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Foreign-produced goods and services that are purchased domestically are called

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a. imports.

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Net exports of a country are the value of

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b. goods and services exported minus the value of goods and services imported.

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

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a. a trade surplus and positive net exports.

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Which of the following both reduce net exports?

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d. imports rise, exports fall

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Which of the following both reduce net exports?

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d. imports rise, exports fall

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Net capital outflow measures

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b. the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic assets bought by foreigners.

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Net capital outflow equals

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d. the purchase of foreign assets by domestic residents - the purchase of domestic assets by foreign residents

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Net capital outflow equals the difference between a country's

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d. purchases of foreign assets and sales of domestic assets abroad.

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If U.S. residents purchase $500 billion of foreign assets and foreigners purchase $1300 billion of U.S. assets,

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c. U.S. net capital outflow is -$800 billion; capital is flowing into the U.S.

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If domestic residents of France purchase 1.2 trillion euros of foreign assets and foreigners purchase 1.5 trillion euros of French assets, then France's net capital outflow is

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a. -.3 trillion euros, so it must have a trade deficit.

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Net exports measures the difference between a country's

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b. sale of goods and services abroad and purchase of foreign goods and services.

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The purchase of U.S. government bonds by Egyptians is an example of

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c. foreign portfolio investment by Egyptians.

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Which of the following is an example of U.S. foreign direct investment?

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

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Which of the following is an example of U.S. foreign direct investment?

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c. A U.S. beverage company opens a bottling plant in Russia.

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Which of the following is an example of U.S. foreign portfolio investment?

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b. A U.S. citizen buys bonds issued by the British government.

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Which of the following is an example of U.S. foreign portfolio investment?

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a. Joan, a U.S. citizen, buys bonds issued by a Swedish corporation.

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Which of the following equations is correct?

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c. S=I+NCO

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Which of the following equations is always correct in an open economy?

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c. I=S-NCO

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If saving is greater than domestic investment, then

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c. there is a trade surplus and Y > C + I + G.

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If a country has a trade surplus then

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a. S > I and Y > C + I + G.

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Other things the same, if the dollar depreciates relative to the Japanese yen, then

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a. the exchange rate falls. It will cost fewer yen to travel in the U.S.

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Other things the same, if the dollar appreciates relative to the Japanese yen, then

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d. the exchange rate rises. It will cost more yen to travel in the U.S.

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You are the CEO of a U.S. firm considering building a factory in Chile. If the dollar appreciates relative to the Chilean peso, then other things the same

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a. it takes fewer dollars to build the factory. By itself building the factory increases U.S. net capital outflow.

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If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $2 in the U.S. and 6 pesos in Argentina what is the real exchange rate?

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b. 4/3

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The nominal exchange rate is 30 Thai bhat for one U.S. dollar. A sub sandwich combo deal in the U.S. costs $6 dollars in the U.S. and 120 bhat in Thailand. The real exchange rate is

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c. 3/2

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If purchasing-power parity holds, then the value of the

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a. real exchange rate is equal to one.

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The law of one price states that

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b. a good must sell at the same price at all locations.

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Which of the following does purchasing-power parity imply?

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a. The purchasing power of the dollar is the same in the U.S. as in foreign countries.

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The theory of purchasing-power parity primarily explains

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c. the determination of the real exchange rate.

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According to the theory of purchasing-power parity, the nominal exchange rate between two countries must reflect the differing

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a. price levels in those countries.

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During a recession the economy experiences

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c. rising income and falling employment.

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Most economists use the aggregate demand and aggregate supply model primarily to analyze

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a. short-run fluctuations in the economy.

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Which of the following is correct?

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d. When real GDP falls, the rate of unemployment rises.

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When we say that economic fluctuations are "irregular and unpredictable," we mean that

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c. recessions do not occur at regular intervals.

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Which of the following is most commonly used to monitor short-run changes in economic activity?

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b. real GDP

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Which of the following is correct?

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c. During recessions sales and profits tend to fall.

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During recessions which type of spending falls?

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a. consumption and investment

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Which part of real GDP fluctuates most over the course of the business cycle?

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c. investment expenditures

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Recession come at

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d. irregular intervals. During recessions investment spending falls relatively more than consumption spending.

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During recessions unemployment typically rises

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c. substantially. As the recession ends, unemployment declines gradually.

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Which of the following rises during recessions?

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b. layoffs but not consumer spending

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According to classical macroeconomic theory, changes in the money supply affect

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b. nominal variables, but not real variables.

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According to the classical model, which of the following would double if the quantity of money doubled?

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c. both prices and nominal income

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The saying "Money is a veil." means that

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while nominal variables are the first thing we may observe about an economy, what's important are the real variables and the forces that determine them.

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The classical model is appropriate for analysis of the economy in the

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b. long run, since real and nominal variables are essentially determined separately in the long run.

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Most economists believe that money neutrality holds

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b. in the long run but not the short run.

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Most economists believe that in the short run

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d. real and nominal variables are highly intertwined and that money can temporarily move real GDP away from its long-run trend.

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The model of short-run economic fluctuations focuses on the price level and

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a. real GDP.

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When looking at a graph of aggregate demand, which of the following is correct?

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c. The variable on the vertical axis is nominal; the variable on the horizontal axis is real

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The aggregate demand and aggregate supply graph has

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the price level on the vertical axis. The price level can be measured by the GDP deflator.

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The model of aggregate demand and aggregate supply explains the relationship between

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d. real GDP and the price level.

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Which of the following statements concerning the aggregate demand and aggregate supply model is correct?

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b. The price level and quantity of output adjust to bring aggregate demand and supply into balance.

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The model of aggregate demand and aggregate supply

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a. is different from the model of supply and demand for a particular market, in that we cannot focus on the substitution of resources between markets to explain aggregate relationships.

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

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c. will strike bargains for higher wages. In response to the higher wages firms will produce less at any given price level.

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The price level rises in the short run if

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b. aggregate demand shifts right or aggregate supply shifts left.

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Which of the following would cause prices to fall and output to rise in the short run?

answer

a. short-run aggregate supply shifts right

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Which of the following would cause prices and real GDP to rise in the short run?

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b. an increase in the money supply

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In 1936, John Maynard Keynes published a book, , which attempted to explain

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c. short-run economic fluctuations.

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Keynes explained that recessions and depressions occur because of

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b. inadequate aggregate demand.

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Keynes believed that economies experiencing high unemployment should adopt policies to

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c. increase aggregate demand.

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The interest-rate effect

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c. is the most important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.

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The interest-rate effect

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a. depends on the idea that increases in interest rates decrease the quantity of goods and services demanded.

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The wealth effect stems from the idea that a higher price level

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b. decreases the real value of households' money holdings.

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According to the theory of liquidity preference,

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c. the demand for money is represented by a downward-sloping line on a supply-and-demand graph.

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According to classical macroeconomic theory,

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d. All of the above are correct. ((a. output is determined by the supplies of capital and labor and the available production technology. b. for any given level of output, the interest rate adjusts to balance the supply of, and demand for, loanable funds. c. given output and the interest rate, the price level adjusts to balance the supply of, and demand for, money.)

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According to the liquidity preference theory, an increase in the overall price level of 10 percent

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a. increases the equilibrium interest rate, which in turn decreases the quantity of goods and services demanded.

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Using the liquidity-preference model, when the Federal Reserve increases the money supply,

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a. the equilibrium interest rate decreases.

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In recent years, the Federal Reserve has conducted policy by setting a target for the

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c. federal funds rate.

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Monetary policy

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c. can be described either in terms of the money supply or in terms of the interest rate.

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Liquidity preference refers directly to Keynes' theory concerning

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a. the effects of changes in money demand and supply on interest rates.

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If expected inflation is constant, then when the nominal interest rate increases, the real interest rate

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b. increases by the change in the nominal interest rate.

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An increase in the U.S. interest rate

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a. raises the opportunity cost of holding dollars.

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In the long run, fiscal policy influences

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b. saving, investment, and growth; in the short run, fiscal policy primarily influences the aggregate demand for goods and services.

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Fiscal policy refers to the idea that aggregate demand is affected by changes in

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b. government spending and taxes

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The marginal propensity to consume (MPC) is defined as the fraction of

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a. extra income that a household consumes rather than saves.

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If the MPC = 0.85, then the government purchases multiplier is about

answer

c. 6.67.

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Government purchases are said to have a

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b. multiplier effect on aggregate demand.

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The change in aggregate demand that results from fiscal expansion changing the interest rate is called the

answer

b. crowding-out effect.

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Which of the following correctly explains the crowding-out effect?

answer

b. An increase in government expenditures increases the interest rate and so reduces investment spending.

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A decrease in government spending

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c. decreases the interest rate and so investment spending increases.

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Most economists believe that fiscal policy

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b. primarily affects aggregate demand.

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Supply-side economists believe that a reduction in the tax rate

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b. shifts the aggregate supply curve to the right.

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In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

answer

d. the interest rate rises and aggregate supply is relatively steep

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In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditures on aggregate demand smaller?

answer

b. the MPC is small and changes in the interest rate have a large effect on investment

question

Keynes argued that aggregate demand is

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c. unstable, because waves of pessimism and optimism create fluctuations in aggregate demand.

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Keynes argued that

answer

a. irrational waves of pessimism cause decreases in aggregate demand and increases in unemployment.

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Keynes used the term "animal spirits" to refer to

answer

b. arbitrary changes in attitudes of household and firms.

question

Monetary policy

answer

b. can be implemented quickly, but most of its impact on aggregate demand occurs months after policy is implemented.

question

If businesses and consumers become pessimistic, the Federal Reserve can attempt to re- duce the impact on the price level and real GDP by

answer

b. increasing the money supply, which lowers interest rates.

question

Which of the following policies would be advocated by proponents of stabilization policy when the economy is experiencing severe unemployment?

answer

b. a reduction in tax rates

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A policy that results in slow and steady growth of the money supply is an example of

answer

b. a "passive" monetary policy.

question

Critics of stabilization policy argue that

answer

d. All of the above are correct. (a. there is a lag between the time policy is passed and the time policy has an impact on the economy. b. the impact of policy may last longer than the problem it was designed to offset. c. policy can be a source of, instead of a cure for, economic fluctuations.)

question

Critics of stabilization policy argue that

answer

b. policy affects aggregate demand with a lag, and the effects on aggregate demand are long-lived.

question

Automatic stabilizers

answer

b. are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession.

question

The most important automatic stabilizer is

answer

b. the tax system.

question

The primary argument against active monetary and fiscal policy is that

answer

b. these policies affect the economy with a long lag.

question

In the short run,

answer

b. output responds to changes in the aggregate demand for goods and services.

question

In the long run, the level of output

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c. is determined by supply-side factors.

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In the long run, changes in the money supply affect

answer

a. prices.

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When Congress reduces spending in order to balance the government's budget, it needs to consider

answer

a. both the short-run effects on aggregate demand and aggregate supply, and the long-run effects on saving and growth.

Macroeconomics help 1 Chapter 34 – Flashcards

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