Macro Test 3

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Over the past 70 years, the overall price level in the U.S. has experienced a(n)

d. 16-fold increase.

If the price level increased from 120 to 126, then what was the inflation rate?

b. 5 percent

In the last part of the 1800's


If P denotes the price of goods and services measured in terms of money, then

1/P represents the value of money measured in terms of goods and services

As the price level decreases, the value of money

increases, so people want to hold less of it.

When the money market is drawn with the value of money on the vertical axis,

money demand slopes downward and money supply is vertical.

Suppose the money market, drawn with the value of money on the vertical axis, is in equilibrium. If the money supply increases, then at the old value of money there is an


The price level rises if either

money demand shifts leftward or money supply shifts rightward; this rise in the price level is associated with a fall in the value of money.

When the money market is drawn with the value of money on the vertical axis, the price level increases if

money demand shifts left and decreases if money supply shifts left.

Refer to Figure 30-1. If the money supply is MS2 and the value of money is 2, then there is an excess

d. supply of money that is represented by the distance between points A and B.

On a given morning, Franco sold 40 pairs of shoes for a total of $80 at his shoe store.

b. The $80 is a nominal variable. The quantity of shoes is a real variable.

On its web site, your bank posts the interest rates it is paying on savings accounts. Those posted rates

b. and a price index are both nominal variables.

According to the classical dichotomy, which of the following is affected by monetary factors?

c. nominal GDP

According to the classical dichotomy, which of the following is influenced by monetary factors?

a. nominal wages

According to the classical dichotomy, which of the following is not influenced by monetary factors?

b. real GDP

Most economists believe that monetary neutrality provides

d. a good description of the long run, but not the short run.

Which of the following is not implied by the quantity equation?

d. With constant money supply and velocity, an increase in output creates a proportional increase in the price level.

Evidence concerning hyperinflation indicates a clear link between the money supply and the price level for

d. All of the above are correct.

The nominal interest rate is 3 percent and the inflation rate is 2 percent. What is the real interest rate?

d. 1 percent

The Fisher effect

b. says there is a one for one adjustment of the nominal interest rate to the inflation rate.

Shoeleather cost refers to

c. resources used to maintain lower money holdings when inflation is high.

Indexing the tax system to take into account the effects of inflation would by itself

a. mean that only real interest earnings are taxed.

James took out a fixed-interest-rate loan when the CPI was 200. He expected the CPI to increase to 206 but it actually increased to 204. The real interest rate he paid is

a. higher than he had expected, and the real value of the loan is higher than he had expected.

Between 1880 and 1886, prices that were

b. lower than expected transferred wealth from debtors to creditors.

Which movie is an allegory about late 19th century monetary policy?

a. The Wizard of Oz

Juan lives in Ecuador and purchases a motorcycle manufactured in the United States. The motorcycle is

d. a U.S. export and an Ecuadorian import.

A country's trade balance

c is greater than zero only if exports are greater than imports.

If Germany purchased more goods and services abroad than it sold abroad last year, then it had

d. negative net exports which is a trade deficit.

Which of the following is correct?

b. U.S. exports as a percentage of GDP have more than doubled since 1950. The U.S. currently has a trade deficit.

Other things the same, which of the following could explain a rise in Sweden's net capital outflow?

c. Sweden enacts a law reducing taxes on income earned by foreign-owned businesses operating in Sweden

A Canadian manufacturing company opens a factory the produces air conditioners in the United States. This is an example of Canadian

a. foreign direct investment that increases Canadian net capital outflow.

If a country has a trade surplus then

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

Jill, a U.S. citizen, uses some euros to purchase a bond issued by a French vineyard. This exchange

d. does not change U.S. net capital outflow.

Ann, a U.S. citizen, uses some previously obtained euros to purchase a bond issued by a Spanish company. This transaction

c. does not change U.S. net capital outflow.

The U.S. has a trade surplus. Which of the following is correct?


A nation has a positive net capital outflow. Which of the following is correct?

All of the Above: Purchases of foreign assets by domestic residents exceed purchases of domestic assets by foreigners, It has positive net exports, and Its savings exceeds its domestic investment.

Other things the same, if a country's domestic investment decreases, then

capital is flowing into the U.S. and S > I

A country has $45 million of domestic investment and net capital outflow of -$60 million. What is its saving?

b. -$15 million.

From 1980-1987, U.S. net capital outflow as a percent of GDP became a

c. larger negative number.

If the exchange rate is .60 British pounds = $1, a bottle of ale that costs 3 pounds costs

a. $1.80.

You are planning a graduation trip to Nepal. Other things the same, if the dollar appreciates relative to the Nepalese rupee, then

c. the dollar buys more rupees. Your purchases in Nepal will require fewer dollars.

If the exchange rate changes from 148 Kazakhstan tenge per dollar to 155 Kazakhstan tenge per dollar, the dollar has

a. appreciated. Other things the same, it now takes fewer dollars to buy Kazakhstani goods.

The real exchange rate is the nominal exchange rate, defined as foreign currency per dollar, times

b. prices in the United States divided by foreign prices.

Other things the same, the real exchange rate between American and Mexican goods would be lower if

c. prices of Mexican goods were lower, or the number of pesos a dollar purchased was higher.

The exchange rate is 1.5 Bosnian markas per U.S. dollar. The price of a refrigerator in Bosnia is 1,200 markas while in the U.S. it is $1,000. The real exchange rate is

b. 5/4

Which of the following could be a consequence of a depreciation of the U.S. real exchange rate?

c. Roberta, a U.S. citizen, decides to import fewer windshield wipers for her auto parts company.

According to purchasing power parity, if the same basket of goods costs $100 in the U.S. and 50 pounds in Britain, then what is the nominal exchange rate?

c. 1/2 pound per dollar

A haircut costs 200 pesos in Mexico and $20 in the U.S. The exchange rate is 12.5 pesos per dollar. The real exchange rate is

d. greater than one. Haircuts in Mexico are more expensive than in the U.S.

If the exchange rate is 70 Bangladesh taka per dollar and a bushel of rice costs 200 taka in Bangladesh and $3 in the United States, then the real exchange rate is


According to purchasing power parity, if it took 1,100 Korean Won to buy a dollar this year, but it took 1,000 to buy it last year, then the dollar has


According to purchasing power parity, if over the course of a year the price level in the U.S. rises more than in Canada, then which of the following rises?


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,


During a hyperinflation the real domestic value of a country's currency

a. falls and its nominal exchange rate depreciates.

Other things the same, as the real interest rate rises

c. domestic investment rises and net capital outflow falls.

Refer to Figure 32-1. The loanable funds market is in equilibrium at

b. 4 percent, $40 billion.

If the supply of dollars in the market for foreign-currency exchange shifts left, then the exchange rate


When the U.S. real interest rate falls

b. U.S. purchases of foreign assets rise and foreign purchases of U.S. assets fall

Refer to Figure 32-3. Which curve is determined by net capital outflow only?

c. the supply curve in panel a.

A rise in the budget deficit

b. shifts both the supply of loanable funds in the market for loanable funds and the supply of dollars in the market for foreign-currency exchange left.

If the budget deficit increases, then

b. an increase in the interest rate decreases net capital outflow.

If the budget deficit increases, then

c. U.S. residents will want to purchase fewer foreign assets and foreign residents will want to purchase more U.S. assets

When a country's government budget deficit increases,

c. the real exchange rate of its currency increases and its net exports decrease.

An increase in the budget surplus

d. reduces net exports and domestic investment.

Which of the following contains a list only of things that increase when the budget deficit of the U.S. increases?

b. U.S. imports, U.S. interest rates, the real exchange rate of the dollar

In the 1980s, the U.S. government budget deficit rose. At the same time the U.S. trade deficit grew larger, the real exchange rate of the dollar appreciated, and U.S. net capital outflow decreased. Which of these events is contrary to what the open-economy macroeconomic model predicts concerning the effects of an increase in the budget deficit?

a. The U.S. trade deficit grew.

Refer to Figure 32-4. Suppose that the government goes from a budget surplus to a budget deficit. The effects of the change could be illustrated by


Refer to Figure 32-5. In the market for foreign-currency exchange, the effects of an increase in the budget surplus is illustrated as a move from g to

d. i.

When a country imposes an import quota, its


Suppose the U.S. imposes an import quota on steel. U.S. exports


If the U.S. put an import quota on clothing, it would

b. raise U.S. net exports of clothing and lower net exports of other U.S. goods.

Refer to Figure 32-6. If the interest rate were initially at r2 and an import quota were imposed, the interest rate would

c. increase because supply would shift left.

Refer to Figure 32-6. If equilibrium were at point h and the government imposed quotas on imports of toys and textiles the equilibrium would move to


When a country experiences capital flight its

a. net capital outflow increases and its real exchange rate rises.

In which case(s) does(do) a country's supply of loanable funds shift left?


If government policy encouraged households to save more at each interest rate, then

d. the real exchange rate would fall and net exports would rise.

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