Question 1

Describe how the oil shocks of the 1970s led to a buildup of debt by the countries of the region.

Accepted Answer

The oil shocks of the 1970s led to a buildup of debt by the countries of the region for several reasons. Firstly, the sudden increase in oil prices put a strain on the economies of many countries, as they were heavily reliant on imported oil for their energy needs. This led to a decrease in their trade balances, as they had to spend more on importing oil and other goods, while their export revenues remained relatively stable.

Additionally, many countries in the region borrowed heavily to finance their increased oil import bills, as well as to fund infrastructure projects and industrial development. This borrowing was often done at high interest rates, further exacerbating the debt buildup.

Furthermore, the oil shocks also led to a decrease in economic growth and increased inflation in many countries, which made it more difficult for them to service their existing debts. As a result, many countries resorted to taking on more debt to meet their financial obligations, leading to a vicious cycle of debt accumulation.

Overall, the oil shocks of the 1970s had a significant impact on the economies of the region, leading to a buildup of debt as countries struggled to cope with the increased cost of oil and its effects on their economies.

Question 2

Graphically show the effect of a commodity boom and bust on real GDP and the price level. Explain the appropriate macroeconomic policies needed to offset these effects.

Accepted Answer

A commodity boom refers to a period of rising prices and increased demand for commodities such as oil, metals, and agricultural products. This can lead to an increase in real GDP as the production and export of these commodities contribute to economic growth. As a result, the price level may also rise due to increased demand and higher production costs.

However, a commodity bust refers to a sudden decline in commodity prices and demand, which can lead to a decrease in real GDP as the production and export of these commodities decline. This can also lead to a decrease in the price level as demand and production costs decrease.

To offset the effects of a commodity boom and bust on real GDP and the price level, appropriate macroeconomic policies are needed. During a commodity boom, expansionary fiscal and monetary policies can be used to stimulate economic growth and manage inflation. This can include increasing government spending on infrastructure and social programs, as well as lowering interest rates to encourage investment and consumption.

During a commodity bust, contractionary fiscal and monetary policies may be necessary to stabilize the economy and prevent deflation. This can involve reducing government spending and increasing taxes to reduce budget deficits, as well as raising interest rates to control inflation and stabilize the currency.

In addition to these policies, diversifying the economy and reducing dependence on commodities can help mitigate the impact of commodity booms and busts. This can involve investing in other sectors such as manufacturing, technology, and services, as well as promoting innovation and entrepreneurship.

Overall, a combination of fiscal, monetary, and structural policies is needed to offset the effects of commodity booms and busts on real GDP and the price level, and to promote long-term economic stability and growth.

Question 3

Long-run price stability occurs when _____ is moving at about the same rate as _____.

Accepted Answer

A)   AD; LRAS
B)   AD; MRAS
C)   SRAS; LRAS
D)   P; V
E)   all of the above A

Question 4

Exchange rate shocks can lead to an increase in ____ as well as _____.

Accepted Answer

A)   level of employment, real GDP
B)   level of employment, inflation
C)   level of unemployment, real GDP
D)   level of unemployment, inflation
E)   none of the above

Question 5

An oil shock would tend to:

Accepted Answer

A)   increase inflation.
B)   lower GDP.
C)   raise GDP.
D)   a and b
E)   b and c

Question 6

Which country has instituted successful fiscal policy to work to stabilize its economy, despite being heavily dependent on the volatile venture of copper mining?

Accepted Answer

A)   Argentina
B)   Brazil
C)   Chile
D)   Mexico
E)   none of the above

Question 7

Rising inflationary expectations can shift the ______ curve to the _____.

Accepted Answer

A)   AD, left
B)   AD, right
C)   SRAS, left
D)   SRAS, right
E)   none of the above

Question 8

In the 1970s, in order to maintain some exchange rate stability, increasing amounts of what were accumulated?

Accepted Answer

A)   debt
B)   equity
C)   FDI
D)   oil
E)   none of the above

Question 9

High inflation plus low economic growth is associated with:

Accepted Answer

A)   a rightward shift of the AD curve.
B)   a leftward shift of the AD curve.
C)   a leftward shift of the SRAS curve.
D)   an exchange rate shock.
E)   both c and d

Question 10

Which of these is a policy designed to decrease the rate of growth of the money supply?

Accepted Answer

A)   increased interest rates
B)   decreased interest rates
C)   lower taxes
D)   higher taxes
E)   none of the above

Question 11

The term X/Y signifies what?

Accepted Answer

A)   balance of trade
B)   government spending to GDP ratio
C)   exports to GDP ratio
D)   imports to GDP ratio
E)   none of the above

Question 12

Show how economic populism can lead to extremely high rates of inflation.

Accepted Answer

The answer of Show how economic populism can lead to...

Question 13

A large increase in the price of oil over a short period of time is known as:

Accepted Answer

A)   oil disaster
B)   oil surprise
C)   oil collapse
D)   oil shock
E)   none of the above

Question 14

According to the J-curve, following a depreciation, the current account has a tendency to become more _____ initially, and then _____.

Accepted Answer

A)   positive, improve
B)   positive, worsen
C)   negative, improve
D)   negative, worsen
E)   none of the above

Question 15

Exchange rate shocks shift the ____ curve to the ____.

Accepted Answer

A)   AD, right
B)   AD, left
C)   SRAS, right
D)   SRAS, left
E)   none of the above

Question 16

Describe the three "unpalatable" choices that policymakers face in response to an oil shock. Which of these choices was made by much of Latin America?

Accepted Answer

The answer of Describe the three "unpalatable" choices that policymakers...

Question 17

An exchange rate shock is associated with:

Accepted Answer

A)   higher inflation.
B)   lower real GDP.
C)   a depreciating currency.
D)   all of the above
E)   none of the above

Question 18

Without intervention, the supply of foreign exchange quickly shifted to the ____, and _____ of domestic currencies was rapid.

Accepted Answer

A)   left, appreciation
B)   left, depreciation
C)   right, appreciation
D)   right, depreciation
E)   none of the above

Question 19

Graphically show the effects of an exchange rate shock on real GDP and the price level. Explain the appropriate macroeconomic policies needed to offset these effects.

Accepted Answer

The answer of Graphically show the effects of an exchange...

Question 20

Explain how fluctuations in the price of copper could influence peso/$ exchange rate in Chile

Accepted Answer

The answer of Explain how fluctuations in the price of...

Exam 11: Macroeconomic Stability