Econ 202 final exam

the federal reserve defines the monetary policy goal of price stability to mean an inflation rate equal to

2 %

what would shift the demand for the us dollars in the foreign exchange market to the right ?

an increase in U.S. interest rates

in the static aggregate demand-aggregate supply model, which of the following could cause a recession ?

an increase in interest rates by the fed.

what would shift the demand for us dollars in the foreign exchange market to the right?

an increase in the risk of Mexican assets

in the static aggregate demand- aggregate supply model, a depreciation in the foreign exchange value of the dollar will in the short run lead to ____ in real GDP and ____ in the price level

an increase; an increase

Short-run model of foreign exchange rates, what variable is on the horizontal axis? the quantity of

U.S. dollar

what would cause the foreign exchange value of the us dollar to appreciate?

a decrease in foreign interest rate

which of the following would increase investment spending by firms on new plant and equipment

a decrease in the corporate income tax

in the figure above suppose the economy is initially at pt A. the movement of the economy to pt B as shown in the graph illustrates the effect of which monetary policy action by the federal reserve?

an open market purchase of treasury bill

When a recession causes a budget deficit, an annual balanced-budget amendment would require the government to enact

contractionary fiscal policy -- a decrease in govt spending / an increase in taxes -- to balance the budget

the Laffer curve shows that a decrease in tax rates

could increase tax revenue

which of the following is a true statement about real and nominal GDP?

if real GDP increases from one year to the next, we know that the production of goods and services has risen

there is a strong link btwn changes in the money supply and inflation

in the long run, but not in the short run

If cyclical unemployment is eliminated in the economy, then the

economy is considered to be full employment

in the circular flow model, the value of total income for an economy _____ the value of total production

equals

in the graph above, assume the economy is at point A. in the adjustment of the economy through the so-called automatic mechanism to potential real GDP in the long run, nominal wages would ____, shifting the short-run aggregate supply curve to the _____

fall; right

for purpose of monetary policy, which interest rate does the federal reserve target? the

federal funds rate

The supply of U.S. dollars is a derived demand for

foreign goods, services, and assets

automatic stabilizers refers to

government spending and taxes that automatically increases/decreases along with the business cycle

Using the money demand and money supply model, an increase in the required reserve ratio by the federal reserve would cause the equilibrium interest rate to

increase

using the money demand and money supply model, an open market sale of government securities by the federal reserve would cause the equilibrium interest rate to

increase

A recession tends to cause the federal budget deficit to ________ because government spending on transfer payments ________ adn tax revenues _____.

increase, rise, fall

in the AE model, if AE is less than real GDP, how will the economy reach macroeconomic equilibrium ?

inventories will rise, and real GDP and employment will decline

a decrease in interest rates by the federal reserve will ______ the AE line in the AE model, and will ______ the aggregate demand curve in the AD-AS model ?

shift-up (increase), shift-to the right (increase)

In the money demand - money supply model, what interest rate is on the vertical axis? the interest rate on

short-term financial assets, such as treasury bills or money market mutual funds

if the aggregate expenditure model, what variables is on the vertical axis?

aggregate expenditures

which of the following best describes how banks create money?

banks create checking account deposits when making loans from excess reserves

during a period when inflation occurs the nominal interest rate will

be greater than the real interest rate

which of the following describes the accuracy of the consumer price index (CPI)

changes in the CPI overstate changes in the true cost of living

As a measure of the cost of living we typically use the ___ and as a measure of the standard of living we typically use ____

consumer price index, real GDP per capita

assume that the economy is in long-run equilibrium in yr 1, and that in yr 2 the normal conditions occur and that the curve shift the way they typically shift in the dynamic aggregate demand - aggregate supply model. in addition to what normally occurs in the dynamic model in yr 2, also assume that govt. purchases decrease moderately. the moderate decrease in govt purchases in yr 2 will cause the inflation rate to ____ and the unemployment rate to ______ from what they would have been in yr 2.

decrease ; increase

in the static aggregate demand-aggregate supply model, an increase in the expected future price level will in the short run lead to ____ in real GDP and ____ in the price level

decrease; an increase

the quantity theory of money seeks to explain the connection btwn money and

prices

which statement best describes supply-side economics?

tax rates, particularly marginal tax rates, affect the incentive to work, save, and invest and therefore aggregate supply

the federal government debt equals the

the accumulation of past budget deficits - (minus) budget surpluses

Fiscal policy is determined by ______ and monetary policy is determined by _____.

the congress & the president, the federal reserve

which of the following about the multiplier in the aggregate expenditure model is a true statement?

the larger the marginal propensity to consume, the larger the multiplier

the key idea of the aggregate expenditure model is that in any particular year, the level of GDP id determined mainly by the level of

total spending

a depreciation in the foreign exchange value of the us dollars makes

u.s. exports less expensive

in the aggregate expenditures model, a depreciation in the foreign exchange value of the us dollar will cause

upward, increasing equilibrium real GDP