Test Questions 2022 Flashcards
Describe the concept of inflation
An increase in aggregate price level
What is certain if nominal gdp rises
Real gdp, price level or both rise
What is the multiplier of the economy if C= 250+0.8Yd
5
What happens when there is a movement to the left along the IS curve
A higher interest rate causes a fall in investment
What do we know for certain when the expected inflation rate is greater than zero about real interest rate
The real interest rate is lesser than the nominal
Adopting more generous unemployment benefits will lead to what in the medium run
A higher equilibrium unemployment rate
What will happen if policymakers think equilibrium unemployment is lower than it is in reality
Higher inflation rate than expected
What happens to the LM curve when policy rate is lowered
It shifts down
What is required to sustain gdp per capita growth in the long run
Technological process
What happens in the slow model at constant return to scale
If K and N rise at the same rate the output also does
In an economy without technological progress and population growth that is in steady state, what are savings equal to
Savings per worker is equal to depreciation per worker
Will increased population growth or an increased rate of depreciation cause a reduction in the growth of output in the steady state in the long run
No because steady state output only depends on technological growth and population growth which has a positive effect in the long run
In an economy with both population growth and technological progress. What variable is constant once we have reached a balanced growth path
Y/AN output per effective worker
A gini coefficient of 0 indicates what
Fully equal income
What happens if households suddenly believe in a higher future interest rate
The IS curve shifts to the left
If you are an American investor and lend money in Germany for 7% but the euro is expected to depreciate by 3% furring the year. How much in dollars could you get back in a year if you lend one $
$1.04
What happens to exports if there is a real appreciation
They will fall
What puts the goods market in equilibrium in an open economy
When domestic production equals demand for domestic goods
If the price levels in two countries are constant, what is the relationship between real and nominal exchange rates
They move together with the same percentage change over time
In a floating exchange rate, what will happen if the interest parity condition holds and expectations and foreign interest rates are constant but domestic interest interests rate is reduced
The exchange rate will be depreciated
When was the Swedish industrial breakthrough
1870-1890
When did Sweden transition from a fixed to a floating exchange rate
1992
What characterized the economic situation during the 2010s
low interest rates and low inflation
What are the accepted ways of calculating gdp
Income approach, expenditure approach, production approach and sum of value added
What is the gdp deflator
The ratio of nominal gdp to real gdp
In a closed economy where C=250+0.75Yd what increase will +100 G cause
400
When does the IS curve shift to the right considering G
When public spending increases
Why Is the economy always at the LM curve moving slowly to the IS curve
Because the central bank controls LM but it takes like 2 years for the IS curve to react
What is real interest rate if nominal is 8% and inflation is 3%
5%
In a country with 70 people 50 are of working age and the labor force consists of 20 with an unemployment if 10% how many unemployed persons are there
2
If the expected price level in an economy increases by 5% what happens to wages all else equal
Nominal wages will increase by exactly 5%. W=Pe*f(u,z)
What will happen if policymakers believe that natural unemployment is higher than it actually is
Lower than expected inflation rate
If a=1 and un = 9% and inflation expectations are fully adaptive, how will the inflation rate change for every year that actual unemployment remains at 6%
+3% p.a = -a(u-un)
What is the immediate effect on the IS LM PC curve when expected inflation increases
Nothing as nothing happens immediately
What is the central bank expected to do if a demand shock causes short tun output to exceed potential
Raise the policy rate
If a country saves more than another what will be the effect on capital per worker in the long run
That country will have increased K/N compared to its pears
When does capital per worker decrease in an absence of technological progress and population growth
When investment per worker is lesser than the investment
In the solow model without population or technological progress or population growth what happens to output per worker if you increase the savings rate
It increases at a decreasing rate until it reaches the steady state
In the solow model with technological progress and population growth is Y/AN K/AN or AN constant
AN is not constant but the rest are
Ehat do we know about total capital stock in the solow model with both technological progress and population growth that has reached balanced growth path
It grows at the rate of ga+gn
If the central bank adopts a monetary policy that the financial market expects how does that affect stock prices
They remain unchanged by the policy
What will happen if the expected future interest rate falls in the ISLM model
The IS curve shifts to the right
Is a countries export share limited by the gdp
No,
What is the function describing real exchange rate
EP/P*
How could a country improve its output while keeping net exports constant
By increasing public spending while decreasing the real exchange rate
What will always cause a decrease in net exports
Increased domestic income
According to the mundell Fleming model what will happen to net exports when public spending decreases
Net exports increases as imports decrease
What will happen to investments in an economy with a fixed exchange rate that reduces public spending
It decreases
What is the unemployment in a country with 200 million working people, 20 million looking for a job and 40 million discouraged workers
9.1%
What is the multiplier in an economy where C=300+0.6Yd
2.5
What will happen if the government lowers taxes on households all else equal
The IS curve moves to the right along the LM curve
What explains the economy moving right along the IS curve
Lower interest rates boosts investment
What is the immediate effect of a higher risk premium in the financial market
The IS curve moves to the left
How is the labor force defined
The sum of employed and unemployed
What will happen to prices if wages increase by 5% all else equal
They will increase by exactly 5%
What is the equalibrium level of unemployment if m+z=3.1% and a=0.4
Un=m+z)/a
Svar: 7.75
Does increased expected inflation increase the equalibrium rate of unemployment
No
Why does the Phillips curve slope upward in the ISLMPC model
Higher short run output leads to higher actual inflation as fewer people are unemployed
How will the central bank likely react to the government reducing spending to pay of debt
By lowering interest
What are the long run consequences of a permanently reduced savings rate
Output per worker will be permanently lower than it could have been at that time
If there is decreasing marginal to labor and constant return to scale what will happen if labor increases by 3%
Output increases by less than 3%
In the solow model without population growth and technological progress what happens when you increase the savings rate
A temporary increase in the growth of output per worker
After a war that does not change anything but capital in an economy without population growth and technological progress what characterizes the immediate future
Rapid growth that pans out to zero growth when steady state has been reached
What characterizes balanced growth path
Capital stock growth rate is equal to growth rate of effective workforce
Is Y/N, I, S or K/N constant in balanced growth
No
What will happen to the stock price if the central bank implements a more strongly expansionary policy than the financial market has been expecting
Stock prices rise all else equal
What happens in the ISLM model if expected future interest rates rises
The IS curve shifts to the left
What was the Swedish export share if Swedish gdp in 2021
40-50%
If the price level of japan is 1 and 2 in Sweden and it one krona is 10 yen what is the real exchange rate between Sweden and Japan from Sweden perspective
e = EP/P* E=¥*/¥
Svar: 20
If the Marshall Lerner condition holds what would cause a reduction in net exports
A higher real exchange rate
What will happen to net exports as a result of a tax cut
It will be weakened
What will an expansionary monetary policy lead to concerning E in an open exchange rate regime
It will depreciate the nominal exchange rate
How will decreased real estate wealth affect the trade balance
Lower total wealth leads to lower consumption which leads to reduced imports
