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foundations macroeconomics

Macroeconomics 1st Edition Tracy Lowd - Solutions

3. Why does the supply curve for a currency slope upward? (A) When demand for a country’s goods rises, the country needs to supply more currency. (B) There is always a demand for currencies in a global economy. (C) The more goods a country imports, the more currency supply is needed. (D) Even in
2. If the demand curve for U.S. dollars shifts to the left, what happens to the equilibrium exchange rate of euros to dollars? (A) The equilibrium rate will result in more expensive dollars. (B) The U.S. dollar will depreciate and cost more euros. (C) The equilibrium rate will result in a rise in
1. If there is a spike in export goods and services from Mexico to Germany, what will happen to the peso-euro exchange rate? (A) The euro will appreciate because more will be spent to purchase pesos. (B) Because the demand for pesos will be high, it will depreciate against the euro. (C) The peso
1. In one to three paragraphs, explain what role supply and demand play in the foreign exchange market and the equilibrium exchange rate.
1. Use the following scenario to answer the questions below: China and the United States are trading partners. The currency in China is the yuan. The United States has relatively higher inflation than China. (a) In what way does the higher inflation rate affect the United States dollar? (b) Given
3. Relative income and relative inflation are factors that determine (A) the value of a country’s currency in the money market (B) the value of a country’s currency in the inflation market (C) the value of a country’s currency in the foreign exchange market (D) supply and demand of a
2. Under a floating exchange rate regime, a currency's value is directly determined by (A) the loanable funds market (B) the money market (C) the foreign exchange market (D) a country's fiscal policy (E) a country's monetary policy
1. When the U.S. dollar decreases in value relative to the euro, it has (A) depreciated (B) appreciated (C) equalized (D) changed to a fixed exchange rate (E) changed to a floating exchange rate
1. In one to three paragraphs, explain how currency exchange rates are determined and impacted by changes in import and export activity
1. Which component of the balance of payments accounts is affected by the following economic developments? Explain your answers for each. (a) A U.S. company sells a brand-new airplane to an Australian airline. (b) German investors buy stocks in an American parcel shipping service. (c) South Vietnam
3. The balance of payments is (A) when the sum of the current account (CA) and capital financial account (CFA) are zero (B) when the current account (CA) is greater than the capital financial account (CFA) (C) when the capital financial account (CFA) is greater than the current account (CA) (D)
2. What is the difference between current accounts (CA) and capital financial accounts (CFA)? (A) CAs are the total goods trade deficit; CFAs are the total assets deficit for a nation. (B) CAs show long-term trade trends; CFAs show short-term asset sales. (C) CAs are the most recent BOP account
1. The table above shows the 2020 current accounts (CA) for Zambonia. Determine the missing figures to complete the CA table total. (A) (1) $939 (2) $863 (B) (1) $939 (2) –$619 (C) (1) $2,563 (2) –$761 (D) (1) $2,563 (2) –$619 (E) (1) $2,563 (2) $863
1. In one to three paragraphs, explain how balance of payments (BOP) accounts measure the goods, services, and financial trade between countries.
1. Assume the country of Strongland is operating at full employment with a balanced budget. (a) Draw a correctly labeled Phillips curve that illustrates the country’s current economic situation and label it A. (b) The government engages in a war that it decides to finance by borrowing. What
3. How does the patent system encourage inventors? (A) By allowing them to profit from their inventions (B) By easing government regulations (C) By helping finance production (D) By providing government grants (E) By providing tax breaks
2. What is the most common reason modern governments impose tariffs? (A) To raise money (B) To reduce the budget deficit (C) To protect domestic producers (D) To help domestic producers reduce their prices (E) To boost real income
1. Which of the following public policies is most likely to promote longrun economic growth? (A) A decrease in unemployment benefits (B) A decrease in income taxes (C) An increase in transfer payments (D) An increase in funding for public education (E) An increase in public infrastructure
1. In one to three paragraphs, explain how public policies affect economic growth.
3. An increase in capital stock will have which of the following effects on income per capita and aggregate production? Income Per Capita Aggregate Production (A) Decrease Increase (B) Decrease Decrease (C) Decrease Indeterminate (D) Increase Decrease (E) Increase Increase
2. Which of the following is most likely to promote long-term economic growth? (A) Private savings (B) Technological progress and increased human capital (C) Production of consumer goods (D) Private consumption of consumer goods (E) Public consumption of consumer goods
1. The term human capital refers to (A) the number of workers in an economy (B) equipment furnished to workers by their employers for use on the job (C) cash recruitment incentives offered to new employees (D) skills acquired through education, training, or experience (E) capital per hour worked
1. In one to three paragraphs, explain how the economy expands and contracts but grows in the long run.
3. The national debt is created when a government (A) operates at a deficit more than it operates at a surplus (B) spends more money than it takes in (C) borrows money from other entities and receives equal amount of tax revenue (D) decreases its spending and increases its tax revenues (E) engages
2. A balanced budget is achieved when (A) tax revenues exceed government spending (B) government spending exceeds tax revenues (C) the government stops excess spending and lowers income tax (D) tax revenues can cover all government expenditures (E) the government increases its outlays regardless of
1. What effect does fiscal policy have on a government’s budget? (A) Fiscal policy alone determines the amount of revenue a government will have to work with. (B) Fiscal policy determines both the revenues and outlays in a government’s budget. (C) Fiscal policy can increase or decrease the
1. In one to three paragraphs, describe the long-run implications of monetary and fiscal policy
determine the supply of money.
3. What happens to the demand for money when an economy enters an inflationary period? (A) The demand for money decreases. (B) The demand for money increases. (C) The demand for money stays the same. (D) The demand for money becomes stable. (E) The demand for money begins to
2. On the money market graph, what happens to the supply curve when the Fed increases the money supply? (A) It shifts to the right. (B) It shifts to the left. (C) It shifts upward. (D) It shifts downward. (E) It does not move because it is always a vertical line.
1. What economic indicator does the Fed prefer to use to measure inflation? (A) The discount rate (B) The consumer price index (C) The producers price index (D) The gross domestic product (E) The personal consumption expenditures price index
1. In one to three paragraphs, explain how monetary policy affects inflation.
1. Assume the United States economy is experiencing an inflationary period caused by an increase in government spending. (a) On the short run Phillips curve, would the economy, in its current state, be characterized by a point to the right of, left of, or on the long run Phillips curve? (b) Draw a
3. What impact would a negative supply shock have on the Phillips curve? (A) It would cause the SRPC to shift to the left as both inflation and unemployment fall. (B) It would cause the SRPC to shift to the right as both inflation and unemployment rise. (C) It would cause movement upward along the
2. Where does expansionary monetary policy eventually move the economy in relation to the long-run Phillips curve? (A) It shifts it to the right of the LRPC. (B) It shifts it to the left of the LRPC. (C) It moves it higher on the LRPC. (D) It moves it lower on the LRPC. (E) It moves it above the
1. According to the Phillips curve model, an increase in the expected rate of inflation will cause (A) a corresponding rise in employment (B) the short-run Phillips curve to shift to the right (C) the short-run Phillips curve to shift to the left (D) the long-run Phillips curve to move to the left
1. In one to three paragraphs, explain how the Phillips curve model represents the relationship between inflation and unemployment and the effects of macroeconomic shocks on both.
3. Assume the economy is experiencing an inflationary period. Which of the following would happen if an expansionary monetary policy were to be applied? Employment Price Level Aggregate Demand (A) Increase Increase Decrease (B) Decrease Decrease Decrease (C) Increase Increase Increase (D) Decrease
2. The goal of expansionary fiscal and monetary policy is (A) an increase in output and a decrease in price level (B) an decrease in output and a decrease in price level (C) an increase in aggregate demand to reduce unemployment (D) a decrease in aggregate demand to decrease the price level (E)
1. Which of the following is an example of expansionary fiscal policy? (A) Raising taxes (B) Increasing government spending (C) Cutting government spending (D) Increasing the money supply (E) Lowering interest rates
1. In one to three paragraphs, explain the short-term effects of fiscal and monetary policy on macroeconomic outcomes.
1. Country X is currently in a recession, and the Central Bank decides to take action to bring the country back to full employment. (a) Identify an open-market operation that the central bank should engage in. (b) Draw a correctly labeled graph of the money market to show the change you indicated
3. What happens when a government spends more than it collects in tax revenues? (A) There is a budget surplus amounting to an increase in the demand of loanable funds. (B) There is a budget surplus amounting to a decrease in the supply of loanable funds. (C) There is a budget deficit amounting to a
2. Why is the supply of loanable funds upward sloping? (A) As the real interest rate decreases, people are willing to save more. (B) As the real interest rate increases, people are willing to save more. (C) As the real interest rate decreases, people demand more loanable funds. (D) As the real
1. Which of the following will result in an increase in the real interest rate? (A) An increase in household saving (B) An increase in national saving (C) An increase in the supply of loanable funds (D) An increase in the government budget surplus (E) An increase in the demand for loanable funds
1. In one to three paragraphs, explain how the interactions of borrowers and savers determine the equilibrium interest rate of loanable funds.
3. Which of the following is a short-run effect of an increase in the money supply? (A) Interest rates increase. (B) Demand for money increases. (C) Price level increases. (D) Aggregate demand for goods and services increases. (E) Aggregate demand for goods and services decreases.
2. If the reserve ratio is 5 percent, how much could an initial deposit of $10,000 grow to as a result of the money multiplier? (A) $20,000 (B) $40,000 (C) $100,000 (D) $200,000 (E) $400,000
1. Which of the following best describes the discount rate? (A) It is the interest rate set by the Fed for overnight interbank lending. (B) It is the interest rate charged by a central bank for loans of reserve funds. (C) It is the interest rate commercial banks charge their best corporate
1. In one to three paragraphs, describe the short-run effects of monetary policy on macroeconomic outcomes.
3. What happens when the Federal Reserve buys bonds? (A) The transaction demand for money increases, and the supply of money decreases. (B) The transaction demand for money decreases, and the supply of money decreases. (C) The supply of money decreases, and nominal interest rates decrease. (D) The
2. As a country comes out of a recession and the price level and income levels increase, (A) the demand for money increases, which increases nominal interest rates (B) the demand for money decreases, which increases nominal interest rates (C) the supply of money increases, which decreases nominal
1. According to Keynes, the three motives for holding money are (A) the transactions motive, the precautionary motive, and the speculative motive (B) the transactions motive, the precautionary motive, and the profit motive (C) the transactions motive, the profit motive, and the speculative motive
1. In one to three paragraphs, explain how the demand for and supply of money determine the equilibrium nominal interest rate and influence the value of other financial assets.
1. Use the following balance sheet to answer all parts of the questions that follow: Seaside Bank Assets Liabilities Required Reserves $ 10,000 Demand deposits $100,000 Excess Reserves $90,000 Owners' equity $80,000 Loans $50,000 Other assets $30,000 Total $180,000 Total $180,000 (a) Based on the
3. Which of the following is true of the Fed’s reserve requirements? (A) Larger banks have a smaller reserve requirement than do smaller banks. (B) A bank’s required reserves are based on the total value of its deposits. (C) A bank’s required reserves are based on the value of its demand
2. Which of the following represents a bank’s largest liability? (A) Loans (B) Reserve requirement (C) Excess reserves (D) Demand deposits (E) Securities
1. The money multiplier is (A) the amount of money generated on the balance sheet (B) the amount of loans that can be called in on a balance sheet (C) the way in which one finds the dollar amount eventually generated by loans given (D) the way in which money is measured (E) the percentage banks
1. In one to three paragraphs, explain the role of the banking system in the expansion of the money supply.
1. Use the following scenario to answer all parts of the following questions: Diego opens a new checking account in Bank A with $5,000. (a) If Diego uses the debit card that accompanies this account, what function of money does his transaction serve? (b) Diego decides to deposit as much as he can
3. Money held by the public that includes demand deposits and currency is measured as (A) M1 (B) M2 (C) M0 (D) Fiat money (E) Commodity money
2. Which of the following best describes fiat money? (A) Money that is backed by a commodity such as gold (B) Money that is backed by the government that issued it (C) U.S. dollars held in foreign financial institutions (D) Money that is held in demand deposits (E) Money that is not included in the
1. Which of the following is an example of money as a unit of account? (A) A monthly credit card statement (B) A money market account (C) A checking account (D) Pricing of items in a grocery store (E) Direct deposit
1. In one to three paragraphs, explain the functions of money and how economists measure it.
1. Use the following scenario to answer all parts of the free-response questions below. Bank A is offering fixed-rate loans at a 5 percent nominal interest rate. The actual inflation rate is 4 percent. (a) Calculate the real interest rate. (b) Assuming there is no inflation, explain the
3. If the nominal interest rate is 7 percent and the rate of inflation is 4 percent, what is the real interest rate? (A) −28 percent (B) −11 percent (C) –3 percent (D) 3 percent (E) 11 percent
2. Who sets short-term nominal interest rates in the United States? (A) The president (B) The World Bank (C) The Federal Reserve (D) The banking industry (E) The Consumer Price Index
1. How do banks make most of their money? (A) By charging depositors interest on their savings accounts (B) By selling stocks and bonds (C) By investing in U.S. Treasury notes (D) By charging interest on loans they issue (E) By lending money to other banks overnight
1. In one to three paragraphs, explain how interest rates provide a measure of the price of money that is borrowed or saved.
1. For each of the following assets, briefly describe the relation between risk and rate of return. (a) Savings account (b) Certificate of deposit (c) Corporate bond (d) Treasury bond (e) Stock in a corporation
3. When the prevailing market interest rate drops, one effect on previously issued bonds is that (A) their interest rate also drops (B) their interest rate rises (C) their value also drops (D) their value rises (E) their value is unaffected
2. One example of financial assets that can be withdrawn at will are (A) nonliquid assets (B) interest rates (C) municipal bonds (D) demand deposits (E) corporate bonds
1. Which of the following assets would be most liquid? (A) Fine art (B) Antiques (C) Real estate (D) Commodities such as oil (E) Stock in a corporation
1. In one to three paragraphs, discuss financial assets and the opportunity cost of money
1. Assume that Curuguay, a country that makes capital goods and consumer goods, is operating at below full employment. (a) Using a correctly labeled graph of aggregate demand, aggregate supply, and long-run aggregate supply, show each of the following: (i) Long run aggregate supply labeled Yf. (ii)
1. Answer all parts of the questions that follow.(a) The graph depicts the beginning of a recession. Explain what will happen to the aggregate supply curve as the recession worsens. (b) Identify one automatic stabilizer that would work to correct the recession and explain how it would ease the
3. Who most directly funds the unemployment insurance system? (A) All employees (B) The federal government (C) All employers (D) Individual states (E) Employers who wrongfully fire workers
2. Why are government transfers more effective than tax cuts as automatic stabilizers? (A) Tax cuts only happen when annual taxes are filed. (B) Transfers have a greater multiplier effect. (C) Tax cuts are not tied to the federal poverty level. (D) Transfers cost less than tax cuts. (E) Transfers
1. What is the primary purpose of automatic stabilizers as fiscal policy? (A) To replace direct cash payments with vouchers (B) To moderate fluctuations in the economy (C) To increase the unemployment rate (D) To raise income taxes on those with the most income (E) To keep aggregate prices stable
1. In one to three paragraphs, explain how automatic stabilizers moderate business cycles and impact aggregate demand and GDP.
1. Assume the graph below shows the economy of Freedonia. Answer all parts of the questions that follow.(a) Which kind of GDP gap is Freedonia experiencing? Explain. (b) Which kind of fiscal policy—expansionary or contractionary— would shift the economy to potential output (Yf )? What are some
3. To eliminate a recessionary gap, the government is most likely to do which of the following? (A) Increase interest rates (B) Decrease government spending (C) Decrease taxes (D) Increase taxes (E) Decrease transfer payments
2. Which type of fiscal policy might the government institute to respond to an inflationary gap in the economy? (A) Hike import taxes on all foreign goods (B) Raise the national minimum wage (C) Increase federal spending on goods and services (D) Increase personal and corporate taxes (E) Freeze all
1. When governments increase spending on goods and services, which indicator is the spending intended to directly affect? (A) Nominal wages (B) Short-run aggregate supply (C) Aggregate demand (D) Output potential (E) Aggregate price levels
1. In one to three paragraphs, explain how government fiscal policies involving spending and taxation affect demand, GDP, and employment.
1. Assume there has been a negative demand shock to the economy. Use the graph below to answer all parts of the questions that follow.(a) What does the shift from AD1 to AD2 signify? (b) What happens to employment numbers when aggregate demand shifts due to a negative demand shock? (c) What is the
3. What do shifts in the long-run aggregate supply curve indicate? (A) Economic growth (B) Falling price levels (C) Rising producer costs (D) Stable nominal wages (E) GDP fluctuations over time
2. How do supply shocks differ from demand shocks regarding GDP and price levels? (A) Demand shocks cause prices and GDP to decrease sharply. (B) Demand shocks affect prices and GDP in opposite directions. (C) Supply shocks only impact prices and not GDP. (D) Supply shocks move prices and GDP in
1. Assuming a negative supply shock, in which of the following ways could the economy self-adjust and be restored to full employment? (A) The government could decrease spending. (B) The federal reserve could lower interest rates. (C) The government could institute new regulations for manufacturers.
1. In one to three paragraphs, explain how the long run adjusts to supply and demand shocks in order to return to full employment and economic growth.
1. Use the graph below to answer all parts of the questions that follow. For these questions, one does not build upon the others.(a) What would be the short-run effect of a negative shock like the government passing a large increase in the minimum wage? (b) If a solar panel company can no longer
3. A supply shock, such as a severe drought, would lead to (A) a decrease in price level and an increase in employment (B) a decrease in price level and an increase in unemployment (C) an increase in price level and an increase in employment (D) an increase in price level and an increase in
2. Which does NOT contribute to demand-pull inflation? (A) Growth in GDP (B) Increased exports (C) Expectation of rising prices (D) Increase in workers’ wages (E) Federal spending programs
1. If there is a positive demand shock, which best describes how aggregate price levels react? (A) Aggregate price levels will remain generally static. (B) Aggregate price levels are not affected by demand shocks. (C) Aggregate price levels will likely rise due to scarcity. (D) Aggregate price
1. In one to three paragraphs, explain how positive and negative shocks to both supply and demand impact employment, prices, and output in the short run.
1. Assume the federal government institutes a large stimulus program for infrastructure repair. Use the graph below to answer all parts of the questions that follow.(a) In what direction would this stimulus shift aggregate demand? Explain. (b) What would the effect of the above shift have on real
3. Assuming an economy is in a recession, if the aggregate supply curve increases (shifts to the right), which of the following would occur? Price Level Real Output (A) Increase Decrease (B) Increase Remain the same (C) Decrease Remain the same (D) Decrease Increase (E) Decrease Decrease
2. If price level is above long-run equilibrium, what must happen to help price levels return to long-run equilibrium? (A) Real GDP must decrease in the short run. (B) Long-run supply estimates must reduce. (C) Production costs must be adjusted upward. (D) Tax rates must be increased to reduce AD.
levels
1. Which must be at the same levels to attain short-run macroeconomic equilibrium? (A) real GDP and potential output (B) the SRAS curve and the LRAS curve (C) aggregate output and demand for goods and services (D) price levels and aggregate output (E) aggregate supply and potential price

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