Macro final exam III questions obrien

The interest rate effect

is the most important reason, in the case of the United States, for the downward slope of the aggregate demand curve

The natural rate of unemployment

is the unemployment rate that the economy tends to move in the long run

If the dollar is said to appreciate against the euro if the exchange rate rises, other things the same

it will cost more euros to buy US goods

TorF: A rising rate of inflations may reduce unemployment, but high rate will not

TRUE

Surpose in foreign currency exchange market will cause

depreciation of the dollar and will increase US net exports which will increase the QUANTITY of dollars DEMANDED in the foreign exchange market

If 0.6 British pounds $1, how much does 3 pounds cost?

3/.6 = $5

If trade surplus =50=NX suppose NX rises 30, IM rises 20, What is the new NX

30-20= 10 10+50= 60

Monetary policy

CAN be described either in terms of the money supply of in terms of the interest rate

Examples of policy makers direct influence on our economy include

Government purchases

TorF: the initial effects of a higher and unanticipated rate of inflations last for something like to five years

TRUE

National savings = 50 Gov= 30 Invest= 10 NCO= 40 What does supply of loanable funds equal

I + NCO = NS = 50

according to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied then the interest rate will

INCREASE and the quantity of money demanded will DECREASE

When taxes decrease, consumption

INCREASES, so aggregate DEMAND shifts RIGHT

There is always a temorary tradeoff between inflation and unemployment, but no permanent tradeoff

TRUE

If the people decide to hold less money then

Money demand DECREASES, there is an excess SUPPLY of money, and interest rates FALL

Supply of dollars in the market for foreign currency exchange comes from

NCO

Demand for dollars comes from

Net exports

The theory by which people optimally use all available information when forecasting the future is know as

RATIONAL EXPECTATIONS

law of one price states that

a good must sell at the same price at all locations

Which of the following is included in the aggregate demand for goods and services

a. consumptions demand b. investment demand c. net exports d.ALL OF THE ABOVE ARE CORRECT

The employment act of 1946

a. implies that the government should avoid being a cause of economic fluctuations b. implies that the government should respond to changes in the private economy to stabilize aggregate demand c. reflected the ideas promoted to Keyne''s influential book d. ALL OF THE ABOVE ARE CORRECT

which of the following would cause stagflation

aggregate SUPPLY shifts LEFT

If there is capital flight from the United States, then the demand for loanable funds

and the SUPPLY of dollars in the foreign exchange market shift RIGHT

Automatic Stabilizers

are changes in taxes or government spending that increase aggregate demand without requiring makers to act when the economy goes into recession

Wages tend to sticky

because of contracts, social norms, and notions of fairness

Liquidity enhancing effect aggregate demand: When income is 10,000, consumption spending is 6,500. When income is 11,000, consummations spending is $7250 So the marginal propensity to consume for this economy is .75

c. 4.00

Which of the following statements is correct? a. In the short run, unemployment and inflations are positively related. In the long run they are largerly unrelated b. inflations and unemployment are positively related in the short run and in the long run c. In the short run, unemployment and inflations are negatively related. In the long run they are largely unrelated problems d. All the above are correct

c. In the short run, unemployment and inflations are negatively related. In the long run they are largely unrelated problems

real exchange rate measures price of domestic goods relative to price of

foreign goods

net exports of a country are

the value of exports- imports

According to the theory of liquidity preference, money demand

is NEGATIVELY related to the interest rate, which the money supply is independent of the interest rate

If an open economy,

national savings equals domestic investments +NCO

Soon after he became the chairman of the Federal Reserve System in 1979. Paul Volkker embarked on a course

of disinflation

Samuelson and Solow believed that the Phillips curve

offered policymaker a menu of possibly economic outcomes from which to choose

Examples of policy makers indirect influence on our economy include

options A and C CHANGING MONEY SUPPLY and DECREASING TAXES

The variables on the vertical and horizontal axes of the aggregate demand and supply graph are

the price level and real output

The sticky-wage theory of the short- run aggregate supply curve says that when the price level is lower than expected

production is LESS profitable and employment FALLS

A higher real interest rate will

raise the QUANTITY SUPPLIED of loanable funds SUPPLLIIEEEDD

When we say that economic fluctuations are irregular and unpredictable we mean that

recessions do not occur at regular intervals

foreign citizens who want to buy more US goods and services at a given exchange rate will

shift the DEMAND for dollars in the market for foreign currency exchange to the RIGHT

which of the following would cause prices to call and output to rise in the short run?

short run aggregate supply shifts right

in 1936 John Maynard Keynes published a book, The general theory, which attempted to explain

short run economic fluctuations

Most economists use the aggregate demand and aggregate supply model primarily to analyze

short-run fluctuations in the economy

If the US were to impose import quotas

the DEMAND for dollars in the market for foreign currency exchange would INCREASE, but the DEMAND for loanable funds would NOT.

real exchange rate is

the nominal exchange rate X (US prices / foreign prices)

in 1968, economist Milton Friedman published a paper criticizing the Philips curve on the grounds that

the phillips curve did not apply in the long run

Fiscal policy is determined by

the president and Congress and involves changing government spending and taxation

nominal exchange rate is

the rate which a person can trade the currency of one country for another

in the late 1970s, proponents of rational expectations argued that

the sacrifice ratio was smaller than previously thought

an example of automatic stablizer is

unemployment benefits

Net capital outflow equals

value of foreign output purchases by domestic residents- value of domestic assets purchased by foreigners

If the PPP holds, then a dollar

will buy as many goods in foreign countries as it does in the united states