2nd Hourly Review Questions

25. What exactly do we mean by “Money Demand”?
26. What are the two principal determinants of Money Demand? Explain each one.
27. What is the shape of the money demand curve?
28. When does the money demand curve shift?
29. What is the effect of monetary policy on the equilibrium in the money market?
30. Why does the Fed use the interest rates instead on the money supply directly?
31. When the Fed raises or lowers the interest rate, what exactly is it that happens?
32. Why are there so many different interest rates in the real world? Explain
33. What is the difference between the nominal and the real exchange rate?
34. When does the real exchange rate change?
35. Define an appreciation/depreciation of the currency.
36. What do exports / imports depend on?
37. Define: Net Exports
38. Be able to explain the change of NX, as each of its determinants change.
39. Define: Trade Balance, Trade Surplus, Trade Deficit, Balanced Trade
40. What is “Net Capital Outflow”?
41. What are the implications of the Purchasing Parity Theory? Its assumptions?
42. How are the real and nominal exchange rates connected? (Formula)
43. Define: Capital Account, Current Account
44. Be able to list the links between changes in real interest rates and changes in NX demand
45. Consider the market of Loanable Funds. What do the supply and demand curve represent?
46. What is the market for foreign-currency exchange? The demand? The supply?
47. Why is NX=NCO?
48. Be able to draw the equilibrium in an open economy.
49. Be able to evaluate the effect of policy changes in the 3-diagram equilib. thoroughly
50. What is a “capital flights”. Show its effect on the above equilibrium.
51. What is aggregate output in the short run according to Keynes?
52. What are the four components of aggregate expenditure?
53. What are the primary determinants of Consumption Demand? Explain the dependence.
54. Define: the marginal propensity to consume
55. Elaborate: Permanent Income Hypothesis, PIH plus Rational Expectations, Life Cycle Hypot.
56. What is Investment and why is it important?
57. What are the principal determinants of Investment demand?
58. Be able to explain how interest rate fluctuations affect borrowing/profitability of projects.
59. When does the Investment demand Curve Shift?
60. Why does the Aggregate Demand curve slope downward?
61. Be able to explain the effect of price level changes on each of AD/AE components
62. When does the AD curve shift? Why?
63. What is long run aggregate supply?
64. What is the shape of the LRAS curve?
65. What is the short run aggregate supply?
66. Draw and explain SRAS under completely fixed prices and completely flexible prices.
67. Why is the SRAS upward sloping?
68. List all the reasons why firms might have difficulty adjusting prices when AD changes.
69. Draw a Macroeconomic Equilibrium.
70. Show and explain an Inflationary and a Recessionary Gap.
71. Thoroughly explain the steps of transition from the short run to the long run after a shift of AD in the macroeconomic equilibrium diagram.