Econ Exam 4

If Congress places a $5 tax on each ATM transaction, there will likely be a:

shift to the right of the money demand curve.

If the economy is at potential output and the Fed increases the money supply, in the short run the aggregate demand will likely:

increase.

An individual who decides to hold money instead of other assets:

is giving up the interest that other assets could have earned.

Monetary neutrality implies that in the long run:

monetary policy does not affect the level of economic activity.

We hold money to:

reduce transaction costs

A statement of spending that flows into and out of the country for purchases of assets during a particular period is the nation's:

financial account.

As measured by a percentage of the entire economic output:

foreign trade is less important for the United States than it is for many other countries.

When a country's currency depreciates:

foreigners find the country's goods to be cheaper.

A current account deficit is generally a result of:

imports exceeding exports.

Goods and services purchased from abroad are _____, while goods and services sold abroad are _____.

imports; exports

A 30% increase in the aggregate price level will:

increase money demand by 30%.

The income-expenditure model predicts that if the marginal propensity to consume is 0.8 and the federal government decreases spending by $200 billion, real GDP will fall by:

$1,000 billion.

Suppose that U.S. debt is $7 trillion at the beginning of the fiscal year. During the fiscal year, its purchases of goods and services and its transfers are $2 trillion, and tax revenues are $1.5 trillion. At the end of the fiscal year, the debt is:

$7.5 trillion.

If the balance of payments on financial account is $25, the balance of payments on goods and services is -$20, and the statistical discrepancy in the financial account is $2, then the sum of net international transfer payments and net international factor income is:

-$7.

Assume that Tom sells a crate of Florida oranges to a retailer in Canada and Susan sells a U.S. bond to a customer in Britain. Which statement illustrates the difference and/or similarity between these two transactions?

The sale of the bond generates a liability, while the sale of the oranges does not.

Assume that a tariff is imposed on Chinese imports into the United States. This tariff is likely to _____ U.S. producers and _____ Chinese producers.

benefit; penalize

Holding everything else constant, a decrease in political risk in a country will MOST likely cause:

capital inflows into that country to increase.

A decrease in the demand for money would result from a(n):

decrease in real GDP.

The main objective of contractionary monetary policy is to:

decrease aggregate demand.

If the government's revenues are less than its expenditures, then it has a budget:

deficit.

An increase in government spending of $300 billion and a tax cut of $300 billion will have _____ effects on the budget balance and _____ effects on real GDP.

equal; unequal

The higher the short-term interest rate, the:

higher the opportunity cost of holding money.

Compared with autarky, international trade leads to _____ domestic production in exporting industries and _____ domestic production in import-competing industries.

higher; lower

If Medicaid is expanded to cover a greater percentage of the population:

implicit liabilities will increase.

Expansionary fiscal policy: a. increases long-run aggregate supply. b. decreases long-run aggregate supply. c. decreases aggregate demand. d. increases aggregate demand.

increases aggregate demand.

A cut in taxes _____, shifting the aggregate demand curve to the _____.

increases disposable income and consumption; right

Contractionary fiscal policy includes: a. decreasing taxes. b. increasing the money supply. c. increasing government expenditures. d. increasing taxes.

increasing taxes.

A change in government transfers shifts the aggregate demand curve by _____ than a change in government spending for goods and services and has a _____ effect on real GDP.

less; smaller

Expansionary monetary policy will _____ interest rates and _____ savings in the short run.

lower; increase

A law requiring the federal budget to be balanced each year would likely:

make business cycles more severe.

When the quantity of money demanded exceeds the quantity of money supplied:

people offering to sell nonmonetary financial assets must increase the interest rate these assets pay to sell them.

An automatic stabilizer that works when the economy contracts is a:

rise in government transfers as more people receive unemployment insurance benefits.

The demand curve for money will shift to the right because of a:

rise in real GDP.

If there is an inflationary gap in the economy, discretionary fiscal policy will likely include action to:

shift aggregate demand to the left.

The cyclically adjusted budget balance refers to:

the budget balance if actual output were equal to potential output.

The opportunity cost of holding money is:

the difference between interest rates on monetary assets and on nonmonetary assets

Public debt is:

the total debt owed by the government to individuals and institutions outside of government.

Most economists believe that a balanced budget requirement would:

undermine the role of taxes and transfers as automatic stabilizers.

The short-run aggregate supply curve is _____, and the long-run aggregate supply curve is _____.

upward sloping; vertical

Discretionary fiscal policy entails:

using government spending or tax policy to affect aggregate demand.

A hamburger costs $8 in the United States and ¥960 in Japan. The nominal exchange rate is ¥110 per dollar. The inflation rates in the United States and in Japan are 2% and 4%, respectively. The purchasing power parity is _____ per dollar.

¥120