ECO Exam 3 Study Guide

A country purchases $3 billion of foreign-produced goods and services and sells $2 billion of domestically produced goods and services to foreign countries. It has exports of

$2 billion and a trade deficit of $1 billion

The nominal interest rate is 5 percent and the inflation rate is 2 percent. What is the real interest rate?

3 percent

If M=2,000, P=2.25, and Y=6,000, what is velocity?

6.75

Which of the following is an example of U.S. foreign direct investment?

A U.S company opens an auto parts factory in Canada

Which for the following is an example of U.S. foreign portfolio investment?

A U.S. citizen buys bonds issued by the British government

Which of the following correctly explains the crowding-out effect?

An increase in government expenditures increases the interest rate and so reduces investment spending

Which of the following would shift the long-run aggregate supply curve right?

An increase in the capital stock, but not an increase in the price level

The costs of changing price tags and price listings are known as

Menu costs

According to the classical dichotomy, which of the following increases when the money supply increases?

The nominal wage

An open economy's GDP can be expressed by

Y=C+I+G+NX

Changes in the nominal variables are determined mostly but the quantity of money and the monetary system according to

both the classical dichotomy and the quantity theory of money

Monetary policy

can be described either in terms of the money supply or in terms of the interest rate

When the price level falls, the number of dollars needed to buy a representative basket of goods

decreases, so the value of money rises

If a country sells fewer goods and services abroad than it buys from other countries, it is said to have a trade

deficit and negative net exports

An increase in household saving causes consumption to

fall and aggregate demand to decrease

If households view a tax cut as temporary, then the tax cut

has less of an effect on aggregate demand than if households view it as permanent

The multiplier effect states that there are additional shifts in aggregate demand from expansionary fiscal policy, because it

increases income and thereby increases consumer spending

Net capital outflow

is always equal to net exports

Inflation can be measure by the

percentage change in the consumer price index

An increase in the money supply will

reduce interest rates, increase investment and aggregate demand

In Figure 33-3, point B represents a

short-run equilibrium, and Point A represents a long-run equilibrium

Using the liquidity-preference model, when the Federal Reserve decreases the money supply,

the equilibrium interest rate increases

Which of the following is not a determinant of the long-run level of real GDP?

the price level

An increase in the expected price level shifts

the short-run aggregate supply curve to the left but does not affect the long-run aggregate supply curve

The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for

the slope of the aggregate-demand curve