Econ part 4

Question 1

Not expect in a recession

Answer 1

increased investment spending

Question 2

Why does AD slope downward

Answer 2

decreases the interest rate.

Question 3

Which of the following would cause investment spending to increase and aggregate demand to shift right?

Answer 3

both an increase in the money supply and an investment tax credit

Question 4

Aggregate demand shifts left when…

Answer 4

tax inc, interest rate inc, dec in economy confidence, dec in gov spending

Question 5

LRAS to the right

Answer 5

inc in capital, inc in natural resources, and change in the natural rate of unemployment.

Question 6

Which of the following is not a determinant of the long-run level of real GDP?

Answer 6

price level

Question 7

The classical dichotomy and monetary neutrality are represented graphically by…

Answer 7

a vertical long-run aggregate-supply curve.

Question 8

Suppose the economy is in long-run equilibrium. Then a series of concerning events cause a decline in confidence in the overall economy. How is the new long-run equilibrium different from the original one?

Answer 8

the price level is lower and real GDP is the same.

Question 9

If the output is above its natural rate, then according to sticky wage theory…

Answer 9

workers and firms will strike bargains for higher wages. This increase in wages shifts the short-run aggregate supply curve left.

Question 10

AD remedies itself by…

Answer 10

rising wage level, shifting aggregate supply left.

Question 11

SRAS shifts to the left…

Answer 11

wages inc, cost of production/energy inc,

Question 12

During recessions, automatic stabilizers tend to make the government’s budget

Answer 12

move toward deficit.

Question 13

US money buys 6 foreign currencies to now 7 foreign currencies.

Answer 13

appreciates and buys more foreign goods.

Question 14

A country sells more to foreign countries than it buys from them. It has

Answer 14

a trade surplus and positive net exports.

Question 15

If a country has Y<C + I + G, then NX and NCO is…

Answer 15

negative

Question 16

An example of U.S. foreign direct investment?

Answer 16

A U.S. based restaurant chain opens new restaurants in India.

Question 17

Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners

Answer 17

more willing to purchase U.S. bonds, so U.S. net capital outflow would fall.

Question 18

US firm buys bonds from India. What is this?

Answer 18

foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow.

Question 19

Foreign country buys US bonds, NCO?

Answer 19

NCO falls

Question 20

A country has a trade deficit. Which of the following must also be true?

Answer 20

net capital outflow is negative and domestic investment is larger than saving

Question 21

Real exchange rate equation

Answer 21

=((nominal exchange rate)*(US price))/(foreign price)

Question 22

if the exchange rate changes from .8 euros per dollar to .9 euros per dollar, the dollar

Answer 22

appreciates so U.S. goods become more expensive relative to foreign goods.

Question 23

For a given nominal exchange rate, in which case is it certain that the U.S. real exchange rate with Taiwan falls?

Answer 23

the price of the basket of goods falls in the U.S. and rises in Taiwan.

Question 24

Which of the following does purchasing-power parity conclude should equal 1?

Answer 24

the real exchange rate but not the nominal exchange rate

Question 25

The ability to profit by purchasing wheat in the U.S. and selling it in China implies that the

Answer 25

real exchange rate is less than 1.

Question 26

Purchasing-power parity implies that the nominal exchange rate given as foreign currency per unit of U.S. currency must rise if the price level(s) in

Answer 26

foreign countries rise.

Question 27

When the U.S. real interest rate falls, purchasing U.S. assets becomes

Answer 27

less attractive and so U.S. net capital outflow rises.

Question 28

In the open economy macroeconomic model, the price that balances supply and demand in the market for foreign-currency exchange model is the

Answer 28

real exchange rate.

Question 29

If U.S. citizens decide to save a larger fraction of their incomes so that the supply curve shifts right in the loanable funds framework, the U.S. real interest rate

Answer 29

decreases and U.S. capital outflow increases.

Question 30

In the open-economy macroeconomic model, if a country's supply of loanable funds shift right, then .

Answer 30

net capital outflow rises, so the supply curve in the foreign exchange market shifts right.

Question 31

If the supply of dollars in the market for foreign-currency exchange shifts right, then the exchange rate

Answer 31

falls and net exports as well as the quantity of dollars exchanged rises.

Question 32

In the open-economy macroeconomic model, if a country’s supply of loanable funds shifts right, then the real interest rate ____________________ and the real exchange rate ________________.

Answer 32

decreases, decreases.

Question 33

If a country went from a government budget deficit to a surplus, national saving would

Answer 33

increase, shifting the supply of loanable funds right.

Question 34

Using the the open-economy macroeconomic model above, we can show that a higher real interest rate resulting from a leftward shift of the supply curve in the loanable funds framework will cause net capital outflow to __________________ and the real exchange rate to ____________________.

Answer 34

decrease, increase

Question 35

If a country raises its budget deficit so that supply in the loanable funds framework shifts to the left, then in the market for foreign-currency exchange

Answer 35

supply shifts left.

Question 36

In the open-economy macroeconomic model, if investment demand decreases so that the demand curve in the loanable funds framework shifts to the left, then

Answer 36

net exports rise and the real exchange rate falls.

Question 37

All else equal, we expect to see a higher interest rate bring about a _______________ exchange rate and ________________ net exports.

Answer 37

higher, lower

Question 38

The interest rate in a country goes up while the value of its currency falls. This might be due to

Answer 38

capital flight

Question 39

A U.S.-imposed quota on automobiles would shift

Answer 39

only the demand curve in the market for foreign-currency exchange right.