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

imports.

International trade

raises the standard of living in all trading countries

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

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

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

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

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

a trade surplus and positive net exports

If purchasing-power parity holds, a dollar will buy

enough foreign currency to buy as many goods as it does in the United States.

Which of the following both reduce net exports?

imports rise, exports fall

One year a country has negative net exports. The next year it still has negative net exports and imports have risen more than exports

its trade deficit rose

Which of the following does purchasing-power parity imply?

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

Which of the following does purchasing-power parity imply?

The nominal exchange rate is the ratio of foreign prices to U.S. prices.

A country's trade balance

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

According to purchasing-power parity, which of the following necessarily equals the ratio of the foreign price level divided by the domestic price level?

the nominal exchange rate, but not the real exchange rate

The theory of purchasing-power parity primarily explains

the determination of the real exchange rate

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?

1/2 pound per dollar

Suppose that a country imports $75 million of goods and services and exports $100 million of goods and services. What is the value of net exports?

$25 million

According to purchasing-power parity, if a basket of goods costs $100 in the U.S. and the same basket costs 800 pesos in Argentina, then what is the nominal exchange rate?

8 pesos per dollar

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

prices in the United States divided by foreign prices.

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

e(P/P*)

If purchasing power parity holds, the price level in the U.S. is 120, and the price level in Canada is 140, which of the following is true?

the nominal exchange rate is 140/120

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

3-Apr

It costs $80 for a dental appointment in the U.S. It costs 600 Egyptian pounds for the same appointment in Egypt. The nominal exchange rate is 7 pounds per dollar. The real exchange rate is

less than one. Dental appointments in Egypt are more expensive than in the U.S.

If a country raises its budget deficit, then its

net capital outflow and net exports fall

In an open economy, national saving equals

domestic investment plus net capital outflow

In the open-economy macroeconomic model, the key determinant of net capital outflow is the

real interest rate

Because a government budget deficit represents

negative public saving, it decreases national saving.

When the U.S. real interest rate falls, owning U.S. assets becomes

less attractive to both U.S. residents and foreign residents.

The open-economy macroeconomic model examines the determination of

the trade balance and the exchange rate

When a government increases its budget deficit, then that country's

supply of loanable funds shifts left

In the open-economy macroeconomic model, the supply of loanable funds comes from

national saving

The open-economy macroeconomic model includes

both the market for loanable funds and the market for foreign-currency exchange.

A rise in the budget deficit

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.

In the open-economy macroeconomic model, which of the following increases net capital outflow?

a fall in the real interest rate, but not a fall in the real exchange rate

Which of the following is correct concerning the open-economy macroeconomic model?

The net-capital-outflow curve slopes downward

Other things the same, a higher real interest rate raises the quantity of

oanable funds supplied.

If a country went from a government budget deficit to a surplus, national saving would

increase, shifting the supply of loanable funds right.

If the exchange rate rises, which of the following falls in the open-economy macroeconomic model?

desired net exports but not desired net capital outflow

Other things the same, people in the U.S. would want to save more if the real interest rate in the U.S.

rose. The increased saving would increase the quantity of loanable funds supplied.

The explanation for the slope of

the supply of loanable funds curve is based on the logic that a higher real interest rate leads to higher saving

A decrease in the budget deficit causes domestic interest rates

to fall and investment to rise.

A country has national saving of $60 billion, government expenditures of $30 billion, domestic investment of $40 billion, and net capital outflow of $20 billion. What is its supply of loanable funds?

$60 billion

U.S. net capital outflow

s a part of the demand for loanable funds, and the source of the supply of dollars in the foreign exchange market

In an open economy, the demand for loanable funds comes from

those who want to borrow funds to buy either domestic capital goods or foreign assets

If a country raises its budget deficit, then in the market for foreign-currency exchange

supply shifts left.

If a country has a positive net capital outflow, then

on net it is purchasing assets from abroad. This adds to its demand for domestically generated loanable funds.

If a country has a negative net capital outflow, then

on net other countries are purchasing assets from it. This subtracts from its demand for domestically generated loanable funds.

If U.S. residents want to buy more foreign bonds, then in the market for foreign-currency exchange the exchange rate

falls and the quantity of dollars traded rises.

In the open-economy macroeconomic model, if a country's interest rate rises, its net capital outflow

falls and the real exchange rate rises.

In the open-economy macroeconomic model, if the supply of loanable funds shifts right, then

the supply of dollars in the market for foreign-currency exchange shifts right

If a country's budget deficit rises, then its exchange rate

rises, so its imports rise.

In the open-economy macroeconomic model, if the supply of loanable funds shifts right

the interest rate falls and the supply of dollars in the market for foreign-currency exchange shifts right.

The aggregate demand and aggregate supply graph has the

quantity of output on the horizontal axis. Output is best measured by real GDP

Which of the following is not a determinant of the long-run level of real GDP?

the price level

Which of the following is correct?

When real GDP falls, the rate of unemployment rises.

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

recessions do not occur at regular intervals.

The long-run aggregate supply curve

indicates monetary neutrality in the long run, is a graphical representation of the classical dichotomy, and is vertical

The aggregate-demand curve

shows an inverse relation between the price level and the quantity of all goods and services demanded

If aggregate demand shifts left, then in the short run

the price and real GDP both fall.

During a recession the economy experiences

alling employment and income.

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

aggregate demand shifts right

Which of the following is correct?

The long-run, but not the short-run, aggregate supply curve is consistent with the idea that nominal variables do not affect real variables

Which of the following is included in the aggregate demand for goods and services?

consumption demand, net exports, and investment demand

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

short-run aggregate supply shifts right

The long-run aggregate supply curve shows that by itself a permanent change in aggregate demand would lead to a long-run change

in the price level, but not output.

When the price level falls the quantity of

consumption goods demanded and the quantity of net exports demanded both rise.

The long-run aggregate supply curve would shift right if immigration from abroad

increased or Congress abolished the minimum wage.

If the economy is initially at long-run equilibrium and aggregate demand declines, then in the long run the price level

is lower and output is the same as the original long-run equilibrium.

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

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

Recessions in China and India would cause

the U.S. price level and real GDP to fall

The long-run aggregate supply curve shifts left if

there is a natural disaster.

In which case can we be sure that real GDP rises in the short run?

foreign economies expand and the money supply increases

Which of the following shifts long-run aggregate supply right?

an increase in either the physical or human capital stock

The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for

the slope of the aggregate-demand curve

The discovery of a large amount of previously-undiscovered oil in the U.S. would shift

the long-run aggregate-supply curve to the right.

Changes in the price level affect which components of aggregate demand?

consumption, investment, and net exports

An economic contraction caused by a shift in aggregate demand remedies itself over time as the expected price level

falls, shifting aggregate supply right.

If aggregate demand shifts right then in the short run

firms will increase production. In the long run increased price expectations shift the short-run aggregate supply curve to the left.

An economic contraction caused by a shift in aggregate demand causes prices to

fall in the short run, and fall even more in the long run.

As recessions begin, production

falls and unemployment rises

Shifts in the aggregate-demand curve can cause fluctuations in

the level of output and in the level of prices

Fiscal policy affects the economy

in both the short and long run.

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

government spending and taxes

In the long run, changes in the money supply affect

prices.

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

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

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

extra income that a household consumes rather than saves.

The multiplier for changes in government spending is calculated as

1/(1 - MPC).

If the multiplier is 5, then the MPC is

0.8.

The Kennedy tax cut of 1964 was

designed to shift the aggregate demand curve to the right., designed to shift the aggregate supply curve to the right, and successful in stimulating the economy

When the Fed increases the money supply, the interest rate decreases. This decrease in the interest rate increases consumption and investment demand, so the aggregate-demand curve shifts to the right.

TRUE

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

the equilibrium interest rate decreases.

A reduction in U.S net exports would shift U.S. aggregate demand

leftward. In an attempt to stabilize the economy, the government could cut taxes

The logic of the multiplier effect applies

to any change in spending on any component of GDP.

The price of imported oil rises. If the government wanted to stabilize output, which of the following could it do?

increase government expenditures or increase the money supply

Suppose aggregate demand shifts to the left and policymakers want to stabilize output. What can they do?

institute an investment tax credit or increase the money supply

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending, assuming policymakers want to stabilize output?

increase taxes

Which of the following policies would be advocated by someone who wants the government to follow an active stabilization policy when the economy is experiencing severe unemployment?

increase government expenditures

Some economists argue that

fiscal policy should actively be used to stabilize the economy, monetary policy should actively be used to stabilize the economy, and fiscal policy can be used to shift the AD curve

Critics of stabilization policy argue that

the impact of policy may last longer than the problem it was designed to offset, there is a lag between the time policy is passed and the time policy has an impact on the economy, policy can be a source of, instead of a cure for, economic fluctuations

The lag problem associated with monetary policy is due mostly to

the fact that business firms make investment plans far in advance

According to the theory of liquidity preference, the money supply

is independent of the interest rate, while money demand is negatively related to the interest rate

When the price level rises, the number of dollars needed to buy a representative basket of goods

increases, and so the value of money falls.

In which of the following cases was the inflation rate 10 percent over the last year

One year ago the price index had a value of 120 and now it has a value of 132

If the CPI rises, the number of dollars needed to buy a representative basket of goods

increases, and so the value of money falls.

The value of money falls as the price level

rises, because the number of dollars needed to buy a representative basket of goods rises.

Shoeleather cost refers to

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

When inflation rises, people tend to go to the bank

more often, giving rise to shoeleather costs.

The term hyperinflation refers to

a period of very high inflation.

The supply of money increases when

the Fed makes open-market purchases.

Money demand refers to

how much wealth people want to hold in liquid form.

The quantity equation is M x V = P x Y.

TRUE

Assuming the Fisher Effect holds, and given U.S. tax laws, an increase in inflation

does not change the real interest rate but reduces the after-tax real rate of interest

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

Economic variables whose values are measured in goods are called

real variables.

Nominal GDP measures

the dollar value of the economy's output of final goods and services.

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