Macro Theory Exam 1 Study Guide

If the number of dollars per yen rises, this is called a(n):

A. appreciation of the yen

If 4 Swiss francs trade for $1, the U.S. price level equals $1 for a good, and the Swiss price level equals 2 francs for the same good, then the real exchange rate between Swiss goods and U.S. goods is _____ Swiss good(s) per U.S. good.

B. 2

If the (nominal) money supply is held constant, then an increase in the nominal interest rate will _____ the demand for (real) money and _____ the price level.

B. Decrease; Increase

Crowding out occurs when an increase in government spending _____ the interest rate and investment _____.

B. Increases; Decreases

If a country's government imposed new regulations that generally decreased the attractiveness of investing in that country (all else constant), we would expect the nominal exchange rate of that country to:

B. decrease

The investment function slopes _____ because there are _____ investment projects that are profitable as the interest rate decreases.

B. downward; more

The government raises lump-sum taxes on income by $100 billion, and the neoclassical economy adjusts so that output does not change. If the marginal propensity to consume is 0.4, private saving:

B. falls by $60 billion

In a small open economy, if the world interest rate falls, then domestic investment will _____, net exports will _____, and the real exchange rate will _____, holding all else constant.

B. increase; decrease; increase

If inflation was 3 percent last year and a worker received a 4 percent nominal wage increase last year, then the worker's real wage:

B. increased 1 percent

Which of these statements is NOT true about the steady state of the basic Solow model?

C. The marginal product of capital always is equal to the depreciation rate.

The ex post real interest rate will be less than the ex ante real interest rate when the:

C. actual rate of inflation is greater than the expected rate of inflation

In the Solow growth model, the steady-state level of output per worker would be lower if the _____ increased or the _____ decreased.

C. population growth rate; saving rate

An increase of the real exchange rate in a small open economy could be the result of:

D. an increase in government spending

When exports exceed imports, all of these are true EXCEPT:

D. domestic investment exceeds national savings

Assume that two economies are identical in every way except that one has a higher population growth rate. According to the Solow growth model, in the steady state, the country with the higher population growth rate will have a _____ level of output per person and _____ rate of growth of output per worker compared to the country with the lower population growth rate.

D. lower; the same