Macro Test 3 Review
Which of the following statements about the Keynesian view of the macroeconomy is incorrect?
Technological change is the most significant influence on both aggregate demand and aggregate supply.
Examples of fiscal policy that increase aggregate demand include ______.
an increase in government expenditure, a decrease in taxes, and an increase in transfer payments
An economy is in a long-run equilibrium. An increase in aggregate demand creates ______ gap. A rise in the money wage rate decreases ______ and returns the economy to a full-employment equilibrium.
an inflationary; the quantity of real GDP demanded
If the U.S. exchange rate changes from $1.00 Canadian to $1.05 Canadian, then the U.S. dollar has _______ and the Canadian dollar has _______.
appreciated; depreciated
If the government increases its expenditure on goods and services and as a result, the money wage rate increases, the economy has experienced _______.
a demand-pull rise in the price level
A rise in the price of oil creates _______.
a one-time cost-push rise in the price leve
Suppose the exchange rate is 90 yen per U.S. dollar and the United States wants to keep the exchange rate at a target rate of 90 yen per U.S. dollar. If the demand for U.S. dollars decreases , the Fed ______.
buys dollars to raise the exchange rate
An increase in investment shifts the AE curve upward by an amount equal to the ______, and shifts the AD curve rightward by an amount equal to the ______.
change in investment; change in investment times the multiplier
In real business cycle theory, all of the following events can be sources of fluctuation in productivity except _______.
changes in the growth rate of money
The business cycle occurs because ______.
aggregate demand and short-run aggregate supply fluctuate, but the money wage rate does not adjust quickly enough to keep real GDP at potential GDP
Equilibrium expenditure is the level of aggregate expenditure that occurs when ______.
aggregate planned expenditure equals real GDP
You observe that unplanned inventories are decreasing. You predict that there will be _______.
an expansion
A country that is lending more to the rest of the world than it is borrowing from the rest of the world is a ______. A country that during its entire history has invested more in the rest of the world than other countries have invested in it is a ______.
net lender; creditor nation
A ______ macroeconomist believes that business cycle fluctuations are the efficient responses of a well-functioning market economy that is bombarded by shocks that arise from the uneven pace of technological change.
new classical
In ______ cycle theory, the rational expectation of the price level, which is determined by potential GDP and expected aggregate demand, determines the money wage rate and the position of the SAS curve.
new classical
A ______ macroeconomist believes that the short-run aggregate supply curve is horizontal at a fixed price level.
new keynesian
Long-run macroeconomic equilibrium ______.
occurs when real GDP equals potential GDP, and the LAS, SAS, and AD curves intersect
The private sector balance and the government sector balance tend to move in ______. Net exports respond ______.
opposite directions; to the sum of the government sector and private sector balances
An economy has no imports and no taxes. The marginal propensity to save is 0.5 . A ______ increase in autonomous expenditure increases equilibrium expenditure by $60 billion. The multiplier is ______.
$30 billion; 2.00
If the trend rate of change of velocity is 1 percent a year, potential GDP grows by 4 percent a year, and the money growth rate is 2 percent a year, what is the trend inflation rate?
-1 percent a year
An economy with no income taxes or imports has a marginal propensity to consume of 0.75. The multiplier in the long run is _______.
0
Choose the statement about real business cycle theory that is incorrect
Economists have not been able to isolate the RBC theory impulse
Suppose a Canadian dollar bank deposit in Toronto earns 1 percent a year and a U.S. dollar bank deposit in Chicago earns 5 percent a year. What expectations do people hold if interest rate parity is to hold?
For interest rate parity to hold, people expect that the U.S. dollar will depreciate by 4 percent a year
Choose the statement that is incorrect
In the long run, a change in the nominal exchange rate brings an equivalent change in the real exchange rate
Choose the correct statements. 1. The foreign exchange market is a place. 2. The foreign exchange market is made up of thousands of people, including international tourists and foreign exchange brokers. 3. If $ 1 buys 100 yen, then the exchange rate is 100 yen per dollar. 4. In a growing economy, the exchange rate is always rising.
Statements 2 and 3 are correct.
Choose the statement about flexible exchange rates that is incorrect.
The world economy has operated a flexible exchange rate regime since the end of World War II.
The multiplier is the amount by which a change in ______ expenditure is magnified or multiplied to determine ______.
autonomous; the change in equilibrium expenditure and real GDP
A ______ macroeconomist believes that the economy is self-regulating and always at full employment. A ______ macroeconomist believes the economy requires active help from fiscal policy and monetary policy to maintain full employment.
classical; Keynesian
If the Fed continually responds to successive increases in costs, a ______ inflation evolves
cost-push
Aggregate demand increases if fiscal policy ______ taxes or ______ transfer payments.
decreases-increases
Aggregate demand increases if the exchange rate ______ or foreign income ______.
decreases-increases
Planned saving + Planned consumption expenditure = ______.
disposable income
A rise in the money wage rate ______.
does not change the LAS curve because along the LAS curve a rise in the money wage rate is accompanied by an equal percentage change in the price level
An economy at a full-employment equilibrium experiences an increase in aggregate demand. The unemployment rate ______ its natural rate, and to return to the long-run equilibrium, the money wage rate begins to ______.
falls below-rise
Between 2007 and 2012, the U.S. exchange rate ______ against the Japanese yen because the U.S. interest differential _______ ______ against the yen. The expectations about the exchange rate ______ the demand for U.S. dollars and ______ the supply of U.S. dollars.
fell; decreased and because currency traders expected the dollar to depreciate decreased; increased
The law of supply of foreign exchange states that other things remaining the same, the ______ the exchange rate, the ______ in the foreign exchange market.
higher; greater is the quantity of U.S. dollars supplied
The law of demand for foreign exchange states that other things remaining the same, the ______ the exchange rate, the smaller is the ______ in the foreign exchange market.
higher; quantity of U.S. dollars demanded
Unanticipated deflation does all of the following except _______.
increases the velocity of circulation
Aggregate demand increases if monetary policy ______ the quantity of money and ______ interest rates.
increases-decreases
Aggregate demand increases if expected future income, inflation, or profits ______. And aggregate demand increases if fiscal policy ______ government expenditure.
increases-increases
In an expansion, an increase in the rate of technological change _______ investment demand. The real interest rate _______.
increases-rises
When costs increase and the Fed wants to return the economy to full employment, the Fed responds by ______ the quantity of money.
increasing
Consumption expenditure minus imports, which varies with real GDP, is called _______.
induced expenditure
if aggregate planned expenditure exceeds real GDP, then _______.
inventories decrease, and as real GDP increases a movement up along the AE curve occurs
If aggregate planned expenditure is less than real GDP, then _______.
inventories increase, and as real GDP decreases a movement down along the AE curve occurs
For a given increase in aggregate demand, the steeper the slope of the short-run aggregate supply curve, the ______ is the increase in the price level and the ______ is the multiplier effect on real GDP in the short run.
larger-smaller
A decrease in the marginal propensity to import _______, everything else remaining the same.
makes the multiplier larger
An increase in income taxes _______, everything else remaining the same.
makes the multiplier smaller
In ______ cycle theory, fluctuations in both investment and consumption expenditure, driven by fluctuations in the growth rate of the quantity of money, are the main source of fluctuations in aggregate demand.
monetarist
The multiplier is greater than 1 because the change in autonomous expenditure leads to _______.
more induced expenditure
if inflation is expected
neither a cost-push inflation nor a demand-pull inflation occur
In ______ cycle theory, past rational expectations of the current price level influence the money wage rate and the position of the SAS curve.
new Keynesian
In the long-run macroeconomic equilibrium, ______.
potential GDP and aggregate demand determine the price level, and the money wage rate adjusts so that the SAS curve intersects the LAS curve at the long-run equilibrium price level
Economic growth is the persistent increase in ______. Economic growth is accompanied by inflation when the ______.
potential GDP; AD curve shifts rightward at a faster rate than the LAS curve shifts rightward
According to mainstream business cycle theory, ______ grows at a steady rate and ______ grows at a fluctuating rate.
potential GDP; aggregate demand
The quantity of real GDP supplied depends on all of the following except the _______.
quantity of real GDP demanded
In real business cycle theory, _______ are the main source of economic fluctuations.
random fluctuations in productivity
The best forecast available, which is based on all the relevant information is called _______.
rational expectation
Suppose a country has a crawling peg exchange rate policy against the U.S. dollar and the equilibrium exchange rate in units of foreign currency per U.S. dollar is above the target rate. To keep the exchange rate pegged at its target level, the country's central bank must ______ U.S. dollars and ______ its foreign currency reserves
sell; decrease
A rise in the price level _______.
shifts the AE curve downward and brings a movement up along the AD curve
The business cycle is actually a continuous series of different ______
short-run macroeconomic equilibriums
In RBC theory, the lower the real interest rate, other things remaining the same, the ______ today.
smaller is the supply of labor
An economy is at potential GDP when it experiences an increase in costs. The economy experiences _______.
stagflation
When the price level, the money wage rate, and other factor prices rise by the same percentage, there is a movement along ______. Potential GDP ______.
the LAS curve; does not change
When the price level rises but the money wage rate and other factor prices remain the same, there is a movement along ______. The quantity of real GDP supplied ______.
the SAS curve; increases
The U.S. interest rate differential falls when ______.
the U.S. interest rate falls and the foreign interest rate rises
The marginal propensity to import is equal to _______.
the change in imports divided by the change in real GDP, other things remaining the same
When inflation is correctly anticipated, _______.
the economy remains at full employment
The impulse in RBC theory is _______
the growth rate of productivity that results from technological change
According to mainstream business cycle theory, _______
the money wage rate is sticky and consequently if aggregate demand grows faster than potential GDP, an inflationary gap emerges
A cost-push rise in the price level can arise from an increase in _______.
the money wage rate or money prices of raw materials
As we move up along the short-run aggregate supply curve, ______.
the money wage rate, the prices of other resources, and potential GDP remain constant
When aggregate demand unexpectedly increases, ______.
the natural unemployment rate does not change
Potential GDP increases for all of the following reasons except ______.
the price level falls
The quantity of U.S. dollars demanded in the foreign exchange market depends on all of the following except ______.
the price of gold
High inflation accompanies economic growth when ______.
the quantity of money increases rapidly
A stagflation can turn into a cost-push inflation process when _______
the quantity of money persistently increases
When firms are unable to meet the demand for their output, _____. Prices _____.
the quantity of real GDP demanded is greater than the quantity of real GDP supplied; rise
An increase in the price level when the money wage rate remains unchanged increases ______.
the quantity of real GDP supplied
If most prices increase in Japan and other countries but remain constant in the United States, ______.
then for purchasing power parity to hold, the demand for U.S. dollars increases and the supply of U.S. dollars decreases
If most prices have decreased in the United States and not decreased in Japan and other countries, ______.
then for purchasing power parity to hold, the value of the U.S. dollar in the foreign exchange market will rise
If the natural unemployment rate increases and the expected inflation rate remains constant, then ______.
the long-run Phillips curve shifts rightward and the short-run Phillips curve shifts rightward
If the expected inflation rate increases and the natural rate of unemployment remains constant, then _______.
the short-run Phillips curve shifts upward and the long-run Phillips curve does not shift
A change in the expected future exchange rate changes the supply of U.S. dollars ______, and a change in U.S. demand for imports changes the supply of U.S. dollars ______.
today; today
A movement ______ along the short-run Phillips curve occurs when there is an ______ increase in aggregate demand
up-unexpected
An increase in investment shifts the AE curve _______ and the AD curve _______.
upward-rightward
A rational expectation _______
will often turn out to be wrong, but no other forecast that could have been made with the information available could do better
Choose the statement about the business cycle that is incorrect
In a business cycle, real GDP shows steady growth and steady inflation.
The equation of the aggregate expenditure curve is given by _______
AE = A + [b(1-t)-m]Y
Choose the statement that is incorrect.
Against the Chinese yuan, the dollar appreciated between 2005 and 2014
Choose the statement that is incorrect
Along the LAS curve the money wage rate is constant and the real wage rate rises as the price level rises.
Choose the statement that is incorrect.
Along the SAS curve, the real wage rate and the price level change by the same percentage
Badass knowledge of Ag Demand
An increase in expected future income increases aggregate demand. An increase in the expected future inflation rate increases aggregate demand. An increase in expected future profits increases aggregate demand.
Choose the statement about the long-run Phillips curve that is incorrect
An unexpected increase in aggregate demand shifts the long-run Phillips curve rightward
Choose the statement about fixed exchange rates that is incorrect.
If the Fed wanted to fix the U.S. dollar exchange rate against the Japanese yen, the Fed would have to buy U.S. dollars to prevent the exchange rate from rising above the target value
Choose the statement about fixed exchange rates that is incorrect
If the Fed wanted to fix the U.S. dollar exchange rate against the Japanese yen, the Fed would have to buy U.S. dollars to prevent the exchange rate from rising above the target value.
If in the long run, the U.S. dollar appreciates against the Japanese yen, then ______.
Japan has created money at a faster pace than has the United States, and the price level in Japan has risen more rapidly than the U.S. price level
Deflation in Japan arose because _______
Japan's money stock did not grow fast enough to accommodate the growth of potential GDP and a trend rise in velocity.
in ______ cycle theory, animal spirits are the main source of fluctuations in aggregate demand
Keynesian
Which of the following statements about the monetarist view of the macroeconomy is incorrect?
Left alone, the economy rarely operates at full employment.
Which of the following equations is incorrect?
MPC + MPS = Delta YD
Badass knowledge about the price level and other random good stuff
Other things remaining the same, when the U.S. price level rises, U.S.-made goods and services become more expensive relative to foreign-made goods and services. People spend less on U.S.-made items and more on foreign-made items. The quantity of U.S. real GDP demanded decreases
Choose the statement that is incorrect
Over the business cycle, aggregate supply fluctuates around potential GDP.
The supply of U.S. dollars changes when there is a change in any of the following except ______.
The foreign exchange rate
Choose the correct statement
The level of aggregate expenditure that occurs where the AE curve intersects the 45 degree line is equilibrium expenditure.
Choose the statement that is incorrect
The price level falls if aggregate supply increases at a persistently slower rate than aggregate demand.
Choose the correct statement.
The quantity of real GDP demanded is the sum of the real consumption expenditure, investment, government expenditure, and exports minus imports.
Choose the correct statement.
The long-run Phillips curve shifts rightward when the natural unemployment rises and leftward when the natural unemployment rate falls
Choose the correct statement about the U.S. short-run Phillips curve.
We can interpret U.S. inflation and unemployment data in terms of a shifting short-run Phillips curve, which sometimes shifts upward and sometimes shifts downward
Examples of monetary policy that decrease aggregate demand include ______.
a decrease in the quantity of money and an increase in interest rates
You observe that unplanned inventories are increasing. You predict that there will be _______.
a recession
The output gap in the graph is ______ because ______.
a recessionary gap; potential GDP exceeds real GDP
A country that is borrowing more from the rest of the world than it is lending to the rest of the world is a ______, and a country that during its entire history has borrowed more from the rest of the world than it has lent to it is a ______.
net borrower, debtor nation
Between 2012 and 2014, the U.S. exchange rate ______ against the Japanese yen because the U.S. interest rate differential was expected to _______.
rose-increase
To calculate the multiplier, we divide ______ by ______.
the change in equilibrium expenditure; the change in autonomous expenditure
Along the short-run Phillips curve, ______.
the expected inflation rate and the natural unemployment rate are constant
When there is a shortage of dollars in the foreign exchange market, ______.
the forces of supply and demand pull the foreign exchange market into equilibrium
When there is a surplus of dollars in the foreign exchange market, ______.
the forces of supply and demand pull the foreign exchange market into equilibrium
The demand for U.S. dollars changes when there is a change in any of the following except ______.
the foreign exchange rate
The U.S. interest rate differential rises if ______, and the larger the U.S. interest rate differential, the ______ is the demand for U.S. dollars in the foreign exchange market.
the foreign interest rate falls; greater
When unwanted inventories pile up, _____. Prices _____.
the quantity of real GDP supplied is greater than the quantity of real GDP demanded; fall
With a rise in the money wage rate, ______.
the quantity that firms are willing to supply at each price level decreases
As we move up along the long-run aggregate supply curve, ______.
the real wage rate remains constant
Along the long-run Phillips curve, _______.
the unemployment rate is constant at the natural unemployment rate