question
The demand curve for dollars shows the relationship between
answer
the quantity of dollars demanded and the exchange rate.
question
The demand curve for dollars slopes downward because when the dollar
answer
depreciates in value, US goods become relatively less expensive abroad, causing fewer people to buy dollars
question
When Walmart sells toys imported from China,
answer
the U.S. consumers pay in dollars, while the workers who produce the toys are paid in yuan
question
Which of the following is most likely to cause a rightward shift of the demand curve for dollars in exchange for the Chinese yuan?
answer
An increase in the demand for U.S. products in China
question
One dollar could be exchanged for 55 rupees in 2013 and for 60 rupees in 2014. This implies that the
answer
dollar appreciated in 2014
question
Sam owns a tire shop. He needs to decide whether to stock tires from a firm in Mexico that sells tires at a price of
1,800
1,800 pesos per tire or from a U.S. firm that sells tires for $
129
129 per tire. Assume the peso-dollar exchange rate is
13
13 (this means 13 pesos can be purchased with $1).
Which of the following equations should Sam use to convert the peso cost of tires to U.S. dollars?
1,800
1,800 pesos per tire or from a U.S. firm that sells tires for $
129
129 per tire. Assume the peso-dollar exchange rate is
13
13 (this means 13 pesos can be purchased with $1).
Which of the following equations should Sam use to convert the peso cost of tires to U.S. dollars?
answer
dollar cost = peso cost x dollars/peso
question
If the government intervenes actively to influence the exchange rate, then the country has a _________
exchange rate. If the government fixes a value for the exchange rate and intervenes to maintain that value, then the country has a
________exchange rate. If the government does not intervene in the foreign exchange market, then the country has a______________ exchange rate.
exchange rate. If the government fixes a value for the exchange rate and intervenes to maintain that value, then the country has a
________exchange rate. If the government does not intervene in the foreign exchange market, then the country has a______________ exchange rate.
answer
managed, fixed, flexible
question
The real exchange rate for the United States is calculated as ____________.
answer
dollar price of basket of goods x nominal exchange rate/ foreign price of same basket of goods
question
The graph on the right shows the net exports (NX) curve, which shows the relationship between net exports and the real exchange rate, denoted as E.
What do we know about a country's imports and exports at points E1 and E2, given that at E1 net exports are less than 0 and at
E2 net exports are greater than 0?
What do we know about a country's imports and exports at points E1 and E2, given that at E1 net exports are less than 0 and at
E2 net exports are greater than 0?
answer
At E1 imports exceed exports, while at E2 exports exceed imports
question
If the government of a country adopts contractionary monetary policy, ________.
answer
its currency will appreciate
question
How do expansionary policies differ from contractionary policies?
answer
Expansionary policies seek to increase economic growth and increase employment, while contractionary policies seek to reduce the risk of excessive price inflation.
Expansionary policies seek to shift the labor demand curve to the right, while contractionary policies seek to shift it to the left.
Expansionary policies seek to reduce the severity of recessions, while contractionary policies seek to slow down the economy when it grows too fast.
Expansionary policies seek to shift the labor demand curve to the right, while contractionary policies seek to shift it to the left.
Expansionary policies seek to reduce the severity of recessions, while contractionary policies seek to slow down the economy when it grows too fast.
question
The federal funds rate is the interest rate that ________.
answer
banks use to make loans to one another
question
Expansionary fiscal policy uses ________ government spending and ________ taxes to increase aggregate economic activity.
answer
higher; lower
question
Economic fluctuations are ____________.
answer
.short-run changes in the growth of GDP.
question
Recessions are periods in which the economy
____________, while economic expansions are defined as the periods
____________________ An economic expansion begins ____________.
____________, while economic expansions are defined as the periods
____________________ An economic expansion begins ____________.
answer
contracts; between recessions; at the end of a recession
question
In the United States, recessions are usually defined as ____________.
answer
two consecutive quarters of negative growth in real GDP.
question
Real business cycle theory ____________.
answer
emphasizes the role of changing productivity and technology in causing economic fluctuations.
question
____________ used the concepts of animal spirits and sentiment to explain economic fluctuations.
answer
John Maynard Keynes
question
According to his theory of animal spirits and sentiment, changes in sentiment cause economic fluctuations through ____________.
answer
changes in household consumption and firm investment.
question
The concept of multipliers was one of the key elements of John Maynard Keynes's theory of fluctuations.
A multiplier is ____________.
A multiplier is ____________.
answer
an economic mechanism that causes an initial shock to be amplified by follow-on effects.
question
Why is the rise in housing prices between the late 1990s and 2006 characterized as a bubble by some economists?
answer
The large increase in the price of housing assets did not reflect the true long-run value of the assets.
question
Some economists stress the role of monetary policy in the period leading up to the recession of 2007-2009. Between 2001 and 2003, the Federal Reserve lowered the target federal funds rate from 6.5% to 1%, and kept it there through much of 2004. This resulted in a substantial decline in real interest rates throughout the economy, including mortgage rates.
Based on the chapter's discussion of monetary and financial factors, how could the Federal Reserve's policies have contributed to the economic "bubble" of the pre-recession years of 2000-2006?
Based on the chapter's discussion of monetary and financial factors, how could the Federal Reserve's policies have contributed to the economic "bubble" of the pre-recession years of 2000-2006?
answer
The low federal funds rate also lowered mortgage rates, driving an increase in demand for housing, which in turn drove up real estate prices.
question
The ________ in employment during a recession is smaller if wages are ________.
answer
decline; flexible
question
In Chapter 11 of our textbook, M2 money supply is defined to include ___________.
answer
currency in circulation, checking accounts, savings accounts, travelers' checks, and money market accounts.
question
Money functions as a medium of exchange when you ___________.
answer
buy jeans at the mall.
question
When Terry retired from Caterpillar, he received a pension: Caterpillar would pay him $50,000 the first year he was retired, with the amount increasing by 5 percent each year thereafter. If inflation turned out to be 8 percent each year, what would happen to the real value of Terry's pension?
answer
It would decrease each year by 3 percent.
question
Zimbabwe decided to fund deficit spending in the early 2000s by printing more and more currency. This method of obtaining revenue is called ________, and it resulted in ________ for Zimbabwe.
answer
seigniorage; hyperinflation
question
Recall the discussion in the chapter about the "quantity theory of money."
The quantity theory of money assumes that ____________.
The quantity theory of money assumes that ____________.
answer
the ratio of money supply to nominal GDP is exactly constant.
question
This implies that if the money supply grows by 10 percent, then nominal GDP needs to grow by
10 percent
.
It follows that the growth rate of money supply and the growth rate of nominal GDP will be the same.
In this case, inflation is ____________.
10 percent
.
It follows that the growth rate of money supply and the growth rate of nominal GDP will be the same.
In this case, inflation is ____________.
answer
equal to the gap between the growth rate of money supply and the growth rate of real GDP.
question
If the growth rate of money supply is larger than the growth rate of real GDP, the inflation rate is ___________
.
Are the predictions of the quantity theory of money borne out by historical data?
.
Are the predictions of the quantity theory of money borne out by historical data?
answer
Yes, the long-run data show an approximately one-for-one growth rate of money supply and inflation.
question
The two key objectives of the Fed are ________.
answer
low and predictable levels of inflation and maximum levels of employment
question
The federal funds market refers to the market where ________.
answer
banks obtain loans of reserves from one another
question
If the Fed sells government bonds in the open market, it will cause ________
answer
the supply curve for reserves to shift to the left
question
Assuming all else equal, if a bank expects a bank run in the future, ________.
answer
its demand curve for reserves will shift to the right
question
Which of the following is likely to happen when the Fed raises the federal funds rate?
answer
The labor demand curve shifts to the left.
question
All else being equal, an increase in government borrowing is likely to cause a(n) ________.
answer
right shift of the credit demand curve
question
If the quantity of credit demanded in a market exceeds the quantity of credit supplied in the market, ________.
answer
the real rate of interest tends to rise
question
In the United States, bank reserves include ________.
answer
vault cash and the bank's holdings on deposit at the Federal Reserve Bank
question
What is meant by the commonly used phrase "too big to fail"?
answer
Governments will likely be politically motivated to bail out large banks if they fail due to systemic risk.
question
Unemployment statistics are measured and released by the Bureau of Labor Statistics (BLS), a division of the U.S. Department of Labor. The BLS officially classifies a person as being employed ____________.
answer
if that person holds either a part-time or full-time paid job.
question
Potential workers are classified as being unemployed when ____________.
answer
they do not have a paid job, have looked for work in the previous 4 weeks, and are available for work.
question
the equation for the labor force participation rate is defined as ____________.
answer
100%x labor force/potential workers
question
Which of the following people are counted as potential workers?
answer
People who are already employed full-time.
question
Which of the following would be classified as unemployed?
answer
Someone who is not working and looked for work two weeks ago.
question
According to salary.com, the average salary for a software engineer level III (a higher-level position in software design and implementation) in the Silicon Valley area of California is $108,244. However, Google pays its level III software engineers an average salary of $124,258.
Why does Google pay a salary higher than the equilibrium salary for equivalent positions in the same area?
Why does Google pay a salary higher than the equilibrium salary for equivalent positions in the same area?
answer
Google is paying an efficiency wage in order to minimize worker turnover, increase worker productivity, and attract the top talent.
question
In general, we find that unemployment rates are lower among ____________ workers since the opportunity cost of their time spent not working is ____________.
answer
more educated; higher
question
Which of the following is an example of a proximate cause of prosperity?
answer
Human Capital
question
The geography hypothesis states ____________.
answer
Ecology is responsible for differences in prosperity
question
Political creative destruction refers to ____________
answer
economic growth destabilizing political regimes.
question
The potential process of political creative destruction could lead to extractive institutions because ____________.
answer
the politically powerful fear of losing their privileged positions.
question
In the context of this chapter, what is meant by an institution?
answer
Laws
question
Which of the following is one of the three important elements that define institutions?
answer
they determine incentives
question
The great disparity in economic prosperity between North and South Korea can best be explained by the _____________.
answer
Institutions hypothesis
question
Catch-up growth is the ____________.
answer
process by which relatively poorer nations increase their incomes by taking advantage of the knowledge and technologies already invented in other technologically advanced nations.
question
An example of catch-up growth is ____________.
answer
South Korea, which by 1970 had become poorer relative to the United States, but over the last 40 years grew faster than the United States, closing the gap that had opened up previously.
question
Sustained growth is the ____________.
answer
process where GDP per capita grows at a positive and relatively steady rate for long periods of time.
question
An example of sustained growth is ____________.
answer
the United States, which demonstrated sustained growth between 1820 and 2007.
question
Which of the following countries will be better off in the long run?
answer
Country A with $1,000 annual GDP per capita and a 6 percent annual growth rate.
question
The annual growth rate of U.S. real GDP per capita over the past 60 years has averaged around ________.
answer
2%
question
Exponential growth implies that ________.
answer
relatively small differences in growth rates will translate into large differences in the level of a quantity after many years of growing
question
Most of the growth in GDP per hour worked in the United States over the past several decades can be attributed to growth resulting from ________
answer
technology
question
Which of the following statements is true of Malthus's theory?
answer
Malthus suggested that income levels will remain close to the subsistence level in the long run.
question
Which of the following correctly identifies a Malthusian cycle?
answer
An increase in GDP will increase GDP per capita above subsistence, which will cause an increase in the size of the population, which will increase pressure on resources and eventually reduce GDP per capita.
question
Suppose you are comparing the income per capita in the United States and Ghana. You try two approaches. In the first approach, you convert the Ghana values into U.S. dollars using the current exchange rate between the U.S. dollar and the Ghanaian cedi. In the second approach, you also convert both values to U.S. dollars using the purchasing power parity-adjusted exchange rate.
Which approach is likely to give you a more accurate picture of the living standards in both countries?
Which approach is likely to give you a more accurate picture of the living standards in both countries?
answer
The second approach, because it takes into account the relative costs for each country.
question
The Human Development Index measures ____________.
answer
living standards across various countries.
question
The correlation between this index and real income per capita in a country is ____________.
answer
countries with higher real income per capita tend to have higher levels of this index.
question
Productivity is ____________.
answer
the value of output that a worker generates for each hour of work.
question
The total efficiency units of labor are ____________.
answer
the product of the total number of workers and the average human capital of each worker.
question
The relationship between this concept and human capital is described as:
An increase in the average worker's level of human capital will, all else equal, ____________ the total efficiency units of labor in an economy.
An increase in the average worker's level of human capital will, all else equal, ____________ the total efficiency units of labor in an economy.
answer
increase
question
The old Soviet Union devoted enormous resources exclusively to increasing its physical capital stock, and yet eventually the increase in the country's real GDP came to an end.
Based on the discussion in the chapter, explain why this was inevitable.
Based on the discussion in the chapter, explain why this was inevitable.
answer
In the absence of technological innovation, massive capital investments yielded diminishing marginal returns.
question
How do increases in technology affect the aggregate production function?
answer
With increases in technology, the aggregate production function shifts up, indicating more output is produced from the same amount of inputs.
question
What does Moore's Law predict?
answer
Computer processing power would double approximately every 2 years.
question
Is Moore's Law borne out by historical data?
answer
Yes, Moore's prediction has been remarkably accurate.
question
GDP is estimated using expenditure-based accounting by using the equation ____________.
answer
GDP = C+I+G+X−M.
question
If the level of aggregate expenditure was $16.8 trillion in 2013, the level of aggregate income in the economy during 2013 was ___________.
answer
also $16.8 trillion because of the identity between aggregate expenditure and income.
question
What is the key difference between the Consumer Price Index (CPI) and the GDP deflator?
answer
The two indexes measure price changes for different "baskets" of products.
question
The GDP deflator is calculated using ____________.
answer
Nominal GDP/Real GDP x 100
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