Past exams Flashcards by

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

inflation targetting

How well did you know this?

Not at all

Perfectly

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

Troubled Asset Relief Program (TARP)

How well did you know this?

Not at all

Perfectly

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

The point where actual inflation is equal to expected inflation

Also, the natural rate of unemployment

How well did you know this?

Not at all

Perfectly

Flat tax?

The distribution of income would be more unequal under the tax

How well did you know this?

Not at all

Perfectly

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

unexpected

*will decrease unemployment because worker’s wage is less

How well did you know this?

Not at all

Perfectly

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

real wages will rise

How well did you know this?

Not at all

Perfectly

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?

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

How well did you know this?

Not at all

Perfectly

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

expansionary monetary policy is ineffective

How well did you know this?

Not at all

Perfectly

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 __________________

allow one to buy the same amount of goods and services

How well did you know this?

Not at all

Perfectly

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

tax cunts mainly affect aggregate demand

How well did you know this?

Not at all

Perfectly

An increase in interest rates shifts Aggregate Demand _______________

left

How well did you know this?

Not at all

Perfectly

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

increase the demand for dollars on the foreign exchange market

How well did you know this?

Not at all

Perfectly

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 ______________

increase; remains unchanged

How well did you know this?

Not at all

Perfectly

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 _______________

real equilibrium federal funds rate

How well did you know this?

Not at all

Perfectly

If the economy is producing at potential GDP, _____________________________

unemployment is at its natural rate

How well did you know this?

Not at all

Perfectly

Describe supply-side economics

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

How well did you know this?

Not at all

Perfectly

Monetary policy could be procyclical if the Federal Reserve ____________________________

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

How well did you know this?

Not at all

Perfectly

Expansionary monetary policy =>

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

How well did you know this?

Not at all

Perfectly

An expansionary monetary policy in the United States should ___________________________

decrease the foreign currency price of U.S. exports

How well did you know this?

Not at all

Perfectly

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?

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

How well did you know this?

Not at all

Perfectly

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

increase; decrease

How well did you know this?

Not at all

Perfectly

increase in interest rates =>

increase demand for dollars => increase value of dollar

How well did you know this?

Not at all

Perfectly

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 ______________

real GDP

How well did you know this?

Not at all

Perfectly

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 ______________

decrease interest rates

How well did you know this?

Not at all

Perfectly

Decrease interest rates =\>

increase aggregate demand

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

slowly; higher

Depreciation of dollar represents a shift of demand in what way? Assume: euros per dollars

Shift downward (left)

If workers and firms raise their inflation expectations, then \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

the short-run Phillips curve will shift upward

Why weren't mortgages considered securities prior to 1970?

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

Empirical evidence shows workers and firms have rational expectations =\>

always on vertical LRPC

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

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

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

aggregate demand will shift to the left as imports increase

"Real business cycle" theorist

"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

Contractionary monetary policy on the part of the Fed results in \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

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

What is a "structural" relationship?

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

The major criticism of real business cycle models is:

negative technology shocks are uncommon and can't explain all business cycle fluctuations oil shock = negative techn. shock

Speculation in currency markets =\>

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

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

Inflation low =\>

interest rate high

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

stronger, open

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

weaker

The gold standard is an example of \_\_\_\_\_\_\_\_\_\_\_\_\_\_

a fixed eschange rate system

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

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

nothing

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

the trade-off between unemployment and inflation cannot be permanent

Balance of Trade

Ex - Im

Why did the gold standard get abandoned?

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

Increase in Money supply =\>

decrase interest rates

Above 0 in the Empire State Manufacturing Survey Index:

expanding

The core inflation rate in theU.S. is currently close to the Federal Reserve's explicit target of \_\_\_\_\_\_\_\_\_\_\_

Balance of payments includes which three accounts?

The current account The financial account The capital account

The recovery has boosted U.S exports of:

Capital goods industrial supplies Investment-based activities

consumer confidene fell because of all except:

falling debt burdens

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

Demand for dollars rises Supply of dollars falls

How might a budget deficit affect the balance of trade?

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

Budget deficit increases:

Government borrows interest rate goes up =\> exchange rate goes up $ demand goes up $ supply goes down

The United States is called a debtor nation because

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

If interest rates in the US rise, then \_\_\_\_\_\_\_\_\_\_\_\_\_\_

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

Federal government debt held by the public is no more than \_\_\_\_\_\_\_\_\_\_

10 trillion

A higher inflation rate can lead to lower unemployment if \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

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

China has been accused of undervaluing its currency in order to \_\_\_\_\_\_\_\_\_

increase its exports

An increase in capital inflows will \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

increase the equilibrium exchange rate

If the U.S. imports more than the U.S. exports, then \_\_\_\_\_\_\_\_\_\_\_\_\_

the U.S. will have a current account deficit

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

the currency is overvalued

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

the U.S. trade balance will be negative

The federal funds rate is:

the interest rate a bank charges each other for overnight loans

taylor rule predicted changes in federal funds target during =\>

alan greenspan

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 \_\_\_\_\_\_\_\_\_\_\_\_

imports; falls

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

Depreciating dollar

The dolla will appreciate relative to the yen if:

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

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

depreciate rise

Rising prices erode the value of money as a __________ and a \_\_\_\_\_\_\_\_\_\_\_\_

medium of exchange store of value

how the bond market "prices in" higher expected inflation

widening gap between moninal and TIPS interest rates

Federal budgtet deficit leads to:

Increase in interest rates appreciation of the dollar decline in net exports

An incrase in the money supply will \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

decrease the interest rate

Contractionary monetary policy will ___________ the interest rate

raise

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

reduce; lower

When inflation is very low, workers and firms \_\_\_\_\_\_\_\_\_

ignore inflation

MS increases =\>

interest rates decrease =\> C, I, NX increase

Falling interest rates can \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

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

Congress and the president do not play a role in \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

conducting monetary policy

decrease interest rates =\>

increase firm's stock price

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

increase

Higher interest rates cause U.S. dollar to \_\_\_\_\_\_\_\_\_\_\_

appreciate

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

The short-run Phillips curve shifts more rapidly

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

the National Bureau of Economic Research

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

increases; increases

If equilibrium GDP falls below potential

this will result in a budget deficit

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

the dollar will depreciate against the yen

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

the dollar to decline in value relative to the yen

If interest rates rise, investment in stocks becomes

relatively less attractive

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

the fed is pursuing an expansionary monetary policy