Macroeconomics Final Exam

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All of the questions from Chapters 11 and 12 from the Intermediate Macro book and Chapters 18,19, 20, and 21 from our Principles textbook

International trade

a.) raises the standard of living in all trading countries.

Foreign-produced goods and services that are purchases domestically are called...

a.) imports

Bill, a U.S. citizen, pays a Spanish architect to design a metal casting factory. Which country's exports increase?

a.) Spain's

When Claudia, a U.S. citizen, purchases a handbag made in France, the purchase is

c.) a U.S. import and French export

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

Net exports of a country are the value of ...

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

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

a.) a trade surplus and positive net exports.

The value of the goods and services Australia purchases from the U.S. are greater than the value of goods and services the U.S. purchases from Australia. The U.S. has

a.) positive net exports with Australia and a trade surplus with Australia.

Which of the following both reduce net exports?

d.) imports rise, exports fall

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

d.) its trade deficit rose

One year a country has positive net exports. The next year it still has positive but larger net exports...

b.) its trade surplus rose

A country's trade balance...

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

The value of Peru's exports minus the value of Peru's imports is called...

c.) Peru's net exports

If the United States had negative net exports last year, then it...

d.) bought more abroad than it sold abroad nd had a trade deficit

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

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

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

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

Net exports measures the difference between a country's

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

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

c.) foreign portfolio investment by Egyptians

Suppose that real interest rates in the U.S. rise relative to real interest rates in other countries. This increase would make foreigners

a.) more willing to purchase U.S. bonds, so U.S. net capital outflow would fall

An Italian company builds and operates a pasta factory in the United Staes. This is an example of Italian....

a.) foreign direct investment that increases Italian net capital outflow

A German company exchanges euros for dollars from U.S. residents and then uses the dollars to buy U.S. products to sell in Germany. U.S. residents who exchanged their dollars for euros use the euros to buy bonds issued by Spanish corporations. At this point

a.) both U.S. net exports and U.S. net capital outflows have risen

An Open economy's GDP is always given by

d.) Y= C + I + G +NX

Which of the following equations is correct?

c.) S= I + NCO

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

c.) I= S - NCO

Which of the following is correct?

a.) NCO = NX

Which of the following is correct?

b.) NCO = NX

Which of the following is always correct?

b.) NCO = NX

Which of the following equations is correct?

d.) all of the above of correct (y=c+i+g+nco, nx=nco, and nco=s-i)

If savings is greater than domestic investment, then

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

If a country were to save more, but its domestic investment remained the same, then which of the following would rise

a.) both net capital outflow and net exports

Other things the same, a country could move from having a trade surplus to having a trade deficit if either...

c.) saving fell or domestic investment rose

In an open economy, national saving equals

a.) domestic investment plus net capital outflow

In the open-economy macroeconomic model, the market for loanable funds equates national saving with

d.) the sum of domestic investment and net capital outflow

In the open-economy macroeconomic model, the market for loanable funds equates national saving with

d.) none of the above (domestic investment, net capital outflow, national consumptions minus domestic investment)

In the open-economy macroeconomic model, the market for loanable funds identify can be written as

c.) S = I + NCO

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

a.) national saving

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

c.) national saving

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

d.) none of the above (above answers: the sum of domestic investment and net capital outflow, net capital outflow alone, domestic investment alone)

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

d.) loanable funds supplied

Other things the same, a lower real interest rate decreases the quantity of...

b.) loanable funds supplied

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

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

Other things the same, an increase in the U.S. interest rate causes the quantity of loanable funds supplied to

b.) rise because national saving rises.

The explanation for the slope of...

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

Other things the same, an increase in the U.S. real interest rate induces...

c.) foreigners to buy more U.S. assets, which reduces U.S. net capital outflow

A country has I = $200 billion, S = $400 billion, and purchased $600 billion of foreign assets, how many of its assets did foreigners purchase?

c.)$400 billion

Which of the following explains why production rises in most years?

d.) All of the above are correct (above answers: increases in the labor force, increases in the capital stock, advances in technological knowledge)

A relatively mild period of falling incomes and rising unemployment is called a(n)...

b.) recession

During a recession the economy experiences

d.) falling employment and income

During recessions

d.) all of the above are correct (above answers: workers are laid off, factories are idle, firms may find they are unable to sell all they produce )

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

a.) short-run fluctuations in the economy

Which of the following is correct?

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

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

c.) recessions do not occur at regular intervals

Which of the following is correct?

d.) none of the above is correct (above answers: Economic fluctuations are easily predicted by competent economists., Recessions have never occurred very close together., Spending, income, and production do not fluctuate closely with real GDP.)

Which of the the following is correct?

b.) Real GDP is the the variable most commonly used to measure short-run economic fluctuations. It is almost impossible to predict these fluctuations with much accuracy.

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

b.) real GDP

Real GDP...

b.) measures economic activity and income

During recessions...

a.) sales and profits fall.

Which of the following is correct?

c.) During recessions sales and profits tend to fall.

Which of the following fall during a recession?

a.) both retail sales and employment

During recessions which type of spending falls?

a.) consumption and investment

The investment component of GDP measures spending on...

b.) residential construction, business equipment, business structures, and changes in inventory. During recessions it declines by a relatively large amount.

During recessions investment...

a.) falls by a larger percentage than GDP

During recessions declines in investment account for about....

d.) 2/3 of the decline in real GDP

Historically, the change in real GDP during recessions has been

a.) mostly a change in investment spending.

Investment is a

b.) small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP

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

c.) investment expenditures

Which of the following accounts for about two-thirds of the decline in output during a recession?

c.) the decline in investment spending alone.

Recession come at...

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

Which of the following typically rises during a recession?

b.) unemployment

Real GDP...

c.) measures economic activity and real income

As recessions begin, production...

c.) falls and unemployment rises

The classical dichotomy refers to the separation of...

d.) real and nominal variables.

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

b.) nominal variables, but not real variables.

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

b.) variables measured in terms of money but not variables measured in terms of quantities or relative prices

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

c.) the price level, but not real GDP

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

c.) both prices and nominal income

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

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

The quantity of money has no real impact on things people really care about like whether or not they have a job. Most economists would agree that this statement is appropriate concerning...

c.) the long run, but not the short run.

Most economists believe that classical macroeconomic theory is a good description of the economy...

d.) in the long run, but not in the short run.

Most economists believe that money neutrality holds...

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

Most economists believe that in the long run, changes in the money supply...

a.) affect nominal but not gal variables. This view that money is ultimately neutral is consistent with classical theory.

The aggregate demand and aggregate supply graph has...

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

The aggregate demand and aggregate supply graph has...

b.) quantity of output on the horizontal axis. Output can by measured by real GDP.

The variables on the vertical and horizontal axes of the aggregate demand and supply graph are...

a.) the price level and real output

The aggregate-demand curve shows the...

d.) quantity of domestically produced goods and services that households, firms, the government, and customers abroad want to buy at each price level.

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

d.) real GDP and the price level

Aggregate demand includes...

a.) both the quantity of goods and services the government and cutovers abroad want to buy.

Aggregate demand includes...

d.) the quantity of goods and services households, firms, the government, and customer abroad want to buy

The curve that shows the quantity of goods and services that firms produce and sell...

d.) as it relates to the overall price level is called aggregate-supply curve

Which of the following adjust to bring aggregate supply and demand into balance?

a.) the price level and real output

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

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

A decrease in U.S. interest rates leads to...

a.) a depreciation of the dollar that leads to greater net exports.

Other things the same, a decrease in the price level causes the interest rate to...

c.) decrease, the dollar to depreciate, and net exports to increase

Suppose a fall in stock prices makes people feel poorer. The decrease in wealth would induce people to...

c.) decrease consumption, shown by shifting the aggregate-demand curve to the left

When taxes decrease, consumption...

d.) increases as shown by a shift of the aggregate demand curve to the right.

When taxes increase, consumption...

b.) decreases as shown by a shift of the aggregate demand curve to the left.

When the money supply increases...

a.) interest rates fall and so aggregate demand shifts right.

In 2009,, Congress passed legislation providing states with funds to build roads and bridges. It also instituted tax cuts. Which of these shifts aggregate demand curve right?

c.) both the increased funding for states and the tax cuts.

The long-run aggregate supply curve...

d.) all of the above are correct (above answers: is vertical, is a graphical representation of the classical dichotomy, indicates monetary neutrality in the long run)

The classical dichotomy and monetary neutrality are represented graphically by...

b.) a vertical long-run aggregate-supply curve

Which of the following is correct?

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

The position of the long-run aggregate supply curve...

a.) is determined by the things that determine output in the classical model.

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

b.) in the price level, but not output

The long-run aggregate supply curve shifts right if...

d.) all of the above are correct (above answers: immigration from abroad increases, the capital stock increases, technology advances)

The long-run aggregate supply curve shifts left if...

b.) there is a natural disaster

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

a.) an increase in either the physical or human capital stock

Fiscal policy affects the economy....

c.) in both the short and long run

Shifts in aggregate demand affect the price level in...

c.) both the short and long run

For the U.S. economy, which of the following helps explain the slope of the aggregate-demand curve?

b.) An increase in the price level increases the interest rate.

The wealth effect helps explain the slope of the aggregate-demand curve. This effect is...

c.) relatively unimportant in the United States because money holdings are a small part of consumer wealth

According to John Maynard Keynes,

c.) the interest rate adjusts to balance the supply of, and demand for, money.

According to the theory of liquidity preference,

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

According to classical macroeconomic theory,

c.) output is determined by the supplies of capital and labor and the available production technology

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

c.) federal funds rate

When the Fed buys government bonds, the reserves of the banking system...

a.) increase, so the money supply increases.

Which among the following gas sets is the most liquid?

d.) funds in a checking account

The opportunity cost of holding money...

d.) increases when the interest rate increases, so people desire to hold less of it.

In the long run, fiscal policy influences...

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

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

b.) government spending and taxes

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

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

The multiplier for changes in government spending is calculated as...

d.) 1/(1-MPC)

The term crowding-out effect refers to...

c.) the reduction in aggregate demand that results when a fiscal expansion causes the interest rate to increase.

To reduce the effects of crowding out caused by an increase in government expenditures, the Federal Reserve could....

a.) increase the money supply by buying bonds

Assume the MPC is 0.80. The multiplier is...

d.) 5.00

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

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

Which U.S. president, when asked why he had proposed a tax cut, responded by saying, "To stimulate the economy. Don't you remember your Economics 101?"

b.) John F. Kennedy

Monetary policy...

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

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

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

John Maynard Keynes wrote that responsibility for low income and high unemployment in economic downturns should be placed on:

d.) low aggregate demand

In the IS-LM model, which two variables are influenced by the interest rate?

d.) demand for real money balances and investment spending

For the purposes of the Keynesian cross, planned expenditure consists of:

d.) planned investment, government spending, and consumption expenditures

In the Keynesian-cross model, actual expenditures differ from planned expenditures by the amount of:

c.) unplanned inventory investment

In the Keynesian-cross model, if the MPC equals 0.75, then a $1 billion increase in government spending increases planned expenditures by _____ and increases the equilibrium level of income by ______.

a.) $1 billion; more than $1 billion

According to the Keynesian-cross analysis, if MPC stands for marginal propensity to consume, then a rise in taxes of change of T will:

c.) decrease equilibrium income by (change in T)(MPC)/(1-MPC)

In the Keynesian-cross model, what adjusts to move the economy to equilibrium following a change in exogenous planned spending?

c.) production

An increase in the interest rate:

a.) reduces planned investment, because the interest rate is the cost of borrowing to finance investment projects

An explanation for the slope of the IS curve is that as the interest rate increases, the quantity of investment ____, and this shifts the expenditure function ____, thereby decreasing income.

d.) decrease; downward

An increase in government spending generally shifts the IS curve, drawn with income along the horizontal axis and the interest rate along the vertical axis:

b.) upward and to the right

The theory of liquidity preference implies that, other things being equal, an increase in the real money supply will:

a.) lower the interest rate

The theory of liquidity preference implies that the quantity of real money balances demanded is:

d.) negatively related to the interest rate and positively related to income

An explanation for the slope of the LM curve is that as:

c.) income rises, money demand rises, and a higher interest rate is required

A decrease in the nominal money supply, other things being equal, will shift the LM curve:

d.) upward and to the left

A decrease in the price level, holding nominal money supply constant, will shift the LM curve:

b.) downward and to the right

The LM curve shows combinations of _____ that are consistent with equilibrium in the market for real money balances.

c.) the interest rate and the level of income

The IS-LM model is generally used:

a.) only in the short run

The interaction of the IS curve and the LM curve together determine:

d.) the interest rate and the level of output

If the LM curve is vertical and government spending rises by G, in the IS-LM analysis, then equilibrium income rises by:

d.) zero

If MPC = 0.75 (and there are no income taxes but only lump-sum taxes) when G increases by 100, then the IS curve for any given interest rate shifts to the right by:

d.) 400

If MPC = 0.75 (and there are no income taxes but only lump-sum taxes) when T decreases by 100, then the IS curve for any given interest rate shifts to the right by:

c.) 300

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