Econ practice 11 and 12, chapter 9-10

If saving is​ $850 billion, investment is​ $500 billion, government expenditure on goods and services is​ $700 billion, net exports is​ $50 billion, and net taxes is​ $800 billion, then calculate government sector balance.

$100 billion

The level of disposable income at which all disposable income is consumed is_______

$100 million (where the CF and the 45 degree line cross intersect)

An economy has no imports and no taxes. The marginal propensity to save is 0.5 A​ ______ increase in autonomous expenditure increases equilibrium expenditure by​ $60 billion. The multiplier is​ ______.

$30 ​billion; 2.00

If saving is​ $850 billion, investment is​ $500 billion, government expenditure on goods and services is​ $600 billion, and net exports is​ $100 billion, then calculate private sector balance.

$350 billion

Net exports equals​ ______. If the government sector deficit​ increases, with no change in the private sector​ surplus, net exports​ ______.

(T − G​) ​+ ​(S − I​) decrease

If the trend rate of change of velocity is 1 percent a​ year, potential GDP grows by 4 percent a​ year, and the money growth rate is 2 percent a​ year, what is the trend inflation​ rate?

-1 percent a year

The U.K. pound is trading at 1.50 U.S. dollars per U.K. pound. There is purchasing power parity at this exchange rate. The interest rate in the United States is 1 percent a year and the interest rate in the United Kingdom is 2.0 percent a year. What is the U.S. interest rate​ differential? What is the U.K. pound expected to be worth in terms of U.S. dollars one year from​ now? The U.S. interest rate differential is ___ percent. A year from​ now, the U.K. pound is expected to _____ by ____ percent. Which country more likely has the lower inflation​ rate?

-1.0 depreciate 1.0 United States

The table shows the balance of payments accounts in the United Kingdom in 2006. What is the United Kingdom​'s current account​ balance, capital and financial account​ balance, and official settlements account​ balance? The current account balance is ______ billion pounds. The capital and financial account balance is ______ billion pounds. The official settlements account balance is ______ billion pounds.

-43 43 0

Unanticipated deflation does all of the following EXCEPT​ _______. A. redistributes income B. lowers real GDP C. increases the velocity of circulation Your answer is correct.D. diverts resources from production

. increases the velocity of circulation

The table gives some items from the national income and product accounts. Calculate the government sector​ balance, the private sector​ balance, and net exports The government sector balance is _____ billion dollars. The private sector balance is ____ billion dollars. Net exports is ____ billion dollars.

50 -50 0

The table gives some items from the national income and product accounts. Calculate the government sector​ balance, the private sector​ balance, and net exports. The government sector balance is _____ billion dollars. The private sector balance is _____ billion dollars. Net exports is _____ billion dollars.

50 -450 -400

The business cycle occurs because​ ______.

aggregate demand and​ short-run aggregate supply​ fluctuate, but the money wage rate does not adjust quickly enough to keep real GDP at potential GDP

An inflation that starts because​ _____ is called ​demand-pull inflation.

aggregate demand increases

Deflation occurs when​ _______.

aggregate demand increases at a persistently slower rate than aggregate supply

Equilibrium expenditure is the level of aggregate expenditure that occurs when​ ______. Choose the correct statement.

aggregate planned expenditure equals real GDP The level of aggregate expenditure that occurs where the AE curve intersects the 45degrees° line is equilibrium expenditure.

n a​ demand-pull inflation​ spiral, the economy moves from​ _____ to​ _____

an above​ full-employment equilibrium; a​ full-employment equilibrium

Peso's Party It was bad enough when​ Canada's Loonie surpassed the​ dollar, but now the Mexican peso is gaining on the​ greenback, too. In​ April, the peso hit 10.44 to the​ dollar, its best rate in two years.​ Mexico's 4.2 percent GDP growth in January and February ... finally convinced currency investors that the peso​ shouldn't be tethered to the​ dollar, as it has been in recent years. ... At current​ levels, exports might soon become more expensive for gringos. In other​ words, time to stock up on Coronas. Read the news​ clip, then answer the following question. Mexican goods might become more expensive to U.S. consumers because​ ______.

an appreciation of the Mexican peso against the U.S. dollar means that the U.S. dollar depreciates against the Mexican peso

You observe that unplanned inventories are decreasing. You predict that there will be​ _______.

an expansion

Which of the following events would NOT cause an expected​ inflation? A. an expected increase in exports B. an expected increase in the quantity of money C. an expected increase in taxes D. an expected increase in government expenditure

an expected increase in taxes

A​ demand-pull inflation begins with​ _______.

an increase in aggregate demand

Examples of fiscal policy that increase aggregate demand include​ ______.

an increase in government​ expenditure, a decrease in​ taxes, and an increase in transfer payments

On March 30, 2012 the U.S. dollar was trading at 82 yen per dollar on the foreign exchange market. On August 30, 2012​, the U.S. dollar was trading at 79 yen per dollar. The events in the foreign exchange​ market, everything else remaining the same that could have resulted in this change in the value of the U.S. dollar include​ _______. These events that resulted in this change in the value of the U.S. dollar changed​ _______.

an increase in the Japanese interest rate and a fall in the expected future exchange rate of the U.S. dollar both the demand for dollars and the supply of dollars

Which of the following events might cause a​ cost-push inflation?

an increase in the money wage rate or an increase in the money prices of raw materials

In the​ graph, the initial aggregate supply curve is SAS0 and the initial aggregate demand curve is AD0. Some events that could have changed aggregate demand from AD0 to AD1 are​ ______. Following the change in aggregate​ demand, the new equilibrium is at​ ______. If potential GDP is​ $1 trillion, the economy has moved to ________ equilibrium.

an increase in the quantity of money or an increase in expected future inflation point C an above full-employment

A monetarist is a macroeconomist who believes that the economy is​ self-regulating and that it will normally operate​ _____, provided that monetary policy is not erratic and that the pace of​ _____ is kept steady.

at full​ employment; money growth

The multiplier is the amount by which the change in​ ______ expenditure is magnified or multiplied to determine the change in equilibrium expenditure and real GDP. For every dollar increase in​ ______ expenditure, the multiplier determines the increase in real GDP.

autonomous; autonomous

The multiplier is the amount by which a change in​ ______ expenditure is magnified or multiplied to determine​ ______. To calculate the​ multiplier, we divide​ ______ by​ ______.

autonomous; the change in equilibrium expenditure and real GDP the change in equilibrium​ expenditure; the change in autonomous expenditure

A multiplier is the amount by which a change in any component of​ _____ is magnified or multiplied to determine the change in​ _____ and​ _____ that it generates.

autonomous​ expenditure; equilibrium​ expenditure; real GDP

In the​ graph, the vertical distance between the horizontal line and point 2 is​ _____ gap. At point​ 2, the intersection of the AD and SAS curves is to the​ _____ of the LAS curve. The vertical distance between the horizontal line and point 3 is​ _____ gap. At point​ 3, the intersection of the AD and SAS curves is to the​ _____ of the LAS curve.

a​ recessionary; left; an​ inflationary; right graph in this starts with a pointed line under the black line to a pointing line above the line

Arbitrage is the practice of seeking to profit by​ _____ in one market and​ _____ in another related market.

buying; selling for a higher price

Economic growth results when there are increases in​ ______.

capital accumulation

An increase in investment shifts the AE curve upward by an amount equal to the​ ______, and shifts the AD curve rightward by an amount equal to the​ ______.

change in​ investment; change in investment times the multiplier

In real business cycle​ theory, all of the following events can be sources of fluctuation in productivity except​ _______.

changes in the growth rate of money

A​ ______ macroeconomist believes that the economy is​ self-regulating and always at full employment. A​ ______ macroeconomist believes the economy requires active help from fiscal policy and monetary policy to maintain full employment.

classical; Keynesian

An inflation that is kicked off by an increase in​ _____ is called ​cost-push inflation.

cost

High Food and Energy Prices Here to Stay On top of rising energy​ prices, a severe​ drought, bad​ harvests, and a poor monsoon season in Asia have sent grain prices soaring.​ Globally, this is the third major food price shock in five years.

cost push

Pakistan: Is it​ Cost-Push Inflation? With CPI already spiking 11.8 percent for the first ten months of the fiscal​ year, the average CPI inflation for the same period last year stood at 22.35 percent. Some economists insist the current bout of inflationary pressures is spawned by increasing prices of​ fuel, food, raw​ materials, ​transportation, construction​ materials, elimination of energy​ subsidies, etc as indicated by the spike in the wholesale price index​ (WPI), which rose 21.99 per cent in April from a year earlier. Pakistan is experiencing​ ______ inflation

cost push inflation

When potential GDP​ _____ real​ GDP, the output gap is called a recessionary gap.

exceeds

An above​ full-employment equilibrium is an equilibrium when real GDP​ _____.

exceeds potential GDP

The multiplier matters because we can use it to determine by how much we should change autonomous expenditure to​ ______.

increase real GDP by a given amount

When costs increase and the Fed wants to return the economy to full​ employment, the Fed responds by​ ______ the quantity of money. If the Fed continually responds to successive increases in​ costs, a​ ______ inflation evolves.

increase; cost-push

From the​ Fed's Minutes Members expected real GDP growth to be moderate over coming quarters and then to pick up very​ gradually, with the unemployment rate declining only slowly. With​ longer-term inflation expectations​ stable, members anticipated that inflation over the medium run would be at or below 2 percent a year. FOMC members are predicting that the U.S. economy​ ______.

is on a​ short-run Phillips curve to the right of the LRPC and will move leftward up along the SRPC

A fixed exchange rate is one that​ _______.

is set by the government or the central bank and is achieved by central bank intervention in the foreign exchange market

In June 2011​, the exchange rate was 0.69 euros per U.S. dollar. By June 2012​, the exchange rate had risen to 0.79 euros per U.S. dollar. As the exchange rate rises​, the prices of​ foreign-produced goods and services to Americans​ ______ and the volume of U.S. imports​ ______.

fall; increases

The consequences of deflation include all of the following EXCEPT _______. A. falling real wage rates for workers with​ long-term wage contracts This is the correct answer.B. redistribution of income and wealth C. employers hire fewer workers D. a decrease in real GDP and employment

falling real wage rates for workers with​ long-term wage contracts

An economy at a​ full-employment equilibrium experiences an increase in aggregate demand. The unemployment rate​ ______ its natural​ rate, and to return to the​ long-run equilibrium, the money wage rate begins to​ ______.

falls​ below; rise

Choose the correct statement about interest rate parity. If a U.K. bank deposit earns 4 percent a year and a U.S. bank deposit earns 5 percent a​ year, then people expect that​ ______.

interest rate parity means equal rates of return the U.S. dollar will depreciate by 1 percent a year

Balance of payments accounts are the accounts in which a nation records its​ _____.

international​ trading, borrowing, and lending

If aggregate planned expenditure exceeds real​ GDP, then​ _______.

inventories​ decrease, and as real GDP increases a movement up along the AE curve occurs

If aggregate planned expenditure is less than real​ GDP, then​ ______

inventories​ increase, and as real GDP decreases a movement down along the AE curve occurs

A creditor nation is a country that during its entire history has​ _____ the rest of the world than other countries have​ _____ it.

invested more​ in; invested in

In monetarist cycle theory​, fluctuations in both​ _____, driven by fluctuations in the growth rate of the quantity of​ money, are the main source of fluctuation in aggregate demand.

investment and consumption expenditure

In Keynesian cycle theory​, fluctuations in​ _____ driven by fluctuations in business confidence​ - summarized by the phrase​ "animal spirits"​ - are the main source of fluctuations in​ _____.

investment; aggregate demand

One consequence of China operating a crawling peg is that China​ ______. China fixes its exchange rate​ ______.

is accumulating U.S. dollars as a way of achieving a low inflation rate

A flexible exchange rate is one that​ _______.

is determined by demand and supply in the foreign exchange market with no direct intervention by the central bank

Arbitrage​ _______. Arbitrage in the foreign exchange market and international loans market achieves all of the following except​ _______.

is the practice of seeking to profit by buying in one market and selling for a higher price in another related market equal real exchange rates across the major currencies

The exports effect is the result that the lower the exchange​ rate, other things remaining the​ same, the​ ______.

lower are the prices of​ U.S.-produced goods and services to foreigners and the greater is the volume of U.S. exports

The imports effect is the result that the higher the exchange​ rate, other things remaining the​ same, the​ ______.

lower are the prices of​ foreign-produced goods and services to Americans and the greater is the volume of U.S. imports

A decrease in the marginal propensity to import​ _______, everything else remaining the same.

makes the multiplier larger

An increase in income taxes​ _______, everything else remaining the same.

makes the multiplier smaller

In​ ______ cycle​ theory, the rational expectation of the price​ level, which is determined by potential GDP and expected aggregate​ demand, determines the money wage rate and the position of the SAS curve. In​ ______ cycle​ theory, past rational expectations of the current price level influence the money wage rate and the position of the SAS curve.

monetarist keynesian

​Long-run aggregate supply is the relationship between the quantity of real GDP supplied and the price level when the ​ _____ changes in step with the price level to maintain full employment.

money wage rate

Purchasing power parity is equal value of​ _____ - a situation in which​ _____ buys the same amount of goods and services in different currencies.

money; money

The multiplier is greater than 1 because the change in autonomous expenditure leads to​ _______.

more induced expenditure

A net borrower is a country that is borrowing​ _____ from the rest of the world​ _____ it is lending to the rest of the world.

more; than

A net lender is a country that is lending​ _____ to the rest of the world​ _____ it is borrowing to the rest of the world.

more; than

If inflation is​ expected, _______.

neither a​ cost-push inflation nor a​ demand-pull inflation occur

A country that is borrowing more from the rest of the world than it is lending to the rest of the world is a​ ______, and a country that during its entire history has borrowed more from the rest of the world than it has lent to it is a​ ______. ​Currently, the United States is a ________.

net​ borrower; debtor nation debtor nation

A country that is lending more to the rest of the world than it is borrowing from the rest of the world is a​ ______. A country that during its entire history has invested more in the rest of the world than other countries have invested in it is a​ ______. China, Japan, and Saudi Arabia are _______. The United States is a ___________.

net​ lender; creditor nation net lender net borrower

The graph shows the economy when consumers experience a decrease in consumer confidence. Draw a curve that shows how the economy returns to a​ full-employment equilibrium with no intervention by the government or central bank. Label it. Draw a point at the new​ long-run macroeconomic equilibrium. The economy returns to a​ full-employment equilibrium as the money wage rate _______.

new equilibrium at 95 and 12 at the intersect of AD1 and SAS1 equilibrium at SAS0 and AD1 at 11 falls

Between 2007 and​ 2012, the U.S. exchange rate​ ______ against the Japanese yen because the U.S. interest differential​ _______ ​ ______ against the yen. The expectations about the exchange rate​ ______ the demand for U.S. dollars and​ ______ the supply of U.S. dollars.

fell; decreased and because currency traders expected the dollar to depreciate decreased; increased

An economy has a fixed price​ level, no​ imports, and no income taxes. MPC is 0.8​, and real GDP is ​$150 billion. Businesses increase investment by ​$5 billion. Calculate the new level of real GDP and explain why real GDP increases by more than ​$5 billion. The new level of real GDP is ___________.

new level of real GDP is ​$175 billion because the increase was by 25 billion + the already 150 billion

In​ ______ cycle​ theory, the rational expectation of the price​ level, which is determined by potential GDP and expected aggregate​ demand, determines the money wage rate and the position of the SAS curve. In​ ______ cycle​ theory, past rational expectations of the current price level influence the money wage rate and the position of the SAS curve.

new​ classical; new Keynesian

A​ ______ macroeconomist believes that business cycle fluctuations are the efficient responses of a​ well-functioning market economy that is bombarded by shocks that arise from the uneven pace of technological change. A​ ______ macroeconomist believes that the​ short-run aggregate supply curve is horizontal at a fixed price level.

new​ classical; new Keynesian

The new Keynesian cycle theory emphasizes the fact that​ today's money wage rates were negotiated at many past​ dates, which means that​ _____ rational expectations of the​ _____ price level influence the money wage rate and the position of the SAS curve.

past; current

The initial​ short-run aggregate supply curve is SAS0 and the initial aggregate demand curve is AD0. Some events change aggregate demand from AD0 to AD1​, and​ short-run aggregate supply from SAS0 to SAS1. The new macroeconomic equilibrium is at​ ______.

point D

The quantity of real GDP supplied depends on all of the following except the​ _______.

quantity of real GDP demanded

Stagflation is a combination of a​ ______ in the price level and​ ______ in real GDP.

rises: a decrease

A country has a lower inflation rate than all other​ countries, and it has more rapid economic growth. The central bank does not intervene in the foreign exchange market. It is expected that in the future the exchange rate will​ ______. The interest rate differential is​ ______.

rises​; negative rise​; negative

Between 2012 and​ 2014, the U.S. exchange rate​ ______ against the Japanese yen because the U.S. interest rate differential was expected to​ _______.

rose; increase

The defining feature of the monetarist view of macroeconomics is that the economy​ is______. Monetarist macroeconomists recommend​ ______.

self-regulating and that it will normally operate at full​ employment, provided that monetary policy is not erratic and that the pace of money growth is kept steady policies that keep taxes low to avoid disincentive effects that decrease potential GDP

Suppose a country has a crawling peg exchange rate policy against the U.S. dollar and the equilibrium exchange rate in units of foreign currency per U.S. dollar is above the target rate. To keep the exchange rate pegged at its target​ level, the​ country's central bank must​ ______ U.S. dollars and​ ______ its foreign currency reserves.

sell; decrease

Suppose the exchange rate is 90 yen per U.S. dollar and the United States wants to keep the exchange rate at a target rate of 90 yen per U.S. dollar. If the demand for U.S. dollars increases​, the Fed​ ______.

sells dollars to lower the exchange rate

If the natural unemployment rate​ increases, the​ long-run Phillips curve​ _______ and the​ short-run Phillips curve​ ______ The expected inflation rate _________

shifts rightward; shifts rightward does not change (point moves rightward but stays at the same Y coordinate)

A fall in the price level​ _______.

shifts the AE curve upward and brings a movement down along the AD curve

The U.S.​ short-run Phillips curve​ ______ when the expected inflation rate rises. The U.S.​ short-run Phillips curve​ ______ when the natural unemployment rate increases.

shifts​ upward; shifts rightward

The business cycle is actually a continuous series of different​ ______.

short-run macroeconomic equilibriums

100 700 400 500 105 600 500 500 110 500 600 500 115 400 700 500 The table gives the aggregate demand​ schedule, the​ short-run aggregate supply​ schedule, and the​ long-run aggregate supply schedule for an economy. What is the quantity of real GDP at the​ short-run macroeconomic​ equilibrium? The quantity of real GDP at the​ short-run macroeconomic equilibrium is ​$____ billion. The economy has​ ______.

550 an inflationary gap of $50 billion

The table gives some information about international transactions in the country of Plutonia. What is the capital and financial account​ balance? The capital and financial account balance is ______ billion dollars.

559

When the price​ level, the money wage​ rate, and other factor prices rise by the same​ percentage, there is a movement along​ ______. Potential GDP​ ______. When the price level rises but the money wage rate and other factor prices remain the​ same, there is a movement along​ ______. The quantity of real GDP supplied​ ______.

the LAS curve​; does not change the SAS​ curve; increases

The marginal propensity to import is equal to​ _______.

the change in imports divided by the change in real​ GDP, other things remaining the same

In the short​ run, the nominal exchange rate is determined by​ ______. And in the short run​ ______.

the demand for U.S. dollars and the supply of U.S. dollars in the foreign exchange​ market; a change in the nominal exchange rate brings an equivalent change in the real exchange rate

When inflation is correctly​ anticipated, ______

the economy remains at full employment

Weak Dollar Helps Shrink Trade Deficit The United States trade deficit narrowed in May as​ exports, including industrial supplies and consumer​ goods, climbed to records. ... The declining value of the dollar relative to other​ currencies, especially the​ euro, is helping to make American exports cheaper and thus more attractive to foreign buyers. Growth in exports has been one of the few bright spots for the​ economy, which has been pounded by​ housing, credit and financial crises. ... The stronger export figures should help bolster overall economic growth during the​ April-to-June quarter, which is already shaping up to be better than the grim projections made at the start of the​ year, when many feared the economy might contract. Tax rebates also are energizing​ shoppers, which should help​ second-quarter activity.​ "The narrowing trade deficit may be enough to keep​ second-quarter growth in the​ black," said Joel L.​ Naroff, president of Naroff Economic Advisors. The economy could grow to more than 2​ percent, from 1​ percent, in the second quarter. ... Aggregate demand will increase if​ ______. A recessionary gap eventually emerges even if aggregate demand remains constant because over time​ ______.

the effect of the tax rebates and the change in the foreign exchange rate outweigh the effect of the​ housing, credit, and financial crises potential GDP increases

The quantity of U.S. dollars supplied in the foreign exchange market depends on many​ factors, the main ones being​ ______.

the exchange​ rate, U.S. demand for​ imports, interest rates in the United States and other​ countries, and the expected future exchange rate

The quantity of U.S. dollars demanded in the foreign exchange market depends on many​ factors, the main ones being​ ______.

the exchange​ rate, world demand for U.S.​ exports, interest rates in the United States and other​ countries, and the expected future exchange rate

Along the​ short-run Phillips​ curve, ______

the expected inflation rate and the natural unemployment rate are constant

The demand for U.S. dollars changes when there is a change in any of the following except​ ______.

the foreign exchange rate

The supply of U.S. dollars changes when there is a change in any of the following except​ ______.

the foreign exchange rate

The U.S. interest rate differential rises if​ ______, and the larger the U.S. interest rate​ differential, the​ ______ is the demand for U.S. dollars in the foreign exchange market.

the foreign interest rate​ falls; greater

The impulse in RBC theory is​ _______.

the growth rate of productivity that results from technological change

Potential GDP increases for all of the following reasons except​ ______.

the money wage rate decreases

According to mainstream business cycle​ theory, _______.

the money wage rate is sticky and consequently if aggregate demand grows faster than potential​ GDP, an inflationary gap emerges

A​ cost-push rise in the price level can arise from an increase in​ _______.

the money wage rate or money prices of raw material

When it becomes obvious to everyone that the deflation is not going to​ occur, _______.

the money wage rate rises and the​ short-run aggregate supply curve returns to its original position

When aggregate demand unexpectedly​ increases, ______.

the natural unemployment rate does not change

The aggregate demand curve shows the relationship between the quantity of real GDP demanded and​ ______, when everything else remains the same. A movement along the aggregate demand curve occurs if​ _______.

the price level the price level changes and all other factors remain unchanged

At the equilibrium exchange rate​ _______.

the quantity of dollars demanded equals the quantity of dollars supplied

Inflation results when​ ______.

the quantity of money increases rapidly OR the increase in aggregate demand exceeds the increase in potential GDP

A stagflation can turn into a​ cost-push inflation process when​ _______.

the quantity of money persistently increases

The current account is the record of receipts from​ _____ other​ countries, minus​ _____ other​ countries, plus the net amount of​ _____ received from and paid to other countries.

the sale of goods and services to other​ countries; payments for goods and services bought​ from; interest and transfers

The quantity of U.S. dollars demanded in the foreign exchange market depends on all of the following except​ ______.

the supply of the U.S. dollars in the foreign exchange market

Along the​ long-run Phillips​ curve, _______.

the unemployment rate is constant at the natural unemployment rate

If most prices increase in Japan and other countries but remain constant in the United​ States, ______.

then for purchasing power parity to​ hold, the demand for U.S. dollars increases and the supply of U.S. dollars decreases

If most prices have increased in the United States and not increased in Japan and other​ countries, ______.

then for purchasing power parity to​ hold, the value of the U.S. dollar in the foreign exchange market will fall

If most prices have decreased in the United States and not decreased in Japan and other​ countries, ______.

then for purchasing power parity to​ hold, the value of the U.S. dollar in the foreign exchange market will rise

The foreign exchange market is the market in which​ _____ of one country is exchanged for​ _____ of another.

the​ currency; the currency

If the natural unemployment rate increases and the expected inflation rate remains​ constant, then​ _____

the​ long-run Phillips curve shifts rightward and the​ short-run Phillips curve shifts rightwar

If the expected inflation rate increases and the natural rate of unemployment remains​ constant, then​ _______.

the​ short-run Phillips curve shifts upward and the​ long-run Phillips curve does not shift

The United States is a debtor​ nation, and since 1980 it has piled up trade deficits that total​ $9 trillion. At its peak in​ 2006, the current account deficit was almost 6 percent of GDP. To pay for the​ $9 trillion of goods and services​ we've imported in excess of our​ exports, we have borrowed from the rest of the world. Foreigners have purchased large amounts of U.S. assets. A current account deficit means we must borrow more from abroad than we lend abroad or use our official reserves to cover the shortfall. The debtor nation status of the United States would be a concern if the borrowed funds were used to finance​ ______.

true consumption

The Economist magazine uses the price of a Big Mac to determine whether a currency is undervalued or overvalued. In July​ 2012, the price of a Big Mac was​ $4.33 in New​ York, 15.65 yuan in​ Beijing, and 6.50 Swiss francs in Geneva. The exchange rates were 6.37 yuan per U.S. dollar and 0.98 Swiss francs per U.S. dollar. The yuan was​ ______ relative to purchasing power parity and the Swiss franc was​ ______ relative to purchasing power parity. The price of a Big Mac in different countries​ _______ provide a valid test of purchasing power parity because​ _______.

undervalued; overvalued does​ not; purchasing power parity is determined by the price level not by individual prices

When the Chips are Down The Economist magazine uses the price of a Big Mac to determine whether a currency is undervalued or overvalued. In July​ 2012, the price of a Big Mac was​ $4.33 in New​ York, 15.65 yuan in​ Beijing, and 6.50 Swiss francs in Geneva. The exchange rates were 6.37 yuan per U.S. dollar and 0.98 Swiss francs per U.S. dollar. The yuan was​ ______ relative to purchasing power parity and the Swiss franc was​ ______ relative to purchasing power parity. The price of a Big Mac in different countries​ _______ provide a valid test of purchasing power parity because​ _______.

undervalued; overvalued does​ not; purchasing power parity is determined by the price level not by individual prices

An increase in investment shifts the AE curve​ _______ and the AD curve​ _______.

upward; rightward

Draw the​ long-run aggregate supply curve when potential GDP is ​$14.0 trillion. Label it. As we move up along the​ long-run aggregate supply​ curve, ______.

vertical line at 14 the real wage rate remains constant

A rational expectation​ _______.

will often turn out to be​ wrong, but no other forecast that could have been made with the information available could do better

The quantity of U.S. dollars supplied in the foreign exchange market depends on all of the following except​ ______.

world demand for U.S. exports

The graph shows​ China's aggregate demand​ curve, short-run aggregate supply​ curve, and the​ long-run aggregate supply curve. Draw a curve that shows the effect of an increase in the quantity of money. Label it C1. Draw a curve that shows the money wage rate response that returns the economy to potential GDP. Label it C2. Draw a curve that shows the effect of an increase in the quantity of money. Label it C3. Draw a curve that shows the money wage rate response that returns the economy to potential GDP. Label it C4. Draw a point at the new price level and real GDP.

C1- AD shifts to the right C2- SAS shifts upwards/leftward C3- AD shifts right C4- SAS shifts up/left final equilibrium point is still on LAS vertical line

Starting at point A​, the initial effect of a​ demand-pull inflation is a move to point​ ______. As a​ demand-pull inflation spiral​ proceeds, it follows the path​ ______.

C; E,​ H, I from point A it goes right left right left

The graph shows the demand curve for U.S. dollars. Draw a new demand curve that shows the effect of an increase in the U.S. interest rate differential. Label it. The U.S. interest rate differential rises when​ ______.

D then rightward D1 the U.S. interest rate rises and the foreign interest rate falls

Eurozone Unemployment Hits Record High As Inflation Rises Unexpectedly Eurozone unemployment rose to 10.7 percent. At the same​ time, Eurozone inflation unexpectedly rose to 2.7 percent a​ year, up from the previous​ month's 2.6 percent a year. A very high unemployment rate can be accounted for by the Phillips curve model by all of the following EXCEPT​_______. A. a rightward shift of the​ long-run Phillips curve if the natural unemployment rate increases B. a rightward shift of the​ short-run Phillips curve if the natural unemployment rate increases C. a movement down along the​ short-run Phillips curve if there is no change in the natural unemployment rate D. a movement up along the​ long-run Phillips curve if the natural unemployment rate increases

D. a movement up along the​ long-run Phillips curve if the natural unemployment rate increases

The graph shows the demand curve for U.S. dollars. Draw a new demand curve that shows the effect of an increase world demand for U.S. exports. Label it. A change in the expected future exchange rate changes the demand for U.S. dollars​ ______, and a change in the world demand for U.S. exports changes the demand for U.S. dollars​ ______.

D1 rightward shift ​today; today

Suppose the business cycle in the United States is best described by RBC theory. An advance in technology increases productivity.Draw a demand for loanable funds curve. Label it DLF0. Draw a supply of loanable funds curve. Label it SLF0. Draw a point at the equilibrium quantity of loanable funds and real interest rate. Label it 1. Draw a curve that shows the effect of the increase in productivity. Label it. Draw a point at the new equilibrium quantity of loanable funds and real interest rate. Label it 2.

DLF0 and SLF0 make an X on the graph DLF1 is on the X, just more upward and to the right

Planned saving​ + Planned consumption expenditure​ = ______.

Disposable income

A​ demand-pull rise in the price level will initially move the economy to point​ _______ and to point​ _______.

E when aggregate demand​ increases; D when the money wage rate rises

Starting at point A​, the initial effects of an expected inflation is a movement to point​ ______. As an expected inflation​ proceeds, it follows the path​ ______.

E; I initial effects of an inflation is movement STRAIGHT UP THE LAS LINE with NO movement side to side

Choose the statement about real business cycle theory that is incorrect. A. The impulse in RBC theory is generated mainly by the process of research and development. B. Productivity fluctuations are correlated with real GDP fluctuations. C. Economists have not been able to isolate the RBC theory impulse. Your answer is correct.D. The impulse in RBC theory is the growth rate of productivity that results from technological change.

Economists have not been able to isolate the RBC theory impulse.

Stagflation is anathema to the Phillips curve

FALSE

The graph shows an economy in​ long-run equilibrium. The price of oil rises. Draw a curve that shows the effect of this event. Label it 1. Draw a point at the new​ short-run equilibrium. Label it E1. Draw a curve that shows the economy returning toward a​ full-employment equilibrium with no action by the central bank or the government. Label it 2. Draw a point at the new​ short-run equilibrium. Label it E2. Stagflation​ ______.

GRAPH ON PHONE 2 is a combination of recession and inflation

The table gives an​ economy's aggregate​ demand, short-run aggregate​ supply, and​ long-run aggregate supply schedules. The graph shows _____ gap.

GRAPH ON PHONE 3 an inflationary

The graph shows a business cycle. Draw a vertical arrow that​ shows: ​1) a recessionary gap. Label it 1. ​2) an inflationary gap. Label it 2. Draw a point that shows the economy at full employment. At arrow 1 in the​ graph, the economy is in​ ______ full- employment equilibrium and the intersection of the AD and SAS curves is to the​ ______ of the LAS curve. At arrow​ 2, the economy is in​ ______ full-employment equilibrium and the intersection of the AD and SAS curves is to the​ ______ of the LAS curve.

GRAPH PICTURE ON PHONE a​ below; left an​ above; right

If equilibrium expenditure changes by​ $50 billion that results from an increase in autonomous taxes by​ $80 billion, find the autonomous tax multiplier.

If equilibrium expenditure changes by​ $50 billion that results from an increase in autonomous taxes by​ $80 billion, the autonomous tax multiplier is​ $50/$80 = 0.625.

Choose the correct statement about purchasing power parity. If all​ (or most) prices have increased in the United States and not increased in​ Japan, then people will generally expect that the foreign exchange value of the dollar will​ ______. The demand for dollars​ ______.

If purchasing power parity does not​ prevail, the demand for U.S. dollars changes and the supply of U.S. dollars changes. ​fall; decreases and the supply of dollars increases

Choose the statement about fixed exchange rates that is incorrect.

If the Fed wanted to fix the U.S. dollar exchange rate against the Japanese​ yen, the Fed would have to buy U.S. dollars to prevent the exchange rate from rising above the target value.

Choose the statement about the business cycle that is incorrect.

In a business​ cycle, real GDP shows steady growth and steady inflation.

Choose the statement that is incorrect. A. A​ one-time fall in the price level occurs either because aggregate demand decreases or because​ short-run aggregate supply increases. B. In a​ deflation, the inflation rate is positive but decreasing in consequent years. C. In a​ deflation, the price level persistently falls. D. A​ one-time fall in the price level occurs when there is an increase in capital that increases potential GDP.

In a​ deflation, the inflation rate is positive but decreasing in consequent years.

Choose the statement that is incorrect. A. China operates a crawling peg exchange rate policy. B. In the long​ run, China manages its exchange rate to keep its export prices low and to make it easier to compete in world markets. C. China intervenes in the foreign exchange market and buys U.S. dollars. D. China fixes its exchange rate as a means of controlling its inflation.

In the long​ run, China manages its exchange rate to keep its export prices low and to make it easier to compete in world markets.

Choose the statement that is incorrect. A. In the long​ run, the nominal exchange rate is determined by the quantities of money in two countries. B. In the long​ run, a rise in the foreign price level brings dollar appreciation and a rise in the U.S. price level brings dollar depreciation. C. In the long​ run, a change in the nominal exchange rate brings an equivalent change in the real exchange rate. D. In the long​ run, the nominal exchange rate is a monetary phenomenon.

In the long​ run, a change in the nominal exchange rate brings an equivalent change in the real exchange rate.

If in the long​ run, the U.S. dollar appreciates against the Japanese​ yen, then​ ______.

Japan has created money at a faster pace than has the United​ States, and the price level in Japan has risen more rapidly than the U.S. price level.

Deflation in Japan arose because​ _______.

Japan's money stock did not grow fast enough to accommodate the growth of potential GDP and a trend rise in velocity.

In​ ______ cycle​ theory, fluctuations in investment driven by fluctuations in business confidence are the main source of fluctuations in aggregate demand. In​ ______ cycle​ theory, fluctuations in both investment and consumption​ expenditure, driven by fluctuations in the growth rate of the quantity of​ money, are the main source of fluctuations in aggregate demand.

Keynesian monetarist

The multiplier is the amount by which _______________________ is magnified or multiplied to determine the change that it generates in _________________

a change in any component of autonomous expenditure equilibrium expenditure and real GDP

The quantity theory of money tells us that​ _______.

a change in the money growth rate brings an equal change in the inflation rate

A fixed exchange rate is an exchange rate that is determined by​ ______ and is achieved by central bank intervention in the foreign exchange market to block​ _____.

a decision of the government or the central​ bank; the unregulated forces of demand and supply

Examples of monetary policy that decrease aggregate demand include​ ______.

a decrease in the quantity of money and an increase in interest rates

A​ cost-push inflation begins with​ ______ as the result of an increase in the money wage rate or an increase in the money prices of raw materials.

a decrease in​ short-run aggregate supply

With the strengthening of the yen against the U.S. dollar in​ 2012, Japan's central bank did not take any action. A Japanese politician called on the central bank to take actions to weaken the​ yen, saying it will help exporters in the short run and have no​ long-run effects. Japan's current exchange rate policy is​ ______. The politician wants a​ ______ in the short run. This policy would have no effect on the exchange rate in the long run because in the long run​ ______.

a flexible exchange rate crawling​ peg; the price level and the nominal exchange rate are determined together

A rise in the money wage rate with no change in potential GDP creates​ ______.

a leftward shift of the SAS curve and no change in the LAS curve

The United States is​ ______.

a net borrower and a debtor nation

A rise in the price of oil creates​ _______.

a one time cost-push rise in the price level

Deflation is​ _______.

a persistently falling price level

The best forecast​ available, which is based on all the relevant information is called​ _______.

a rational expectation

You observe that unplanned inventories are increasing. You predict that there will be​ _______.

a recession

In the​ graph, the initial aggregate supply curve is SAS0 and the initial aggregate demand curve is AD0. The events which could have changed​ short-run aggregate supply from SAS0 to SAS1 are​ ______. Following the change in aggregate​ supply, the new macroeconomic equilibrium is at​ ______. f potential GDP is​ $1 trillion, the economy has _______ gap.

a rise in the money wage rate or a rise in the money price of any other factor of production point B a recessionary

The table gives you information about the economy of Bluebird Island. What is the marginal propensity to​ consume? Disposable consumption income expenditure 0 50 100 125 200 200 300 275

.75

An economy with no income taxes or imports has a marginal propensity to consume of 0.75. The multiplier in the long run is​ _______.

0

If the US interest rate is 1.5​ percent, Canada's interest rate is 1​ percent, the US inflation rate is 1.2​ percent, and​ Canada's inflation rate is 0.70​ percent, then calculate the US interest rate differential.

0.5 percent

The price level in the Eurozone is 110.5​, the price level in the United States is 111.5​, and the nominal exchange rate is 0.78 euros per U.S. dollar. What is the real exchange rate expressed as Eurozone real GDP per unit of U.S. real​ GDP? The real exchange rate expressed as Eurozone real GDP per unit of U.S. real GDP was _____.

0.79

The graph shows the foreign exchange market for Mexican pesos. Draw a point at the equilibrium exchange rate and equilibrium quantity of pesos. Label it 1. The Mexican peso is appreciating. Draw the new demand curve. Label it D1. Draw the new supply curve. Label it. S1. Draw a point at the new equilibrium exchange rate and equilibrium quantity of pesos. Label it 2.

1 at D and S intersection D1 rightward shift S1 leftward shift 2 at D1 and S1 intersection

The graph shows the economy in​ long-run equilibrium. Then the world economy expands and the demand for​ U.S.-produced goods increases. Draw a curve that​ shows: ​1) the effect of increased demand for​ U.S.-produced goods. Label it 1. ​2) the effect of a rising money wage rate that returns the economy to full employment. Label it 2. Draw a point at the new​ long-run equilibrium. An economy is in a​ long-run equilibrium. An increase in aggregate demand creates​ ______ gap. A rise in the money wage rate decreases​ ______ and returns the economy to a​ full-employment equilibrium.

1 rightward shift of AD 2 leftward shift of SAS new equilibrium at 120 and 13 intersect to the right of LAS an​ inflationary; the quantity of real GDP demanded

The multiplier equals In an economy with no imports and no​ taxes, the slope of the AE curve equals the MPC​, so the multiplier equals

1 ÷​(1−Slope of AE​ curve). 1 ÷​(1−MPC​). equilibrium expenditure ÷​ autonomous expenditure

You can purchase a laptop in Montreal for 1,050 Canadian dollars. If the exchange rate is 1.05 Canadian dollars per U.S. dollar and if purchasing power parity​ prevails, at what price can you buy an identical computer in​ Dallas, Texas? You can buy an identical computer in​ Dallas, Texas for ​$_____.

1,000 ​ $1 U.S. dollar can buy 1.05 Canadian dollars. To find the price in U.S. dollars of a computer in Montreal that has a price of 1,050 Canadian dollars​, we divide the price in Canadian dollars by the exchange rate. So the price in U.S. dollars when purchasing power parity prevails is 1,050 Canadian dollars ÷1.05 Canadian dollars per U.S.​ dollar, which is ​$1,000.

100 ​ 1,150 . 1,050 110 ​1,100 1,100 120 ​1,050 1,150 130 ​1,000 1,200 140 950 1,250 150 900 1,300 160 850 1,350 The table shows the aggregate demand and​ short-run aggregate supply schedules of a country in which potential GDP is​ $1,050 billion. What is the​ short-run equilibrium real GDP and price​ level? The​ short-run equilibrium real GDP is ​$______ billion. The price level in the short run is ______.

1,100 . 110

The graph shows the foreign exchange market. Suppose Japanese exports are becoming more expensive. Show the effect in the graph. Draw either an arrow along the curve showing the direction of​ change, or a new curve. Label it 1. Now investors step up the sale of dollars. Show the effect in the graph. Draw either an arrow along the curve showing the direction of​ change, or a new curve. Label it 2.

1-arrow pointing down the S line 2- rightward shift of S

The U.S. dollar exchange rate increased from ​$0.97 Canadian in 2007 to ​$1.06 Canadian in 2008​, and it decreased from 115 Japanese yen in 2007 to 107 Japanese yen in 2008. In 2007​, the value of the Canadian dollar was ​$_____ U.S. In 2008​, the value of the Canadian dollar was ​$_____ U.S. The Canadian dollar __________ against the U.S. dollar between 2007 and 2008.

1.03 0.94 depreciated

The U.S. dollar exchange rate increased from ​$0.96 Canadian in June 2011 to ​$1.03 Canadian in June 2012​, and it decreased from 81 Japanese yen in June 2011 to 78 Japanese yen in June 2012. In June 2011​, the value of 100 Japanese yen was _______ U.S. dollars. In June 2012​, the value of 100 Japanese yen was ​$______ U.S. dollars.

1.23 1.28 appreciated

Item Billions of dollars Imports of goods and services 1,250 Foreign investment in Nordland 900 Exports of goods and services 1,500 Nordland's investment abroad 550 Net interest income 5 Net transfers −70 Statistical discrepancy −10 The table gives some information about Nordland's international transactions. Calculate the current account​ balance, the capital and financial account​ balance, and the official settlements account balance. The current account balance is _______ billion dollars. The capital and financial account balance is ______ billion dollars. The official settlements account balance is _____ billion dollars. Nordland's official reserves are _______. This nation is a ________.

185 340 -525 increasing net borrower

The table shows the only international transactions that the citizens of​ Nickleodeon, whose currency is the​ dime, conducted in 2010. What is​ Nickleodeon's current account​ balance, capital and financial account​ balance, and official settlements account​ balance? Nickleodeon's current account balance is _____ billion dimes. ​Nickleodeon's capital and financial account balance is ______ billion dimes. ​Nickleodeon's official settlements account balance is _______ billion dimes.

25 -140 115

An economy is at potential GDP and the price level is 100 in the figure. If aggregate demand unexpectedly​ increases, the inflation rate is​ ______.

3 percent In the​ graph, the aggregate demand curve shifts rightward from AD0 to AD1. Real GDP increases and the price level rises from 100 to 103103. The inflation​ rate, which is calculated as the percentage change in the price level is ​[(103−​100) divided by ÷​100] times ×​100, which is 3 percent a year.

The table gives the aggregate expenditure schedule. Equilibrium expenditure is equal to​ _______.

3 trillion

The graph shows an economy that has no taxes or imports. AD0 is the aggregate demand curve when investment is​ $1.0 ​ trillion, and AD1 is the aggregate demand curve when investment is​ $1.5 trillion. What is the size of the multiplier in the short​ run?

4

Suppose that the velocity of circulation of money is constant and real GDP is growing at a constant 2 percent a year. To achieve an inflation target of 3 percent a​ year, the central bank grows the quantity of money at _____ percent a year. Deflation will be created if the growth rate of the quantity of money is ​ _______.

5 percent less than 2 percent a year

1OO 600 550 110 575 575 120 550 600 130 525 675 The table shows the aggregate demand and​ short-run aggregate supply schedules of Lizard Island in which potential GDP is​ $600 billion. 1. Calculate the​ short-run equilibrium real GDP and price level. The​ short-run equilibrium real GDP is ​$______ billion and the price level is ______. 2. Does the country have an inflationary gap or a recessionary gap and what is its​ magnitude? The country has​ _____ gap and its magnitude is​ $ _____ billion. 3. If aggregate demand increases by​ $50 billion, what is the new​ short-run macroeconomic equilibrium and the output​ gap? The new​ short-run macroeconomic equilibrium is at a real GDP of ​$____ billion and a price level of _______. The economy has _______ output gap.

575; 110 a​ recessionary; 25 600​, 120​, no

The U.S. price level is 120​, the Japanese price level is 92​, and the real exchange rate is 103.6 Japanese real GDP per unit of U.S. real GDP. What is the nominal exchange​ rate? The nominal exchange rate is _____ yen per dollar.

79.43 The real exchange rate equals​(E×P​) ​/P​* where E is the nominal exchange​ rate, P is the U.S. price​ level, and P​* is​ Japan's price level. ​Rearranging, the nominal exchange rate equals RER×​(P​*/P). The nominal exchange rate equals 103.6×​(92​/120​), which is 79.43 yen per dollar.

A Classical macroeconomist believes that the economy is​ self-regulating and always​ _____.

at full employment

Consider the following events. Event​ 1: Growth in the world economy slows. Event​ 2: The world price of oil rises. Event​ 3: U.S. labor productivity declines. Choose the statement that is correct.

A classical macroeconomist and a monetarist recommend that taxes be kept low to avoid disincentive effects for all of the events and a Keynesian recommends active fiscal policy and monetary policy to offset all events.

Choose the statement about a crawling peg that is incorrect.

A crawling peg makes the exchange rate fluctuate wildly.

The graph shows an aggregate demand curve. Draw a curve that shows the effect on aggregate demand of an increase in expected future profits. Label it. An increase in expected future income ________ aggregate demand. An increase in the expected future inflation rate ________ aggregate demand. An increase in expected future profits _______ aggregate demand.

AD downward sloping line AD1 rightward shift increases increases increases

The graph shows​ China's long-run aggregate​ supply, short-run aggregate​ supply, and aggregate demand curves. Draw a curve that illustrates an initial​ one-time rise in​ China's price level. Label it C1. Draw a curve to show the money wage rate response that returns the economy to its​ long-run equilibrium. Label it C2. Draw a point at the new​ long-run equilibrium.

AD moves to the right: C1 SAS moves upward; C2 equilibrium point stays on the vertical SAS

The graph shows the U.S.​ economy's aggregate demand​ curve, short-run aggregate supply​ curve, long-run aggregate supply​ curve, and equilibrium in 1970. Draw the AD curve when it is correctly expected that the price level will be 3030. Label it. Draw the SAS curve when a change to the money wage rate occurs that correctly expects the increase in aggregate demand. Label it. Draw a point at the new equilibrium. If​ "pricing pressures are weaker​ today," compared to the​ 1970s, then the expected inflation rate in the 1970s was​ _______ today.

AD shifts right and SAS Shifts up, equilibrium point/price level remains on the vertical LAS line but it is lies at the coordinate (4 , 30) higher than it is today

The graph shows an aggregate demand curve. Suppose there is a decrease in foreign income. Draw a new curve to show the effect of this change on aggregate demand. Label the new curve AD1. Now suppose that there is an increase in expected profits. Draw a new curve to show the effect of this change on the original AD curve. Label the new curve AD2.

AD1 leftward shift AD2 rightward shift

The graph shows the aggregate demand curve and the​ short-run aggregate supply curve in the U.S. economy. Draw a curve that shows the effect of depreciation of the dollar. Label it. Draw a point at the new​ short-run macroeconomic equilibrium. Tax rebates​ ______ aggregate demand and the​ housing, credit, and financial crises​ ______ aggregate demand.

AD1 shifts rightward equilibrium at 120 and 12.5 ​increase; decrease

The graph shows the aggregate demand curve and the​ short-run aggregate supply curve. Draw a curve that shows the effects of a decrease in consumer confidence. Label it. Draw a point at the new​ short-run macroeconomic equilibrium. Suppose the economy had been operating at a​ full- employment equilibrium. After the fall in consumer​ confidence, the economy moves to​ ______ equilibrium and​ ______ gap emerges.

AD1 shifts to the left a below​ full-employment; a recessionary

The graph shows an economy in​ long-run equilibrium. The following events occur. A deep recession hits the world economy. The world oil price rises sharply. U.S. businesses expect future profits to fall. Draw a new AD curve and a new SAS curve that show the combined effects of the three events. Label the curves. Draw a point at the new equilibrium.

AD1 small leftward shift SAS1 big leftward shift equilibrium point at 115 and 12.0

Choose the statement that is incorrect. A. Against the Japanese​ yen, the dollar appreciated before​ 2002, then depreciated against the yen through​ 2012, and then appreciated. B. Against the Chinese​ yuan, the dollar was constant between 2000 and 2005. C. Against the European​ euro, the dollar appreciated before​ 2002, depreciated from 2002 through​ 2008, and then appreciated. D. Against the Chinese​ yuan, the dollar appreciated between 2005 and 2014.

Against the Chinese​ yuan, the dollar appreciated between 2005 and 2014.

Choose the statement that is incorrect. A. Along the LAS curve the money wage rate is constant and the real wage rate rises as the price level rises. B. The​ long-run aggregate supply curve is vertical because potential GDP is independent of the price level. C. A movement along the LAS curve is accompanied by a change in the prices of goods and services and the prices of the factors of production. D. The LAS curve shows the relationship between potential GDP and the price level.

Along the LAS curve the money wage rate is constant and the real wage rate rises as the price level rises.

Choose the statement that is incorrect. A. In the short​ run, a rise in the price level brings an increase in the quantity of real GDP supplied. B. The quantity of real GDP supplied equals potential GDP at the price level at which the real wage rate is at its​ full-employment equilibrium level. C. Along the SAS​ curve, the real wage rate and the price level change by the same percentage. D. The SAS curve shows the relationship between the quantity of real GDP supplied and the price level when the money wage​ rate, the prices of other​ resources, and potential GDP remain constant.

Along the SAS​ curve, the real wage rate and the price level change by the same percentage.

Choose the statement about the​ long-run Phillips curve that is incorrect.

An unexpected increase in aggregate demand shifts the​ long-run Phillips curve rightward.

The price of oil falls unexpectedly and aggregate supply increases by​ $50 billion. What type of output gap​ appears? If the central bank responds to close the output​ gap, does Shell Island experience inflation or​ deflation? ​_____ gap appears and the central bank closes the output​ gap, aggregate demand​ _____ and a​ _____ is created.

An​ inflationary; decreases;​ cost-push deflation

The table shows the aggregate demand and​ short-run aggregate supply schedules of Shell Island in which potential GDP is​ $600 billion. The economy is at​ full-employment. The price of oil falls unexpectedly and aggregate supply increases by​ $50 billion. What type of output gap​ appears? If the central bank responds to close the output​ gap, does Shell Island experience inflation or​ deflation? ​_____ gap appears and the central bank closes the output​ gap, aggregate demand​ _____ and a​ _____ is created

An​ inflationary; decreases;​ cost-push deflation

The figure shows the aggregate​ demand, short-run aggregate​ supply, and​ long-run aggregate supply curves for the economy of Tomorrowland. The economy is currently at point A. A​ cost-push rise in the price level will initially move the economy to point​ ______ and to point​ ______.

A​ cost-push rise in the price level will initially move the economy to point​ C and to point​ D. C is located up and to the left of point A D is above C but back located directly above A

Choose the statement that is incorrect about the Eurozone economy. A. The tradeoff between inflation and unemployment became worse as the​ short-run Phillips curve shifted rightward. B. A rise in the expected inflation rate shifts the​ short-run Phillips curve rightward. C. The small rise in inflation brings a movement up along the​ short-run Phillips curve. D. The large increase in the natural unemployment rate shifts the​ short-run Phillips curve and the​ long-run Phillips curve rightward.

B. A rise in the expected inflation rate shifts the​ short-run Phillips curve rightward.

Starting at point A​, the initial effect of a​ cost-push inflation is a move to point​ ______. As a​ cost-push inflation spiral​ proceeds, it follows the path​ ______

B; E,​ G, I From point A, it goes left right left right

Krugman on Monetary and Fiscal Policy New York Times columnist and Nobel Laureate economist Paul Krugman has launched an​ all-out attack on the monetary policy actions and inactions of Fed Chairman Ben Bernanke. Bernanke has increased the quantity of money by historically large amounts and in​ mid-2012 was cautiously trying to determine whether more stimulation was needed. Krugman says Bernanke is too cautious and should print money faster and move the inflation rate upward. Krugman also wants Congress to cut taxes and increase spending. And his advice to boost government spending​ isn't limited to the United States. He says European governments should boost their spending too. Based on this news​ clip, Paul Krugman most likely follows the​ ______ school of thought and Ben Bernanke most likely follows the​ ______ school of thought.

Keynesian or new​ Keynesian; Keynesian or new Keynesian

Adding Up the Cost of​ Obama's Agenda In more than a year of​ campaigning, Barack Obama has made a long list of promises for new federal programs costing tens of billions of dollars. Obama has said he would strengthen the​ nation's bridges and dams​ ($6 billion a​ year), extend health insurance to more people​ (part of a​ $65-billion-a-year health​ plan), develop cleaner energy sources​ ($15 billion a​ year), curb home foreclosures​ ($10 billion in​ one-time spending) and add​ $18 billion a year to education spending. In total a​ $50-billion plan to stimulate the economy through increased government spending. A different blueprint offered by McCain proposes relatively little new spending and tax cuts as a more effective means of solving problems. Based on this news​ clip, Barack Obama most likely follows the​ ______ school of thought and John McCain most likely follows the​ ______ school of thought.

Keynesian or new​ Keynesian; classical or new classical

In​ ______ cycle​ theory, animal spirits are the main source of fluctuations in aggregate demand. In​ ______ cycle​ theory, fluctuations in both investment and consumption​ expenditure, driven by fluctuations in the growth rate of the quantity of​ money, are the main source of fluctuations in aggregate demand.

Keynesian; monetarist

The graph gives a​ long-run aggregate supply curve and a​ short-run aggregate supply curve. Draw a new curve that shows the effect of a rise in the money wage rate. Label it. With a rise in the money wage​ rate, ______.

LAS vertical line SAS0 upward sloping line SAS1 above SAS0 the quantity that firms are willing to supply at each price level decreases

Which of the following statements about the monetarist view of the macroeconomy is ​incorrect?

Left​ alone, the economy rarely operates at full employment.

Which of the following equations is incorrect​?

MPC ​ + MPS​ = ΔYD

Choose the statement that is incorrect. A. Aggregate supply is the relationship between the quantity of real GDP supplied and the price level. B. The quantity of real GDP supplied is the total quantity of goods and​ services, valued in constant​ base-year (2009)​ dollars, that firms plan to produce during a given period. C. Over the business​ cycle, aggregate supply fluctuates around potential GDP. D. At any given​ time, the quantity of capital and the state of technology are​ fixed, but the quantity of labor is not fixed.

Over the business​ cycle, aggregate supply fluctuates around potential GDP.

Defenders of RBC theory claim all of the following except ​_______.

RBC theory is consistent with a negligible intertemporal substitution effect

Debate on Causes of Joblessness Grows What is the cause of the high unemployment​ rate? One side says there is not enough government spending. The other says​ it's a structural problemlong dash—people who​ can't move to take new jobs because they are tied down to burdensome mortgages or firms that​ can't find workers with the requisite skills to fill job openings. ​______ cycle theory would say that the rise in unemployment is not cyclical but is a change in the natural unemployment rate.

Real business cycle theory

The graph shows the supply curve of U.S. dollars. Draw a new supply curve that shows the effect of a decrease in the U.S. demand for imports U.S. demand for imports. Label it. A change in the expected future exchange rate changes the supply of U.S. dollars​ ______, and a change in U.S. demand for imports changes the supply of U.S. dollars​ ______.

S1 leftward of S ​today; today

Colombia is the​ world's biggest producer of roses. The global demand for roses increases and at the same​ time, the central bank in Colombia increases the interest rate. Draw a demand curve that shows what happens to the demand for pesos. Label it D1. Draw a supply curve that shows what happens to the supply of pesos. Label it S1. Draw a point at the new equilibrium. Along the new demand​ curve, the quantity of pesos demanded​ _______. Along the new supply​ curve, the quantity of pesos supplied​ _______.

S1 small leftward shift D1 bigger rightward shift new equilibrium at S1 and D1 decreases; increases

The graph shows an​ economy's long-run aggregate supply curve. The economy is at a below a full​-employment equilibrium. Draw an aggregate demand curve and a​ short-run aggregate supply curve. Label them. Draw a point at the​ short-run equilibrium. A macroeconomic equilibrium in which real GDP equals potential GDP is​ _____ equilibrium. And one in which real GDP exceeds potential GDP is​ _____ equilibrium.

SAS and AD cross left of LAS a full​-employment​; an above full​-employment

The Bureau of Economic Analysis reported that real GDP during the second quarter of 2007 was​ $11.5 trillion and the GDP deflator was 120. The Congressional Budget Office estimated potential GDP to be​ $11.6 trillion in 2007. For the year​ 2007, draw: ​1) the ​long-run aggregate supply curve ​2) the aggregate demand curve ​3) the​ short-run aggregate supply curve. Make the curves consistent with the numbers above and label them. Draw a point at the​ short-run equilibrium.

SAS and AD intersect at 120 and 11.5 LAS to the right of lines

Draw a​ short-run aggregate supply curve. Label it. As we move up along the​ short-run aggregate supply​ curve, ______.

SAS is upward sloping the money wage​ rate, the prices of other​ resources, and potential GDP remain constant

The graph shows the​ economy's long-run aggregate​ supply, short-run aggregate​ supply, and aggregate demand curves. Draw an AD curve that shows the effect of an increase in the expected inflation rate. Label it. Draw an SAS curve that shows the effect of an increase in the money wage rate when the economy experiences expected inflation and returns to an​ full-employment equilibrium. Label it. Draw a point at the new​ long-run equilibrium.

SAS shifts upward and AD shifts rightward equilibrium point stays on the vertical LAS

In September​ 2008, the Bureau of Economic Analysis reported that real GDP during the second quarter of 2008 was​ $11.7 trillion compared to​ $11.5 trillion in the same quarter of 2007. The GDP deflator was​ 122, up from 120 in the second quarter of 2007. The Congressional Budget Office estimated potential GDP to be​ $11.9 trillion in the second quarter of 2008 and​ $11.6 trillion a year earlier. The graph shows the U.S. economy in September 2007. Show how the economy arrived at its new equilibrium in 2008. Draw a new aggregate demand​ curve, a new​ short-run aggregate supply​ curve, and a new​ long-run aggregate supply curve. Label them. Draw a point at the new​ short-run equilibrium.

SAS1 and AD1 intersect at 122 and 11.7 LAS1 is the right

Fed Pause Promises Financial Disaster The indication is that inflationary expectations have become entrenched and strongly footed in world markets. As a​ result, the risk of global stagflation has become significant. A​ drawn-out inflationary process always precedes​ stagflation, anathema to the​ so-called Phillips Curve. Following the attritional effect of​ inflation, the economy starts to grow below its potential. It experiences a persistent output​ gap, rising​ unemployment, and increasingly entrenched inflationary expectations. The graph shows an​ economy's short-run Phillips curve and​ long-run Phillips curve.​ Currently, the economy is at point A. Draw a​ short-run Phillips curve such that if the economy moves to this new​ curve, it will experience stagflation. Label it. Draw a point on the new SRPC1 curve such that when the economy moves from point A to this​ point, it experiences stagflation. Label it B.

SPRC 1 is moved up two entire units draw a point at (8,7) label it B

A change in the actual inflation rate brings a movement along the​ ______. A change in the expected inflation rate brings​ ______.

SRPC​; a shift of the SRPC

Choose the correct statements. 1. In a growing economy comma the exchange rate is always rising. 2. If $ 1 buys 100 yen comma then the exchange rate is 100 yen per dollar. 3. A rise in the exchange rate is called an appreciation of the dollar. 4. The foreign exchange market is a place.

Statements 2 and 3 are correct.

Which of the following statements about the Keynesian view of the macroeconomy is ​incorrect?

Technological change is the most significant influence on both aggregate demand and aggregate supply.

The graph shows an​ economy's aggregate demand​ curve, short-run aggregate supply​ curve, long-run aggregate supply​ curve, and equilibrium. Draw the AD curve when it is correctly expected that the inflation rate will be 55 percent a year. Label it. Draw the SAS curve when a change to the money wage rate occurs that correctly anticipates the increase in aggregate demand. Label it. Draw a point at the new equilibrium.

The AD curve shifts rightward The SAS curve shifts upward the new equilibrium point is still found on the LAS line

Which of the following economies is facing a stagflation​?

The European economy is experiencing a decrease in real GDP for three quarters and a rise in the price level.

Which of the following statements illustrate monetary policy​?

The Fed has raised the federal funds rate by 0.3 percent.

Draw a curve that shows the effect of a rise in the price of food and a rise in the price of energy. Label it. Draw a point at the new equilibrium in the economy.

The SAS line moves upward and the equilibrium point is the cross between the SAS1 and AD0 and is no longer located on the vertical LAS

Which of the following statements illustrate fiscal policy​?

The US government has proposed a hike in the corporate tax rate.

When real GDP is ​$4 ​trillion, aggregate planned expenditure is ___________ Autonomous expenditure is ___________ Induced expenditure is ​ ___________

When real GDP is ​$4 ​trillion, aggregate planned expenditure is ​$3.6 trillion. Autonomous expenditure is ​$2.1 trillion. Induced expenditure is ​$1.5 trillion.

Labor productivity is rising at a rapid rate in China and wages are rising at a similar rate. Choose the statement that is incorrect.

The increase in labor productivity has no effect on​ short-run aggregate supply.

In an economy without taxes and​ imports, an increase in investment of​ $50 billion increases equilibrium expenditure by ​$100 billion. What are the values of the multiplier and the slope of the AE​ curve?

The multiplier is 2.0 and the slope of the AE curve is 0.5

An economy has a fixed price​ level, no​ imports, and no income taxes. MPC is .8 and real GDP is ​$200 billion. Businesses increase investment by ​$2 billion. Calculate the multiplier and the change in real GDP. The multiplier is ________ The increase in real GDP is ______ billion.

The multiplier is 5 (because 1÷​(1-.8) = 5) The increase in real GDP is ​$10 billion.

Choose the statement that is incorrect. A. A​ one-time fall in the price level is not deflation. Your answer is not correct.B. During a period of​ deflation, the inflation rate is negative. C. An economy experiences deflation when it has a persistently falling price level. D. The price level falls if aggregate supply increases at a persistently slower rate than aggregate demand.

The price level falls if aggregate supply increases at a persistently slower rate than aggregate demand.

Choose the correct statement. A. The quantity of real GDP demanded is the sum of the real consumption​ expenditure, investment, government​ expenditure, and exports minus imports. B. The quantity of real GDP demanded depends on the quantity of real GDP supplied. C. The aggregate demand curve slopes downward because of the wealth effect and the money wage rate. D. The higher the price​ level, the greater is the quantity of real GDP demanded.

The quantity of real GDP demanded is the sum of the real consumption​ expenditure, investment, government​ expenditure, and exports minus imports.

Choose the statement about flexible exchange rates that is incorrect.

The world economy has operated a flexible exchange rate regime since the end of World War II.

Peso's Party It was bad enough when​ Canada's Loonie surpassed the​ dollar, but now the Mexican peso is gaining on the​ greenback, too. In​ April, the peso hit 10.44 to the​ dollar, its best rate in two years.​ Mexico's 4.2 percent GDP growth in January and February ... finally convinced currency investors that the peso​ shouldn't be tethered to the​ dollar, as it has been in recent years. ... At current​ levels, exports might soon become more expensive for gringos. In other​ words, time to stock up on Coronas. Choose the statement that is incorrect.

The​ "Mexican peso is gaining on the​ greenback" because the demand for pesos is increasing at a slower pace than the supply of pesos is increasing.

incorrect, 12.4 Test B 5 Choose the correct statement. A. The​ long-run Phillips curve shifts leftward when the expected inflation rate falls. B. The​ long-run Phillips curve shifts rightward when the inflation rate rises. C. The​ long-run Phillips curve shifts rightward when the expected inflation rate rises. Your answer is not correct.D. The​ long-run Phillips curve shifts rightward when the natural unemployment rises and leftward when the natural unemployment rate falls.

The​ long-run Phillips curve shifts rightward when the natural unemployment rises and leftward when the natural unemployment rate falls.

Geithner Urges Action on Economy Treasury Secretary Timothy Geithner is reported as having said that the United States can no longer rely on consumer spending to be the growth engine of recovery from recession. Washington needs to plant the seeds for business investment and exports.​ "We can't go back to a situation where​ we're depending on a near​ short-term boost in consumption to carry us​ forward," he said. Choose the statement that is incorrect.

Treasury Secretary Timothy Geithner most likely follows the monetarist school of thought if he thinks that a falling money wage rate will respond quickly to changes in government tax policy.

Choose the statement that is incorrect.

Trends around which the exchange rate fluctuates are impossible to predict.

The real exchange rate is the relative price of​ _____ to​ _____.

U.S.-produced goods and​ services; foreign-produced goods and services

Choose the correct statement about the U.S.​ short-run Phillips curve.

We can interpret U.S. inflation and unemployment data in terms of a shifting​ short-run Phillips​ curve, which sometimes shifts upward and sometimes shifts downward.

100 ​ 1,150 . 1,050 110 ​1,100 1,100 120 ​1,050 1,150 130 ​1,000 1,200 140 950 1,250 150 900 1,300 160 850 1,350 The table shows the aggregate demand and​ short-run aggregate supply schedules of a country in which potential GDP is​ $1,050 billion. Does the country have an inflationary gap or a recessionary gap and what is its​ magnitude? The country has ________ gap. The magnitude of the _______ gap is ​$____ billion.

an inflationary inflationary 50

If aggregate demand grows faster than potential​ GDP, ______ gap emerges and if it grows more slowly than potential​ GDP, ______ gap emerges.

an​ inflationary; a recessionary

On June​ 1, 2015, the exchange rate was 101 yen per U.S. dollar. During that​ day, the Fed made a surprise announcement that it would raise the interest rate next month by 1 percentage point. At the same​ moment, the Bank of Japan announced that it would lower the interest rate next month. On June​ 2, 2015, the exchange rate was 99 yen per U.S. dollar. Explain the effect of the two announcements on the U.S. dollardash-yen exchange​ rate: Would the U.S. dollar appreciate or​ depreciate? The two announcements on the U.S.​ dollar-yen exchange rate would​ _____ the U.S. dollar. Could the change in the exchange rate on June 2 have resulted from the two announcements or must some other influence have changed​ too? If​ so, what might that influence have​ been? On June​ 2, the U.S. dollar depreciated rather than appreciated because a fall in U.S.​ _____ decreased the demand for U.S. dollars or an increase in U.S.​ _____ increased the supply of U.S. dollars.

appreciate exports; imports

If a euro deposit in a bank in​ Paris, France, earns interest of 0.5 percent a year and a yen deposit in​ Tokyo, Japan, earns 0.4 percent a​ year, other things remaining the same and adjusted for​ risk, what is the exchange rate expectation of the Japanese​ yen? The Japanese yen exchange rate is expected to _________ against the euro by ______ percent.

appreciate 0.1

If the U.S. exchange rate changes from​ $1.00 Canadian to​ $1.05 Canadian, then the U.S. dollar has​ _______ and the Canadian dollar has​ _______.

appreciated; depreciated

The U.S. dollar exchange rate increased from ​$0.96 Canadian in June 2011 to ​$1.03 Canadian in June 2012​, and it decreased from 81 Japanese yen in June 2011 to 78 Japanese yen in June 2012. Between June 2011 and June 2012​, the U.S. dollar​ ______ against the Canadian dollar. Between June 2011 and June 2012​, the U.S. dollar​ ______ against the Japanese yen.

appreciated; depreciated

Draw an aggregate demand curve. Label it AD. Draw an arrow on the AD curve that shows the international substitution effect when the price level falls. Label it 1. Draw an arrow on the AD curve that shows the international substitution effect when the price level rises. Label it 2. Other things remaining the​ same, when the U.S. price level​ rises, U.S.-made goods and services become _______ expensive relative to​ foreign-made goods and services. People spend _______ on​ U.S.-made items and ______ on​ foreign-made items. ________________________ decreases.

arrow 1 pointing down AD arrow 2 pointing up AD more less; more The quantity of U.S. real GDP demanded

The graph shows a​ short-run Phillips curve. Draw an arrow along the curve that shows the effect of an unexpected increase in inflation. Label it 1. Draw an arrow along the curve that shows the effect of an unexpected decrease in inflation. Label it 2.

arrow 1 points UP the curve arrow 2 points DOWN the curve

The graph gives a​ long-run aggregate supply curve and a​ short-run aggregate supply curve. Draw an arrow along one of the curves that illustrates a rise in the price level when the money wage rate remains unchanged. Label it 1. Draw an arrow along one of the curves that illustrates a rise in the price level accompanied by the same percentage rise in the money wage rate. Label it 2. An increase in the price level when the money wage rate remains unchanged increases​ ______.

arrow 1- from equilibrium pointing up SAS arrow 2- from equilibrium pointing up LAS the quantity of real GDP supplied

The graph shows the demand curve for U.S. dollars. The exchange rate is currently 100 yen per dollar. Over​ time, the exchange rate rises to 120 yen per dollar. Show the effect in the graph. Draw either a new demand curve or an arrow along the curve showing the direction of change. The law of demand for foreign exchange states that other things remaining the​ same, the​ ______ the exchange​ rate, the smaller is the​ ______ in the foreign exchange market.

arrow pointing up D higher; quantity of U.S. dollars demanded

The graph shows the supply curve of U.S. dollars. The exchange rate is currently 100 yen per dollar. Over​ time, the exchange rate rises to 120 yen per dollar. Show the effect in the graph. Draw either a new supply curve or an arrow along the curve showing the direction of change. The law of supply of foreign exchange states that other things remaining the​ same, the​ ______ the exchange​ rate, the​ ______ in the foreign exchange market. The graph _______ illustrate the law of supply of foreign exchange.

arrow pointing up S line ​higher; greater is the quantity of U.S. dollars supplied does

A business cycle can be described by the following​ sequence: ​______ equilibrium,​ ______ equilibrium,​ ______ equilibrium.

below​ full-employment; full-employment; above​ full-employment

A debtor nation is a country that during its entire history has​ _____ the rest of the world than it has​ _____ the rest of the world.

borrowed more​ from; lent to

The graph gives a​ long-run aggregate supply curve and a​ short-run aggregate supply curve. The quantity of capital increases and the​ full-employment price level remains constant. Draw the new​ long-run aggregate supply curve and the new​ short-run aggregate supply curve. Label the curves. Draw a point at the​ full-employment price level and the new potential GDP. An increase in potential GDP increases​ ______.

both equally shift right with new equilibrium at 110 and 13.5 both​ long-run aggregate supply and​ short-run aggregate supply

The graph gives the​ long-run aggregate supply curve and the​ short-run aggregate supply curve for India. Suppose Wal-Mart and Starbucks open in IndiaIndia. The​ full-employment price level does not change. If​ long-run aggregate supply​ changes, draw the new​ long-run aggregate supply curve and label it. If​ short-run aggregate supply​ changes, draw the new​ short-run aggregate supply curve and label it. Draw a point at the​ full-employment price level at potential GDP following this event. When fuel prices rise ​_______. When the price level in India increases​ _______.

both lines shift right LAS1 has a bigger shift short-run aggregate supply​ decreases; the quantity of real GDP supplied increases

The graph shows an​ economy's long-run aggregate supply curve and aggregate demand curve. Draw two curves that show the economy experiencing economic growth with inflation. Label the curves. Draw a point at the new​ long-run price level. High inflation accompanies economic growth when​ ______.

both lines shift right but AD1 is a bigger shift new equilibrium at 115 and 14 the quantity of money increases rapidly

The graph gives a​ long-run aggregate supply curve and a​ short-run aggregate supply curve. Potential GDP increases and the​ full-employment price level remains constant. Draw the new​ long-run aggregate supply curve and the new​ short-run aggregate supply curve. Label the curves. Draw a point that shows the new value of potential GDP at the​ full-employment price level. When the​ full-employment quantity of labor​ increases, or the quantity of capital​ increases, or technology advances​ ______.

both lines shift to the right long-run aggregate supply and​ short-run aggregate supply increase

A below​ full-employment equilibrium is an equilibrium in which potential GDP​ _____ real GDP.

exceeds

Tight Money​ Won't Slay​ Food, Energy Inflation ​It's important to differentiate between a general increase in priceslong dash—a situation in which aggregate demand exceeds their aggregate supplylong dash—and a relative price shock. For​ example, a specific shock to energy prices can become generalized if producers are able to pass on the higher costs. So​ far, global competition has made that difficult for​ companies, while higher input costs have largely been neutralized by rising labor productivity. Since​ 2003, core inflation has averaged less than 2 percent a year in the 30 major economies. History also suggests the​ Fed's gamble that slowing growth will shackle core inflation is a winning wager. The risk is that if U.S. consumers​ don't believe price increases will​ slow, growing inflation expectations may become​ self-fulfilling. The news clip refers to​ ______ inflation when it discusses rising production costs. ​"Rising labor​ productivity" can neutralize the effect on the inflation rate of​ "higher input​ costs" because​ ______

cost-push; it increases​ short-run aggregate supply and​ long-run aggregate supply with no slowdown in aggregate demand growth side note: ​"Slowing growth" can reduce inflationary pressure if aggregate demand growth slows.

Stagflation occurs when​ _______

costs increase

The​ ______ account records receipts from exports of goods and services sold​ abroad, payments for imports of goods and services from​ abroad, and​ ______. The​ ______ account records​ ______ U.S. investment abroad. The official settlements account records the change in U.S. official​ reserves, which are the​ government's holdings of​ ______. If U.S. official reserves decrease​, the official settlements account balance is​ ______.

current; net interest income paid abroad and net transfers capital and​ financial; foreign investment in the United States minus foreign​ currency; positive

The Fed cuts the quantity of money and all other things remain the same. In the short​ run, aggregate demand​ _______.

decreases

If the government increases its expenditure on goods and services and as a​ result, the money wage rate​ increases, the economy has experienced​ _______.

demand-pull rise in the price level

Aggregate demand decreases if expected future​ income, inflation, or profits​ ______. And aggregate demand decreases if fiscal policy​ ______ government expenditure. Aggregate demand decreases if fiscal policy​ ______ taxes or​ ______ transfer payments. Aggregate demand decreases if monetary policy​ ______ the quantity of money and​ ______ interest rates. Aggregate demand decreases if the exchange rate​ ______ or foreign income ​_____.

decrease; decreases increases; decreases decreases; increases increases; decreases

If an income tax is introduced in this​ economy, the multiplier​ _______.

decreases

The following events have occurred at times in the history of the United States. 1. A deep recession hits the world economy 2. The world oil price rises sharply 3. U.S. businesses expect future profits to fall Event 1​ ______. Event 2​ ______. Event 3​ ______.

decreases aggregate​ demand; decreases​ short-run aggregate supply decreases aggregate demand

The following events have occurred at times in the history of the United​ States: 1. A deep recession hits the world economy 2. The world oil price rises sharply. 3. U.S. businesses expect future profits to fall. Starting from a position of​ long-run equilibrium, a deep recession​ ______, and a decrease in expected future profits​ ______. Starting from a position of​ long-run equilibrium, a sharp increase in the world oil price​ ______.

decreases real GDP and lowers the price​ level; decreases real GDP and lowers the price level decreases real GDP and raises the price level

An unexpected increase in aggregate demand​ ______ rate, which is shown by​ ______ the​ short-run Phillips curve.

decreases unemployment and increases the​ inflation; a movement up along

Chinese Premier Wen Jiabao has warned Japan that its companies operating in China should raise the pay for their workers. A rise in wages in China​ _______ aggregate supply.

decreases​ China's short-run

Wages Rising Faster than Prices Paychecks in Kansas are​ growing, according to the U.S. Department of Labor. Jacqueline​ Midkiff, with the​ department's office in Kansas​ City, says the average overall increase across the board through the​ Midwest, is 1.9 percent over this time last​ year, while inflation grew at 1.4 percent for the same time period. The​ "average overall increase across the​ board" wage increase​ _______.

decreases​ short-run aggregate supply

In the long​ run, the real exchange rate is determined by​ ______ and the nominal exchange rate is determined by​ ______.

demand and supply in the markets for goods and​ services; the quantities of money in two countries

A flexible exchange rate is an exchange rate that is determined by​ ______ in the foreign exchange market with no direct intervention by the​ _____.

demand and​ supply; central bank

Official: China May Face Heavy Inflation Pressure China is expected to face great inflationary pressure in the future due to higher costs and an abundant global money​ supply, a senior Chinese official said in an article published Tuesday. He said inflation in China is also the result of excessive global liquidity from loose monetary policies adopted by developed​ nations, China's lending​ expansion, and a​ pile-up of outstanding foreign exchange funds. ​China's consumer price index​ (CPI), a main gauge of​ inflation, rose 4.9 percent year on year in​ February, the same level as in January. The CPI data for March is scheduled to be released this week and is estimated to show a rise above 5 percent. Read the news​ clip, then answer the following question. China is experiencing a​ ______ inflation caused by​ ______.

demand-pull; loose monetary​ policy, which increases aggregate demand

In new classical cycle theory​, the rational expectation of the price​ level, which is determined by potential GDP and expected aggregate​ _____, determines the​ _____ and the position of the SAS curve.

demand; money wage rate

Suppose a Canadian dollar bank deposit in Toronto earns 3 percent a year and a U.S. dollar bank deposit in Chicago earns 4 percent a year. What expectations do people hold if interest rate parity is to​ hold? For interest rate parity to​ hold, people expect that the U.S. dollar will _________ by ______ percent a year.

depreciate 1

A rise in the money wage rate​ ______.

does not change the LAS curve because along the LAS curve a rise in the money wage rate is accompanied by an equal percentage change in the price level

If the price level and the money wage rate rise by the same​ percentage, the quantity of real GDP supplied​ ______ and there is a movement up along the​ ______ aggregate supply curve.

does not​ change; long-run

The government of Shell Island announces an increase in spending of​ $50 billion a year and the central bank will increase the quantity of money to pay for the spending. Does the economy go into a​ boom? Will there be​ inflation? The economy​ _____ into a​ boom, real GDP​ _____ billion, and​ _____ arises.

does not​ go; remains at​ $600; inflation

The U.S.​ long-run Phillips curve​ ______ when the expected inflation rate rises. The U.S.​ long-run Phillips curve​ ______ when the natural unemployment rate increases.

does not​ shift; shifts rightward

The graph shows the foreign exchange market. Draw a point at the equilibrium exchange rate and the equilibrium quantity of dollars. Draw a horizontal line at a price at which there is a shortage of dollars. Label it Shortage. Draw an arrow that shows the change in the quantity demanded as the foreign exchange market moves from the price at which you have indicated the shortage toward equilibrium. Label it 1. Draw an arrow that shows the change in the quantity supplied as the foreign exchange market moves from the price at which you have indicated the shortage toward equilibrium. Label it 2.

equilibrium point where S and D cross shortage line under equilibrium arrow 1 where the demand crossed shortage to the equilibrium arrow 2 where the supply crossed shortage to the equilibrium

Iran Postpones Cutting Gasoline Subsidies Inflation is about 10 percent and the unemployment rate is about 14 percent. Earlier this month​ Iran's main audit body slammed the​ government's plan to scrap gasoline​ subsidies, warning that implementing such a reform might result in unrest. The government also intends to scrap subsidies on natural​ gas, which most Iranians use for cooking and​ heating, as well as​ electricity, but the new prices are still not known.​ However, in recent weeks some households have received electricity bills with nearly sevenfold price increases. The graph shows​ Iran's short-run Phillips curve and​ long-run Phillips curve when the natural unemployment rate is 10 percent and the expected inflation rate is 12 percent a year. Draw a point to show the current unemployment rate and inflation rate according to the news clip. Suppose Iran removes the subsidies and consumers​ don't know what the higher prices will be. Illustrate the most likely path of unemployment and inflation. Draw either an arrow along the SRPC showing the direction of​ change, or a new SRPC. Label it 1. Suppose instead that Iran removes the subsidies and announces the new prices so that consumers know what they are. Illustrate the most likely path of inflation and unemployment. Draw either an arrow along the SRPC showing the direction of​ change, or a new SRPC. Label it 2.

draw a point that is the cross section between the LRPC and SRPC draw a point at (14, 10) draw an arrow from (14, 10) up to the cross section of the LRPC and SRPC, label it 1 shift the SRPC upward and label it 2

Draw a​ short-run Phillips curve. Label it SRPC1. Draw a point at the expected inflation rate and the natural unemployment rate. Label it 1. Draw the​ short-run Phillips curve if the expected inflation rate rises by 10 percent a year. Label it SRPC2. Draw a point at the expected inflation rate and the natural unemployment rate. Label it 2

draw first SPRC1 with an intersection with the LRPC at 5 SPRC2 is shifted upward and intersects with the vertical LRLC at 15

A rational expectation is a forecast that results from the use of all the relevant data and​ _____.

economic science

A new Classical view is that business cycle fluctuations are the​ _____ responses of a​ well-functioning market economy that is bombarded by shocks that arise from the uneven pace of​ _____.

efficient; technological change

Interest rate parity means​ ______.

equal rates of return

Interest rate parity​, which means​ _____ across​ currencies, means that for risk free​ transactions, there is​ _____ gain from choosing one currency over another.

equal rates of​ return; no

Long-run macroeconomic equilibrium occurs when real GDP​ _____ potential GDP​ - equivalently, when the economy is on its​ _____ curve.

equals; LAS

Draw an aggregate demand curve in an economy with a below​ full-employment equilibrium. Label it AD. Draw a point at the below​ full-employment equilibrium. Draw a horizontal arrow at the equilibrium price level that shows the output gap. The output gap in the graph is​ ______ because​ ______.

equilibrium at 100 and 12 arrow between LAS and equilibrium intersect to the left of LAS a recessionary​ gap; potential GDP exceeds real GDP

The graph shows an​ economy's long-run aggregate supply curve. Draw an aggregate demand curve and a​ short-run aggregate supply curve such that when the economy is in​ long-run equilibrium, the price level is 110. Label the curves. Draw a point at the​ long-run macroeconomic equilibrium. In the​ long-run macroeconomic​ equilibrium, ______.

equilibrium at 110 and 13 AD downward sloping through equilibrium SAS upward sloping through equilibrium potential GDP and aggregate demand determine the price​ level, and the money wage rate adjusts so that the SAS curve intersects the LAS curve at the​ long-run equilibrium price level

Draw an aggregate demand curve in an economy with an above​ full-employment equilibrium. Label it AD. Draw a point at the above​ full-employment equilibrium. Draw a horizontal arrow at the equilibrium price level that shows the output gap. The output gap in the graph is​ ______ because​ ______.

equilibrium at 120 and 14 arrow between equilibrium and LAS an inflationary​ gap; potential GDP is less than real GDP

The government expenditure multiplier equals the change in​ _____ that results from a change in government expenditure divided by the change in government expenditure.

equilibrium expenditure and real GDP

1. In the 1950s and​ 1960s, the United States operated a​ ______. Now the United States operates a​ ______ . 2. The Fed​ "counters disorderly conditions in exchange​ markets" by doing all of the following except​ ______. 3. The graph shows the market for U.S. dollars. People expect the exchange rate to fall. Draw the new demand curve. Label it. Draw the new supply curve. Label it. Draw a point at the new equilibrium exchange rate and equilibrium quantity of U.S. dollars. In the graph you have​ drawn, the Fed can counter the actions in the market by _______ U.S. dollars and ______ foreign reserves. 4. A currency can experience​ short-run fluctuations because​ ______.

fixed exchange​ rate; flexible exchange rate selling foreign​ reserves, which raises the U.S. exchange rate when the supply of dollars dramatically decreases new lines shift downwards buying; selling the currency can fluctuate based on beliefs about the future exchange rate

According to RBC​ theory, the source of the business cycle is​ _______, which result mainly from​ _______.

fluctuations in​ productivity; fluctuations in the pace of technological change

A crawling peg exchange rate policy is one that​ _______.

follows a path determined by a decision of the government or the central bank and is achieved by central bank intervention in the foreign exchange market

U.S. official reserves are the​ government's holding of​ _____.

foreign currency

The market in which the currency of one country is exchanged for the currency of another country is the​ ______. The price at which one currency exchanges for another currency is the​ ______.

foreign exchange​ market; exchange rate

The capital and financial account is the record of​ _____ minus U.S. investment abroad.

foreign investment in the United States

The balanced budget multiplier equals the change in equilibrium expenditure and real GDP that results from equal changes in​ _____ divided by the change in government expenditure.

government expenditure and​ lump-sum taxes

Suppose that the business cycle in the United States is best described by RBC theory. An advance in technology increases productivity. The​ when-to-work decision depends on the real interest rate. The​ _____ the real interest​ rate, other things remaining the​ same, the​ _____ is the supply of labor today. RBC theorists believe the​ when-to-work effect is __________.

higher; larger large

Getting a​ Raise: Why​ It's Not Happening ​Didn't get a raise this​ year? Blame inflation. American wages​ didn't budge last​ month, according to Labor Department data released Wednesday. And with inflation remaining at near​ zero, experts say it could be quite a while before many workers see their next raise. While stagnant prices are a boon for consumers on supermarket checkout​ lines, they can be hard on​ workers' bottom lines. Wages typically track​ inflation, soaring higher when prices take off. In​ fact, some say wages tend to feed inflation. That was the case in the​ 1970s, when wage growth picked up after prices soared. But pricing pressures are weaker​ today, with the consumer price​ index, a measure of​ inflation, unchanged in July from the previous month. Starting from a​ long-run equilibrium,​ _______. ​"Wages typically track​ inflation, soaring higher when prices take​ off." In this​ situation, the economy is experiencing​ _______ inflation. An economy experiences​ _______ inflation when​ "wages tend to feed​ inflation."

if the percentage change in the money wage rate equals the percentage change in the unemployment​ rate, the economy remains at full employment. demand-pull inflation demand pull inflation

On June​ 1, 2015, the exchange rate was 101 yen per U.S. dollar. During that​ day, the Fed made a surprise announcement that it would raise the interest rate next month by 1 percentage point. At the same​ moment, the Bank of Japan announced that it would lower the interest rate next month. On June​ 2, 2015, the exchange rate was 99 yen per U.S. dollar. Explain the effect of the​ Fed's announcement on the demand for and supply of U.S. dollars. The demand for U.S. dollars would​ _____ and the supply of U.S. dollars would​ _____ on June 2.

increase; decrease

On June​ 1, 2015, the exchange rate was 101 yen per U.S. dollar. During that​ day, the Fed made a surprise announcement that it would raise the interest rate next month by 1 percentage point. At the same​ moment, the Bank of Japan announced that it would lower the interest rate next month. On June​ 2, 2015, the exchange rate was 99 yen per U.S. dollar. Explain the effect of the Bank of​ Japan's announcement on the demand for and supply of U.S. dollars. The Bank of​ Japan's announcement would​ _____ the demand for U.S. dollars and​ _____ the supply of U.S. dollars on June 2.

increase; decrease

Real Wages Fail to Match a Rise in Productivity For most of the last​ century, wages and productivitylong dash—the key measure of the​ economy's efficiencylong dash—have risen​ together, increasing rapidly through the 1950s and​ '60s and far more slowly in the 1970s and​ '80s. But in recent​ years, the productivity gains have continued while the pay increases have not kept up. In real business cycle​ theory, an increase in productivity​ ______ the demand for labor by more than it​ ______ the supply of labor. In the news​ clip, productivity gains exceed pay increases because the demand for labor​ ______ than the​ ______ in the supply of labor.

increase; increase increase by less; increase

The multiplier increases when the marginal propensity to consume _________- The multiplier increases when the marginal propensity to import​ ______ or the income tax rate​ ______.

increases decreases; decreases

Canada trades with the United States. Explain the effect of each of the following events on​ Canada's aggregate demand. The government of Canada cuts income taxes. ​Canada's aggregate demand _______. The United States experiences strong economic growth. ​Canada's aggregate demand ________. Canada sets new environmental standards that require power utilities to upgrade their production facilities. ​Canada's aggregate demand _________.

increases increases increases

Starting from a​ full-employment equilibrium, an increase in aggregate demand​ ______ real​ GDP, and creates​ ______ gap. In the long​ run, the money wage rate​ ______, short-run aggregate supply​ ______, and the economy returns to a​ full-employment equilibrium. Starting from a​ full-employment equilibrium, a decrease in​ short-run aggregate supply​ ______ the price level and​ ______ real GDP. ________ is created.

increases; an inflationary rises; decreases increases; decreases A stagflation

an increase in world demand for U.S. exports​ ______ the demand for U.S. dollars. A fall in the U.S. interest rate differential​ ______ the demand for U.S. dollars. A fall in the expected future exchange rate​ ______ the demand for U.S. dollars. An increase in the U.S. demand for imports​ _______ the demand for U.S. dollars.

increases; decreases decrease​; does not change

Gross Domestic Product for the Second Quarter of 2012 The increase in real GDP in the second quarter primarily reflected increases in personal consumption​ expenditures, exports, and investment. Government spending decreased. The increase in the personal consumption expenditures​ ______ aggregate demand. The increase in exports​ ______ aggregate demand. The increase in investment​ ______ aggregate demand. The decrease in government spending​ _______ aggregate demand.

increases; increases increases; decreases

An increase in U.S. demand for imports​ ______ the supply of U.S. dollars. A fall in the U.S. interest rate differential​ ______ the supply of U.S. dollars. A fall in the expected future exchange rate​ ______ the supply of U.S. dollars. A decrease in the world demand for U.S. exports​ ______ the supply of U.S. dollars.

increases; increases increases; does not change

In an​ expansion, an increase in the rate of technological change​ _______ investment demand. The real interest rate​ _______.

increases; rises

If the price level rises and the money wage rate remains​ constant, the quantity of real GDP supplied​ ______ and there is a movement up along the​ ______ aggregate supply curve.

increases; short-run

Deflation can be ended by​ _______.

increasing the growth rate of the quantity of money

Consumption expenditure minus​ imports, which varies with real​ GDP, is called​ _______.

induced expenditure

Real GDP increases by more than ​$5 billion because the increase in investment​ _______.

induces an increase in consumption expenditure

Draw a demand for dollars curve. Label it D. Draw a supply of dollars curve. Label it S. Draw a point at the equilibrium quantity and exchange rate. Draw an arrow between the D and S curves that indicates a price at which there is a shortage of dollars. Label it. When there is a shortage of dollars in the foreign exchange​ market, ______.

normal S and D point at equilibrium shortage arrow under equilibrium the forces of supply and demand pull the foreign exchange market into equilibrium

Draw an aggregate demand curve. Label it AD. Draw a​ short-run aggregate supply curve. Label it SAS. Draw a point at the​ short-run macroeconomic equilibrium. Label it 1. Draw a point on the SAS curve at which inventories pile up. Label it 2. When unwanted inventories pile​ up, ​_____. Prices ​_____.

normal intersecting SAS and AD 1 at intersection 2 on SAS right of the equilibrium the quantity of real GDP supplied is greater than the quantity of real GDP​ demanded; fall

Long-run macroeconomic equilibrium​ ______.

occurs when real GDP equals potential​ GDP, and the LAS​, SAS​, and AD curves intersect

Foreign currency is the money​ _____ regardless of whether that money is in the form of​ notes, coins, or bank deposits.

of other countries

The official settlements account is the record of the change in U.S.​ _____.

official reserves

The private sector balance and the government sector balance tend to move in​ ______. Net exports respond​ ______.

opposite​ directions; to the sum of the government sector and private sector balances

The U.S. dollar exchange rate fluctuates in part because a change in the U.S. interest rate differential changes the demand for U.S. dollars and the supply of U.S. dollars in​ ______ and a change in the expected future exchange rate changes the demand for U.S. dollars and the supply of U.S. dollars in​ ______.

opposite​ directions; opposite directions

Draw a demand for dollars curve. Label it D. Draw a supply of dollars curve. Label it S. Draw a point at the equilibrium quantity and equilibrium exchange rate. Draw an arrow between the D and S curves that indicates a price at which there is a surplus of dollars. Label it. When there is a surplus of dollars in the foreign exchange​ market, ______.

point at equilibrium arrow above equilibrium "surplus" the forces of supply and demand pull the foreign exchange market into equilibrium

Economic growth is the persistent increase in​ ______. Economic growth is accompanied by inflation when the​ ______.

potential​ GDP; AD curve shifts rightward at a faster rate than the LAS curve shifts rightward

According to mainstream business cycle​ theory, ______ grows at a steady rate and​ ______ grows at a fluctuating rate.

potential​ GDP; aggregate demand

The mainstream business cycle theory is that​ ______ grows at a steady rate while​ ______ grows at a fluctuating rate.

potential​ GDP; aggregate demand

An exchange rate is the​ _____ at which one currency exchanges for another in the foreign exchange market.

price

The combination of a rising​ _____ and decreasing​ _____ is called stagflation.

price level; real GDP

he newest theory of the business​ cycle, known as real business cycle theory ​(or RBC​ theory), regards random fluctuations in​ _____ as the main source of economic fluctuations.

productivity

According to RBC​ theory, the main source of economic fluctuations is a decrease in​ ______ The effect of this decrease is ________________. in investment​ demand, _______________ in the demand for loanable​ funds, and _______________ in the real interest rate _______________ in the demand for​ labor, ______________ in the supply of labor ______________ in employment _______________ in real wage rate

productivity growth decrease decrease decrease decrease decrease decrease decrease

​Recession? Maybe.​ Depression? Get Real. The unemployment rate during the Great Depression peaked at nearly 25 percent in​ 1933, after an initial spike from 3 percent in 1929 to nearly 8.7 percent in 1930. The unemployment rate is just 5​ percent, only up from 4.5 percent a year ago. Also during the Great Depression there was​ deflation, which is not happening today. Question 1) The inflation and unemployment trends during the Great Depression can be explained by a movement along the​ ______ Phillips curve that​ ______. Question 2) During​ 2008, the inflation rate increased and the unemployment rate increased. These events​ ______.

question 1). short-run; lowers the inflation rate and increases the unemployment rate question 2). cannot be explained by a movement along the SRPC because along this curve the inflation rate and unemployment rate move in opposite directions

In real business cycle​ theory, _______ are the main source of economic fluctuations.

random fluctuations in productivity

The defining feature of the Keynesian view of macroeconomics is that the economy is​ ______. Keynesian macroeconomists recommend​ ______.

rarely at full employment policies that actively offset changes in aggregate demand that bring recession

A Keynesian macroeconomist believes that left​ alone, the economy would​ _____ operate at full employment and that to achieve and maintain full​ employment, active help from fiscal policy and monetary policy is required. A modern version of the Keynesian​ view, known as the new Keynesian​ view, holds not only that the money wage rate is​ _____ but also that prices of goods and services are​ _____.

rarely; ​sticky; sticky

The gap between​ ______ is the output gap. When​ _____, the output gap is called an inflationary gap.

real GDP and potential​ GDP; real GDP exceeds potential GDP

When​ _____ there is a​ full-employment equilibrium.

real GDP equals potential GDP

The main criticisms of RBC theory include all of the following except​ ______.

real business cycle theory relies too heavily the role of money in the economy to make its predictions

Aggregate demand is the relationship between the quantity of​ _____ demanded and the​ _____ when all other influences on expenditure plans remain the same.

real​ GDP; price level

Short-run aggregate supply is the relationship between the quantity of​ _____ supplied and the​ _____ when the money wage​ rate, the prices of other​ resources, and potential GDP remain constant.

real​ GDP; price level

Short-run macroeconomic equilibrium occurs when the quantity of​ _____ demanded equals the quantity of​ _____ supplied at the point of intersection of the​ _____ curve and the​ _____ curve.

real​ GDP; real​ GDP; AD​; SAS

Draw an aggregate demand curve. Label it AD. Draw a​ short-run aggregate supply curve. Label it SAS. Draw a point at the​ short-run macroeconomic equilibrium. Label it 1. Draw a point on the SAS curve at which firms are unable to meet the demand for their output. Label it 2. When firms are unable to meet the demand for their​ output, _____. Prices​ _____.

regular AD and SAS and equilbrium (1) point 2 to the left on SAS the quantity of real GDP demanded is greater than the quantity of real GDP​ supplied; rise

As the price level​ rises, interest rates _______ and real wealth _______. People substitute goods in the _______ for goods in the ________. ​So, as the price level​ rises, there is​ ______.

rise decreases future present a decrease in the quantity of real GDP demanded

In December 2007​, the exchange rate was 0.97 Canadian dollarsCanadian dollars per U.S. dollar. By December 2008​, the exchange rate had risen to 1.061.06 Canadian dollarsCanadian dollars per U.S. dollar. As the exchange rate rises​, prices of​ U.S.-produced goods and services to foreigners​ ______ and the volume of U.S. exports​ ______.

rise; decreases

An unexpected increase in exports increases aggregate demand by​ $50 billion. What happens to the price level and real​ GDP? Has Shell Island experienced inflation or deflation and what type of output gap does it now​ have? The price level​ _____ and real GDP​ _____ billion. Shell island has experienced​ _____ .

rises to​ 130; increases to​ $625; a​ one-time change in the price level and has an inflationary gap

In June 2011​, the exchange rate was 0.69 euros per U.S. dollar. By June 2012, the exchange rate had risen to 0.79 euros per U.S. dollar. Given the information​ above, for a given expected future exchange​ rate, the expected profit from holding U.S. dollars is ______ in June 2012 than in June 2011. The quantity of U.S. dollars demanded is​ ______ in June 2012 than in June 2011. And the quantity of U.S. dollars supplied is​ ______ in June 2011 than in June 2012.

smaller smaller; smaller

In RBC​ theory, the lower the real interest​ rate, other things remaining the​ same, the​ ______ today.

smaller is the supply of labor

An economy is at potential GDP when it experiences an increase in costs. The economy experiences​ _______.

stagflation

In mainstream business cycle​ theory, the money wage rate is

sticky

​______ bring business cycle turning point ______ is triggered by a decrease in autonomous expenditure and​ ______ is triggered by an increase in autonomous expenditure.

swings in autonomous expenditure recession; expansion

Mexico trades with the United States. When the U.S. economy goes into a recession​, ​______. When Mexico decreases the quantity of​ money, Mexico's aggregate demand​ ______. When the price level in Mexico falls​, _______.

​Mexico's exports to the United States decrease​, ​Mexico's aggregate demand decreases​, and​ Mexico's AD curve shifts leftward decreases and its AD curve shifts leftward the quantity of real GDP demanded increases

Net exports is​ _____ of goods and services minus​ _____ of goods and services.

​exports; imports

Double-Talking the Dollar ​[The dollar] has lost​ 41% of its value against the​ euro, its main global​ competitor, since ... 2001. The huge trade deficits that the country has been running for the past decade seem like a pretty good indication that the dollar was overvalued in global currency markets and needed to come down. ... In the 1970s and​ '80s, the Treasury Department was constantly buying and selling foreign currencies to push the dollar this way or that. Since 1995 ...​ [the] Treasury has made only a couple of token moves and since 2000​ hasn't intervened at all. World currency markets are so huge and​ active, the thinking​ goes, that trying to manipulate the dollar is largely futile. ... Over​ time, a​ currency's value reflects an​ economy's fundamentals—how well a country allocates​ resources, how productive its workers​ are, how it contains​ inflation, etc. ... But for years on​ end, currencies can move in directions that seem to have little to do with fundamentals. They overshoot their correct​ values, in part because nobody is ever sure exactly what those correct values are. The news clip states that huge trade deficits​ "seem like a pretty good indication that the dollar was overvalued in global currency markets and needed to come​ down". This statement is​ ______ because​ ______.

​inaccurate; the current account balance is determined by the private sector balance and the government sector balance

On June​ 1, 2015, the exchange rate was 101 yen per U.S. dollar. During that​ day, the Fed made a surprise announcement that it would raise the interest rate next month by 1 percentage point. At the same​ moment, the Bank of Japan announced that it would lower the interest rate next month. On June​ 2, 2015, the exchange rate was 99 yen per U.S. dollar. 1. Explain the effect of the​ Fed's announcement on the demand for and supply of U.S. dollars. The demand for U.S. dollars would​ _____ and the supply of U.S. dollars would​ _____ on June 2. 2. Explain the effect of the Bank of​ Japan's announcement on the demand for and supply of U.S. dollars. The Bank of​ Japan's announcement would​ _____ the demand for U.S. dollars and​ _____ the supply of U.S. dollars on June 2. 3. Explain the effect of the two announcements on the U.S. dollardash-yen exchange​ rate: Would the U.S. dollar appreciate or​ depreciate? The two announcements on the U.S.​ dollar-yen exchange rate would​ _____ the U.S. dollar. 4. Could the change in the exchange rate on June 2 have resulted from the two announcements or must some other influence have changed​ too? If​ so, what might that influence have​ been? On June​ 2, the U.S. dollar depreciated rather than appreciated because a fall in U.S.​ _____ decreased the demand for U.S. dollars or an increase in U.S.​ _____ increased the supply of U.S. dollars.

​increase; decrease ​increase; decrease appreciate ​exports; imports

Wages Could Hit Steepest Plunge in 18 Years A bad economy is starting to drag down wages for millions of workers. The average weekly wage of​ private-sector workers has fallen​ 1.4% this year through September. Colorado will become the first state to lower its minimum wage since the federal minimum wage law was passed in​ 1938, when the state cuts its rate by 4 cents an hour. The fall in the average weekly wage rate​ ______ short-run aggregate supply and​ ______ long-run aggregate supply. The fall in the minimum wage​ ______ short-run aggregate supply and​ ______ long-run aggregate supply.

​increases; does not change increases; increases

The ​short-run Phillips curve is a curve that shows the relationship between the​ _____ rate and​ _____ when​ _____ and the​ _____ remain constant.

​inflation; the unemployment​ rate; the natural unemployment​ rate; expected inflation rate

The ​long-run Phillips curve is the relationship between​ _____ and​ _____ when the economy is at full employment. The​ long-run Phillips curve is a​ _____ line at the​ _____ unemployment rate.

​inflation; unemployment;​ vertical; natural

For a given increase in aggregate​ demand, the steeper the slope of the​ short-run aggregate supply​ curve, the​ ______ is the increase in the price level and the​ ______ is the multiplier effect on real GDP in the short run

​larger; smaller

Stagflation Is Back.​ Here's How to Beat It Three decades​ ago, in a bleak stretch of the​ 1970s, an economic phenomenon emerged... stagflation. ... leading many to argue that the world had reached its limits of growth and prosperity. ...​ Fortunately, there is a better way forward than we took after 1974. We need to adopt coherent national and global technology policies to address critical needs in​ energy, food,​ water, and climate change. ... There is certainly no shortage of promising​ ideas, ... Solar power ...​ high-mileage automobiles​ (like plug-in hybrids with advanced​ batteries), green​ buildings, carbon​ capture, cellulose-based​ ethanol, safe nuclear​ power, and countless other technologies on the horizon can reconcile a world of growing energy demands with increasingly scarce fossil fuels and rising threats of​ human-made climate change. As for food​ supplies, new​ drought-resistant crop varieties have the potential to bolster global food security in the face of an already changing climate. New irrigation technologies can help impoverished farmers move from one subsistence crop to several​ high-value crops year round. ... The analysis of macroeconomic performance in the news clip reflects the​ ______ business cycle theory because it discusses​ ______.

​real; factors that change potential GDP

The defining feature of the classical view of macroeconomics is that the economy is​ ______. Classical macroeconomists recommend​ ______.

​self-regulating and always at full employment policies that minimize the disincentive effects of taxes on​ employment, investment, and technological change

A movement​ ______ along the​ short-run Phillips curve occurs when there is an​ ______ increase in aggregate demand.

​up; unexpected