Econ 202 Chap 13-17

A goal of monetary policy and fiscal policy is to Answers: A. offset shifts in aggregate demand and thereby stabilize the economy B. offset the shifts in aggregate demand and thereby eliminate unemployment C. enhance the shifts in aggregate demand and thereby increase economic growth D. enhance the shifts in aggregate demand and thereby create fluctuations in output and employment

A

If the nominal exchange rate is 5 Egyptian pounds per US dollar, a watch that costs $25 US dollars costs Answers: A. 125 Egyptian pounds B. 50 Egyptian pounds C. 5 Egyptian pounds D. None of the above is correct

A

Refer to the figure below, which shows the AD-AS Model on the left, and two Phillips Curves on the right. The shift of the aggregate supply curve from AS1 to AS2 Chap17 Q8 Answers: A. represents an adverse supply shock to aggregate supply. This moves the point from C to D, representing higher inflation and higher unemployment B. represents an adverse supply shock to aggregate supply. This moves the point from D to C, representing lower inflation and lower unemployment C. represents an adverse supply shock to aggregate supply but does not move the point from C to D D. represents a favorable shock to aggregate supply but does not move the point from C to D

A

Changes in the price level affect which components of aggregate demand? Answers: A. Only investment B. Consumption, investment, and net exports C. Only consumption and net exports D. Only consumption and investment

B

A limit on the quantity of a good produced abroad that can be purchased domestically is called a(n) Answers: A. tariff B. excise tax C. import quota D. None of the above is correct

C

Suppose that businesses and consumers become much more optimistic about the future of the economy, so that aggregate demand starts to shift to the right. To stabilize output, the Federal Reserve could Answers: A. increase money supply to raise interest rates B. increase money supply to lower interest rates C. decrease money supply to raise interest rates D. decrease money supply to lower interest rates

C

The aggregate demand curve Answers: A. has a slope that is explained in the same way as the slope of the demand curve for a particular product B. is vertical in the long run C. shows an inverse relationship between the price level and the quantity of all goods and services demanded D. All of the above are correct

C

The long-run aggregate supply curve shifts right if Answers: A. immigration from abroad increases B. the capital stock increases C. technology advances D. All of the above are correct

D

When taxes decrease, consumption Answers: A. decreases as shown by a movement to the left along a given aggregate demand curve B. decreases as shown by a shift of the aggregate demand curve to the left C. increases as shown by a movement to the right along a given aggregate demand curve D. increases as shown by a shift of the aggregate demand curve to the right

D

If a bushel of wheat costs $6.40 in the US, costs 40 pesos in Mexico, and the nominal exchange rate is 10 pesos per dollar, then the real exchange rate is Answers: A. 1.60 B. 1.25 C. 0.625 D. None of the above is correct

A

The government builds a new water-treatment plant. The owner of the company that builds the plant pays her workers. The workers increase their spending. Firms from witch the workers buy goods increase their output. This type of effect on spending illustrates Answers: A. the multiplier effect B. the Fisher effect C. the wealth effect D. the crowding-out effect

A

The most important lesson from trade policy is that if the US wishes to decrease the trade deficit and increase domestic jobs by imposing an import quota on foreign products Answers: A. the trade deficit would not be reduced, and while some domestic jobs can be saved, jobs in exporting firms in the US will be destroyed B. the trade deficit would be reduced, and while jobs in exporting firms can be saved, jobs in domestic firms in the US will be destroyed C. the trade deficit would not be reduced, but jobs in both domestic and exporting firms can be saved D. the trade deficit would be reduced, but jobs in both domestic and exporting firms will be destroyed

A

Which of the following statements describes expected inflation? Answers: A. It measures what people believe the price level will be B. It measures the future return on stocks and bonds C. It is always equal to the actual price level D. None of the above is correct

A

A country has private saving of $100 billion, public saving of -$30 billion, domestic investment of $50 billion, and net capital outflow of $20 billion. What is its supply of loanable funds? Answers: A. $50 billion B. $70 billion C. $90 billion D. $120 billion

B

A farmer in Mexico purchases a tractor made in the US. This purchase is an example of Answers: A. an import for both Mexico and the US B. a US export and a Mexican import C. an export for both the US and Mexico D. A US import and a Mexican export

B

A tax on imported goods is called a(n) Answers: A. excise tax B. tariff C. import quota D. None of the above is correct

B

According to Friedman and Phelps, policymakers face a tradeoff between inflation and unemployment Answers: A. only in the long run B. only in the short run C. in neither the long run nor the short run D. in both the short run and long run

B

An open economy's GDP is always given by Answers: A. Y = C + I + G + T B. Y = C + I + G + NX C. Y = C + I + G + S D. Y = C + I + G

B

As the interest rate falls, the theory of liquidity preferences predicts that Answers: A. the quantity of money demanded falls B. the quantity of money demanded rises C. the money demand curve shifts D. long-run aggregate supply shifts

B

Disinflation is a reduction in Answers: A. the price level B. the inflation rate C. the consumer price index D. All of the above are correct

B

Fiscal policy refers to the idea that aggregate demand is affected by changes in Answers: A. the money supply B. government spending (G) and taxes (T) C. trade policy D. All of the above are correct

B

If US residents purchase $600 billion worth of foreign assets and foreigners purchase $300 billion worth of US assets, Answers: A. US net capital outflow is $300 billion; capital is flowing into the US B. US net capital outflow is $300 billion; capital is flowing out of the US C. US net capital outflow is -$300 billion; capital is flowing into the US D. US net capital outflow is -$300 billion; capital is flowing out of the US

B

If the US imposed import quotas on cotton from China so that the US has less imports, then Answers: A. the US real exchange rate rises, and US net exports declines B. the US real exchange rate rises, but US net exports remains the same C. the US real exchange rate declines, and the US net exports rises D. neither the US real exchange rate nor US net exports would change

B

If the real exchange rate between the US and Argentina is 1, then Answers: A. purchasing power parity holds, and 1 US dollar buys 1 Argentinean bolivar B. purchasing power parity holds, and the amount of dollars needed to buy goods in the US is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina C. purchasing power parity does not hold, but 1 US dollar buys 1 Argentinean bolivar D. purchasing power parity does not hold, but the amount of dollars needed to buy goods in the US is the same as the amount needed to buy enough Argentinean bolivars to buy the same goods in Argentina.

B

Refer to the figure below adas The shift of the short-run aggregate supply curve from SRAS1 to SRAS2 Answers: A. could be caused by an outbreak of war B. could be caused by a decrease in the expected price level C. causes the economy to experience an increase in the unemployment rate D. causes the economy to experience stagflation

B

Refer to the figure below, which contains two short run Phillips Curves. What is measured along the horizontal axis? Chap17 Q1 Answers: A. time B. the unemployment rate C. real GDP D. the growth rate of real GDP

B

The term crowding-out effect refers to Answers: A. the reduction in aggregate demand that results when a decrease in government spending or an increase in taxes causes the interest rate to eventually increase B. the reduction in aggregate demand that results when a fiscal expansion causes the interest rate to eventually increase C. the reduction in aggregate demand that results when a monetary expansion causes the interest rate to eventually decrease D. the reduction in aggregate supply that results when a monetary expansion causes the interest rate to eventually decrease

B

What do we call an economy who interacts with other economies through trade in the world? Answers: A. A closed economy B. An open economy C. It could be either a closed or an open economy D. Neither closed no open economy

B

When Mexico suffered from capital flight in 1994, Answers: A. more Mexican domestic capital flowed toward foreign countries, causing the real exchange rate of the peso to appreciate B. more Mexican domestic capital flowed toward foreign countries, causing the real exchange rate of the peso to depreciate C. less Mexican domestic capital flowed toward foreign countries, causing the real exchange rate of the peso to depreciate D. less Mexican domestic capital flowed toward foreign countries, causing the real exchange rate of the peso to appreciate

B

Which of the following depends primarily on the growth rate of the money supply? Answers: A. inflation and the natural rate of unemployment B. inflation but not the natural rate of unemployment C. the natural rate of unemployment but not inflation D. neither inflation nor the natural rate of unemployment

B

Which of the following events will shift the aggregate demand curve to the right? Answers: A. An increase in government expenditures or a decrease in the price level B. An increase in government expenditures, but not a change in the price level C. A decrease in government expenditures or an increase in the price level D. A decrease in the price level, but not an increase in government expenditures

B

From 2001 to 2005 there was a dramatic rise in the price of houses. If this rise made people feel wealthier, then it would have shifted Answers: A. aggregate supply right B. aggregate supply left C. aggregate demand right D. aggregate demand left

C

In the long run, an increase in the money supply Answers: A. leaves prices and unemployment unchanged B. raises prices and unemployment C. raises prices and leaves unemployment unchanged D. leaves prices unchanged and reduces unemployment

C

In the open-economy macroeconomic model, the market for loanable funds identity can be written as (Hint: what is the identity between NX and NCO) Answers: A. S = I B. S = NCO C. S = I + NCO D. S + I = NCO

C

Keynes argued that aggregate demand is Answers: A. stable, because the economy tends to return to its long-run equilibrium quickly after any disturbance to aggregate demand B. stable, because changes in consumption are mostly offset by changes in investment and vice versa C. unstable, because waves of pessimism and optimism create fluctuations in aggregate demand D. unstable, because of long and variable policy lags that worsen economic fluctuations

C

People who disagree with heavily using monetary policy or fiscal policy to stabilize the economy in the short run claim that both policies Answers: A. will only have a small effect on aggregate supply but not on aggregate demand B. effect aggregate demand very soon after policy is implemented and there will not be a time lag C. effect aggregate demand several months after policy is implemented, so there will be a time lag D. will only have a small effect on aggregate demand

C

The existence of economic fluctuations such as recessions make which part of the AD-AS model necessary? Answers: A. The aggregate demand curve B. The long-run aggregate supply curve C. The short-run aggregate supply curve D. The long-run equilibrium

C

The interest-rate effect Answers: A. depends on the idea that increases in interest rates increase the quantity of money demanded B. depends on the idea that increases in interest rates increase the quantity of money supplied C. is the most important reason, in the case of the United States, for the downward slope of the aggregate demand curve D. is the least important reason, in the case of the United States, for the downward slope of the aggregate demand curve

C

The purchase of US government bonds by Egyptians is an example of (Hint: it is bonds, not goods) Answers: A. US imports B. US exports C. foreign portfolio investment by Egyptians D. foreign direct investment by Egyptians

C

The short run relationship between inflation and unemployment is often called Answers: A. the Classical Dichotomy B. Money Neutrality C. the Phillips Curve D. None of the above is correct

C

Which of the following equations is always correct in an open economy? Answers: A. I = Y - C B. I = S C. I = S - NCO D. I = S + NX

C

Which of the following statements is correct? Answers: A. In the short run, unemployment and inflation are positively related. In the long run they are largely unrelated B. Inflation and unemployment are positively related in both the short run and the long run C. In the short run, unemployment and inflation are negatively related. In the long run they are largely unrelated D. Inflation and unemployment are negatively related in both the short run and the long run

C

A country purchases $3 billion of foreign-produced goods and services and sells $2 billion dollars of domestically produced goods and services to foreign countries. It has Answers: A. exports of $3 billion and a trade surplus of $1 billion B. exports of $3 billion and a trade deficit of $1 billion C. exports of $2 billion and a trade surplus of $1 billion D. exports of $2 billion and a trade deficit of $1 billion

D

According to classical macroeconomic theory, changes in the money supply affect Answers: A. neither nominal nor real variables B. real variables, but not nominal variables C. nominal variables and real variables D. nominal variables, but not real variables

D

If a country increases the size of its budget deficit, then from the loanable funds market model in an open economy, its Answers: A. net capital outflow, domestic investment, and net exports rise B. net capital outflow and domestic investment rises, and net exports fall C. net capital outflow and domestic investment falls, and net exports rise D. net capital outflow, domestic investment, and net exports fall

D

If the supply of loanable funds shifts right, then the equilibrium Answers: A. levels of net capital outflow and domestic investment decrease B. level of net capital outflow increases and the equilibrium level of domestic investment decreases C. level of net capital outflow decreases and the equilibrium level of domestic investment increases D. levels of net capital outflow and domestic investment increase

D

In an open economy, the source of the demand for loanable funds is Answers: A. national saving B. national saving + net capital outflow C. investment D. investment + net capital outflow

D

Refer to the figure below. Which of the following events could explain the shift of the short run aggregate supply curve from AS1 to AS2? Chap17 Q2 Answers: A. a reduction in firms' costs of production B. a reduction in taxes on consumers C. an increase in the price level D. an increase in the world price of oil

D

Refer to the figure below: The appearance of the long-run aggregate supply curve (LRAS) Answers: A. is consistent with the concept of monetary neutrality B. is consistent with the idea that Y1 is produced with full employment C. indicates that Y1 is the natural rate of output D. All of the above are correct

D

The long-run aggregate supply curve Answers: A. is vertical B. is a graphical representation of the classical dichotomy C. indicates monetary neutrality in the long run D. All of the above are correct

D