Term
| The description of how the actions of a policymaker depend on the state of the economy is called: |
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Definition
| a policy reaction function. |
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Term
| An increase in the real exchange rate will tend to ____ exports and to ______ imports. |
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Definition
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Term
| A fiscal policy action to close an expansionary gap is to: |
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Definition
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Term
| If potential output equals $8 billion and actual output equals $7 billion, then this economy has a(n): |
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Definition
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Term
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Definition
| the amount of wealth an individual chooses to hold in the form of money. |
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Term
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Definition
| differs from maximum output because resources can temporarily be employed at greater-than-normal rates. |
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Term
| A lower real interest rate ______ investment spending and _____ consumption spending. |
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Definition
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Term
If potential output equals 10,000 and short-run equilibrium output equals 8,500, there is a ______ gap and the
Federal Reserve must _____ real interest rates in order to close the gap. |
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Definition
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Term
If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, potential output
(Y*) equals 11,000, then government purchases must ________ to eliminate any output gap. |
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Definition
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Term
| Induced expenditure is the portion of planned aggregate expenditure that: |
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Definition
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Term
| The theory that nominal exchange rates adjust so that the law of one price holds is called: |
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Definition
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Term
According to Okun's Law, when cyclical unemployment increases from 0 to 1 percent, the recessionary gap
increases from ___ percent. |
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Definition
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Term
If a country's international reserves are decreasing, then its exchange rate is ______ and there is a balanceof-
payments _______. |
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Definition
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Term
Data on after-tax income and consumption spending for the Adam Smith family are given below:
Based on these data the Adam Smith family has a marginal propensity to consume of: |
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Definition
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Term
| A fixed exchange rate is an exchange rate whose value: |
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Definition
| is set by official government policy. |
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Term
| All of the following are characteristics of short-term economic fluctuations EXCEPT: |
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Definition
| durable-goods industries are less sensitive to short-term fluctuations than service and non-durable industries. |
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Term
In the Keynesian model, a $5 billion decrease in autonomous planned investment leads to ______ in short-
run equilibrium output. |
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Definition
| more than a $5 billion decrease |
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Term
If the Fed's policy reaction function equals r=.03 +1.25(π-.02), where r is the real interest rate, π is the
inflation rate, then the long-run real interest rate target is _____ percent and the long-run target rate for inflation
is _____ percent. |
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Definition
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Term
| The duration of a recession is from: |
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Definition
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Term
| When the nominal exchange decreases from 10 pesos per dollar to 8 pesos per dollar, the dollar has: |
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Definition
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Term
If the Fed wishes to increase nominal interest rates, it must engage in an open market ____ of bonds that
____ the money supply. |
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Definition
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Term
Two drawbacks in using fiscal policy as a stabilization tool are that fiscal policy affects ______ as well as
aggregate demand and fiscal policy is _______. |
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Definition
| potential output; not flexible enough |
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Term
Holding all else constant, a decrease in the real interest rate on Mexican assets will ____ the supply of
dollars in the foreign exchange market and ____ the equilibrium Mexican peso/U.S. dollar exchange rate. |
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Definition
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Term
If the nominal exchange rate is 1.488 Canadian dollars per U.S. dollar, and 6.222 Mexican pesos per
Canadian dollar, then there are ____ Mexican pesos per U.S. dollar. |
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Definition
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Term
| When actual investment is less than planned investment: |
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Definition
| firms sold more output than expected. |
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Term
| The principal demanders of U.S. dollars to the foreign exchange market are: |
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Definition
| foreigners wishing to purchase U.S. goods or assets. |
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Term
| The natural rate of unemployment is the unemployment rate when there is only: |
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Definition
| structural and frictional unemployment. |
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Term
| The federal funds rate is the interest rate on short-term loans made by: |
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Definition
| commercial banks to other commercial banks. |
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Term
Based on the diagram the nominal interest rate equals 6% and the money supply equals 600. If the Federal
Reserve wants to raise the interest rate to 8%, it must _____ the money supply to _____. |
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Definition
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Term
| Based on the Keynesian cross diagram, short-run equilibrium output equals: |
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Definition
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