Introduction to Economics 2

Yanıt Açıklaması: General Equilibrium refers to the situation of concurrent equilibrium of the internal and external balance of an economy.

Yanıt Açıklaması: The definiton fits the term “reserves”.

Yanıt Açıklaması: Foreign exchange rate is the price of one country’s currency expressed in terms of another country’s currency. It is simply referred to exchange rate.

Yanıt Açıklaması: The definiton fits the term “precautionary demand for money”.

Yanıt Açıklaması: Reserves are the sum of cash in bank’s vault and demand deposits in central bank and other banks.

Yanıt Açıklaması: Each international transaction requires the usage of at least two different national currencies at the same time. The price of one country’s currency expressed in terms of another country’s currency is called foreign exchange rate , or simply the exchange rate.

Yanıt Açıklaması: Classical economists insist that factors that determine the velocity are people’s habits to spend and to pay.

Yanıt Açıklaması: Non-tariff restrictions can be classified into three different categories: (1) Non-tariff restrictions imposed on imports: Import quotas, import licenses, import bans, customs procedures, administrative fees and duties. This category of non-tariff restrictions are the at-the border restrictions. (2) Non-tariff restrictions imposed on exports: Export subsidies, voluntary export restraints, export bans, export quotas. This category of non-tariff restrictions are the at-the border restrictions. (3) Non-tariff restrictions imposed in the national economy: Health standards, sanitary and phyto-sanitary standards, environmental standards, labor standards, product standards, production subsidies, internal charges, etc. This category of non-tariff restrictions are the behind-the border restrictions.

Yanıt Açıklaması: Correct answer is C.

Yanıt Açıklaması: Worse than expected weather conditions such as drought, flooding and unusual cold winter, wars, government regulations resulting in high production costs, oil price shocks are some examples of the negative or adverse supply shocks.

Yanıt Açıklaması: The GDP can rise from one year to the next for two different reasons: first of all, it can rise due to increases in the overall prices of goods and services in the economy for the measurement period. Secondly, it can grow due to increases in the quantity of goods and services produced in the economy for the time period. For the economists, the separation of these two effects is important since the economic theory is interested in measuring the changes coming from the increases in the quantity at output produced. Especially, economists want to measure the change of the total quantity of goods and services the economy is producing from a year to another excluding the overall price changes in the economy. In order to do this exclusion of price changes, the economists use a measure called the real GDP. The real GDP is the total production of goods and services valued at constant prices. If the total production of goods and services is valued at constant prices, then the real GDP shows how the economy’s total production of goods and services changes over time. Hence, we can define the economic growth in real terms. The real economic growth, then, is the percentage change in real GDP from a period to another.

Yanıt Açıklaması: There is no possibility of barter in a modern economy, so economic units (i.e., households, corporations, government and foreigners) need money to perform their daily operations.

Yanıt Açıklaması: Thus, the model implies that a higher population growth means a lower steady state capital-labor ratio and hence, a lower output per worker and lower consumption per worker. Reducing population growth raises the consumption per worker according to the model. However, it also reduces the total output and consumption, affecting a nation’s ability to defend itself or influence world events. Also, the Solow model assumes that the proportion of the population of working age is fixed. If the reduction in population growth changes the proportion of the population at the working age dramatically, say dramatically reduces the working age population, then the policy to reduce population growth creates problems for the social security and health care systems, besides reducing per capita output.

Yanıt Açıklaması: Current Account is the main account that embraces the exports and imports of the commodities and services, net interest and dividend incomes and unilateral transfers.

Yanıt Açıklaması: Currency devaluation is the fall in the value of one currency in terms of another currency by the decision of the central bank. Currency revaluation is the rise in the value of one currency in terms of another currency by the decision of the central bank. On the other hand, currency depreciation is the fall in the value of one currency in terms of another currency in the flexible exchange rate system. Currency appreciation is the rise in the value of one currency in terms of another currency in the flexible exchange rate system.

Yanıt Açıklaması: Central bank constituting an important part of modern monetary system is an important institution ensuring a healthy economy and performing government’s financial transactions. Although the functions it undertakes differ from country to country, there are three basic functions a modern central bank should perform: To ensure and maintain stability in money markets, to serve as the banker for banks and as the lender of last resort and to perform banking transactions of the government. Now we will shortly review these functions.

Yanıt Açıklaması: Because of continuous full employment in the economy, volume of output (Y) does not change in the long run. On the other hand, since money is the only medium of exchange in classical world, velocity of money remains constant. Classical economists insist that factors that determine the velocity are people’s habits to spend and to pay. These factors do not exhibit big changes, at least in the short run. In that case, when the supply of money (M) increases, for instance, 10 percent, since output (Y) and velocity (V) are assumed as constant, price level (P) must also increase 10 percent. As you noticed from this example, the rise in the supply of money directly increases aggregate expenditures and is reflected to nominal income with the same direction and the same rate. If you think of these changes, you realize of course that, the full increase in nominal income stems from increase in prices.

Yanıt Açıklaması: Inflation is the increase in the general level of prices. According to this definition, every factor that shifts the AD curve to the right and the AS curve to the left causes inflation. most of the economists today accept that the main factor that drives prices to increase continuously is continuously increasing money supply. This shows that whatever the initial reason to increase price level is, inflation occurs only when increasing money supply accompanies.

Yanıt Açıklaması: The most important property of indirect channel concept suggested by Keynes, is the existence of alternative financial assets instead of holding money.

Yanıt Açıklaması: The definiton fits the term “velocity of money”.