Econ 202 final

The key idea of the aggregate expenditure model is that in any particular year the level of GDP is determined by the level of

Aggregate expenditure

Fiscal policy is determined by

Congress and the President

The laffer curve shows that a decrease in tax rates

Could increase tax revenue

A (blank) in the foreign exchange value of the dollar is referred to as a (blank) of the dollar

Decrease; depreciation

An appreciation in the U.S dollar

Decreases U.S. Exports and Increases U.S. imports, implying that U.S. net exports will Decrease. Shifting the aggregate demand curve to the left and the aggregate expenditure line down

The supply of U.S. dollars is a derived (blank) for foreign goods, services, and (blank)

Demand; assets

The foreign exchange rate for the U.S dollar is determined by the blank for dollars and the blank of dollars

Demand; supply

The demand for U.S dollars is a (blank)demand for (blank )goods, services, and (blank(real and financial))

Derived; U.S. ; assets

The federal reserve was established in 1913 to

End bank panics by acting as a lender of last resort

For purposes of monetary policy which interest rate does the federal reserve target? The

Federal funds rate

The demand for U.S. dollars is by (blank) firms and household, and currency traders, and they get dollars by supplying pesos

Foreign

Financial changes most in

Short run

In the basic aggregate demand - aggregate supply model, the long run automatic adjustment mechanism to potential GDP in the long run from a level of real GDP below potential GDP occurs as the blank shifts to the blank

Short run aggregate supply, right

Which statement best describes supply-side economics

Tax rates, particularly marginal tax rates, affect the incentive to work, save, and invest and, therefore, aggregate supply.

Monetary policy is determined by

The federal reserve

The demand for dollars is not the same as our domestic demand for money

True

The demand for dollars is the mirror image of the supply of pesos

True

Demand for dollars will increase if

U.S. Interest rates increase Foreign interest rates decrease Foreign financial assets become more risky

The demand for US dollars in the foreign exchange market is a derived demand for

U.S. goods, services, and assets

In the graph of the short-run model of foreign exchange rates, what variable is on the horizontal axis? The quantity of

US dollars

A depreciation in the foreign exchange value of the u.s. dollar makes

US exports less expensive

Does an appreciation of the Dollar help U.S. consumers?

Yes products are cheaper

Does an appreciation of the dollar hurt US exporters? How?

Yes! Products cost more but they get the same amount

Currency depreciation

a decrease in the market value of one currency relative to another currency

In the graph of the aggregate expenditure model, what variable is on the vertical axis?

aggregate expenditure

When a recession causes a budget deficit, an annual balanced-budget amendment would require the government to enact

contractionary fiscal policy -- a decrease in government spending and/or an increase in taxes -- to balance the budget this year

Which type of unemployment does the aggregate expenditure model explain

cyclical unemployment

automatic stabilizers refer to

government spending and taxes that automatically increase or decrease along with the business cycle

By increasing the interest rate on bank reserves deposited at the Fed, the Fed can ________ the level of excess reserves banks are willing to hold, thereby ___________ bank lending

increase; decreasing

If the quantity of goods and services produced in the economy decreases

it may be possible for nominal GDP to increase

A commercial bank creates money by

making loans

To explain inflation in the long run, we use the

quantity theory of money

The federal government debt equals the

the accumulation of past budget deficits minus budget surpluses

A depreciation in the foreign exchange value of the U.S. dollar would cause

the aggregate expenditure line to shift up

If cyclical unemployment is eliminated in the economy, then

the economy is considered to be at full employment

The rule of 70 states that

the number of years it takes an economy to double in size is 70 divided by the growth rate.

In the aggregate expenditure model, an increase in foreign real GDP would cause the aggregate expenditure line to shift

up, increasing equilibrium real GDP

The federal reserve defines the monetary policy goal of price stability to mean an average inflation rate equal to

2 percent

Using the quantity equation expressed in growth rates, if the velocity of money is constant, the money supply grows at 6 percent and real GDP grows at 2 percent, then the inflation rate will be

4 percent

Which of the following would cause the foreign exchange value of the US dollar to appreciaote

A decrease in foreign interest rates

Which of the following would cause the U.S. dollar to depreciate

A decrease in the risk of foreign financial assets

Which of the following would cause the U.S dollar to appreciate

An increase in U.S. interest rates

If the economy is in a short run equilibrium with real GDP above potential GDP p, an appropriate monetary policy would be

An increase in interest rates

In the static aggregate demand -aggregate supply model , a decrease in foreign exchange value of the dollar will in the short run lead to blank in real GDP and blank in the price level

An increase, an increase

Interest rates in the U.S. (blank) relative to interest rates in foreign countries

Increase

An (blank) in the foreign exchange value of the dollar is referred to as an (blank) of the dollar

Increase; appreciation

A recession tends to cause the federal budget deficit to (blank) because tax revenues (blank)and government spending on transfer payments (blank)

Increase;fall;rise

Rick in financial assets in foreign countries (blank) relative to risk in financial assets in the U.S

Increases

long run

Inflation

short run

Interest rates

In the aggregate expenditure model, if aggregate expenditure is less than real GDP, how will the economy reach macroeconomic equilibrium?

Inventories will rise, and real GDP and employment will decline

Suppose real GDP is 1 trillion below potential GDP. If the marginal propensity to consume equals 0.5 then for real GDP to reach potential GDP autonomous spending must increase by

Less than 1 trillion

Quantity Theory of Money Equation

M x V = P x Y

The real interest rate equals the nominal interest rate (blank) the inflation rate

Minus

Do US exporters receive a higher price when the dollar appreciates?

No. They still receive the same price when the value of the dollar appreciates.

What price index does the federal reserve use for its inflation target?

Personal consumption expenditure price index(PCE)

An appreciation of the U.S. dollar (blanks) the cost of U.S. exports and (blanks) the cost of imports into the U.S., decreasing net exports

Raises; lowers

How do we choose between 2 financial assets

Rate of return (interest rate), risk

If the economy is in a short run equilibrium with a real GDP below potential GDP an appropriate fiscal policy would be

decrease taxes

The value of total income for an economy ____ the value of total production

equals

net exports=

exports - imports

The supply for US dollars in the foreign exchange market is a derived demand for

foreign goods, services, and assets

In the static (basic) aggregate demand - aggregate supply model, which of the following would cause a recession? A decrease in

government purchases