Econ Exam 3
us foreign portfolio investment
US citizen buys bonds issued by the British government
direct foreign investment
US company opens and auto parts factory in Canada
economy's GDP can be expressed by
Y = C + I + G + NX
crowding effect
an increase in government expenditures increases the interest rate and so reduces investment spending
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
changes in nominal variables are determined mostly by the quantity of money and the monetary system according to
both the classical dichotomy and the quantity theory of money.
monetary policy
can be described either in terms of money supply or in terms of the interest rate
When the price level falls, the number of dollars needed to buy a representative basket of goods
decreases, so the value of money rises.
If a country sells fewer goods and services abroad than it buys from other countries, it is said to have a trade
deficit and negative net exports
An increase in household saving causes consumption to
fall and aggregate demand to decrease.
If households view a tax cut as temporary, then the tax cut
has less of an effect on aggregate demand than if households view it as permanent.
real interest rate
nominal interest rate - inflation rate
According to the classical dichotomy, which of the following is influenced by monetary factors?
nominal wages
Inflation can be measured by the
percentage change in the consumer price index
which of the following is not a determinant of the long-run level of real GDP
price level
An increase in the money supply will
reduce interest rates, decreasing investment and increasing aggregate demand
Using the liquidity-preference model, when the Federal Reserve decreases the money supply,
the equilibrium interest rate increases.
an increase in the expected price level shifts
the short-run aggregate supply curve to the left but does not affect the long-run aggregate supply curve.
The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for
the slope of the aggregate-demand curve.
M=2000 P=2.25 Y=6000 find the velocity
P x Y / M 2.25 x 6000 / 2000 = 6.75
the multiplier effect states that there are additional shifts in aggregate demand from expansionary fiscal policy, because it
increases income and thereby increases consumer spending
Net capital outflow
is always equal to net exports
The cost of changing price tags and price listings are known as
menu costs
