Identify the three components of aggregate expenditure aside from consumption, and briefly identify factors that influence them.
What will be an ideal response?
Answers will vary. Students should identify investment, government purchases, and net exports as the three components of aggregate expenditure. Unlike consumption, these components of expenditure are dependent on other factors besides income. For example, investment responds to changes in the business cycle; when output begins to decline, investment is quickly cut, and during expansions, investment is the major contributor to economic growth. Government purchases and net exports are influenced by factors such as interest rates, political considerations, and the health of foreign economies.
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All these are characteristics of a monopoly except,
a. There is one seller of the product b. Has few substitutes c. Controls a large share of the market d. Controls a small share of the market
In the market for euros, if the current exchange rate is below the equilibrium rate,
a. the quantity supplied and the quantity demanded for euros are equal. b. there is an excess supply of euros and the exchange rate will fall. c. there is an excess demand for euros and the exchange rate will rise. d. the exchange rate will neither rise nor fall. e. there is an excess demand for euros and the exchange rate will fall.
If the potential money multiplier in the U.S. is 4, then a $2,000 increase in demand deposits when banks hold excess reserves will result in which of the following?
a. the money supply will decrease by $8,000 b. the money supply will remain unchanged because the excess reserves will cancel out the potential loans c. the money supply will increase by $8,000 d. the money supply will increase by more than $8,000 e. the money supply, if it increases at all, will increase by less than $8,000
Assume the Expectation Hypothesis regarding the term structure of interest rates is correct. Then, if the current one-year interest rate is 4% and the two-year interest rate is 6%, then investors are expecting the future one-year rate to be:
A. 8%. B. 6%. C. 5%. D. 4%.