Refer to Figure 17-1

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "Refer to Figure 17-1"

Transcription

1 Chapter 17

2 1. Inflation can be measured by the a. change in the consumer price index. b. percentage change in the consumer price index. c. percentage change in the price of a specific commodity. d. change in the price of a specific commodity. 2. The supply of money increases when a. the value of money increases. b. the interest rate increases. c. the Fed makes open-market purchases. d. None of the above is correct. 3. Refer to Figure If the money supply is MS 2 and the value of money is 2, then there is an excess a. demand for money that is represented by the distance between points A and C. b. demand for money that is represented by the distance between points A and B. c. supply of money that is represented by the distance between points A and C. d. supply of money that is represented by the distance between points A and B. 4. Interest rates adjusted for the effects of inflation a. and inflation are nominal variables. b. and inflation are real variables. c. are real variables; inflation is a nominal variable. d. are nominal variables; inflation is a real variable. 5. Which of the following is not implied by the quantity equation? a. If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in nominal output. b. If velocity is stable and money is neutral, an increase in the money supply creates a proportional increase in the price level. c. With constant money supply and output, an increase in velocity creates an increase in the price level. d. With constant money supply and velocity, an increase in output creates a proportional increase in the price level.

3 6. Which of the following can a country increase in the long run by increasing its money growth rate? a. the nominal wage divided by the price level b. real output c. real interest rates d. None of the above is correct. 7. Menu costs refers to a. resources used by people to maintain lower money holdings when inflation is high. b. resources used to price shop during times of high inflation. c. the distortion in incentives created by inflation when taxes do not adjust for inflation. d. the cost of more frequent price changes induced by higher inflation. 8. If the nominal interest rate is 8 percent and expected inflation is 3.5 percent, then what is the real interest rate? a percent b. 7.5 percent c. 4.5 percent d. 2.5 percent 9. Suppose monetary neutrality holds and velocity is constant. A 5 percent increase in the money supply a. increases the price level by more than 5 percent. b. increases the price level by 5 percent. c. increases the price level by 5 percent. d. does not change the price level MS MD MD 2 1 5, (Figure 17-2) Refer to Figure What quantity is measured along the horizontal axis? a. the price level b. the real interest rate c. the value of money

4 d. the quantity of money 11. Refer to Figure If the relevant money-demand curve is the one labeled MD 1, then the equilibrium value of money is a. 0.5 and the equilibrium price level is 2. b. 2 and the equilibrium price level is 0.5. c. 0.5 and the equilibrium price level cannot be determined from the graph. d. 2 and the equilibrium price level cannot be determined from the graph. 12. Refer to Figure If the relevant money-demand curve is the one labeled MD 1, then a. when the money market is in equilibrium, one dollar purchases one-half of a basket of goods and services. b. when the money market is in equilibrium, one unit of goods and services sells for 2 dollars. c. there is an excess demand for money if the value of money in terms of goods and services is d. All of the above are correct. 13. Refer to Figure Which of the following events could explain a shift of the moneydemand curve from MD 1 to MD 2? a. an increase in the value of money b. a decrease in the price level c. an open-market purchase of bonds by the Federal Reserve d. None of the above is correct. 14. Refer to Figure Suppose the relevant money-demand curve is the one labeled MD 1 ; also suppose the velocity of money is 3. If the money market is in equilibrium, then the economy s real GDP amounts to a. 5,000. b. 7,500. c. 10,000. d. 15, Refer to Figure Suppose the relevant money-demand curve is the one labeled MD 1 ; also suppose the economy s real GDP is 30,000 for the year. If the money market is in equilibrium, then how many times per year is the typical dollar bill used to pay for a newly produced good or service? a. 4 b. 6 c. 8 d Refer to Figure At the end of 2009 the relevant money-demand curve was the one labeled MD 2. At the end of 2010 the relevant money-demand curve was the one labeled MD 1. Assuming the economy is always in equilibrium, what was the economy s approximate inflation rate for 2010? a. -43 percent b. -57 percent c. 57 percent

5 d. 75 percent ANSWER: B C D C D D D C B D A D D B D D

6 Chapter 18

7 1. When Claudia, a U.S. citizen, purchases a handbag made in France, the purchase is a. both a U.S. and French import. b. a U.S. export and a French import. c. a U.S. import and a French export. d. neither an export nor an import for either country. 2. If U.S. exports are $300 billion and U.S. imports total $350 billion, which of the following is correct? a. The U.S. has a trade surplus of $350 billion. b. The U.S. has a trade surplus of $50 billion. c. The U.S. has a trade deficit of $350 billion. d. The U.S. has a trade deficit of $50 billion. 3. Net capital outflow equals a. the purchase of foreign assets by domestic residents. b. the purchase of domestic assets by foreign residents. c. the purchase of domestic assets by foreign residents - the purchase of foreign assets by domestic residents d. the purchase of foreign assets by domestic residents - the purchase of domestic assets by foreign residents 4. Julie and John are American residents. Julie buys stock issued by a Japanese company. John opens a sporting goods store in Mexico. Whose purchase, by itself, increases the U.S. s net capital outflow? a. Julie s b. John s c. both Julie s and John s d. neither Julie s nor John s 5. Suppose that the real return from operating factories in Ghana rises relative to the real rate of return in the United States. Other things the same, a. this will increases U.S. net capital outflow and decrease Ghanan net capital outflow. b. this will decreases U.S. net capital outflow and increase Ghanan net capital outflow. c. this will only increase U.S. net capital outflow. d. this will only increase Ghanan net capital outflow. 6. When the Sykes Corporation (an American company) buys shares of Audi stock (a German company) for its pension fund, U.S. net capital outflow a. increases because an American company makes a portfolio investment in Germany. b. declines because an American company makes a portfolio investment in Germany. c. increases because an American company makes a direct investment in Germany. d. declines because an American company makes a direct investment in Germany. 7. If a country exports more than it imports, then it has a. positive net exports and positive net capital outflows. b. positive net exports and negative net capital outflows. c. negative net exports and positive net capital outflows. d. negative net exports and negative net capital outflows.

8 8. A country has net capital outflow of -10 billion euros and domestic investment of 20 billion euros. What is its national saving? a. 30 billion euros b. 10 billion euros c. -10 billion euros d. -30 billion euros 9. If you go to the bank and notice that a dollar buys more Mexican pesos than it used to, then the dollar has a. appreciated. Other things the same, the appreciation would make Americans less likely to travel to Mexico. b. appreciated. Other things the same, the appreciation would make Americans more likely to travel to Mexico. c. depreciated. Other things the same, the depreciation would make Americans less likely to travel to Mexico. d. depreciated. Other things the same, the depreciation would make Americans more likely to travel to Mexico. 10. The exchange rate is 1.5 Bosnian markas per U.S. dollar. The price of a refrigerator in Bosnia is 1,200 markas while in the U.S. it is $1,000. The real exchange rate is a. 9/5 b. 5/4 c. 4/5 d. None of the above are correct. 11. Consider an identical basket of goods in both the U.S. and India. For a given nominal exchange rate, in which case is it certain that the U.S. real exchange rate with India falls? a. the price of the basket of goods rises in the U.S. and India. b. the price of the basket of goods rises in the U.S. and falls in India. c. the price of the basket of goods falls in the U.S. and rises in India. d. the price of the basket of goods falls in both India and the U.S If purchasing power parity holds, a bushel of rice costs $10 in the U.S., and the nominal exchange rate is 40 Thai baht per dollar, what is the price of rice in Thailand? a. 400 baht b. 200 baht c. 100 baht d. 40 baht Table 18-2 Country Currency Currency per U.S. Dollar U.S. Price Index Bolivia boloviano Japan yen ,000 Morocco dinar ,000 Norwegian kroner ,500 Thailand baht ,000 Country Price Index

9 13. Refer to Table For which country(ies) in the table does purchasing-power parity hold? a. Bolivia and Japan b. Bolivia and Morocco c. Japan and Morocco d. Norway and Thailand 14. Refer to Table Which currency(ies) is(are) less valuable than predicted by the doctrine of purchasing-power parity? a. boloviano and dinar b. yen and kroner c. baht and kroner d. baht 15. Refer to Table Which currency(ies) is(are) more valuable than predicted by the doctrine of purchasing-power parity? a. boloviano and dinar b. yen, kroner, and baht c. yen and kroner d. baht 16. According to purchasing power parity, if it took 1,100 Korean Won to buy a dollar this year, but it took 1,000 to buy it last year, then the dollar has a. appreciated, indicating inflation was higher in the U.S. than in Korea. b. appreciated indicating inflation was lower in the U.S. than in Korea. c. depreciated indicating inflation was higher in the U.S. than in Korea. d. depreciated indicating inflation was lower in the U.S. than in Korea. 17. Suppose a McDonalds Big Mac cost $4.00 in the United States and 3.20 euros in the euro area and 5.20 Australian dollars in Australia. If exchange rates are.75 euros per dollar and 1.3 Australian dollars per dollar, where does purchasing power parity hold? a. Both the euro area and Australia. b. Neither the euro area or Australia. c. The euro area but not Australia. d. Australia but not the euro area. ANSWER: C D D C A A A D B B C A B D C B D

10 Chapter 19

11 1. Other things the same, an increase in the U.S. interest rate causes the quantity of loanable funds supplied to a. rise because net capital outflow and domestic investment rise. b. rise because national saving rises. c. fall because net capital outflow and domestic investment rise. d. fall because national saving falls. 2. In an open economy, the demand for loanable funds comes from a. only those who want to borrow funds to buy domestic capital goods. b. only those who want to borrow funds to buy foreign assets. c. those who want to borrow funds to buy either domestic capital goods or foreign assets. d. neither those who want to borrow funds to buy domestic capital goods nor those who want to borrow funds to buy foreign assets. 3. A country has I = $200 billion, S = $400 billion, and purchased $600 billion of foreign assets, how many of its assets did foreigners purchase? a. $0 b. $200 billion c. $400 billion d. $800 billion 4. At the equilibrium real interest rate in the open-economy macroeconomic model, the equilibrium quantity of loanable funds equals a. net capital outflow. b. domestic investment. c. foreign currency supplied. d. national saving. Figure percent $billions 5.Refer to Figure The loanable funds market is in equilibrium at a. 2 percent, $20 billion. b. 4 percent, $40 billion. c. 6 percent, $60 billion. d. None of the above is correct. 6. Refer to Figure In the Figure shown, if the real interest rate is 6 percent, the quantity of loanable funds demanded is

12 a. $20 billion, and the quantity supplied is $40 billion. b. $20 billion, and the quantity supplied is $60 billion. c. $60 billion, and the quantity supplied is $20 billion. d. $60 billion, and the quantity supplied is $40 billion. 7. Refer to Figure In the Figure shown, if the real interest rate is 2 percent, there will be a a. surplus of $20 billion. b. surplus of $40 billion. c. shortage of $20 billion. d. shortage of $40 billion. 8. Refer to Figure In the Figure shown, if the real interest rate is 6 percent, there will be pressure for a. the real interest rate to fall. b. the demand for loanable funds curve to shift left. c. the supply for loanable funds curve to shift right. d. All of the above are correct. 9. Which of the following is consistent with moving from a shortage to equilibrium in the market for foreign currency exchange? a. the exchange rate falls so foreign residents want to buy more U.S. goods and services b. the exchange rate falls so foreign residents want to buy fewer U.S. goods and services c. the exchange rate rises so foreign residents want to buy more U.S. goods and services d. the exchange rate rises so foreign residents want to buy fewer U.S. goods and services 10. U.S. net capital outflow a. is a source of the supply of loanable funds, and the source of the supply of dollars in the foreign exchange market. b. is a source of the supply of loanable funds, and a source of the demand for dollars in the foreign exchange market. c. is a part of the demand for loanable funds, and the source of the supply of dollars in the foreign exchange market. d. is a part of the demand for loanable funds, and a source of the demand for dollars in the foreign exchange market. 11. In the open-economy macroeconomic model, if investment demand increases, then a. net exports and the real exchange rate rise. b. net exports rise and the real exchange rate falls. c. net exports fall and the real exchange rate rises. d. net exports and the real exchange rate fall. 12. If the U.S. government increased its deficit, then a. U.S. bonds would pay higher interest but a dollar would purchase fewer foreign goods.

13 b. U.S. bonds would pay higher interest and a dollar would purchase more foreign goods. c. U.S. bonds would pay lower interest and a dollar would purchase fewer foreign goods. d. U.S. bonds would pay lower interest but a dollar would purchase more foreign goods. Figure Refer to Figure Suppose that U.S. firms desire to purchase more capital in the U.S. The effects of this could be illustrated by a. shifting the demand curve in panel a to the right and the demand curve in panel c to the left. b. shifting the demand curve in panel a to the right and the supply curve in panel c to the left. c. shifting the supply curve in panel a to the right and the demand curve in panel c to the left. d. shifting the supply curve in panel a to the right and the supply curve in panel c to the right. 14. Refer to Figure Suppose that the government goes from a budget surplus to a budget deficit. The effects of the change could be illustrated by a. shifting the demand curve in panel a to the right and the demand curve in panel c to the left. b. shifting the demand curve in panel a to the left and the supply curve in panel c to the left. c. shifting the supply curve in panel a to the right and the demand curve in panel c to the right. d. shifting the supply curve in panel a to the left and the supply curve in panel c to the left. 15. If the U.S. imposed an import quota on construction equipment, then the sales of U.S. construction equipment producers would a. rise and the exports of other U.S. industries would rise. b. rise and the exports of other U.S. industries would fall. c. fall and the exports of other U.S. industries would rise.

14 d. fall and the exports of other U.S. industries would fall. 16. If a country experiences capital flight, which of the following lists only curves that shift right? a. the demand for loanable funds and the demand for dollars in the market for foreign-currency exchange b. the demand for loanable funds and the supply of dollars in the market for foreigncurrrency exchange c. the supply of loanable funds and the demand for dollars in the market for foreigncurrency exchange d. the supply of loanable funds and the supply of dollars in the market for foreigncurrency exchange 17. If the government of Kenya implemented a policy that decreased national saving, its real exchange rate would a. depreciate and Kenyan net exports would rise. b. depreciate and Kenyan net exports would fall. c. appreciate and Kenyan net exports would rise. d. appreciate and Kenyan net exports would fall.

15 Chapter 20

16 1. During a recession the economy experiences a. rising employment and income. b. rising employment and falling income. c. rising income and falling employment. d. falling employment and income. 2. During recessions a. sales and profits fall. b. sales and profits rise. c. sales rise, profits fall. d. profits fall, sales rise. 3. According to classical macroeconomic theory, changes in the money supply affect a. variables measured in terms of money and variables measured in terms of quantities or relative prices b. variables measured in terms of money but not variables measured in terms of quantities or relative prices c. variables measured in terms of quantities or relative prices, but not variables measured in terms of money d. neither variables measured in terms of money nor variables measured in terms of quantities or relative prices 4. The model of aggregate demand and aggregate supply explains the relationship between a. the price and quantity of a particular good. b. unemployment and output. c. wages and employment. d. real GDP and the price level. 5. The effect of an increase in the price level on the aggregate-demand curve is represented by a a. shift to the right of the aggregate-demand curve. b. shift to the left of the aggregate-demand curve. c. movement to the left along a given aggregate-demand curve. d. movement to the right along a given aggregate-demand curve. 6. As the price level rises a. people will want to hold more money, so the interest rate rises. b. people will want to hold more money, so the interest rate falls. c. people will want to hold less money, so the interest rate falls. d. people will want to hold less money, so the interest rate rises. 7. When interest rates fall a. firms want to borrow more for new plants and equipment and households want to borrow more for homebuilding. b. firms want to borrow more for new plants and equipment and households want to borrow less for homebuilding. c. firms want to borrow less for new plants and equipment and households want to borrow more for homebuilding. d. firms want to borrow less for new plants and equipment and households want to

17 borrow less for homebuilding. 8. When the dollar appreciates, U.S. a. exports decrease, while imports increase. b. exports and imports decrease. c. exports and imports increase. d. exports increase, while imports decrease. 9. When the money supply increases a. interest rates fall and so aggregate demand shifts right. b. interest rates fall and so aggregate demand shifts left. c. interest rates rise and so aggregate demand shifts right. d. interest rates rise and so aggregate demand shifts left. 10. Which of the following both shift aggregate demand right? a. net exports rise for some reason other than a price change and the money supply rises. b. net exports rise for some reason other than a price change and the price level rises. c. net exports fall for some reason other than a price change and the money supply rises. d. net exports fall for some reason other than a price change and the price level rises. Political Instability Abroad Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets.

18 11. Refer to Political Instability Abroad. What would happen to the dollar? a. It would appreciate in foreign exchange markets making U.S goods more expensive compared to foreign goods. b. It would appreciate in foreign exchange markets making U.S. goods less expensive compared to foreign goods. c. It would depreciate in foreign exchange markets making U.S. goods more expensive compared to foreign goods. d. It would depreciate in foreign exchange markets making U.S. goods less expensive compared to foreign goods. 12. Refer to Political Instability Abroad. What would the change in the exchange rate make happen to U.S. net exports and U.S. aggregate demand? a. Net exports would rise which by itself would increase U.S. aggregate demand. b. Net exports would rise which by itself would decrease U.S. aggregate demand. c. Net exports would fall which by itself would increase U.S. aggregate demand. d. Net exports would fall which by itself would decrease U.S. aggregate demand. 13. Refer to Political Instability Abroad. What would the change in the interest rate created by foreigners wanting to buy more U.S. assets do to investment spending in the U.S.? a. make it rise which by itself would increase U.S. aggregate demand. b. make it rise which by itself would decrease U.S. aggregate demand. c. make it fall which by itself would increase U.S. aggregate demand. d. make it fall which by itself would decrease U.S. aggregate demand. 14. The long-run aggregate supply curve would shift right if immigration from abroad a. increased or Congress made a substantial increase in the minimum wage. b. decreased or Congress abolished the minimum wage. c. increased or Congress abolished the minimum wage. d. decreased or Congress made a substantial increase in the minimum wage. 15. Other things the same, continued increases in technology lead to a. continued increases in the price level and real GDP. b. continued increases in the price level but not continued increases in real GDP. c. continued increases in real GDP but not continued increases in the price level. d. None of the above are correct. 16. If there are sticky wages, and the price level is greater than what was expected, then a. the quantity of aggregate goods and services supplied falls, which is shown by a shift of the short-run aggregate supply curve to the left. b. the quantity of aggregate goods and services supplied falls, as shown by a movement to the left along the short-run aggregate supply curve. c. the quantity of aggregate goods and services supplied rises, as shown by a shift of the short-run aggregate supply curve to the right. d. the quantity of aggregate goods and services supplied rises, as shown by a movement to the right along the short-run aggregate supply curve. 17. Other things the same, if the price level rises by 2% and people were expecting it to rise by 5%, then some firms have

19 a. higher than desired prices which increases their sales. b. higher than desired prices which depresses their sales. c. lower than desired prices which increases their sales. d. lower than desired prices which depresses their sales. 18. If the actual price level is 165, but people had been expecting it to be 160, then a. the quantity of output supplied rises, but only in the short run. b. the quantity of output supplied rises in the short run and the long run. c. the quantity of output supplied falls, but only in the short run. d. the quantity of output supplied falls in the short run and the long run. 19. If output is above its natural rate, then according to sticky-wage theory a. workers and firms will strike bargains for lower wages. In response to the lower wages firms will produce less at any given price level. b. workers and firms will strike bargains for lower wages. In response to the lower wages firms will produce more at any given price level. c. will strike bargains for higher wages. In response to the higher wages firms will produce less at any given price level. d. workers and firms will strike bargains for higher wages. In response to the higher wages firms will produce more at any given price level. 20. Figure P LRAS AS1 AS2 P1 P2 A B AD Y1 Y2 Y 20. Refer to Figure The appearance of the long-run aggregate-supply (LRAS) curve a. is inconsistent with the concept of monetary neutrality. b. is consistent with the idea that point A represents a long-run equilibrium but not a short-run equilibrium when the relevant short-run aggregate-supply curve is AS 1. c. indicates that Y 1 is the natural rate of output. d. All of the above are correct. 21. GO OVER ALL THE FACTORS THAT COULD AFFECT AD/AS. IMPORTANT! KEYS: D A B D C

20 A A A A A A D C C C D B A C C

21 Chapter 21

22 1. Fiscal policy affects the economy a. only in the short run. b. only in the long run. c. in both the short and long run. d. in neither the short nor the long run.. 2. If expected inflation is constant, then when the nominal interest rate increases, the real interest rate a. increases by more than the change in the nominal interest rate. b. increases by the change in the nominal interest rate. c. decreases by the change in the nominal interest rate. d. decreases by more than the change in the nominal interest rate. Figure On the left-hand graph, MS represents the supply of money and MD represents the demand for money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along the axes of both graphs. MS r r 2 1 MD 2 P P 2 1 AD MD 1 Y2 Y1 3. Refer to Figure What is measured along the horizontal axis of the left-hand graph? a. nominal output b. real output c. the opportunity cost of holding money d. the quantity of money 4. Refer to Figure What does Y represent on the horizontal axis of the right-hand graph? a. the quantity of money b. the rate of inflation c. real output d. nominal output 5. Refer to Figure Which of the following quantities is held constant as we move from one point to another on either graph?

23 a. the nominal interest rate b. the quantity of money demanded c. investment d. the expected rate of inflation 6. Refer to Figure If the graphs apply to an economy such as the U.S. economy, then the slope of the AD curve is primarily attributable to the a. wealth effect. b. interest-rate effect. c. exchange-rate effect. d. Fisher effect. 7. Refer to Figure A decrease in Y from Y 1 to Y 2 is explained as follows: a. The Federal Reserve increases the money supply, causing the money-demand curve to shift from MD 1 to MD 2 ; this shift of MD causes r to increase from r 1 to r 2 ; and this increase in r causes Y to decrease from Y 1 to Y 2. b. An increase in P from P 1 to P 2 causes the money-demand curve to shift from MD 1 to MD 2 ; this shift of MD causes r to increase from r 1 to r 2 ; and this increase in r causes Y to decrease from Y 1 to Y 2. c. A decrease in P from P 2 to P 1 causes the money-demand curve to shift from MD 1 to MD 2 ; this shift of MD causes r to increase from r 1 to r 2 ; and this increase in r causes Y to decrease from Y 1 to Y 2. d. An increase in the price level causes the money-demand curve to shift from MD 2 to MD 1 ; this shift of MD causes r to decrease from r 2 to r 1 ; and this decrease in r causes Y to decrease from Y 1 to Y Refer to Figure As we move from one point to another along the moneydemand curve MD 1, a. the price level is held fixed at P 1. b. the interest rate is held fixed at r 1. c. the money supply is changing so as to keep the money market in equilibrium. d. the expected inflation rate is changing so as to keep the real interest rate constant. 9. Refer to Figure If the money-supply curve MS on the left-hand graph were to shift to the right, this would a. represent an action taken by the Federal Reserve. b. shift the AD curve to the left. c. create, until the interest rate adjusted, an excess demand for money at the interest rate that equilibrated the money market before the shift. d. All of the above are correct. 10. Refer to Figure Assume the money market is always in equilibrium. Under the assumptions of the model, a. the real interest rate is higher at Y 2 than it is at Y 1. b. the quantity of money is the same at Y 1 as it is at Y 2. c. the price level is higher at r 2 than it is at r 1. d. All of the above are correct.

24 11. Refer to Figure Assume the money market is always in equilibrium. Under the assumptions of the model, a. the quantity of goods and services demanded is higher at P 2 than it is at P 1. b. the quantity of money is higher at Y 1 than it is at Y 2. c. an increase in r from r 1 to r 2 is associated with a decrease in Y from Y 1 to Y 2. d. All of the above are correct. 12. Refer to Figure Assume the money market is always in equilibrium, and suppose r 1 = 0.08; r 2 = 0.12; Y 1 = 13,000; Y 2 = 10,000; P 1 = 1.0; and P 2 = 1.2. Which of the following statements is correct? a. When r = r 2, nominal output is higher than it is when r = r 1. b. When r = r 2, real output is higher than it is when r = r 1. c. When r = r 2, the expected rate of inflation is higher than it is when r = r 1. d. If the velocity of money is 4 when r = r 2, then the quantity of money is $3, Refer to Figure Assume the money market is always in equilibrium, and suppose r 1 = 0.08; r 2 = 0.12; Y 1 = 13,000; Y 2 = 10,000; P 1 = 1.0; and P 2 = 1.2. Which of the following statements is correct? When P = P 2, a. investment is lower than it is when P = P 1. b. nominal output is higher than it is when P = P 1. c. the expected rate of inflation is higher than it is when P = P 1. d. the velocity of money is higher than it is when P = P Open-market purchases a. increase investment and real GDP. b. decrease investment and increase real GDP. c. increase investment and decrease real GDP. d. decrease investment and real GDP. 15. When the interest rate is above the equilibrium level, a. the quantity of money that people want to hold is less than the quantity of money that the Federal Reserve has supplied. b. people respond by buying interest-bearing bonds or by depositing money in interest-bearing bank accounts. c. bond issuers and banks respond by lowering the interest rates they offer. d. All of the above are correct Consider the following sequence of events: price level demand for money equilibrium interest rate quantity of goods and services demanded Τhis sequence explains why the a. money-supply curve is vertical. b. aggregate-demand curve shifts leftward in response to a monetary injection. c. aggregate-demand curve shifts rightward in response to a monetary injection. d. aggregate-demand curve slopes downward. 17. The multiplier for changes in government spending is calculated as a. 1/MPC. b. 1/(1 - MPC).

25 c. MPC/(1 - MPC). d. (1 - MPC)/MPC. Scenario Take the following information as given for a small, imaginary economy: When income is $10,000, consumption spending is $6,500. When income is $11,000, consumption spending is $7, Refer to Scenario The marginal propensity to consume for this economy is a b c or 0.664, depending on whether income is $10,000 or $11,000. d Refer to Scenario The multiplier for this economy is a b c d Refer to Scenario For this economy, an initial increase of $500 in net exports translates into a a. $2,000 increase in aggregate demand when the crowding-out effect is taken into account. b. $2,500 increase in aggregate demand when the crowding-out effect is taken into account. c. $2,000 increase in aggregate demand in the absence of the crowding-out effect. d. $2,500 increase in aggregate demand in the absence of the crowding-out effect. 21. The change in aggregate demand that results from fiscal expansion changing the interest rate is called the a. multiplier effect. b. crowding-out effect. c. accelerator effect. d. Ricardian equivalence effect. 22. Assume the multiplier is 5 and that the crowding-out effect is $20 billion. An increase in government purchases of $10 billion will shift the aggregate-demand curve to the a. right by $150 billion. b. right by $70 billion. c. right by $30 billion. d. None of the above is correct. 23. Tax cuts a. and increases in government expenditures shift aggregate demand right. b. and increases in government expenditures shift aggregate demand left. c. shift aggregate demand right while increases in government expenditures shift aggregate demand left. d. shift aggregate demand left while increases in government expenditures shift aggregate demand right.

26 24. An increase in government spending on goods to build or repair infrastructure a. shifts the aggregate demand curve to the right. b. has a multiplier effect. c. shifts the aggregate supply curve to the right, but this effect is likely more important in the long run. d. All of the above are correct. 25. Automatic stabilizers a. increase the problems that lags cause in using fiscal policy as a stabilization tool. b. are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession. c. are changes in taxes or government spending that policy makers quickly agree to when the economy goes into recession. d. All of the above are correct. KEYS: C B D C D B B A A D C D A A D D B D D D B C A D B

27 Chapter 22. As I said, as long as you can draw the SR Philips curve and LR Philips curve, you re all set.

AGGREGATE DEMAND AND AGGREGATE SUPPLY The Influence of Monetary and Fiscal Policy on Aggregate Demand

AGGREGATE DEMAND AND AGGREGATE SUPPLY The Influence of Monetary and Fiscal Policy on Aggregate Demand AGGREGATE DEMAND AND AGGREGATE SUPPLY The Influence of Monetary and Fiscal Policy on Aggregate Demand Suppose that the economy is undergoing a recession because of a fall in aggregate demand. a. Using

More information

Econ 202 Section 4 Final Exam

Econ 202 Section 4 Final Exam Douglas, Fall 2009 December 15, 2009 A: Special Code 00004 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Section 4 Final Exam 1. Oceania buys $40

More information

Solution. Solution. Monetary Policy. macroeconomics. economics

Solution. Solution. Monetary Policy. macroeconomics. economics KrugmanMacro_SM_Ch14.qxp 10/27/05 3:25 PM Page 165 Monetary Policy 1. Go to the FOMC page of the Federal Reserve Board s website (http://www. federalreserve.gov/fomc/) to find the statement issued after

More information

Eco 201: Group Activity 6 Covers Chap 20 & 21

Eco 201: Group Activity 6 Covers Chap 20 & 21 Eco 201: Group Activity 6 Covers Chap 20 & 21 Chapter 20: 1. 3 RD Edition: p. 455, Quick Quiz Problem 4 th Edition: p. 467, Quick Quiz Problem Figure 2 When a popular presidential candidate is elected,

More information

Econ 202 Section 2 Final Exam

Econ 202 Section 2 Final Exam Douglas, Fall 2009 December 17, 2009 A: Special Code 0000 PLEDGE: I have neither given nor received unauthorized help on this exam. SIGNED: PRINT NAME: Econ 202 Section 2 Final Exam 1. The present value

More information

MONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL*

MONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL* Chapter 11 MONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL* The Demand for Topic: Influences on Holding 1) The quantity of money that people choose to hold depends on which of the following? I. The price

More information

Long run v.s. short run. Introduction. Aggregate Demand and Aggregate Supply. In this chapter, look for the answers to these questions:

Long run v.s. short run. Introduction. Aggregate Demand and Aggregate Supply. In this chapter, look for the answers to these questions: 33 Aggregate Demand and Aggregate Supply R I N C I L E S O F ECONOMICS FOURTH EDITION N. GREGOR MANKIW Long run v.s. short run Long run growth: what determines long-run output (and the related employment

More information

7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Chapter. Key Concepts

7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Chapter. Key Concepts Chapter 7 AGGREGATE SUPPLY AND AGGREGATE DEMAND* Key Concepts Aggregate Supply The aggregate production function shows that the quantity of real GDP (Y ) supplied depends on the quantity of labor (L ),

More information

Answers. Event: a tax cut 1. affects C, AD curve 2. shifts AD right 3. SR eq m at point B. P and Y higher, unemp lower 4.

Answers. Event: a tax cut 1. affects C, AD curve 2. shifts AD right 3. SR eq m at point B. P and Y higher, unemp lower 4. A C T I V E L E A R N I N G 2: Answers Event: a tax cut 1. affects C, AD curve 2. shifts AD right 3. SR eq m at point B. P and Y higher, unemp lower 4. Over time, P E rises, SRAS shifts left, until LR

More information

Finance, Saving, and Investment

Finance, Saving, and Investment 23 Finance, Saving, and Investment Learning Objectives The flows of funds through financial markets and the financial institutions Borrowing and lending decisions in financial markets Effects of government

More information

1 Multiple Choice - 50 Points

1 Multiple Choice - 50 Points Econ 201 Final Winter 2008 SOLUTIONS 1 Multiple Choice - 50 Points (In this section each question is worth 1 point) 1. Suppose a waiter deposits his cash tips into his savings account. As a result of only

More information

THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND

THE INFLUENCE OF MONETARY AND FISCAL POLICY ON AGGREGATE DEMAND IN THIS CHAPTER YOU WILL... Learn the theory of liquidity preference as a short-run theory of the interest rate Analyze how monetary policy affects interest rates and aggregate demand THE INFLUENCE OF

More information

If the nominal exchange rate goes from 100 to 120 yen per dollar, the dollar has appreciated because a dollar now buys more yen.

If the nominal exchange rate goes from 100 to 120 yen per dollar, the dollar has appreciated because a dollar now buys more yen. SOLUTIONS TO TEXT PROBLEMS: Quick Quizzes 1. Net exports are the value of a nation s exports minus the value of its imports, also called the trade balance. Net capital outflow is the purchase of foreign

More information

Chapter 11. International Economics II: International Finance

Chapter 11. International Economics II: International Finance Chapter 11 International Economics II: International Finance The other major branch of international economics is international monetary economics, also known as international finance. Issues in international

More information

What three main functions do they have? Reducing transaction costs, reducing financial risk, providing liquidity

What three main functions do they have? Reducing transaction costs, reducing financial risk, providing liquidity Unit 4 Test Review KEY Savings, Investment and the Financial System 1. What is a financial intermediary? Explain how each of the following fulfills that role: Financial Intermediary: Transforms funds into

More information

Ch. 38 Practice MC 1. In international financial transactions, what are the only two things that individuals and firms can exchange? A.

Ch. 38 Practice MC 1. In international financial transactions, what are the only two things that individuals and firms can exchange? A. Ch. 38 Practice MC 1. In international financial transactions, what are the only two things that individuals and firms can exchange? A. Currency and real assets. B. Services and manufactured goods. C.

More information

The Short-Run Macro Model. The Short-Run Macro Model. The Short-Run Macro Model

The Short-Run Macro Model. The Short-Run Macro Model. The Short-Run Macro Model The Short-Run Macro Model In the short run, spending depends on income, and income depends on spending. The Short-Run Macro Model Short-Run Macro Model A macroeconomic model that explains how changes in

More information

International Economic Relations

International Economic Relations nternational conomic Relations Prof. Murphy Chapter 12 Krugman and Obstfeld 2. quation 2 can be written as CA = (S p ) + (T G). Higher U.S. barriers to imports may have little or no impact upon private

More information

MONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL*

MONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL* Chapter 11 MONEY, INTEREST, REAL GDP, AND THE PRICE LEVEL* Key Concepts The Demand for Money Four factors influence the demand for money: The price level An increase in the price level increases the nominal

More information

Answers: 1. B 2. C 3. A 4. A 5 D 6. C 7. D 8. C 9. D 10. A * Adapted from the Study Guide

Answers: 1. B 2. C 3. A 4. A 5 D 6. C 7. D 8. C 9. D 10. A * Adapted from the Study Guide Economics 101 Quiz #1 Fall 2002 1. Assume that there are two goods, A and B. In 1996, Americans produced 20 units of A at a price of $10 and 40 units of B at a price of $50. In 2002, Americans produced

More information

University of Lethbridge Department of Economics ECON 1012 Introduction to Microeconomics Instructor: Michael G. Lanyi. Chapter 29 Fiscal Policy

University of Lethbridge Department of Economics ECON 1012 Introduction to Microeconomics Instructor: Michael G. Lanyi. Chapter 29 Fiscal Policy University of Lethbridge Department of Economics ECON 1012 Introduction to Microeconomics Instructor: Michael G. Lanyi Chapter 29 Fiscal Policy 1) If revenues exceed outlays, the government's budget balance

More information

Chapter 16 Output and the Exchange Rate in the Short Run

Chapter 16 Output and the Exchange Rate in the Short Run Chapter 16 Output and the Exchange Rate in the Short Run Prepared by Iordanis Petsas To Accompany International Economics: Theory and Policy, Sixth Edition by Paul R. Krugman and Maurice Obstfeld Chapter

More information

University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi

University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi CH 27 Expenditure Multipliers 1) Disposable income is A) aggregate income minus transfer

More information

Answers to Text Questions and Problems. Chapter 22. Answers to Review Questions

Answers to Text Questions and Problems. Chapter 22. Answers to Review Questions Answers to Text Questions and Problems Chapter 22 Answers to Review Questions 3. In general, producers of durable goods are affected most by recessions while producers of nondurables (like food) and services

More information

Lecture 2. Output, interest rates and exchange rates: the Mundell Fleming model.

Lecture 2. Output, interest rates and exchange rates: the Mundell Fleming model. Lecture 2. Output, interest rates and exchange rates: the Mundell Fleming model. Carlos Llano (P) & Nuria Gallego (TA) References: these slides have been developed based on the ones provided by Beatriz

More information

2.If actual investment is greater than planned investment, inventories increase more than planned. TRUE.

2.If actual investment is greater than planned investment, inventories increase more than planned. TRUE. Macro final exam study guide True/False questions - Solutions Case, Fair, Oster Chapter 8 Aggregate Expenditure and Equilibrium Output 1.Firms react to unplanned inventory investment by reducing output.

More information

1) Explain why each of the following statements is true. Discuss the impact of monetary and fiscal policy in each of these special cases:

1) Explain why each of the following statements is true. Discuss the impact of monetary and fiscal policy in each of these special cases: 1) Explain why each of the following statements is true. Discuss the impact of monetary and fiscal policy in each of these special cases: a) If investment does not depend on the interest rate, the IS curve

More information

chapter: Aggregate Demand and Aggregate Supply Krugman/Wells 2009 Worth Publishers 1 of 58

chapter: Aggregate Demand and Aggregate Supply Krugman/Wells 2009 Worth Publishers 1 of 58 chapter: 12 >> Aggregate Demand and Aggregate Supply Krugman/Wells 2009 Worth Publishers 1 of 58 WHAT YOU WILL LEARN IN THIS CHAPTER How the aggregate demand curve illustrates the relationship between

More information

Econ 102 The Open Economy

Econ 102 The Open Economy Winter 2007 Econ 102 The Open Economy 1. Be sure to read your copy of the Wall Street Journal every weekday, looking especially for items related to the material in this course. Find an article in this

More information

13 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Chapter. Key Concepts

13 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Chapter. Key Concepts Chapter 3 EXPENDITURE MULTIPLIERS: THE KEYNESIAN MODEL* Key Concepts Fixed Prices and Expenditure Plans In the very short run, firms do not change their prices and they sell the amount that is demanded.

More information

Chapter 12. Aggregate Expenditure and Output in the Short Run

Chapter 12. Aggregate Expenditure and Output in the Short Run Chapter 12. Aggregate Expenditure and Output in the Short Run Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 203 502 Principles of Macroeconomics Aggregate Expenditure (AE)

More information

Macroeconomics, 10e, Global Edition (Parkin) Chapter 26 The Exchange Rate and the Balance of Payments

Macroeconomics, 10e, Global Edition (Parkin) Chapter 26 The Exchange Rate and the Balance of Payments Macroeconomics, 10e, Global Edition (Parkin) Chapter 26 The Exchange Rate and the Balance of Payments 1 The Foreign Exchange Market 1) The term "foreign currency" refers to foreign I. coins II. notes III.

More information

4 Macroeconomics LESSON 6

4 Macroeconomics LESSON 6 4 Macroeconomics LESSON 6 Interest Rates and Monetary Policy in the Short Run and the Long Run Introduction and Description This lesson explores the relationship between the nominal interest rate and the

More information

Chapter 6 Economic Growth

Chapter 6 Economic Growth Chapter 6 Economic Growth 1 The Basics of Economic Growth 1) The best definition for economic growth is A) a sustained expansion of production possibilities measured as the increase in real GDP over a

More information

University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi

University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi CH 25 Exch Rate & BofP 1) Foreign currency is A) the market for foreign exchange.

More information

CHAPTER 15 EXCHANGE-RATE ADJUSTMENTS AND THE BALANCE OF PAYMENTS

CHAPTER 15 EXCHANGE-RATE ADJUSTMENTS AND THE BALANCE OF PAYMENTS CHAPTER 15 EXCHANGE-RATE ADJUSTMENTS AND THE BALANCE OF PAYMENTS MULTIPLE-CHOICE QUESTIONS 1. According to the absorption approach, the economic circumstances that best warrant a currency devaluation is

More information

Assessment Schedule 2014 Economics: Demonstrate understanding of macro-economic influences on the New Zealand economy (91403)

Assessment Schedule 2014 Economics: Demonstrate understanding of macro-economic influences on the New Zealand economy (91403) NCEA Level 3 Economics (91403) 2014 page 1 of 10 Assessment Schedule 2014 Economics: Demonstrate understanding of macro-economic influences on the New Zealand economy (91403) Assessment criteria with Merit

More information

Cosumnes River College Principles of Macroeconomics Problem Set 11 Will Not Be Collected

Cosumnes River College Principles of Macroeconomics Problem Set 11 Will Not Be Collected Name: Solutions Cosumnes River College Principles of Macroeconomics Problem Set 11 Will Not Be Collected Fall 2015 Prof. Dowell Instructions: This problem set will not be collected. You should still work

More information

Answers to Text Questions and Problems in Chapter 8

Answers to Text Questions and Problems in Chapter 8 Answers to Text Questions and Problems in Chapter 8 Answers to Review Questions 1. The key assumption is that, in the short run, firms meet demand at pre-set prices. The fact that firms produce to meet

More information

0 100 200 300 Real income (Y)

0 100 200 300 Real income (Y) Lecture 11-1 6.1 The open economy, the multiplier, and the IS curve Assume that the economy is either closed (no foreign trade) or open. Assume that the exchange rates are either fixed or flexible. Assume

More information

The level of price and inflation Real GDP: the values of goods and services measured using a constant set of prices

The level of price and inflation Real GDP: the values of goods and services measured using a constant set of prices Chapter 2: Key Macroeconomics Variables ECON2 (Spring 20) 2 & 4.3.20 (Tutorial ) National income accounting Gross domestic product (GDP): The market value of all final goods and services produced within

More information

Using an appropriately labeled money market graph, show the effects of an open market purchase of government securities by the FED on :

Using an appropriately labeled money market graph, show the effects of an open market purchase of government securities by the FED on : Using an appropriately labeled money market graph, show the effects of an open market purchase of government securities by the FED on : The money supply Interest rates Nominal Interest rates i1 i2 Sm1

More information

Agenda. Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy, Part 1. Exchange Rates. Exchange Rates.

Agenda. Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy, Part 1. Exchange Rates. Exchange Rates. Agenda, Business Cycles, and Macroeconomic Policy in the Open Economy, Part 1 How Are Determined A Supply-and-Demand Analysis 19-1 19-2 Nominal exchange rates: The nominal exchange rate indicates how much

More information

1. Various shocks on a small open economy

1. Various shocks on a small open economy Problem Set 3 Econ 122a: Fall 2013 Prof. Nordhaus and Staff Due: In class, Wednesday, September 25 Problem Set 3 Solutions Sebastian is responsible for this answer sheet. If you have any questions about

More information

Introduction to Exchange Rates and the Foreign Exchange Market

Introduction to Exchange Rates and the Foreign Exchange Market Introduction to Exchange Rates and the Foreign Exchange Market 2 1. Refer to the exchange rates given in the following table. Today One Year Ago June 25, 2010 June 25, 2009 Country Per $ Per Per Per $

More information

Übungen zur Vorlesung Einführung in die Volkswirtschaftslehre VWL 1

Übungen zur Vorlesung Einführung in die Volkswirtschaftslehre VWL 1 Übungen zur Vorlesung Einführung in die Volkswirtschaftslehre VWL 1 Übungen Kapitel 31/38 Beat Spirig Aufgabe 31.4, UK capital outflow NCO = purchases of foreign assets by domestic residents purchases

More information

The Open Economy. Nominal Exchange Rates. Chapter 10. Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy

The Open Economy. Nominal Exchange Rates. Chapter 10. Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy Chapter 10 Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy Economics 282 University of Alberta The Open Economy Two aspects of the interdependence of the world economies:

More information

3 Macroeconomics LESSON 8

3 Macroeconomics LESSON 8 3 Macroeconomics LESSON 8 Fiscal Policy Introduction and Description Fiscal policy is one of the two demand management policies available to policy makers. Government expenditures and the level and type

More information

1. Firms react to unplanned inventory investment by increasing output.

1. Firms react to unplanned inventory investment by increasing output. Macro Exam 2 Self Test -- T/F questions Dr. McGahagan Fill in your answer (T/F) in the blank in front of the question. If false, provide a brief explanation of why it is false, and state what is true.

More information

13. If Y = AK 0.5 L 0.5 and A, K, and L are all 100, the marginal product of capital is: A) 50. B) 100. C) 200. D) 1,000.

13. If Y = AK 0.5 L 0.5 and A, K, and L are all 100, the marginal product of capital is: A) 50. B) 100. C) 200. D) 1,000. Name: Date: 1. In the long run, the level of national income in an economy is determined by its: A) factors of production and production function. B) real and nominal interest rate. C) government budget

More information

Macroeconomics Series 2: Money Demand, Money Supply and Quantity Theory of Money

Macroeconomics Series 2: Money Demand, Money Supply and Quantity Theory of Money Macroeconomics Series 2: Money Demand, Money Supply and Quantity Theory of Money by Dr. Charles Kwong School of Arts and Social Sciences The Open University of Hong Kong 1 Lecture Outline 2. Determination

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Study Questions 5 (Money) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The functions of money are 1) A) medium of exchange, unit of account,

More information

FLEXIBLE EXCHANGE RATES

FLEXIBLE EXCHANGE RATES FLEXIBLE EXCHANGE RATES Along with globalization has come a high degree of interdependence. Central to this is a flexible exchange rate system, where exchange rates are determined each business day by

More information

Chapter 31 Open-Economy Macroeconomics: Basic Concepts

Chapter 31 Open-Economy Macroeconomics: Basic Concepts Chapter 31 Open-Economy Macroeconomics: Basic Concepts TRUE/FALSE 1. A country with negative net exports has a trade surplus. ANS: F DIF: 1 REF: 31-1 TOP: Net exports 2. If a country s imports exceed its

More information

This paper is not to be removed from the Examination Halls

This paper is not to be removed from the Examination Halls This paper is not to be removed from the Examination Halls UNIVERSITY OF LONDON EC2065 ZA BSc degrees and Diplomas for Graduates in Economics, Management, Finance and the Social Sciences, the Diplomas

More information

Thank You for Attention

Thank You for Attention Thank You for Attention Explain how the foreign exchange market works. Examine the forces that determine exchange rates. Consider whether it is possible to predict future rates movements. Map the business

More information

Big Concepts. Balance of Payments Accounts. Financing International Trade. Economics 202 Principles Of Macroeconomics. Lecture 12

Big Concepts. Balance of Payments Accounts. Financing International Trade. Economics 202 Principles Of Macroeconomics. Lecture 12 Economics 202 Principles Of Macroeconomics Professor Yamin Ahmad Big Concepts Balance of Payments Equilibrium The relationship between the current account, capital account and official settlements balance

More information

Practice Problems Mods 25, 28, 29

Practice Problems Mods 25, 28, 29 Practice Problems Mods 25, 28, 29 Multiple Choice Identify the choice that best completes the statement or answers the question. Scenario 25-1 First National Bank First National Bank has $80 million in

More information

MGE#12 The Balance of Payments

MGE#12 The Balance of Payments MGE#12 The Balance of Payments The Current Account, the Capital Account and the Balance of Payments Introduction to the Foreign Exchange Market Savings, Investment and the Current Account 1 From last session

More information

Economics 380: International Economics Fall 2000 Exam #2 100 Points

Economics 380: International Economics Fall 2000 Exam #2 100 Points Economics 380: International Economics Fall 2000 Exam #2 100 Points Name (ID) YOU SHOULD HAVE 7 PAGES FOR THIS EXAM. EXAM WILL END AT 1:50. MAKE SURE YOUR NAME IS ON THE FIRST AND LAST PAGE OF THE EXAM.

More information

ANSWERS are included at the end of the document. (test yourself on what you don t know first before using them!)

ANSWERS are included at the end of the document. (test yourself on what you don t know first before using them!) Final Exam Review : The review has 130 Multiple Choice questions from the 225 we did this semester. It also includes all 21 short answer questions which were used on the tests. ANSWERS are included at

More information

QUIZ 3 14.02 Principles of Macroeconomics May 19, 2005. I. True/False (30 points)

QUIZ 3 14.02 Principles of Macroeconomics May 19, 2005. I. True/False (30 points) QUIZ 3 14.02 Principles of Macroeconomics May 19, 2005 I. True/False (30 points) 1. A decrease in government spending and a real depreciation is the right policy mix to improve the trade balance without

More information

AP Macroeconomics 2003 Scoring Guidelines Form B

AP Macroeconomics 2003 Scoring Guidelines Form B AP Macroeconomics 2003 Scoring Guidelines Form B The materials included in these files are intended for use by AP teachers for course and exam preparation; permission for any other use must be sought from

More information

Keynesian Economics I. The Keynesian System (I): The Role of Aggregate Demand

Keynesian Economics I. The Keynesian System (I): The Role of Aggregate Demand Keynesian Economics I The Keynesian System (I): The Role of Aggregate Demand Labor Market Excess supply and excess demand are not equally strong forces in the labor market. The supply of workers is such

More information

Savings, Investment Spending, and the Financial System

Savings, Investment Spending, and the Financial System Savings, Investment Spending, and the Financial System 1. Given the following information about the closed economy of Brittania, what is the level of investment spending and private savings, and what is

More information

(a) Using an MPC of.5, the impact of $100 spent the government will be as follows: 1 100 100 2 50 150 3 25 175 4 12.5 187.5 5 6.25 193.

(a) Using an MPC of.5, the impact of $100 spent the government will be as follows: 1 100 100 2 50 150 3 25 175 4 12.5 187.5 5 6.25 193. S5 Solutions 24 points Chapter 2: Fiscal policy. If the marginal propensity to save is.5, how large is the multiplier? If the marginal propensity to save doubles to., what happens to the multiplier? With

More information

2.5 Monetary policy: Interest rates

2.5 Monetary policy: Interest rates 2.5 Monetary policy: Interest rates Learning Outcomes Describe the role of central banks as regulators of commercial banks and bankers to governments. Explain that central banks are usually made responsible

More information

CHAPTER 14 BALANCE-OF-PAYMENTS ADJUSTMENTS UNDER FIXED EXCHANGE RATES

CHAPTER 14 BALANCE-OF-PAYMENTS ADJUSTMENTS UNDER FIXED EXCHANGE RATES CHAPTER 14 BALANCE-OF-PAYMENTS ADJUSTMENTS UNDER FIXED EXCHANGE RATES MULTIPLE-CHOICE QUESTIONS 1. Which of the following does not represent an automatic adjustment in balance-of-payments disequilibrium?

More information

ECON 201: Introduction to Macroeconomics Final Exam December 13, 2012 NAME:

ECON 201: Introduction to Macroeconomics Final Exam December 13, 2012 NAME: ECON 201: Introduction to Macroeconomics Final Exam December 13, 2012 NAME: Circle your TA s name: Amy Thiago Samir Circle your section time: 9 a.m. 3 p.m. INSTRUCTIONS: 1) The exam lasts 2 hours. 2) The

More information

MGE #13 Capital mobility and interest rates

MGE #13 Capital mobility and interest rates MGE #13 Capital mobility and interest rates Loanable funds market and interest rates in the long-run Capital flows and monetary policy, with fixed exchange rates The Mexican crisis of 1994 1 From the last

More information

The Federal Reserve System. The Structure of the Fed. The Fed s Goals and Targets. Economics 202 Principles Of Macroeconomics

The Federal Reserve System. The Structure of the Fed. The Fed s Goals and Targets. Economics 202 Principles Of Macroeconomics Economics 202 Principles Of Macroeconomics Professor Yamin Ahmad The Federal Reserve System The Federal Reserve System, or the Fed, is the central bank of the United States. Supplemental Notes to Monetary

More information

This chapter seeks to explain the factors that underlie currency movements. These factors include market fundamentals and market expectations.

This chapter seeks to explain the factors that underlie currency movements. These factors include market fundamentals and market expectations. EXCHANGE-RATE DETERMINATION LECTURE NOTES & EXERCISES based on Carbaugh Chapter 13 CHAPTER OVERVIEW This chapter seeks to explain the factors that underlie currency movements. These factors include market

More information

Part A: Use the income identities to find what U.S. private business investment, I, was in 2004. Show your work.

Part A: Use the income identities to find what U.S. private business investment, I, was in 2004. Show your work. Exercise 1 Due: Preliminary figures (in billions of dollars) for 2004 taken from the 2005 Economic Report of the President showed that: Y = 11,728.0, C = 8,231.1, EX = 1,170.2, IM = 1,779.6, G = 2,183.8

More information

Chapter 4 Consumption, Saving, and Investment

Chapter 4 Consumption, Saving, and Investment Chapter 4 Consumption, Saving, and Investment Multiple Choice Questions 1. Desired national saving equals (a) Y C d G. (b) C d + I d + G. (c) I d + G. (d) Y I d G. 2. With no inflation and a nominal interest

More information

ECON 4423: INTERNATIONAL FINANCE

ECON 4423: INTERNATIONAL FINANCE University of Colorado at Boulder Department of Economics ECON 4423: INTERNATIONAL FINANCE Final Examination Fall 2005 Name: Answer Key Student ID: Instructions: This test is 1 1/2 hours in length. You

More information

PRACTICE- Unit 6 AP Economics

PRACTICE- Unit 6 AP Economics PRACTICE- Unit 6 AP Economics Multiple Choice Identify the choice that best completes the statement or answers the question. 1. The term liquid asset means: A. that the asset is used in a barter exchange.

More information

Aggregate Supply and Aggregate Demand

Aggregate Supply and Aggregate Demand 26 Aggregate Supply and Aggregate Demand Learning Objectives Explain what determines aggregate supply Explain what determines aggregate demand Explain what determines real GDP and the price level and how

More information

Oxford University Business Economics Programme

Oxford University Business Economics Programme The Open Economy Gavin Cameron Tuesday 10 July 2001 Oxford University Business Economics Programme the exchange rate The nominal exchange rate is simply the price of one currency in terms of another pounds

More information

Edmonds Community College Macroeconomic Principles ECON 202C - Winter 2011 Online Course Instructor: Andy Williams

Edmonds Community College Macroeconomic Principles ECON 202C - Winter 2011 Online Course Instructor: Andy Williams Edmonds Community College Macroeconomic Principles ECON 202C - Winter 2011 Online Course Instructor: Andy Williams Textbooks: Economics: Principles, Problems and Policies, 18th Edition, by McConnell, Brue,

More information

Answers to Text Questions and Problems in Chapter 11

Answers to Text Questions and Problems in Chapter 11 Answers to Text Questions and Problems in Chapter 11 Answers to Review Questions 1. The aggregate demand curve relates aggregate demand (equal to short-run equilibrium output) to inflation. As inflation

More information

Chapter 17. Preview. Introduction. Fixed Exchange Rates and Foreign Exchange Intervention

Chapter 17. Preview. Introduction. Fixed Exchange Rates and Foreign Exchange Intervention Chapter 17 Fixed Exchange Rates and Foreign Exchange Intervention Slides prepared by Thomas Bishop Copyright 2009 Pearson Addison-Wesley. All rights reserved. Preview Balance sheets of central banks Intervention

More information

real r = nominal r inflation rate (25)

real r = nominal r inflation rate (25) 3 The price of Loanable Funds Definition 19 INTEREST RATE:(r) Charge per dollar per period that borrowers pay or lenders receive. What affects the interest rate: inflation. risk. taxes. The real interest

More information

What you will learn: UNIT 3. Traditional Flow Model. Determinants of the Exchange Rate

What you will learn: UNIT 3. Traditional Flow Model. Determinants of the Exchange Rate What you will learn: UNIT 3 Determinants of the Exchange Rate (1) Theories of how inflation, economic growth and interest rates affect the exchange rate (2) How trade patterns affect the exchange rate

More information

Study Questions 8 (Keynesian Model) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Study Questions 8 (Keynesian Model) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Study Questions 8 (Keynesian Model) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) In the Keynesian model of aggregate expenditure, real GDP is

More information

Chapter 17. Fixed Exchange Rates and Foreign Exchange Intervention. Copyright 2003 Pearson Education, Inc.

Chapter 17. Fixed Exchange Rates and Foreign Exchange Intervention. Copyright 2003 Pearson Education, Inc. Chapter 17 Fixed Exchange Rates and Foreign Exchange Intervention Slide 17-1 Chapter 17 Learning Goals How a central bank must manage monetary policy so as to fix its currency's value in the foreign exchange

More information

AP Macroeconomics. Study Guide Version 1.00 Created by Charles Feng

AP Macroeconomics. Study Guide Version 1.00 Created by Charles Feng AP Macroeconomics Study Guide Version 1.00 Created by Charles Feng I. Basic Economic Concepts Economic Goals 1. Economic growth produce more and better goods and services 2. Full employment suitable jobs

More information

Lecture 10-1. The Twin Deficits

Lecture 10-1. The Twin Deficits Lecture 10-1 The Twin Deficits The IS-LM model of the previous lectures endogenised the interest rate while assuming that the portion (NX 0 ) of net exports not dependent on income was exogenously fixed.

More information

Fixed vs Flexible Exchange Rate Regimes

Fixed vs Flexible Exchange Rate Regimes Fixed vs Flexible Exchange Rate Regimes Review fixed exchange rates and costs vs benefits to devaluations. Exchange rate crises. Flexible exchange rate regimes: Exchange rate volatility. Fixed exchange

More information

The Keynesian Total Expenditures Model

The Keynesian Total Expenditures Model The Keynesian Total Expenditures Model LEARNING OBJECTIVES 1. Draw the consumption function and explain its appearance. 2. Discuss the factors that will shift the consumption function to a new position.

More information

14.02 Principles of Macroeconomics Problem Set 1 *Solution* Fall 2004

14.02 Principles of Macroeconomics Problem Set 1 *Solution* Fall 2004 4.02 Principles of Macroeconomics Problem Set *Solution* Fall 2004 Part I. True/False/Uncertain Justify your answer with a short argument.. From 960 to 2000, the US, EU, and Japan all have experienced

More information

CHAPTER 12 CHAPTER 12 FOREIGN EXCHANGE

CHAPTER 12 CHAPTER 12 FOREIGN EXCHANGE CHAPTER 12 CHAPTER 12 FOREIGN EXCHANGE CHAPTER OVERVIEW This chapter discusses the nature and operation of the foreign exchange market. The chapter begins by describing the foreign exchange market and

More information

Practice Problems on Current Account

Practice Problems on Current Account Practice Problems on Current Account 1- List de categories of credit items and debit items that appear in a country s current account. What is the current account balance? What is the relationship between

More information

GOVERNMENT ECONOMIC OBJECTIVES AND POLICIES. Textbook, Chapter 26 [pg 317-328]

GOVERNMENT ECONOMIC OBJECTIVES AND POLICIES. Textbook, Chapter 26 [pg 317-328] GOVERNMENT ECONOMIC OBJECTIVES AND POLICIES Textbook, Chapter 26 [pg 317-328] Name: Class: Learning outcomes: Identify government economic objectives. Explain the main stages of the business cycle. Explain

More information

Chapter 11. Keynesianism: The Macroeconomics of Wage and Price Rigidity. 2008 Pearson Addison-Wesley. All rights reserved

Chapter 11. Keynesianism: The Macroeconomics of Wage and Price Rigidity. 2008 Pearson Addison-Wesley. All rights reserved Chapter 11 Keynesianism: The Macroeconomics of Wage and Price Rigidity Chapter Outline Real-Wage Rigidity Price Stickiness Monetary and Fiscal Policy in the Keynesian Model The Keynesian Theory of Business

More information

Chapter 7 The Asset Market, Money, and Prices

Chapter 7 The Asset Market, Money, and Prices Chapter 7 The Asset Market, Money, and Prices Multiple Choice Questions 1. A disadvantage of the barter system is that (a) no trade occurs. (b) people must produce all their own food, clothing, and shelter.

More information

Lecture 7: Savings, Investment and Government Debt

Lecture 7: Savings, Investment and Government Debt Lecture 7: Savings, Investment and Government Debt September 18, 2014 Prof. Wyatt Brooks Problem Set 1 returned Announcements Groups for in-class presentations will be announced today SAVING, INVESTMENT,

More information

Lecture 11: Inflation: Its Causes and Costs. Rob Godby University of Wyoming

Lecture 11: Inflation: Its Causes and Costs. Rob Godby University of Wyoming Lecture 11: Inflation: Its Causes and Costs Rob Godby University of Wyoming Inflation: Definition Inflation is a sustained, continuous increase in the price level. It does not refer to a once-and-for-all

More information

Chapter 14. Money, Interest Rates, and Exchange Rates. Slides prepared by Thomas Bishop

Chapter 14. Money, Interest Rates, and Exchange Rates. Slides prepared by Thomas Bishop Chapter 14 Money, Interest Rates, and Exchange Rates Slides prepared by Thomas Bishop Preview What is money? Control of the supply of money The demand for money A model of real money balances and interest

More information

chapter: Solution Fiscal Policy

chapter: Solution Fiscal Policy Fiscal Policy chapter: 28 13 ECONOMICS MACROECONOMICS 1. The accompanying diagram shows the current macroeconomic situation for the economy of Albernia. You have been hired as an economic consultant to

More information