ECON 102 Final Exam

Refer to Figure 1. Suppose that the government goes from a budget surplus to a budget deficit. The effects of the change could be illustrated by

D. shifting the supply curve in Panel A to the left and the supply curve in Panel C to the left.

If for some reason Americans desired to increase their purchases of foreign assets, then other things remaining the same

D. the real exchange rate would fall and the quantity of dollars exchanged in the market for foreign-currency would rise.

Refer to Figure 1. Which curve is determined by net capital outflow only?

D. the supply curve in panel c.

The exchange-rate effect is based, in part, on the idea that

A. a decrease in the price level reduces the interest rate.

If the money demand shifted to the right and the Federal Reserve desired to return the interest rate to its original value, it could

A. buy bonds to increase the money supply.

When aggregate demand shifts right along the short-run aggregate supply curve, unemployment

A. falls, so there are upward pressures on wages and prices.

As the price level rises

A. people will want to hold more money, so the interest rate rises.

Which of the following adjust to bring aggregate supply and demand into balance?

A. the price level and real output.

The short-run Phillips Curve shows the combinations of

A. unemployment and inflation that arise in the short run as aggregate demand shifts the economy along the short-run aggregate supply curve.

Refer to Figure 5. A decrease in Y from Y1 to Y2 is explained as follows:

B. An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to decrease from Y1 to Y2.

Refer to Figure 7. Suppose the money-demand curve is currently MD1. If the current interest rate is r2, then

B. People will respond by selling interest-bearing bonds or by withdrawing money from interest-bearing bank accounts.

At a given real exchange rate, which of the following, by itself, would increase the supply of dollars in the market for foreign-currency exchange?

B. US citizens want to buy more foreign bonds.

An increase in the price level and a reduction in output would result from

B. a decrease in the supply of an important resource.

Suppose there were a large decline in net exports. If the Fed wanted to stabilize output, it could

B. buy bonds to lower interest rates.

Refer to Figure 3. The shift of the short-run aggregate-supply curve from SRAS1 to SRAS2

B. could be caused by a decrease in the expected price level.

If businesses and consumers become pessimistic, the Federal Reserve can attempt to reduce the impact on the price level and real GDP by

B. increasing the money supply, which lowers interest rates.

Refer to Figure 11. Suppose the economy is currently at point A. To restore full employment, the appropriate fiscal response

B. is a reduction in government purchases.

Refer to Figure 1. The curve in Panel B shows that as the interest rate rises,

B. net capital outflow decreases.

Refer to Figure 12. Assuming the price level in the previous year was 100, point F on the right-hand graph corresponds to

B. point B on the left-hand graph.

If the US imposed an import quota on farm machinery, then sales of US farm machinery equipment producers would

B. rise and the exports of other US industries would fall.

According to liquidity preference theory, if the price level increases, then the equilibrium interest rate

B. rises and the aggregate quantity of goods demanded falls.

In the long run, fiscal policy influences

B. saving, investment, and growth; in the short run, fiscal policy primarily influences the aggregate demand for goods and services.

Other things remaining the same, if foreign residents desired to purchase more US wheat

B. the exchange rate would rise and net exports would be unchanged.

Refer to Figure 2. A decrease in taxes would move the economy from C to

C. B in the short run and A in the long run.

Which of the following is most likely to increase US exports?

C. The United States unilaterally reduces its restrictions on foreign imports.

Refer to Figure 2. If the economy starts at A, a decrease in the money supply moves the economy

C. back to A in the long run.

The interest-rate effect

C. is responsible for the downward slope of the money-demand curve.

Refer to Figure 1. At an interest rate of 4 percent, the diagram indicates that

C. net capital outflow + domestic investment = national saving

If a country's government reduced corruption and reformed its tax system so that businesses found operating there less risky, it's likely that this country's

C. net exports and net capital outflow would decrease.

In the open-economy macroeconomic model, the source of loanable funds is

C. public saving + personal saving

Other things the same, a country could move from having a trade surplus to having a trade deficit if either

C. saving fell or domestic investment rose

If the demand for loanable funds shifts right, then

C. the real interest rate and the equilibrium quantity of loanable funds both rise.

Refer to Figure 7. Suppose the current equilibrium interest rate is r1. Let Y1 represent the corresponding quantity of goods and services demanded, and let P1 represent the corresponding price level. Starting from this situation, if the Federal Reserve increases the money supply and if the price level remains at P1, then

C. there will be an increase in the equilibrium interest rate.

Refer to Figure 6. Which of the following sequences (numbered arrows) shows the logic of the interest-rate effect?

D. 3, 2, 1, 4

Refer to Figure 8. A shift of the money-demand curve from MD1 to MD2 could be a result of

D. All of the above are correct. A. a decrease in taxes. B. an increase in government spending. C. an increase in the price level.

Refer to Figure 9. Suppose the graphs are drawn to show the effects of an increase in government purchases. If it were not for the increase in r from r1 to r2, then

D. All of the above are correct. A. there would be no crowding out. B. the full multiplier effect of the increase in government purchases would be realized. C. the AD curves that actually apply, before and after the change in government purchases, would be separated horizontally by the distance equal to the multiplier times the change in government purchases.

Refer to Figure 10. Which of the following is correct?

D. All of the above are correct. A. unemployment rises as the economy moves from point A to point B. B. either fiscal or monetary policy could be used to move the economy from point A to point B. C. If the economy is left alone, then as the economy moves from point B to long-run equilibrium, the price level will fall further.

Suppose that the real exchange rate between the United States and Kenya is defined in terms of baskets of goods. Other things the same, which of the following will increase the real exchange rate (that is increase the number of baskets of Kenyan goods a basket of US goods buys)?

D. All of the above are correct. a. an increase in the number of Kenyan shillings that can be purchased with a dollar. b. an increase in the price of US goods. c. a decrease in the price in Kenyan shillings of Kenyan goods.

Refer to Figure 3. The appearance of the long-run aggregate-supply (LRAS) curve

D. All of the above. A. Is consistent with the concept of monetary neutrality. B. is consistent with the idea that point A represents a long-run equilibrium and a short-run equilibrium when the relevant short-run aggregate-supply curve is SRAS1.

Refer to Figure 7. Suppose the current equilibrium interest rate is r3. Let Y3 represent the corresponding quantity of goods and services demanded, and let P3 represent the corresponding price level. Starting from this situation, if the Federal Reserve decreases the money supply and if the price level remains at P3 then

D. Fewer firms will choose to borrow to build new factories and buy new equipment.

Refer to Figure 4. Suppose the economy starts at Y. If there is a fall in aggregate demand, then the economy moves to

D. Z in the long run.

The curve that shows the quantity of goods and services that firms produce and sell

D. as it relates to the overall price level is called the aggregate-supply curve.

If a country raises its budget deficit, then its

D. net capital outflow and net exports fall.

The aggregate-demand curve shows the

D. quantity of domestically produced goods and services that households, firms, the government, and customers abroad want to buy at each price level.

Refer to Figure 11. Suppose the economy is currently at point A. To restore full employment, the Federal Reserve should

D. sell government bonds, which will reduce the money supply.

If C+I+G>Y, then net exports and net capital outflow are both greater than zero.

False.

If a nation is selling more goods and services to foreigners than it is buying from them, then on net it must be buying assets abroad.

False.

In the open-economy macroeconomic model, other things the same, when a US resident imports a foreign good, the demand for dollars in the foreign-currency exchange market decreases.

False.

According to the open-economy macroeconomic model, a decrease in the US government budget deficit increases US net capital outflow, causes the real exchange rate of the dollar to depreciate, and increases US net exports.

True.