Econ 203 final

which of the following effects helps to explain the downward slope of the aggregate-demand curve?

(all of the above) the exchange rate, the wealth, and interest-rate effects

In the US, a cup of hot chocolate costs $5. In Australia, the same hot chocolate costs $6.5 Australian dollars. If the exchange rate is $1.3 Australian dollars per US Dollar, what is the real exchange rate?

1 cup of Australian hot chocolate per cup of US hot chocolate

If P= domestic prices, P*=foreign prices and e is the nominal exchange rate, which of the following is implied by purchasing power parity?

1/P=e/P*

If MPC=3/5, the the government purchases multi. is

5/2

Which of the following lists includes only changes that shift aggregate demand to the right?

Passing of an investment tax credit, an increase in the money supply

An open economy's GDP is always given by

Y=C+I+G+NX

The aggregate-demand curve could shift from AD1 to AD2 as a result of

a decrease in stock prices

The law of one price states that

a good must sell at the same price at all locations

A country sells more to foreign countries than it buys from them. It has

a trade surplus and positive net exports

Consumers are optimistic. Which curve shifts and in which direction?

aggregate demand shifts right

Which of the following would cause stagflation?

aggregate supply shifts left

If the economy is at point b, a policy to restore full employment would be

an increase in the money supply

In the open-economy macroeconomics model, if the supply of loanable funds increases, then the interest rate

and real exchange rate decrease

If the exchange rate changes from 135 Kazakhstan tenge per dollar to 150 Kazakhstan tenge per dollar, the dollar has

appreciated. Other things the same, it now takes fewer dollars to buy Kazakhstani goods

In the short run, what happens to the price level and real GDP? (with optimism)

both the price level and real GDP rise

A Swiss Company sells chocolates to a retailer in the United States. These sales by themselves

decrease U.S. Net Exports and increase Swiss Net Exports

When taxes increase, consumption

decreases, so aggregate demand shifts left

If the economy were initially in equilibrium at r2 and e3 and the government removed import quotas, the exchange rate would

depreciate to e2

If the nominal exchange rate "e" is foreign currency per dollar, the domestic price is "P" and the foreign price is "P*" then the real exchange rate is defined as

e(P/P*)

Purchasing Power Parity describes the forces that determine

exchange rates in the long run

When interest rates fall

firms want to borrow more for new plants and equipment and households want to borrow more for home building

In the market for foreign currency exchange, the effects of an increase in the budget surplus is illustrated as a move along g to

i

Most economists believe that classical macroeconomics theory is a good description of the economy

in the long run, not in the short run

According to liquidity preference theory, if the quantity of money demanded is greater than the quantity supplied, then the interest rate will

increase and the quantity of money demanded will decrease

Sticky wages can result in

lower profits for firms when the price level is lower than expected

If the economy is at A and there is a fall in aggregate demand, in the short run the economy

moves to D

The curve in panel b shows that the interest rate rises,

net capital outflow declines

When a country's central bank decreases the money supply, its

price level falls and its currency appreciates relative to other currencies in the world

Starting from r2 and E3, an increase in the budget deficit can be illustrated as a move to

r3 and E4

In the open-economy macroeconomics model, the key determinant of net capital outflow is the

real interest rate

If the supply of dollars in the market for foreign-currency exchange shifts left, then the exchange rate

rises and the quantity of dollars exchanged falls

The Long-Run aggregate supply curve shifts right if

the capital stock increases

Other things the same, if the dollar depreciates relative to the British pound then

the exchange rate falls. It will cost fewer pounds to travel in the U.S.

If purchasing power parity holds, the price level in the US is 120, and the price level in Canada is 140, which of the following is true?

the nominal exchange rate is 140/120

Net Capital outflow equals

the purchase of foreign assets by domestic residents-the purchase of domestic assets by foreign residents

the term "crowding out" refers to:

the reduction in aggregate demand that results when a fiscal expansion causes the interest rate to increase

The aggregate supply curve is upward sloping in

the short run, but not the long run

National saving is represented by

the supply curve (in the first graph)

If the economy starts at A and there is a fall in aggregate demand, the economy moves

to C in the long run