macroeconomics Test 3.docx

ECON 2803Spring 2010Test 3Multiple ChoiceIdentify the letter of the choice that best completes the statement or answers the question._1.The increase in international trade in the United States is partly due toa.improvements in transportation.b.advances in telecommunications.c.increased trade of goods with a high value per pound.d.All of the above are correct._2.Net capital outflow measuresa.foreign assets held by domestic residents minus domestic assets held by foreign residents.b.the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic assets bought by foreigners.c.the imbalance between the amount of foreign assets bought by domestic residents and the amount of domestic goods and services sold to foreigners.d.None of the above is correct._3.Which of the following is an example of U.S. foreign direct investment?a.A Polish company opens a shipbuilding plant in the United States.b.A Bolivian bank buys U.S. corporate bonds.c.A U.S. bank buys Bolivian corporate bonds.d.A U.S. furniture maker opens a plant in Mexico._4.Other things the same, which of the following would both make foreigners more willing to engage in U.S. portfolio investment?a.U.S. interest rates rise, the default risk of U.S. assets riseb.U.S. interest rates rise, the default risk of U.S. assets fallc.U.S. interest rates fall, the default risk of U.S. assets rised.U.S. interest rates fall, the default risk of U.S. assets fall_5.If the exchange rate is 125 yen = $1, a bottle of rice wine that costs 2,500 yen costsa.$20.b.$25.c.$22.d.None of the above is correct._6.The law of one price states thata.a good must sell at the price fixed by law.b.a good must sell at the same price at all locations.c.a good cannot sell for a price greater than the legal price ceiling.d.nominal exchange rates will not vary._7.If purchasing power parity holds, a bushel of rice costs $10 in the U.S., and the nominal exchange rate is 2 Thai bhat per dollar, what is the price of rice in Thailand?a.20 bhatb.10 bhatc.5 bhatd.2 bhat_8.In an open economy, the demand for loanable funds comes froma.only those who want to borrow funds to buy domestic capital goods.b.only those who want to borrow funds to buy foreign assets.c.those who want to borrow funds to buy either domestic capital goods or foreign assets.d.neither those who want to borrow funds to buy domestic capital goods nor those who want to borrow funds to buy foreign assets._9.Most economists use the aggregate demand and aggregate supply model primarily to analyzea.short-run fluctuations in the economy.b.the effects of macroeconomic policy on the prices of individual goods.c.the long-run effects of international trade ductivity and economic growth._10.Most economists believe that classical macroeconomic theory is a good description of the economya.in neither the short nor long run.b.in the short run and in the long run.c.in the short run, but not in the long run.d.in the long run, but not in the short run._11.Other things the same, an increase in the price level makes consumers feel a.less wealthy, so the quantity of goods and services demanded falls.b.less wealthy, so the quantity of goods and services demanded rises.c.more wealthy, so the quantity of goods and services demanded rises.d.more wealthy, so the quantity of goods and services demanded falls._12.In the context of the aggregate-demand curve, the interest-rate effect refers to the idea that, when the price level increases,a.the real value of money decreases; in turn, the real value of the dollar increases in foreign exchange markets, which decreases net exports.b.the real value of money decreases; in turn, interest rates increase, which decreases net exports.c.households increase their holdings of money; in turn, interest rates decrease, which reduces spending on investment goods.d.households increase their holdings of money; in turn, interest rates increase, which reduces spending on investment goods._13.Other things the same, a decrease in the price level causes the interest rate toa.increase, the dollar to appreciate, and net exports to increase.b.increase, the dollar to depreciate, and net exports to decrease.c.decrease, the dollar to depreciate, and net exports to increase.d.decrease, the dollar to appreciate, and net exports to decrease._14.From 2001 to 2005 there was a dramatic rise in the price of houses. If this made people feel wealthier, then it would shifta.aggregate demand right.b.aggregate demand left.c.aggregate supply right.d.aggregate supply left._15.When taxes decrease, consumptiona.increases, so aggregate demand shifts right.b.increases, so aggregate supply shifts right.c.decreases, so aggregate demand shifts left.d.decreases, so aggregate supply shifts left._16.When the money supply erest rates fall and so aggregate demand shifts erest rates fall and so aggregate demand shifts erest rates rise and so aggregate demand shifts erest rates rise and so aggregate demand shifts left._17.If the dollar appreciates, perhaps because of speculation or government policy, then U.S. net exportsa.increase which shifts aggregate demand right.b.increase which shifts aggregate demand left.c.decrease which shifts aggregate demand right.d.decrease which shifts aggregate demand left._18.Which of the following is not a determinant of the long-run level of real GDP?a.the price levelb.the supply of laborc.available natural resourcesd.available technology_19.The aggregate supply curve is upward sloping in a.the short and long run.b.neither the short nor long run.c.the long run, but not the short run.d.the short run, but not the long run._20.Wages tend to be sticky a.because of contracts, social norms, and notions of fairness.b.because of contracts, but not social norms or notions of fairness.c.because of social norms and notions of fairness, but not contracts.d.None of the above are correct._21.The misperceptions theory of the short-run aggregate supply curve says that the quantity of output supplied will increase if the price levela.increases by less than expected so that firms believe the relative price of their output has increased.b.increases by less than expected so that firms believe the relative price of their output has decreased.c.increases by more than expected so that firms believe the relative price of their output has increased.d.increases by more than expected so that firms believe the relative price of their output has decreased.Consider the exhibit below for the following questions.Figure 33-1_22.Refer to Figure 33-1. If the economy starts at C, an increase in the money supply moves the economy a.to A in the long run.b.to B in the long run.c.back to C in the long run.d.to D in the long run._23.Refer to Figure 33-1. If the economy is at A and there is a fall in aggregate demand, in the short run the economya.stays at A.b.moves to B.c.moves to C.d.moves to D._24.Refer to Figure 33-1. If the economy starts at A and there is a fall in aggregate demand, the economy movesa.back to A in the long run.b.to B in the long run.c.to C in the long run.d.to D in the long run.Figure 33-2. _25.Refer to Figure 33-2. Point B representsa.a short-run equilibrium and a long-run equilibrium.b.a short-run equilibrium but not a long-run equilibrium.c.a long-run equilibrium but not a short-run equilibrium.d.neither a short-run equilibrium nor a long-run equilibrium.The Stock Market Boom of 2014Imagine that in 2014 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time._26.Refer to Stock Market Boom 2014. Which curve shifts and in which direction?a.aggregate demand shifts rightb.aggregate demand shifts leftc.aggregate supply shifts rightd.aggregate supply shifts left._27.Refer to Stock Market Boom 2014. In the short run what happens to the price level and real GDP?a.both the price level and real GDP rise.b.both the price level and real GDP fall.c.the price level rises and real GDP falls.d.the price level falls and real GDP rises._28.The long-run effect of an increase in government spending is to raisea.both real output and the price level.b.real output and lower the price level.c.real output and leave the price level unchanged.d.the price level and leave real output unchanged._29.Which of the following has been suggested as a cause of the Great Depression?a.a decline in the money supplyb.a decrease in stock pricesc.the collapse of the banking systemd.All of the above are correct._30.Stagflation exists when pricesa.and output rise.b.rise and output falls.c.fall and output rises.d.and output fall._31.Keynes explained that recessions and depressions occur because ofa.excess aggregate demand.b.inadequate aggregate demand.c.excess aggregate supply.d.inadequate aggregate supply._32.In the short runa.unemployment and inflation are positively related. In the long run they are largely unrelated problems.b.and in the long run inflation and unemployment are positively related.c.unemployment and inflation are negatively related. In the long run they are largely unrelated problems.d.and in the long run inflation and unemployment are negatively related._33.If a central bank increases the money supply, thena.prices, output, and unemployment rise.b.prices and output rise and unemployment falls.c.prices rise and output and unemployment fall.d.prices fall and output and unemployment rise._34.According to the theory of liquidity preference, which variable adjusts to balance the supply and demand for money?erest rateb.money supplyc.quantity of outputd.price level_35.If the Fed conducts open-market purchases, the money supplya.increases and aggregate demand shifts right.b.increases and aggregate demand shifts left.c.decreases and aggregate demand shifts right.d.decreases and aggregate demand shifts left._36.Fiscal policy refers to the idea that aggregate demand is affected by changes ina.the money ernment spending and taxes.c.trade policy.d.All of the above are correct._37.The multiplier for changes in government spending is calculated asa.MPC.b.1 - MPC.c.1/MPC.d.1/(1 - MPC)._38.If the multiplier is 5, then the MPC isa.0.05.b.0.5.c.0.6.d.0.8._39.Assuming a multiplier effect, but no crowding-out or investment-accelerator effects, a $100 billion increase in government expenditures shifts aggregatea.demand rightward by more than $100 billion.b.demand rightward by less than $100 billion.c.supply leftward by more than $100 billion.d.supply leftward by less than $100 billion._40.Suppose the MPC is 0.75. There are no crowding out or investment accelerator effects. If the government increases its expenditures by $200 billion, then by how much does aggregate demand shift to the right? If the government decreases taxes by $200 billion, then by how far does aggregate demand shift to the right?a.$800 billion and $800 billionb.$800 billion and $600 billionc.$600 billion and $600 billiond.$600 billion and $450 billion_41.If households view a tax cut as temporary, then the tax cuta.has no affect on aggregate demand.b.has more of an affect on aggregate demand than if households view it as permanent.c.has the same affect as when households view the cut as permanent.d.has less of an affect on aggregate demand than if households view it as permanent._42.Keynes argued thata.irrational waves of pessimism cause decreases in aggregate demand and increases in unemployment.b.irrational waves of optimism cause decreases in aggregate demand and decreases in aggregate supply.c.changes in business and consumer expectations generally stabilize the economy.d.All of the above are correct.For the following questions, use the diagram below:Figure 34-6._43.Refer to Figure 34-6. If the economy is at point b, a policy to restore full employment would bea.an increase in the money supply.b.a decrease in government purchases.c.an increase in taxes.d.All of the above are correct._44.Critics of stabilization policy argue thata.there is a lag between the time policy is passed and the time policy has an impact on the economy.b.the impact of policy may last longer than the problem it was designed to offset.c.policy can be a source of, instead of a cure for, economic fluctuations.d.All of the above are correct._45.Automatic stabilizersa.increase the problems that lags cause in using fiscal policy as a stabilization tool.b.are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession.c.are changes in taxes or government spending that policy makers quickly agree to when the economy goes into recession.d.All of the above are correct._46.When the real exchange rate for the dollar appreciates, U.S. goods becomea.less expensive relative to foreign goods, which makes exports rise and imports fall.b.less expensive relative to foreign goods, which makes exports fall and imports rise.c.more expensive relative to foreign goods, which makes exports rise and imports fall.d.more expensive relative to foreign goods, which makes exports fall and imports rise._47.The variable that links the market for loanable funds and the market for foreign-currency exchange capital outflow.b.national saving.c.exports.d.domestic investment._48.If the budget deficit increases, then a.an increase in the interest rate increases net capital outflow.b.an increase in the interest rate decreases net capital outflow.c.a decrease in the interest rate increases net capital outflow.d.a decrease in the interest rate decreases net capital outflow._49.When a countrys government budget deficit increases, a.the real exchange rate of its currency and its net exports increase.b.the real exchange rate of its currency and its net exports decrease.c.the real exchange rate of its currency increases and its net exports decrease.d.the real exchange rate of its currency decreases and its net exports increase._50.A large and sudden movement of funds out of a country is calleda.arbitrage.b.capital flight.c.crowding out.d.capital mobility._51.According to Mankiws blog, Brussels declared what to be a human right?a.Consumption of Beerc.An Afternoon Napb.Finely, Aged Cheesecaked.Touring Foreign Countries_52.According to a Parade Annual Survey of Americans, they found 14 in 100 that made over a million dollars a year. However, if the survey was random of all Americans then how many people of 100 should make over a million dollars a year?a.0-1c.13-14b.4-5d.20-21_53.How did Mankiw calculate Taxes/Person?a.Taxes/GDP * GDP/Personc.Taxes/Automobiles * Automobiles/Personb.Taxes Received by the IRS/Population in the United Statesd.It did not require a calculationTest 3 Spring 2010Answer SectionMULTIPLE CHOICE1.ANS:DPTS:1DIF:1REF:31-1NAT:AnalyticLOC:International trade and financeTOP:U.S. trade factsMSC:Definitional2.ANS:BPTS:1DIF:1REF:31-1NAT:AnalyticLOC:International trade and financeTOP:Net capital outflowMSC:Interpretive3.ANS:DPTS:1DIF:1REF:31-1NAT:AnalyticLOC:International trade and financeTOP:Foreign direct investmentMSC:Interpretive4.ANS:BPTS:1DIF:1REF:31-1NAT:AnalyticLOC:International trade and financeTOP:Foreign investmentMSC:Applicative5.ANS:APTS:1DIF:1REF:31-2NAT:AnalyticLOC:International trade and financeTOP:Nominal exchange rateMSC:Applicative6.ANS:BPTS:1DIF:1REF:31-3NAT:AnalyticLOC:International trade and financeTOP:Law of one priceMSC:Definitional7.ANS:APTS:1DIF:1REF:31-3NAT:AnalyticLOC:International trade and financeTOP:Purchasing-power parityMSC:Applicative8.ANS:CPTS:1DIF:1REF:32-1NAT:AnalyticLOC:International trade and financeTOP:Demand for loanable fundsMSC:Definitional9.ANS:APTS:1DIF:1REF:33-0NAT:AnalyticLOC:Aggregate demand and aggregate supplyTOP:Aggregate demand and supply modelMSC:Interpretive10.ANS:DPTS:1DIF:1REF:33-2NAT:AnalyticLOC:Aggregate demand and aggregate supplyTOP:Classical theoryMSC:Definitional11.ANS:APTS:1DIF:1REF:33-3NAT:AnalyticLOC:Aggregate demand and aggregate supplyTOP:Wealth effectMSC:Interpretive12.ANS:DPTS:1DIF:3REF:33-3NAT:AnalyticLOC:Aggregate demand and aggregate