Econ Macro-Final Practice Exam

Ann, a U.S. citizen, uses some previously obtained euros to purchase a bond issued by a Spanish company. This transaction a. decreases U.S. net capital outflow. b. increases U.S. net capital outflow by the value of the bond. c. does not change U.S. net capital outflow. d. increases U.S. net capital outflow by more than the value of the bond.

c. does not change U.S. net capital outflow.

All saving in the U.S. economy shows up as a. investment in the U.S. economy. b. U.S. net capital outflow. c. either investment in the U.S. economy or U.S. net capital outflow. d. None of the above is correct.

c. either investment in the U.S. economy or U.S. net capital outflow.

If the MPC is 0, then the multiplier is a. 0. b. 1. c. infinite. d. None of the above is correct.

b. 1.

If the real exchange rate is 5/4 pounds of Chilean beef per pound of U.S. beef, a pound of U.S. beef costs $2 and the nominal exchange rate is 500 Chilean pesos per dollar, then Chilean beef costs a. 1,250 pesos per pound. b. 800 pesos per pound c. 250 pesos per pound. d. None of the above is correct.

b. 800 pesos per pound

Assume the MPC is 0.80. The multiplier is a. 0.80. b. 4.25. c. 1.25. d. 5.00.

d. 5.00.

Which of the following statements is correct for the long run? a. Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level is relatively slow to adjust. b. Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money. c. Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for money; the price level adjusts to balance the supply and demand for loanable funds. d. Output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money.

b. Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money.

If net exports fall $40 billion and the MPC is 8/11 and there is a multiplier effect, but no crowding out and no investment accelerator, then a. aggregate demand falls by 3 x $40 billion. b. aggregate demand falls by 11/3 x $40 billion. c. aggregate demand falls by 11/8 x $40 billion. d. None of the above is correct.

b. aggregate demand falls by 11/3 x $40 billion.

If the dollar appreciates because of speculation or government policy U.S. a. aggregate demand shifts left. U.S. aggregate demand shifts right if other countries experience recessions. b. aggregate demand shifts left. U.S. aggregate demand also shifts left if other countries experience recessions. c. aggregate demand shifts right. U.S. aggregate demand also shifts right if other countries experience recessions. d. aggregate demand shifts right. U.S. aggregate demand shifts left if other countries experience recessions.

b. aggregate demand shifts left. U.S. aggregate demand also shifts left if other countries experience recessions.

Consider the following sequence of events: price level Þ demand for money Þ equilibrium interest rate Þ quantity of goods and services demanded ¯ This sequence explains why the a. money-supply curve is vertical. b. aggregate-demand curve slopes downward. c. aggregate-demand curve shifts leftward in response to a monetary injection. d. aggregate-demand curve shifts rightward in response to a monetary injection.

b. aggregate-demand curve slopes downward.

Which of the following both shift aggregate demand left? a. a decrease in taxes and at a given price level consumers feel less wealthy b. an increase in taxes and at a given price level consumers feel less wealthy c. a decrease in taxes and at a given price level consumers feel more wealthy d. an increase in taxes and at a given price level consumers feel more wealthy

b. an increase in taxes and at a given price level consumers feel less wealthy

When the dollar depreciates, U.S. a. exports and imports decrease. b. exports increase, while imports decrease. c. exports decrease, while imports increase. d. exports and imports increase.

b. exports increase, while imports decrease.

According to the theory of liquidity preference, the money supply a. and money demand are negatively related to the interest rate. b. is independent of the interest rate, while money demand is negatively related to the interest rate. c. and money demand are positively related to the interest rate. d. is negatively related to the interest rate while money demand is positively related to the interest rate.

b. is independent of the interest rate, while money demand is negatively related to the interest rate.

Assume the MPC is 0.75. Assuming only the multiplier effect matters, a decrease in government purchases of $100 billion will shift the aggregate demand curve to the a. left by $200 billion. b. left by $400 billion. c. right by $800 billion. d. None of the above is correct.

b. left by $400 billion.

Assume the MPC is 0.625. Assuming only the multiplier effect matters, a decrease in government purchases of $10 billion will shift the aggregate demand curve to the a. left by about $13.3 billion. b. left by about $26.7 billion. c. right by about $36.7 billion. d. None of the above is correct.

b. left by about $26.7 billion.

If Ireland's domestic investment exceeds national saving, then Ireland has a. positive net capital outflows and negative net exports. b. negative net capital outflows and negative net exports. c. positive net capital outflows and positive net exports. d. negative net capital outflows and positive net exports. 1 points

b. negative net capital outflows and negative net exports.

If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as a. e + P*/P. b. e(P/P*). c. e - P/P*. d. e(P*/P).

b. e(P/P*).

A basket of goods costs $800 in the U.S. In Belgium the basket of goods costs 800 euros and the exchange rate is .80 euros per U.S. dollar. In Japan the basket of goods costs 720,000 yen and the exchange rate is 900 yen per dollar. Which country has purchasing-power parity with the U.S.? a. both b. Belgium but not Japan c. Japan but not Belgium d. neither Belgium nor Japan

c. Japan but not Belgium

If a country has Y > C + I + G, then a. S > I and it has a trade deficit. b. S < I and it has a trade surplus. c. S > I and it has a trade surplus. d. S < I and it has a trade deficit.

c. S > I and it has a trade surplus.

When the Fed decreases the money supply, we expect a. interest rates and stock prices to fall. b. interest rates and stock prices to rise. c. interest rates to rise and stock prices to fall. d. interest rates to fall and stock prices to rise.

c. interest rates to rise and stock prices to fall.

The aggregate-demand curve a. has a slope that is explained in the same way as the slope of the demand curve for a particular product. b. is vertical in the long run. c. shows an inverse relation between the price level and the quantity of all goods and services demanded. d. All of the above are correct.

c. shows an inverse relation between the price level and the quantity of all goods and services demanded.

Purchasing-power parity describes the forces that determine a. prices in the long run. b. exchange rates in the short run. c. prices in the short run. d. exchange rates in the long run.

d. exchange rates in the long run.

If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by a. decreasing the money supply, which raises interest rates. b. increasing the money supply, which raises interest rates. c. decreasing the money supply, which lowers interest rates. d. increasing the money supply, which lowers interest rates.

d. increasing the money supply, which lowers interest rates.

As the price level falls a. people will want to buy more bonds, so the interest rate rises. b. people will want to buy fewer bonds, so the interest rate falls. c. people will want to buy fewer bonds, so the interest rate rises. d. people will want to buy more bonds, so the interest rate falls.

d. people will want to buy more bonds, so the interest rate falls.

Suppose that the Federal reserve is concerned about the effects of rising stock prices on the economy. What could it do? a. sell bonds to raise the interest rate b. buy bonds to lower the interest rate c. buy bonds to raise the interest rate d. sell bonds to raise the interest rate

d. sell bonds to raise the interest rate

In an open economy, gross domestic product equals $2,450 billion, consumption expenditure equals $1,390 billion, government expenditure equals $325 billion, investment equals $510 and net capital outflow equals $225 billion. What is national saving? a. $735 billion b. $1,390 billion c. $510 billion d. $225 billion

a. $735 billion

Which of the following is correct? a. When real GDP falls, the rate of unemployment rises. b. During economic contractions most firms experience rising sales. c. Short run fluctuations in economic activity happen only in developing countries. d. Recessions come at regular intervals and are easy to predict.

a. When real GDP falls, the rate of unemployment rises.

Suppose that the nominal exchange rate is 80 yen per dollar, that the price of a basket of goods in the U.S. is $500 and the price of a basket of goods in Japan is 50,000 yen. Suppose that these values change to 100 yen per dollar, $600, and 70,000 yen. Then the real exchange rate would a. appreciate which by itself would make U.S. net exports fall. b. depreciate which by itself would make U.S. net exports rise. c. appreciate which by itself would make U.S. net exports rise. d. depreciate which by itself would make U.S. net exports fall.

a. appreciate which by itself would make U.S. net exports fall.

Other things the same, if prices fell when firms and workers were expecting them to rise, then a. employment would fall and production would rise. b. employment and production would rise. c. employment would rise and production would fall. d. employment and production would fall.

d. employment and production would fall.

People will want to hold less money if the price level a. decreases or if the interest rate increases. b. increases or if the interest rate increases. c. increases or if the interest rate decreases. d. decreases or if the interest rate decreases.

Correcta. decreases or if the interest rate increases.

A U.S. citizen buys bonds issued by a construction equipment manufacturer in Poland. Her expenditures are U.S. a. foreign portfolio investment that increase U.S. net capital outflow. b. foreign portfolio investment that decrease U.S. net capital outflow. c. foreign direct investment that increase U.S. net capital outflow. d. foreign direct investment that decrease U.S. net capital outflow.

Correcta. foreign portfolio investment that increase U.S. net capital outflow.

If a country has a trade surplus a. it has positive net exports and positive net capital outflow. b. it has negative net exports and positive net capital outflow. c. it has positive net exports and negative net capital outflow. d. it has negative net exports and negative net capital outflow.

Correcta. it has positive net exports and positive net capital outflow.

Suppose that U.S. citizens purchase more cars made in Korea, and Koreans purchase more bonds issued by U.S. corporations. Other things the same, these actions a. lower both U.S. net exports and U.S. net capital outflows. b. lower U.S. net exports and raise U.S. net capital outflows. c. raise U.S. net exports and lower U.S. net capital outflows. d. raise both U.S. net exports and U.S. net capital outflows.

Correcta. lower both U.S. net exports and U.S. net capital outflows.

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 a. lower than desired prices which leads to an increase in the aggregate quantity of goods and services supplied. b. lower than desired prices which leads to a decrease in the aggregate quantity of goods and services supplied c. higher than desired prices which leads to a decrease in the aggregate quantity of goods and service supplied. d. higher than desired prices which leads to an increase in the aggregate quantity of goods and services supplied.

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

According to John Maynard Keynes, a. the demand for money in a country is determined entirely by that nation's central bank. b. the interest rate adjusts to balance the supply of, and demand for, money. c. the supply of money in a country is determined by the overall wealth of the citizens of that country. d. the interest rate adjusts to balance the supply of, and demand for, goods and services.

Correctb. the interest rate adjusts to balance the supply of, and demand for, money.

Which of the following properly describes the interest-rate effect that helps explain the slope of the aggregate-demand curve? a. As the money supply increases, the interest rate rises, so spending falls. b. As the money supply increases, the interest rate falls, so spending rises. c. As the price level increases, the interest rate rises, so spending falls. d. As the price level increases, the interest rate falls, so spending rises.

Correctc. As the price level increases, the interest rate rises, so spending falls.

A U.S. company uses U.K. pounds it already owned to purchase bonds issued by a company in the U.K. Which of these countries has an increase in net capital outflow? a. The U.S. but not the U.K. b. The U.K. but not the U.S. c. Neither the U.S. nor the U.K. d. The U.S. and the U.K.

Correctc. Neither the U.S. nor the U.K.

When the government reduces taxes, which of the following decreases? a. consumption b. take-home pay c. household saving d. None of the above is correct.

Correctd. None of the above is correct.

If the price level falls, then a. the interest rate falls and spending on goods and services falls. b. the interest rate rises and spending on goods and services falls. c. the interest rate rises and spending on goods and services rises. d. the interest rate falls and spending on goods and services rises.

Correctd. the interest rate falls and spending on goods and services rises.

Initially, the economy is in long-run equilibrium. The aggregate demand curve then shifts $80 billion to the left. The government wants to change spending to offset this decrease in demand. The MPC is 0.75. Suppose the effect on aggregate demand of a tax change is 3/4 as strong as the effect of a change in government expenditure. There is no crowding out and no accelerator effect. What should the government do if it wants to offset the decrease in real GDP? a. Raise both taxes and expenditures by $80 billion dollars. b. Reduce both taxes and expenditures by $80 billion dollars. c. Raise both taxes and expenditures by $10 billion dollars. d. Reduce both taxes and expenditures by $10 billion dollars.

a. Raise both taxes and expenditures by $80 billion dollars.

According to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied, then the interest rate will a. increase and the quantity of money demanded will decrease. b. increase and the quantity of money demanded will increase. c. decrease and the quantity of money demanded will decrease. d. decrease and the quantity of money demanded will increase.

a. increase and the quantity of money demanded will decrease.

Sheri, a U.S. citizen, builds and operates a bookstore in Spain. This action is an example of a. investment for Sheri and U.S. foreign direct investment. b. U.S. foreign direct investment and U.S. domestic investment. c. U.S. foreign portfolio investment and U.S. domestic investment. d. investment for Sheri and U.S. foreign portfolio investment.

a. investment for Sheri and U.S. foreign direct investment.

Other things the same, the aggregate quantity of output supplied will increase if the price level a. is higher than expected so that firms believe the relative price of their output has increased. b. is higher than expected so that firms believe the relative price of their output has decreased. c. is lower than expected so that firms believe the relative price of their output has increased. d. is lower than expected so that firms believe the relative price of their output has decreased.

a. is higher than expected so that firms believe the relative price of their output has increased.

If a country has positive net capital outflows, then its net exports are a. positive, and its saving is larger than its domestic investment. b. negative, and its saving is larger than its domestic investment. c. negative, and its saving is smaller than its domestic investment. d. positive, and its saving is smaller than its domestic investment.

a. positive, and its saving is larger than its domestic investment.

Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions, then we would expect that in the short-run, a. real GDP will fall and the price level might rise, fall, or stay the same. b. the price level will fall, and real GDP might rise, fall, or stay the same. c. real GDP will rise and the price level might rise, fall, or stay the same. d. the price level will rise, and real GDP might rise, fall, or stay the same.

a. real GDP will fall and the price level might rise, fall, or stay the same.

The discovery of a large amount of previously-undiscovered oil in the U.S. would shift a. the long-run aggregate-supply curve to the right. b. the long-run aggregate-supply curve to the left. c. the aggregate-demand curve to the left. d. None of the above is correct.

a. the long-run aggregate-supply curve to the right.

Political Instability Abroad 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. Refer to Political Instability Abroad. What would the change in the exchange rate make happen to U.S. net exports and U.S. aggregate demand? a. Net exports would rise which by itself would decrease U.S. aggregate demand. b. Net exports would fall which by itself would increase U.S. aggregate demand. c. Net exports would rise which by itself would increase U.S. aggregate demand. d. Net exports would fall which by itself would decrease U.S. aggregate demand.

d. Net exports would fall which by itself would decrease U.S. aggregate demand.

U.S. exports are $400 billion, U.S. imports are $900 billion. Which of the following are consistent with the level of net exports? a. The U.S has a trade deficit. The U.S. purchases $800 of foreign assets and foreign countries purchase $300 of U.S. assets. b. The U.S. has a trade surplus. The U.S. purchases $300 of foreign assets and foreign countries purchase $800 of U.S. assets. c. The U.S has a trade surplus. The U.S. purchases $800 of foreign assets and foreign countries purchase $300 of U.S. assets. d. The U.S. has a trade deficit. The U.S. purchases $300 of foreign assets and foreign countries purchase $800 of U.S. asset.

d. The U.S. has a trade deficit. The U.S. purchases $300 of foreign assets and foreign countries purchase $800 of U.S. asset.

Which of the following would increase the price level? a. a decrease in the expected price level. b. a decrease in the natural rate of unemployment. c. an increase in taxes. d. an increase in the money supply.

d. an increase in the money supply.

When Ghana sells chocolate to the United States, U.S. net exports a. increase, and U.S. net capital outflow increases. b. increase, and U.S. net capital outflow decreases. c. decrease, and U.S. net capital outflow increases. d. decrease, and U.S. net capital outflow decreases.

d. decrease, and U.S. net capital outflow decreases.