Econ Final
Which of the following is consistent with capital flight from Mexico?
The real exchange rate of the peso depreciates from E1 to E0
Which of the following would cause prices and real GDP to rise in the short run?
aggregate demand shifts right
Which of the following would cause stagflation?
aggregate supply shifts left
Velocity is computed as
(P X Y)/M
If the reserve ratio is 4 percent, the money multiplier is
25
Supposing that the Mexican economy starts at r0 and E1. Which of the following is consistent with the effects of capital flight?
All of the above
A decrease in Y from Y1 to Y2 is explained as follows
An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to Md2; this shift of MD causes r to increase r1 to r2; and this increase in r causes Y to decrease Y1 to Y2
Which of the following correctly explains the crowding out effect?
An increase in government expenditures increases the interest rate and so reduces investment spending
An increase in the money supply would move the economy from C to
B in the short run and A in the long run
Which of the following is a correct way to measure productivity
Divide the quantity of output by the number of hours worked
Which of the following statements is not correct?
Malthus argued that charity and government aid was an effective way to reduce poverty
The classical dichotomy argues that changes in the money supply
affect nominal variables, but not real variables
A budget deficit
changes the supply of loanable funds
The idea that nominal variables are heavily influenced by the quantity of money and that money is largely irrelevant for understanding the determinants of real variables is called the
classical dichotomy
If the Kenyan nominal exchange rate declines, and the prices are unchanged in Kenya and abroad, then the Kenyan real exchange rate
declines
To increase the money supply, the Fed could
decrease the reserve requirement
Assume the money market is originally in equilibrium. If the price level increases, then according to liquidity preference theory there is an excess
demand for money until the interest rate increases
If the country raises its budget deficit, the net capital outflow
falls, so the supply of its currency shifts left in the market for foreign currency exchange
When Mexico suffered from capital flight, the US real interest rate
fell and the real exchange rate appreciated
Under a fractional reserve banking system, banks
generally lend out majority of funds deposited
A haircut costs 200 pesos in Mexico and $20 in the US. The exchange rate is 12.5 pesos per dollar. The real exchange rate is
greater than one. Haircuts in Mexico are cheaper than in the US
Keynes believed that economies experiencing high unemployment should adopt policies to
increase aggregate demand
To reduce the effects of crowding out caused by an increase in govt expenditures, the Fed could
increase money supply by buying bonds
Money neutrality implies that an increase in the quantity of money will
increase the price level
When the money market is drawn with the value of money on the vertical axis
money demand slopes down and money supply is vertical
When the real exchange rate for the dollar appreciates, US goods become
more expensive relative to foreign goods, which makes exports fall and imports rise
If net exports are positive, then
net capital outflow is positive, so foreign assets bought by Americans are greater than American assets bought by foreigners
Country A and country B both increase their capital stock by 1 unit. Output in country A increases by 15 while output in country B increases by 12. Other things the same, diminishing returns implies that country A is
poorer than country B. If country A adds another unit of capital, output will increase by less than 15 units
Suppose the Mexican economy starts at r0 and E1. Which of the following new equilibrium is consistent with capital flight?
r1 and E0
What does Y represent on the horizontal axis of the right hand graph?
real output
Economic variables whose values are measured in goods are called
real variables
If the money-supply curve MS on the left-hand graph were to shift to the right, this would
represent an action taken by the Federal Reserve
Liquidity preference theory is most relevant to the
short run and supposes that the interest rate adjusts to bring money supply and money demand into balance
The supply of money increases when
the Fed makes open market purchases
When the money supply curve shifts from MS1 to Ms2, the graph shows that
the equilibrium price level increases
When the money supply curve shifts from MS1 to Ms2
the equilibrium value of money decreases
As we move from one point to another along the money-demand curve MD1
the price level is fixed at P1
What is measured on the horizontal axis of the left hand graph?
the quantity of money
If the economy starts at C, an increase in the money supply moves the economy
to A in the long run
