Assignment 4 Flashcards
Human wealth is ____
the present discounted value of expected future after-tax labor income
Total wealth is ____
non-human wealth and human wealth
What would cause an increase in human wealth?
A permanent increase in salary
What is evidence that consumption depends on total wealth and not just on current income?
A drop in costumer confidence, with unchanged current income, often causes total consumption spending to fall
Suppose there is an reduction in real estate prices. This reduction would have the ost direct effect on which type of wealth?
Housing wealth
The reduction in stock prices will have the most direct effect on which type of wealth?
Financial wealth
Suppose there is a tax-cut, this will have the most direct effect on which type of wealth?
Human wealth
Suppose there is an increase in profitability. This suggest that:
firms have increased their expectations of future profits
What would cause a reduction in current consumption?
A reduction in current disposable income
A reduction in financial wealth
A reduction in human wealth
Investment depend on
Present value of expected future profits
Current profit
User cost of capital
Which of the following best defines the real exchange rate
The price of domestic goods in terms of foreign goods
All else fixed, what would cause the real exchange rate to increase?
Reduction in the foreign price level
When the dollar appreciates relative to the pound, the pound price of the dollar:
Increases
Suppose there is a real depreciation of the dollar. What have occured?
Foreign goods have become more expensive to Americans
The foreign price level has increased relative to the US price level
Foregin currency has become more expensive in dollars
Assume that the uncovered interest parity condition holds. Also assume that the US interest rate is less then the UK interest rate. We know that the investors expect___
The pound to depreciate
The nominal exchange rate (E) as defined in the text represent
The number of foreign currency you can obtain with one unit of domestic currency
The price of domestic currency in terms of foreign currency
A reduction in the real exchange rate indicated that
foreign goods are now relatively more expensive
What equation represent the demand for domestic goods
C + I + G + X - IM/ε
What equation represent the domestic demand for goods
C + I + G
The expression, IM, represents the value of imports in terms of
Foreign goods
Exports will decrease when there is ___
an increase in the real exchange rate
What is true when a country is experiencing a trade in surplus (NX>0)
Demand for domestic goods is greater than the domestic demand for goods
What is true when a country is experiencing a trade in deficit (NX<0)
Demand for domestic goods is less than the domestic demand for goods
In an open economy an increase in government spending will cause
A reduction in net exports
In an open economy what will cause an increase in the size of the multiplier?
A reduction in the marginal propensity to import
Suppose there is a reduction in foreign output (Y). This reduction in Y will cause what ____
reduction in consumption, net exports and output
in an open economy, net exports will be equal to?
X - IM/ε
An increase in domestic demand will have which effect in an open economy?
A smaller effect on output than in a closed economy and a positive effect on the trade balance
In a large country, the effect of a given change in government spending on output is ____ and on trade balance is _____
large, small
In a small country, the effect of a given change in government spending on output is ____ and on trade balance is _____
small, large
In an more open economy the _____ the effect of fiscal policy on output and the _____ the effect of fiscal policy on the trade position
smaller, larger
In an less open economy the _____ the effect of fiscal policy on output and the _____ the effect of fiscal policy on the trade position
larger, smaller
