ECN 101 Lecture Notes - Lecture 13: Opportunity Cost, Hosni Mubarak, Tunisian Revolution
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1. Which of the following is likely to happen if the Fed buys Treasury securities from banks?
interest rate rises; investment falls |
interest rate rises; investment rises |
interest rate falls; investment rises |
interest rate falls; investment falls |
2. The main goal of monetary policy is to shift
AD. |
SRAS. |
LRAS. |
both AD and SRAS. |
both AD and LRAS. |
3. Which of the following is true regarding the effects of an expansionary monetary policy?
Printing more money will affect real GDP only in the short run because all prices do not adjust fully in the short run. |
Printing more money will affect real GDP both in the short and long run because inflation is a natural occurrence of expansionary monetary policy. |
Printing more money will not lower the value of money in the short run because prices are fully flexible in the short run. |
Printing more money will ultimately raise the value of money in the long run because prices are fully flexible in the long run. |
4. In which of the following cases are you likely to be adversely affected by unexpected inflation?
You, the owner of a local restaurant, charge the price of lamb lasagna as per the daily market rate of lamb. |
You purchase Mountain Dew every day from the dormitory vending machine, which keeps its prices fixed for the entire school year. |
You, the owner of an airline company, sign a two-year contract for airline fuel. |
You deposit $10,000 in a bank account for 5 years for a fixed interest rate of 1%. |
5. The Phillips curve depicts the relation between
real GDP and price level. |
price level and inflation rate. |
unemployment rate and inflation rate. |
unemployment rate and real GDP. |
6. Which of the following statements is true regarding the shapes of short-run and long-run Phillips curves?
The short-run Phillips curve is vertical and the long-run Phillips curve is downward sloping. |
The short-run Phillips curve is downward sloping and the long-run Phillips curve is vertical. |
Both the short-run and long-run Phillips curves are downward sloping. |
Both the short-run and long-run Phillips curves are vertical. |
7. Suppose the table below lists the actual annual inflation rates for 2010 to 2015. What would be the most likely predictions people make about the inflation rate for 2016 based on adaptive and rational expectations theories, respectively?
Year | Actual Inflation rate |
2010 | 0% |
2011 | 0% |
2012 | 3% |
2013 | 3% |
2014 | 6% |
2015 | 6% |
6% and 3% |
6% and 9% |
6% and 12% |
9% and 6% |
3% and 6% |
8. Which of the following can change relatively quickly in the short-run?
the price of a latte in a coffee shop |
the salary of a finance professor |
the rent paid for a store |
1.Purchasing power parity implies that
a. the real exchange rate is equal to 1.
b. the law of one price does not hold.
c. inflation rates are equal across countries.
d. the real exchange rate is equal to 0.
e. if the domestic country has low prices, then the domestic currency will depreciate until foreign citizens can buy the same amount of goods as domestic citizens.
2.Which of the following is a prediction from the PPP model of exchange rates?
A. An increase in the US money supply leads to an appreciation of the dollar in the long run.
B. An increase in US production leads to a depreciation of the dollar.
C. An increase in US production will lead to a proportional increase in the inflation rate.
D, An increase in the US money supply leads to a depreciation of the dollar in the long run.
E.An increase in the US interest rates leads to a fall in prices.
3.Relative purchasing power parity predicts that
A.the difference between the inflation rates in the two countries should equal the ratio of the interest rates in the two countries.
B. the difference between the inflation rates in two countries should equal the per cent change in the exchange rate.
C.inflation rates should be equal across countries.
D.the real exchange rate should equal one.
E.relative price levels in the two countries should be equal when expressed in the same currency.
4.Which of the following is NOT a valid explanation for the failure of purchasing power parity?
a. Differences in monetary policies across countries
b. Lack of competition
c. Transportation costs
d. Trade barriers
5.If P represents (the level of) domestic prices, P* represents (the level of) foreign prices and E represents the exchange rate as units of domestic currency per units of foreign currency, then the real exchange rate equals
a. EP/P* |
b. P*/EP |
C. E/PP* |
d. EP*/P |
e. P/P* |
6.The difference between nominal and real interest rates is that
A.Nominal interest rates are measured in terms of a country's output, while real interest rates are measured in monetary terms
B.Nominal interest rates are measured in monetary terms, while real interest rates are measured in terms of a country's output
C.Nominal interest rates can fluctuate, while real interest rates always remain fixed
D.Real interest rates can fluctuate, while nominal interest rates always remain fixed
E.Real interest rates are the same in every country, while nominal interest rates are different for every country
7.Which of the following is predicted to cause the value (or price or cost) of U.S. goods to appreciate relative to the value (or price or cost) of foreign goods in the long run?
a. An increase in the growth rate of U.S. GNP. b. A decrease in the growth rate of U.S. GNP.
c. A decline in the growth rate of the U.S. money supply.
d. An increase in the price of petroleum that reduces world demand for American cars. e. An appreciation of the dollar.