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Exam 4 - American University in Bulgaria

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					EXAM 4 – Macroeconomic Principles – Spring 2009 – Cutler
MULTIPLE-CHOICE – Please, select the letter which best answers each question, and enter it into the space
   provided in front of each question number. Each multiple-choice question is worth 1 point.
This is a take-home exam. This exam includes ONLY chapters 31, 32, and 33. The exam
answers are due by end of day on Thursday (30th of April), by the NAB building closing
hour, to be slipped under my office door in NAB 306. To save on paper resource, students
should submit only the last page of the exam – the answer sheet table.
1.   When Dee, a U.S. citizen, purchases a designer dress made in Milan, the purchase is
     a. both a U.S. and Italian import.
     b. U.S. export and an Italian import.
     c. a U.S. import and an Italian export.
     d. neither an export nor an import for either country.

2.   Sonya, a citizen of Denmark, sells boots and shoes in the United States. By itself, these sales
     a. increase U.S. net exports and have no effect on Danish net exports.
     b. decrease U.S. net export and have no effect on Danish net exports.
     c. increase U.S. net exports and decrease Danish net exports.
     d. decrease U.S. net exports and increase Danish net exports.

3.   Net capital outflow refers to the purchase of
     a. foreign assets by domestic residents minus the purchase of domestic assets by foreign residents.
     b. foreign assets by domestic residents minus the purchase of foreign goods and services by domestic
        residents.
     c. domestic assets by foreign residents minus the purchase of domestic goods and services by foreign
        residents.
     d. domestic assets by foreign residents minus the purchase of foreign assets by domestic residents.

4.   Which of the following would be U.S. foreign direct investment?
     a. A Swedish car manufacturer opens a plant in Tennessee.
     b. A Dutch citizen buys shares of stock in a U.S. company.
     c. US restaurant chain KFC opens a restaurant in Jamaica.
     d. Your economics professor buys stock in companies located in Japan.

5.   Bob, a Greek citizen, opens a restaurant in Chicago. His expenditures
     a. increase U.S. net capital outflow and have no affect on Greek net capital outflow.
     b. increase U.S. net capital outflow and increase Greek net capital outflow.
     c. increase U.S. net capital outflow, but decrease Greek net capital outflow.
     d. decrease U.S. net capital outflow, but increase Greek net capital outflow.

6.   When Ghana sells chocolate to the United States, U.S. net exports
     a. increase, and U.S. net capital outflow increases.
     b. increase, and U.S. net capital outflow decreases.
     c. decrease, and U.S. net capital outflow increases.
     d. decrease, and U.S. net capital outflow decreases.

7.   A country has $100 million of net exports and $170 million of saving. Net capital outflow is
     a. $70 million and domestic investment is $170 million.
     b. $70 million and domestic investment is $270 million.
     c. $100 million and domestic investment is $70 million.
     d. None of the above is correct.
8.    Exchange rates are 150 yen per dollar, 0.8 euro per dollar, and 20 pesos per dollar. A bottle of beer in New York
      costs 6 dollars, 1,200 yen in Tokyo, 7 euro in Munich, and 100 pesos in Cancun. Where is the most expensive
      and the cheapest beer in that order?
      a. Cancun, New York
      b. New York, Toyko
      c. Toyko, Munich
      d. Munich, Cancun


9.    A depreciation of the U.S. real exchange rate induces U.S. consumers to buy
      a. fewer domestic goods and fewer foreign goods.
      b. more domestic goods and fewer foreign goods.
      c. fewer domestic goods and more foreign goods.
      d. more domestic goods and more foreign goods.


        Country           Currency           Currency per U.S.         U.S. Price Index    Country Price
                                             Dollar                                        Index
        Brazil            Real               4.00                      200                 800
        Japan             Yen                125.00                    200                 50,000
        Mexico            Peso               10.00                     200                 2,000
        Sweden            Krona              9.00                      200                 2,000
        Thailand          Baht               45.00                     200                 8,000

10.   For which country(ies) in the table does purchasing-power parity hold?
      a. Brazil and Mexico
      b. Japan, Sweden, and Thailand
      c. Japan and Sweden
      d. Thailand

11.   Purchasing-power parity theory does not hold at all times because
      a. many goods are not easily transported.
      b. the same goods produced in different countries may be imperfect substitutes for each other.
      c. Both a and b are correct.
      d. prices are different across countries.

12.   In the open-economy macroeconomic model, the market for loanable funds identity can be written as
      a. S = I
      b. S = NCO
      c. S = I + NCO
      d. S + I = NCO

13.   A higher real interest rate raises the quantity of
      a. domestic investment.
      b. net capital outflow.
      c. loanable funds demanded.
      d. loanable funds supplied.

14.   Which of the following would be consistent with an increase in the U.S. real interest rate?
      a. a Swiss bank purchases a U.S. bond instead of the German bond they had considered purchasing.
      b. firms decide since interest rates are higher to do more investment spending.
      c. Brad decides to put less money in his savings account than he had planned to.
      d. All of the above are consistent.
15.   If net exports are negative, then
      a. net capital outflow is positive, so foreign assets bought by Americans are greater than American assets
          bought by foreigners.
      b. net capital outflow is positive, so American assets bought by foreigners are greater than foreign assets
          bought by Americans.
      c. net capital outflow is negative, so foreign assets bought by Americans are greater than American assets
          bought by foreigners.
      d. net capital outflow is negative, so American assets bought by foreigners are greater than foreign assets
          bought by Americans.


16.   In the market for foreign-currency exchange in the open-economy macroeconomic model, a higher U.S. real
      exchange rate makes
      a. U.S. goods more expensive relative to foreign goods and reduces the quantity of dollars supplied.
      b. U.S. goods more expensive relative to foreign goods and reduces the quantity of dollars demanded.
      c. foreign goods more expensive relative to U.S. goods and reduces the quantity of dollars supplied.
      d. foreign goods more expensive relative to U.S. goods and reduces the quantity of dollars demanded.


17.   If the U.S. government imposes an import quota on French wine, U.S. net exports will
      a. increase, the real exchange rate of the dollar will appreciate, and domestic sales of U.S. wine will increase.
      b. not change, the real exchange rate of the dollar will appreciate, and domestic sales of U.S. wine will
           increase.
      c. not change, the dollar will depreciate, and domestic sales of U.S. wine will not change.
      d. None of the above is correct.


The diagram below represents the market for loanable funds and the market for foreign-currency exchange in
Mexico. Use the diagram to answer the following three questions.
18.   Supposing that the Mexican economy starts at r0 and E0. Which of the following are consistent with the effects
      of capital flight?
      a. the shift from D0 to D1 in Panel A
      b. the shift from NCO0 to NCO1 in Panel B
      c. the shift from S0 to S1 in Panel C
      d. All of the above shifts are consistent with the effects of capital flight.

19.   Which of the following is consistent with capital flight from Mexico?
      a. The real exchange rate of the peso appreciates from E0 to E1.
      b. The real exchange rate of the peso depreciates from E0 to E1.
      c. The real exchange rate of the peso appreciates from E1 to E0.
      d. The real exchange rate of the peso depreciates from E1 to E0.

20.   Suppose the Mexican economy starts at r0 and E0. Which of the following new equilibrium is consistent with
      capital flight?
      a. ro and E0
      b. r1 and E0
      c. r1 and E1
      d. None of the above is correct.

21.   An increase in the U.S. government budget deficit shifts the supply of U.S. loanable funds
      a. right, causing U.S. interest rates to rise and U.S. domestic investment to increase.
      b. right, causing U.S. interest rates to fall and U.S. domestic investment to increase.
      c. left, causing U.S. interest rates to rise and U.S. domestic investment to decrease.
      d. left, causing U.S. interest rates to fall and U.S. domestic investment to increase.

22.   If U.S. firms decide to invest more domestically at each interest rate, the real interest rate in the United States
      a. decreases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow decreases.
      b. decreases, the real exchange rate of the dollar appreciates, and U.S. net capital outflow increases.
      c. increases, the real exchange rate of the dollar appreciates, and U.S. net capital outflow decreases.
      d. increases, the real exchange rate of the dollar depreciates, and U.S. net capital outflow increases.

23.   Business cycles
      a. are explained mostly by fluctuations in consumption.
      b. no longer are very important due to government policy.
      c. are fluctuations in real GDP and related variables over time.
      d. are easily predicted by competent economists.

24.   Which of the following is incorrect concerning the long run?
      a. Higher money supply growth leads to higher output growth.
      b. An unemployment rate of zero is unobtainable.
      c. Per-capita real GDP depends on productivity.
      d. An increase in the money supply raises the price level.


25.   Ceteris paribus, as the price level falls, a country’s exchange rate
      a. and interest rates rise.
      b. and interest rates fall.
      c. fall and interest rates rise.
      d. rise and interest rates fall.

26.   An increase in the price level makes consumers feel less wealthy. As a result,
      a. aggregate demand shifts right.
      b. aggregate demand shifts left.
      c. there is a movement to right along a given aggregate demand curve.
      d. there is a movement to the left along a given aggregate demand curve.
27.   If the price level rises, households
      a. increase foreign bond purchases, and the supply of dollars in the market for foreign-currency exchange
           increase.
      b. increase foreign bond purchases, and the supply of dollars in the market for foreign-currency exchange
           decreases.
      c. decrease foreign bond purchases, and the supply of dollars in the market for foreign-currency exchange
           increase.
      d. decrease foreign bond purchases, and the supply of dollars in the market for foreign-currency exchange
           decreases.

28.   An increase in the interest rate causes investment to
      a. rise and the exchange rate to appreciate.
      b. fall and the exchange rate to depreciate.
      c. rise and the exchange rate to depreciate.
      d. fall and the exchange rate to appreciate.

29.   Suppose a fall in stock prices makes people feel poorer. The decrease in wealth would induce people to
      a. decrease consumption, shown as a movement to the left along a given aggregate demand curve.
      b. increase consumption, shown as a movement to the right along a given aggregate demand curve.
      c. decrease consumption, shifting the aggregate demand curve to the left.
      d. increase consumption, shifting the aggregate demand curve to the right.

30.   The aggregate supply curve is vertical in
      a. the short and long run.
      b. neither the short nor long run.
      c. the long run, but not the short run.
      d. the short run, but not the long run.

31.   According to misperceptions theory, if a firm thought that inflation was going to be 5 percent and actual
      inflation was 6 percent, the firm would believe that the relative price of what they produce had
      a. increased, so they would increase production.
      b. increased, so they would decrease production.
      c. decreased, so they would increase production.
      d. increased, so they would decrease production.

32.   The sticky wage theory of the short-run aggregate supply curve says that when prices fall unexpectedly, the
      real wage
      a. rises, so employment rises.
      b. rises, so employment falls.
      c. falls, so employment rises.
      d. falls, so employment falls.

33.   Which of the following would cause prices and real GDP to rise in the short run?
      a. Short-run aggregate supply shifts right.
      b. Short-run aggregate supply shifts left.
      c. Aggregate demand shifts right.
      d. Aggregate demand shifts left.

34.   An economic contraction caused by a shift in aggregate demand causes prices to
      a. rise in the short run, and rise even more in the long run.
      b. rise in the short run, and fall back to their original level in the long run.
      c. fall in the short run, and fall even more in the long run.
      d. fall in the short run, and rise back to their original level in the long run.

35.   A decrease in the availability of an important major resource such as oil shifts
      a. aggregate supply right.
      b. aggregate supply left.
      c. aggregate demand right.
      d. aggregate demand left.

36.   Which of the following would cause stagflation?
      a. aggregate demand shifts right
      b. aggregate demand shifts left
      c. aggregate supply shifts right
      d. aggregate supply shifts left


37.   Suppose the economy is in long-run equilibrium. If there is a tax cut at the same time that major new sources of
      oil are discovered in the country, then in the short-run we would expect
      a. real GDP will rise and the price level might rise, fall, or stay the same.
      b. real GDP will fall and the price level might rise, fall, or stay the same.
      c. the price level will rise, and real GDP might rise, fall, or stay the same.
      d. the price level will fall, and real GDP might rise, fall, or stay the same.

38.   Suppose the economy is in long-run equilibrium. In a short span of time, there is a decline in the money
      supply, a tax increase, a pessimistic revision of expectations about future business conditions, and a rise in the
      value of the dollar. In the short run, we would expect
      a. the price level and real GDP both to rise.
      b. the price level and real GDP both to fall.
      c. the price level and real GDP both to stay the same.
      d. All of the above are possible.

39.   Keynes explained that recessions and depressions occur because of
      a. excess aggregate demand.
      b. inadequate aggregate demand.
      c. excess aggregate supply.
      d. inadequate aggregate supply.

40.   Keynes believed that economies experiencing high unemployment should adopt policies to
      a. reduce the money supply.
      b. reduce government expenditures.
      c. increase aggregate demand.
      d. increase aggregate supply.
NAME_______________________________________________________________ECO102
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