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BUS 313 - Chapter 11: Homework

Terms in this set (23)

On the graph to the​ right, show the effect on the equilibrium price and GDP using the​ AD/AS model when there is a drop in export demand by foreign purchasers.
​1.) Using the line drawing tool​, show the change to the AD or AS curve. Properly label your line.
​2.) Using the point drawing tool​, show the​ economy's new equilibrium. Label the point​ 'E'.
3.)Using the​ AD/AS graph, when there is a drop in export demand by foreign​ purchasers, the price level will _____ and GDP will _____
1.) AD2 is left of AD1
2.) Point E is at the intersection AD2 and AS1
3.) decrease, decrease
An increase in disposable income worsens the current account​ because:

A. it raises the real exchange rate and therefore worsens the current account.
B. consumers demand more of all​ goods, including imported​ goods, while exports are not affected.
C. it lowers the real exchange rate and therefore worsens the current account.
D. it raises consumption which reduces​ exports, because now there are fewer goods that can be​ exported, and more are consumed domestically.
B. consumers demand more of all​ goods, including imported​ goods, while exports are not affected.
1.) When there is a change in government spending or taxes to affect aggregate economic​ activity, this is referred to as

A. monetary policy.
B. political posturing.
C. fiscal policy.
D. aggregate policy.

2.) When the money supply is changed to affect aggregate economic​ activity, this is referred to as

A. monetary policy.
B. aggregate policy.
C. fiscal policy.
D. political posturing.

3.) Which of the following is​ correct?

A. The president and Congress conduct monetary policy and the Federal Reserve conducts export policy.
B. The president and Congress conduct fiscal policy and the Federal Reserve conducts monetary policy.
C. The president and Congress conduct monetary policy and the Federal Reserve conducts fiscal policy.
D. None of the above are correct.
1.) C. fiscal policy.
2.) A. monetary policy.
3.) B. The president and Congress conduct fiscal policy and the Federal Reserve conducts monetary policy.
1.)Which of the following is not a problem associated with fiscal​ policy?

A. There are time​ lags: the recognition​ lag, the implementation​ lag, and the effectiveness lag.
B. Expansionary fiscal policy tends to cause the inflation rate to​ rise, thereby offsetting some of the increased consumer spending.
C. The effects of fiscal policy vary depending on how it is financed.
D. There is a substantial margin of error in the estimation of the size of the multiplier.

2.) Which of the following is not a problem associated with monetary​ policy?

A. Monetary policy may be ineffective if investment and consumption fail to respond to changes in interest rates.
B. It is difficult to predict interest rates because a number of other factors also affect interest rates.
C. There is considerable uncertainty on the value of the money multiplier.
D. None of the above.
1.) E. It is difficult to predict interest rates because a number of other factors also affect interest rates.
2.) D. None of the above.
Which economic institution determines or controls the money supply in the​ U.S.?

A. The Department of Treasury
B. The International Monetary Fund
C. The Federal Reserve
D. Commercial banks
C. The Federal Reserve
Assuming a flexible exchange rate​ system, a decrease in the money supply leads to ______ in the value of the U.S. dollar and _____ in the value of foreign currency. This in​ turn, leads to ______ in net exports and aggregate demand. A decrease in the money supply leads to _______ interest rates. This, in​ turn, leads to an _______ in investment spending by firms and aggregate demand.
an increase, a decrease, a decrease, an increase, a decrease
An increase in domestic interest rates are likely to _____ aggregate demand.
decrease
If the central bank purchases assets​ (e.g., bonds from​ banks), the economic result​ is:

A. An increase in the money supply.
B. An increase in the central​ bank's net worth.
C. A decline in the central​ bank's net worth.
D. A decline in the money supply.
A. An increase in the money supply.
The United States is currently running a large current account deficit. If Congress and the president wanted to reduce​ this, which policy could they​ use?

A. They could create an exchange rate appreciation policy.
B. They could create an exchange rate depreciation policy.
C. They could engage in an expansionary fiscal policy.
D. They could expand government spending.
B. They could create an exchange rate depreciation policy.
Suppose the United​ States, Japan, and many other places around the world go into​ recession, but growth remains strong in Europe. Using macroeconomic policy coordination could help in this situation but sometimes coordination faces problems. Which of the following is a problem associated with macroeconomic policy​ coordination?

A. There is rarely a period in which nations find it in their own interest to pursue the same policies as their leading partners.
B. There is no multilateral agreement possible without a significant sacrifice of national sovereignty.
C. There is no international organization capable of arranging a multilateral agreement among nations.
D. All of the above are problems.
D. All of the above are problems.
A temporary fiscal expansion in an economy produces

A. no change in the​ long-run expected exchange​ rate, a depreciation of its​ currency, and a rise in its output and employment.
B. a decline in the​ long-run expected exchange​ rate, an appreciation of its​ currency, and a rise in its output and employment.
C. no change in the​ long-run expected exchange​ rate, an appreciation of its​ currency, and a rise in its output and employment.
D. an appreciation of its​ currency, but no change in either the​ long-run expected exchange rate or its output and employment.
C. no change in the​ long-run expected exchange​ rate, an appreciation of its​ currency, and a rise in its output and employment.
Along the aggregate supply curve

A. idle​ resources, such as labor and​ capital, would be a feature of the vertical section of the aggregate supply curve.
B. the horizontal part represents a situation where the economy is operating above full employment levels.
C. inflation would be a primary concern along the horizontal part of the aggregate supply curve.
D. the​ middle, upward−sloping part of the aggregate supply curve would be associated with a growing economy that experienced increased prices from resources that are becoming relatively scarce.
E. the horizontal section of the aggregate supply curve represents the limit of production.
D. the​ middle, upward−sloping part of the aggregate supply curve would be associated with a growing economy that experienced increased prices from resources that are becoming relatively scarce.
When spending and incomes in an economy​ increase,

A. imports are likely to be unchanged.
B. imports are likely to decrease.
C. exports are likely to decrease.
D. imports are likely to increase.
D. imports are likely to increase.
Government spending and taxes

A. are an important component of aggregate supply.
B. do not change aggregate demand.
C. are a major determinant of aggregate demand.
D. do not play a big role in determining GDP.
C. are a major determinant of aggregate demand.
When the economy is using all of its factors of​ production, the aggregate supply curve is vertical.

A. True
B. False
True
Fiscal policy is

A. the selling of government bonds by the Treasury.
B. the deliberate manipulation of the money supply designed to affect the interest rate.
C. the deliberate manipulation of taxation and spending designed to affect the economy.
D. the selling of foreign exchange reserves designed to change the exchange rate.
C. the deliberate manipulation of taxation and spending designed to affect the economy.
An example of expansionary fiscal policy would be

A. a decrease in government spending to reduce budget deficits.
B. an increase in government spending on infrastructure to create jobs and improve the economy.
C. a decrease in interest rates to help stimulate the economy.
D. an increase in tax collection to reduce budget deficits.
B. an increase in government spending on infrastructure to create jobs and improve the economy.
Which of the following is an example of expansionary monetary​ policy?

A. A decrease in government spending
B. Open market purchases of bonds
C. A decrease in taxes
D. An increase in interest rates
B. Open market purchases of bonds
Contractionary fiscal policy can lead to a depreciation of the​ nation's currency.

A. True
B. False
A. True
An increase in interest rates causes that nation to experience an outflow of financial capital and causes its currency to depreciate.

A. True
B. False
B. False
It is more certain how expansionary monetary policy will affect the current account than how expansionary fiscal policy will affect it.

A. True
B. False
B. False
A depreciation of the currency can switch spending away from foreign goods and reduce the effect of rising incomes on the current account.

A. True
B. False
A. True
The graph on the right depicts the real money supply.

​1.) Use the​ three-point curved line drawing tool to draw the aggregate money demand curve in the diagram to the right. Label this line ​'Md1​'.
​Now, suppose that real GNP rises.
​2.) On the same​ graph, use the​ three-point curved line drawing tool to draw the new aggregate real money demand. Label this line ​'Md2​ 3.) As the result of a rise in real​ GNP, equilibrium in the money market will be at a _______ interest rate. Real money holdings will ________
3.) higher, remain unchanged
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