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GUIDE STUDY 2 EC 2200-6 TR 3.30pm [Covering chapters 31, 32, 33, and 34] Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 1. International trade a. raises the standard of living in all trading countries. b. lowers the standard of living in all trading countries. c. leaves the standard of living unchanged. d. raises the standard of living for importing countries and lowers it for exporting countries. ____ 2. Oceania buys $40 of wine from Escudia and Escudia buys $100 of wool from Oceania. Supposing this is the only trade that these countries do. What are the net exports of Oceania and Escudia in that order? a. $140 and $140 b. $100 and $40 c. $60 and -$60 d. None of the above is correct. Table 31-1 Goods Purchased Abroad Sold Abroad Argentinean Trade Flows Services $40 billion Purchased Abroad $10 billion Sold Abroad $20 billion $25 billion ____ 3. Refer to Table 31-1. What are Argentinas net exports? a. $30 billion b. $5 billion c. -$5 billion d. -$25 billion ____ 4. A firm in China sells toys to a U.S. department store chain. Other things the same, these sales a. increase U.S. net exports and decrease Chinese net exports. b. decrease U.S. net exports and increase Chinese net exports. c. increase U.S. and Chinese net exports. d. decrease U.S. and Chinese net exports. ____ 5. A Swiss company sells chocolates to a retailer in the United States. These sales by themselves a. decrease U.S. net export and Swiss net exports. b. decrease U.S. net exports and increase Swiss net exports. c. increase U.S. and Swiss net exports. d. increase U.S. net exports and decrease Swiss net exports. ____ 6. A firm in India hires a U.S. firm to provide economic forecasts. By itself this transaction a. increases U.S. exports and so increases the U.S. trade balance. b. increases U.S. exports and so decreases the U.S. trade balance. c. increases U.S. imports and so increases the U.S. trade balance. d. increases U.S. imports and so decreases the U.S. trade balance. ____ 7. If U.S. consumers increase their demand for apples from New Zealand, then other things the same New Zealands 1 a. b. c. d. imports and net exports rise. imports rise and net exports fall. exports and net exports rise. exports rise and net exports fall. ____ 8. Which of the following is correct? a. U.S. exports as a percentage of GDP have more than doubled since 1950. The U.S. currently has a trade surplus. b. U.S. exports as a percentage of GDP have more than doubled since 1950. The U.S. currently has a trade deficit. c. U.S. exports as a percentage of GDP have increased, but have not nearly doubled since 1950. The U.S. currently has a trade surplus. d. U.S. exports as a percentage of GDP have increased, but have not nearly doubled since 1950. The U.S. currently has a trade deficit. ____ 9. Which of the following is correct? Over about the last fifty years a. U.S. exports and U.S. imports each about doubled. b. U.S. exports and U.S. imports each about tripled. c. U.S. exports about doubled and U.S. imports about tripled. d. U.S. exports about tripled and U.S. imports about doubled. ____ 10. Which of the following is an example of U.S. foreign direct investment? a. A U.S. based mutual fund buys stock in Eastern European companies. b. A U.S. citizen builds and operates a coffee shop in the Netherlands. c. A Swiss bank buys a U.S. government bond. d. A German tractor factory opens a plant in Waterloo, Iowa. ____ 11. 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. ____ 12. A U.S. firm buys bonds issued by a technology center in India. This purchase is an example of U.S. a. foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow. b. foreign portfolio investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow. c. foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and increases U.S. net capital outflow. d. foreign direct investment. By itself it is an increase in U.S. holdings of foreign bonds and decreases U.S. net capital outflow. ____ 13. An Italian company builds and operates a pasta factory in the United States. This is an example of Italian a. foreign direct investment that increases Italian net capital outflow. b. foreign direct investment that decreases Italian net capital outflow. c. foreign portfolio investment that increases Italian net capital outflow. d. foreign portfolio investment that decreases Italian net capital outflow. ____ 14. Bob, a Greek citizen, opens a restaurant in Chicago. His expenditures a. increase U.S. net capital outflow and have no affect on Greek net capital outflow. b. increase U.S. net capital outflow and increase Greek net capital outflow. 2 c. increase U.S. net capital outflow, but decrease Greek net capital outflow. d. decrease U.S. net capital outflow, but increase Greek net capital outflow. ____ 15. When making investment decisions, investors a. compare the real interest rates offered on different bonds. b. compare the nominal, but not the real, interest rates offered on different bonds. c. purchase the highest-priced bond available. d. All of the above are correct. ____ 16. 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. ____ 17. A U.S. firm opens a factory that produces camping equipment in Estonia a. This increases U.S. net capital outflow and decreases Estonian net capital outflow. b. This decreases U.S. net capital outflow and increases Estonian net capital outflow. c. This increases only U.S. net capital outflow. d. This increases only Estonian net capital outflow. ____ 18. Which of the following is always correct? a. Y - I = NCO b. NCO = NX c. NX = I d. All of the above are correct. ____ 19. When Ghana sells chocolate to the United States, U.S. net exports a. increase, and U.S. net capital outflow increases. b. increase, and U.S. net capital outflow decreases. c. decrease, and U.S. net capital outflow increases. d. decrease, and U.S. net capital outflow decreases. ____ 20. A citizen of Saudi Arabia uses previously obtained U.S. dollars to purchase apples from the United States. This transaction a. increases Saudi net capital outflow, and increases U.S. net exports. b. increases Saudi net capital outflow, and decreases U.S. net exports. c. decreases Saudi net capital outflow, and increases U.S. net exports. d. decreases Saudi net capital outflow, and decreases U.S. net exports. ____ 21. A U.S. based company sells semiconductors to an Italian firm. The U.S. company uses all of the revenues from this sale to purchase automobiles from Italian firms. These transactions a. increase both U.S. net exports and U.S. net capital outflow. b. decrease both U.S. net exports and U.S. net capital outflow. c. increase U.S. net exports and do not affect U.S. net capital outflow. d. None of the above is correct. ____ 22. Suppose that purchases of Irish assets by foreigners exceed Irish purchase of foreign assets. Ireland has a. positive net capital outflow and a trade surplus. b. positive net capital outflow and a trade deficit. c. negative net capital outflow and a trade surplus. d. negative net capital outflow and a trade deficit. 3 ____ 23. Other things the same, if a country saves less, then a. net capital outflow rises, so net exports rise. b. net capital outflow rises, so net exports fall. c. net capital outflow falls, so net exports rise. d. net capital outflow falls, so net exports fall. ____ 24. Other things the same, if a countrys domestic investment decreases, then a. net capital outflow rises, so net exports rise. b. net capital outflow rises, so net exports fall. c. net capital outflow falls, so net exports rise. d. net capital outflow falls, so net exports fall. ____ 25. From 1980-1987, U.S. net capital outflow as a percent of GDP became a a. larger positive number. b. smaller positive number. c. larger negative number. d. smaller negative number. ____ 26. From 1980 to 1987 a. foreigners were buying more capital assets from the United States than Americans were buying abroad. The United States was going into debt. b. Americans were buying more capital assets abroad than foreigners were buying from the United States. The United States was going into debt. c. foreigners were buying more capital assets from the United States than Americans were buying abroad. The United States was moving into surplus. d. Americans were buying more capital assets abroad than foreigners were buying from the United States. The United States was moving into surplus. ____ 27. Most of the change from 1991 to 2000 in U.S. net capital outflow as a percent of GDP was due to a(n) a. decrease in U.S. investment. b. decrease in U.S. national saving. c. increase in U.S. investment. d. increase in U.S. national saving. ____ 28. From 2000-2006 net capital outflow as a percent of GDP became a a. larger positive number. b. smaller positive number. c. larger negative number. d. smaller negative number ____ 29. Most of the change from 2000 to 2006 in U.S. net capital outflow as a percent of GDP was due to a(n) a. decrease in U.S. investment. b. decrease in U.S. national saving. c. increase in U.S. investment. d. increase in U.S. national saving. ____ 30. If citizens of a country are not saving much, it is better to a. force citizens to save. b. reduce investment. c. have foreigners invest in the domestic economy than no one at all. d. to prevent opportunities for citizens to buy capital assets abroad. 4 ____ 31. 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 a. it takes fewer dollars to build the factory. By itself building the factory increases U.S. net capital outflow. b. it takes fewer dollars to build the factory. By itself building the factory decreases U.S. net capital outflow. c. it takes more dollars to build the factory. By itself building the factory increases U.S. net capital outflow. d. it takes more dollars to build the factory. By itself building the factory decreases U.S. net capital outflow. ____ 32. If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as a. e(P*/P). b. e(P/P*). c. e + P/P. d. e - P/P*. ____ 33. Other things the same, the real exchange rate between American and British goods would be higher if a. prices of British goods were higher, or the number of pounds a dollar purchased was higher. b. prices of British goods were higher, or the number of pounds a dollar purchased was lower. c. prices of British goods were lower, or the number of pounds a dollar purchased was higher. d. prices of British goods were lower, or the number of pounds a dollar purchased was lower. ____ 34. Exchange rates are 120 yen per dollar, 0.8 euro per dollar, and 10 pesos per dollar. A bottle of beer in New York costs 6 dollars, 1,200 yen in Tokyo, 7.2 euro in Munich, and 50 pesos in Cancun. Where is the most expensive and the cheapest beer in that order? a. Cancun, New York b. New York, Tokyo c. Tokyo, Cancun d. Munich, New York ____ 35. If a bushel of wheat costs $6.40 in the United States and costs 40 pesos in Mexico and the nominal exchange rate is 10 pesos per dollar, then the real exchange rate is a. 1.60 b. 1.25 c. .625 d. None of the above is correct. ____ 36. The nominal exchange rate is 2 Thai bhat for one U.S. dollar. A sub sandwich combo deal in the U.S. costs $6 dollars in the U.S. and 8 bhat in Thailand. The real exchange rate is a. 3/8 b. 2/3 c. 3/2 d. 8/3 ____ 37. Suppose the real exchange rate is 1/2 gallon of Canadian gasoline per gallon of U.S. gasoline, a gallon of U.S. gasoline costs $5.00 U.S., and a gallon of Canadian gas costs 8 Canadian dollars. What is the nominal exchange rate? 5 a. b. c. d. .80 Canadian dollars per U.S. dollar 1.25 Canadian dollars per U.S. dollar 1.60 Canadian dollars per U.S. dollar None of the above is correct. ____ 38. If it took as many dollars to buy goods in the United States as it did to buy enough currency to buy the same goods in India, the real exchange rate would be computed as how many Indian goods per U.S. goods? a. one b. the number of dollars needed to buy U.S. goods divided by the number of rupees needed to buy Indian goods c. the number of rupees needed to buy Indian goods divided by the number of dollars needed to buy U.S. goods d. None of the above is correct. ____ 39. An appreciation of the U.S. real exchange rate induces U.S. consumers to buy a. fewer domestic goods and fewer foreign goods. b. more domestic goods and fewer foreign goods. c. fewer domestic goods and more foreign goods. d. more domestic goods and more foreign goods. ____ 40. Suppose that the nominal exchange rate is 120 yen per dollar, that the price of a basket of goods in the U.S. is $500 and the price of a basket of goods in Japan is 50,000 yen. Suppose that these values change to 100 yen per dollar, $600, and 70,000 yen. Then the real exchange rate would a. appreciate which by itself would make U.S. net exports fall. b. appreciate which by itself would make U.S. net exports rise. c. depreciate which by itself would make U.S. net exports fall. d. depreciate which by itself would make U.S. net exports rise. ____ 41. Nominal exchange rates a. vary little over time. b. vary substantially over time. c. appreciate over time for most countries. d. depreciate over time for most countries. ____ 42. If purchasing-power parity holds, a dollar will buy a. more goods in foreign countries than in the United States. b. as many goods in foreign countries as it does in the United States. c. fewer goods in foreign countries than it does in the United States. d. None of the above is implied by purchasing-power parity. ____ 43. According to purchasing-power parity, which of the following necessarily equals the ratio of the foreign price level divided by the domestic price level? a. the real exchange rate, but not the nominal exchange rate b. the nominal exchange rate, but not the real exchange rate c. the real exchange rate and the nominal exchange rate d. neither the real exchange rate nor the nominal exchange rate ____ 44. According to purchasing power parity, if two countries have the same price level because they have the same prices for all goods and services, then which of the following would equal 1? a. the real exchange rate, but not the nominal exchange rate b. the nominal exchange rate, but not the real exchange rate c. the real exchange rate and the nominal exchange rate d. neither the real exchange rate nor the nominal exchange rate 6 ____ 45. The nominal exchange rate is about 2 Aruban florin per dollar. If a basket of goods in the United States costs $40, how many florins must a basket of goods in Aruba cost for purchasing power parity to hold? a. 20 florin b. 40 florin c. 60 florin d. 80 florin ____ 46. If the dollar buys less cotton in Egypt than in the United States, then traders could make a profit by a. buying cotton in the United States and selling it in Egypt, which would tend to raise the price of cotton in the United States. b. buying cotton in the United States and selling it in Egypt, which would tend to raise the price of cotton in Egypt. c. buying cotton in Egypt and selling it in the United States, which would tend to raise the price of cotton in Egypt. d. buying cotton in Egypt and selling it in the United States, which would tend to raise the price of cotton in the United States. ____ 47. If the exchange rate is 50 Bangladesh taka per dollar and a bushel of rice costs 180 taka in Bangladesh and $3 in the United States, then the real exchange rate is a. greater than one and arbitrageurs could profit by buying rice in the United States and selling it in Bangladesh. b. greater than one and arbitrageurs could profit by buying rice in Bangladesh and selling it in the United States. c. less than one and arbitrageurs could profit by buying rice in the United States and selling it in Bangladesh. d. less than one and arbitrageurs could profit by buying rice in Bangladesh and selling it in the United States. ____ 48. According to purchasing power parity, if it took 1,000 Korean Won to buy a dollar this year, but it took 1,100 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. ____ 49. If the Mexican nominal exchange rate does not change, but prices rise faster abroad than in Mexico, then the Mexican real exchange rate a. does not change. b. rises. c. declines. d. None of the above is necessarily correct. ____ 50. Suppose that the inflation rate is higher in Turkey than in the U.S. for the next six months. Then according to purchasing power parity, if exchange rates are given in terms of how many Turkish lira or how many Turkish goods a U.S. dollar buys, a. the nominal exchange rate rises but the real exchange rate does not. b. the nominal exchange rate does not rise, but the real exchange rate does. c. both the nominal and real exchange rates rise. d. neither the nominal nor the real exchange rate rises. ____ 51. The open-economy macroeconomic model takes a. GDP, but not the price level as given. 7 b. the price level, but not GDP as given. c. both the price level and GDP as given. d. the price level and GDP as variables to be determined by the model. ____ 52. Other things the same, a higher real interest rate raises the quantity of a. domestic investment. b. net capital outflow. c. loanable funds demanded. d. loanable funds supplied. ____ 53. In the open-economy macroeconomic model, the supply of loanable funds equals a. national saving. The demand for loanable funds comes from domestic investment + net capital outflow. b. national saving. The demand for loanable funds comes only from domestic investment. c. private saving. The demand for loanable funds comes from domestic investment + net capital outflow. d. private saving. The demand for loanable funds comes only from domestic investment. ____ 54. A country has national saving of $80 billion, government expenditures of $40 billion, domestic investment of $60 billion, and net capital outflow of $20 billion. What is its demand for loanable funds? a. $40 billion b. $60 billion c. $80 billion d. $120 billion ____ 55. Other things the same, as the real interest rate rises a. domestic investment and net capital outflow both rise. b. domestic investment and net capital outflow both fall. c. domestic investment rises and net capital outflow falls. d. domestic investment falls and net capital outflow rises. ____ 56. An increase in real interest rates in the United States a. discourages both U.S. and foreign residents from buying U.S. assets. b. encourages both U.S. and foreign residents to buy U.S. assets. c. encourages U.S. residents to buy U.S. assets, but discourages foreign residents from buying U.S. assets. d. encourages foreign residents to buy U.S. assets, but discourages U.S. residents from buying U.S. assets. ____ 57. If interest rates rose more in the U.S. than in Canada, then other things the same a. U.S. citizens would buy more Canadian bonds and Canadian citizens would buy more U.S. bonds. b. U.S. citizens would buy more Canadian bonds and Canadian citizens would buy fewer U.S. bonds. c. U.S. citizens would buy fewer Canadian bonds and Canadian citizens would buy more U.S. bonds. d. U.S. citizens would buy fewer Canadian bonds and Canadian citizens would buy fewer U.S. bonds. ____ 58. At the equilibrium real interest rate in the open-economy macroeconomic model, the amount that people want to save equals the desired quantity of a. net capital outflow. b. domestic investment. 8 c. net capital outflow plus domestic investment. d. foreign currency supplied. ____ 59. If the supply of loanable funds shifts left, then a. the real interest rate and the equilibrium quantity of loanable funds both fall. b. the real interest rate falls and the equilibrium quantity of loanable funds rises. c. the real interest rate and the equilibrium quantity of loanable funds both rise. d. the real interest rate rises and the equilibrium quantity of loanable funds falls. Figure 32-1 8 percent 7 6 5 4 3 2 1 10 20 30 40 50 60 70 $billions ____ 60. Refer to Figure 32-1. In the Figure shown, if the real interest rate is 6 percent, the quantity of loanable funds demanded is 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. ____ 61. The value of net exports equals the value of a. national saving. b. public saving. c. national saving - net capital outflow. d. national saving - domestic investment. ____ 62. Which of the following would shift the supply of dollars in the market for foreign-currency exchange of the open-economy macroeconomic model to the left? a. The exchange rate rises. b. The exchange rate falls. c. The expected rate of return on U.S. assets rises. d. The expected rate of return on U.S. assets falls. ____ 63. In the open-economy macroeconomic model, the demand for dollars shifts right if at any given exchange rate a. foreign residents want to buy more U.S. goods and services. b. U.S. residents want to buy fewer foreign goods and services. c. Both A and B are correct. d. None of the above is correct. ____ 64. In the open economy macroeconomic model, the amount of dollars demanded in the market for foreigncurrency exchange at a given real exchange rate increases if a. either U.S. imports or exports increase. b. either U.S. imports or exports decrease. 9 c. either U.S. imports increase or U.S. exports decrease. d. either U.S. imports decrease or U.S. exports increase. ____ 65. In the open-economy macroeconomic model, the quantity of dollars demanded in the market for foreigncurrency exchange a. depends on the real exchange rate. The quantity of dollars supplied in the foreignexchange market depends on the real interest rate. b. depends on the real interest rate. The quantity of dollars supplied in the foreign-exchange market depends on the real exchange rate. c. and the quantity of dollars supplied in the market for foreign-currency exchange depend on the real exchange rate. d. and the quantity of dollars supplied in the market for foreign-currency exchange depend on the real interest rate. ____ 66. In the open economy macroeconomic model, the price that balances supply and demand in the market for foreign-currency exchange model is the a. nominal exchange rate. b. nominal interest rate. c. real exchange rate. d. real interest rate. ____ 67. Suppose the real exchange rate is such that the market for foreign-currency exchange has a surplus. This surplus will lead to a. an appreciation of the dollar, an increase in U.S. net exports, and so an increase in the quantity of dollars demanded in the foreign exchange market. b. an appreciation of the dollar, a decrease in U.S. net exports, and so a decrease in the quantity of dollars demanded in the foreign exchange market. c. a depreciation of the dollar, an increase in U.S. net exports, and so an increase in the quantity of dollars demanded in the foreign exchange market. d. a depreciation of the dollar, a decrease in U.S. net exports, and so a decrease in the quantity of dollars demanded in the foreign exchange market. Figure 32-2 1.8 Real Exchange Rate 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 50 100 150 200 250 300 350 400 Quantity of Dollars ____ 68. Refer to Figure 32-2. What are the equilibrium values of the real exchange rate and net exports? a. 1.4, 100 b. 1, 200 c. .6, 300 10 d. None of the above are correct. ____ 69. If the demand for dollars in the market for foreign-currency exchange shifts right, then the exchange rate a. rises and the quantity of dollars exchanged rises. b. rises and the quantity of dollars exchanged does not change. c. falls and the quantity of dollars exchanged falls. d. falls and the quantity of dollars exchanged does not change. ____ 70. When the U.S. real interest rate falls, owning U.S. assets becomes a. more attractive to both U.S. and foreign residents. b. more attractive to U.S. residents and less attractive to foreign residents. c. less attractive to U.S. residents and more attractive to foreign residents. d. less attractive to both U.S. residents and foreign residents. ____ 71. In the open-economy macroeconomic model, if a country's interest rate rises, its net capital outflow a. rises and the real exchange rate rises. b. falls and the real exchange rate falls. c. rises and the real exchange rate falls. d. falls and the real exchange rate rises. ____ 72. In the open-economy macroeconomic model, if the supply of loanable funds shifts right, then a. the supply of dollars in the market for foreign-currency exchange shifts left. b. the supply of dollars in the market for foreign-currency exchange shifts right. c. the demand for dollars in the market for foreign-currency exchange shifts left. d. the demand for dollars in the market for foreign-currency exchange shifts right. Figure 32-3 Refer to this diagram to answer the questions below. ____ 73. Refer to Figure 32-3. Which curve is determined by net capital outflow only? a. the demand curve in panel a. b. the demand curve in panel c. c. the supply curve in panel a. d. the supply curve in panel c. ____ 74. Suppose that Egypt has a government budget surplus, and then goes into deficit. This change would 11 a. b. c. d. increase national saving and shift Egypt's supply of loanable funds left. increase national saving and shift Egypt's demand for loanable funds right. decrease national saving and shift Egypt's supply of loanable funds left. decrease national saving and shift Egypt's demand for loanable funds right. ____ 75. An increase in the budget deficit makes domestic interest rates a. rise because the supply of loanable funds shifts left. b. fall because the supply of loanable funds shifts left. c. rise because the demand for loanable funds shifts right. d. fall because the demand for loanable funds shifts right. ____ 76. An increase in the budget deficit causes domestic interest rates a. and investment to rise. b. to rise and investment to fall. c. to fall and investment to rise. d. and investment to fall. ____ 77. If the budget deficit increases, then a. an increase in the interest rate increases net capital outflow. b. an increase in the interest rate decreases net capital outflow. c. a decrease in the interest rate increases net capital outflow. d. a decrease in the interest rate decreases net capital outflow. ____ 78. When a countrys government budget deficit increases, a. the real exchange rate of its currency and its net exports increase. b. the real exchange rate of its currency and its net exports decrease. c. the real exchange rate of its currency increases and its net exports decrease. d. the real exchange rate of its currency decreases and its net exports increase. ____ 79. If the U.S. government went from a budget deficit to a budget surplus then a. the interest rate and the real exchange rate would increase. b. the interest rate and the real exchange rate would decrease. c. the interest rate would increase and the real exchange rate would decrease. d. the interest rate would decrease and the real exchange rate would increase. ____ 80. 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. 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. ____ 81. An increase in the budget deficit a. raises net exports and domestic investment. b. raises net exports and reduces domestic investment. c. reduces net exports and raises domestic investment. d. reduces net exports and domestic investment. ____ 82. A government budget deficit a. increases both net capital outflow and net exports. b. decreases both net capital outflow and net exports. c. increases net capital outflow and decreases net exports. d. decreases net capital outflow and increases net exports. 12 ____ 83. If a government increases its budget deficit, then interest rates a. rise and the real exchange rate appreciates. b. fall and the real exchange rate depreciates. c. rise and the real exchange rate depreciates. d. fall and the real exchange rate appreciates. ____ 84. If the government of a country with a zero trade balances increases its budget deficit, then interest rates a. rise and the trade balance moves to a surplus. b. rise and the trade balance moves to a deficit. c. fall and the trade balance moves to a surplus. d. fall and the trade balance moves to a deficit. ____ 85. Which of the following contains a list only of things that increase when the budget deficit of the U.S. increases? a. U.S. supply of loanable funds, U.S. interest rates, U.S. domestic investment b. U.S. imports, U.S. interest rates, the real exchange rate of the dollar c. U.S. interest rates, the real exchange rate of the dollar, U.S. domestic investment d. the real exchange rate of the dollar, U.S. net capital outflow, U.S. net exports ____ 86. In 2002, the United States imposed restrictions on the importation of steel into the United States. The openeconomy macroeconomic model shows that such a policy would a. lower the real exchange rate and increase net exports. b. lower the real exchange rate and have no effect on net exports. c. raise the real exchange rate and decrease net exports. d. raise the real exchange rate and have no effect on net exports. ____ 87. If the U.S. put an import quota on vacuum cleaners, it would a. raise U.S. net exports of vacuum cleaners and raise net exports of other U.S. goods. b. raise U.S. net exports of vacuum cleaners and lower net exports of other U.S. goods. c. lower U.S. net exports of vacuum cleaners and raise net exports of other U.S. goods. d. lower U.S. net exports of vacuum cleaners and lower net exports of other U.S. goods. Figure 32-6 ____ 88. Refer to Figure 32-6. If the interest rate were initially at r2 and an import quota were imposed, the interest rate would a. stay at r2. 13 b. decrease because supply would shift right. c. increase because supply would shift left. d. decrease because demand would shift left. ____ 89. When a country suffers from capital flight, the exchange rate a. depreciates, because demand in the market for foreign-currency exchange shifts left. b. depreciates, because supply in the market for foreign-currency exchange shifts right. c. appreciates, because demand in the market for foreign-currency exchange shifts right. d. None of the above is correct. ____ 90. When a country experiences capital flight, the interest rate a. falls because the demand for loanable funds shifts left. b. falls because the supply for loanable funds shifts right. c. rises because the demand for loanable funds shifts right. d. rises because the supply for loanable funds shifts left. ____ 91. When a country experiences capital flight its currency a. appreciates and net exports rise. b. appreciates and net exports fall. c. depreciates and net exports rise. d. depreciates and net exports fall. ____ 92. The country of Frequencia is politically very stable and has a long tradition of respecting property rights. If several other countries suddenly became politically unstable, we would expect Frequencias a. real interest rate to rise. b. real exchange rate to fall. c. net exports to fall. d. None of the above is likely. ____ 93. Which of the following is most likely to result if foreigners decide to withdraw the funds that they have loaned to the United States? a. U.S. net exports will rise b. U.S. net capital outflow will fall. c. U.S. domestic investment will rise d. the dollar will appreciate ____ 94. In 2002 it looked like the Argentinean government might default on its debt (which eventually it did). The open-economy macroeconomic model predicts that this should have a. raised Argentinean interest rates and caused the Argentinean currency to appreciate. b. raised Argentinean interest rates and caused the Argentinean currency to depreciate. c. lowered Argentinean interest rates and caused the Argentinean currency to appreciate. d. lowered Argentinean interest rates and caused the Argentinean currency to depreciate. The diagram below represents the market for loanable funds and the market for foreign-currency exchange in Mexico. Use the diagram to answer the following questions. Figure 32-7 14 ____ 95. Refer to Figure 32-7. Supposing that the Mexican economy starts at r0 and E1. Which of the following is consistent with the effects of capital flight? a. the shift from D0 to D1 in Panel A b. the shift from NCO0 to NCO1 in Panel B c. the shift from S0 to S1 in Panel C d. All of the above shifts are consistent with the effects of capital flight. ____ 96. Refer to Figure 32-7. Suppose the Mexican economy starts at r0 and E1. Which of the following new equilibrium is consistent with capital flight? a. ro and E0 b. r1 and E0 c. r1 and E1 d. None of the above is correct. ____ 97. Which of the following would both raise the U.S. exchange rate? a. capital flight from other countries to the U.S. occurs and the U.S. moves from budget surplus to budget deficit b. capital flight from other countries to the U.S. occurs and the U.S. moves from budget deficit to budget surplus c. capital flight from the U.S. to other countries occurs, the U.S. moves from budget surplus to budget deficit d. capital flight from U.S. to other countries occurs, the U.S. moves from budget deficit to budget surplus ____ 98. If U.S. citizens decide to save a larger fraction of their incomes, the real interest rate a. decreases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow increases. b. decreases, the real exchange rate of the dollar appreciates, and U.S. net capital outflow decreases. c. increases, the real exchange rate of the dollar appreciates, and U.S. net capital outflow decreases. d. increases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow increases. ____ 99. If a country institutes policies that lead domestic firms to desire more capital stock 15 a. b. c. d. net capital outflows rise and the real exchange rate rises. net capital outflows rise and the real exchange rate falls. net capital outflows fall and the real exchange rate rises. net capital outflows and the real exchange rate falls. ____ 100. If the government of Colombia made policy changes that increased national saving, the real exchange rate of the peso would a. depreciate and Colombian net exports would rise. b. depreciate and Colombian net exports would fall. c. appreciate and Colombian net exports would rise. d. appreciate and Colombian net exports would fall. ____ 101. Which of the following is correct? a. Economic fluctuations are easily predicted by competent economists. b. Recessions have never occurred very close together. c. Other measures of spending, income, and production do not fluctuate closely with real GDP. d. None of the above is correct. ____ 102. Which of the following statements is correct? a. Most economists use the model of aggregate demand and aggregate supply to analyze short-run economic fluctuations. b. Economic fluctuations are essentially unrelated to changes in business conditions. c. Economic fluctuations follow a regular, predictable pattern. d. All of the above are correct. ____ 103. During recessions a. sales and profits fall. b. sales and profits rise. c. sales rise, profits fall. d. profits fall, sales rise. ____ 104. Real GDP a. is the current dollar value of all goods produced by the citizens of an economy within a given time. b. measures economic activity and income. c. is used primarily to measure long-run changes rather than short-run fluctuations. d. All of the above are correct. ____ 105. Historically, the change in real GDP during recessions has been a. mostly a change in investment spending. b. mostly a change in consumption spending. c. about equally divided between consumption and investment spending. d. sometimes mostly a change in consumption and sometimes mostly a change in investment. ____ 106. Which part of real GDP fluctuates most over the course of the business cycle? a. consumption expenditures b. government expenditures c. investment expenditures d. net exports ____ 107. According to classical macroeconomic theory, changes in the money supply affect a. nominal variables and real variables. 16 b. nominal variables, but not real variables. c. real variables, but not nominal variables. d. neither nominal nor real variables. ____ 108. Most economists believe that money neutrality holds a. in the short run but not the long run. b. in the long run but not the short run. c. in both the short run and the long run. d. in neither the short run nor the long run. ____ 109. The average price level is measured by a. any real variable. b. the rate of inflation. c. the level of the money supply. d. the CPI or the GDP deflator. ____ 110. The aggregate-demand curve shows the a. quantity of labor and other inputs that firms want to buy at each price level. b. quantity of labor and other inputs that firms want to buy at each inflation rate. c. quantity of domestically produced goods and services that households want to buy at each price level. d. quantity of domestically produced goods and services that households, firms, the government, and customers abroad want to buy at each price level. ____ 111. Which of the following adjust to bring aggregate supply and demand into balance? a. the price level and real output b. the real rate of interest and the money supply c. government expenditures and taxes d. the saving rate and net exports ____ 112. Other things the same, a fall in an economy's overall level of prices tends to a. raise both the quantity demanded and supplied of goods and services. b. raise the quantity demanded of goods and services, but lower the quantity supplied. c. lower the quantity demanded of goods and services, but raise the quantity supplied. d. lower both the quantity demanded and the quantity supplied of goods and services. ____ 113. The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for a. the slope of short-run aggregate supply. b. the slope of long-run aggregate supply. c. the slope of the aggregate-demand curve. d. everything that makes the aggregate-demand curve shift. ____ 114. When the price level changes, which of the following variables will change and thereby cause a change in the aggregate quantity of goods and services demanded? a. the real value of wealth b. the interest rate c. the value of currency in the market for foreign exchange d. All of the above are correct. ____ 115. Other things the same, as the price level falls, a. the money supply falls. b. interest rates rise. c. a dollar buys more domestic goods. 17 d. the aggregate-demand curve shifts right. ____ 116. Other things the same, an increase in the price level makes consumers feel a. less wealthy, so the quantity of goods and services demanded falls. b. less wealthy, so the quantity of goods and services demanded rises. c. more wealthy, so the quantity of goods and services demanded rises. d. more wealthy, so the quantity of goods and services demanded falls. ____ 117. Other things the same, a decrease in the price level motivates people to hold a. less money, so they lend less, and the interest rate rises. b. less money, so they lend more, and the interest rate falls. c. more money, so they lend more, and the interest rate rises. d. more money, so they lend less, and the interest rate falls. ____ 118. Other things the same, when the price level rises, interest rates a. rise, which means consumers will want to spend more on homebuilding. b. rise, which means consumers will want to spend less on homebuilding. c. fall, which means consumers will want to spend more on homebuilding. d. fall, which means consumers will want to spend less on homebuilding. ____ 119. In the context of the aggregate-demand curve, the interest-rate effect refers to the idea that, when the price level increases, a. the real value of money decreases; in turn, the real value of the dollar increases in foreign exchange markets, which decreases net exports. b. the real value of money decreases; in turn, interest rates increase, which decreases net exports. c. households increase their holdings of money; in turn, interest rates decrease, which reduces spending on investment goods. d. households increase their holdings of money; in turn, interest rates increase, which reduces spending on investment goods. ____ 120. Other things the same, if the price level rises, people a. increase foreign bond purchases, so the supply of dollars in the market for foreigncurrency exchange increases. b. increase foreign bond purchases, so the supply of dollars in the market for foreigncurrency exchange decreases. c. decrease foreign bond purchases, so the supply of dollars in the market for foreigncurrency exchange increases. d. decrease foreign bond purchases, so the supply of dollars in the market for foreigncurrency exchange decreases. ____ 121. 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. ____ 122. Other things the same, an increase in the price level causes the interest rate to a. increase, the dollar to depreciate, and net exports to increase. b. increase, the dollar to appreciate, and net exports to decrease. c. decrease, the dollar to depreciate, and net exports to increase. d. decrease, the dollar to appreciate, and net exports to decrease. 18 ____ 123. Other things the same, the aggregate quantity of goods demanded in the U.S. increases if a. real wealth falls. b. the interest rate rises. c. the dollar depreciates. d. None of the above is correct. ____ 124. Other things the same, the aggregate quantity of goods demanded decreases if a. real wealth falls. b. the interest rate rises. c. the dollar appreciates. d. All of the above are correct. ____ 125. Imagine that businesses in general believe that the economy is likely to head into recession and so they reduce capital purchases. Their reaction would initially shift a. aggregate demand right. b. aggregate demand left. c. aggregate supply right. d. aggregate supply left. ____ 126. The initial impact of the repeal of an investment tax credit is to shift a. aggregate demand right. b. aggregate demand left. c. aggregate supply right. d. aggregate supply left. ____ 127. Aggregate demand shifts right when the government a. raises personal income taxes. b. increases the money supply. c. repeals an investment tax credit. d. All of the above are correct. ____ 128. At the end of World War II many European countries were rebuilding and so were eager to buy capital goods and had rising incomes. We would expect that the rebuilding increased aggregate demand in a. both the United States and Europe. b. the United States but not Europe. c. Europe, but not the United States. d. neither the United States, nor Europe. ____ 129. At a given price level, an increase in which of the following shifts aggregate demand to the right? a. consumption b. investment c. government expenditures d. All of the above are correct. ____ 130. The long-run aggregate supply curve shows that by itself a permanent change in aggregate demand would lead to a long-run change a. in the price level and output. b. in the price level, but not output. c. in output, but not the price level. d. in neither the price level nor output. ____ 131. The long-run aggregate supply curve would shift right if the government were to a. increase the minimum-wage. 19 b. make unemployment benefits more generous. c. raise taxes on investment spending. d. None of the above is correct. ____ 132. The long-run aggregate supply curve shifts right if a. the price level rises. b. the price level falls. c. the capital stock increases. d. the capital stock decreases. ____ 133. Which of the following, other things the same, would make the price level decrease and real GDP increase? a. long-run aggregate supply shifts right b. long-run aggregate supply shifts left c. aggregate demand shifts right d. aggregate demand shifts left ____ 134. The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected, a. production is more profitable and employment rises. b. production is more profitable and employment falls. c. production is less profitable and employment rises. d. production is less profitable and employment falls. ____ 135. The sticky-wage theory of the short-run aggregate supply curve says that the quantity of output firms supply will increase if a. the price level is higher than expected making production more profitable. b. the price level is higher than expected making production less profitable. c. the price level is lower than expected making production more profitable. d. the price level is higher than expected making production less profitable. ____ 136. 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. ____ 137. Other things the same, an unexpected fall in the price level results in some firms having a. lower than desired prices which increases their sales. b. lower than desired prices which depresses their sales. c. higher than desired prices which increases their sales. d. higher than desired prices which depresses their sales. ____ 138. According to the misperceptions theory of aggregate supply, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, then the firm would believe that the relative price of what they produce had a. increased, so they would increase production. b. increased, so they would decrease production. c. decreased, so they would increase production. d. decreased, so they would decrease production. 20 ____ 139. Suppose workers notice a fall in their nominal wage but are slow to notice that the price of things they consume have fallen by the same percentage. They may infer that the reward to working is a. temporarily low and so supply a smaller quantity of labor. b. temporarily low and so supply a larger quantity of labor. c. temporarily high and so supply a smaller quantity of labor. d. temporarily high and so supply a larger quantity of labor. ____ 140. Other things the same, the aggregate quantity of output supplied will increase if the price level a. is lower than expected so that firms believe the relative price of their output has increased. b. is lower than expected so that firms believe the relative price of their output decreased. c. has is higher than expected so that firms believe the relative price of their output has increased. d. is higher than expected so that firms believe the relative price of their output has decreased. ____ 141. An increase in the expected price level shifts the a. short-run and long-run aggregate supply curves left. b. the short-run but not the long-run aggregate supply curve left. c. the long-run but not the short-run aggregate supply curve left. d. neither the long-run nor the short-run aggregate supply curve left. ____ 142. Which of the following would cause prices and real GDP to rise in the short run? a. an increase in the expected price level b. an increase in the money supply c. a decrease in the capital stock d. None of the above is correct. Consider the exhibit below for the following questions. Figure 33-1 A D B C ____ 143. Refer to Figure 33-1. If the economy is at A and there is a fall in aggregate demand, in the short run the economy a. stays at A. 21 b. moves to B. c. moves to C. d. moves to D. The Stock Market Boom of 2014 Imagine that in 2014 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. ____ 144. Refer to Stock Market Boom 2014. How is the new long-run equilibrium different from the original one? a. the price level and real GDP are higher b. the price level and real GDP are lower. c. the price level is higher and real GDP is the same. d. the price level is the same and real GDP is higher. ____ 145. Other things the same, an increase in the expected price level shifts a. short-run aggregate supply right. b. short-run aggregate supply left. c. aggregate-demand right. d. aggregated-demand left. ____ 146. Suppose the economy is in long-run equilibrium. If there is a sharp increase in the minimum wage as well as an increase in pessimism about future business conditions, then we would expect that in the short-run, a. real GDP will rise and the price level might rise, fall, or stay the same. b. real GDP will fall and the price level might rise, fall, or stay the same. c. the price level will rise, and real GDP might rise, fall, or stay the same. d. the price level will fall, and real GDP might rise, fall, or stay the same. ____ 147. Suppose the economy is in long-run equilibrium. In a short span of time, there is a large influx of skilled immigrants, a major new discovery of oil, and a major new technological advance in electricity production. In the short run, we would expect a. the price level to rise and real GDP to fall. b. the price level to fall and real GDP to rise. c. the price level and real GDP both to stay the same. d. All of the above are possible. ____ 148. Suppose the economy is in long-run equilibrium. If there is a sharp decline in the stock market combined with a significant increase in immigration of skilled workers, then in the short run, a. real GDP will rise and the price level might rise, fall, or stay the same. In the long-run, real GDP will rise and the price level might rise, fall, or stay the same. b. the price level will fall, and real GDP might rise, fall, or stay the same. In the long-run, real GDP and the price level will be unaffected. c. the price level will rise, and real GDP might rise, fall, or stay the same. In the long run, real GDP will rise and the price level will fall. d. the price level will fall, and real GDP might rise, fall, or stay the same. In the long run, real GDP will rise and the price level will fall. ____ 149. Changes in the price of oil a. can only lead to recessions. b. have not contributed much to output fluctuations in the United States. c. change the economy principally by changing aggregate demand. d. created both inflation and recession in the United States in the 1970s. 22 ____ 150. Keynes explained that recessions and depressions occur because of a. excess aggregate demand. b. inadequate aggregate demand. c. excess aggregate supply. d. inadequate aggregate supply. ____ 151. The interest-rate effect a. depends on the idea that increases in interest rates decrease the quantity of goods and services demanded. b. depends on the idea that increases in interest rates decrease the quantity of goods and services supplied. c. is responsible for the downward slope of the money-demand curve. d. is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve. ____ 152. The wealth effect helps explain the slope of the aggregate-demand curve. This effect is a. relatively important in the United States because expenditures on consumer durables is very responsive to changes in wealth. b. relatively important in the United States because consumption spending is a large part of GDP. c. relatively unimportant in the United States because money holdings are a small part of consumer wealth. d. relatively unimportant because it takes a large change in wealth to cause a significant change in interest rates. ____ 153. In recent years, the Federal Reserve has conducted policy by setting a target for the a. size of the money supply. b. growth rate of the money supply. c. federal funds rate. d. discount rate. ____ 154. Liquidity preference refers directly to Keynes' theory concerning a. the effects of changes in money demand and supply on interest rates. b. the effects of changes in money demand and supply on exchange rates. c. the effects of wealth on expenditures. d. the difference between temporary and permanent changes in income. ____ 155. 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. ____ 156. The theory of liquidity preference assumes that the nominal supply of money is determined by the a. level of real output only. b. interest rate only. c. level of real output and by the interest rate. d. Federal Reserve. Figure 34-2. 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. 23 . MS P2 r2 r1 P1 MD 2 AD MD 1 Y2 Y1 ____ 157. Refer to Figure 34-2. 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 P2 than it is at P1. b. the quantity of money is higher at Y1 than it is at Y2. c. an increase in r from r1 to r2 is associated with a decrease in Y from Y1 to Y2. d. All of the above are correct. ____ 158. If, at some interest rate, the quantity of money supplied is greater than the quantity of money demanded, people will desire to a. sell interest-bearing assets, causing the interest rate to decrease. b. sell interest-bearing assets, causing the interest rate to increase. c. buy interest-bearing assets, causing the interest rate to decrease. d. buy interest-bearing assets, causing the interest rate to increase. ____ 159. If the price level falls, then a. the interest rate falls and spending on goods and services falls. b. the interest rate falls and spending on goods and services rises. c. the interest rate rises and spending on goods and services falls. d. the interest rate rises and spending on goods and services rises. ____ 160. Which of the following events would shift money demand to the left? a. an increase in the price level b. a decrease in the price level c. an increase in the interest rate d. a decrease in the interest rate ____ 161. Which of the following events would shift money demand to the left? a. an increase in the interest rate or an increase in the price level b. an increase in the interest rate, but not an increase in the price level c. an increase in the price level, but not an increase in the interest rate d. neither an increase in the interest rate nor an increase in the price level ____ 162. Assume the money market is initially in equilibrium. If the price level increases, then according to liquidity preference theory there is an excess 24 a. b. c. d. supply of money until the interest rate increases. supply of money until the interest rate decreases. demand for money until the interest rate increases. demand for money until the interest rate decreases. ____ 163. According to liquidity preference theory, if the price level decreases, then a. the interest rate falls because money demand shifts right. b. the interest rate falls because money demand shifts left. c. the interest rate rises because money supply shifts right. d. the interest rate rises because money supply shifts left. ____ 164. According to liquidity preference theory, if the price level increases, then the equilibrium interest rate a. rises and the aggregate quantity of goods demanded rises. b. rises and the aggregate quantity of goods demanded falls. c. falls and the aggregate quantity of goods demanded rises. d. falls and the aggregate quantity of goods demanded falls. ____ 165. Other things the same, which of the following responses would we expect from an increase in U.S. interest rates? a. Your aunt puts more money in her savings account. b. Foreign citizens decide to buy fewer U.S. bonds. c. You decide to purchase a new oven for your cookie factory. d. All of the above are correct. ____ 166. Other things the same, which of the following responses would we expect to result from an decrease in U.S. interest rates? a. U.S. citizens decide to hold more foreign bonds. b. People choose to hold more currency. c. You decide to purchase a new oven for your cookie factory. d. All of the above are correct. ____ 167. According to liquidity preference theory, an increase in the price level causes the interest rate to a. increase, which increases the quantity of goods and services demanded. b. increase, which decreases the quantity of goods and services demanded. c. decrease, which increases the quantity of goods and services demanded. d. decrease, which decreases the quantity of goods and services demanded. ____ 168. According to the theory of liquidity preference, an increase in the price level causes the a. interest rate and investment to rise. b. interest rate and investment to fall. c. interest rate to rise and investment to fall. d. interest rate to fall and investment to rise. ____ 169. Which of the following shifts aggregate demand to the right? a. an increase in the price level b. an increase in the money supply c. a decrease in the price level d. a decrease in the money supply ____ 170. If the Fed conducts open-market purchases, the money supply a. increases and aggregate demand shifts right. b. increases and aggregate demand shifts left. c. decreases and aggregate demand shifts right. 25 d. decreases and aggregate demand shifts left. ____ 171. In which of the following cases does the aggregate-demand curve shift to the right? a. The price level rises, causing the interest rate to fall. b. The price level falls, causing the interest rate to fall. c. The money supply increases, causing the interest rate to fall. d. The money supply decreases, causing the interest rate to fall. ____ 172. In the short run, open-market sales a. increase the price level and real GDP. b. decrease the price level and real GDP. c. increases the price level and decreases real GDP. d. decreases the price level and increases real GDP. ____ 173. The Federal Funds rate is the interest rate a. banks charge each other for short-term loans. b. the Fed charges depository institutions for short-term loans. c. the Fed pays on deposits. d. interest rate on 3 month Treasury bills. ____ 174. If the interest rate is above the Fed's target, the Fed should a. buy bonds to increase the money supply. b. buy bonds to decrease the money supply. c. sell bonds to increase the money supply. d. sell bonds to decrease the money supply. ____ 175. If the stock market booms, then a. aggregate demand increases, which the Fed could offset by increasing the money supply. b. aggregate supply increases, which the Fed could offset by increasing the money supply. c. aggregate demand increases, which the Fed could offset by decreasing the money supply. d. aggregate supply increases, which the Fed could offset by decreasing the money supply. ____ 176. If the stock market booms, then a. household spending increases. To offset the effects of this on the price level and real GDP, the Fed would increase the money supply. b. household spending increases. To offset the effects of this on the price level and real GDP, the Fed would decrease the money supply. c. household spending decreases. To offset the effects of this on the price level and real GDP, the Fed would increase the money supply. d. household spending decreases. To offset the effects of this on the price level and real GDP, the Fed would decrease the money supply. ____ 177. When the Fed decreases the money supply, we expect a. interest rates and stock prices to rise. b. interest rates and stock prices to fall. c. interest rates to rise and stock prices to fall. d. interest rates to fall and stock prices to rise. ____ 178. In the long run, fiscal policy primarily affects a. aggregate demand. In the short run, it affects primarily aggregate supply. b. aggregate supply. In the short run, it affects primarily saving, investment, and growth. c. saving, investment, and growth. In the short run, it affects primarily aggregate demand. d. saving, investment, and growth. In the short run, it affects primarily aggregate supply. 26 ____ 179. If the multiplier is 5, then the MPC is a. 0.05. b. 0.5. c. 0.6. d. 0.8. ____ 180. If the multiplier is 2.5, then the MPC is a. 0.2. b. 0.6. c. 0.75. d. 1.00. ____ 181. Which of the following policy actions shifts the aggregate-demand curve? a. an increase in the money supply b. an increase in taxes c. an increase in government spending d. All of the above are correct. Scenario 34-1. 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 $7,300. ____ 182. Refer to Scenario 34-1. The multiplier for this economy is a. 2.86. b. 2.98. c. 4.00. d. 5.00. ____ 183. Suppose the multiplier has a value that exceeds 1, and there are no crowding out or investment accelerator effects. Which of the following would shift aggregate demand to the right by more than the increase in expenditures? a. an increase in government expenditures b. an increase in net exports c. an increase in investment spending d. All of the above are correct. ____ 184. Suppose there are both multiplier and crowding out effects but without any accelerator effects. An increase in government expenditures would definitely a. shift aggregate demand right by a larger amount than the increase in government expenditures. b. shift aggregate demand right by the same amount as an the increase in government expenditures. c. shift aggregate demand right by a smaller amount than the increase in government expenditures. d. Any of the above outcomes are possible. ____ 185. Assume there is a multiplier effect, some crowding out, and no accelerator effect. An increase in government expenditures changes aggregate demand more, a. the smaller the MPC and the stronger the influence of income on money demand. b. the smaller the MPC and the weaker the influence of income on money demand. c. the larger the MPC and the stronger the influence of income on money demand. 27 d. the larger the MPC and the weaker the influence of income on money demand. ____ 186. If the marginal propensity to consume is 5/6, and there is no investment accelerator or crowding out, a $20 billion increase in government expenditures would shift the aggregate demand curve right by a. $60 billion, but the effect would be larger if there were an investment accelerator. b. $60 billion, but the effect would be smaller if there were an investment accelerator. c. $120 billion, but the effect would be larger if there were an investment accelerator. d. $120 billion, but the effect would be smaller if there were an investment accelerator. ____ 187. Suppose that the MPC is 0.60; there is no investment accelerator; and there are no crowding-out effects. If government expenditures increase by $25 billion, then aggregate demand a. shifts rightward by $62.5 billion. b. shifts rightward by $50.0 billion. c. shifts rightward by $32.5 billion. d. None of the above is correct. ____ 188. 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. ____ 189. Imagine that the government increases its spending by $20 billion. Which of the following by itself would tend to make the change in aggregate demand different from $20 billion? a. both the multiplier effect and the crowding-out effect b. the multiplier effect, but not the crowding-out effect c. the crowding-out effect, but not the multiplier effect d. neither the crowding out effect nor the multiplier effect ____ 190. A tax increase has a. a multiplier effect but not a crowding out effect b. a crowding out effect but not a multiplier effect c. both a crowding out and multiplier effect d. neither a multiplier or crowding out effect ____ 191. Suppose the MPC is 0.60. Assume there are no crowding out or investment accelerator effects. If the government increases expenditures by $200 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $200 billion, then by how much does aggregate demand shift to the right? a. $300 billion and $180 billion b. $300 billion and $300 billion c. $500 billion and $300 billion d. $500 billion and $500 billion ____ 192. Supply-side economists believe that a reduction in the tax rate a. always decrease government tax revenue. b. shifts the aggregate supply curve to the right. c. provides no incentive for people to work more. d. would decrease consumption. ____ 193. If Congress cuts spending to balance the federal budget, the Fed can act to prevent unemployment and recession by 28 a. b. c. d. buying bonds to increase the money supply buying bonds to decrease the money supply. selling bonds to increase the money supply. selling bonds to decrease the money supply. ____ 194. Who asserted that the Federal Reserves job is to take away the punch bowl just as the party gets going? a. president George W. Bush b. president John F. Kennedy c. economist John Maynard Keynes d. former chairman of the Federal Reserve System William McChesney Martin ____ 195. Monetary policy a. can be implemented quickly and most of its impact on aggregate demand occurs very soon after policy is implemented. b. can be implemented quickly, but most of its impact on aggregate demand occurs months after policy is implemented. c. cannot be implemented quickly, but once implemented most of its impact on aggregate demand occurs very soon afterward. d. cannot be implemented quickly and most of its impact on aggregate demand occurs months after policy is implemented. ____ 196. The price of imported oil rises. If the government wanted to stabilize output, which of the following could it do? a. increase government expenditures or increase the money supply b. increase government expenditures or decrease the money supply c. decrease government expenditures or increase the money supply d. decrease government expenditures or decrease the money supply ____ 197. Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do? a. repeal an investment tax credit or increase the money supply b. repeal an investment tax credit or decrease the money supply c. institute an investment tax credit or increase the money supply d. institute an investment tax credit or decrease the money supply ____ 198. Which of the following is not an automatic stabilizer? a. the minimum wage b. the unemployment compensation system c. the federal income tax d. the welfare system ____ 199. During recessions, taxes tend to a. rise and thereby increase aggregate demand. b. rise and thereby decrease aggregate demand. c. fall and thereby increase aggregate demand. d. fall and thereby decrease aggregate demand. ____ 200. During recessions, automatic stabilizers tend to make the government's budget a. move toward deficit. b. move toward surplus. c. move toward balance. d. not necessarily move the budget in any particular direction. 29 STUDY GUIDE 2 EC 2200-6 TR 3.30pm [Covering chapters 31, 32, 33, and 34] Answer Section MULTIPLE CHOICE 1. ANS: NAT: MSC: 2. ANS: NAT: MSC: 3. ANS: NAT: MSC: 4. ANS: NAT: MSC: 5. ANS: NAT: MSC: 6. ANS: NAT: MSC: 7. ANS: NAT: MSC: 8. ANS: NAT: MSC: 9. ANS: NAT: MSC: 10. ANS: NAT: MSC: 11. ANS: NAT: MSC: 12. ANS: NAT: TOP: MSC: 13. ANS: NAT: TOP: 14. ANS: NAT: MSC: A PTS: 1 DIF: 1 REF: 31-0 Analytic LOC: International trade and finance TOP: International trade Definitional C PTS: 1 DIF: 2 REF: 31-1 Analytic LOC: International trade and finance TOP: Net exports Applicative D PTS: 1 DIF: 2 REF: 31-1 Analytic LOC: International trade and finance TOP: Exports Applicative B PTS: 1 DIF: 1 REF: 31-1 Analytic LOC: International trade and finance TOP: Net exports Applicative B PTS: 1 DIF: 1 REF: 31-1 Analytic LOC: International trade and finance TOP: Net exports Applicative A PTS: 1 DIF: 1 REF: 31-1 Analytic LOC: International trade and finance TOP: Exports | Imports | Trade balance Applicative C PTS: 1 DIF: 2 REF: 31-1 Analytic LOC: International trade and finance TOP: Exports | Imports | Net exports Interpretive B PTS: 1 DIF: 2 REF: 31-1 Analytic LOC: International trade and finance TOP: U.S. trade facts Definitional C PTS: 1 DIF: 2 REF: 31-1 Analytic LOC: International trade and finance TOP: U.S. trade facts Definitional B PTS: 1 DIF: 1 REF: 31-1 Analytic LOC: International trade and finance TOP: Foreign direct investment Interpretive A PTS: 1 DIF: 2 REF: 31-1 Analytic LOC: International trade and finance TOP: Net capital outflow Analytical A PTS: 1 DIF: 2 REF: 31-1 Analytic LOC: International trade and finance Foreign direct investment | Foreign portfolio investment | Net capital outflow Interpretive A PTS: 1 DIF: 1 REF: 31-1 Analytic LOC: International trade and finance Foreign direct investment | Net capital outflow MSC: Interpretive D PTS: 1 DIF: 1 REF: 31-1 Analytic LOC: International trade and finance TOP: Net capital outflow Interpretive 30 15. ANS: NAT: MSC: 16. ANS: NAT: TOP: 17. ANS: NAT: MSC: 18. ANS: NAT: MSC: 19. ANS: NAT: MSC: 20. ANS: NAT: MSC: 21. ANS: NAT: MSC: 22. ANS: NAT: MSC: 23. ANS: NAT: MSC: 24. ANS: NAT: MSC: 25. ANS: NAT: MSC: 26. ANS: NAT: MSC: 27. ANS: NAT: MSC: 28. ANS: NAT: MSC: 29. ANS: NAT: MSC: 30. ANS: NAT: MSC: 31. Register to View AnswerPTS: 1 DIF: 1 Analytic LOC: International trade and finance Definitional A PTS: 1 DIF: 2 Analytic LOC: International trade and finance Net capital outflow | Foreign investment A PTS: 1 DIF: 2 Analytic LOC: International trade and finance Applicative B PTS: 1 DIF: 1 Analytic LOC: International trade and finance Definitional D PTS: 1 DIF: 2 Analytic LOC: International trade and finance Applicative C PTS: 1 DIF: 3 Analytic LOC: International trade and finance Applicative D PTS: 1 DIF: 2 Analytic LOC: International trade and finance Applicative D PTS: 1 DIF: 2 Analytic LOC: International trade and finance Interpretive D PTS: 1 DIF: 2 Analytic LOC: International trade and finance Applicative A PTS: 1 DIF: 2 Analytic LOC: International trade and finance Applicative C PTS: 1 DIF: 2 Analytic LOC: International trade and finance Definitional A PTS: 1 DIF: 2 Analytic LOC: International trade and finance Definitional C PTS: 1 DIF: 2 Analytic LOC: International trade and finance Definitional C PTS: 1 DIF: 2 Analytic LOC: International trade and finance Definitional B PTS: 1 DIF: 2 Analytic LOC: International trade and finance Definitional C PTS: 1 DIF: 2 Analytic LOC: International trade and finance Interpretive A PTS: 1 DIF: 2 REF: 31-1 TOP: Investment decisions REF: 31-1 MSC: Applicative REF: 31-1 TOP: Net capital outflow REF: 31-1 TOP: Net capital outflow | Net exports REF: 31-1 TOP: Net capital outflow | Net exports REF: 31-1 TOP: Net exports | Net capital outflow REF: 31-1 TOP: Net exports | Net capital outflow REF: 31-1 TOP: Net capital outflow | Trade balance REF: 31-1 TOP: National accounts REF: 31-1 TOP: National accounts REF: 31-1 TOP: U.S. trade REF: 31-1 TOP: U.S. trade REF: 31-1 TOP: U.S. trade REF: 31-1 TOP: U.S. trade REF: 31-1 TOP: U.S. trade REF: 31-1 TOP: Saving REF: 31-2 31 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. NAT: TOP: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: Analytic LOC: International trade and finance Nominal exchange rate | Net capital outflow B PTS: 1 DIF: 1 Analytic LOC: International trade and finance Definitional C PTS: 1 DIF: 2 Analytic LOC: International trade and finance Analytical C PTS: 1 DIF: 2 Analytic LOC: International trade and finance Analytical A PTS: 1 DIF: 2 Analytic LOC: International trade and finance Applicative C PTS: 1 DIF: 2 Analytic LOC: International trade and finance Analytical A PTS: 1 DIF: 3 Analytic LOC: International trade and finance Analytical A PTS: 1 DIF: 2 Analytic LOC: International trade and finance Analytical C PTS: 1 DIF: 1 Analytic LOC: International trade and finance Applicative D PTS: 1 DIF: 3 Analytic LOC: International trade and finance Analytical B PTS: 1 DIF: 1 Analytic LOC: International trade and finance Definitional B PTS: 1 DIF: 1 Analytic LOC: International trade and finance Definitional B PTS: 1 DIF: 2 Analytic LOC: International trade and finance Nominal exchange rate | Real exchange rate C PTS: 1 DIF: 2 Analytic LOC: International trade and finance Nominal exchange rate | Real exchange rate D PTS: 1 DIF: 1 Analytic LOC: International trade and finance Applicative A PTS: 1 DIF: 2 Analytic LOC: International trade and finance Analytical C PTS: 1 DIF: 3 Analytic LOC: International trade and finance MSC: Interpretive REF: 31-2 TOP: Real exchange rate REF: 31-2 TOP: Real exchange rate REF: 31-2 TOP: Real exchange rate REF: 31-2 TOP: Real exchange rate REF: 31-2 TOP: Real exchange rate REF: 31-2 TOP: Real exchange rate REF: 31-2 TOP: Real exchange rate REF: 31-2 TOP: Appreciation | Real exchange rate REF: 31-2 TOP: Real exchange rate REF: 31-3 TOP: Nominal exchange rate volatility REF: 31-3 TOP: Purchasing-power parity REF: 31-3 MSC: Definitional REF: 31-3 MSC: Analytical REF: 31-3 TOP: Purchasing-power parity REF: 31-3 TOP: Arbitrage | Real exchange rate REF: 31-3 TOP: Arbitrage | Real exchange rate 32 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: MSC: ANS: NAT: TOP: ANS: NAT: MSC: ANS: NAT: TOP: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: Analytical C PTS: 1 DIF: 3 Analytic LOC: International trade and finance Applicative C PTS: 1 DIF: 3 Analytic LOC: International trade and finance Analytical A PTS: 1 DIF: 2 Analytic LOC: International trade and finance Analytical C PTS: 1 DIF: 1 Analytic LOC: International trade and finance Open-economy macroeconomic model D PTS: 1 DIF: 1 Analytic LOC: International trade and finance Supply of loanable funds | Demand for loanable funds A PTS: 1 DIF: 2 Analytic LOC: International trade and finance Demand for loanable funds | Supply of loanable funds C PTS: 1 DIF: 2 Analytic LOC: International trade and finance Applicative B PTS: 1 DIF: 1 Analytic LOC: International trade and finance Domestic investment | Net capital outflow B PTS: 1 DIF: 1 Analytic LOC: International trade and finance Applicative C PTS: 1 DIF: 1 Analytic LOC: International trade and finance Net capital outflow | Demand for loanable funds C PTS: 1 DIF: 1 Analytic LOC: International trade and finance Applicative D PTS: 1 DIF: 2 Analytic LOC: International trade and finance Analytical B PTS: 1 DIF: 1 Analytic LOC: International trade and finance Applicative D PTS: 1 DIF: 2 Analytic LOC: International trade and finance Definitional C PTS: 1 DIF: 2 Analytic LOC: International trade and finance Applicative C PTS: 1 DIF: 3 Analytic LOC: International trade and finance Interpretive REF: 31-3 TOP: Purchasing-power parity REF: 31-3 TOP: Real exchange rate REF: 31-2 TOP: Real exchange rate REF: 32-0 MSC: Definitional REF: 32-1 MSC: Applicative REF: 32-1 MSC: Definitional REF: 32-1 TOP: Demand for loanable funds REF: 32-1 MSC: Applicative REF: 32-1 TOP: Net capital outflow REF: 32-1 MSC: Applicative REF: 32-1 TOP: Market for loanable funds REF: 32-1 TOP: Market for loanable funds REF: 32-1 TOP: Market for loanable funds REF: 32-1 TOP: Net exports REF: 32-1 TOP: Supply of foreign currency REF: 32-1 TOP: Demand for foreign currency 33 64. ANS: NAT: MSC: 65. ANS: NAT: TOP: 66. ANS: NAT: TOP: 67. ANS: NAT: TOP: 68. ANS: NAT: TOP: 69. ANS: NAT: TOP: 70. ANS: NAT: TOP: MSC: 71. ANS: NAT: TOP: MSC: 72. ANS: NAT: TOP: 73. ANS: NAT: TOP: 74. ANS: NAT: TOP: 75. ANS: NAT: TOP: 76. ANS: NAT: TOP: 77. ANS: NAT: TOP: 78. ANS: NAT: TOP: 79. ANS: NAT: D PTS: 1 DIF: 2 REF: 32-1 Analytic LOC: International trade and finance TOP: Demand for loanable funds Interpretive A PTS: 1 DIF: 3 REF: 32-1 Analytic LOC: International trade and finance Demand for foreign currency | Supply of foreign currency MSC: Analytical C PTS: 1 DIF: 1 REF: 32-1 Analytic LOC: International trade and finance Market for foreign-currency exchange MSC: Definitional C PTS: 1 DIF: 3 REF: 32-1 Analytic LOC: International trade and finance Market for foreign-currency exchange MSC: Analytical B PTS: 1 DIF: 1 REF: 32-1 Analytic LOC: International trade and finance Market for foreign-currency exchange MSC: Applicative B PTS: 1 DIF: 1 REF: 32-1 Analytic LOC: International trade and finance Market for foreign-currency exchange MSC: Analytical D PTS: 1 DIF: 1 REF: 32-2 Analytic LOC: International trade and finance Open-economy macroeconomic model | Net capital outflow Applicative D PTS: 1 DIF: 2 REF: 32-2 Analytic LOC: International trade and finance Open-economy macroeconomic model | Market for foreign-currency exchange Applicative B PTS: 1 DIF: 2 REF: 32-2 Analytic LOC: International trade and finance Open-economy macroeconomic model MSC: Analytical D PTS: 1 DIF: 2 REF: 32-2 Analytic LOC: International trade and finance Open-economy macroeconomic model MSC: Interpretive C PTS: 1 DIF: 2 REF: 32-3 Analytic LOC: International trade and finance Budget surpluses | Market for loanable funds MSC: Applicative A PTS: 1 DIF: 2 REF: 32-3 Analytic LOC: International trade and finance Budget deficits | Market for loanable funds MSC: Analytical B PTS: 1 DIF: 2 REF: 32-3 Analytic LOC: International trade and finance Budget deficits | Interest rates | Investment MSC: Analytical B PTS: 1 DIF: 2 REF: 32-3 Analytic LOC: International trade and finance Open-economy macroeconomic model | Budget deficits MSC: Analytical C PTS: 1 DIF: 2 REF: 32-3 Analytic LOC: International trade and finance Budget deficits | Exchange rate | Net exports MSC: Analytical B PTS: 1 DIF: 2 REF: 32-3 Analytic LOC: International trade and finance 34 80. 81. 82. 83. 84. 85. 86. 87. 88. 89. 90. 91. 92. 93. 94. 95. TOP: ANS: NAT: TOP: ANS: NAT: MSC: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: MSC: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: MSC: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: Budget surpluses | Interest rates | Exchange rate B PTS: 1 DIF: 2 Analytic LOC: International trade and finance Budget deficits | Exchange rate | Interest rates D PTS: 1 DIF: 2 Analytic LOC: International trade and finance Analytical B PTS: 1 DIF: 2 Analytic LOC: International trade and finance Budget deficits | Net capital outflow | Net exports A PTS: 1 DIF: 2 Analytic LOC: International trade and finance Budget surpluses | Interest rates | Exchange rate B PTS: 1 DIF: 2 Analytic LOC: International trade and finance Budget deficits | Interest rates | Net exports B PTS: 1 DIF: 3 Analytic LOC: International trade and finance Analytical D PTS: 1 DIF: 3 Analytic LOC: International trade and finance Import quotas | Exchange rate | Net exports B PTS: 1 DIF: 3 Analytic LOC: International trade and finance Import quotas | Microeconomic effects of import quotas A PTS: 1 DIF: 2 Analytic LOC: International trade and finance Applicative B PTS: 1 DIF: 2 Analytic LOC: International trade and finance Capital flight | Market for foreign-currency exchange C PTS: 1 DIF: 2 Analytic LOC: International trade and finance Capital flight | Open-economy macroeconomic model C PTS: 1 DIF: 2 Analytic LOC: International trade and finance Capital flight | Exchange rate | Net exports C PTS: 1 DIF: 3 Analytic LOC: International trade and finance Capital flight | Open-economy macroeconomic model A PTS: 1 DIF: 3 Analytic LOC: International trade and finance Capital flight | Open-economy macroeconomic model B PTS: 1 DIF: 2 Analytic LOC: International trade and finance Capital flight | Exchange rate | Interest rates D PTS: 1 DIF: 2 Analytic LOC: International trade and finance Capital flight | Open-economy macroeconomic model MSC: Applicative REF: 32-3 MSC: Applicative REF: 32-3 TOP: Budget deficits | Net exports REF: 32-3 MSC: Applicative REF: 32-3 MSC: Analytical REF: 32-3 MSC: Analytical REF: 32-3 TOP: Budget deficits REF: 32-3 MSC: Analytical REF: 32-3 MSC: Analytical REF: 32-3 TOP: Import quotas | Interest rates REF: 32-3 MSC: Analytical REF: 32-3 MSC: Analytical REF: 32-3 MSC: Applicative REF: 32-3 MSC: Analytical REF: 32-3 MSC: Analytical REF: 32-3 MSC: Analytical REF: 32-3 MSC: Applicative 35 96. ANS: NAT: TOP: 97. ANS: NAT: TOP: MSC: 98. ANS: NAT: MSC: 99. ANS: NAT: MSC: 100. ANS: NAT: MSC: 101. ANS: NAT: TOP: 102. ANS: NAT: TOP: 103. ANS: NAT: TOP: 104. ANS: NAT: TOP: 105. ANS: NAT: TOP: 106. ANS: NAT: TOP: 107. ANS: NAT: TOP: 108. ANS: NAT: TOP: 109. ANS: NAT: TOP: 110. ANS: NAT: TOP: 111. ANS: NAT: TOP: B PTS: 1 DIF: 2 REF: 32-3 Analytic LOC: International trade and finance Capital flight | Open-economy macroeconomic model MSC: Analytical A PTS: 1 DIF: 3 REF: 32-3 Analytic LOC: International trade and finance Open-economy macroeconomic model policies and actions | Exchange rate Analytical A PTS: 1 DIF: 2 REF: 32-3 Analytic LOC: International trade and finance TOP: Saving policy Analytical C PTS: 1 DIF: 3 REF: 32-3 Analytic LOC: International trade and finance TOP: Saving policy Analytical A PTS: 1 DIF: 2 REF: 32-3 Analytic LOC: International trade and finance TOP: Saving policy Analytical D PTS: 1 DIF: 1 REF: 33-1 Analytic LOC: Aggregate demand and aggregate supply Business cycle MSC: Definitional A PTS: 1 DIF: 1 REF: 33-1 Analytic LOC: Aggregate demand and aggregate supply Economic fluctuations MSC: Interpretive A PTS: 1 DIF: 1 REF: 33-1 Analytic LOC: Aggregate demand and aggregate supply Business cycle MSC: Definitional B PTS: 1 DIF: 1 REF: 33-1 Analytic LOC: Aggregate demand and aggregate supply Real GDP MSC: Definitional A PTS: 1 DIF: 1 REF: 33-1 Analytic LOC: Aggregate demand and aggregate supply Investment and the business cycle MSC: Definitional C PTS: 1 DIF: 1 REF: 33-1 Analytic LOC: Aggregate demand and aggregate supply Investment and the business cycle MSC: Definitional B PTS: 1 DIF: 1 REF: 33-2 Analytic LOC: Aggregate demand and aggregate supply Classical theory MSC: Definitional B PTS: 1 DIF: 1 REF: 33-2 Analytic LOC: Aggregate demand and aggregate supply Classical theory MSC: Definitional D PTS: 1 DIF: 1 REF: 33-2 Analytic LOC: Aggregate demand and aggregate supply Price level MSC: Definitional D PTS: 1 DIF: 2 REF: 33-2 Analytic LOC: Aggregate demand and aggregate supply Aggregate-demand curve MSC: Interpretive A PTS: 1 DIF: 1 REF: 33-2 Analytic LOC: Aggregate demand and aggregate supply Aggregate demand and aggregate supply model MSC: Definitional 36 112. ANS: NAT: TOP: 113. ANS: NAT: TOP: 114. ANS: NAT: TOP: MSC: 115. ANS: NAT: TOP: 116. ANS: NAT: TOP: 117. ANS: NAT: TOP: 118. ANS: NAT: TOP: 119. ANS: NAT: TOP: 120. ANS: NAT: TOP: 121. ANS: NAT: TOP: 122. ANS: NAT: TOP: 123. ANS: NAT: TOP: MSC: 124. ANS: NAT: TOP: 125. ANS: NAT: TOP: 126. ANS: NAT: TOP: 127. ANS: NAT: B PTS: 1 DIF: 1 REF: 33-3 Analytic LOC: Aggregate demand and aggregate supply Aggregate demand and supply slopes MSC: Definitional C PTS: 1 DIF: 1 REF: 33-3 Analytic LOC: Aggregate demand and aggregate supply Aggregate demand slope MSC: Definitional D PTS: 1 DIF: 2 REF: 33-3 Analytic LOC: Aggregate demand and aggregate supply Aggregate demand | Exchange-rate effect | Interest-rate effect | Wealth effect Interpretive C PTS: 1 DIF: 2 REF: 33-3 Analytic LOC: Aggregate demand and aggregate supply Wealth effect MSC: Definitional A PTS: 1 DIF: 1 REF: 33-3 Analytic LOC: Aggregate demand and aggregate supply Wealth effect MSC: Interpretive B PTS: 1 DIF: 2 REF: 33-3 Analytic LOC: Aggregate demand and aggregate supply Interest-rate effect MSC: Analytical B PTS: 1 DIF: 2 REF: 33-3 Analytic LOC: Aggregate demand and aggregate supply Interest-rate effect MSC: Analytical D PTS: 1 DIF: 3 REF: 33-3 Analytic LOC: Aggregate demand and aggregate supply Interest-rate effect MSC: Analytical D PTS: 1 DIF: 3 REF: 33-3 Analytic LOC: Aggregate demand and aggregate supply Exchange-rate effect MSC: Analytical A PTS: 1 DIF: 2 REF: 33-3 Analytic LOC: Aggregate demand and aggregate supply Exchange-rate effect MSC: Definitional B PTS: 1 DIF: 3 REF: 33-3 Analytic LOC: Aggregate demand and aggregate supply Exchange-rate effect | Interest-rate effect MSC: Analytical C PTS: 1 DIF: 2 REF: 33-3 Analytic LOC: Aggregate demand and aggregate supply Exchange-rate effect | Interest-rate effect | Exchange-rate effect Analytical D PTS: 1 DIF: 1 REF: 33-3 Analytic LOC: Aggregate demand and aggregate supply Aggregate demand slope MSC: Definitional B PTS: 1 DIF: 2 REF: 33-3 Analytic LOC: Aggregate demand and aggregate supply Aggregate demand shifts | Investment MSC: Applicative B PTS: 1 DIF: 2 REF: 33-3 Analytic LOC: Monetary and fiscal policy Aggregate demand shifts | Fiscal policy MSC: Applicative B PTS: 1 DIF: 2 REF: 33-3 Analytic LOC: Monetary and fiscal policy 37 128. 129. 130. 131. 132. 133. 134. 135. 136. 137. 138. 139. 140. 141. 142. 143. TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: Aggregate demand shifts | Monetary policy | Fiscal policy MSC: Applicative A PTS: 1 DIF: 2 REF: 33-3 Analytic LOC: Aggregate demand and aggregate supply Aggregate demand shifts | Investment | Net exports MSC: Applicative D PTS: 1 DIF: 1 REF: 33-3 Analytic LOC: Monetary and fiscal policy Aggregate demand shifts | Fiscal policy MSC: Applicative B PTS: 1 DIF: 2 REF: 33-4 Analytic LOC: Aggregate demand and aggregate supply Long-run aggregate supply MSC: Analytical D PTS: 1 DIF: 2 REF: 33-4 Analytic LOC: Aggregate demand and aggregate supply Long-run aggregate supply shifts MSC: Applicative C PTS: 1 DIF: 2 REF: 33-4 Analytic LOC: Aggregate demand and aggregate supply Long-run aggregate supply shifts MSC: Applicative A PTS: 1 DIF: 1 REF: 33-4 Analytic LOC: Aggregate demand and aggregate supply Long-run equilibrium MSC: Analytical D PTS: 1 DIF: 2 REF: 33-4 Analytic LOC: Aggregate demand and aggregate supply Sticky-wage theory MSC: Definitional A PTS: 1 DIF: 1 REF: 33-4 Analytic LOC: Aggregate demand and aggregate supply Sticky-wage theory MSC: Definitional D PTS: 1 DIF: 2 REF: 33-4 Analytic LOC: Aggregate demand and aggregate supply Sticky-wage theory MSC: Analytical D PTS: 1 DIF: 2 REF: 33-4 Analytic LOC: Aggregate demand and aggregate supply Sticky-price theory MSC: Analytical A PTS: 1 DIF: 2 REF: 33-4 Analytic LOC: Aggregate demand and aggregate supply Misperceptions theory MSC: Applicative A PTS: 1 DIF: 2 REF: 33-4 Analytic LOC: Aggregate demand and aggregate supply Misperceptions theory MSC: Analytical C PTS: 1 DIF: 2 REF: 33-4 Analytic LOC: Aggregate demand and aggregate supply Misperceptions theory MSC: Analytical B PTS: 1 DIF: 2 REF: 33-4 Analytic LOC: Aggregate demand and aggregate supply Short-run aggregate supply shifts | Price expectations MSC: Applicative B PTS: 1 DIF: 2 REF: 33-5 Analytic LOC: Aggregate demand and aggregate supply Short-run equilibrium MSC: Analytical D PTS: 1 DIF: 1 REF: 33-5 Analytic LOC: Aggregate demand and aggregate supply Short-run equilibrium MSC: Analytical 38 144. ANS: NAT: TOP: 145. ANS: NAT: TOP: 146. ANS: NAT: TOP: MSC: 147. ANS: NAT: TOP: 148. ANS: NAT: TOP: MSC: 149. ANS: NAT: TOP: 150. ANS: NAT: TOP: 151. ANS: NAT: TOP: 152. ANS: NAT: MSC: 153. ANS: NAT: MSC: 154. ANS: NAT: MSC: 155. ANS: NAT: TOP: 156. ANS: NAT: TOP: 157. ANS: NAT: TOP: 158. ANS: NAT: MSC: 159. ANS: NAT: C PTS: 1 DIF: 2 REF: 33-5 Analytic LOC: Aggregate demand and aggregate supply Long-run equilibrium MSC: Analytical B PTS: 1 DIF: 2 REF: 33-5 Analytic LOC: Aggregate demand and aggregate supply Aggregate supply shifts | Price expectations MSC: Applicative B PTS: 1 DIF: 3 REF: 33-5 Analytic LOC: Aggregate demand and aggregate supply Aggregate demand shifts | Pessimism | Aggregate supply shifts | Minimum wage Analytical B PTS: 1 DIF: 3 REF: 33-5 Analytic LOC: Aggregate demand and aggregate supply Aggregate supply shifts MSC: Analytical D PTS: 1 DIF: 3 REF: 33-5 Analytic LOC: Aggregate demand and aggregate supply Short-run equilibrium | Long-run equilibrium | Immigration | Stock prices Analytical D PTS: 1 DIF: 1 REF: 33-5 Analytic LOC: Aggregate demand and aggregate supply Aggregate supply shifts | Oil prices MSC: Definitional B PTS: 1 DIF: 1 REF: 33-5 Analytic LOC: Aggregate demand and aggregate supply Keynes MSC: Definitional A PTS: 1 DIF: 2 REF: 34-1 Analytic LOC: Aggregate demand and aggregate supply Interest-rate effect MSC: Interpretive C PTS: 1 DIF: 1 REF: 34-1 Analytic LOC: Monetary and fiscal policy TOP: Wealth effect Definitional C PTS: 1 DIF: 2 REF: 34-1 Analytic LOC: Monetary and fiscal policy TOP: Federal funds rate | Monetary policy Definitional A PTS: 1 DIF: 1 REF: 34-1 Analytic LOC: Monetary and fiscal policy TOP: Theory of liquidity preference Definitional B PTS: 1 DIF: 1 REF: 34-1 Analytic LOC: Monetary and fiscal policy Nominal interest rate | Real interest rate MSC: Interpretive D PTS: 1 DIF: 1 REF: 34-1 Analytic LOC: Monetary and fiscal policy Theory of liquidity preference | Money supply MSC: Definitional C PTS: 1 DIF: 2 REF: 34-1 Analytic LOC: Aggregate demand and aggregate supply Aggregate-demand curve | Money market MSC: Interpretive C PTS: 1 DIF: 2 REF: 34-1 Analytic LOC: Monetary and fiscal policy TOP: Money market equilibrium Analytical B PTS: 1 DIF: 2 REF: 34-1 Analytic LOC: The role of money TOP: Money market 39 160. 161. 162. 163. 164. 165. 166. 167. 168. 169. 170. 171. 172. 173. 174. 175. MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: TOP: ANS: NAT: MSC: ANS: NAT: TOP: ANS: NAT: MSC: ANS: NAT: MSC: ANS: NAT: TOP: Applicative B PTS: 1 DIF: 1 Analytic LOC: Monetary and fiscal policy Applicative D PTS: 1 DIF: 1 Analytic LOC: Monetary and fiscal policy Applicative C PTS: 1 DIF: 2 Analytic LOC: Monetary and fiscal policy Analytical B PTS: 1 DIF: 2 Analytic LOC: Monetary and fiscal policy Analytical B PTS: 1 DIF: 2 Analytic LOC: Monetary and fiscal policy Analytical A PTS: 1 DIF: 1 Analytic LOC: Monetary and fiscal policy Applicative D PTS: 1 DIF: 2 Analytic LOC: Monetary and fiscal policy Applicative B PTS: 1 DIF: 2 Analytic LOC: Monetary and fiscal policy Analytical C PTS: 1 DIF: 2 Analytic LOC: Monetary and fiscal policy Analytical B PTS: 1 DIF: 1 Analytic LOC: Monetary and fiscal policy Applicative A PTS: 1 DIF: 2 Analytic LOC: Monetary and fiscal policy Open-market operations | Aggregate-demand shifts C PTS: 1 DIF: 2 Analytic LOC: Monetary and fiscal policy Analytical B PTS: 1 DIF: 2 Analytic LOC: Monetary and fiscal policy Open-market operations | Short-run equilibrium A PTS: 1 DIF: 1 Analytic LOC: Monetary and fiscal policy Definitional A PTS: 1 DIF: 2 Analytic LOC: Monetary and fiscal policy Analytical C PTS: 1 DIF: 2 Analytic LOC: Monetary and fiscal policy Federal Reserve System | Stock prices REF: 34-1 TOP: Money demand shifts REF: 34-1 TOP: Money demand shifts REF: 34-1 TOP: Money market equilibrium REF: 34-1 TOP: Money market equilibrium REF: 34-1 TOP: Interest-rate effect REF: 34-1 TOP: Interest-rate effect REF: 34-1 TOP: Interest-rate effect REF: 34-1 TOP: Interest-rate effect REF: 34-1 TOP: Interest-rate effect REF: 34-1 TOP: Aggregate demand shifts REF: 34-1 MSC: Analytical REF: 34-1 TOP: Aggregate demand shifts REF: 34-1 MSC: Analytical REF: 34-1 TOP: Federal funds rate REF: 34-1 TOP: Interest-rate targeting REF: 34-1 MSC: Analytical 40 176. ANS: NAT: TOP: 177. ANS: NAT: TOP: MSC: 178. ANS: NAT: MSC: 179. ANS: NAT: MSC: 180. ANS: NAT: MSC: 181. ANS: NAT: TOP: 182. ANS: NAT: MSC: 183. ANS: NAT: MSC: 184. ANS: NAT: MSC: 185. ANS: NAT: MSC: 186. ANS: NAT: MSC: 187. ANS: NAT: MSC: 188. ANS: NAT: MSC: 189. ANS: NAT: MSC: 190. ANS: NAT: MSC: 191. ANS: NAT: MSC: B PTS: 1 DIF: 2 REF: Analytic LOC: Monetary and fiscal policy Federal Reserve System | Stock prices MSC: C PTS: 1 DIF: 2 REF: Analytic LOC: Monetary and fiscal policy Federal Reserve System | Stock prices | Money supply shifts Applicative C PTS: 1 DIF: 1 REF: Analytic LOC: Monetary and fiscal policy TOP: Interpretive D PTS: 1 DIF: 2 REF: Analytic LOC: Monetary and fiscal policy TOP: Applicative B PTS: 1 DIF: 2 REF: Analytic LOC: Monetary and fiscal policy TOP: Applicative D PTS: 1 DIF: 2 REF: Analytic LOC: Monetary and fiscal policy Monetary policy | Fiscal policy | Aggregate demand shifts MSC: D PTS: 1 DIF: 2 REF: Analytic LOC: Monetary and fiscal policy TOP: Applicative D PTS: 1 DIF: 2 REF: Analytic LOC: Monetary and fiscal policy TOP: Interpretive D PTS: 1 DIF: 1 REF: Analytic LOC: Monetary and fiscal policy TOP: Applicative D PTS: 1 DIF: 3 REF: Analytic LOC: Monetary and fiscal policy TOP: Analytical C PTS: 1 DIF: 2 REF: Analytic LOC: Monetary and fiscal policy TOP: Applicative A PTS: 1 DIF: 2 REF: Analytic LOC: Monetary and fiscal policy TOP: Applicative C PTS: 1 DIF: 2 REF: Analytic LOC: Monetary and fiscal policy TOP: Analytical A PTS: 1 DIF: 2 REF: Analytic LOC: Monetary and fiscal policy TOP: Applicative C PTS: 1 DIF: 2 REF: Analytic LOC: Monetary and fiscal policy TOP: Interpretive C PTS: 1 DIF: 3 REF: Analytic LOC: Monetary and fiscal policy TOP: Analytical 34-1 Analytical 34-1 34-2 Fiscal policy 34-2 Multiplier 34-2 Multiplier 34-2 Interpretive 34-2 Multiplier effect 34-2 Multiplier 34-2 Multiplier | Crowding out 34-2 Multiplier | Crowding out 34-2 Multiplier | Investment accelerator 34-2 Multiplier 34-2 Multiplier | Crowding out 34-2 Fiscal policy 34-2 Multiplier | Crowding out 34-2 Multiplier | Taxes 41 192. ANS: NAT: MSC: 193. ANS: NAT: MSC: 194. ANS: NAT: MSC: 195. ANS: NAT: MSC: 196. ANS: NAT: MSC: 197. ANS: NAT: MSC: 198. ANS: NAT: MSC: 199. ANS: NAT: MSC: 200. ANS: NAT: MSC: B Analytic Definitional A Analytic Analytical D Analytic Definitional B Analytic Definitional A Analytic Applicative C Analytic Applicative A Analytic Definitional C Analytic Analytical A Analytic Analytical PTS: 1 DIF: 2 LOC: Monetary and fiscal policy REF: 34-2 TOP: Taxes | Aggregate supply PTS: 1 DIF: 2 LOC: Monetary and fiscal policy REF: 34-2 TOP: Stabilization policy PTS: 1 DIF: 1 LOC: Monetary and fiscal policy REF: 34-3 TOP: Stabilization policy PTS: 1 DIF: 2 LOC: Monetary and fiscal policy REF: 34-3 TOP: Policy lags PTS: 1 DIF: 2 LOC: Monetary and fiscal policy REF: 34-3 TOP: Stabilization policy PTS: 1 DIF: 2 LOC: Monetary and fiscal policy REF: 34-3 TOP: Stabilization policy PTS: 1 DIF: 1 LOC: Monetary and fiscal policy REF: 34-3 TOP: Automatic stabilizers PTS: 1 DIF: 2 LOC: Monetary and fiscal policy REF: 34-3 TOP: Automatic stabilizers PTS: 1 DIF: 2 LOC: Monetary and fiscal policy REF: 34-3 TOP: Automatic stabilizers 42 ... View Full Document

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