Assignment 4

Question 1

Human wealth is ____

Answer 1

the present discounted value of expected future after-tax labor income

Question 2

Total wealth is ____

Answer 2

non-human wealth and human wealth

Question 3

What would cause an increase in human wealth?

Answer 3

A permanent increase in salary

Question 4

What is evidence that consumption depends on total wealth and not just on current income?

Answer 4

A drop in costumer confidence, with unchanged current income, often causes total consumption spending to fall

Question 5

Suppose there is an reduction in real estate prices. This reduction would have the ost direct effect on which type of wealth?

Answer 5

Housing wealth

Question 6

The reduction in stock prices will have the most direct effect on which type of wealth?

Answer 6

Financial wealth

Question 7

Suppose there is a tax-cut, this will have the most direct effect on which type of wealth?

Answer 7

Human wealth

Question 8

Suppose there is an increase in profitability. This suggest that:

Answer 8

firms have increased their expectations of future profits

Question 9

What would cause a reduction in current consumption?

Answer 9

A reduction in current disposable income
A reduction in financial wealth
A reduction in human wealth

Question 10

Investment depend on

Answer 10

Present value of expected future profits
Current profit
User cost of capital

Question 11

Which of the following best defines the real exchange rate

Answer 11

The price of domestic goods in terms of foreign goods

Question 12

All else fixed, what would cause the real exchange rate to increase?

Answer 12

Reduction in the foreign price level

Question 13

When the dollar appreciates relative to the pound, the pound price of the dollar:

Answer 13

Increases

Question 14

Suppose there is a real depreciation of the dollar. What have occured?

Answer 14

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

Question 15

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___

Answer 15

The pound to depreciate

Question 16

The nominal exchange rate (E) as defined in the text represent

Answer 16

The number of foreign currency you can obtain with one unit of domestic currency
The price of domestic currency in terms of foreign currency

Question 17

A reduction in the real exchange rate indicated that

Answer 17

foreign goods are now relatively more expensive

Question 18

What equation represent the demand for domestic goods

Answer 18

C + I + G + X - IM/ε

Question 19

What equation represent the domestic demand for goods

Answer 19

C + I + G

Question 20

The expression, IM, represents the value of imports in terms of

Answer 20

Foreign goods

Question 21

Exports will decrease when there is ___

Answer 21

an increase in the real exchange rate

Question 22

What is true when a country is experiencing a trade in surplus (NX>0)

Answer 22

Demand for domestic goods is greater than the domestic demand for goods

Question 23

What is true when a country is experiencing a trade in deficit (NX<0)

Answer 23

Demand for domestic goods is less than the domestic demand for goods

Question 24

In an open economy an increase in government spending will cause

Answer 24

A reduction in net exports

Question 25

In an open economy what will cause an increase in the size of the multiplier?

Answer 25

A reduction in the marginal propensity to import

Question 26

Suppose there is a reduction in foreign output (Y). This reduction in Y will cause what ____

Answer 26

reduction in consumption, net exports and output

Question 27

in an open economy, net exports will be equal to?

Answer 27

X - IM/ε

Question 28

An increase in domestic demand will have which effect in an open economy?

Answer 28

A smaller effect on output than in a closed economy and a positive effect on the trade balance

Question 29

In a large country, the effect of a given change in government spending on output is ____ and on trade balance is _____

Answer 29

large, small

Question 30

In a small country, the effect of a given change in government spending on output is ____ and on trade balance is _____

Answer 30

small, large

Question 31

In an more open economy the _____ the effect of fiscal policy on output and the _____ the effect of fiscal policy on the trade position

Answer 31

smaller, larger

Question 32

In an less open economy the _____ the effect of fiscal policy on output and the _____ the effect of fiscal policy on the trade position

Answer 32

larger, smaller