Labor productivity is represented by which of the following?
A) the ratio of output to employment
B) workers per unit of capital
C) capital per worker
D) the ratio of output to population
E) the ratio of output to the labor force
Suppose the actual unemployment rate decreases. This will cause
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
Democratic administrations generally are relatively more concerned about which of the
following?
A) reducing government expenditures
B) reducing the rate of inflation
C) reducing the unemployment rate
D) balancing budget deficits
E) balancing trade deficits
To prevent bank runs and the consequent bank failures, the United States established the
________ in 1934 to provide deposit insurance.
A) FDIC
B) SEC
C) Federal Reserve
D) ATM
Suppose two countries are identical in every way with the following exception.
Economy A has a higher saving rate than economy B. Given this information, we know
with certainty that
A) steady state consumption in A is higher than in B.
B) steady state consumption in A is lower than in B.
C) steady state consumption in A and in B are equal.
D) steady state growth of output per worker is higher in A than in B.
E) none of the above
For this question, assume that individuals do not hold currency (i.e., c = 0). The money
multiplier is equal to
A) 1.
B) 1/(1 – c).
C) θ.
D) 1/(1- θ).
E) none of the above
Suppose a country with a fixed exchange rate decides to reduce the price of its currency.
This change in policy is called
A) an appreciation.
B) a depreciation.
C) a peg.
D) a devaluation.
E) a revaluation.
Rational expectations assumes that individuals
A) can accurately predict the future.
B) make predictions based on the past behavior of the economy.
C) form their predictions of macroeconomic variables randomly.
D) have perfect foresight.
E) none of the above
Economists have suggested that the relatively higher unemployment in Europe has been
caused by which of the following?
A) relatively high unemployment benefits
B) relatively high level of worker protection
C) inadequate macroeconomic policies
D) increased labor costs
E) all of the above
Which of the following bonds (of equal maturity) would have the largest risk premium?
A) U.S. government bonds
B) German government bonds
C) the bonds of a financially stable corporation, like IBM
D) Bondsbrated Aaa by Moody’s
E) junk bonds
Suppose there is an increase in the expected future interest rate. 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
Economist ________ shows the “limits of arbitrage.”
A) Doug Diamond
B) Andrei Shleifer
C) Philip Dybvig
D) Richard Thaler
For this question, assume that policy makers are pursuing a fixed exchange rate regime.
Now suppose that households decide to increase consumption because of, for example,
an increase in consumer confidence. Given this information, we would expect which of
the following to occur?
A) an increase in the domestic interest rate
B) a reduction in E
C) an increase in E
D) an increase in investment
E) none of the above
For this question, assume that there are decreasing returns to capital, decreasing returns
to labor, and constant returns to scale. A reduction in the capital stock will cause which
of the following?
A) a reduction in output
B) no change in output
C) an increase in output per capita
D) increase the capital-labor ratio
E) none of the above
For this question, assume that the Phillips curve equation is represented by the
following equation:
πt – πt-1 = (m + z) – αut. A reduction in the unemployment rate will cause
A) a reduction in the markup over labor costs (i.e., a reduction in m).
B) an increase in the markup over labor costs.
C) an increase in the inflation rate over time.
D) a decrease in the inflation rate over time.
E) none of the above
Which of the following situations generally exists when deflation occurs?
A) Inflation and unemployment are both increasing.
B) Inflation and unemployment are both decreasing.
C) The price level is decreasing.
D) The rate of inflation is falling from, for example, 10% to 3%.
E) The natural rate of unemployment is zero.
Which of the following is an asset of a central bank?
A) currency
B) bonds
C) reserves
D) none of the above
Assume policy makers in a fixed exchange rate regime decide to peg the exchange rate
at a lower level. This is called
A) a devaluation.
B) a revaluation.
C) a depreciation.
D) an appreciation.
An increase in the real exchange rate indicates that
A) domestic goods are now relatively cheaper.
B) domestic goods are now relatively more expensive.
C) foreign goods are now relatively cheaper.
D) both B and C
Although the FDIC was created to prevent bank failures, its existence encourages banks
to
A) take too much risk.
B) hold too much capital.
C) open too many branches.
D) buy too much stock.
Which of the following will always cause a reduction in net exports?
A) an increase in domestic output
B) a reduction in the real exchange rate
C) a reduction in government spending
D) a reduction in investment
E) all of the above
Suppose households unexpectedly increase consumption. Which of the following will
occur as a result of this unexpected increase in consumption?
A) an increase in stock prices
B) a reduction in stock prices
C) no change in stock prices
D) an ambiguous effect on stock prices
Which of the following has the tightest relation with inflation?
A) H, the monetary base
B) M1
C) M2
D) M3
If the expected inflation rate is negative, the expected real interest rate must be
A) negative.
B) less than the nominal interest rate.
C) equal to the nominal interest rate.
D) greater than the nominal interest rate.
E) none of the above
Which of the following statements is true?
A) A change in sales should have more impact on current investment if it is expected to
be permanent rather than temporary.
B) On a percentage basis, investment is more volatile than consumption.
C) In terms of dollars, investment and consumption are about equally volatile.
D) all of the above
E) none of the above
Let the consumption function be represented by the following equation: C = c0 + c1YD.
For this equation, we assume that c1 is
A) negative.
B) larger than c0.
C) different at different levels of income.
D) equal to one.
E) none of the above
In the absence of technological progress, an increase in the saving rate will cause which
of the following?
A) increase temporarily the growth of output per worker
B) increase the steady state growth of output per worker
C) decrease temporarily the growth of output per worker
D) decrease the steady state growth of output per worker
E) have an ambiguous effect on the growth of output per worker
Changes in business inventories will be positive when
A) production exceeds sales.
B) production is less than sales.
C) a trade surplus exists.
D) a budget surplus exists.
Assume that the interest rate in a foreign country is 7% and that the foreign currency is
expected to depreciate by 3% during the year. For each dollar that a U.S. resident
invests in foreign bonds, he/she can expect to get back an approximate total of
A) $.93.
B) $.96.
C) $1.04.
D) $1.07.
E) $1.10.
Which of the following is not a flow variable?
A) investment
B) saving
C) the money supply
D) output
E) all of the above
The IS curve represents
A) the single level of output where the goods market is in equilibrium.
B) the single level of output where financial markets are in equilibrium.
C) the combinations of output and the interest rate where the money market is in
equilibrium.
D) the combinations of output and the interest rate where the goods market is in
equilibrium.
E) none of the above
