Macro 2nd Half
The value of the current account is: $______________
$ -1,650
7C. Suppose that under the gold standard, there was one-fifth of an ounce of gold in a U.S. dollar and one ounce of gold in a British pound and that there is no cost of shipping gold from one country to the other. The equilibrium exchange rate is $__________ = £1
$5
Which of the following events could have caused the shift in demand shown in the graph? 1. Interest rates in the United States have declined. 2. Income rises in Japan. 3. Speculators begin to believe the value of the dollar will be higher in the future.
2 and 3
In 2014, domestic investment in a country was 20.8 percent of GDP, and the country's national saving was 24.8 percent of GDP. The country's net foreign investment was ______ percent of GDP
4%
Which of the following is an example of an expansionary fiscal policy?
A decrease in taxes.
Which of the following transactions would be included in Germany's current account?
An American citizen purchases a new Volkswagen made in Germany.
Which of the following statements about capital markets is true?
At one time, the U.S. capital market was larger than all other capital markets combined, but that is no longer the case.
Refer to the diagram to the right. Suppose the economy is in short run equilibrium above potential GDP, the unemployment rate is very low, and wages and prices are rising. Using the static ADminus−AS model, the correct Fed policy for this situation would be depicted as a movement from
C to B
Which of the following is considered expansionary fiscal policy?
Congress decreases the income tax rate.
Which of the following would you expect to increase both interest rates and exchange rates?
Contractionary monetary policy AND expansionary fiscal policy.
6A. If a Big Mac is selling in the United States for $3.57, what is the implied exchange rate between each of the currencies in the table?
For example, the implied exchange rate of reais per dollar is: 7.50 reais /$3.57 = 2.10 reais per dollar.
2A. The graph to the right shows a situation in which the economy was in equilibrium at potential GDP (at point A) when the demand for housing sharply declined. What actions can Congress and the president take to move the economy back to potential GDP?
Increase government spending or decrease taxes.
Which of the following is not an appropriate policy for a central bank to follow if the economy is plagued with deflation?
Increasing the target interest rate on overnight loans.
The level of savings in Japan has historically been high relative to the level of domestic investment. Based on this information, we would expect that
Japan's net exports have been relatively high.
The narrowest official definition of the money supply is
M1
The leader of the monetarist school and major proponent of a monetary growth rule was
Milton Friedman
Which of the following is not a consequence of hyperinflation?
Money's function as a medium of exchange is enhanced.
If government purchases increase by $100 billion and lead to an ultimate increase in aggregate demand as shown in the graph to the right, the difference in real GDP between point A and point B will be
More than $100 billion.
If actual inflation is less than expected inflation, which of the following will be true?
Real wages will rise.
Which of the following 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 Reserve responded to the 2008 financial crisis in several ways. Which of the following is not one of the ways the Fed responded?
The Fed lowered the required reserve ratio on demand deposit accounts in order to increase the amount of bank reserves.
7A. Suppose that under the gold standard, there was one-fifth of an ounce of gold in a U.S. dollar and one ounce of gold in a British pound and that there is no cost of shipping gold from one country to the other. If the exchange rate between the dollar and the pound was $4 = £1 (one British pound), you could make unlimited profits by buying gold in ______________ and selling it in _____________.
The UK; The US
7B. Suppose that under the gold standard, there was one-fifth of an ounce of gold in a U.S. dollar and one ounce of gold in a British pound and that there is no cost of shipping gold from one country to the other. If the exchange rate between the dollar and the pound was $6 = £1 (one British pound), you could make unlimited profits by buying gold in _____________ and selling it in _____________
The US; The UK
If actual inflation is greater than expected inflation, what is the relationship between the actual real wage and the expected real wage?
The actual real wage will be lower than the expected real wage.
If net exports are equal to net foreign investment,
The balance of payments if zero. The current account balance is equal to the negative of the financial account balance. Net capital inflows are equal to imports minus exports.
How does a decrease in the federal budget deficit affect the demand for dollars and the supply of dollars on the foreign exchange market?
The demand for dollars falls, and the supply of dollars rises.
Currency traders expect the dollar to appreciate. What impact will this have on equilibrium in the foreign exchange market?
The dollar will appreciate, and the change in the equilibrium quantity of dollars exchanged cannot be determined.
How would a decrease in the U.S. budget deficit affect the exchange rate in the market for dollars?
The exchange rate will decrease.
Which of the following is true?
The money market model is essentially a model of that determines the short term nominal rate of interest.
What impact does expansionary monetary policy have on the short−run Phillips curve if consumers and firms expect the expansionary monetary policy to increase inflation?
The short-run Phillips curve shifts up.
If the exchange rate between the U.S. dollar and the Indian rupee (rupees per dollar) is greater than the relative purchasing power between the two countries, which of the following would be true?
There are opportunities for profit by purchasing goods in India and then selling them in the U.S.
Contractionary monetary policy on the part of the Fed results in
a decrease in the money supply, an increase in interest rates, and a decrease in GDP.
If the Federal Reserve chooses to fight high inflation with contractionary monetary policy and firms and consumers expect this policy to reduce inflation, which of the following would you expect to see?
a downward shift of the short−run Phillips curve
Banks can continue to make loans until their
actual reserves equal their required reserves.
Purchasing power parity is the theory that, in the long run, exchange rates should be at a level such that equivalent amounts of any country's currency
allows one to buy the same amount of goods and services.
Which of the following is an appropriate discretionary fiscal policy if equilibrium real GDP falls below potential real GDP?
an increase in government purchases
If the government finances an increase in government purchases with an increase in taxes, which of the following would you expect to see?
an increase in the exchange rate
In economics, money is defined as
any asset people generally accept in exchange for goods and services.
In the graph,, the dollar _________ against the yen.
appreciated
The increase in the amount the government collects in taxes when the economy expands and the decrease in the amount the government collects in taxes when the economy goes into a recession is an example of
automatic stabilizers
Economies where goods and services are traded directly for other goods and services are called ________ economies.
barter
Suppose the federal government decreases spending without also decreasing taxes. In an open economy setting, the effect of government fiscal policies will _____________. For example, in an open economy, expansionary fiscal policies affect interest rates and also exchange rates in the same direction and the changes in the latter create a ____________ crowding out effect.
be dampened, larger
When foreign investors in Thailand began to realize that Thailand could not maintain its peg to the dollar indefinitely, they began to sell off their investments in Thailand and exchange the baht they received for dollars. This reduction in investment by foreigners is termed
capital flight.
M1 includes
currency in circulation, checking account deposits in banks, and holdings of traveler's checks.
When housing prices fall, as they did beginning in 2006 following the housing market bubble, consumption spending on furniture, appliances, and home improvements ________ as many households found it ________ to borrow against the value of their homes.
declined; harder
An HMO hires radiology services from India to cut costs. If all else remains equal this will
decrease net exports.
If Californians increase their purchases of Italian wine, assuming all else remains constant, this will ________ of the United States.
decrease the balance of trade
An increase in capital outflows from the United States will
decrease the balance on the financial account.
The sale of Treasury securities by the Federal Reserve will, in general,
decrease the quantity of reserves held by banks.
In the countries that have adopted inflation targeting, the inflation rate has typically
decreased.
Due to the increase in European interest rates, the dollar has ___________ relative to the euro.
depreciated
Crowding out, following an increase in government spending, results from (the exchange rate is the foreign exchange price of the domestic currency)
higher interest rates and a higher exchange rate.
Before 1980, most U.S. corporations raised funds
in U.S. stock and bond markets or in U.S. banks.
Under the gold standard, the government must have enough gold to back up any
increase in the money supply.
A Canadian oil company hires geological survey services from the United States. If all else remains equal, this will
increase net exports.
Which of the following would be the source of a "real" business cycle?
increases in oil prices
A decrease in the discount rate ________ bank reserves and ________ the money supply if banks respond appropriately to the change in the rate.
increases, increases
Which of the following is most important in explaining exchange rate fluctuations in the short run?
interest rates
The impact of crowding out
is larger in an open economy as compared to a closed economy.
A financial asset is considered a security if
it can be sold in a secondary market.
Which of the following would not be considered an automatic stabilizer?
legislation increasing funding for job retraining passed during a recession
Inflation targeting refers to conducting ________ policy so as to commit the central bank to achieving a ________.
monetary; publicly announced level of inflation
When the value of a currency is determined ________, the exchange rate system is defined as managed float.
mostly by supply and demand, but with occasional government intervention
According to the short−run Phillips curve, the unemployment rate and the inflation rate are
negatively related.
Defense spending is increased. This is
not part of fiscal policy.
Families are allowed to deduct all their expenses for daycare from their federal income taxes. This is
not part of fiscal policy.
The Federal Reserve lowers the target for the federal funds rate. This is
not part of fiscal policy.
6B. According to your results, the U.S. dollar is ____________ against the South Korean won and ______________ againt the Brazilian real.
overvalued, undervalued
In the United States, currency includes
paper money and coins in circulation.
The corporate income tax rate is increased. This is
part of a contractionary fiscal policy.
The individual income tax rate is decreased. This is
part of an expansionary fiscal policy.
The tax wedge is the difference between the
pre−tax and post−tax returns to an economic activity.
Part of the spending on the Doyle Drive project in northern California came from the American Reinvestment and Recovery Act, which is an example of discretionary fiscal policy aimed at increasing
real GDP and employment.
Suppose the federal government decreases spending without also decreasing taxes. In a closed economy setting, this policy will _________ real GDP and _______ the price level in the short run.
reduce, lower
If the Fed raises the interest rate, this will ________ inflation and ________ real GDP in the short run.
reduce; lower
Expansionary fiscal policy will
shift the aggregate demand curve to the right.
A decrease in expected inflation will
shift the short−run Phillips curve to the left.
Which of the following functions of money would be violated if inflation were high?
store of value
If the economy is growing beyond potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to longminus−run aggregate supply? An increase in
taxes
If the exchange rate changes from $2.00=£1 to $2.01=£1, then
the dollar has depreciated.
According to the quantity theory of money the inflation rate equals
the growth rate of the money supply minus the growth rate of real output.
If government spending and the price level increase, then
the interest rate increases, consumption declines, and investment spending declines.
Monetary policy refers to the actions the Federal Reserve takes to manage
the money supply and interest rates to pursue its economic objectives.
The Fed's two main monetary policy targets are
the money supply and the interest rate.
The quantity equation states that
the money supply (M) times the velocity of money (V) equals the price level (P) times real output M x V = P x Y
If workers and firms raise their inflation expectations,
the short−run Phillips curve will shift upward.
If interest rates in the U.S. rise,
the value of the dollar will rise as the foreign investors increase their holdings of U.S. investments.
A bank's assets are
things owned by or owed to the bank.
A bank's liabilities are
things the bank owes to someone else.
A currency pegged at a value below the market equilibrium exchange rate is
undervalued.
China began pegging its currency, the yuan, to the dollar in 1994. Because the yuan has been ________ at the pegged exchange rate, the Chinese government ________ its reserves of dollars as the government purchased more ________ to maintain the pegged exchange rate.
undervalued; increased; dollars
If the economy is producing at potential GDP,
unemployment is at its natural rate.
If firms and workers have rational expectations, including knowledge of the policy being used by the Federal Reserve, the shortminus−run Phillips curve will be
vertical.
In the long run, the Phillips curve is a ________ at ________.
vertical line; the natural rate of unemployment
In the graph to the right, the shift from AD1 to AD2 represents the total change in aggregate demand. If government purchases increased by $50 billion, then the distance from point A to point B ________ $50 billion.
would be greater than
It is ________ difficult to effectively time fiscal policy than monetary policy because ________.
more; fiscal policy takes longer to implement