ECON Review 3

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 1 billion deficit

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

3 percent

if M= 2,000, P=2.25, Y=6000 what is velocity

6.75 (PY/M)

What is an example of U.S foreign portfolio investment?

A US citizen buys bonds issued by the British Government

An open economy's GDP can be expressed by

Y = C + I + G + NX

What is an example of U.S foreign direct involvement?

a US company opens an auto parts factory in Canada

What would shift the long run aggregate supply curve to the right?

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

Changes in nominal variables are determined mostly by 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

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 exports

An increase In household savings 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

What is the crowding out effect?

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

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

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

increases, so the value of money rises

Net Capital outflow is

is always equal to net exports

The cost of changing price tags and price listing are known as

menu costs

Inflation can be measured by

percent change in the consumer price index

An increase in the money supply will

reduce interest rates, increasing investment and aggregate demand.

Using the liquidity preference model, when the federal reserve decreases the money supply

the equilibrium interest rate increases

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

the nominal wage

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