When a closed economy is in equilibrium, we know with certainty that
A) I = S + (T – G).
B) I = S.
C) I = S + (G – T).
D) G = T and S = I.
Which of the following will cause a reduction in output per worker in the long run run?
A) capital accumulation or technological progress
B) capital accumulation
C) an increase in the number of workers
D) expansionary monetary policy
E) none of the above
Suppose there is a reduction in expected future output. This will cause which of the
following to occur?
A) the IS curve to shift left in the current period
B) the IS curve to shift right in the current period
C) the LM curve to shift up in the current period
D) the LM curve to shift down in the current period
In the short run, an increase in government spending that causes an increase in the
budget deficit
A) affects the level of output but not its composition.
B) affects both the level and composition of output.
C) affects only the price level.
D) is neutral.
E) none of the above
Suppose output per worker in a country has grown at the same rate as technology over
for many years. This country’s growth would be described as
A) “appropriable” growth.
B) “balanced” growth.
C) “effective” growth.
D) “diffuse” growth.
E) none of the above
Which of the following individuals first discovered the relationship between
unemployment and inflation?
A) Solow
B) Samuelson
C) Friedman
D) Phillips
The expression, IM, represents the value of imports in terms of
A) foreign currency.
B) domestic currency.
C) foreign goods.
D) domestic goods.
E) exports.
The Masstricht treaty set the budget ratio to GDP to be ________ in order for countries
to qualify to join the Euro area.
A) below 60%
B) below 70%
C) below 80%
D) below 90%
The differences in the ratios of exports to GDP across countries are believed to be
caused primarily by
A) trade barriers.
B) each country’s size.
C) monetary policy.
D) fiscal policy.
E) inflation in the domestic country.
The data shows that total profit in the U.S. economy
A) has decreased steadily over time.
B) is not influenced by the business cycle.
C) tends to decrease in recessions, increase in expansions.
D) tends to increase in recessions, decrease in expansions.
E) tends to increase in even years, and decrease in odd years, although no one can
explain why.
Suppose foreign exchange markets anticipate a devaluation for country A. Further
assume that policy makers in country A will continue to fix its nominal exchange rate.
In order to peg the currency at its original level, which of the following must occur?
A) increase the domestic interest rate
B) increase the domestic price level
C) convince trading partners to raise their interest rates
D) all of the above
E) none of the above
The evidence for the U.S. suggests that the natural rate of unemployment has
A) increased by more than 5% since the 1960s.
B) increased by 1 to 2% since the 1960s.
C) decreased from 2000-2007, lower than it had been in the 1980s.
D) decreased by more than 5% since the 1960s.
E) fluctuated over time since the 1960s.
Suppose, due to the effects of a military conflict that has ended, that a country
experiences a large reduction in its capital stock. Assume no other effects of this event
on the economy. Which of the following will tend to occur as the economy adjusts to
this situation?
A) a relatively low growth rate for some time
B) a relative high growth rate for some time
C) zero growth for some time, followed by a gradually increasing growth rate
D) positive growth, followed by negative growth, and then zero growth
E) none of the above
When the economy is in a liquidity trap, which of the following is not correct?
A) A reduction in the interest rate can be used to increase output.
B) Fiscal policy is more important.
C) Interest rate is zero.
D) Large increases in spending and cuts in taxes were not enough to avoid the
recession.
A key step in using instrument variable methods is to
A) find one or more exogenous variables that influence your dependent variable.
B) decrease the number of lags in the regression equation.
C) conduct interviews to determine how accurate your data really is.
D) run the regression on two different computers to see if the results differ.
E) eliminate the dependent variable.
Data on labor-force flows show that
A) almost all separations are due to death.
B) almost all separations are due to serious illness.
C) almost all separations are quits.
D) almost all separations are layoffs.
E) none of the above
A reduction in the minimum wage will tend to cause which of the following?
A) an upward shift in the WS curve
B) a downward shift in the WS curve
C) an upward shift in the PS curve
D) a downward shift in the PS curve
E) none of the above
In macroeconomics, game theory focuses on the strategic interactions between which of
the following groups of agents?
A) individuals; firms
B) individuals and firms; policy makers
C) policy makers; economic forecasters
D) individuals and firms; economic forecasters
Suppose we switch the base year from 2000 to 2008. This change in the base year will
cause
A) nominal GDP in every year to increase.
B) nominal GDP in every year to decrease.
C) both nominal and real GDP in every year to decrease.
D) real GDP in every year to decrease.
E) none of the above
According to real business cycle theorists,
A) fiscal policy explains most changes in output.
B) price and wage rigidity explain most changes in output.
C) efficiency wage theory explains wage rigidity.
D) changes in output primarily represent changes in the natural level of output.
E) fiscal policy explains most changes in efficiency wage theory.
An open market sale of securities will tend to cause
A) a reduction in the supply of central bank money.
B) a reduction in the demand for currency.
C) a reduction in the demand for reserves.
D) none of the above
Suppose the central bank implements a monetary contraction that is fully expected by
financial market participants. Given this information, we would expect
A) stock prices to rise.
B) stock prices to fall.
C) stock prices to remain unchanged.
D) an ambiguous effect on stock prices.
E) stock prices to fall and the interest rate to rise.
Assume that an economy experiences both positive population growth and
technological progress. Once the economy has achieved balanced growth, we know that
the capital per effective worker ratio (K/NA) is
A) growing at a rate of δ + gA + gN.
B) growing at a rate of gA + gN.
C) growing at a rate of gN.
D) growing at a rate of gA.
E) none of the above
Assume that the uncovered interest parity condition holds. Also assume that the U.S.
interest rate is greater than the U.K. interest rate. Given this information, we know that
investors expect
A) the pound to depreciate.
B) the pound to appreciate.
C) the dollar-pound exchange rate to remain fixed.
D) the U.S. interest rate to fall.
E) none of the above
Who is best known for arguing about the fine tuning of monetary policy?
A) Friedman
B) Keynes
C) Modigliani
D) Greenspan
E) Bernanke
Which of the following about capital income is not correct?
A) It refers to a firm’s revenue.
B) It is also called profit income.
C) It goes to the firms.
D) It accounts for less than 35% of income in advanced countries.
Which of the following is a liability on a bank’s balance sheet?
A) checkable deposits
B) reserves
C) loans
D) all of the above
E) none of the above
Suppose there is an increase in profitability. This suggests that
A) firms have increased their expectations of future profits.
B) the real interest rate has increased.
C) the rate of depreciation has increased.
D) all of the above
LIBOR rate is
A) interbank loan rate.
B) the riskless rate.
C) TED spread.
D) discount rate.
Which of the following countries had the highest rate of growth of output per capita
between 1950 and 2011?
A) United States
B) France
C) Japan
D) United Kingdom
Based on the data provided in the chapter, which of the following represents the largest
component of the labor force?
A) discouraged workers
B) retired individuals
C) employed
D) unemployed
