ECON 251 Final Exam

A can of soda costs $0.75 in the United States and 12 pesos in Mexico. What is the peso to dollar exchange rate if purchasing power parity holds If a monetary expansion caused all prices in Mexico to double so that soda rose to 24 pesos, what is the value that peso-dollar exchange rate should be?

24 /.75 = 32 so $1 equals 32 pesos

A country had $50 million of domestic investment and net capital outflow of $15 million. What is Saving? A. $65 million B. -$65 million C. $35 million D. -$35 million

A. $65 million

other things the same, a decrease in the U.S real interest rate induces A. Americans to buy more foreign assets, which increases U.S net capital outflow B. Americans to buy more foreign assets, which reduces U.S net capital outflow C. Foreigners to buy more U.S assets, which reduces U.S net capital outflow D. Foreigners to buy more U.S assets, which increases U.S net capital outflow

A. Americans to buy more foreign assets, which increases U.S net capital outflow

Bill, a U.S citizen, pays a Spanish architect to design a metal casting factory. Which country's exports A. Spain B. The U.S C. Spain and U.S D. Neither

A. Spain

Which of the following is not a determinant of the long-run level of real GDP? A. The price level B. The amount of capital used by firms C. Available stock of human capital D. Available technology

A. The price level

Which of the following would increase the price level? A. an increase in the money supply B. an increase in taxes C. a decrease in the expected price level D. a decrease in the natural rate of unemployment.

A. an increase in the money supply

When a country imposes an import quota, its A. net exports rise and its real exchange rate appreciates B. Net exports rise and its real exchange rate depreciated C. Net exports fall and its real exchange rate depreciated D. None of the above

A. net exports rise and its real exchange rate appreciates

If the real exchange rate is 5/4 pounds of Chilean beef per pound of U.S beef, a pound of costs $2 and the nominal exchange rate is 500 Chilean pesos per dollar, then Chilean beef costs A. 1,250 pesos per pound B. 800 pesos per pound C. 250 pesos per pound D. None

B. 800 pesos per pound

a Significant example of a temporary tax cut was the one announced in 1992 by president George W Bush The effect of that tax cut on consumer spending and aggregate demand was A. Zero B. Likely smaller than if the cut had been permanent C. Likely about the same as if the cut had been permanent D. Likely larger than if the cut had been permanent

B. Likely smaller than if the cut had been permanent

If at a given real interest rate desired national saving is $60 billion, domestic investment is $30 billion, and net capital outflow is $20 billion, then at the real interest rate in the loanable funds market there is A. Surplus. The real interest rate will rise B. Surplus. The real interest rate will fall C. Shortage. The real interest rate will rise D. Shortage. The real interest rate will fall

B. Surplus. The real interest rate will fall

According to liquidity preference the theory, a decrease in money demand for some reason other than a change in the price level causes A. The interest rate to fall, so aggregate demand shifts right B. The interest rate to fall, so aggregate demand shifts left C. The interest rate to rise, so aggregate demand shifts right D. The interest rate to rise, so aggregate demand shifts left

B. The interest rate to fall, so aggregate demand shifts left

If the MPC= 4/5, then the government purchases multiplier is A. 5/4 B. 4/5 C. 5 D. 20

C. 5

Purchasing power parity theory does not hold at all times because A. the same goods produced in different countries may be imperfect substitutes for each other. B. many goods are not easily transported. C. Both a and b are correct. D. prices are different across countries.

C. Both a and b are correct.

Suppose the economy is in long-run equilibrium. In a short span of time, there is a sharp increase supply of labor, a major new discovery of oil and new environmental regulations that raise the electricity production in the short run A. The price level will rise and real GDP will fall B. The price level will fall and real GDP will rise C. The price level and real GDP will both stay the same D. All of the above are possible

C. The price level and real GDP will both stay the same

If output is above its natural rate, then according to sticky wage theory A. workers and firms will strike bargains for lower wages. In response to the lower wage's firms will produce less at any given price level B. workers and firms will strike bargains for lower wages. In response to the lower wage's firms will produce more at any given price level C. Will strike bargains for higher wages. In response to higher wage's firms will produce less at any given price level D. workers and firms will strike bargains for higher wages. In response to the lower wage's firms will produce more at any given price level

C. Will strike bargains for higher wages. In response to higher wage's firms will produce less at any given price level

if imports = 500 billion euros, exports= 700 billion euros, purchases of domestic assets by foreign residents= 600 billion euros, and purchases of foreign assets by domestic residents= 800 billion euros, what is the quantity of euros demanded in the market for foreign currency exchange A. 1,100 billion euros B. 600 billion euros C. 500 billion euros D. 200 billion euros

D. 200 billion euros

In 2002, the Unites States imposed restrictions on the importation of steel into the United States. The open- economy macroeconomic model shows that such policy would A. Lower the real exchange rate and increase net exports B. Lower the real exchange rate and have no effect on net exports C. Rise the real exchange rate and decrease net exports D. Rise the real exchange rate and have no effect on net exports

D. Rise the real exchange rate and have no effect on net exports

A pair of running shoes cost $ 70 in the U.S if the price of the same shoes is 4500 rupees in India and the exchange rate is 60 rupees per dollar than the real exchange rate is A. more than one, so profit could be made by buying shoes in the US and selling India B. more than one, so profit could be made by buying shoes in the India and selling us C. Less than 1, so profit could be made by buying shoes in the US and selling India D. less that 1, so profit could be made by buying shoes in the India and selling us

D. less that 1, so profit could be made by buying shoes in the India and selling us

The aggregate demand curve shows the A. quantity of labor and other inputs that firms want to buy at each price level B. quantity of labor and other inputs that firms want to buy at each inflation rate C. quantity of domestically produced goods and services that households, want to buy at each price level D. quantity of domestically produced goods and services that households, firms, the government, and customers abroad want to buy at each price level

D. quantity of domestically produced goods and services that households, firms, the government, and customers abroad want to buy at each price level

would the following transaction be included in net exports or net capital outflow? Be sure to say whether it would represent an increase or decrease in that variable. Assume sony is Japanese firm. An American buys a share of sony stock

This is an example of a U.S. citizen buying a foreign asset. Thus, net capital outflow increases.

would the following transaction be included in net exports or net capital outflow? Be sure to say whether it would represent an increase or decrease in that variable. Assume sony is Japanese firm. An American buys a sony TV

This is an example of a U.S. citizen buying a good produced in Japan. Thus, imports increase. Exports unchanged. Net exports decrease's.

would the following transaction be included in net exports or net capital outflow? Be sure to say whether it would represent an increase or decrease in that variable. Assume sony is Japanese firm. A worker at a Sony plant in Japan buys some Georgia peaches from an American farmer

This is an example of a foreign citizen (worker at Sony plant) buying an American good. Thus, U.S. exports increase. Imports unchanged. Net exports increase

would the following transaction be included in net exports or net capital outflow? Be sure to say whether it would represent an increase or decrease in that variable. Assume sony is Japanese firm. The Sony pension fund buys a bond from the US Treasury

This is an example of a foreign company buying a U.S. asset (U.S. treasury bond). Thus, net capital outflow decreases. In other words, this transaction counts as a negative outflow/inflow

If the real exchange rate is 5/4 pounds of Chilean beef per pound of U.S. beef, a pound of U.S. beef costs $2 and the nominal exchange rate is 500 Chilean pesos per dollar, then Chilean beef costs a. 1,250 pesos per pound. b. 800 pesos per pound c. 250 pesos per pound. d. None of the above is correct.

b. 800 pesos per pound

The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money on goods and services. The firms they buy goods and services from pay their employees. This illustrates.. a. the crowding-out effect. b. the multiplier effect. c. the Fisher effect. d. None of the above is correct.

b. the multiplier effect.

A can of soda costs $0.75 in the United States and 12 pesos in Mexico. What is the peso to dollar exchange rate if purchasing power parity holds

purchasing power parity holding means that the can of soda should cost $.75 in both countries. For this to hold, (12/.75)= 16 which is the exchange rate: $1 for 16 pesos