Deck 11: Macroeconomic Stability

Question 1

Price instability of commodities is due to:

A) inelastic supply
B) inelastic demand
C) elastic supply
D) elastic demand
E) both a and b

Answer 1

E

Question 2

How can a commodity boom have negative macroeconomic consequences?

A) increased employment
B) increased government tax revenue
C) increased profits
D) rising price level
E) none of the above

Answer 2

D

Question 3

The term X/Y signifies what?

A) balance of trade
B) government spending to GDP ratio
C) exports to GDP ratio
D) imports to GDP ratio
E) none of the above

Answer 3

C

Question 4

Which international institution was formed to influence low oil prices?

A) OPEC
B) the World Bank
C) the IMF
D) Inter-American development bank
E) none of the above

Question 5

Oil prices rose dramatically in the:

A) 1950s.
B) 1960s.
C) 1970s.
D) 1980s.
E) none of the above

Question 6

A large increase in the price of oil over a short period of time is known as:

A) oil disaster
B) oil surprise
C) oil collapse
D) oil shock
E) none of the above

Question 7

The macroeconomic effect of an oil shock is to shift the _____ curve to the _____.

A) AD, right
B) AD, left
C) SRAS, right
D) SRAS, left
E) none of the above

Question 8

An oil shock would tend to:

A) increase inflation.
B) lower GDP.
C) raise GDP.
D) a and b
E) b and c

Question 9

Oil shocks tend to cause the price level to ______, and the real GDP to ______.

A) increase, increase
B) increase, decrease
C) decrease, decrease
D) decrease, increase
E) none of the above

Question 10

If a social preference for low inflation is strong, then the optimal policy response to oil shocks might be reducing ____ to keep the price level _____.

A) AD, constant
B) AD, increasing
C) SRAS, constant
D) SRAS, increasing
E) none of the above

Question 11

Expansionary fiscal policy in the face of an oil shock will stabilize _____, but at the cost of ____.

A) price level, high unemployment
B) price level, lower real GDP
C) employment levels, lower price levels
D) real GDP, higher price levels
E) both c and d

Question 12

The tendency for the trade balance to deteriorate in the short run following a depreciation of the exchange rate is known as:

A) exchange rate shock
B) J-curve
C) K-curve
D) commodity price shock
E) none of the above

Question 13

According to the J-curve, following a depreciation, the current account has a tendency to become more _____ initially, and then _____.

A) positive, improve
B) positive, worsen
C) negative, improve
D) negative, worsen
E) none of the above

Question 14

Rising inflationary expectations can shift the ______ curve to the _____.

A) AD, left
B) AD, right
C) SRAS, left
D) SRAS, right
E) none of the above

Question 15

Which of these is a policy designed to lower/restrain aggregate demand?

A) lower taxes
B) increased government spending
C) increased protective tariffs
D) decreased government spending
E) none of the above

Question 16

Which of these is a policy designed to decrease the rate of growth of the money supply?

A) increased interest rates
B) decreased interest rates
C) lower taxes
D) higher taxes
E) none of the above

Question 17

Exchange rate shocks shift the ____ curve to the ____.

A) AD, right
B) AD, left
C) SRAS, right
D) SRAS, left
E) none of the above

Question 18

Exchange rate shocks can lead to an increase in ____ as well as _____.

A) level of employment, real GDP
B) level of employment, inflation
C) level of unemployment, real GDP
D) level of unemployment, inflation
E) none of the above

Question 19

An exchange rate shock coupled with austerity would tend to:

A) lower real GDP.
B) raise real GDP.
C) increase SRAS.
D) lower LRAS.
E) none of the above

Question 20

An exchange rate shock is associated with:

A) higher inflation.
B) lower real GDP.
C) a depreciating currency.
D) all of the above
E) none of the above

Question 21

High inflation plus low economic growth is associated with:

A) a rightward shift of the AD curve.
B) a leftward shift of the AD curve.
C) a leftward shift of the SRAS curve.
D) an exchange rate shock.
E) both c and d

Question 22

In the 1970s, in order to maintain some exchange rate stability, increasing amounts of what were accumulated?

A) debt
B) equity
C) FDI
D) oil
E) none of the above

Question 23

During the 1980s:

A) AD fell.
B) SRAS shifted to the right.
C) AD rose.
D) a and b
E) b and c

Question 24

The Cruzado Plan is associated with which country?

A) Mexico
B) Argentina
C) Chile
D) Brazil
E) El Salvador

Question 25

Without intervention, the supply of foreign exchange quickly shifted to the ____, and _____ of domestic currencies was rapid.

A) left, appreciation
B) left, depreciation
C) right, appreciation
D) right, depreciation
E) none of the above

Question 26

Long run price stability is obtained when the money supply grows approximately as fast as:

A) V
B) Q
C) r
D) R
E) B

Question 27

A commodity boom can lead to inflation in the absence of:

A) a tighter fiscal policy.
B) a tighter monetary policy.
C) a looser fiscal policy.
D) a and b
E) b and c

Question 28

Long-run price stability occurs when _____ is moving at about the same rate as _____.

A) AD; LRAS
B) AD; MRAS
C) SRAS; LRAS
D) P; V
E) all of the above

Question 29

Which of the following is a source of macroeconomic instability?

A) commodity price shocks
B) oil shocks
C) exchange rate shocks
D) debt shocks
E) all of the above

Question 30

During the 1970s and 1980s, which international institution was the main source of foreign exchange to Latin America?

A) the World Bank
B) the Inter-American development bank
C) the CIA
D) the IMF
E) none of the above

Question 31

The recovery from the Lost Decade occurred during the:

A) 1960s.
B) 1970s.
C) 1980s.
D) 1990s.
E) 2000s.

Question 32

Which country has instituted successful fiscal policy to work to stabilize its economy, despite being heavily dependent on the volatile venture of copper mining?

A) Argentina
B) Brazil
C) Chile
D) Mexico
E) none of the above

Question 33

Explain how fluctuations in the price of copper could influence peso/$ exchange rate in Chile

Question 34

Show how a major devaluation of the Mexican peso would change the price level and real GDP.

Question 35

In the not so distant future, Country Z in Latin America is very likely to experience and exchange rate shock. Show and describe what happens to inflation in GDP after this happens.

Question 36

What does the J-curve work to explain? What is the rationale behind this explanation?

Question 37

Graphically show the effect of a commodity boom and bust on real GDP and the price level. Explain the appropriate macroeconomic policies needed to offset these effects.

Question 38

Describe how the oil shocks of the 1970s led to a buildup of debt by the countries of the region.

Question 39

Describe the history of macroeconomic instability in Brazil.

Question 40

Why is Chile an example of successful macroeconomic policy? What measures has Chile taken to garner this success?

Question 41

Graphically show the effects of an exchange rate shock on real GDP and the price level. Explain the appropriate macroeconomic policies needed to offset these effects.

Question 42

Describe the three "unpalatable" choices that policymakers face in response to an oil shock. Which of these choices was made by much of Latin America?

Question 43

Show and describe the effects of an exchange rate shock.

Question 44

Show how economic populism can lead to extremely high rates of inflation.

Question 45

Draw a graph and describe how long-run price stability is related to changes in AD and LRAS.