Macro final

If a country had a trade surplus of $50 billion and then its exports rose by $30 billion and its imports rose by $20 billion, its net exports would now be?

$60 billon

A country has national saving of $70 billion, government expenditures of $20 billion, domestic investment of $30 billion, and net capital outflow of $40 billion. What is its supply of loanable funds?

$70 billion

T/F-The short-run Phillips curve indicates that expansionary monetary policy will temporarily raise the unemployment rate above its natural rate?

False

According to the classical model, which of the following would double if the quantity of money doubled?

both prices and nominal income

Which particular interest rate(s) do we attempt to explain using the theory of liquidity preference?

both the nominal interest rate and the real interest rate

A law that requires the money supply to grow by a fixed percentage each year would eliminate?

both the time inconsistency problem and political business cycles.

If the U.S. has exports of $1.5 trillion and imports of $2.2 trillion, then the U.S.?

buys more from overseas then it sells overseas; it has a trade deficit

In an open economy, national saving equals?

domestic investment plus net capital outflow

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

e=P*/P

If purchasing-power parity holds, a dollar will buy?

enough foreign currency to buy as many goods as it does in the United States

what variables besides real GDP tend to decline during recessions? given the definition of real GDP, argue that declines in these variables are to be expected?

include employment, incomes, investment, sales, and home purchases

A program to reduce inflation is likely to have lower costs if the sacrifice ratio is?

low, and the reduction is expected

Samuelson and Solow reasoned that when aggregate demand was high, unemployment was?

low, so there was upward pressure on wages and prices

Which of the following is the most likely result from an increase in a country's government budget surplus?

lower imports

The aggregate quantity of goods and services demanded changes as the price level rises because?

real wealth falls, interest rates rise, and the dollar appreciates

A policymaker in favor of stabilizing the economy would be likely to believe?

recessions are a waste of resources

Disinflation is defined as a?

reduction in the rate of inflation

An increase in the budget deficit causes domestic interest rates?

rise because the supply of loanable funds shifts left

If foreigners want to buy more U.S. bonds, then in the market for foreign-currency exchange the exchange rate?

rises and the quantity of dollars traded falls

The classical dichotomy refers to the separation of?

real and nominal variables

T/F- a drop in the French real interest rate reduces French net capital outflow?

False

Stephen Cecchetti argues that the Fed should?

be allowed discretion but announce a numerical target raise unemployment

List the factors that might influence a country exports, imports, and trade balance?

1.the taste of consumers for domestic and foreign goods. 2. the prices of goods at home and abroad 3. the exchange rates at which people can use domestic currency to buy foreign currency 4. the costs of importing goods from country to country 5. the policies of the government toward international trade

If the CPI was 160 in 2001 and 40 in 1980, the cost of living was?

4 times higher in 2001 than in 1980

Suppose the nominal annual interest rate on a two-year loan is 16 percent and lenders expect inflation to be 10 percent in each of the two years. The annual real rate of interest is?

6 percent

If the MPC = 0.85, then the government purchases multiplier is about?

6.67

Refer to figure 22-3. In this order, which curve is a long-run Phillips curve and which is a short-run Phillips curve?

A,D

T/F-Over the past two decades, the United States has persistently exported more goods and services than it has imported?

False

T/F-Some economists, called supply-siders, argue that change in the money supply exert a strong influence on aggregate supply?

False

Any policy change that reduced the natural rate of unemployment?

All of the above are correct

Which of the following correctly explains the crowding-out effect?

An increase in government expenditures increases the interest rate and so reduces investment spending.

explain how unemployment insurance acts as an automatic stabilizer?

As income falls, unemployment rises. More people will apply for unemployment compensation from the government which raises government spending. As increase in government spending tends to increase AD, output, and income thereby lessening the effects of the recession.

In which of the following situations must national saving rise?

Both domestic investment and net capital outflow increase

T/F-The sacrifice ratio is the percentage point increase in the unemployment rate created in the process of reducing inflation by one percent point

False

T/F- A country with negative net exports has a trade surplus?

False

T/F- A decrease in the growth rate of the money supply eventually causes the short-run Phillips curve to shift right?

False

T/F- An increase in the money supply causes output to rise in the long run?

False

T/F- Fluctuations in real GDP are caused only by changes in aggregate demand and not by changes in aggregate supply?

False

T/F- Purchasing-power parity says that the nominal exchange rate must equal the real exchange rate?

False

T/F- Tax laws do not give preferential treatment to some kinds of retirement saving?

False

T/F- When the government budget deficit increases, national saving increases?

False

One year a country has negative net exports. The next year it still has negative net exports and imports have risen more than exports.?

Its trade deficit rose

Other things the same, the real exchange rate between U.S. and South African goods would be higher if?

Prices in the U.S. were higher, or the number of south African rand the dollar purchased were higher

explain the main arguments in favor of economic stabilization?

Recessionsons are costly, the country as a whole is hurting. There is a high amount of people unemployed, machinery is not being used, and there isn't a whole lot of production and output, making it a waste of resources. It takes time for a policy to take effect. The economy does something, then there is a lag time of figuring what the issue is, then implementing a policy takes time, then waiting for the policy to take effect takes time, then reassessing takes time.

Which of the following will not change the U.S. real interest rate?

The U.S. imposes import quotas

The wealth effect stems from the idea that a higher price level?

decreases the real value of households money holdings

A Big Mac in Japan costs 240 yen while it costs $3 in the U.S.. The nominal exchange rate is 100 yen per dollar. Which of the following would both make the real exchange rate move towards purchasing-power parity?

The price of Big Mac in the U.S. falls, the nominal exchange rate falls

T/F- For the U.S. economy, the most important reason for the downward slope of the aggregate-demand curve is the interest-rate effect?

True

T/F- If prices in the U.S. rise faster than prices in the United Kingdom, then according to the doctrine of purchasing-power parity the U.S. nominal exchange rate should fall?

True

T/F- In the long run import quotas do not affect the size of net exports?

True

T/F- Other things the same, an increase in the nominal exchange rate raises the real exchange rate?

True

T/F- The downward slope of the aggregate demand curve is based on logic that as price level rises, consumption, investment, and net exports all fall?

True

T/F- U.S. exports make up less than 20 percent of GDP?

True

T/F-The proliferation of internet usage serves as an example of a favorable supply shock?

True

A U.S. mutual fund buys stocks issued by a Columbian company. This purchase is an example of?

U.S foreign portfolio investment. it decreases Columbias net capital outflow

rapid increases in energy prices cause?

an increase in the general price level and a decrease in real GDP

Which of the following decreases aggregate demand and therefore shifts the AD curve to the left?

a decrease in government purchases of goods and services

Over time continued budget deficits lead to?

a lower capital stock and lower real wages

Which of the following policies would be advocated by proponents of stabilization policy when the economy is experiencing severe unemployment?

a reduction in tax rates

The classical dichotomy and monetary neutrality are represented graphically by?

a vertical long-run aggregate-supply curve

Unemployment would decrease and prices increase if?

aggregate demand shifted right

Which of the following could the government do to decrease the costs of inflation without lowering the inflation rate?

avoid unexpected changes in the inflation rate

A large and sudden movement of funds out of a country is called?

capital flight

The largest component of Gross Domestic Product is?

consumer spending

When the price level falls the quantity of?

consumption goods demanded and the quantity of net exports demanded both rise

changes in the price level affect which components of aggregate demand?

consumption, investment, and net exports

what do trade policies do to the standard of living?

cut living costs and raise living standards

The Fed raised interest rates in 2004 and 2005. This implies, other things the same, that the Fed?

decreased the money supply because it was concerned about inflation

A favorable supply shock will cause inflation to?

fall and shift the short-run Phillips curve left

An economic contraction caused by a shift in aggregate demand remedies itself over time as the expected price level?

falls, shifting, aggregate supply right

T/F- Economists predict the business cycle well enough that stabilization policy is likely to work despite lags in the effects of policy?

false

T/F- Other things the same, technological progress raises the price level?

false

T/F- The multiplier is computed as MPC?

false

T/F-If Argentina suffers from capital flight, Argentinean domestic investment and Argentinean net exports will both decline?

false

T/F-The average U.S. citizens' share of the government debt represents about 10 percent of her lifetime income?

false

T/F-The main criticism of those who doubt the ability of the government to respond in a useful way to business cycle is that the theory by which money and government expenditures change output is flawed?

false

You hold currency from a foreign country. If that country has a higher rate of inflation than the United States, then over time the foreign currency will buy?

fewer goods in that country and buy fewer dollars

In the early 1960s, the Kennedy administration made considerable use of?

fiscal policy to stimulate the economy

John, a U.S. citizen, opens up a Sports bar in Tokyo. This is an example of U.S.?

foreign direct investment

An increase in the U.S. real interest rate induces?

foreigners to buy more U.S assets, which reduces U.S. net capital outflow

If households view a tax cut as temporary, then the tax cut?

has less of an affect on aggregate demand than if households view it as permanent

Achieving full employment over a period of time will?

increase economic growth

If the unemployment rate rises, which policies would be appropriate to reduce it?

increase the money supply, cut taxes

When the Fed buys government bonds, the reserves of the banking system?

increase, so the money supply increases

A "weaker" U.S. dollar in foreign exchange markets?

increases net exports for the U.S.

In the long run, if the Fed increases the rate at which it increases the money supply?

inflation will be higher

In today's "fractional reserve" banking system of the United States, the reserve requirements imposed on commercial banks are?

intended to set a limit on the total Money supply rather than to serve as protection against bank runs

Why does a downward-sloping Phillips curve imply a positive sacrifice ratio?

is lack of efficiency implies that there is an output gap; that is to say, output is below potential

The interest-rate effect?

is the most important reason, in the case of the United States, for the downward slope of the aggregate- demand curve

An adverse supply shock will shift short-run aggregate supply?

left, making prices rise

One determinant of the natural rate of unemployment is the?

minimum wage rate

In the open-economy macroeconomic model, the supply of loanable funds comes from?

national saving. demand comes from domestic investment and net capital outflow

Phillips found a?

negative relation between unemployment and inflation in the United Kingdom

In the open-economy macroeconomic model, if a country's interest rate rises, then its?

net capital outflow

The aggregate demand and aggregate supply graph has?

quantity of output on the horizontal axis. output can be measured by real GDP

In which of the following cases would the quantity of money demanded be smallest?

r= 0.07, p= 1.0

Other things the same, automatic stabilizers tend to?

raise expenditures during recessions and lower expenditures during expansions

Time inconsistency will cause the?

short-run Phillips curve to be higher than otherwise

Investment is a?

small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP.

In order to understand how the economy works in the short run, we need to?

study a model in which real and nominal variables interact

If the U.S. imposed an import quota on apples, then which of the following would rise?

the U.S. real exchange rate but not U.S net exports

The long-run aggregate supply curve shifts right if?

the capital stock increases

Alan Blinder believes?

the costs from low inflation are modest

Suppose an economy has a natural rate of unemployment of 6 percent. If the rate of unemployment for that economy drops from 9 to 6 percent, we could conclude that?

the economy moved from a point inside its production possibilities curve to a point on or near the curve

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 efficiency wages become more common?

the long-run Phillips curve would shift right, and long-run aggregate supply curve would shift left.

The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if?

the price level is higher than expected making production more profitable

Means-tested programs tend to favor?

those with low income while a consumption tax would favor those with high income

The logic of the multiplier effect applies?

to any change in spending on any component of GDP

T/F- According to classical macroeconomic theory, changes in the money supply change nominal but not real variables?

true

T/F- During recessions, unemployment insurance payments tend to raise?

true

T/F- In effects consumption tax would put all saving automatically into tax-advanced savings account similar to an individual retirement account?

true

T/F- the cost of inflation reduction is less if people believe that the central bank will really reduce inflation?

true

T/F-In the long run people come to expect whatever inflation rate the fed chooses to produce, so unemployment returns to its natural rate?

true

Ultimately, the change in unemployment associated with a change in inflation is due to?

unanticipated inflation, inflation per se.

If the Fed wants to increase the quantity of money to combat a recession, which of the following tool(s) would the Fed utilize?

undertake open market purchases of government securities (bonds)