Macroeconomics #5

Which of the following is an example of foreign direct investment?

A United States automobile manufacturer building a steel plant in Russia

Which of the following would be a current transaction?

A United States firm sells $500 million of its products to a Chinese company

Which of the following changes will have the smallest expansionary effect on aggregate demand in the short run?

A decrease in taxes of $100

Suppose that disposable income is $1000, consumption is $700 and the marginal propensity to consume (MPC) is 0.6. If disposable income then increases by $100, consumption and savings will equal which of the following?

Consumption: $760 Savings: $340

Which of the following changes will occur to the demand for United States dollars and the international value of the dollar in the short run if investors in the United States and abroad increase their purchases of United States government bonds?

Demand for dollars: increase International value of the dollar: Increase

The economy of a country is currently in equilibrium at point A in the diagram above. If the government does nothing and wages are flexible, which of the following will most likely occur in the long run?

Falling wages will shift the aggregate supply curve to the right, producing full employment.

assume that the supply of lovable funds increase in country X. The international value of Country X's currency and country X's exports will most likely change in which of the following ways?

IV - Decrease Exports - increase

To stimulate investment in new plant and equipment without increasing the level of real output, the best policy mix is to

Increase the money supply and decrease government spending

If the federal reserve wishes to use monetary policy to reinforce Congress' fiscal policy changes it should

Increase the money supply when government spending is increased

If a country has a current account deficit, which of the following must be true?

It must show a surplus in its capital account

According to the monetarist, which of the following is true of expansionary fiscal policy?

It will cause interest rates to rise and crowd out private investment spending.

In a flexible system of exchange rates, an open market sale of bonds by the Federal Reserve will most likely change the money supply, the interest rate, and the value of the United States dollar in which of the following ways?

MS:decrease, IR: increase Value of the dollar: increase

Policy makers concerned about fostering long-run growth in an economy that is currently in a recession would most likely recommend which of the following combinations of monetary and fiscal policy actions?

Monetary policy: buy bonds Fiscal policy: no change

Assume that the economy is in equilibrium. If aggregate demand increases, nominal interest rates and bond prices will most likely change in which of the following ways?

Nominal Interest Rates: Increase, Bond Prices: Decrease

In an economy with a horizontal aggregate supply curve, an increase in government spending will cause output and the price level to change in which of the following ways?

Output: Increase, Price Level: No change

If the economy is operating in the intermediate, range of the aggregate supply curve and if aggregate demand increases due to an increase in net exports, then the price level, output, and the unemployment rate are most likely to change in which of the following ways?

PL: increase Output: increase Unemployment rate: decrease

If, at full employment, the government wants to increase its spending by $100 billion without increasing inflation in the short run, it must do which of the following?

Raise taxes by more than $100 billion.

If Mexicans increase their investment in the United States, the supply of Mexican pesos to the foreign exchange market and the dollar price of the peso will most likely change in which of the following ways?

Supply of Pesos = increase Dollar Price of Peso = decrease

Which of the following would be most likely to occur if the United States placed high tariffs on imported goods?

The United States economy would become less efficient.

The price of one nation's currency expressed in terms of another nation's currency is called

The exchange rate

In an economy with lump-sum taxes and no international sector, assume that the aggregate supply curve is horizontal. If the marginal propensity MTI consume is equal to 0.8, which of the following will necessarily be true?

The government expenditure multiplier will be equal to 5

Which of the following best explains why many United States economists support free international trade?

The long-run gains to consumers and some producers exceed the losses to other producers.

An increase in the international value of the United States dollar will tend to cause

United States exports to fall

If the real interest rates in the United States rise relative to rates in other countries, what will happen to the international value of the United States dollar and United States net exports?

Value of the Dollar: Appreciate, Net Exports: Decrease

Which of the following most undermines the ability of a nation's currency to store value?

a decrease in the purchasing power of the currency

With an increase in investment demand in the United States, the real interest rate rises. In this situation, the most likely change in the capital stock in the United States and in the international value of the dollar would be which of the following?

capital stock in United States -Increase International value of the dollar -increase

Compared to expansionary monetary policies adopted to counteract a recession, expansionary fiscal policies tend to result in

higher interest rates

When the United States Government engages in deficit spending, that spending is primarily financed by

issuing new bonds

An increase in which of the following will lead to lower inflation and lower unemployment?

labor productivity

Which of the following best explains how an economy could simultaneously experience high inflation and high unemployment?

negative supply shocks cause factor prices to increase

If the economy is operating at full employment and there is a substantial increase in the money supply, the quantity theory of money predicts an increase in

price level

When the Federal Reserve increases the money supply to stimulate aggregate demand, workers believe that this action will cause inflation in the future and ask for higher wages to offset the expected increase in inflation. This is an example of

rational expectations

Which of the following can be considered a leakage from the circular flow of economic activity?

saving