Econ 102 Final
Which of the following shifts long-run aggregate supply left?
a decrease in either natural resources or the human capital stock.
An increase in the money supply...
... and an investment tax credit both cause aggregate demand to shift right.
If the interest rate is below the Fed's target, the Fed would...
... buy bonds to increase the money supply
The long-run aggregate supply curve shifts left if...
... there is a natural disaster.
If banks and speculators in the U.S. decided to exchange U.S. dollars for the foreign currencies of other countries, but foreigners do not desire to increase their holdings of U.S. dollars, then U.S. net exports would
....Rise and aggregate demand would shift right
When taxes increase, consumption...
....decreases as shown by a shift of the aggregate demand curve to the left.
In the open economy macroeconomic model, the price that balances supply and demand in the market for foreign-currency exchange model is the...
....real exchange rate.
An increase in the budget deficit...
....reduces investment because the interest rate rises.
When the real exchange rate for the dollar depreciates, U.S. goods become...
...Less expensive relative to foreign goods, which makes exports rise and imports fall.
You observe people going to the bank more frequently. Other things the same, this could result from...
...an increase in inflation which reduces money demand.
According to liquidity preference theory...
...an increase in the interest rate reduces the quantity of money demanded. This is shown as a movement along the money-demand curve. An increase in the price level shifts money demand to the right.
When making investment decisions, investors...
...compare the real interest rates offered on different bonds.
Other things the same, if the exchange rate changes from 30 Thai bhat per dollar to 25 Thai bhat per dollar, then the dollar has...
...depreciated and so buys fewer Thai goods.
In the open economy macroeconomic model, the amount of dollars demanded in the market for foreign-currency exchange at a given real exchange rate increases if....
...either U.S. imports decrease or U.S. exports increase.
The long-run aggregate supply curve shifts right if...
...either immigration from abroad increases or technology improves.
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...
...excess demand for money, so the price level will fall
Other things the same, as the price level rises, the real value of money...
...falls and the exchange rate rises
High and unexpected inflation has a greater cost...
...for those whose wages increase by as much as inflation than for those who are paid a fixed nominal wage.
The mathematical equation: quantity of output supplied = natural rate of output + a(actual price level - expected price level), expresses...
...how output deviates in the short run from its long-run natural rate.
Suppose a stock market boom makes people feel wealthier. The increase in wealth would cause people to desire...
...increased consumption, which shifts the aggregate-demand curve right
Other things the same, a decrease in the real interest rate...
...increases the quantity of loanable funds demanded
An adverse supply shock will shift short-run aggregate supply...
...left, making prices rise.
Historically, the change in real GDP during recessions has been...
...mostly a change in investment spending.
The effect of an increase in the price level on the aggregate-demand curve is represented by a...
...movement to the left along a given aggregate-demand curve.
The long-run response to an increase in the growth rate of the money supply is shown by shifting...
...only the short-run Phillips curve right
As the price level falls...
...people are more willing to lend, so interest rates fall.
If a country has positive net capital outflows, then its net exports are...
...positive, and its saving is larger than its domestic investment
In 2002 it looked like the Argentinean government might default on its debt (which eventually it did). The open-economy macroeconomic model predicts that this should have...
...raised Argentinean interest rates and caused the Argentinean currency to depreciate
Other things the same, a decrease in the interest rate...
...raises domestic investment which raises the quantity of loanable funds demanded
If wages are sticky, then a greater than expected increase in the price level...
...reduces the real costs of production, so the aggregate quantity of goods and services rises.
Suppose that the U.S. imposed an import quota on beef. Sales of U.S. beef producers would...
...rise and exports of other industries would decrease.
Other things the same, when the price level rises, interest rates...
...rise, so firms decrease investment
If the central bank increases the money supply, in the short run, output...
...rises so unemployment falls.
An economic expansion caused by a shift in aggregate demand remedies itself over time as the expected price level...
...rises, shifting aggregate supply left.
People hold money primarily because it...
...serves as a medium of exchange
In the mid-1970s the price of oil rose dramatically. This...
...shifted aggregate supply left, the price level rose, and real GDP fell.
Financial Crisis Suppose that banks are less able to raise funds and so lend less. Consequently, because people and households are less able to borrow, they spend less at any given price level than they would otherwise. The crisis is persistent so lending should remain depressed for some time. Refer to Financial Crisis. In the long run, if the Fed does not respond, the change in price expectations created by the crisis shifts....
...short-run aggregate supply right.
In 1979, Fed chair Paul Volcker decided to pursue a policy...
...that would lead to disinflation.
The average price level is measured by...
...the GDP deflator or the CPI.
You are planning a graduation trip to Mexico. Other things the same, if the dollar appreciates relative to the peso, then...
...the dollar buys more pesos. Your hotel room in Mexico will require fewer dollars
Other things the same, the aggregate quantity of goods demanded in the U.S. increases if...
...the dollar depreciates
Other things the same, if foreign residents desired to purchase more U.S. wheat...
...the exchange rate would fall and net exports would rise
If the actual price level is 165, but people had been expecting it to be 160, then...
...the quantity of output supplied rises, but only in the short run.
In the late 1970s, proponents of rational expectations argued that...
...the sacrifice ratio was smaller than previously thought.
In the open-economy macroeconomic model, the purchase of a capital asset by domestic residents adds to the demand for loanable funds...
...whether the asset is located at home or abroad.
Which of the following would shift the long-run aggregate supply curve right?
An increase in the capital stock, but not an increase in the price level
Which of the following would cause prices to rise and real GDP to fall in the short run?
An increase in the expected price level.
A U.S. grocery chain borrows money to buy a warehouse in Ohio and another in Italy. Borrowing for which warehouse(s) is included in the demand for loanable funds in the U.S.?
Both the one in Ohio and the one in Italy
Suppose that the Federal reserve is concerned about the effects of falling stock prices on the economy. What could it do?
Buy bonds to lower the interest rate
Most economists agree that money changes real GDP in both the short and long run.
False
TRUE OR FALSE? If aggregate demand and aggregate supply both shift right, we can be sure that the price level is higher in the short run.
False
TRUE OR FALSE? If aggregate demand shifts right, then eventually price level expectations rise. This increase in price level expectations causes the aggregate demand curve to shift to the left back to its original position.
False
TRUE OR FALSE? The primary purpose of the aggregate demand and aggregate supply model is to demonstrate the classical dichotomy.
False
TRUE OR FALSE? The theory of short-run economic fluctuations is uncontroversial.
False
We can explain continued increases in both output and the price level by supposing that only aggregate demand shifted right over time.
False
Which of the following is correct concerning recessions?
They tend to be associated with rising unemployment rates.
TRUE OR FALSE? If not all prices adjust instantly to changing economic circumstances, an unexpected fall in the price level leaves some firms with higher-than-desired prices, and these higher-than-desired prices depress sales and induce firms to reduce the quantity of goods and services they produce.
True
TRUE OR FALSE? Increased optimism about the future leads to rising prices and falling unemployment in the short run.
True
TRUE OR FALSE? Technological progress shifts the long-run aggregate supply curve to the right.
True
TRUE OR FALSE? The aggregate demand and aggregate supply model helps us to understand both short-run economic fluctuations and how the economy moves from the short to the long run.
True
Other things the same, which of the following responses would we expect to result from a decrease in U.S. interest rates?
U.S. citizens decide to hold more foreign bonds, people choose to hold more currency, and you decide to purchase a new oven for your cookie factory
If interest rates rose more in Japan than in the U.S., then other things the same...
U.S. citizens would buy more Japanese bonds and Japanese citizens would buy fewer U.S. bonds
If the U.S. government imposed quotas on imports of clothing, then U.S...
imports and exports would both fall.
The quantity of U.S. bonds foreigners want to buy is taken into account
in the U.S. demand for loanable funds and the supply of dollars in the market for foreign-currency exchange.
An increase in the budget surplus...
raises net exports and domestic investment.
A rise in the budget deficit....
shifts both the supply of loanable funds in the market for loanable funds and the supply of dollars in the market for foreign-currency exchange left
Which of the following would cause the real exchange rate of the U.S. dollar to depreciate?
the U.S. government budget deficit decreases
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.
U.S. Financial Crisis 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. Refer to U.S. Financial Crisis. What would happen in the market for foreign-currency exchange?
the supply of dollars would shift right and the exchange rate would fall.
Which of the following shifts both the short-run and long-run aggregate supply right?
An increase in the capital stock
In equilibrium a country has a net capital outflow of $200 billion and domestic investment of $150 billion. What is the quantity of loanable funds demanded?
$350 billion
An economy has a current inflation rate of 7%. If the central bank wants to reduce inflation to 4% and the sacrifice ratio is 2, then how much annual output must be sacrificed in the transition?
6%
Which of the following shifts long-run aggregate supply left?
A decrease in either natural resources or the human capital stock
Which of the following statements generates the greatest amount of disagreement among economists?
Government should use fiscal policy to try to stabilize the economy.
If the U.S. price level is increasing by 3 percent annually and the Japanese price level is increasing by 1 percent annually, then according to purchasing-power parity, by about what percent would the nominal exchange rate be changing?
Increasing by 2 percent
Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?
Institute an investment tax credit or increase the money supply
Political Instability Abroad Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. Refer to Political Instability Abroad. What would happen to the dollar?
It would appreciate in foreign exchange markets making U.S goods more expensive compared to foreign goods.
Which of the following events would shift money demand to the left?
Neither an increase in the interest rate nor an increase in the price level
Which of the following is the correct way to show the effects of a newly imposed import quota?
Shift the demand for dollars in the market for foreign-currency exchange to the right
Steve purchases some land for $30,000. He maintains it, but makes no improvements to it. One year later he sells it for $32,000. Stephanie puts $30,000 in a savings account that pays 6% interest. Steve has to pay the 50% capital gains tax, Stephanie is in the 35% tax bracket. The inflation rate was 2%. Who had the higher before-tax real gain and who had the higher after-tax real gain?
Steve had the higher before-tax real gain but Stephanie had the higher after-tax real gain.
Which of the following would make both the equilibrium real interest rate and the equilibrium quantity of loanable funds decrease?
The demand for loanable funds shifts left.
Which of the following played a role in depressing aggregate demand in 2001?
The end of a stock-market bubble, corporate accounting scandals, and the terrorist attacks on September 11 of that year
Pessimism Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions, and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level of pessimism for some time. Refer to Pessimism. What happens to the expected price level and what's the result for wage bargaining?
The expected price level falls. Bargains are struck for lower wages.
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?
The expected rate of return on U.S. assets falls
Which of the following will decrease U.S. net capital outflow?
The government budget deficit increases
Which of the following does purchasing-power parity imply?
The nominal exchange rate is the ratio of foreign prices to U.S. prices.
When Mexico suffered from capital flight in 1994, Mexico's net capital outflow
and net exports increased.
If people thought that many banks in a certain country were at or near the point of bankruptcy, then that country's interest rate...
and net exports would rise.
From 1980 to 1987, U.S. net capital outflows decreased. According to the open-economy macroeconomic model, which of the following could have caused this?
decrease in the supply of loanable funds
In the long run, an increase in the stock of human capital...
makes the price level fall, while increases in the money supply make prices rise.
When the U.S. real interest rate falls, purchasing U.S. assets becomes
more attractive and so U.S. net capital outflow falls.