ECON 211 Final Exam

the balance of trade is

-$500 billion

suppose an MP3 player sells for $75 in the United States and for 50 pounds in britain. which exchange rate is consistent with purchasing power parity

1 pound for US$1.50

if 1 dinar will buy 25 cents, how many dinar will one US dollar buy

4

what is the natural rate of unemployment associated with Phillips curve PCa

4%

what is the expected inflation rate associated with phillips curve PCb

5%

the concept of purchasing power parity implies that the

Big Mac should cost about the same in all countries

when demand for US goods increases, the demand curve will shift from ___ to ___ and the exchange rate will shift from ___ to ___

D0;D1;E0;E1

Starting at point J, the economy will move to point___ in the short run if policymakers successfully reduce aggregate demand

M

in the equation of exchange, if M=$1.5 trillion, V=7 and P=1.05, then

Q=$10 trillion

assume that inflation rates for the past 5 years have been 1%, 2%, 2.5%, 2%, 2%. the federal reserve announces that it is going to decrease the money supply because it is concerned about inflationary pressures in the economy. if people form their expectations____, then in light of the fed's announcement, they will expect an inflation rate of ___

adaptively; 1.9%

which of these is considered a supply shock

an increase in input costs

collateralized debt obligations

are financial instruments backed by a collection of mortgages

in counteracting demand shocks, the federal reserve can achieve

both full employment and price stability

if the economy is at short-run equilibrium point b because of a negative supply shock, the federal reserve could enact an expansionary monetary policy, thus shifting the new equilibrium to point___. as a result of this, the price level would ___ and real output would___

c; further increase; increase

the ___ summarizes the flow of money into and out of domestic and foreign assets

capital account

___occurs when the value of a currency falls relative to other currencies

currency depreciation

foreign aid transfers are part of the ___account

current

if american farmers sell corn to a russian grain dealer, then the ___ account is ___

current; credited

the current account balance is a

deficit of $85

the twin goals of monetary policy are

economic growth with low unemployment and stable prices with moderate long-term interest rates

to move the economy from point b to point a in the short run, federal reserve policymakers implement___ monetary policy, thereby accepting ___ to reduce___

expansionary; a higher rate of inflation; unemployment

the balance of trade is(are)

exports of goods and services minus imports of goods and services

a country decides to depreciate its currency. in the short run___, but in the long run___

exports will increase aggregate demand; rising costs of imported inputs will decrease aggregate supply

the rational expectations theory describes the assumption that people are ___, and the adaptive expectations theory describes the assumption that people are___

forward-looking; backward-looking

which statement about inflation is true?

if the fed pursues an inflation target, it increases the money supply when the actual inflation rate is below the target inflation rate

If the dollar depreciates relative to the yuan, then American exports to China will:

increase

one of the problems with the deflation is that it

increases the real value of existing debt

the short-run phillips curve holds___ constant

inflationary expectations

a credit default swap

is essentially the same as insurance against a default

the money illusion

is the misperception that one is wealthier; it occurs when the money supply grows

A nominal exchange rate:

is the price of one country's currency for another's

when the interest rate falls, american bonds become____ attractive to foreign investors, often leading to a(n)___ in the value of the US dollar in foreign exchange markets

less;decrease

a leveraged account

magnifies both gains and losses

in a liquidity trap:

monetary policy is ineffective in change income and output

The Phillips curve tradeoff worsended in the 1970s because of:

oil shocks

what occurs during a negative demand shock

output and price level decrease

in a jobless recovery

output begins to rise but unemployment growth does not

both___ on credit by households and ___ interest rates set in motion the events that led to the 2007-2009 financial crisis

overspending; low

adaptive expectations theory describes the use of ___ to form expectations of inflation

past rates of inflation only

starting at point j, the economy will move to point ___ in the long run if policymakers reduce aggregate demand

r

if the economy is facing inflationary pressures, the federal reserve will

raise interest rates

if the economy has high levels of unemployment, the federal reserve will

reduce interest rates

tightening monetary policy causes interest rates to ___ and aggregate ___ to ___

rise; demand; decrease

if the unemployment rate is 4.5% and the inflation rate is 6%, the federal reserve will most likely

sell bonds

the simultaneous occurrence of rising inflation and rising unemployment is called

stagflation

the taylor rule

targets the federal funds rate

the taylor rule suggests that

the federal funds target rate should be equal to 2% plus the inflation rate plus one-half the inflation gap plus one-half the output gap

the phenomenon that interest rates may be so low that increases in the money supply will have no impact on aggregate demand is called

the liquidity trap

suppose a country faces an inflation rate=5%; target inflation rate=2%; current federal funds rate=3%; current GDP is 4% below full-employment GDP, and long-run real GDP growth rate=3%. which statement correctly describes monetary policy actions that would be recommended according to the monetary rule, inflation targeting, and the taylor rule

the monetary rule would recommend ongoing steady expansion; inflation targeting would recommend contractioanry policy; the taylor rule would recommend expansionary policy

monetary policy deals with how

the money supply is controlled to target interest rates

the stagflation of the 1960s and 1970s showed policymakers that

the phillips curve could shift over time

which of these was NOT a factor leading to the financial crisis of 2007-2009?

the public lacked faith in the ability of the US Treasury to pay government bonds

the long-run phillips curve shows

the relationship between inflation and unemployment when the actual inflation rate and the expected inflation rate are equal

in the equation of exchange, if M=$2 trillion, P=1.5 and Q=$8 trillion:

the velocity of money (V)=6

monetary policy is LEAST effective in maintaining low inflation and high GDP when

there has been a supply shock

if 1 euro will buy $1.30

$1 will purchase .77 euro

assume the economy is at point c. according to the theory of adaptive expectations, if the Federal Reserve announces and then implements a contractionary policy, the economy will move from point c to point:

b to point d

if the unemployment rate is 10% and the inflation rate is 2%, the federal reserve will most likely

buy bonds

to counteract a positive demand shock, the federal reserve uses___ monetary policy, which ___

contractionary; reduces both output and the price level

the curve in the graph represents a

phillips curve

the graph that shows the tradeoff between inflation and money wages is called the

phillips curve

one implication of the phillips curve when it is unable to shift in the short run, is that

policymakers face a tradeoff between low unemployment and low inflation

the difference between the nominal and real exchange rates is that

the real exchange rate takes relative purchasing power into account, while the nominal rate does not

the short-run aggregate supply curve is ___ and the long-run aggregate supply curve is ___

upward sloping; vertical