Test Questions 2022 Flashcards by Alexander Fransson

Describe the concept of inflation

An increase in aggregate price level

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What is certain if nominal gdp rises

Real gdp, price level or both rise

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What is the multiplier of the economy if C= 250+0.8Yd

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What happens when there is a movement to the left along the IS curve

A higher interest rate causes a fall in investment

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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

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Adopting more generous unemployment benefits will lead to what in the medium run

A higher equilibrium unemployment rate

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What will happen if policymakers think equilibrium unemployment is lower than it is in reality

Higher inflation rate than expected

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What happens to the LM curve when policy rate is lowered

It shifts down

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What is required to sustain gdp per capita growth in the long run

Technological process

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What happens in the slow model at constant return to scale

If K and N rise at the same rate the output also does

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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

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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

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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

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A gini coefficient of 0 indicates what

Fully equal income

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What happens if households suddenly believe in a higher future interest rate

The IS curve shifts to the left

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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

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What happens to exports if there is a real appreciation

They will fall

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What puts the goods market in equilibrium in an open economy

When domestic production equals demand for domestic goods

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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

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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

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When was the Swedish industrial breakthrough

1870-1890

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When did Sweden transition from a fixed to a floating exchange rate

1992

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What characterized the economic situation during the 2010s

low interest rates and low inflation

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What are the accepted ways of calculating gdp

Income approach, expenditure approach, production approach and sum of value added

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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%

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

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

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

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