Macroeconomics final review chapters 7,8 and 10-12 and Chapters 13-18

if the fed conducts open market purchases the money supply

increases and aggregate demand shifts right

when the Fed REDUCES the rate of money growth, it must take into account what

not only the long rn affects on inflation but the short run effects on output and employment

which tool of monetary policy does the federal reserve use most often

open market operation s

the argument that an increase in gov expenditures will have a larger impact on aggregate demand than tax cuts is based on the idea that

people will save part of a tax cut

the equipment and structures available to produce goods and services are called

physical capital

an economys production form takes the form Y=A F(L,K,H,N) -K represents the quantity of?

physical capital only

government purchases are said to have what

a multiplier effect on aggregate demand

an tax on imported goods is

a tariff

supply side econoists focus more than other economists on

how fiscal policy affects aggregate supply

money demand refers to

how much wealth people want to hold in liquid form

printing money to finance gov expenditures will

impose a tax on everyone that holds money

the long run aggregate supply curve shows that by itself a permanent change in aggregate demand would lead to a long run change in what

in the price level but NOT output

the principle of monetary neutrality implies that the increase in money supply will

increase price level but not real GDP

Y=C+I+G+NX is an identity b/c?

the equality holds due to the way the variables are defined (always holds)

net capital outflow measures what

the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic assets bought by foreigners

Keynes believed the economies experiencing high unemployment should adopt policies to

the interest rate effect

which of the following is correct about aggregate supply and demand in short/long run

the long run but not the short run; the aggregate supply curve is consistent with the idea that nominal variables do not affect real variables

which of the following is NOT a determinant of the long run level of real GDP

the price level

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

the price level and output

in the late 70s proponents of rational expectations in which people optimally use all available information when forcasting the future, argued that?

the sacrifice ratio was smaller than previously thought

the open economy macroeconomic model examines the determination of what

the trade balance and the exchange rate

In the late 60s, Milton Freidman and Edmund Phelps argued that

the trade off between inflation and unemployment did not apply in the long run this claim is consistent with monetary neutrality in the long run

a closed economy does not do what

trade with other market economies

The old adage "dont put all your eggs in one basket" is very similar to a modern bit of advice concerning financial matters

"diversify"

which of the following has been suggested as a cause of the great depression

-decline in money supply -decrease in stock prices -collapse of banking system

which of the following helps explain the slope of the aggregate demand curve

-the exchange rate effect -the wealth affect -the interest rate affect

which of the following is part of your economics professors human capital?

-the things she learned at some prestigious university -her copy of Mankiws text -powerpoint presentations

if P denotes the price of goods and services measured in terms of money, then

1/P measures the value of money in terms of goods and services

in the production function which of the following represents technology

A

higher saving is associated with what

a larger capital stock and a higher standard of living

other things the same an increase in price level makes the dollars people hold, worth?

LESS, so they can buy LESS

which of the following is correct identity

NCO=NX

The value of money falls as the price level does what?

RISES, because the number of $ needed to buy a representative basket of goods RISES

if the economy is at the point where the short run phillips curve intersects the long run phillips curve then what?

Unemployment EQUALS the natural rate and expected inflation equals actual inflation

if the production function has the constant returns to scale property, then it could be rewritten as

Y/L=AF(1, K/L,H/L,N/L)

which of the following is an example of US foreign portfolio investment

a US citizen buys bonds issued by the British gov

which of the following is an example of US foreign direct investment

a US furniture maker opens a plant in mexico

the federal funds rate is the interest rate that

banks charge one another for loans

suppose a shift in aggregate demand creates an economic contraction. if policy makers can respond with sufficient speed and precision they can offset the initial shift by shifting what where

aggregate demand right

which of the following alone can explain the change in the price level and output during WWII

aggregate demand shift right

what shift would cause stagflation

aggregate supply shifts left

a limit on the quantity of a good produced abroad that can be purchased domestically is called

an import quota

which of the following correctly explains the crowding out effect

an increase in government expenditures increases the interest rate and so reduces investment spending

according to the aggregate demand and supply model, in the long run an increase in the money supply lead to

an increase in price level but it does NOT change the real GDP

tax cuts and what

and increases in government expenditures shift the aggregate demand right

of the following theories, which help explain an upward sloping short run and vertical long run aggregate supply curve

both the sticky wage and misperceptions theories

when the US has a trade surplus which of the following is correct

capital is flowing out of the US and S>I meaning its sending savings abroad

which of the following can the fed do to change the money supply

change the reserves or the reserve ratio

the primary difference between commodity money and fiat money is that

commodity money has intrinsic value and fiat money doesnt

economists disagree that

costs of moderate inflation and disagree about the cost of reducing inflation

If the natural rate of unemployment is 5.2 percent and the actual rate of unemployment is 5.7 percent, then by definition there is what?

cyclical unemployment amounting to .5 percent of the labor force

the classical dichotomy refers to the idea that the supply of money

determines nominal variables but not real variables

trade policies

do not affect a countrys overall trade balance, but affect some firms or industries differently than others

in an open economy national saving equals

domestic investment plus net capital outflow

opponents of the using policy to stabilize the economy generally believe that what?

economic conditions can easily change between the start of a policy action and when it takes affect

high unexpected inflation has a greater cost

for savers in high income tax brackets than for savers in low income tax brackets

unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills is called?

frictional unemployment

despite its status as one of the richest countrys in the world Japan

has few natural resources

efficiency wage theory suggests that paying does what ?

high wages might be profitable b/c they raise the efficiency of a firms workers

the real interst rate is 8 percent and the nominal interest rate is 10.5 percent-is there inflation or deflation? what is the inflation or deflation rate?

inflation at 2.5 percent

the bond market, stock market, banks, pension funds, and insurance companies are all financial what?

institutions

if the budget deficit were reduced what would happen ?

interest rates would decrease and investment would increase

Suppose a country increases trade restrictions. This country would be pursuing what?

inward policy, which economists believe has beneficial affects on the econ

the classical theory of inflation

is also known as the quantity theory of money

in the long run, inflation does what

is primarily determined by the rate of money supply growth while unemployment is primarily determined by labor market factors

The catch up affect refers to the idea that

it is easier for a country to grow fast and so catch up if it starts out relatively small

what is not an explanation for the existance of structural unemployment

job research

a depreciation of US real exchange rate induces US consumers to buy

more domestic goods and fewer foreign goods

other things the same, if the US interest rate falls the US will want to purchase

more foreign assets which increases the quantity of loanable funds demanded

which is correct about Real GDP

real GDP is the variable most commonly used to measure short run economic fluctuations. it is almost impossible to predict these fluctuations with much accuracy

a nations standard of living is best measured by

real GDP per person

the regional federal reserve banks

regulate banks in their regions

In the long run, fiscal policy primarily affects

saving, investment and growth. In the short run it affects primarily aggregate demand

a 1977 amendment to the Federal Reserve act of 1913 did what

says that Fed reserve should promote price stability and max employment but does not specifically say how the fed reserve should weight these goals

the fisher effect

says that there is a one for one nominal adjustment of the interest rate to the inflation rate

to decrease the money supply the fed can

sell gov bonds or increase the discount rate

in the mid 70s the price of oil rose dramatically; what did this do

shifts the aggregate supply left

evidence from research studies by economists

shows that increased unemployment benefits decrease the job search efforts of the unemployed

a problem that the fed faces when it attempts to control the money supply is that

since the US has a fractional reserve banking system the amount of money in the economy depends in part on the behaviors of depositors and bankers

unemployment that results because the number of jobs available in some labor markets may be insufficient to give a job to everyone who wants one is called what?

structural unemployment

in order to understand how the economy works in short run we need to what

study a model in which real and nominal variables interact

an understanding of how to produce the best ways to produce goods and services is called

technology

the supply of money increases when

the FED makes open market purchases

A W Phillips discovery of a particular relationship b/w unemployment and inflation for the United Kingdom

was quickly extended to other countrys by researchers