Econ 202 final
The key idea of the aggregate expenditure model is that in any particular year the level of GDP is determined by the level of
Aggregate expenditure
Fiscal policy is determined by
Congress and the President
The laffer curve shows that a decrease in tax rates
Could increase tax revenue
A (blank) in the foreign exchange value of the dollar is referred to as a (blank) of the dollar
Decrease; depreciation
An appreciation in the U.S dollar
Decreases U.S. Exports and Increases U.S. imports, implying that U.S. net exports will Decrease. Shifting the aggregate demand curve to the left and the aggregate expenditure line down
The supply of U.S. dollars is a derived (blank) for foreign goods, services, and (blank)
Demand; assets
The foreign exchange rate for the U.S dollar is determined by the blank for dollars and the blank of dollars
Demand; supply
The demand for U.S dollars is a (blank)demand for (blank )goods, services, and (blank(real and financial))
Derived; U.S. ; assets
The federal reserve was established in 1913 to
End bank panics by acting as a lender of last resort
For purposes of monetary policy which interest rate does the federal reserve target? The
Federal funds rate
The demand for U.S. dollars is by (blank) firms and household, and currency traders, and they get dollars by supplying pesos
Foreign
Financial changes most in
Short run
In the basic aggregate demand - aggregate supply model, the long run automatic adjustment mechanism to potential GDP in the long run from a level of real GDP below potential GDP occurs as the blank shifts to the blank
Short run aggregate supply, right
Which statement best describes supply-side economics
Tax rates, particularly marginal tax rates, affect the incentive to work, save, and invest and, therefore, aggregate supply.
Monetary policy is determined by
The federal reserve
The demand for dollars is not the same as our domestic demand for money
True
The demand for dollars is the mirror image of the supply of pesos
True
Demand for dollars will increase if
U.S. Interest rates increase Foreign interest rates decrease Foreign financial assets become more risky
The demand for US dollars in the foreign exchange market is a derived demand for
U.S. goods, services, and assets
In the graph of the short-run model of foreign exchange rates, what variable is on the horizontal axis? The quantity of
US dollars
A depreciation in the foreign exchange value of the u.s. dollar makes
US exports less expensive
Does an appreciation of the Dollar help U.S. consumers?
Yes products are cheaper
Does an appreciation of the dollar hurt US exporters? How?
Yes! Products cost more but they get the same amount
Currency depreciation
a decrease in the market value of one currency relative to another currency
In the graph of the aggregate expenditure model, what variable is on the vertical axis?
aggregate expenditure
When a recession causes a budget deficit, an annual balanced-budget amendment would require the government to enact
contractionary fiscal policy -- a decrease in government spending and/or an increase in taxes -- to balance the budget this year
Which type of unemployment does the aggregate expenditure model explain
cyclical unemployment
automatic stabilizers refer to
government spending and taxes that automatically increase or decrease along with the business cycle
By increasing the interest rate on bank reserves deposited at the Fed, the Fed can ________ the level of excess reserves banks are willing to hold, thereby ___________ bank lending
increase; decreasing
If the quantity of goods and services produced in the economy decreases
it may be possible for nominal GDP to increase
A commercial bank creates money by
making loans
To explain inflation in the long run, we use the
quantity theory of money
The federal government debt equals the
the accumulation of past budget deficits minus budget surpluses
A depreciation in the foreign exchange value of the U.S. dollar would cause
the aggregate expenditure line to shift up
If cyclical unemployment is eliminated in the economy, then
the economy is considered to be at full employment
The rule of 70 states that
the number of years it takes an economy to double in size is 70 divided by the growth rate.
In the aggregate expenditure model, an increase in foreign real GDP would cause the aggregate expenditure line to shift
up, increasing equilibrium real GDP
The federal reserve defines the monetary policy goal of price stability to mean an average inflation rate equal to
2 percent
Using the quantity equation expressed in growth rates, if the velocity of money is constant, the money supply grows at 6 percent and real GDP grows at 2 percent, then the inflation rate will be
4 percent
Which of the following would cause the foreign exchange value of the US dollar to appreciaote
A decrease in foreign interest rates
Which of the following would cause the U.S. dollar to depreciate
A decrease in the risk of foreign financial assets
Which of the following would cause the U.S dollar to appreciate
An increase in U.S. interest rates
If the economy is in a short run equilibrium with real GDP above potential GDP p, an appropriate monetary policy would be
An increase in interest rates
In the static aggregate demand -aggregate supply model , a decrease in foreign exchange value of the dollar will in the short run lead to blank in real GDP and blank in the price level
An increase, an increase
Interest rates in the U.S. (blank) relative to interest rates in foreign countries
Increase
An (blank) in the foreign exchange value of the dollar is referred to as an (blank) of the dollar
Increase; appreciation
A recession tends to cause the federal budget deficit to (blank) because tax revenues (blank)and government spending on transfer payments (blank)
Increase;fall;rise
Rick in financial assets in foreign countries (blank) relative to risk in financial assets in the U.S
Increases
long run
Inflation
short run
Interest rates
In the aggregate expenditure model, if aggregate expenditure is less than real GDP, how will the economy reach macroeconomic equilibrium?
Inventories will rise, and real GDP and employment will decline
Suppose real GDP is 1 trillion below potential GDP. If the marginal propensity to consume equals 0.5 then for real GDP to reach potential GDP autonomous spending must increase by
Less than 1 trillion
Quantity Theory of Money Equation
M x V = P x Y
The real interest rate equals the nominal interest rate (blank) the inflation rate
Minus
Do US exporters receive a higher price when the dollar appreciates?
No. They still receive the same price when the value of the dollar appreciates.
What price index does the federal reserve use for its inflation target?
Personal consumption expenditure price index(PCE)
An appreciation of the U.S. dollar (blanks) the cost of U.S. exports and (blanks) the cost of imports into the U.S., decreasing net exports
Raises; lowers
How do we choose between 2 financial assets
Rate of return (interest rate), risk
If the economy is in a short run equilibrium with a real GDP below potential GDP an appropriate fiscal policy would be
decrease taxes
The value of total income for an economy ____ the value of total production
equals
net exports=
exports - imports
The supply for US dollars in the foreign exchange market is a derived demand for
foreign goods, services, and assets
In the static (basic) aggregate demand - aggregate supply model, which of the following would cause a recession? A decrease in
government purchases