ECON 104 Lecture Notes - Lecture 12: Ceteris Paribus, Human Capital, Exchange Rate

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19 Sep 2016

School

George Mason University

Department

Economics

Course

ECON 104

Professor

Rustici/ Gillespie

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Document Summary

Y = c + i + g + nx. Each type of spending contributes to ad. b) (1) C, i, and nx all increase when the price level falls: Consumers hold money, which becomes more valuable as p falls, which makes them wealthier, and hence more willing to spend on consumption. (2) As p falls, households need less money, so they try to lend it, which makes interest rates fall. As interest rates fall, investment spending rises. (3) As us interest rates fall (due to lower p, explained above), us nco rises, increasing the supply of dollars on fx markets. All this is ceteris paribus (in particular, m is fixed). 2. a) (1) (2) b) (1) (2) (3) (4) c) (1) (2) (3) Decrease in desire to save causes increase in c. Changes in money supply that affect the interest rate. Ad shifts due to changes in net exports. Changes in exchange rates due to central bank actions.

Related Questions

For each of the following, place an X to indicate the component affected and an R (increase) or an L (decrease) to show whether the AD curve shifts Right or Left. Consider only the primary effect. Consumption (C), Investment (I), Government spending (G), and Net Exports (NE):

Factor	C	I	G	NE	R or L
Real interest rate decreases
Consumers and executives become more confident in the economic future
The stock market rises
China's economic growth slows
Congress increases spending in the current fiscal year
Tariffs are imposed by many countries to protect domestic employment
The US Import/Export bank eliminates guarantees for loans to foreign airlines to purchase Boeing aircraft
Congress enacts tax incentives for firms purchasing new equipment and facilities

ceruleanpig915

Hi !! i was studying for final exam for eco Few more question i don't really get
Q6) When each firm is producing its capacity and there is full employment, this shows:

1. An inflationary gap

2. all of the above

3. a deflationary gap

4. the long run AS curve

Q7) According to the RBA, the rate of unemployment is beginning to edge higher. Which of the following causes of unemployment is not associated with an excess supply of labour?

1. Efficiency wages
2. Job Search

3. Minimum wage laws
4. Unions

Q8) According to the RBA, public spending is scheduled to be subdued. Public spending is

1. The amount of income that businesses have left after paying for the factors of production

2. the amount of tax revenue that the government has left after paying for its spending

3. the amount of income that households have left after paying their taxes and paying for their consumption

4. always equal to investment

Q9) The demand for loanable funds is downward-sloping because:
1. As the interest rate falls, the demand for loanable funds falls

2. As the interest rate rises, the quantity of loanable funds demanded rises

3. as the interest rate falls, the demand for loanable fund increases

4. as the interest rate rises the quantity of loanable funds demand falls.

Q10) Suppose that the government decides to issue an investment tax credit to encourage more investment spending. Then this:
1. Shifts the demand curve for loanable fund to the right

2. does not affect the interest rate

3. reduces the supply of loanable funds

4. lowers the interest rate

14) Globalization refers to

A) the process of establishing a common world currency.

B) the willingness of individuals within a given country to share knowledge.

C) the process of countries becoming more open to foreign trade and investment.

D) the reduction in growth rates of real GDP per capita as a result of trade with foreign

countries.

15) According to a study by economists Raymond Fisman and Edward Miguel, as the level of corruption in a country increases,

A) so does the number of parking violations by the country's United Nations delegates.

B) so does the size of the country's population.

C) the levels of foreign direct investment and foreign portfolio investment decrease.

D) the levels of real GDP per capita and real income per capita increase.

16) Which of the following best describes the "wealth effect"?

A) When the price level falls, the real value of household wealth falls.

B) When the price level falls, the nominal value of household wealth falls.

C) When the price level falls, the nominal value of household wealth rises.

D) When the price level falls, the real value of household wealth rises.

17) The "interest rate effect" can be described as an increase in the price level that raises the interest 17) rate and chokes off

A) government spending.

B) government spending and unplanned investment.

C) investment and consumption spending.

D) net exports.

18) Which of the following is one explanation as to why the aggregate demand curve slopes downward?

A) Decreases in the price level raise the interest rate and increase consumer spending.

B) Decreases in the price level raise the interest rate and increase investment spending.

C) Decreases in the U.S. price level relative to the price level in other country's lower net exports.

D) Decreases in the price level to raise real wealth and increase consumer spending.

19) Higher personal income taxes

A) increase in aggregate demand.

B) increase disposable income.

C) decrease aggregate demand.

D) both B and C

20) If the U.S. dollar decreases in value relative to other currencies, how does this affect the aggregate demand curve?

A) This will move the economy up along a stationary aggregate demand curve.

B) This will move the economy down along a stationary aggregate demand curve.

C) This will shift the aggregate demand curve to the left.

D) This will shift the aggregate demand curve to the right.

21) How do lower taxes affect aggregate demand?

A) They increase disposable income, consumption, and aggregate demand.

B) They reduce disposable income, consumption, and aggregate demand.

C) they increase corporate investment and aggregate demand.

D) They increase aggregate supply and thus increase aggregate demand as well.

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ECON 104 Lecture Notes - Lecture 12: Ceteris Paribus, Human Capital, Exchange Rate

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