REAL ECON EXAM3
arbitrary changes in attitudes of household and firms
Keynes used the term "animal spirits" to refer to
affect nominal but not real variables. This view that money is ultimately neutral is consistent with classical theory.
Most economists believe that in the long run, changes in the money supply
the value of foreign assets purchased by domestic residents - the value of domestic assets purchased by foreigners
Net capital outflow equals
aggregate demand shifts right
Optimism Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and increased confidence in policy makers, people become more optimistic about the future and stay Which curve shifts and in which direction?
both net exports and investment.
Other things the same, as the price level decreases it induces greater spending on
rises, and interest rates fall.
Other things the same, as the price level falls, the real value of a dollar
and U.S. net capital outflow both decrease
Other things the same, if the U.S. real exchange rate appreciates, U.S. net exports
the short run, but not the long run.
Real and nominal variables are highly intertwined, and changes in the money supply change real GDP. Most economists would agree that this statement accurately describes
Germany and Saudi Arabia
Refer to Table 1. In real terms, U.S. goods are less expensive than goods in which country(ies)?
sell bonds to raise interest rates
Suppose that businesses and consumers become much more optimistic about the future of the economy. To stabilize output, the Federal Reserve could
the price level will rise, and real GDP might rise, fall, or stay the same.
Suppose that the economy is at long-run equilibrium. If there is a sharp rise in the stock market combined with a significant increase in the minimum wage, then in the short run
quantity of output on the horizontal axis. Output is best measured by real GDP.
The aggregate demand and aggregate supply graph has the
a decrease in net exports
The aggregate-demand curve could shift from AD1 to AD2 as a result of
- Unemployment rises as the economy moves from point a to point b. - Either fiscal or monetary policy could be used to move the economy from point b to point a. - If the economy is left alone, then as the economy moves from point b to long-run equilibrium, the price level will fall farther. All of the above are correct.
Which of the following is correct?
the minimum wage
Which of the following is not an automatic stabilizer?
A recession is a period of declining real incomes and declining unemployment.
Which of the following is not correct?
government purchases ↑ ⇒ GDP ↑ ⇒ demand for money ↑ ⇒ equilibrium interest rate ↑ ⇒ quantity of goods and services demanded ↓
Which of the following sequences best represents the crowding-out effect?
The price level and quantity of output adjust to bring aggregate demand and supply into balance.
Which of the following statements concerning the aggregate demand and aggregate supply model is correct?
Output is determined by the amount of capital, labor, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; the price level adjusts to balance the supply and demand for money
Which of the following statements is correct for the long run?
increases, so the quantity of money demanded decreases
When the interest rate increases, the opportunity cost of holding money
exports fall, imports rise
Which of the following both reduce net exports?
The purchasing power of the dollar is the same in the U.S. as in foreign countries
Which of the following does purchasing-power parity imply?
S = I + NCO
Which of the following equations is correct?
government spending and taxes
Fiscal policy refers to the idea that aggregate demand is affected by changes in
the price level is higher and real GDP is the same.
How is the new long-run equilibrium different from the original one?
e = P*/P
If P = domestic prices, P* = foreign prices, and e is the nominal exchange rate, which of the following is implied by purchasing-power parity?
negative and its saving is smaller than its domestic investment
If a country has negative net exports, then its net capital outflows are
-$100 billion and the U.S. has a trade deficit.
If domestic residents of other countries purchase $600 billion of U.S. assets and U.S residents purchase $500 billion of foreign assets, then U.S. net capital outflow is
decreases and aggregate demand shifts left
If the Fed conducts open-market sales, the money supply
decrease and U.S. imports increase
If the U.S. real exchange rate appreciates, U.S. exports
people will sell more bonds, which drives interest rates up
If the current interest rate is 2 percent,
an increase in the money supply
If the economy is at point b, a policy to restore full employment would be
C to D.
If the economy is in long-run equilibrium, then an adverse shift in aggregate supply would move the economy from
.70 French MP3 players per U.S. MP3 player
If the exchange rate is .70 euro per dollar, the price of an MP3 player in Paris is 150 euros and the price of an MP3 player in the U.S. is $150, then what is the real exchange rate?
e(P/P*)
If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as
250 yen per pound
If the real exchange rate between the U.S. and Japan is 1, the nominal exchange rate is 100 yen per U.S. dollar and the price of chicken in the U.S. is $2.50 per pound, what is the price of chicken in Japan?
aggregate demand decreases, which the Fed could offset by increasing the money supply
If the stock market crashes, then
$812. For this economy, an initial increase of $100 in consumer spending translates into a $250 increase in aggregate demand.
In a certain economy, when income is $1000, consumer spending is $800. The value of the multiplier for this economy is 2.5. It follows that, when income is $1020, consumer spending is
short-run aggregate supply left.
In the long run, the change in price expectations created by optimism shifts
both the price level and real GDP rise.
In the short run what happens to the price level and real GDP?
A to B.
In the short run, a favorable shift in aggregate supply would move the economy from
small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP.
Investment is a
net exports fall, which decreases the aggregate quantity of goods and services demanded.
When the dollar appreciates, U.S.
the price level in the other country divided by the price level in the U.Sm
According to purchasing-power parity what should the nominal exchange rate between the U.S. and another country be equal to?
government purchases decrease and shifts left if stock prices fall.
Aggregate demand shifts left if
money demand falls, so the interest rate falls
As real GDP falls,
people will want to hold more money, so the interest rate rises
As the price level rises
more willing to purchase U.S. bonds, so U.S. net capital outflow would fall
Assume that real interest rates in the U.S. rise relative to real interest rates in other countries. Holding all other variables constant, this increase would make foreigners
$80 billion
During some year a country had exports of $50 billion, imports of $70 billion, and domestic investment of $100 billion. What was its saving during the year?
2.78
The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. The multiplier for this economy is
0.64
The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. 1. The marginal propensity to consume for this economy is
nominal exchange rates will not vary
The law of one price states that
1/(1 - MPC)
The multiplier for changes in government spending is calculated as
the ratio of a foreign country's interest rate to the domestic interest rate
The nominal exchange rate is the
increase government expenditures or increase the money supply
The price of imported oil rises. If the government wanted to stabilize output, which of the following could it do?
- U.S. prices minus foreign prices. - U.S. prices divided by foreign prices. - foreign prices divided by U.S. prices. None of the above is correct.
The real exchange rate is the nominal exchange rate, defined as foreign currency per dollar, times
production is more profitable and employment rises.
The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected,
the slope of the aggregate-demand curve.
The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for
increase the money supply by buying bonds
To reduce the effects of crowding out caused by an increase in government expenditures, the Federal Reserve could
- the U.S. trade deficit with Mexico rises. - the U.S. trade deficit with Mexico falls. - the U.S. trade deficit with Mexico is unchanged. None of the above necessarily happens.
When the Mexican peso gets "stronger" relative to the dollar,
