Deck 15: Inflation: Phillips Curves and Neo-Fisherism

Question 1

In a two-good economy,the production possibilities frontier (PPF)is

A) concave because the marginal rate of transformation increases as we move down the PPF.
B) concave because the marginal rate of transformation decreases as we move down the PPF.
C) convex because the marginal rate of transformation increases as we move down the PPF.
D) convex because the marginal rate of transformation decreases as we move down the PPF.
E) convex and the marginal rate of transformation is constant as move move down the PPF.

Answer 1

concave because the marginal rate of transformation increases as we move down the PPF.

Question 2

An important result in the small open economy is that the representative consumer will always be better off

A) by consuming more of everything.
B) by importing more than exporting.
C) by being employed rather than unemployed.
D) if inflation is stable.
E) with trade than without it.

Answer 2

with trade than without it.

Question 3

When the SOE can trade with the rest of the world,which of the following must be true?

A)
B)
C)
D)
E)

Answer 3

Question 4

The pattern of trade is determined by

A) both comparative advantage and consumer preferences.
B) only comparative advantage.
C) both absolute advantage and comparative advantage.
D) both absolute advantage and consumer preferences.
E) only consumer preferences.

Question 5

In a two-good economy,the slope of the PPF is

A) the marginal rate of substitution.
B) minus the marginal rate of substitution.
C) the marginal rate of transformation.
D) minus the marginal rate of transformation.
E) convex.

Question 6

A small open economy is an economy

A) in which both imports and exports are less than 5% of GDP.
B) whose firms and consumers are individually, but not collectively price takers.
C) whose firms and consumers are collectively, but not individually price takers.
D) whose firms and consumers are individually and collectively price takers.
E) whose economic activity affects the world prices of goods.

Question 7

In a two-good,one-period model,the representative consumer will always be better off

A) with more consumption than less.
B) with trade than without it.
C) no comparative advantages.
D) with a lower indifference curve than with a higher one.
E) a flatter PPF.

Question 8

One of the reasons why the growth in world trade has occurred is due to

A) more stable political environments.
B) countries are getting more prosperous.
C) the income inequality gap is narrowing among countries.
D) barriers to trade have been relaxed.
E) economies have become more materialistic.

Question 9

If < then

A) the competitive equilibrium is Pareto optimal.
B) the firm can benefit by producing more of good a.
C) there is a competitive equilibrium in the SOE without trade.
D) the firm can benefit by producing more of good b.
E) the firm can benefit by producing more of both a and b.

Question 10

One of the reasons why the growth in world trade has occurred is due to

A) more stable political environments.
B) countries are getting more prosperous.
C) the income inequality gap is narrowing among countries.
D) the cost of transporting goods and services has fallen dramatically.
E) economies have become more materialistic.

Question 11

Terms of trade is defined as

A) the absolute price of imports decreasing.
B) the relative price at which imports trade for exports on world markets.
C) the relative price at which exports trade for imports on world markets.
D) the real exchange rate used to purchase imports.
E) the relative price of exports rising.

Question 12

If > then

A) the firm can profit by producing more of good b.
B) the consumer can benefit by consuming more of good a.
C) the consumer can benefit by consuming more of good b.
D) the firm can profit by producing more of good a.
E) the firm can profit by producing more of goods a and b.

Question 13

The steeper the PPF,

A) the more of both goods are exported.
B) the more of both goods are imported.
C) the more of both goods are consumed.
D) the more aggregate output takes place.
E) the greater the comparative advantage in producing one good over another.

Question 14

Which of the following pairs of terms can be used interchangeably?

A) the terms of trade and comparative advantage
B) comparative advantage and purchasing power parity
C) purchasing power parity and the real exchange rate
D) the real exchange rate and the terms of trade
E) purchasing power parity and the terms of trade.

Question 15

In an open,two-good economy in a two-good world,the relative price of one good in terms of the other is called the

A) relative advantage.
B) absolute advantage.
C) terms of trade.
D) international purchasing price index.
E) nominal exchange rates.

Question 16

A current account surplus is defined as

A) exports less imports.
B) government spending plus net exports.
C) net exports less net factor payments made domestically.
D) net exports plus net factor payments from abroad.
E) imports less exports.

Question 17

Small open economy models are used to explain large economy models because

A) there are smaller populations to deal with.
B) they consume smaller amounts to goods and services.
C) they are not as complicated as large economy models.
D) they are relatively simple to work with.
E) they are more politically and economically stable.

Question 18

In a two-good economy,competitive equilibrium is

A) minus the slope of the tangent to the PPF.
B) anywhere where the PPF is concave.
C) where the marginal rate of substitution equals the marginal rate of transformation.
D) minus the slope of the indifference curve.
E) where the inflation rate and aggregate output are equal.

Question 19

The net effect on welfare from eliminating trade barriers is

A) indeterminant.
B) positive.
C) negative.
D) positive only in the short run.
E) negative in the long run.

Question 20

Comparative advantage is determined by the

A) slope of the representative consumer's indifference curve.
B) slope of the country's production possibilities frontier.
C) curvature of the representative consumer's indifference curve.
D) curvature of the country's production possibilities frontier.
E) where the marginal rate of substitution equals the marginal rate of transformation.

Question 21

For Canada,the net effect in the terms of trade of an increase in world oil prices

A) was uncertain.
B) was negative.
C) was positive.
D) could not be separated out from the change in other commodity prices.
E) was only positive for Alberta.

Question 22

In a two-good,two-period model,holding everything else constant,an increase in current-period income

A) unambiguously increases the current account surplus.
B) unambiguously decreases the current account surplus.
C) has an uncertain effect on the current account surplus.
D) has no effect on the current account surplus.
E) only marginally increases the current account surplus.

Question 23

The terms of trade move against a country if

A) imports become more expensive relative to exports.
B) exports become more expensive relative to imports.
C) the volume of exports becomes greater than the volume of imports.
D) the volume of imports becomes greater than the volume of exports.
E) trade barriers are implemented to encourage more domestic production.

Question 24

In Canada during the period 1961-2011,

A) interest rates and inflation were positively correlated.
B) net exports and interest rates were positively correlated.
C) net exports and deviations from trend in real GDP were negatively correlated.
D) net exports and deviations from trend in real GDP were positively correlated.
E) deviations from trend in real GDP and interest rates were negatively correlated.

Question 25

In a two-good,one-period model,when the terms of trade move in your favour,the

A) current account surplus unambiguously increases.
B) current account balance unambiguously decreases.
C) effect on the trade balance is uncertain.
D) trade balance is unchanged.
E) trade balance improves.

Question 26

In a two-good,two-period model,holding everything else constant,an increase in current taxes

A) unambiguously increases the current account surplus.
B) unambiguously decreases the current account surplus.
C) has an uncertain effect on the current account surplus.
D) has no effect on the current account surplus, as long as Ricardian equivalence holds.
E) only marginally increases the current account surplus.

Question 27

In a two-good,one-period model,when the terms of trade move in your favor,the welfare of the representative consumer

A) unambiguously increases.
B) unambiguously decreases.
C) may either increase or decrease.
D) is unchanged.
E) is uncertain.

Question 28

In two-good,one-period model,when the terms of trade move against you,

A) production of good a increases and consumption of good a decreases.
B) production of good a increases and consumption of good a is ambiguous.
C) production of good b increases and consumption of good a decreases.
D) production of good b decreases and consumption of good a increases.
E) production of good a is ambiguous and consumption of good a increases.

Question 29

In a two-good,two-period model,as long as wealth effects are small,an increase in the world real interest rate

A) increases consumption and increases the current account surplus.
B) increases consumption and decreases the current account surplus.
C) decreases consumption and increases the current account surplus.
D) decreases consumption and decreases the current account surplus.
E) decreases consumption and leaves the current account surplus unaffected.

Question 30

Ricardian equivalence suggests that government budget deficits generated by decreases in current taxes

A) increase the current account surplus.
B) decrease the current account surplus.
C) have no effect on the current account surplus.
D) have unpredictable effects on the current account surplus.
E) increase aggregate consumption and have no effect on the current account surplus.

Question 31

When the terms of trade increase,the

A) substitution effect is to increase consumption of good a.
B) income effect is unambiguously positive.
C) income effect is unambiguously negative.
D) substitution effect is to decrease consumption of good b.
E) subsitution effect is to decrease consumption of good a.

Question 32

In a two-good,one-period model,an increase in the terms of trade when Good a is initially imported is caused by

A) the price of Good a falling relative to Good b.
B) the price of Good a rising relative to Good b.
C) the consumption of Good a rising.
D) the production of Good b falling.
E) a current account deficit occurring.

Question 33

In a two-good,one-period model,when the terms of trade move against you,

A) exports unambiguously decrease and imports unambiguously increase.
B) the effect on exports is uncertain and imports unambiguously decrease.
C) the effect on exports is uncertain and imports unambiguously increase.
D) the effects on both exports and imports is uncertain.
E) exports and imports unambiguously increase.

Question 34

In a two-good,one-period model,an increase in the terms of trade when good b is initially imported implies

A) the income and substitution effects for good a move in the same direction.
B) a negative income effect for the SOE.
C) the income and substitution effects for good b move in the same direction.
D) the income effects and subsitution effects for good b cancel each other out.
E) a negative substitution effect for the SOE.

Question 35

If the SOE currently imports good a and the terms of trade increase,this represents a

A) negative income effect.
B) positive subsitution effect.
C) pure substitution effect.
D) positive income effect.
E) negative substitution effect.

Question 36

In a two-good,one-period model,when the terms of trade move in your favour,

A) exports unambiguously increase and imports unambiguously decrease.
B) the effect on exports is uncertain and imports unambiguously increase.
C) the effect on exports is uncertain and imports unambiguously decrease.
D) the effects on both exports and imports is uncertain.
E) exports and imports unambiguously increase.

Question 37

In a two-good,two-period model,holding everything else constant,an increase in government spending

A) unambiguously increases the current account surplus.
B) unambiguously decreases the current account surplus.
C) has an uncertain effect on the current account surplus.
D) has no effect on the current account surplus.
E) only marginally increases the current account surplus.

Question 38

The terms of trade move in favour of a country when the

A) absolute price of imports decreases.
B) absolute price of exports increases.
C) relative price of imports increases.
D) relative price of imports decreases.
E) price of exports and imports decrease.

Question 39

According to a study by Enrique Mendoza,for all of the economies in the world,on average,terms of trade shocks account for

A) an imperceptible amount of the variation in real GDP.
B) about 10% of the variation in real GDP.
C) about 50% of the variation in real GDP.
D) almost all of the variation in real GDP.
E) none of the variation in real GDP.

Question 40

In a two-good,two-period model with trade,an increase in government spending will have a tendency to cause

A) interest rates to rise.
B) the trade balance to improve.
C) the domestic exchange rate to appreciate.
D) the taxes to increase.
E) the current account surplus to decrease.

Question 41

An increase in total factor productivity has different effects in an open economy relative to a closed economy because

A) the real interest rate does not change in the open economy.
B) the change in the real interest rate involves a substitution effect only in the open economy.
C) the real interest rate does not change in the closed economy.
D) the real interest rate decreases in the open economy and increases in the closed economy.
E) it is a positive income effect in the closed economy and a negative one in the open economy.

Question 42

In the 19th century,Canada had a period of significant current account deficits,which contributed to economic growth.These deficits most notably

A) financed consumer spending.
B) allowed for a substantial increase in government spending's share of GDP.
C) financed construction of railroads.
D) financed the development of land-grant universities.
E) financed lower taxes.

Question 43

In a two-good,two-period model with trade,a negative total factor productivity shock abroad

A) increases foreign output and increases domestic output.
B) decreases foreign output and decreases domestic output.
C) increases foreign output and decreases domestic output.
D) decreases foreign output and increases domestic output.
E) decreases foreign output and leaves domestic output unchanged.

Question 44

An increase in total factor productivity in a closed economy

A) increases labour demand, increases the real wage, increases output and decreases the real interest rate.
B) increases labour demand, increases the real wage, increases output and increases the real interest rate.
C) increases labour demand, decreases the real wage, decreases output and increases the real interest rate.
D) increases labour demand, decreases the real wage, decreases output and decreases the real interest rate.
E) decreases labour demand, increases the real wage, increases output and decreases the real interest rate.

Question 45

In a two-good,two-period model,the government expenditure multiplier

A) is larger in an open economy because net exports fall.
B) is larger in an open economy because net exports are unaffected.
C) is smaller in an open economy because net exports fall.
D) is smaller in an open economy because net exports increase.
E) is larger in an open economy because net exports increase.

Question 46

Absorption can be defined as

A) C + I + G.
B) I/GDP.
C) X - M.
D) GDP/NX.
E) the quantity of foreign produced goods absorbed through domestic spending.

Question 47

The behavior of the current account deficit and the government budget deficit in Canada in 1973-1975 and during the period of the early 1990s to 2002 is often referred to as the

A) interrelated deficits.
B) Reagan deficits.
C) twin deficits.
D) reverse deficits.
E) national deficits.

Question 48

In a two-good,two-period model with trade,an increase in current domestic total factor productivity

A) increases domestic output and increases the current account surplus.
B) increases domestic output and decreases the current account surplus.
C) decreases domestic output and increases the current account surplus.
D) decreases domestic output and decreases the current account surplus.
E) decreases domestic output and decreases the marginal product of capital.

Question 49

The "savings glut" refers to

A) the large decrease that has occurred in the world's savings.
B) the increased importance of running a current account surplus.
C) a decrease in investment demand worldwide.
D) the large increase that has occurred in world's savings.
E) the stagnation of the world's savings.

Question 50

In a two-good,two-period model with trade,an increase in domestic government spending

A) increases domestic output and increases the current account surplus.
B) increases domestic output and decreases the current account surplus.
C) decreases domestic output and increases the current account surplus.
D) decreases domestic output and decreases the current account surplus.
E) increases domestic output with no change in the current account surplus.

Question 51

When current account deficits are used to finance investment spending,such deficits may be self-correcting because

A) they promote more responsible government policies.
B) the resulting increase in the capital stock over time shifts the output supply curve to the right.
C) the resulting increase in the capital stock over time shifts the output demand curve to the right.
D) the resulting increase in national indebtedness increases labour demand.
E) interest rates decline.

Question 52

In a two-good,two-period model with trade,an anticipated future increase in domestic total factor productivity

A) increases domestic output and increases the current account surplus.
B) increases domestic output and decreases the current account surplus.
C) has no effect on domestic output and increases the current account surplus.
D) has no effect on domestic output and decreases the current account surplus.
E) increases domestic output with no change in the current account surplus.

Question 53

In 2011,there was

A) large dispersion across countries in current account surpluses.
B) relatively low unemployment in most countries.
C) small dispersion across countries in current account surpluses.
D) no dispersion across countris in current account surpluses.
E) small dispersion in patterns of trade across countries.

Question 54

Current account deficits may not be undesirable for the domestic economy as it

A) leads to more government spending.
B) leads to lower interest rates.
C) helps domestic consumers to smooth consumption over time.
D) causes the domestic currency to appreciate.
E) leads to lower taxes.

Question 55

Absorption refers to

A) the quantity of imports that is absorbed into the domestic economy.
B) the amount of government spending that is absorbed into the domestic economy.
C) the amount of transfer payments from the federal government that is absorbed into the domestic economy.
D) the quantity of aggregate output that is absorbed into the domestic economy.
E) the amount of current period income that is used to purchase domestic aggregate output.

Question 56

When a country runs a current account deficit to finance an increase in domestic investment expenditures,it causes

A) taxes to rise.
B) an increase in capital stock and future productive capacity.
C) consumption smoothing over time.
D) a government deficit to occur.
E) the real interest rate to increase.

Question 57

In a two-good,two-period model with trade,an increase in the capital stock

A) can eliminate the current account deficit in the long run.
B) increases domestic output and decreases consumption.
C) decreases domestic output and increases the current account surplus.
D) decreases domestic output and decreases the current account surplus.
E) has no impact on domestic consumption.

Question 58

Theory predicts that current account surpluses should be ________; the Canadian experience since 1961 suggests that current account surpluses have been ________.

A) procyclical; procyclical
B) procyclical; countercyclical
C) countercyclical; procyclical
D) countercyclical; countercyclical
E) countercyclical; acyclical

Question 59

In a two-good,two-period model with trade,an increase in the world real interest rate

A) increases domestic output and increases the current account surplus.
B) increases domestic output and decreases the current account surplus.
C) decreases domestic output and increases the current account surplus.
D) decreases domestic output and decreases the current account surplus.
E) increase aggregate consumption and have no effect on the current account surplus.

Question 60

Lack of evidence of a pattern of international consumption smoothing is best explained by

A) government policies to fight trade deficits.
B) failure of consumers in less advanced economies to act rational.
C) a tendency for business cycles to be a worldwide phenomenon.
D) Ricardian equivalence.
E) very different levels of aggregate economic activity.

Question 61

What would be the impact of a persistent increase in total factor productivity on domestic aggregate output,consumption,investment,and the current account surplus?