decreases national saving - Private savings= income of the household which is saved after all consumption. - Public savings= tax income of govt. - govt. Spending. - National savings = public + private savings.

At the equilibrium real interest rate in the open-economy macroeconomic model, saving = domestic investment. saving = net capital outflow. net capital outflow = domestic investment. net capital outflow + domestic investment = saving.

net capital outflow + domestic investment = saving. - S= I+NX

If a country has a positive net capital outflow, then on net it is purchasing assets from abroad. This adds to its demand for domestically generated loanable funds. on net it is purchasing assets from abroad. This subtracts from its demand for domestically generated loanable funds. on net other countries are purchasing assets from it. This adds to its demand for domestically generated loanable funds. on net other countries are purchasing assets from it. This subtracts from its demand for domestically generated loanable funds.

on net it is purchasing assets from abroad. This adds to its demand for domestically generated loanable funds.

Other things the same, if technology increases, then in the long run both output and prices are higher. output is higher and prices are lower. output is lower and prices are higher. both output and prices are lower.

output is higher and prices are lower. - increase in tech = more output (production ability) -> quantity increases = price decreases

Other things the same, a higher real interest rate decreases the quantity of loanable funds supplied. raises domestic investment. raises loanable funds demanded. raises the quantity of loanable funds supplied.

raises the quantity of loanable funds supplied.

Suppose that foreigners had reduced confidence in U.S. financial institutions and believed that privately issued U.S. bonds were more likely to be defaulted on. U.S. net exports would rise which by itself would increase aggregate demand. rise which by itself would decrease aggregate demand. fall which by itself would increase aggregate demand. fall which by itself would decrease aggregate demand.

rise which by itself would increase aggregate demand.

If the United States raised its tariff on tires, then at the original exchange rate there would be a surplus in the market for foreign-currency exchange, so the real exchange rate would appreciate. surplus in the market for foreign-currency exchange, so the real exchange rate would depreciate. shortage in the market for foreign-currency exchange, so the real exchange rate would appreciate. shortage in the market for foreign-currency exchange, so the real exchange rate would depreciate.

shortage in the market for foreign-currency exchange, so the real exchange rate would appreciate. - tariff = shortage on foreign goods = exchange rate appreciates

In the market for foreign-currency exchange, capital flight shifts the demand curve right. demand curve left. supply curve right. supply curve left.

supply curve right.

The explanation for the slope of the supply of loanable funds curve is based on the logic that a higher real interest rate leads to higher saving. demand for loanable funds curve is based on the logic that a higher interest rate leads to higher saving. supply of loanable funds curve is based on the logic that a higher real interest rate leads to lower saving. demand for loanable funds curve is based on the logic that a higher interest rate leads to lower saving.

supply of loanable funds curve is based on the logic that a higher real interest rate leads to higher saving

If the real interest rate is 7 percent, there will be a shortage of $60 billion. surplus of $80 billion. shortage of $80 billion. surplus of $60 billion.

surplus of $60 billion. - at 7% only 10 billion is needed - supply slope is giving out the 70 billion (refer to question 11 image)

If the quantity of loanable funds supplied is greater than the quantity demanded, then there is a shortage of loanable funds and the interest rate will fall. shortage of loanable funds and the interest rate will rise. surplus of loanable funds and the interest rate will rise. surplus of loanable funds and the interest rate will fall.

surplus of loanable funds and the interest rate will fall.

If the economy starts at O, a decrease in the money supply moves the economy to P in the long run. to Q in the long run. back to O in the long run. to R in the long run.

to Q in the long run - refer to question 32