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1

If the economy moves into a recession, the Fed would recommend that the federal funds target rate decrease as long as the inflation rate did not rise above the publicly announced goal for inflation

inflation targetting

2

In October 2008, Congress passed the _______________, under which the Treasury provided funds to banks in exchange for stock

Troubled Asset Relief Program (TARP)

3

Where does the short-run Phillips curve intersect the long-run Phillips curve?

The point where actual inflation is equal to expected inflation

Also, the natural rate of unemployment

4

Flat tax?

The distribution of income would be more unequal under the tax

5

In the Phillips curve, an increase in inflation will decrease unemployment if the inflation is _____________ by both workers and firms.

unexpected

*will decrease unemployment because worker's wage is less

6

If actual inflation is less than expected inflation, what will happen to real wages?

real wages will rise

7

If one U.S. dollar could be exchanged for one Canadian dollar in 1970, and one U.S. dollar can now be exchanged for 1.13 Canadian dollars, what happened?

The Canadian dollar lost value against the U.S. dollar

8

 If firms and workers have rational expectations, including knowledge of the policy being used by the Fed, then _____________

expansionary monetary policy is ineffective

9

Purchasing power parity is the theory that, in the long-run, exchange rates should be at a level such that equivalent amounts of any country's currency __________________

allow one to buy the same amount of goods and services

10

Economists who believe the supply-side effects of tax cuts are small essentially believe that ____________________

tax cunts mainly affect aggregate demand

11

An increase in interest rates shifts Aggregate Demand _______________

left

12

An increase in the demand for American-made goods in foreign countries will ________________________

increase the demand for dollars on the foreign exchange market

13

If workers and firms know that the Federal Reserve is following an expansionary monetary policy, workers and firms will expect inflation to ___________ and will adjust wages so that the real wage ______________

increase; remains unchanged

14

Using the Taylor rule, if the current inflation rate equals the target inflation rate and real GDP equals potential GDP, then the federal funds target rate equals the _______________

real equilibrium federal funds rate

15

If the economy is producing at potential GDP, _____________________________

unemployment is at its natural rate

16

Describe supply-side economics

Tax rates, particularly marginal tax rates, affect the incentive to work, save, and invest and, therefore, aggregate supply

*Taxes are bad for investments and businesses

17

Monetary policy could be procyclical if the Federal Reserve ____________________________

is late recognizing that a recession has begun and conducts expansionary monetary policy

18

Expansionary monetary policy =>

lower interest rates => decrease demand for U.S. dollars => dollar depreciates

19

An expansionary monetary policy in the United States should ___________________________

decrease the foreign currency price of U.S. exports

20

If the exchange rate between the U.S. dollar and the Indian rupee (rupees per dollar) is greater than the relative purchasing power between two countries, what could happen?

There are opportunities for profit by purchasing goods in India and then selling them in the United States

21

An increase in the interest rate should _________ the demand for dollars and the value of the dollar, and net exports should _______________

increase; decrease

22

increase in interest rates =>

increase demand for dollars => increase value of dollar

23

Under the monetary growth rule proposed by the monetarists, the money supply would grow each year at a constant rate equal to the long-run rate of growth of ______________

real GDP

24

From an initial long-run macroeconomic equilibrium, if the Fed anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply, then the Fed would most likely ______________

decrease interest rates

25

Decrease interest rates =>

increase aggregate demand

26

Since 2008, the European Central bank has reacted more ___________ to the recession than has the federal reserve, with the European interbank offer rate of interest remaining ______________ than the federal funds rate

slowly; higher

27

Depreciation of dollar represents a shift of demand in what way?

Assume: euros per dollars

Shift downward (left)

28

If workers and firms raise their inflation expectations, then ______________________

the short-run Phillips curve will shift upward

29

Why weren't mortgages considered securities prior to 1970?

Prior to 1970, mortgages were rarely resold in the secondary market

30

Empirical evidence shows workers and firms have rational expectations =>

always on vertical LRPC

31

The crowding out of private spending by government spending will be greater the _______________________

more sensitive consumption, investment, and net exports are to changes in interest rates

32

If the dollar appreciates, how will aggregate demand in the United States be affected?

aggregate demand will shift to the left as imports increase

33

"Real business cycle" theorist

"wages adjust rapidly to changes in inflation as long as expectations are formed rationally"

Look for real reasons why events happen

Technology shocks affect aggregate supply

34

Contractionary monetary policy on the part of the Fed results in _____________________________________

a decrease in the monetary supply, an increase in interest rates, and a decrease in GDP

35

What is a "structural" relationship?

A relationship that depends on the basic behavior of consumers and firms and remains unchaged over long periods

 

36

The major criticism of real business cycle models is:

negative technology shocks are uncommon and can't explain all business cycle fluctuations

oil shock = negative techn. shock

37

Speculation in currency markets =>

important in determining exchange rate fluctuations in the short run but NOT the long run

38

Wages and salries typically make up __________ percent of total compensation costs of a typical U.S. firm

70

39

Inflation low =>

interest rate high

40

Monetary policy has a ______________ effect on aggregate demand in a __________ economy

stronger, open

41

Fiscal policy has a ____________ effect on aggregate demand in an open economy

weaker

42

The gold standard is an example of ______________

a fixed eschange rate system

43

The index of leading economic indicators is a composite of __________ economic indicators

10

44

What can the Fed do to reduce the natural rate of unemployment?

nothing

45

If the long-run aggregate supply curve is vertical, =>

the trade-off between unemployment and inflation cannot be permanent

46

Balance of Trade

Ex - Im

47

Why did the gold standard get abandoned?

The government wanted to rapidly expand the money supply in response to the Great Depression

48

Increase in Money supply =>

decrase interest rates

49

Above 0 in the Empire State Manufacturing Survey Index:

expanding

50

The core inflation rate in theU.S. is currently close to the Federal Reserve's explicit target of ___________

2%

51

Balance of payments includes which three accounts?

The current account

The financial account

The capital account

52

The recovery has boosted U.S exports of:

Capital goods

industrial supplies

Investment-based activities

53

consumer confidene fell because of all except:

falling debt burdens

54

How does an increase in the budget deficit affect the demand for dollars and the supply of dollars on the foreign exchange market?

Demand for dollars rises

Supply of dollars falls

55

How might a budget deficit affect the balance of trade?

A budget deficit raises interest rates, which raises exchange rates, and reduces the balance of trade

56

Budget deficit increases:

Government borrows

interest rate goes up => exchange rate goes up

$ demand goes up

$ supply goes down

57

The United States is called a debtor nation because

it hsa large current account deficit and is simultaneously funded by foreign investment

58

If interest rates in the US rise, then ______________

the value of the dollar will rise as the foreign investors increase their holdings of U.S. investments

59

Federal government debt held by the public is no more than __________

10 trillion

60

A higher inflation rate can lead to lower unemployment if _________________________

neither workers nor employers mistakenly expect the inflation rate to be lower than it turns out to be

61

China has been accused of undervaluing its currency in order to _________

increase its exports

62

An increase in capital inflows will ________________

increase the equilibrium exchange rate

63

If the U.S. imports more than the U.S. exports, then _____________

the U.S. will have a current account deficit

64

If the Thai baht is pegged above the equilbrium exchange rate as expressed in dollars per baht =>

the currency is overvalued

65

If the value of goods exported is smaller than the value of goods imported, then _______________________

the U.S. trade balance will be negative

66

The federal funds rate is:

the interest rate a bank charges each other for overnight loans

67

taylor rule predicted changes in federal funds target during =>

alan greenspan

68

A country that imports a significant proportion of its consumer goods can avoid inflation by adopting a fixed exchange rate because it can avoid the price increases of ______________ that occur when the value of the domestic currency ____________

imports; falls

69

U.S. exports are currently back to pre-recession levels. What was a major factor contributing to this result?

Depreciating dollar

70

The dolla will appreciate relative to the yen if:

speculators think the value of the dollar relative to the yen will rise

71

If europe experiences a recession, we expect the dollar to _____________ and U.S. net exports to ___________

depreciate

rise

72

Rising prices erode the value of money as a __________ and a ____________

medium of exchange

store of value

73

how the bond market "prices in" higher expected inflation

widening gap between moninal and TIPS interest rates

74

Federal budgtet deficit leads to:

Increase in interest rates

appreciation of the dollar

decline in net exports

75

An incrase in the money supply will _______________

decrease the interest rate

76

Contractionary monetary policy will ___________ the interest rate

raise

77

If the Fed raises the interest rate, this will ____________ inflation and ____________ real GDP in the short run

reduce; lower

78

When inflation is very low, workers and firms _________

ignore inflation

79

MS increases =>

interest rates decrease => C, I, NX increase

80

Falling interest rates can _______________________

increase a firm's stock price, which causes firm to issue more stock shares, and thus increases funds for investment

81

Congress and the president do not play a role in ______________________

conducting monetary policy

82

decrease interest rates =>

increase firm's stock price

83

Suppose the euro depcreciates against the dollar. Assuming all other factors remain constant, the real exchange rate of euros to U.S. dollars will _________

increase

84

Higher interest rates cause U.S. dollar to ___________

appreciate

85

How does an improvement in the Fed's credibility affect our model of the Phillip's curve?

The short-run Phillips curve shifts more rapidly

86

The body that is responsible for dating the beginning and ending dates for a recession is

the National Bureau of Economic Research

87

Money demand will increase if the price level ______________ or if real GDP _______________

increases; increases

88

If equilibrium GDP falls below potential

this will result in a budget deficit

89

If inflation is higher in the U.s. than inflation in JAPAn

the dollar will depreciate against the yen

90

An excess supply of the dollar in exchange for yen will cause

the dollar to decline in value relative to the yen

91

If interest rates rise, investment in stocks becomes

relatively less attractive

92

If the Fed lowers its target for the federal fund rate, this indicates that:

the fed is pursuing an expansionary monetary policy

93