Question 1

If expected inflation is constant,then when the nominal interest rate increases,the real interest rate

Accepted Answer

A) increases by more than the change in the nominal interest rate. 
B) increases by the change in the nominal interest rate. 
C) decreases by the change in the nominal interest rate. 
D) decreases by more than the change in the nominal interest rate.

Question 2

If the real interest rate in the domestic loanable funds market increases,

Accepted Answer

A) firms will have an added incentive to undertake investment projects. 
B) households will save less. 
C) the net inflow of foreign capital will tend to increase. 
D) it will be cheaper to purchase goods and services now rather than in the future.

Question 3

If the price level in the current period is lower than what buyers and sellers anticipated,

Accepted Answer

A) profit margins will be unattractive,and firms will expand output. 
B) profit margins will be unattractive,and firms will reduce output. 
C) profit margins will be attractive,and firms will expand output. 
D) profit margins will be attractive,and firms will reduce output.

Question 4

Which of the following will be true when the foreign exchange market is in equilibrium and exports exceed imports?

Accepted Answer

A) The nation is experiencing a trade deficit. 
B) There will be a net inflow of capital. 
C) There will be a net outflow of capital. 
D) The exchange rate value of the domestic currency must rise.

Question 5

The three reasons why the aggregate demand curve slopes downward are

Accepted Answer

A) the international substitution effect,the net exports effect and the interest rate effect. 
B) the interest rate effect,the short run effect and the free rider effect 
C) the net exports effect,the real balance effect and the short run effect 
D) the real balance effect,the international substitution effect and the interest rate effect.

Question 6

When prices in the goods and services market are below the level anticipated,

Accepted Answer

A) output will temporarily exceed the economy's long-run potential. 
B) output will temporarily fall short of the economy's long-run potential. 
C) output will be equal to the economy's long-run potential. 
D) the actual rate of unemployment will be less than the natural rate of unemployment.

Question 7

An unanticipated reduction in the level of prices in the goods and services market,which results in a temporary increase in real wage rates,will

Accepted Answer

A) increase the natural rate of unemployment. 
B) reduce the natural rate of unemployment. 
C) result in an actual rate of unemployment that is less than the natural rate of unemployment. 
D) result in an actual rate of unemployment that is greater than the natural rate of unemployment.

Question 8

For a major country with extensive capital flows,what is the effect of an increase in interest rates?

Accepted Answer

A) There will be an inflow of capital,a currency depreciation,and increased net exports. 
B) There will be an inflow of capital,a currency depreciation,and reduced net exports. 
C) There will be an outflow of capital,a currency depreciation,and increased net exports. 
D) There will be an inflow of capital,a currency appreciation,and reduced net exports.

Question 9

Which of the following helps explain why the aggregate quantity demanded of goods and services is inversely related to prices within the framework of the AD/AS model?

Accepted Answer

A) As prices fall,domestic consumers have an incentive to buy more of the cheaper goods and services. 
B) As prices fall,the monetary authorities will have to increase the money supply,which will lead to an increase in the quantity of goods and services purchased. 
C) As prices fall,the government will have to reduce taxes,which will lead to an increase in the quantity of goods and services purchased. 
D) As prices fall,the wealth of people holding the fixed quantity of money increases,causing them to expand their purchases of goods and services.

Question 10

Suppose business decision makers become more optimistic about future economic conditions and desire additional funds to expand their plant capacity.What is the likely effect on the loanable funds market?

Accepted Answer

A) The demand for loanable funds will increase,and the interest rate will rise. 
B) The demand for loanable funds will decrease,and the interest rate will fall. 
C) The supply for loanable funds will increase,and the interest rate will fall. 
D) The supply for loanable funds will decrease,and the interest rate will rise.

Question 11

Which of the following is the primary factor that coordinates the actions of borrowers and lenders in the loanable funds market?

Accepted Answer

A) inflation rate 
B) unemployment rate 
C) the government 
D) interest rate

Question 12

Raul borrowed $1,000 from Marta for a year and agreed to repay her $1,050 at the end of the year.If the inflation rate was 3 percent,what is the real rate of interest Marta received?

Accepted Answer

A) 10 percent 
B) 5 percent 
C) 3 percent 
D) 2 percent 
E) -2 percent

Question 13

Mary Green takes a summer course in London,England.She doesn't buy British pounds at the U.S.airport,where the rate is 1 pound = $1.60.Upon arrival in London,she finds that she can buy pounds for $1.65 each.Which of the following is true?

Accepted Answer

A) Green would have been better off if she had bought pounds in the United States where U.S.dollars were cheaper. 
B) Green would have been better off if she had bought pounds in the United States where pounds were less expensive. 
C) The pounds were more expensive in London because a currency is always most valued in its home country. 
D) The pounds were more expensive in the United States because they are less available there. 
E) It doesn't matter where she buys the pounds,since she can't use U.S.money anyway once she's in England.

Question 14

Use the figure below to answer the following question(s).
Figure 9-2
 
-Figure 9-2 indicates that the output of the economy,y₁,is

Accepted Answer

A) greater than the economy's long-run capacity. 
B) equal to the economy's long-run capacity. 
C) less than the economy's long-run capacity. 
D) not consistent will full employment of the economy's resources.

Question 15

Use the figure below to answer the following question(s).
Figure 9-2
 
-When an economy is experiencing the aggregate demand and supply conditions depicted in Figure 9-2,

Accepted Answer

A) the actual rate of unemployment will exceed the natural rate of unemployment. 
B) buyers and sellers will have correctly anticipated the level of prices P₁. 
C) the output Y₁ will not be sustainable in the future. 
D) all of the above are correct.

Question 16

The money rate of interest will be less than the real rate of interest when decision makers anticipate

Accepted Answer

A) stable prices in the future. 
B) falling prices in the future. 
C) inflation in the future. 
D) that the money rate of interest will decline.

Question 17

Figure 9-1
 
-In Figure 9-1,which of the following correctly labels the curves in the aggregate demand/aggregate supply model?

Accepted Answer

A) (1)is LRAS,(2)is SRAS,and (3)is AD. 
B) (1)is SRAS,(2)is LRAS,and (3)is AD. 
C) (1)is AD,(2)is SRAS,and (3)is LRAS. 
D) (1)is LRAS,(2)is AD,and (3)is SRAS.

Question 18

Suppose that your bank pays 5 percent interest on your savings account balance.Is this the nominal or real interest rate? What would be your real interest rate?

Accepted Answer

The answer of Suppose that your bank pays 5 percent...

Question 19

In the short run,a price increase in the goods and services market will

Accepted Answer

A) increase the purchasing power of money. 
B) improve producer profits and,thereby,induce suppliers to expand output. 
C) increase resource prices,lower profits,and lead to a decline in output. 
D) reduce the natural rate of unemployment.

Question 20

The exchange rate is

Accepted Answer

A) another term for "interest rate." 
B) another term for "growth rate." 
C) the rate at which goods trade for one another across international borders. 
D) the price of one currency in terms of another currency.

Exam 9: Aan Introduction to Basic Macroeconomic Markets