econ 202 final

The nominal exchange rate is 5 Swedish kroner per U.S. dollar and the real exchange rate is $0.75. Which of the following price for a particular good are consistent with those exchange rates? -$4 in the U.S. and 15 kroner in Sweden -$5 in the U.S. and 15 kroner in Sweden -$3 in the U.S. and 20 kroner in Sweden -$3 in the U.S. and 4 kroner in Sweden

$3 in the U.S. and 20 kroner in Sweden

If a country had a trade surplus of $15 billion and then its exports rose by $10 billion and its imports fell by $5, its net exports would now be -$30 billion -$5 billion -$25 billion -$10 billion

$30 billion

The loanable funds market is in equilibrium for country A. Country A has national saving of $70 billion, government expenditures of $20 billion, domestic investment of $20 billion, and net capital outflow of $50 billion. What is the quantity supplied of loanable funds in country A?

$70 billion

Which among the following assets is the most liquid? -fine art -stocks and bonds -deposits that can be withdrawn using ATMs -real estate

-deposits that can be withdrawn using ATMs

According to purchasing-power parity, if the price of a basket of goods in the U.S. rose from $1,200 to $1,260 and the price of the same basket of goods rose from 11,000 Mexican pesos to 11,440 Mexican pesos in Mexico, then the -real exchange rate would appreciate. -a nominal exchange rate would appreciate. -real exchange rate would depreciate. -nominal exchange rate would depreciate.

-nominal exchange rate would depreciate.

Suppose you observe Japan's net capital outflow increase. Based on the open-economy macroeconomic model, which of the following could have caused this? -the Japanese Yen appreciated. -real interest rates in the U.S. increase. -this situation is impossible. -real interest rates in Japan increased.

-real interest rates in the U.S. increase.

What could cause U.S. goods to become less attractive to consumers in the U.S. and abroad? -when the U.S. real exchange rate increases. -never. -when the U.S. real exchange rate stays the same. -when the U.S. real exchange rate decreases.

-when the U.S. real exchange rate increases.

If the marginal propensity to consume is 2/3, then the government purchases multiplier is:

3

Which of the following shifts aggregate demand to the left? -The Fed purchases government bonds on the open market. -The price level falls. -The price level rises. -A decrease in the money supply.

A decrease in the money supply.

Suppose Jason believes that the government should follow an active stabilization policy when the economy is experiencing severe unemployment. Which of the following policies would he recommend in this case? -Sell bonds to the public. -Decrease government expenditures. -Decrease taxes. -Repeal an investment tax credit.

Decrease taxes.

True or False: If a country raises its budget deficit then both its supply of and demand for loanable funds shift.

F A budget deficit creates negative public saving. Since public saving is a component of national saving, national saving decreases. Since supply in the loanable funds market is represented by national saving, the supply curve in the loanable funds market shifts. The budget deficit does not shift the demand curve in the loanable funds market.

T/F: If aggregate demand and aggregate supply both shift left, we can be sure that the price level is higher in the short run.

F When the aggregate-demand curve shifts left, the price level falls. When the short-run aggregate-supply curve shifts left, the price level rises. The final price level depends on the relative strength of the shifts.

T/F: Although wages, incomes, and interest rates are most often discussed in real terms, what matters most are their nominal values.

F. Nominal variables may be the first things we see when we observe an economy, but what's important are the real variables.

T/F: The interest-rate effect stems from the idea that a higher price level decreases the real value of households' money holdings.

F. The wealth effect, not the interest-rate effect, stems from the idea that a higher price level decreases the real value of households' money holdings. Instead, the interest-rate effect depends on the idea that decreases in interest rates increase the quantity of goods and services demanded.

T/F: If the real exchange rate between India and Thailand is 1 and purchasing-power parity holds, then 1 Indian rupee buys 1 Thai bhat.

F. If the real exchange rate between the India and Thailand is 1, then purchasing-power parity holds, but purchasing-power parity doesn't mean that 1 unit of a country's currency buys 1 unit of another country's currency. Instead, purchasing-power parity means, in the case of India and Thailand, that the amount of rupees needed to buy goods in India is the same as the amount needed to buy enough Thai bhat to buy the same goods in Thailand.

True or False: In the open-economy macroeconomic model, the key determinant of net capital outflow is the real exchange rate.

False. As the real interest rate rises, domestic assets become more attractive to both domestic investors as well as foreign investors. This encourages investors to purchase more domestic assets and less foreign assets, thereby decreasing net capital outflow. If the real interest rate decreases, domestic assets become less attractive to investors relative to foreign assets. The increases purchases of foreign assets will lead to an increased net capital outflow.

Sadie buys stock in a company in Italy. Mike opens an espresso bar in Italy. Both Sadie and Mike are American residents. Whose purchase, by itself, increases Italy's net capital outflow?

Neither Mike's nor Sadie's Both Mike and Sadie's purchases are purchase of Italian assets by people outside Italy, so they both decrease Italy's net capital outflow.

T/F: From 1980 to 1987, U.S. net capital outflows decreased. According to the open-economy macroeconomic model, a decrease in the supply of loanable funds could have caused this.

T

T/F: Keynes would agree with the statement that irrational waves of pessimism cause aggregate demand to be unstable.

T

T/F: The theory of liquidity preference only attempts to explain the nominal interest rate.

T. The nominal interest rate is the interest rate as usually reported, and the real interest rate is the interest rate corrected for the effects of inflation.

Which of the following statements is true about the Kennedy administration in the early 1960s? -The Kennedy tax cut of 1964 was not successful in stimulating the economy. -The Kennedy administration made considerable use of fiscal policy to stimulate the economy. -The Kennedy tax cut of 1964 was designed to shift the aggregate supply curve to the left. -The Kennedy administration made considerable use of monetary policy to stimulate the economy.

The Kennedy administration made considerable use of fiscal policy to stimulate the economy.

If saving is less than domestic investment, then -Y> C + I + G and there is a trade deficit -Y < C + I + G and there is a trade surplus -Y > C + I + G and there is a trade surplus -Y < C + I + G and there is a trade deficit

Y < C + I + G and there is a trade deficit

Which of the following policy actions does NOT shift the aggregate-demand curve? -a decrease in taxes -an increase in government spending -a change in the price level -open-market operations by the Fed

a change in the price level

In the open-economy macroeconomic model, the purchase of a foreign capital asset by a domestic resident -adds to the demand for loanable funds -takes away from the demand for loanable funds -is against the law. -does not affect the demand for loanable funds.

adds to the demand for loanable funds

Suppose the real exchange rate is such that the market for foreign-currency exchange has a shortage of dollars. This shortage will lead to a (depreciation/appreciation) of the dollar, a (decrease/increase) in U.S. net exports, and so an (decrease/increase) in the quantity of dollars demanded in the foreign exchange market.

an (appreciation) of the dollar, a (decrease) in U.S. net exports, and so a (decrease) in the quantity of dollars demanded in the foreign exchange market.

Suppose the exchange rate rises. All else equal, which of the following could cause this in the open-economy macroeconomic model? -an increase in the demand for net exports -a decrease in the demand for net exports -this situation is predicted by the model to never occur -demand for net exports staying the same.

an increase in the demand for net exports

A U.S. manufacturing company borrows money to buy a forklift from a U.S. company and a conveyer belt from a company in Japan. Which of the capital asset purchases is included in the demand for loanable funds?

borrowing both capital asset purchases are included in the demand for loanable funds in the U.S.

Which of the following rises during expansions? -neither employment nor consumer spending -both employment and consumer spending -consumer spending but not employment -employment but not consumer spending

both employment and consumer spending

Mark is having a policy debate with his cousin Gina. Gina points out that the political process is mostly responsible for the lag in implementing: -monetary policy -both fiscal policy and monetary policy. -neither fiscal policy nor monetary policy. -fiscal policy

fiscal policy

The purchase of U.S. government bonds by Saudi Arabian residents is an example of -foreign portfolio investment by Saudi Arabian residents. -U.S. imports. -foreign direct investment by Saudi Arabian residents. -U.S. exports.

foreign portfolio investment by Saudi Arabian residents.

We need to study a model in which real and nominal variables interact in order to understand how the economy works -in the short run but not the long run. -in both the short run and the long run. -without regards to any time period, whether the short -run or the long run. in the long run but not the short run

in the short run but not the long run.

Dmitri, a Canadian resident, buys $10,000 worth of olives from Cyprus. What does this purchase do to Canadian imports/exports and net exports?

increases Canadian imports by $10,000 and decreases Canadian net exports by $10,000.

Recessions occur at (regular/irregular) intervals and are (possible/almost impossible) to predict with much accuracy.

irregular; almost impossible

A decrease in government purchases will shift aggregate demand (left/right/no change)

left

Which of the following, other things the same, would make the price level increase and real GDP decrease? -long-run aggregate-supply curve shifts to the right -aggregate-demand curve shifts to the right -aggregate-demand curve shifts to the left -long-run aggregate-supply curve shifts to the left

long-run aggregate-supply curve shifts to the left

Steve is having a policy debate with his brother Brian. He points the fact that business firms make investment plans far in advance. This is a lag problem associated with -monetary policy. -neither monetary policy nor fiscal policy. -both monetary policy and fiscal policy. -fiscal policy.

monetary policy

When the U.S. real interest rate rises, purchasing U.S. assets becomes

more attractive to both U.S. and foreign residents

In the open economy macroeconomic model, if a country's interest rate increases, then what happens with its net capital outflow or net exports?

net capital outflow and its net exports fall.

People will want to buy fewer bonds and the interest rate will rise, as the price level -rises. -falls by less than 50 percent. -remains constant. -falls by more than 50 percent.

rises

A decrease in the price level makes consumers feel wealthier, so they purchase more. This logic helps explain why the aggregate-demand curve -slopes upward. -is horizontal. -slopes downward. -is vertical.

slopes downward.

To calculate the value of a country's net exports, -subtract the value of goods imported from the value of good exported. -subtract the value of goods and services imported from the value of goods and services exported. -subtract the value of goods exported from the value of goods imported. -subtract the value of goods and services exported from the value of goods and services imported.

subtract the value of goods and services imported from the value of goods and services exported.

According to purchasing-power parity, if the price level in the U.S. rises more than in New Zealand, then which of the following falls? US nominal exchange rate/US real exchange rate

the U.S. nominal exchange rate falls, but not the U.S. real exchange rate

If purchasing-power parity holds, all of the following are true except -the real exchange rate is equal to one -the nominal exchange rate is the ratio of U.S. prices to foreign prices -the purchasing power of the dollar is the same in the U.S. as in foreign countries. -a dollar will buy enough foreign currency goods as to buy as many it does in the United States.

the nominal exchange rate is the ratio of U.S. prices to foreign prices

Imagine two economies that are identical except that, for a long time, economy A has had a money supply of $1,000 billion while economy B has had a money supply of $1,500 billion. What does this mean for price level and GDP?

the price level, but not real GDP is higher in country B.

The vertical axis of the aggregate demand and aggregate supply graph has the -output of goods. -real GDP. -output of services. -the price level.

the price level.

When production costs fall, (short-run aggregate-supply curve/aggregate-demand curve) shifts to the (right/left)

the short-run aggregate-supply curve shifts to the right.