Macro exam 3

The exchange rate is 1.5 Bosnian markas per U.S. dollar. The price of a refrigerator in Bosnia is 1,200 markas while in the U.S. it is $1,000. The real exchange rate is a. 9/5 b. 5/4 c. 4/5 d. None of the above are correct.

b. 5/4

Refer to Figure 33-9. Suppose the economy starts where LRAS = AD1 = SRAS1. A decrease in short-run aggregate supply would be consistent with the movement to a. P1, Y1. b. P2, Y1. c. P1, Y2. d. P3, Y2.

b. P2, Y1.

The nominal exchange rate is .80 euros per dollar and the real exchange rate is 4/3. Which of the following prices for a particular good are consistent with these exchange rates? a. $4 in the U.S. and 3 euros in Italy. b. $4 in the U.S. and 3.75 euros in Italy. c. $5 in the U.S. and 3 euros in Italy. d. $6 in the U.S. and 2.50 euros in Italy.

c. $5 in the U.S. and 3 euros in Italy.

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

c. S = I + NCO

Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift a. aggregate supply to the right. b. aggregate supply to the left. c. aggregate demand to the right. d. aggregate demand to the left.

c. aggregate demand to the right.

When the price level falls, the number of dollars needed to buy a representative basket of goods a. increases, so the value of money rises. b. increases, so the value of money falls. c. decreases, so the value of money rises. d. decreases, so the value of money falls.

c. decreases, so the value of money rises.

A limit on the quantity of a good produced abroad that can be purchased domestically is called a(n) a. tariff. b. excise tax. c. import quota. d. None of the above is correct.

c. import quota.

The multiplier effect states that there are additional shifts in aggregate demand from fiscal policy, because it a. reduces investment and thereby increases consumer spending. b. increases the money supply and thereby reduces interest rates. c. increases income and thereby increases consumer spending. d. decreases income and thereby increases consumer spending.

c. increases income and thereby increases consumer spending.

In the short-run an increase in the costs of production makes a. output and prices rise. b. output rise and prices fall. c. output fall and prices rise. d. output and prices fall.

c. output fall and prices rise.

If M = 2,000, P = 2.25, and Y= 6,000, what is velocity? a. 6.75. b. 3.00. c. 1.33. d. 1.50.

a. 6.75.

According to purchasing-power parity, if a basket of goods costs $100 in the U.S. and the same basket costs 800 pesos in Argentina, then what is the nominal exchange rate? a. 8 pesos per dollar b. 1 peso per dollar c. 1/8 peso per dollar d. none of the above is correct

a. 8 pesos per dollar

Which of the following does purchasing-power parity imply? a. The purchasing power of the dollar is the same in the U.S. as in foreign countries. b. The price of domestic goods relative to foreign goods cannot change. c. The nominal exchange rate is the ratio of U.S. prices to foreign prices. d. All of the above are correct.

a. The purchasing power of the dollar is the same in the U.S. as in foreign countries.

The interest-rate effect a. depends on the idea that decreases in interest rates increase the quantity of goods and services demanded. b. depends on the idea that decreases in interest rates decrease the quantity of goods and services demanded. c. is responsible for the downward slope of the money-demand curve. d. is the least important reason, in the case of the United States, for the downward slope of the aggregate- demand curve.

a. depends on the idea that decreases in interest rates increase the quantity of goods and services demanded.

Net capital outflow is defined as the purchase of a. foreign assets by domestic residents minus the purchase of domestic assets by foreign residents. b. foreign assets by domestic residents minus the purchase of foreign goods and services by domestic residents. c. domestic assets by foreign residents minus the purchase of domestic goods and services by foreign residents. d. domestic assets by foreign residents minus the purchase of foreign assets by domestic residents.

a. foreign assets by domestic residents minus the purchase of domestic assets by foreign residents.

Velocity is computed as the a. price level times real GDP divided by the money supply. b. price level times the money supply divided by real GDP. c. real GDP times the money supply divided by the price level. d. real GDP times the money supply divided by the rate at which money changes hands.

a. price level times real GDP divided by the money supply.

The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected, a. production is more profitable and employment rises. b. production is more profitable and employment falls. c. production is less profitable and employment rises. d. production is less profitable and employment falls.

a. production is more profitable and employment rises.

The aggregate supply curve is a. vertical in the long run and slopes upward in the short run. b. upward sloping in the long run and vertical in the short run. c. vertical in the short run and in the long run. d. upward sloping in the short run and in the long run.

a. vertical in the long run and slopes upward in the short run.

On a given morning, Franco sold 40 pairs of shoes for a total of $80 at his shoe store. a. The $80 is a real variable. The quantity of shoes is a nominal variable. b. The $80 is a nominal variable. The quantity of shoes is a real variable. c. Both the $80 and the quantity of shoes are nominal variables. d. Both the $80 and the quantity of shoes are real variables.

b. The $80 is a nominal variable. The quantity of shoes is a real variable.

When prices are falling, economists say that there is a. disinflation. b. deflation. c. a contraction. d. an inverted inflation.

b. deflation.

Other things the same an increase in the interest rate a. increases national saving, this is shown by moving along the demand for loanable funds curve. b. increases national saving, this is shown by moving along the supply of loanable funds curve. c. decreases national saving, this is shown by moving along the demand for loanable funds curve. d. decreases national saving, this is shown by moving along the supply of loanable funds curve.

b. increases national saving, this is shown by moving along the supply of loanable funds curve.

When the money supply decreases a. interest rates fall and so aggregate demand shifts right. b. interest rates fall and so aggregate demand shifts left. c. interest rates rise and so aggregate demand shifts right. d. interest rates rise and so aggregate demand shifts left.

b. interest rates fall and so aggregate demand shifts left.

Refer to Figure 33-5. The appearance of the long-run aggregate-supply (LRAS) curve a. is consistent with the concept of monetary neutrality. b. is consistent with the idea that point A represents a long-run equilibrium and a short-run equilibrium when the relevant short-run aggregate-supply curve is SRAS1. c. indicates that Y1 is the natural rate of output. d. All of the above are correct.

b. is consistent with the idea that point A represents a long-run equilibrium and a short-run equilibrium when the relevant short-run aggregate-supply curve is SRAS1.

Open-market purchases by the Fed a. make the price level and value of money fall. b. make the price level rise, and make the value of money fall. c. make the price level and make the value of money rise. d. make the price level fall, and make the value of money rise.

b. make the price level rise, and make the value of money fall.

Eric, a resident of Sweden, purchases a book printed in the U.S. Which country's exports increase? a. Sweden's b. the U.S.'s c. Sweden's and the U.S.'s d. neither Sweden's nor the U.S.'s

b. the U.S.'s

According to classical macroeconomic theory, changes in the money supply affect a. variables measured in terms of money and variables measured in terms of quantities or relative prices b. variables measured in terms of money but not variables measured in terms of quantities or relative prices c. variables measured in terms of quantities or relative prices, but not variables measured in terms of money d. neither variables measured in terms of money nor variables measured in terms of quantities or relative prices

b. variables measured in terms of money but not variables measured in terms of quantities or relative prices

According to classical macroeconomic theory, a. the price level is sticky in the short run and it plays only a minor role in the short-run adjustment process. b. for any given level of output, the interest rate adjusts to balance the supply of, and demand for, money. c. output is determined by the supplies of capital and labor and the available production technology. d. All of the above are correct.

c. output is determined by the supplies of capital and labor and the available production technology.

If the multiplier is 3, then the MPC is a. 1/3. b. 3/4. c. 4/3. d. 2/3.

d. 2/3.

If the price level increased from 120 to 130, then what was the inflation rate? a. 1.1 percent. b. 7.7 percent. c. 10.0 percent. d. 8.3 percent.

d. 8.3 percent.

According to classical macroeconomic theory, a. output is determined by the supplies of capital and labor and the available production technology. b. for any given level of output, the interest rate adjusts to balance the supply of, and demand for, loanable funds. c. given output and the interest rate, the price level adjusts to balance the supply of, and demand for, money. d. All of the above are correct.

d. All of the above are correct.

If P denotes the price of goods and services measured in terms of money, then a. 1/P represents the value of money measured in terms of goods and services. b. P can be regarded as the "overall price level." c. an increase in the value of money is associated with a decrease in P. d. All of the above are correct.

d. All of the above are correct.

An assistant manager at a restaurant gets a $100 a month raise. He figures that with his new monthly salary he cannot buy as many goods and services as he could buy last year. a. His real and nominal salary have risen. b. His real and nominal salary have fallen. c. His real salary has risen and his nominal salary has fallen. d. His real salary has fallen and his nominal salary has risen.

d. His real salary has fallen and his nominal salary has risen.