Net capital outflow is equal to the amount that:
A) foreign investors lend here.
B) domestic investors lend abroad.
C) foreign investors lend here minus the amount domestic investors lend abroad.
D) domestic investors lend abroad minus the amount that foreign investors lend here.
When a firm sells a product out of inventory, investment expenditures ______ and
consumption expenditures ______.
A) increase; decrease
B) decrease; increase
C) decrease; remain unchanged
D) remain unchanged; increase
In the neoclassical model with fixed income, if there is a decrease in taxes with no
change in government spending, then public saving ______ and private saving ______.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; does not change
A fall in consumer confidence about the future, which induces consumers to spend less
and save more, will, according to the Mundell”Fleming model, with fixed exchange
rates, lead to:
A) a fall in consumption and income.
B) no change in consumption or income.
C) no change in income but a rise in net exports.
D) a fall in income but a rise in net exports.
The money supply will decrease if the:
A) monetary base increases.
B) currency”deposit ratio increases.
C) discount rate decreases.
D) reserve”deposit ratio decreases.
If a U.S. corporation sells a product in Europe and uses the proceeds to purchase shares
in a European corporation, then U.S. net exports ______ and net capital outflows
______.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
The “impossible trinity” refers to the idea that it is impossible for a country to
simultaneously have:
A) low inflation, low unemployment, and a rapid rate of GDP growth.
B) free capital flows, a fixed exchange rate, and an independent monetary policy.
C) high interest rates, a budget deficit, and a trade deficit.
D) an expansionary fiscal policy, a contractionary monetary policy, and a flexible
exchange rate.
The effect of the financial crisis of 2008″2009 on the real economy in the United States
was a(n) _____ in aggregate demand, a(n) _____ in output, and a(n) _________ in the
unemployment rate.
A) increase; increase; increase
B) decrease; decrease; decrease
C) decrease; increase; increase
D) decrease; decrease; increase
If the short-run aggregate supply curve is horizontal, then the:
A) classical dichotomy is satisfied.
B) money supply cannot affect prices in the short run.
C) money supply cannot affect output in the short run.
D) money supply is irrelevant in the short run.
A higher saving rate leads to a:
A) higher rate of economic growth in both the short run and the long run.
B) higher rate of economic growth only in the long run.
C) higher rate of economic growth in the short run but a decline in the long run.
D) larger capital stock and a higher level of output in the long run.
An increase in income in period one in Irving Fisher’s two-period consumption model
increases consumption in:
A) period one, but decreases consumption in period two.
B) period one, but does not change consumption in period two.
C) both periods one and two, as long as consumption in period one and consumption in
period two are both normal goods.
D) period two, but does not change consumption in period one.
In the Mundell”Fleming model, if the economy is operating at or below the natural
level in the short run, then in the long run the price level will fall, the exchange rate will
______, and net exports will ______ to restore the economy to its natural rate.
A) appreciate; increase
B) appreciate; decrease
C) depreciate; increase
D) depreciate; decrease
If output is described by the production function Y = AK 0.2L0.8, then the production
function has:
A) constant returns to scale.
B) diminishing returns to scale.
C) increasing returns to scale.
D) a degree of returns to scale that cannot be determined from the information given.
Sectoral shifts:
A) lead to wage rigidity.
B) explain the payment of efficiency wages.
C) depend on the level of the minimum wage.
D) make frictional employment inevitable.
Long-run growth in real GDP is determined primarily by ______, while short-run
movements in real GDP are associated with ______.
A) variations in labor-market utilization; technological progress
B) technological progress; variations in labor-market utilization
C) money supply growth rates; changes in velocity
D) changes in velocity; money supply growth rates
The real value of government debt is reduced by:
A) expected inflation.
B) expected deflation.
C) unexpected inflation.
D) unexpected deflation.
The generosity of unemployment insurance benefits is measured by:
A) the replacement rate and the duration of benefits.
B) the median wage and the unemployment rate.
C) the price level and duration of unemployment.
D) the job-finding rate and the job-separation rate.
Nominal GDP is measured in _____ prices _____ time.
A) current; at a point in
B) current; per unit of
C) constant; at a point in
D) constant; per unit of
The phrase “inflation is repudiation” applies only if:
A) inflation is expected.
B) the government has no debt.
C) the government is a creditor.
D) the government is a debtor.
The Golden Rule level of the steady-state capital stock:
A) will be reached automatically if the saving rate remains constant over a long period
of time.
B) will be reached automatically if each person saves enough to provide for his or her
retirement.
C) implies a choice of a particular saving rate.
D) should be avoided by an enlightened government.
A trade deficit can be financed in all of the following ways except by:
A) borrowing from foreigners.
B) selling domestic assets to foreigners.
C) selling foreign assets owned by domestic residents to foreigners.
D) borrowing from domestic lenders.
The economic statistic used to measure the level of prices is:
A) GDP.
B) CPI.
C) GNP.
D) real GDP.
The corporate income tax is a tax on the:
A) earnings of employees of a corporation.
B) dividends paid to the shareholders of a corporation.
C) earnings of the managers of a corporation.
D) profits of a corporation.
At the end of 1994 the Mexican government was unable to maintain a fixed exchange
rate because it:
A) ran out of foreign-currency reserves.
B) was unable to increase the supply of Mexican pesos.
C) was forced by the IMF to let the peso float.
D) joined an exchange-rate union.
Obtaining funds for a business by borrowing, such as through the bond market, is called
_____ finance.
A) money
B) liability
C) debt
D) equity
If a war destroys a large portion of a country’s capital stock but the saving rate is
unchanged, the Solow model predicts that output will grow and that the new steady
state will approach:
A) a higher level of output per person than before.
B) the same level of output per person as before.
C) a lower level of output per person than before.
D) the Golden Rule level of output per person.
Recent work on the consumption function suggests that consumption depends on:
A) current income alone.
B) current income and expected future income.
C) current income, expected future income, and interest rates.
D) current income, expected future income, interest rates, and wealth.
In practice, in order to stop a hyperinflation, in addition to stopping monetary growth,
the government must:
A) lower taxes and raise government spending.
B) raise taxes and reduce government spending.
C) change from one kind of currency to another.
D) call for a new election.
The lawmakers who wrote the Employment Act of 1946 believed that:
A) the economy was naturally stable.
B) the Great Depression could not happen again.
C) without active government policy the Great Depression could occur again.
D) monetary policy should be conducted according to rules.
Using the Keynesian-cross analysis, assume that the consumption function is given by
C = 100 + 0.6(Y ” T). If planned investment is 100 and T is 100, then the level of G
needed to make equilibrium Y equal 1,000 is:
A) 200.
B) 240.
C) 250.
D) 260.
(Table: Bank Balance Sheet) Based on the table, what is the reserve-deposit ratio at the
bank?
A) 3 percent
B) 5 percent
C) 10 percent
D) 15 percent
Real GDP ______ over time and the growth rate of real GDP ______.
A) grows; fluctuates
B) is steady; is steady
C) grows; is steady
D) is steady; fluctuates
According to the traditional view of government debt, if taxes are cut without cutting
government spending, then the short-run effects will be:
A) higher output and lower unemployment.
B) higher output and higher unemployment.
C) no change in output or unemployment.
D) no change in output and higher unemployment.