In a small open economy, goods market equilibrium occurs when desired saving minus desired investment equals net exports. Explain. What will be an ideal response? ANSWER The domestic interest rate equals the world interest rate, regardless of the quantities of saving and investment. If saving is greater than investment at this interest rate, the […]
If people begin to generally feel better about the future ________. A) autonomous consumption should rise B) autonomous investment should rise C) the AD curve will shift to the right D) all of the above E) none of the above ANSWER D
Prudential regulation ________. A) requires that banks maintain the confidentiality of loan applications B) is administered by a specific insurance company C) is necessitated by the government’s safety net for the banking system D) is an effective substitute for prudential supervision ANSWER C
Figure 19.1 shows the actual behavior of inventories. Based on the figure, in which month is the discrepancy between the actual level of inventories and the desired level of inventories likely to have been smallest? A) March 2012 B) September 2009 C) March 2010 D) September 2010 ANSWER A
If purchasing power parity holds, the exchange rate (e) can be expressed as a function of the domestic price (P) and the foreign price (P*) as A) e = P – P*. B) e = P* – P. C) e = P* + P. D) e = P/P*. ANSWER D
Long-run aggregate supply shocks are a source of business cycle fluctuations in ________. A) traditional Keynesian and new Keynesian theory B) new Keynesian and real business cycle theory C) real business cycle and traditional Keynesian theory D) traditional Keynesian, new Keynesian and real business cycle theory ANSWER B
Robert Lucas has popularized the notion that with respect to A) severity, business cycles are all alike. B) causation, business cycles are all alike. C) quantitative behavior of co-movements among series, business cycles are all alike. D) qualitative behavior of co-movements among series, business cycles are all alike. ANSWER D
Between September 2009 and September 2010, the recovery of private inventories, as shown in Figure 19.1, was far stronger than the overall economy’s recovery from the Great Recession. Which is the most reasonable inference? A) Persistently weak aggregate demand gave producers no alternative but to place current output into storage. B) Businesses overestimated the strength […]
An increase in the real interest rate occurs when ________. A) monetary policy responds automatically to an increase in inflation B) expected inflation increases, relative to the nominal interest rate C) an increase in autonomous spending causes an increase in equilibrium output D) all of the above E) none of the above ANSWER A
A principal reason that purchasing power parity does not hold exactly in practice is A) that foreign and domestic assets are not perfect substitutes. B) the existence of non-traded goods. C) that consumers in different countries have different preferences. D) that costs of production are not the same in all countries. ANSWER B
