Ch 10-12
What method is used to calculate the Consumer Price Index (CPI)?
by averaging price changes for each item in a predetermined basket of goods, comparing them to prices in a base year
What do we associate the term debt finance with
the bond market, and we associate the term equity finance with the stock market.
What actions can the Federal Reserve take to increase the money supply?
buy government bonds or decrease the discount rate
What is the economic condition of a country that purchases more goods and services from residents of foreign countries than residents of foreign countries purchase from it?
a trade deficit and negative net exports.
What action would shift aggregate demand to the right?
The Fed buys bonds in the open market.
What is the key difference between nominal GDP and real GDP?
Nominal GDP measures the production of goods and services at current prices, while real GDP adjusts for inflation and measures production at constant prices.
How do interest rates influence bond prices and yields?
Higher interest rates lead to lower bond prices and higher yields, or higher interest rates lead to higher bond prices and lower yields
How is the leverage ratio calculated?
assets divided by bank capital
What does net capital outflow equal?
foreign assets by domestic residents - the purchase of domestic assets by foreign residents
What happens to consumption when taxes decrease, according to the aggregate-demand curve?
When taxes decrease, consumption increases as shown by a shift of the aggregate demand curve to the right.
If two countries are identical except for differences in capital per worker, and both increase their saving rates, what is the likely outcome for their growth rates over the next decade?
the country that started with less capital per worker will grow faster.
How is unemployment typically measured?
by dividing the number of unemployed individuals by the labor force
If the Federal Reserve sets the minimum reserve ratio for private banks at 25%, what is the money multiplier?
4
If foreign citizens decide to purchase more U.S. pharmaceuticals and U.S. citizens decide to buy more stock in foreign corporations, what happens to U.S. net exports and U.S. net capital outflows?
both raise U.S. net exports and U.S. net capital outflows.
What action, other things remaining constant, would lead to a decrease in the price level and an increase in real GDP?
long-run aggregate supply shifts right
If an economy experiences an increase in its saving rate, what is the likely impact on the growth rate of productivity in the short run and the long run?
higher in the short run, but not in the long run
How can a national chain of grocery stores finance the construction of new stores if it has limited internal funds?
demand the required funds by selling bonds.
During the 2008 financial crisis, what MACROeconomic concept saw a decrease, leading to a potential impact on the price level?
velocity of money
If real interest rates in the U.S. rise relative to real interest rates in other countries, what happens to foreigners' willingness to purchase U.S. bonds and U.S. net capital outflow?
more willing to purchase U.S. bonds, so U.S. net capital outflow would fall.
What happens to U.S. net exports and the aggregate quantity of goods and services demanded when the dollar depreciates?
net exports rise, which increases the aggregate quantity of goods and services demanded.
If two countries are similar except for differences in capital per worker, and both increase their saving rates, what is the likely outcome for their growth rates over the next decade?
the one with initially less capital per worker or the one with initially more capital per worker
If individuals who are currently not actively seeking work due to discouragement were counted as unemployed instead of being classified as out of the labor force, what would be the likely impact on the unemployment rate and the labor-force participation rate?
both the unemployment rate and labor-force participation rate would be higher.
If real output in an economy is 1,000 goods per year, the money supply is $300, and each dollar is spent an average of 4 times per year, according to the quantity equation, what is the average price level?
1.20.
If a country has a trade surplus, what is true about the relationship between savings (S), investment (I), and total spending (C + I + G) in the economy?
S > I and Y > C + I + G.
When the price level increases in the context of the aggregate-demand curve, what phenomenon, known as the interest-rate effect, impacts the real value of money, interest rates, and spending on investment goods? Hint: HOUSEHOLDS
households increase their holdings of money; in turn, interest rates increase, which reduces spending on investment goods.