Econ 102 Dudek Final
In an open economy, GDP equals $1,970 billion, government expenditure equals $300 billion, investment equals $500 billion, and capital outflow equals $280 billion. What is consumption expenditure?
$890 billion
Net capital outflow is defined as the purchase of...
Foreign assets by domestic residents minus the purchase of domestic assets by foreign residents
A country has output of $600 billion, consumption of $350 billion, government expenditures of $90 billion, and investment of $60 billion. What is its supply of loanable funds?
$160 billion
If the exchange rate is .60 British pounds=$1, a bottle of ale that costs 3 pounds costs...
$5
Proponents of rational expectations theory argued that, in the most extreme case, if policymakers are credibly committed to reducing inflation and rational people understand that commitment and quickly lower their inflation expectations, the sacrifice ratio could be as small as...
0
What does the law of one price state?
A good must sell at the same price at all locations
If Chileans buy more US stocks and bonds and US residents buy more Chilean wine, then...
Both US net exports and US net capital outflows fall
Suppose the money supply increases. In the short run this decreases unemployment according to ________ the short run Phillips curve and/or the aggregate demand and aggregate supply model
Both, and
Ivan, a Russian citizen, sells several hundred cases of caviar to a restaurant chain in the United States. By itself this sale...
Decreases US net exports and increases Russian net exports
Part of the explanation for why the aggregate demand curve sloped downward is that a decrease in the price level...
Decreases the interest rate
The opportunity cost of holding money ________ when the interest rate decreases, so people desire to hold ______ of it.
Decreases, more
Other things the same, as the real interest rate rises...
Domestic investment and net capital outflow both fall
A basis for the slope of the short-run Phillips curve is that when unemployment is high there are ______ pressures on prices and ______ pressures on wages
Downward, downward
Recessions in Canada and Mexico would cause the US price level to ______ and real GDP to _________
Fall, fall
Suppose the economy is in a long-run equilibrium. Senator A succeeds in getting taxes raised. At the same time, Senator B succeeds in getting major restrictions on logging removed. In the short run, the price level will _____ and real GDP might _________
Fall, rise fall or stay the same
True or false: If a country's imports exceed its exports it has a trade surplus
False
True or false: Neither monetary policy nor any government the policy can change the natural rate of unemployment
False
The aggregate demand and aggregate supply graph has the quantity of output on the ______ axis. Output is best measured by ______ GDP
Horizontal, real
Foreign-produced goods and services that are purchased domestically are called...
Imports
What are the two axes of the Phillips curve graph?
Inflation rate= vertical axis Unemployment rate= horizontal axis
The discovery of a large amount of previously undiscovered oil in the US would shift the ______ curve to the ______
LRAS, right
Contractionary monetary policy ________ disinflation and makes the short-run Phillips curve shift _______
Leads to, left
Other things the same, a higher real interest rate raises the quantity of...
Loanable funds supplied
A depreciation of the US real exchange rate induces US customers to buy...
More domestic goods and fewer foreign goods
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 cheapest beer, in that order?
Munich, Tokyo
In Flosserland, the Department of Finance is responsible for monetary policy. Flosserland has had an inflation rate of 25% for many years. Suppose Flosserland has had the same inflation rate for a long time. Which, if either, of the following ideas imply that the unemployment rate in Flosserland would be above the natural rate? Classical dichotomy and long-run Phillips curve
Neither
What is an action that would reduce the natural rate of unemployment with reference to money growth and unemployment consumption?
Neither an increase in unemployment compensation nor an increase in the rate of money growth
The sacrifice ratio is the...
Number of percentage points annual output falls for each percentage point reduction in inflation
In the first half of June 2008, the effects of a housing and financial crisis and an increase in world prices of oil and food were affecting the economy. In the short run, the effects of the housing and financial crises (raise/lower) the inflation rate and (raise/lower) the unemployment rate
Raise, raise
The nominal exchange rate is the...
Rate at which a person can trade the currency of one country for another
Disinflation is defined as a...
Reduction in the rate of inflation
If the central bank keeps the money supply growth rate constant, but people raise their inflation expectations by 1 percentage point, then the short-run Phillips curve shifts ____ and the unemployment rate ______.
Right, falls
An increase in the budget deficit makes interest rates _____ because the ________ of loanable funds shifts _________
Rise, supply, left
Which of the following is always correct in an open economy? a. S=I b. S=NX+NCO c. S=NCO d. S=I+NCO
S=I+NCO
In the long run, if there is an increase in the money supply growth rate, does the Phillips curve shift right in the short term, long term, both, or neither
Short run but not long run
In the graph of the Phillips curve, what is the downward sloping curve called?
Short-run Phillips Curve
Suppose that foreigners had reduced confidence in US financial institutions and believed that privately issued US bonds were more likely to be defaulted on. What would happen in the market for foreign-currency exchange?
Supply of dollars would shift right and the exchange rate would fall
If the Federal Reserve increases the money supply, then initially there is a _________ in the money market, so people will want to ______ bonds.
Surplus, buy
A German company wants to buy dollars to purchase US bonds. In the open-economy macroeconomic model of the US, this transaction would be accounted for in...
The supply of currency in the foreign exchange market and the demand for loanable funds
In the open-economy macroeconomic model, if investment demand decreases, then...
The supply of dollars in the market for foreign-currency exchange shifts left
True or false: During a recession unemployment benefits rise. This rise in benefits makes aggregate demand higher than otherwise
True
True or false: The recession of 2008-2009 was associated with a fall in housing prices which shifted aggregate demand to the left.
True
True or false: When the Fed increases the money supply, the interest rate decreases. This decrease in the interest rate increases consumption and investment demand, so the aggregate demand curve shifts to the right
True
If interest rates rose in the US more than in France, then other things the same...
US citizens would buy fewer French bonds and French citizens would buy more US bonds
During the economic downturn of 2008-2009, what did the Fed do in an attempt to resolve the issue?
Used OMOs to purchase mortgages and corporate debt
If a government started with a budget deficit moved to a surplus, domestic investment...
Would rise and the exchange rate would fall
In the short run, open-market sales... a. Increase price level and real GDP b. Decrease the price level and real GDP c. Increases the price level and decreases real GDP d. Decreases the price level and increases real GDP
b. Decrease the price level and real GDP
One determinant of the long-run average unemployment rate is the... a. Market power of unions, while the inflation rate depends primarily upon government spending b. Minimum wage, while the inflation rate depends primarily upon the money supply growth rate c. Rate of growth of the money supply, while the inflation rate depends primarily upon the market power of unions d. Existence of efficiency wages, while the inflation rate depends primarily upon the extent to which firms are competitive
b. Minimum wage, while the inflation rate depends primarily upon the money supply growth rate
In the long run, a decrease in the money supply growth rate... a. Shifts the short-run Phillips curve left so inflation returns to its original rate b. Shifts the short-run Phillips curve left so unemployment returns to its natural rate c. Both A and B d. None of the above
b. Shifts the short-run Phillips curve left so unemployment returns to its natural rate
On the graph that depicts the theory of liquidity preference... a. The demand for money curve is vertical b. The supply of money curve is vertical c. The interest rate is measured along the horizontal axis d. The price level is measured along the vertical axis
b. The supply of money curve is vertical
Which of the following would cause the price level to rise and output to fall in the short run? a An increase in the money supply b. A decrease in the money supply c. An adverse supply shock d. A favorable supply shock
c. An adverse supply shock
The short-run effects on the interest rate are... a. Shown equally well using either liquidity preference theory or classical theory b. Best shown using classical theory c. Best shown using liquidity preference theory d. Not shown well by either liquidity preference theory or classical theory
c. Best shown during liquidity preference theory
If taxes... a. Increase, then consumption increases, and aggregate demand shifts leftward b. Increase, then consumption decreases, and aggregate demand shifts rightward c. Decrease, then consumption increases, and aggregate demand shifts rightward d. Decrease, then consumption decreases, and aggregate demand shifts leftward
c. Decrease, then consumption increases, and aggregate demand shifts rightward
The interest-rate effect... a. Depends on the idea that increases in interest rates increase the quantity of money demanded b. Depends on the idea that increases in interest rates increase the quantity of money supplied c. Is the most important reason, in the case of the United States, for the downward slope of the aggregate demand curve d. Is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve
c. Ist he most important reason, in the case of the United States, for the downward slope of the aggregate demand curve
Which of the following is not correct? a. In the short run, policymakers face a tradeoff between inflation and unemployment b. Events that shift the long-run Phillips curve right shift the long-run aggregate supply curve left c. Unemployment can be changed only by the use of government policy d. The decrease in output associated with reducing inflation is less if the policy change is announced ahead of time and is credible
c. Unemployment can be changed only by the use of government policy
An event that directly affects firms' costs of production and thus the prices they charge is called... a. A Phillips contraction b. An inflationary spiral c. A demand shock d. A supply shock
d. A supply shock
Which of the following would not be included in aggregate demand? a. An increase in firms' inventories b. Purchases of goods by households c. Firms' purchases of newly produced machinery d. Governments' tax collections
d. Governments' tax collections
Suppose a central bank announced that it was going to make a serious effort to fight inflation. A few years later, the inflation rate is lower, but there had been a serious recession. We could conclude with certainty that... a. The rational expectations hypothesis is false b. The rational expectations hypothesis is true c. The policymakers lacked credibility d. None of the above is certain
d. None of the above is certain
Suppose a shift in aggregate demand creates an economic contraction. If policymakers can respond with sufficient speed and precision, they can offset the initial shift by shifting aggregate ______ _______
demand, right
