EC 111 Final

c

A U.S. bank wants to buy euros in order to buy German bonds. In the open-economy macroeconomic model, this transaction would be part of a. the demand for currency in the foreign exchange market, and part of the supply of loanable funds. b. the supply of currency in the foreign exchange market, and part of the supply of loanable funds. c. the supply of currency in the foreign exchange market, and part of the demand for loanable funds. d. the demand for currency in the foreign exchange market, and part of the demand for loanable funds.

d

A U.S. citizen buys bonds issued by a construction equipment manufacturer in Poland. Her expenditures are U.S. a. foreign direct investment that increase US net capital outflow b. foreign direct investment that decrease US net capital outflow c. foreign portfolio investment that decrease US net capital outflow d. foreign portfolio investment that increase US net capital outflow

d

A country has $3 billion of domestic investment and net exports of $2 billion. What is its saving? a. $2 billion b. $3 billion c. $1 billion d. $5 billion

b

A country has a trade deficit. Its a. net capital outflow must be positive, and saving is larger than investment b. net capital outflow must be negative and saving is smaller than investment. c. net capital outflow must be negative and saving is larger than investment d. net capital outflow must be positive and saving is smaller than investment

a

A country has national saving of $90 billion, government expenditures of $30 billion, domestic investment of $50 billion, and net capital outflow of $40 billion. What is its demand for loanable funds? a. $90 billion b. $40 billion c. $60 billion d. $130 billion

c

A firm produces construction equipment, some of which it sells to domestic businesses and some of which it exports. Which of the following effects of capital flight in the country where it produces would likely increase the quantity of equipment it sells? a. both what happens to the interest rate and what happens to the exchange rate b. what happens to the interest rate but not what happens to the exchange rate c. what happens to the exchange rate but not what happens to the interest rate d. neither what happens to the interest rate nor what happens to the interest rate

b

According to purchasing-power parity, if it took 55 Indian rupees to buy a dollar today, but it took 58 to buy it a year ago, then the dollar has a. depreciate, indicating inflation was lower in the US than in India b.depreciated, indicating inflation was higher in US than in India c. Appreciation, indicating inflation was lower in the US than in India d. Appreciation, indicating inflation was higher in the US than in India

b

According to the Philips curve diagram, if a central bank takes action to reduce the inflation rate, unemployment is a. higher in short run and long run b. higher in short run only c. lower in short run and long run d. lower in short run only

c

According to the classical dichotomy, which of the following is influenced by monetary factors a. real GDP b. unemployment c. nominal interest rate d. all of the above

a

An MP3 player in Singapore costs 200 Singaporean dollars. In the U.S. it costs 100 US dollars. What is the nominal exchange rate if purchasing-power parity holds? a. 2 b. 1 c. .50 d. non of the above

d

An important function of the U.S. Federal Reserve is to a. fund congressional spending b. set the debt ceiling c. mint coins d. control the supply of money

c

As the Consumer Price Index increases, the value of money a. alls, so people hold less money to buy the goods and services they want. b. rises, so people hold more money to buy the goods and services they want. c. falls, so people hold more money to buy the goods and services they want. d. rises, so people hold less money to buy the goods and services they want.

c

Bob traps lobsters in Maine and sells them to a restaurant in Mexico. Other things the same, these sales a. decrease U.S. net exports and increase Mexican net exports. b. decrease U.S. net exports and have no effect on Mexican net exports c. increase U.S. net exports and decrease Mexican net exports d. increase U.S. net exports and have no effect on Mexican net exports.

d

Derek decides to forego a major appliance purchase and save the money. He transfers $2,100 from his checking account to his money market mutual fund. As a result of this transfer, a. M1 decreases by $2,100 and M2 increases by $2,100 b. M1 increases by $2,100 and M2 increases by $2,100 c. both M1 and M2 decrease by $2,100 d. M1 decreases by $2,100 and M2 stays the same

b

During 2011, the price level in the U.S. rose at a faster rate than the price level in Japan. Other things the same, according to purchasing-power parity, this difference in inflation rates should have caused a. the real exchange rate of the dollar to depreciate relative to the yen b. the nominal exchange rate of the dollar to depreciate relative to yen c. the nominal exchange rate of the dollar to appreciate relative to yen d. the real exchange rate of the dollar to appreciate relative to yen

d

During recessions, taxes tend to a. rise and thereby increase aggregate demand b. rise and thereby decrease aggregate demand c. fall and thereby decrease aggregate demand d. fall and thereby increase aggregate demand

b

Exchange rates are 100 yen per dollar, 0.8 euro per dollar, and 12 pesos per dollar. A bottle of beer in New York costs 6 dollars, 500 yen in Tokyo, 6 euro in Munich, and 84 pesos in Cancun. Where is the most expensive and the cheapest beer, in that order? a. Tokyo, Munich b. Munich, Tokyo c. New York, Cancun d. Cancun, New York

d

Friedman and Phelps argued a. neither short run nor long long run tradeoff btw inflation and unemployment b. phillips cuve would be exploited in the long run by using monetary, but not fiscal policy c. short run phillips curve was very steep, but not vertical d. that in the long run, monetary growth did not influence those factors that determine the economys unemployment rate

a

Graph of AD, which is correct a. variable on vertical access is nominal, variable on horizontal axis is real b. vertical and horizontal are both real c. nominal variables on both axis d. variable on vertical is real, horizontal is nominal

a

If a $1,000 increase in income leads to an $800 increase in consumption expenditures, then the marginal propensity to consume is a. 0.8 and the multiplier is 5 b. 0.2 and the multiplier is 1.25 c. 0.2 and the multiplier is 1.25 d. 0.8 and the multiplier is 8

d

If a country exports more than it imports, then it has a. neg. net exports and pos. net capital outflows b. pos. net exports and neg. net capital outflows c. neg. net exports and neg. net capital outflows d. pos. net exports and pos. net capital outflows

c

If a country has $2.4 billion of net exports and purchases $4.8 billion of goods and services from foreign countries, then it has a. $4.8 billion of exports and $2.4 billion of imports b. $4.8 billion of imports and $2.4 billion of exports c. $7.2 billion of exports and $4.8 billion of imports d. $7.2 billion of imports and $4.8 billion of exports

c

If a country has a positive net capital outflow, then a. on net it is purchasing assets from abroad. This subtracts from its demand for domestically generated loanable funds b. on net other countries are purchasing assets from it. This adds to its demand for domestically generated loanable funds c. on net it is purchasing assets from abroad. This adds to its demand for domestically generated loanable funds d. on net other countries are purchasing assets from it. This subtracts from its demand for domestically generated loanable funds

d

If a country has business opportunities that are relatively attractive to other countries, we would expect it to have a. a positive net exports and negative net capital outflow b. both positive net exports and positive net capital outflow c. negative net exports and positive net capital outflow d. both negative net exports and negative net capital outflow

b

If a county has 25 billion euros of imports, 15 billion euros of exports, and sells 20 billion euros of assets to foreigners, how many foreign assets do domestic residents purchase? a. 5 billion euros b. 10 billion euros c. 30 billion euros d. None of the above

d

If sales of Saudi Arabian oil to the rest of the world increase and Saudis use the proceeds to buy foreign goods, which of the following increases? a. Saudi Arabian net exports but not Saudi Arabian net capital outflow b. Saudi Arabian net capital outflow but not net exports c. both Saudi Arabian net exports and net capital outflow d. neither Saudi Arabian net exports nor net capital outflow

c

If the Kenyan nominal exchange rate declines, and prices are unchanged in Kenya and abroad, then the Kenyan real exchange rate a. does not change rises declines none of the above

a

If there is a surplus in the market for loanable funds, then the interest rate a. falls, so national saving falls b. rises, so national saving falls c. falls, so national saving rises d. rises, so national saving rises

a

In 2001, Congress and President Bush instituted tax cuts. According to the short-run Phillips curve, in the short run this change should have a. raised inflation and reduced unemployment. b. reduced inflation and unemployment. c. raised inflation and unemployment. d. reduce inflation and raised unemployment.

c

In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller? a. the MPC is large and changes in the interest rate have a small effect on investment b. the MPC is large and changes in the interest rate have a large effect on investment c. the MPC is small and changes in the interest rate have a large effect on investment d. the MPC is small and changes in the interest rate have a small effect on investment

c

In France a loaf of bread costs 3 euros. In Great Britain a loaf of bread costs 4 pounds. If the exchange rate is .9 pounds per euro, what is the real exchange rate? a. 3.6/3 loaves of British bread per loaf of French bread b. 4/2.7 loaves of British bread per loaf of French bread c. 2.7/4 loaves of British bread per loaf of French bread d. 3/3.6 loaves of British bread per loaf of French bread

a

In an open economy, gross domestic product equals $2,450 billion, consumption expenditure equals $1,390 billion, government expenditure equals $325 billion, investment equals $510 and net capital outflow equals $225 billion. What is national saving? a. $735 billion b. $225 billion c. $510 billion d. $1,390 billion

d

In an open-economy macroeconomic model, net capital outflow rises if a. either exchange rate rises or real interest rate falls b. either the exchange rate falls or real interest rate rises c. real interest rate rises, net capital outflow doesn't not depend on exchange rate d. the real interest rate falls, net capital outflow doesn't depend on exchange rate

d

In the economy macroeconomics model, if net capital outflow increase then a. demand of dollars in the market for foreign currency exchange shifts right b. supply of dollars in the market for foreign currency exchange shifts left c. demand for dollars in the market for foreign currency exchange shifts left d. supply of dollars in the market for foreign currency exchange shifts right

d

In the open-economy macroeconomic model, the quantity of dollars demanded in the market for foreign-currency exchange a. depends on the real interest rate. The quantity of dollars supplied in the foreign-exchange market depends on the real exchange rate b. and the quantity of dollars supplied in the market for foreign-currency exchange depend on the real exchange rate c. and the quantity of dollars supplied in the market for foreign-currency exchange depend on the real interest rate d. depends on the real exchange rate. The quantity of dollars supplied in the foreign-exchange market depends on the real interest rate

a

In the open-economy macroeconomic model, the supply of loanable funds equals a. national saving. the demand for loanable funds comes from domestic investment + net capital outflow b. private savings. The demand for loanable funds comes from domestic investment + net capital outflow c. Private saving. The demand for loanable funds comes only from domestic investment d. National saving. The demand for loanable funds comes only from domestic investment

a

M1 equals currency plus demand deposits plus: a. traveler's checks plus other checkable deposits b. nothing else c. traveler's checks plus other checkable deposits plus savings deposits d. other checkable depostis

d

Most financial assets other than money function as a. medium of exchange, unit of account, and store of value b. medium of exchange and store of value, but not a unit of account c. a store of value and unit of account but not a medium of exchange d. store of value but not unit of account or medium of exchange

b

Other things the same, if the country save less, then a. net capital outflow rises, so net export falls b. net capital outflow falls, so net exports fall c. net capital outflow rises, so net exports rise d. net capital outflow falls, so net exports rise

c

Over the last fifty years both real GDP and prices have trended upward in most countries. Continuing real GDP growth and inflation can be explained by a. continuing technological progress alone. b. continuing increases in the money supply alone. c. continued technological progress and continuing increases in the money supply. d. None of the above can explain continuing real GDP growth and inflation.

b

Suppose a stock market boom makes people feel wealthier. The increase in wealth would cause people to desire a. increase consumption, which shifts the aggregate-demand curve left b. increased consumption, which shifts the aggregate-demand curve right c. decreased consumption, which shifts the aggregate demand curve left d. decreased consumption, which shifts the aggregate demand curve right

d

Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve could a. sell bonds to lower interest rates b. buy bonds to raise interest rates c. buy bonds to lower interest rates d. sell bonds to raise interest rates

d

Suppose the banking system currently has $300 billion in reserves, the reserve requirement is 5 percent, and excess reserves are $30 billion. What is the level of loans? a. $270 billion b. $5,100 billion c. $6,000 billion d. $5,400 billion

a

Suppose workers notice a fall in their nominal wage but are slow to notice that the price of things they consume have fallen by the same percentage. They may infer that the reward to working is a. temporarily low and so supply a smaller quantity of labor. b. temporarily high and so supply a smaller quantity of labor. c. temporarily high and so supply a larger quantity of labor. d. temporarily low and so supply a larger quantity of labor.

d

The Federal reserve board of governors a. rotate each four years b. hold lifetime appointments c. are elected by popular vote

b

The aggregate demand curve shifts left if either a. speculators lose confidence in U.S. assets or foreign countries enter into recession b. speculators gain confidence in U.S. assets or foreign countries enter into recession c. speculators lose confidence in U.S. assets or recessions in foreign countries end d. speculators gain confidence in U.S. assets or recessions in foreign countries end.

c

The claim that increases in the growth rate of the money supply increase nominal interest rates but not real interest rates is known as the a. Friedman effect b. hume effect c. fisher effect d. inflation tax

c

The misperceptions theory of the short-run aggregate supply curve says that if the price level is higher than people expected, then some firms believe that the relative price of what they produce has a. decreased, so they can increase production b. increased, so they can decrease production c. increased, so they can increase production d. decreased, so they can decrease production

d

The price of a basket of goods and services in the U.S. is $600. In Canada the same basket of goods costs 700 Canadian dollars. If the nominal exchange rate were 1.2 Canadian dollars per U.S. dollar, what would be the real exchange rate? a. 700/600 b. 600/700 c. 700/720 d. none

a

Typical estimates of the sacrifice ratio suggest that about 10 percent of annual output has to be given up in order to reduce the inflation rate from a. 7 percent to 5 percent b. 8 percent to 4 percent c. 8 percent to 5 percent d. 7 percent to 6 percent

a

When a country suffers from capital flight, the demand for loanable funds in that country shifts a. right, which increases interest rates in that country. b. left, which decreases interest rates in that country. c. right, which decreases interest rates in that country. d. left, which increases interest rates in that country.

a

When the Fed conducts open market purchases, a. it buys Treasury securities, which increases the money supply. b. it borrows money from member banks, which increases the money supply. c. it buys Treasury securities, which decreases the money supply. d. it lends money to member banks, which decreases the money supply

d

When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an a. excess supply of money, so the price level will rise. b. excess supply of money, so the price level will fall. c. excess demand for money, so the price level will rise. d. excess demand for money, so the price level will fall.

b

When the price level increases, the real value of people's money holdings a. falls, so they buy more b. falls, so they buy less c. rises, so they buy less d. rises, so they buy more

c

Which is not associated with an adverse supply shock? a. unemployment rises b. price level rises c. short run philips curve shifts left d. output falls

c

Which of the following can the Fed do to change the money supply? a. neither change reserves nor change the reserve ratio b. change the reserve ratio but not change the reserve ratio c. change reserves or change the reserve ratio d. change reserves but not change the reserve ratio

d

Which of the following decreases if the U.S. removes an import quota on computer components? a. U.S. imports and U.S. exports. b. U.S. imports but not U.S. exports. c. U.S. exports but not U.S. imports. d. Neither U.S. exports nor U.S. imports.

d

Which of the following is correct? a. Economic fluctuations are easily predicted by competent economists b. recessions have never occurred very close together c, spending, incomes, and production do not fluctuate closely with real GDP d. none of the above

b

Which of the following is correct? Since 1950 a. US exports about tripled and US imports about doubled b. US exports and US imports each about tripled c. US exports and US imports each about doubled d. US exports about doubled and US imports about tripled

a

Which of the following is not included in either M1 and M2? a. US treasury bills b. small time deposits c. money market mutual funds d. demand deposits

a

Which of the following shifts aggregate demand to the left? a. households decide to save a large fraction of their income b. congress passes a new investment tax credit c. an increase in net exports d. an increase in the price level

d

Which of the following would tend to shift the supply of dollars in the market for foreign-currency exchange in the open-economy macroeconomic model to the right? a. the expected rate of return on US assets rises b. the exchange rate falls c. the exchange rate rises d. the expected rate of return on US assets falls

b

a reduction in inflation rate would make relative prices a. more variable, making it more likely that resources will be allocated to their best use. b. less variable, making it more likely that resources will be allocated to their best use. c. less variable, making it less likely that resources will be allocated to their best use. d. more variable, making it less likely that resources will be allocated to their best use.

c

an increase in budget deficit causes domestic interest rates a. fall and investment rise b. and investment falls c. rise and investment falls d. and investment rise

c

high unexpected inflation has a greater cost a.for those whose wages increase by as much as inflation than for those who are paid a fixed nominal wage. b. for those who borrow than for those who save. c for savers in high income tax brackets than for savers in low income tax brackets. d. for those who hold a little money than for those who hold a lot of money.

b

if canadian gov. raises budget deficit, the canadas net capital outflow will a. increase, so exchange rate falls b. decrease, so exchange rate rises c. increase, so exchange rate rises d. decrease, so exchange rate falls

c

if the central bank decreases money supply than output a. rises and unemployment falls b. and unemployment falls c. falls and umployment rises d. and unemployment rises

d

if the stock market crashes then, a. AD decreases, which the fed could offset by selling bonds b. ad increases, which the fed could offset by purchasing the money supply c. AD increases, which Fed could offset by selling bonds d. AD decreases, which Fed could offset by purchasing bonds

b

if the supply of loanable funds shifts right, then a. the real interest rate rises and the equilibrium quantity of loanable funds falls b. the real interest rate falls and the equilibrium quantity of loanable funds rises c. the real interest rate and the equilibrium quantity of loanable funds both fall d. the real interest rate and the equilibrium quantity of loanable funds both rise

d

in an open economy mac. model, if investment demand decreases then, a. the demand for dollars in market for foreign currency exchange shifts right b. supply of dollars in market for foreign currency exchange shifts left c. demand for dollars in market "" shifts left d. supply of dollars in market "" shifts right

b

in order to understand how the economy works in the short run, we need to a. understand that "money is veil" b. study a model in which real and nom variables interact c. study the classical model d. understand that money is neutral in the short run

d

in the long run, money demand and money supply determine a. prive level and real ineterst rate b. real interest rate but not price level c. neither price level or real interest rate d. price level but not real interest rate

c

in the short run, decrerase in money suppply cuases interest rates to a. decrease, AD shift right b. increase AD shift right c. increase AD shift left d. decrease AD shift left

a

other things the same, decrease in velocity mean that a. the rate at which money changes hands falls, so the price level falls. b. the rate at which money changes hands rises, so the price level rises. c. the rate at which money changes hands falls, so the price level rises. d. the rate at which money changes hands rises, so the price level falls.

c

the Fed can directly protect a bank during a bank run by a. increasing reserve requirements b. selling government bonds to the bank c. lending reserves to the bank d. doing any of these

d

the long run AS shifts right if a. price level rises b. capital stock decreases c. price level falls d. capital stock increases

c

the position of long-run phillips curve and long run AS curve both depend on a. neither monetary growth nor natural rate of unemployment b. natural rate of unemployment and monetary growth c. natural rate of unemployment, but not monetary growth d. monetary growth, but not natural rate of unemployment

c

the supply of money increases when a. the value of money increases b. interest rate increases c. fed purchases bonds d. velocity increases

d

when deciding how much to save, people care most about a. before tax nominal interest rate b. after tax nominal interest rates c. before tax real interest rates d. after tax real interest rates

c

which would cause real exchange rate of US dollar to appreciate? a. US government budget deficit decreases b. capital flight from US c. US imposes import quotas d. none