Q&A Hero

Q: Which of the following is most likely to result from a stronger dollar? A. U.S. goods exported aboard will cost less in foreign countries, and so foreigners will buy more of them. B. U.S. goods exported aboard will cost more in foreign countries and so foreigners will buy more of them. C. U.S. goods exported abroad will cost more in foreign countries, and so foreigners will buy fewer of them. D. Americans will purchase fewer foreign goods.

Q: Under relative purchasing-power parity,a. the exchange rate equals the ratio of price indexes in two countries.b. interest-rate parity holds.c. absolute purchasing-power parity also holds.d. a currency depreciates relative to another currency by the amount by which the inflation rate is higher in the first country than in the second country.

Q: Everything else constant, a stronger dollar will mean that A. vacationing in England becomes more expensive. B. vacationing in England becomes less expensive. C. French cheese becomes more expensive. D. Japanese cars become more expensive.

Q: Under absolute purchasing-power parity,a. the exchange rate equals 1 if both the countries have equal price indices.b. interest-rate parity holds.c. relative purchasing-power parity cannot hold.d. a currency depreciates relative to another currency by the amount by which the inflation rate is lower in the first country than in the second country.

Q: The market where one currency is converted into another currency is called the ________ market. A. stock B. bond C. derivatives D. foreign exchange

Q: If the exchange rate equals the ratio of price indexes in two countries, there is said to be a. one price fits all.b. absolute purchasing-power parity. c. relative purchasing-power parity. d. interest-rate parity.

Q: The price of one country's currency in terms of another country's currency is called the A. exchange rate. B. interest rate. C. Dow Jones industrial average. D. prime rate.

Q: If only one good is traded between two countries and the price of the good is the same in both countries when expressed in units of the same currency, thena. people have rational expectations.b. both countries have the same monetary policy. c. there is interest-rate parity.d. the law of one price holds.

Q: American companies can borrow funds A. only in U.S. financial markets. B. only in foreign financial markets. C. in both U.S. and foreign financial markets. D. only from the U.S. government.

Q: If the supply of dollars in exchange for euro increases,a. the dollar depreciates against the euro.b. the dollar appreciates against the euro.c. the exports of U.S. to Europe becomes costlier.d. the demand for European goods increase in the U.S.

Q: What happens to economic growth and unemployment during a business cycle recession? What is the relationship between the money growth rate and a business cycle recession?

Q: Suppose, that participants in the underground economy in Europe suddenly decide to switch from using dollars to using euros. Thus, they supply a huge volume of dollars to the market in exchange for euros. As a result,a. the dollar appreciates and the euro depreciates. b. the dollar and the euro both appreciate.c. the dollar depreciates and the euro appreciates. d. the dollar and the euro both depreciate.

Q: When a budget deficit occurs in the United States, the U.S. Treasury finances this deficit by A. borrowing. B. imposing a moratorium of new government spending. C. increasing the tax rate. D. printing more dollars.

Q: A correlation of_____ between output growth in two regions would mean that output growth in both regions changed at exactly the same time and by the same proportionate amount. a. 0b. less than 0 c. 1.0d. 100

Q: Budget deficits are important because deficits A. cause bank failures. B. always cause interest rates to fall. C. can result in higher rates of monetary growth. D. always cause prices to fall.

Q: A correlation of______between output growth in two regions would mean that output in the two regions are inversely related.a. 0b. 1c. 100d. less than 0

Q: Budgets deficits can be a concern because they might A. ultimately lead to higher inflation. B. lead to lower interest rates. C. lead to a slower rate of money growth. D. lead to higher bond prices.

Q: In 2005, exchange rates were 1.74 U.S. dollars per British pound, 112 Japanese yen per U.S. dollar, and 1.20 dollars per euro. In 2000, the exchange rates were 1.62 U.S. dollars per British pound, 102 Japanese yen per U.S. dollar, and 0.94 dollars per euro. For each currency, explain whether it appreciated or depreciated from 2000 to 2005 versus the other two currencies.

Q: A budget ________ occurs when government expenditures exceed tax revenues for a particular time period. A. deficit B. surplus C. surge D. surfeit

Q: A country's net foriegn investment is equal to the amount?a. the domestic country invests in other countries, minus what other countries invest in the domestic country.b. Other countries invest in the domestic country, minus what the domestic country invests in other countries.c. of the current-account balance plus the capital-account balance.d. of portfolio investment made by the domestic country in other countries, minus the amount of portfolio investment other countries make in the domestic country.

Q: When tax revenues are greater than government expenditures, the government has a budget A. crisis. B. deficit. C. surplus. D. revision.

Q: Can VARs be used to analyze the effects of monetary policy?

Q: ________ policy involves decisions about government spending and taxation. A. Monetary B. Fiscal C. Financial D. Systemic

Q: Describe the new neoclassical synthesis.

Q: The organization responsible for the conduct of monetary policy in the United States is the A. Comptroller of the Currency. B. U.S. Treasury. C. Federal Reserve System. D. Bureau of Monetary Affairs.

Q: What are the advantages and disadvantages of VAR models?

Q: The management of money and interest rates is called ________ policy and is conducted by a nation's ________ bank. A. monetary; superior B. fiscal; superior C. fiscal; central D. monetary; central

Q: A model that is based on the decisions of economic agents is known asa. a rational-expectations model.b. a decision-theoretic model.c. a model with microeconomic foundations.d. a fully compatible real business cycle model.

Q: Between 1950 and 1980 in the U.S., interest rates trended upward. During this same time period A. the rate of money growth declined. B. the rate of money growth increased. C. the government budget deficit (expressed as a percentage of GNP) trended downward. D. the aggregate price level declined quite dramatically.

Q: A model that focuses on what is happening at just one point in time is known as a. a dynamic model.b. a static model.c. a general-equilibrium model. d. a partial-equilibrium model.

Q: Countries that experience very high rates of inflation may also have A. balanced budgets. B. rapidly growing money supplies. C. falling money supplies. D. constant money supplies.

Q: A model in which actions that occur at one time affect what happens at other times is known asa. a dynamic model.b. a static model.c. a general-equilibrium model.d. a partial-equilibrium model.

Q: Evidence from the United States and other foreign countries indicates that A. there is a strong positive association between inflation and growth rate of money over long periods of time. B. there is little support for the assertion that "inflation is always and everywhere a monetary phenomenon." C. countries with low monetary growth rates tend to experience higher rates of inflation, all else being constant. D. money growth is clearly unrelated to inflation.

Q: Describe the general procedures followed by DSGE researchers creating a new model.

Q: There is a ________ association between inflation and the growth rate of money ________. A. positive; demand B. positive; supply C. negative; demand D. negative; supply

Q: In the two-period model, suppose a household's income in the first period is $40,000, income in the second period is $50,000, and the real interest rate is 25 percent. The government proposes to give the household a tax rebate of $5,000 in the first period, but will tax the household an additional $5,000 × 25 = $6,250 in the second period. The household is____ under the government's tax rebate plan compared with before.a. better offb. worse offc. equally well offd. possibly better off and possibly worse off

Q: The upward and downward movement of aggregate output produced in the economy is referred to as the A. roller coaster. B. see saw. C. business cycle. D. shock wave.

Q: In a two-period model, assume that there are 20 households each with an income of $35,000 in period one and an income of $45,000 in period two. The equilibrium rate of interest faced by the household is 50 percent. The government decides to offer each household a tax rebate of $1,500 in period one. As a rational economic agent you know that the government will tax the households in period two, in order to repay its borrowing. With the interest rate unaffected by the government's action, the government will impose a tax of ______per household, in period two.a. $2,600b. $3,265c. $1,500d. $2,250

Q: Money is defined as A. bills of exchange. B. anything that is generally accepted in payment for goods and services or in the repayment of debt. C. a risk-free repository of spending power. D. the unrecognized liability of governments.

Q: Economic research over the last 20 years suggests that expectations are best modeled as variables.a. dummyb. ordinalc. endogenousd. preference

Q: What crucial role do financial intermediaries perform in an economy?

Q: If people form their expectations using all the information available to them, they are said to have a. informed expectations.b. rational expectations. c. irrational forecasts.d. an information set.

Q: The delivery of financial services electronically is called A. e-business. B. e-commerce. C. e-finance. D. e-possible.

Q: People's beliefs about future economic variables are known as a. microeconomic foundations.b. real interest rates. c. expectations.d. permutations.

Q: Which of the following is NOT a financial institution? A. a life insurance company B. a pension fund C. a credit union D. a business college

Q: An economy has 100 households. The forty rich households each have incomes of $50,000 in period 1 and $75,000 in period The sixty poor households each have incomes of $20,000 in period 1 and $25,000 in period Assume that the price of the good is $1 in both periods. Also assume that the households borrow from each other. Suppose that each household decides that its consumption in period 1 will equal 50 percent of the present value of its income from both periods. The equilibrium real interest rate is abouta. 20 percent.b. 30 percent.c. 40 percent.d. 50 percent.

Q: The financial intermediaries that the average person interacts with most frequently are A. exchanges. B. over-the-counter markets. C. finance companies. D. banks.

Q: An economy has 100 households. The ten rich households each have incomes of $50,000 in period 1 and $75,000 in period The ninety poor households each have incomes of $20,000 in period 1 and $25,000 in period Assume that the price of the good is $1 in both periods. Also assume that the households borrow from each other. Suppose that each household decides that its consumption in period 1 will equal 50 percent of the present value of its income from both periods. The equilibrium real interest rate is abouta. 20 percent.b. 30 percent.c. 40 percent.d. 50 percent.

Q: Financial institutions that accept deposits and make loans are called A. exchanges. B. banks. C. over-the-counter markets. D. finance companies.

Q: A situation in which all markets are in equilibrium and all economic agents have made decisions in their own best interest is calleda. general equilibrium.b. the liquidity effect.c. the real wealth effect. d. dynamic equilibrium.

Q: Banks and other financial institutions engage in financial intermediation, which A. can hurt the performance of the economy. B. can benefit economic performance. C. has no effect on economic performance. D. involves borrowing from investors and lending to savers.

Q: Precautionary savings isa. forced savings, which occurs when the government implicitly saves for people through the Social Security system.b. additional savings people make in order to profit from the high returns to the stock market. c. savings made by the poor.d. the extra amount of savings a household maintains because of uncertainty about its future income.

Q: Financial institutions search for ________ has resulted in many financial innovations. A. higher profits B. regulations C. respect D. higher risk

Q: In a two-period model, a household has an income of $20,000 in period one and an income of $25,000 in period two.The household faces an interest rate of 50 percent. What is the present value of the household's income if the income in period one increases to $30,000?a. $39,000b. $46,666.66c. $40,555.65d. $50,000

Q: Banks, savings and loan associations, mutual savings banks, and credit unions A. are no longer important players in financial intermediation. B. since deregulation now provide services only to small depositors. C. have been adept at innovating in response to changes in the regulatory environment. D. produce nothing of value and are therefore a drain on society's resources.

Q: In the two-period model, suppose a household's income in period one is $30,000 and its income in period two is $40,000. Also assume that the household face the real interest rate of 25 percent. What is the present value of the household's income?a. $62,000b. $46,000c. $20,000d. $30,000

Q: Banks A. provide a channel for linking those who want to save with those who want to invest. B. produce nothing of value and are therefore a drain on society's resources. C. are the only financial institutions allowed to give loans. D. hold very little of the average American's wealth.

Q: Describe the arguement put forward by the Nobel laurete Robert E. Lucas about the flaws in the large structural macroeconomic models.

Q: Describe what monetary policymakers should do if they want to keep the price level in an economy permanentlylow.

Q: Describe the effect of expansionary monetary policy in a recession. Contrast the results with no monetary policy action.

Q: Suppose another breakthrough in computer technology greatly increases total factor productivity. Explain how this would affect aggregate supply, output, and the price level in the short run and the long run.

Q: Suppose increased costs for security raised the costs of production for all firms. Explain how this would affect aggregate supply, output, and the price level in the short run and the long run.

Q: Suppose ATM costs increased because of additional security required to prevent electronic fraud. Explain how this would affect money demand, aggregate demand, output, and the price level in the short run and the long run.

Q: Suppose business firms collectively become pessimistic about prospects for future profits because of continued worries about terrorism. Explain how this would affect investment, aggregate demand, output, and the price level in the short run and the long run.

Q: Answer the questions below.a. Suppose the economy is initially in long-run equilibrium in the AD-ASmodel. Draw a diagram showing long-run equilibrium, including the AD, LRAS, and SRAS curves.b.Now suppose stock prices decline sharply. Draw a new diagram showing the AD,LRAS,and b. SRAScurves. How have the level of output and the price level changed? What happens to consumption spending and investment spending?c.Redraw your diagram from part b, then draw new lines to show what would happen if the Fed changed monetary policy to return the economy to full-employment equilibrium. Does the money supply increase or decrease? Which curve (AD, LRAS, or SRAS) shifts as a result of the Fed's policy change? What happens to the price level and level of output compared withwhat they were in part b? What happens to consumption spending and investment spending compared with what they were in part b?

Q: Which of the following is a difference in the views of Keynesian and classical economists?a. Keynesians believe that prices and wages adjust quickly, whereas the classicals believe they adjust slowly. b. Keynesians believe that policymakers have full knowledge about the state of an economy, whereas the classicals believe they don't.c. Keynesians believe that policymakers cannot offset shocks to an economy, whereas the classicals believe they can.d. Keynesians believe that most shocks to an economy are to long-run aggregate supply, whereas the classicals believe the shocks are to aggregate demand.

Q: The believe that an economy will adjust on its own without any government policy interventions. a. Keynesiansb. classical economists c. monetaristsd. institutional economists

Q: The believe that it takes a long time for prices and wages to change to restore equilibrium in an economy. a. Keynesiansb. classical economists c. monetaristsd. institutional economists

Q: A rise in the price level in an economya. shifts its long-run aggregate supply curve to the right. b. shifts its long-run aggregate supply curve to the left.c. does not have any effect on its long-run aggregate supply. d. does not have any effect on its aggregate demand.

Q: With the price level measured on the vertical axis and output measured on the horizontal axis, the long-run aggregate-supply curvea. is vertical.b. is upward-sloping. c. is horizontal.d. is downward-sloping.

Q: Which of the following is an assumption of the aggregate demand-aggregate supply model?a. Capital stock cannot be varied in the short run.b. An economy is always at full-employment level in the short run.c. Producers are reluctant to change prices of their products even in the long run. d. Long-run aggregate supply curve slopes upward.

Q: Full-employment output is the amount of output produced when the economy is a. in recession.b. above the natural rate of unemployment. c. utilizing all of its labor and capital.d. in equilibrium.

Q: The amount of output produced when the unemployment rate equals the natural rate of employment in an economy is called output.a. naturalb. aggregatec. full-employment d. long-run

Q: Which of the following is true of an economy at full employment?a. There is no job turnover in the economy.b. The unemployment rate in the economy is equal to the natural rate of unemployment. c. The economy's labor and capital are not fully utilized.d. An increase in price level increases the full-employment level of output.

Q: The unemployment rate reflecting normal job turnover is called a. the natural rate of unemployment.b. the non-accelerating investment rate of unemployment (NAIRU).c. frictional unemployment.d. structural unemployment.

Q: When all capital and labor are fully utilized, the economy is said to be a. at the peak of the business cycle.b. experiencing an expansion. c. at full employment.d. sustainable.

Q: The nominal interest rate in an economy decreases when a. the aggregate demand curve shifts to the left.b. the money supply curve shifts to the left.c. the aggregate supply curve shifts to the right. d. the money demand curve shifts to the left.

Q: When the price level in an economy declinesa. the demand for money in the economy increases.b. the nominal interest rate in the economy increases. c. the total consumption in the economy reduces.d. the aggregate demand in the economy increases.

Q: With the price level measured on the vertical axis and output measured on the horizontal axis, the aggregate-demand curvea. is vertical.b. is downward-sloping. c. is horizontal.d. is upward-sloping.

Q: Which of the following equations is true of aggregate demand?a. Aggregate demand = consumption + investment - government spending - net exports b. Aggregate demand = consumption - investment - government spending - net exportsc. Aggregate demand = consumption + investment + government spending + net exports d. Aggregate demand = consumption - investment + government spending + net exports