Review of Exam Two (ID B) - Multiple Choice

Identify the choice that best completes the statement or answers the question.

• has no intrinsic value.

• is backed by gold.

• is a medium of exchange but not a unit of account.

• is any close substitute for currency such as checkable deposits.

In the open-economy macroeconomic model, the key determinant of net capital outflow is the

• nominal exchange rate.

• nominal interest rate.

• real exchange rate.

• real interest rate.

Other things the same, an increase in the U.S. real interest rate induces

• Americans to buy more foreign assets, which increases U.S. net capital outflow.

• Americans to buy more foreign assets, which reduces U.S. net capital outflow.

• foreigners to buy more U.S. assets, which reduces U.S. net capital outflow.

• foreigners to buy more U.S. assets, which increases U.S. net capital outflow.

Which of the following is not included in M1?

• a $5 bill in your wallet

• $100 in your checking account

• $500 in your savings account

• All of the above are included in M1

If the money multiplier is 2 and the Fed buys $50,000 worth of bonds, what happens to the money supply?

• it increases by $100,000

• it increases by $150,000

• it decreases by $100,000

• it decreases by $150,000

Other things the same, as the real interest rate rises

• domestic investment and net capital outflow both rise.

• domestic investment and net capital outflow both fall.

• domestic investment rises and net capital outflow falls.

• domestic investment falls and net capital outflow rises.

When the real exchange rate for the dollar appreciates, U.S. goods become

• less expensive relative to foreign goods, which makes exports rise and imports fall.

• less expensive relative to foreign goods, which makes exports fall and imports rise.

• more expensive relative to foreign goods, which makes exports rise and imports fall.

• more expensive relative to foreign goods, which makes exports fall and imports rise.

Interest rates adjusted for the effects of inflation

• and inflation are nominal variables.

• and inflation are real variables.

• are real variables; inflation is a nominal variable.

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate falls, then

• both the nominal and the real interest rate fall.

• neither the nominal nor the real interest rate fall.

• the nominal interest rate falls, but the real interest rate does not.

• the real interest rate falls, but the nominal interest rate does not.

Net exports must equal zero for any economy

• that is closed.

• for which Y = C + I + G.

• for which S = Y - C - G.

• All of the above are correct.