ECO 181: Exam 3
50 Cards in this Set
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According to the long-run Phillips curve, in the long run monetary policy influences
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the inflation rate but not the employment rate
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Which part of real GDP fluctuates most over the course of the business cycle
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investment expenditures
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Fiscal policy refers to the idea that aggregate demand is affected by changes in
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government spending and taxes
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If there is a surplus in the US loanable funds market, then the interest rate
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falls, which increases the quality of loanable funds demanded
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Net capital outflow equals
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the purchase of foreign assets by domestic residents minus the purchase of domestic assets by foreign residents
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The classical theory of inflation
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is also known as the quantity theory of money, was developed by some of the earliest economic thinkers, and is used by most modern economists to explain the long-run determinants (all of the above are correct)
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Most economists believe that a tradeoff between inflation and unemployment exists
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only in the short-run
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Foreign-produced goods and services that are purchased domestically are called
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imports
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If expected inflation rate increases, the real interest rate
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increases by the change in nominal interest rate
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The short-run relationship between inflation and unemployment is often called
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The Phillips curve
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An event that directly affects firms' costs of production and thus the prices they charge is called
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a supply shock
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When Microsoft establishes a distribution center in France, US net capital outflow
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increases, because Microsoft makes a portfolio investment in France
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When the money market is drawn with the value of money on vertical axis, as the price level decreases, the quantity of money
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demanded decreases
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The supply of money increases when
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the Fed makes open-market purchases
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Banks advertise
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the nominal interest rate, which is how fast the dollar value of savings grows
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Which of the following is correct?
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S= I +NCO
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Which of the following is not a determinant of the long-run level of real GDP?
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the price level
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An increase in the money supply would move the economy from C to
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B in the short run, and A in the long run
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In the open-economy macroeconomics model, a higher US real exchange rate makes
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US goods more expensive relative to foreign goods and reduces the quantity of dollars demanded
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If the real exchange rate is .6, then there is a
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shortage of 100, so the real exchange rate will rise
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The sacrifice ratio is the
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number of percentage point unemployment rises for each percentage point reduction in inflation
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During recession, automatic stabilizers tend to make government budget
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move toward deficit
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The fisher effect
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says there is a one for one adjustment of the nominal interest rate to the inflation rate
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Walker puts money in a savings account at his bank earning 3.5 percent. One year later he takes his money out and notes that while his money was earning interest, prices rose 1.5%. Walker earned a nominal interest of:
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3.5% and real interest rate of 2%
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In an open economy, the demand for loanable funds comes from
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those who want to borrow funds to buy either domestic capital goods or foreign assets.
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Net exports measures the difference between a country's
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sale of goods and services abroad and purchase of foreign goods and services
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The aggregate demand and aggregate supply model implies monetary neutrality
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only in the long run
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When price level falls, the number of dollars needed to buy a representative basket of goods
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decreases, so the value of money rises
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Which of the following events could explain a shift of the money-demand curve from MD1 to MD2?
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An increase in price level
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If the demand for dollars in the market for foreign currency exchange shifts left, then the exchange rate
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falls and the quantity of dollars exchanged does not change
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A country purchases $3 billion of foreign produced goods and services and sells $2billion of domestically produced goods and services to foreign countries. It has
exports of
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$2billion and a trade deficit of $1billion
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Other things the same, when the government spends more, the initial effects is that
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aggregate demand shifts right
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The primary argument against active monetary fiscal policy is that
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these policies affect the money with a long lag
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Which of the following shifts aggregate demand right?
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increases in the profitability of capital due to perhaps technological advances
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The natural rate of unemployment
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is the unemployment rate that the economy tends to move to in the long run
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According to liquidity preference theory, equilibrium in the money market is achieved by adjustments in
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the interest rate
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Which of the following is included in the aggregate demand for goods and services?
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consumption demand, investment demand, and net exports (all of the above)
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The government buys new weapons systems. The manufacturers of weapons pay their employees. The employees spend this money of goods and services. The firms from which the employees buy the goods and services pay their employees.
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This sequence of events illustrates
the multiplier effect
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Other things the same, an increase in the US interest rate causes the quantity of loanable funds supplied to
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rise because national savings rise
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A country has domestic investment of $100billion. Its citizens purchase $500 of foreign assets and foreign citizens purchase $300 of its assets. What is national saving?
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S = I + NCO ->
S=100+(500-300) -> S=$300billion
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In the open-economy macroeconomic model, the market for loanable funds equates national saving with
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the sum of domestic investment and net capital outflow
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If the real interest rate is 6 percent, the quantity of loanable funds demanded is
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$20 billion, and quantity supplied is $60 billion
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The multiplier effect is exemplified by the multiplied impact on
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aggregate demand of a given increase in government purchases
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The wealth effect, interest-rate effect, and exchange rate effect are all explanations for
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the slope of the aggregate-demand curve
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The multiplier for changes in government spending is
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1/(1-MPC)
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Which would cause the price level to fall and output to rise in the short run?
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a favorable supply shock
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An open economy's GDP is always given by
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Y=C+I+G+NX
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If Y and V are constant and M doubles, the quantity equation implies that price level
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doubles (MV=PY)
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Tax cuts
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and increases in government expenditures shift aggregate demand right
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All saving in the US economy shows up as
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either investment in the US economy or US net capital outflow
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ECO 181: Exam 3