Ch 10 -12
An open economy's GDP is always given by what equation?
Y = C + I + G + NX.
What alternative method could a large company use, instead of selling shares of stock, to raise funds?
sell bonds.
What is the velocity of money
the average number of times per year a dollar is spent.
What does net capital outflow measure, involving the exchange of assets between domestic and foreign entities?
the purchase of domestic assets by foreign residents minus the purchase of foreign assets by domestic residents
What is the primary purpose for which most economists use the aggregate demand and aggregate supply model?
analyzing short-run fluctuations in the economy
What is the correct way to measure productivity, involving the relationship between output and labor input?
The quantity of output divided by the number of hours worked.
What is the relationship between creditors and debtors?
Creditors are entities that lend money, while debtors are those who borrow it.
What does the term "money multiplier" represent?
This term refers to the ratio by which a change in the monetary base is multiplied to determine the change in the money supply.
If real interest rates in the U.S. increase compared to other countries, what effect does this have on foreigners' willingness to buy U.S. bonds and U.S. net capital outflow?
more willing to purchase U.S. bonds due to higher U.S. real interest rates
What factor contributes to the downward slope of the aggregate demand curve?
a lower price level reduces the interest rate, encouraging greater spending on investment goods
What is the term for the interest rate at which the Federal Reserve lends money to commercial banks?
the discount rate
Which of the following scenarios constitutes a financial-market transaction: A saver buying shares in a mutual fund, a saver depositing money into a credit union, a saver buying a bond a corporation has just issued so it can purchase capital, or none of the above?
A saver buys a bond a corporation has just issued so it can purchase capital.
If the money supply (M) is 6,000, the price level (P) is 3, and real GDP (Y) is 3,000, what is the velocity of money?
1.5
If a country imports $90 million worth of goods and services and exports $80 million worth of goods and services, what is the value of net exports?
-$10 million
In the AS/AD model, what happens to the interest rate and the supply of dollars in the foreign currency exchange market when the price level rises?
the Interest Rate rises, so the supply of dollars in the market for foreign currency exchange shifts left.
What are the two primary types of foreign investment?
Foreign portfolio investment, which involves investing in foreign financial assets, and foreign direct investment, which involves owning direct business interests in a foreign country
In general, are long-term bonds riskier or less risky than short-term bonds, and do interest rates on long-term bonds tend to be lower or higher than interest rates on short-term bonds?
riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.
During the German hyperinflation, if there's evidence that the rate at which money changed hands rose, what effect did this have on velocity and the ratio M/P if monetary neutrality holds?
velocity rose. If monetary neutrality holds the rise in velocity decreased the ratio M/P.
When an Italian company exchanges euros for dollars to purchase U.S. products and U.S. residents exchange dollars for euros to buy bonds issued by French corporations, what happens to U.S. net exports and U.S. net capital outflows?
both U.S. net exports and in a decrease U.S. net capital can result outflows have risen.
What happens to interest rates and aggregate demand when the money supply decreases?
interest rates rise and so aggregate demand shifts left.
What key issues can distort the Consumer Price Index (CPI) as an accurate measure of cost of living?
using CPI as a measure of cost of living: substitution bias, introduction of new goods, and unmeasured quality changes
When comparing two bonds with equal terms to maturity, one issued by a state government and the other by a corporation, what factor influences which bond would typically have a higher interest rate?
Because of the differences in tax treatment and credit risk, the corporate bond should have the higher interest rate.
If the price level increased from 120 to 130, what was the inflation rate?
8.3 percent.
If the exchange rate is 2 Brazilian reals per dollar and a meal in Rio costs 20 reals, how many dollars does it take to buy a meal in Rio, and what is the likely impact on Brazil's net exports?
10 and your purchase will increase Brazil’s net exports.
What action would shift the long-run aggregate supply curve to the right?
an increase in the capital stock, but not an increase in the price level