Aggregate Demand and Supply
What describes the state of the economy when the output gap is zero, inflation is low and stable, and economic policies are sustainable?
Internal balance
What are two main monetary transmission channels?
Interest rate channel
Exchange rate channel
Credit channel
Which groups tends to have the largest weight in the consumer price index?
Food and housing
Fiscal policy refers to ... .
the use of public finance instruments
changes in revenue and expenditure, and management of the government's balance sheet
There is macroeconomic balance when ... .
a) real output is at or close to its capacity level and inflation is low and stable
b) GDP growth is high and the external current account position can be sustained by financial flows
c) real output is at or close to its potential level, inflation is low and stable, and the external current account can be sustained by financial flows
d) real output is at or close to its potential level and net international reserves cover more than 5 months of imports
c) real output is at or close to its potential level, inflation is low and stable, and the external current account can be sustained by financial flows
What provides an indication of the degree of stimulus or constraint by the monetary and financial sector on the economy?
Monetary conditions (index)
Real interest rates
Real exchange rates
A repeated sequence of economic expansion followed by temporary decline, and then recovery is called ... .
a business cycle
In the long run, the best contribution monetary policy can make to increasing living standards and wellbeing is ... .
price stability
What are two possible causes of inflation?
Past inflation
Excess demand (demand-pull)
Higher production costs (cost-push)
A depreciation of the domestic currency
Higher inflation expectations
When the economy is overheating, the cyclically-adjusted fiscal balance is ... .
a) higher than the actual fiscal balance
b) lower than the actual fiscal balance
b) lower than the actual fiscal balance
What does a current account deficit imply for domestic investment and domestic saving?
Domestic investment exceeds domestic saving.
The investment-saving gap is financed by foreign saving.
Banks making loans to highly-leveraged firms is a source of what risk in the financial sector?
a) Credit risk
b) Market risk
c) Exchange rate risk
a) Credit risk
What are two key determinants of private consumption?
Current income
Future expected income
Uncertainty
Expected real interest rates
Wealth
What is central bank operational independence?
A shield from political influence and pressure to stimulate economic activity.
The government sets policy goals and targets.
The central bank determines the best way to achieve policy goals and targets.
The Phillips curve captures ... .
the relationship between inflation and the output gap
the trade-off between inflation and unemployment
how the output gap, expected inflation, and the real exchange rate affect inflation
What are the two components of fiscal policy?
Automatic stabilizers and discretionary fiscal policy
The real exchange rate is the nominal exchange rate adjusted for ... .
price level differences between trading partners
Name two financial soundness indicators.
Capital adequacy
Asset quality
Earnings and profitability
Liquidity
Sensitivity to exchange rates
Where is the world’s largest desert?
1. Russia
2. Asia
3. Africa
4. Artic
5. Australia
6. Antartica
Antartica
An increase in the banks’ willingness to lend will lead to:
A higher money multiplier
A lower money multiplier
The money multiplier will be unaffected
Impossible to say with the information given
A higher money multiplier
What is the impact on the CPI and the GDP deflator when a country does not produce cars and the price of imported cars increases following an exchange rate depreciation?
The CPI increases and the GDP deflator remains unchanged.
If the real interest rate is greater than the real GDP growth rate, and the primary fiscal balance is in deficit, the debt to GDP ratio will ... .
a) decrease
b) increase
c) increase without bound
c)
External debt sustainable when ... .
the country is able to cover principal repayment and interest on debt – without default, restructuring, or high inflation
Why is financial regulation and supervision needed?
Financial instability / crises can have severe macroeconomic consequences.
To prevent financial intermediaries from taking too much risk.
In recessions, labor force participation and employment typically decline. What other statement is likely to be true?
a) The unemployment rate typically declines.
b) The increase in the unemployment rate may understate the labor market impact of the recession.
c) The unemployment rate is acyclical.
b) The increase in the unemployment rate may understate the labor market impact of the recession.
What are open market operations?
Open market operations are a means to achieve a short-term interest rate.
The central bank buys (sells) domestic government bonds.
Why are prices important?
They help allocate resources.
They are a mechanism for the economy to adjust.
They signal potential imbalances in the economy.
WILD CARD!!!
What is Paul McCartney’s middle name?
Paul
"James Paul McCartney"
Why are other (non-debt creating) asset flows included in external debt but not government debt sustainability analysis?
Businesses can finance investment by issuing equity, i.e., selling a share of ownership.
Governments do not issue equity.
What are stress tests?
They are forward-looking exercises to evaluate the impacts of severe but plausible adverse scenarios (on the resilience of financial institutions, the economy, sustainability of debt).