eco 402 quiz

A small open economy with perfect capital mobility is one in which the a. level of output is fixed b. price level is fixed c. domestic interest rate equals the world interest rate d. domestic saving is less than domestic investment

C

According to the quantity theory of money, a 5 percent increase in money growth increases inflation by ___percent. According to the Fisher equation, a 5 percent increase in the rate of inflation increases the nominal interest rate by ____ percent. a. 1; 5 b. 5; 1 c. 1; 1 d. 5; 5

D

If domestic saving exceeds domestic investment, then net exports are _____ and net capital outflows are_____. a. positive; positive b. positive; negative c. negative; negative d. negative; positive

A

In a small open economy, if domestic saving exceeds domestic investment, then the extra saving will be used to a. make loans to the domestic government b. make loans to foreigners c. repay the national debt d. repay loans to the Federal Reserve

B

In a small open economy, policies that increase a. investment tend to cause a trade surplus b. investment tend to cause a trade deficit c. saving do not affect the trade balance d. saving tend to cause a trade deficit.

B

Starting from a trade balance, if the world interest rate falls, then, holding other factors constant, in a smallopen economy the amount of domestic investment will _____, and net exports will _____. a. increase; increase b. increase; decrease c. increase; not change d. decrease; increase

B

In a small open economy, if domestic investment exceeds domestic saving, then the extra investment will be financed by a. borrowing from abroad b. borrowing from domestic banks c. the domestic government d. the World Bank

A

If the real interest rate declines by 1 percent and the inflation rate increases by 2 percent, the nominal interest rate implied by the Fisher equation: a. increases by 2 percent. b. increases by 1 percent. c. remains constant d. decreases by 1 percent.

B

If the Fed announces that it will raise the money supply in the future but does not change the money supply today, a. both the nominal interest rate and the current price level will decrease. b. the nominal interest rate will increase and the current price level will decrease. c. the nominal interest rate will decrease and the current price level will increase. d. both the nominal interest rate and the current price level will increase.

D

In a small open economy, starting from a position of balanced trade, if the government increases domestic government purchases, this produces a tendency toward a trade _____ and _____ net capital outflow. a. deficit; negative b. surplus; positive c. deficit; positive d. surplus; negative

A

In the long run, according to the quantity theory of money and classical macroeconomic theory, if velocity isconstant, then _____ determines real gross domestic product (GDP) and _____ determines nominal GDP. a. the productive capability of the economy; the money supply b. the money supply; the productive capability of the economy c. velocity; the money supplyd. d. the money supply; velocity

A

The percentage change in the nominal exchange rate equals the percentage change in the real exchange rate plus the: a. foreign inflation rate minus the domestic inflation rate. b. domestic inflation rate minus the foreign inflation rate. c. foreign exchange rate minus the domestic exchange rate. d. domestic interest rate minus the foreign interest rate.

A

When the Fed increases the interest rate paid on reserves, it leads to a. increases in the reserve-deposit ratio (rr) b. decreases in the reserve-deposit ratio (rr) c. increases in the currency-deposit ratio (cu) d. decreases in the currency-deposit ratio (cu).

A

If a country has a high rate of inflation relative to the United States (holding the real exchange rate fixed), the dollar will buy: a. less of the foreign currency over time. b. more of the foreign currency over time. c. the same amount of the foreign currency over time. d. an amount of foreign currency determined by the real exchange rate.

B

If the demand for money depends on the nominal interest rate, then via the quantity theory and the Fisher equation, the price level depends on: a. only the current money supply. b. only the expected future money supply. c. both the current and expected future money supply. d. neither the current nor the expected future money supply.

C

The ex post real interest rate will be greater than the ex ante real interest rate when the: a. rate of inflation is increasing. b. rate of inflation is decreasing. c. actual rate of inflation is greater than the expected rate of inflation. d. actual rate of inflation is less than the expected rate of inflation.

D

The value of net exports is also the value of a. net investment. b. net saving. c. national saving. d. the difference of national saving and domestic investment

D

When the real exchange rate rises a. exports will decrease but imports will be unaffected b. imports will decrease but exports will be unaffected c. exports will increase and imports will decrease d. exports will decrease and imports will increase

D