Past exams Flashcards

1
Q

If the economy moves into a recession, the Fed would recommend that the federal funds target rate decrease as long as the inflation rate did not rise above the publicly announced goal for inflation

A

inflation targetting

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2
Q

In October 2008, Congress passed the _______________, under which the Treasury provided funds to banks in exchange for stock

A

Troubled Asset Relief Program (TARP)

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3
Q

Where does the short-run Phillips curve intersect the long-run Phillips curve?

A

The point where actual inflation is equal to expected inflation

Also, the natural rate of unemployment

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4
Q

Flat tax?

A

The distribution of income would be more unequal under the tax

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5
Q

In the Phillips curve, an increase in inflation will decrease unemployment if the inflation is _____________ by both workers and firms.

A

unexpected

*will decrease unemployment because worker’s wage is less

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6
Q

If actual inflation is less than expected inflation, what will happen to real wages?

A

real wages will rise

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7
Q

If one U.S. dollar could be exchanged for one Canadian dollar in 1970, and one U.S. dollar can now be exchanged for 1.13 Canadian dollars, what happened?

A

The Canadian dollar lost value against the U.S. dollar

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8
Q

If firms and workers have rational expectations, including knowledge of the policy being used by the Fed, then _____________

A

expansionary monetary policy is ineffective

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9
Q

Purchasing power parity is the theory that, in the long-run, exchange rates should be at a level such that equivalent amounts of any country’s currency __________________

A

allow one to buy the same amount of goods and services

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10
Q

Economists who believe the supply-side effects of tax cuts are small essentially believe that ____________________

A

tax cunts mainly affect aggregate demand

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11
Q

An increase in interest rates shifts Aggregate Demand _______________

A

left

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12
Q

An increase in the demand for American-made goods in foreign countries will ________________________

A

increase the demand for dollars on the foreign exchange market

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13
Q

If workers and firms know that the Federal Reserve is following an expansionary monetary policy, workers and firms will expect inflation to ___________ and will adjust wages so that the real wage ______________

A

increase; remains unchanged

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14
Q

Using the Taylor rule, if the current inflation rate equals the target inflation rate and real GDP equals potential GDP, then the federal funds target rate equals the _______________

A

real equilibrium federal funds rate

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15
Q

If the economy is producing at potential GDP, _____________________________

A

unemployment is at its natural rate

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16
Q

Describe supply-side economics

A

Tax rates, particularly marginal tax rates, affect the incentive to work, save, and invest and, therefore, aggregate supply

*Taxes are bad for investments and businesses

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17
Q

Monetary policy could be procyclical if the Federal Reserve ____________________________

A

is late recognizing that a recession has begun and conducts expansionary monetary policy

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18
Q

Expansionary monetary policy =>

A

lower interest rates => decrease demand for U.S. dollars => dollar depreciates

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19
Q

An expansionary monetary policy in the United States should ___________________________

A

decrease the foreign currency price of U.S. exports

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20
Q

If the exchange rate between the U.S. dollar and the Indian rupee (rupees per dollar) is greater than the relative purchasing power between two countries, what could happen?

A

There are opportunities for profit by purchasing goods in India and then selling them in the United States

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21
Q

An increase in the interest rate should _________ the demand for dollars and the value of the dollar, and net exports should _______________

A

increase; decrease

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22
Q

increase in interest rates =>

A

increase demand for dollars => increase value of dollar

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23
Q

Under the monetary growth rule proposed by the monetarists, the money supply would grow each year at a constant rate equal to the long-run rate of growth of ______________

A

real GDP

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24
Q

From an initial long-run macroeconomic equilibrium, if the Fed anticipated that next year aggregate demand would grow significantly slower than long-run aggregate supply, then the Fed would most likely ______________

A

decrease interest rates

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25
Q

Decrease interest rates =>

A

increase aggregate demand

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26
Q

Since 2008, the European Central bank has reacted more ___________ to the recession than has the federal reserve, with the European interbank offer rate of interest remaining ______________ than the federal funds rate

A

slowly; higher

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27
Q

Depreciation of dollar represents a shift of demand in what way?

Assume: euros per dollars

A

Shift downward (left)

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28
Q

If workers and firms raise their inflation expectations, then ______________________

A

the short-run Phillips curve will shift upward

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29
Q

Why weren’t mortgages considered securities prior to 1970?

A

Prior to 1970, mortgages were rarely resold in the secondary market

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30
Q

Empirical evidence shows workers and firms have rational expectations =>

A

always on vertical LRPC

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31
Q

The crowding out of private spending by government spending will be greater the _______________________

A

more sensitive consumption, investment, and net exports are to changes in interest rates

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32
Q

If the dollar appreciates, how will aggregate demand in the United States be affected?

A

aggregate demand will shift to the left as imports increase

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33
Q

“Real business cycle” theorist

A

“wages adjust rapidly to changes in inflation as long as expectations are formed rationally”

Look for real reasons why events happen

Technology shocks affect aggregate supply

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34
Q

Contractionary monetary policy on the part of the Fed results in _____________________________________

A

a decrease in the monetary supply, an increase in interest rates, and a decrease in GDP

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35
Q

What is a “structural” relationship?

A

A relationship that depends on the basic behavior of consumers and firms and remains unchaged over long periods

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36
Q

The major criticism of real business cycle models is:

A

negative technology shocks are uncommon and can’t explain all business cycle fluctuations

oil shock = negative techn. shock

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37
Q

Speculation in currency markets =>

A

important in determining exchange rate fluctuations in the short run but NOT the long run

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38
Q

Wages and salries typically make up __________ percent of total compensation costs of a typical U.S. firm

A

70

39
Q

Inflation low =>

A

interest rate high

40
Q

Monetary policy has a ______________ effect on aggregate demand in a __________ economy

A

stronger, open

41
Q

Fiscal policy has a ____________ effect on aggregate demand in an open economy

A

weaker

42
Q

The gold standard is an example of ______________

A

a fixed eschange rate system

43
Q

The index of leading economic indicators is a composite of __________ economic indicators

A

10

44
Q

What can the Fed do to reduce the natural rate of unemployment?

A

nothing

45
Q

If the long-run aggregate supply curve is vertical, =>

A

the trade-off between unemployment and inflation cannot be permanent

46
Q

Balance of Trade

A

Ex - Im

47
Q

Why did the gold standard get abandoned?

A

The government wanted to rapidly expand the money supply in response to the Great Depression

48
Q

Increase in Money supply =>

A

decrase interest rates

49
Q

Above 0 in the Empire State Manufacturing Survey Index:

A

expanding

50
Q

The core inflation rate in theU.S. is currently close to the Federal Reserve’s explicit target of ___________

A

2%

51
Q

Balance of payments includes which three accounts?

A

The current account

The financial account

The capital account

52
Q

The recovery has boosted U.S exports of:

A

Capital goods

industrial supplies

Investment-based activities

53
Q

consumer confidene fell because of all except:

A

falling debt burdens

54
Q

How does an increase in the budget deficit affect the demand for dollars and the supply of dollars on the foreign exchange market?

A

Demand for dollars rises

Supply of dollars falls

55
Q

How might a budget deficit affect the balance of trade?

A

A budget deficit raises interest rates, which raises exchange rates, and reduces the balance of trade

56
Q

Budget deficit increases:

A

Government borrows

interest rate goes up => exchange rate goes up

$ demand goes up

$ supply goes down

57
Q

The United States is called a debtor nation because

A

it hsa large current account deficit and is simultaneously funded by foreign investment

58
Q

If interest rates in the US rise, then ______________

A

the value of the dollar will rise as the foreign investors increase their holdings of U.S. investments

59
Q

Federal government debt held by the public is no more than __________

A

10 trillion

60
Q

A higher inflation rate can lead to lower unemployment if _________________________

A

neither workers nor employers mistakenly expect the inflation rate to be lower than it turns out to be

61
Q

China has been accused of undervaluing its currency in order to _________

A

increase its exports

62
Q

An increase in capital inflows will ________________

A

increase the equilibrium exchange rate

63
Q

If the U.S. imports more than the U.S. exports, then _____________

A

the U.S. will have a current account deficit

64
Q

If the Thai baht is pegged above the equilbrium exchange rate as expressed in dollars per baht =>

A

the currency is overvalued

65
Q

If the value of goods exported is smaller than the value of goods imported, then _______________________

A

the U.S. trade balance will be negative

66
Q

The federal funds rate is:

A

the interest rate a bank charges each other for overnight loans

67
Q

taylor rule predicted changes in federal funds target during =>

A

alan greenspan

68
Q

A country that imports a significant proportion of its consumer goods can avoid inflation by adopting a fixed exchange rate because it can avoid the price increases of ______________ that occur when the value of the domestic currency ____________

A

imports; falls

69
Q

U.S. exports are currently back to pre-recession levels. What was a major factor contributing to this result?

A

Depreciating dollar

70
Q

The dolla will appreciate relative to the yen if:

A

speculators think the value of the dollar relative to the yen will rise

71
Q

If europe experiences a recession, we expect the dollar to _____________ and U.S. net exports to ___________

A

depreciate

rise

72
Q

Rising prices erode the value of money as a __________ and a ____________

A

medium of exchange

store of value

73
Q

how the bond market “prices in” higher expected inflation

A

widening gap between moninal and TIPS interest rates

74
Q

Federal budgtet deficit leads to:

A

Increase in interest rates

appreciation of the dollar

decline in net exports

75
Q

An incrase in the money supply will _______________

A

decrease the interest rate

76
Q

Contractionary monetary policy will ___________ the interest rate

A

raise

77
Q

If the Fed raises the interest rate, this will ____________ inflation and ____________ real GDP in the short run

A

reduce; lower

78
Q

When inflation is very low, workers and firms _________

A

ignore inflation

79
Q

MS increases =>

A

interest rates decrease => C, I, NX increase

80
Q

Falling interest rates can _______________________

A

increase a firm’s stock price, which causes firm to issue more stock shares, and thus increases funds for investment

81
Q

Congress and the president do not play a role in ______________________

A

conducting monetary policy

82
Q

decrease interest rates =>

A

increase firm’s stock price

83
Q

Suppose the euro depcreciates against the dollar. Assuming all other factors remain constant, the real exchange rate of euros to U.S. dollars will _________

A

increase

84
Q

Higher interest rates cause U.S. dollar to ___________

A

appreciate

85
Q

How does an improvement in the Fed’s credibility affect our model of the Phillip’s curve?

A

The short-run Phillips curve shifts more rapidly

86
Q

The body that is responsible for dating the beginning and ending dates for a recession is

A

the National Bureau of Economic Research

87
Q

Money demand will increase if the price level ______________ or if real GDP _______________

A

increases; increases

88
Q

If equilibrium GDP falls below potential

A

this will result in a budget deficit

89
Q

If inflation is higher in the U.s. than inflation in JAPAn

A

the dollar will depreciate against the yen

90
Q

An excess supply of the dollar in exchange for yen will cause

A

the dollar to decline in value relative to the yen

91
Q

If interest rates rise, investment in stocks becomes

A

relatively less attractive

92
Q

If the Fed lowers its target for the federal fund rate, this indicates that:

A

the fed is pursuing an expansionary monetary policy

93
Q
A