Econ review
Using the liquidity-preference model, when the Federal Reserve decreases the money supply,
the equilibrium interest rate increases.
Refer to the Figure. If the economy starts at O, a decrease in the money supply moves the economy
to Q in the long run.
If the Federal Reserve decided to raise interest rates, it could
sell bonds to lower the money supply.
Refer to the Figure. There is an excess demand for money at an interest rate of
3.25 percent.
Scenario 33-2- Imagine that in the current year the economy is in long-run equilibrium. Then the federal government reduces its purchases of goods by 50%.Which curve shifts and in which direction?
Aggregate demand shifts left.
Refer to the Figure. Suppose the economy starts at Point R. If aggregate demand increases from AD2 to AD3, then in the short run the economy moves to
Point O.
Refer to the Figure. If the economy is in long-run equilibrium, then an adverse shift in short-run aggregate supply would move the economy from
Q to R.
Refer to Figure 34-6. A shift of the money-demand curve from MD2 to MD1 is consistent with which of the following sets of events?
The government reduces government spending, resulting in a decrease in people's incomes.
For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve?
The interest-rate effect
When Mexico suffered from capital flight in 1994, Mexico's net capital outflow
and net exports increased.
The shift of the short-run aggregate-supply curve from SRAS1 to SRAS2
could be caused by a decrease in the expected price level.
From 2001 to 2005 there was a dramatic rise in the value of houses. If this rise made homeowners feel wealthier, then it would have shifted aggregate
demand right.
In an open economy, national saving equals
domestic investment plus net capital outflow
Refer to the Figure. In the market for foreign-currency exchange, the effects of an increase in the budget surplus shown in graph (c) can be illustrated as a move from j to
k
In which of the following cases would the quantity of money demanded be smallest?
r = 0.06, P = 1.0
Other things the same, a higher real interest rate
raises the quantity of loanable funds supplied.
Refer to the Figure. If the real interest rate is 7 percent, there will be a
surplus of $60 billion.
If the quantity of loanable funds supplied is greater than the quantity demanded, then there is a
surplus of loanable funds and the interest rate will fall.
According to liquidity preference theory, the money-supply curve is
vertical.
A country has domestic investment of $235 billion. Its citizens purchase $610 billion of foreign assets and foreign citizens purchase $300 billion of its assets. What is national saving?
$545 billion
A country has national saving of $60 billion, government expenditures of $40 billion, domestic investment of $10 billion, and net capital outflow of $45 billion. What is its supply of loanable funds?
$60 billion
In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 4. It follows that, when income is $101, consumer spending is
$60.75
Which of the following would cause stagflation?
Aggregate supply shifts left.
Which of the following is an example of crowding out?
An increase in government spending increases interest rates, causing investment to fall.
Other things the same, which of the following would cause the real exchange rate to rise?
Both an increase in the real interest rate and an increase in foreign demand for U.S. goods and services
People had been expecting the price level to be 120 but it turns out to be 122. In response Robinson Tire Company increases the number of workers it employs. What could explain this?
Both sticky price theory and sticky wage theory
Which of the following would not be directly included in aggregate demand?
Government's tax collections
In 2008, the United States was in recession. Which of the following things would you not expect to have happened?
Increased real GDP
Which of the following is not a determinant of the long-run level of real GDP?
The price level
If the stock market crashes, then
aggregate demand decreases, which the Fed could offset by purchasing bonds
If the real exchange rate for the dollar is above the equilibrium level, the quantity of dollars supplied in the market for foreign-currency exchange is
greater than the quantity demanded and the dollar will depreciate
The economic boom of the early 1940s resulted mostly from
increased government expenditures.
Because a government budget deficit represents
negative public saving, it decreases national saving.
At the equilibrium real interest rate in the open-economy macroeconomic model,
net capital outflow + domestic investment = saving.
A goal of monetary policy and fiscal policy is to
offset shifts in aggregate demand and thereby stabilize the economy.
Other things the same, if technology increases, then in the long run
output is higher and prices are lower.
Assume the MPC is 0.80. Assume there is a multiplier effect and that the total crowding-out effect is $14 billion. An increase in government purchases of $90 billion will shift aggregate demand to the
right by $436 billion.
Suppose that foreigners had reduced confidence in U.S. financial institutions and believed that privately issued U.S. bonds were more likely to be defaulted on. U.S. net exports would
rise which by itself would increase aggregate demand
If the money-supply curve MS on the left-hand graph were to shift to the left, this would
shift the AD curve to the left.
If the United States raised its tariff on tires, then at the original exchange rate there would be a
shortage in the market for foreign-currency exchange, so the real exchange rate would appreciate.
