Risk aversion is a dislike of:
A) paying interest.
B) lending.
C) borrowing.
D) randomness in economic circumstances.
The balanced growth property of the Solow growth model with population growth and
technological progress predicts which of the following sets of variables will grow at the
same rate in the steady state?
A) output per effective worker, capital per effective worker, real wage
B) output per worker, capital per worker, real wage
C) real rental price of capital, real wage, output per worker
D) capital-output ratio, output per worker, capital per worker
Conventional monetary and fiscal policies during a financial crisis are aimed at _____,
while acting as a lender of last resort or injecting government funds into the financial
system during a financial crisis is aimed at _____.
A) increasing output; reducing inflation
B) expanding aggregate demand; fixing the financial system
C) increasing corporate wealth; increasing household wealth
D) expanding aggregate supply; reducing the national debt
If all wage income is consumed, all capital income is saved, and all factors of
production earn their marginal products, then:
A) the economy will reach a steady-state level of capital stock below the Golden Rule
level.
B) the economy will reach a steady-state level of capital stock above the Golden Rule
level.
C) wherever the economy starts out, it will not grow.
D) wherever the economy starts out, it will reach a steady-state level of capital stock
equal to the Golden Rule level.
Governments can reduce the problem of moral hazard by:
A) requiring licenses be obtained before starting a business.
B) prosecuting fraud and malfeasance.
C) keeping interest rates low.
D) reducing corporate income tax rates.
One justification for greater regulation of traditional commercial banks than of shadow
banks is the:
A) lower amounts of capital and higher amounts of risky assets held at banks.
B) absence of economy-wide repercussions when shadow banks fail.
C) more limited opportunities for excessive risk-taking by shadow banks.
D) existence of government insurance of bank deposits.
If past policies kept the economy insulated from shocks to aggregate demand and
supply, the historical evidence would support using:
A) active macroeconomic policy only.
B) passive macroeconomic policy only.
C) either active or passive macroeconomic policy.
D) neither active nor passive macroeconomic policy.
The time between when a recession begins and when the central bank lowers interest
rates to stimulate aggregate demand is an example of an:
A) inside lag of monetary policy.
B) outside lag of monetary policy.
C) inside lag of fiscal policy.
D) outside lag of fiscal policy.
All of the following actions are investments in the sense of the term used by
macroeconomists except:
A) IBM’s building a new factory.
B) corner candy store’s buying a new computer.
C) John Smith’s buying a newly constructed home.
D) Sandra Santiago’s buying 100 shares of IBM stock.
a. An economy is initially at the natural level of output. There is an increase in
government spending. Use the IS“LM model to illustrate both the short-run and
long-run impact of this policy change. Be sure to label: i. the axes; ii. the curves; iii. the
initial equilibrium, iv. the short-run equilibrium, and v. the terminal equilibrium.
b. Explain in words the short-run and long-run impact of the change in government
spending on output and interest rates.
a. Graphically illustrate how an increase in income affects the equilibrium levels of
saving, investment, and the interest rate in the loanable funds model. Be sure to label: i.
the axes; ii. the curves; iii. the initial equilibrium values; iv. the direction the curve
shifts; and v. the terminal equilibrium values.
b. Explain in words what happens to the equilibrium levels of saving, investment, and
the interest rates as a result of the increase in income.
A country that is on a gold standard primarily uses:
A) commodity money.
B) fiat money.
C) credit money.
D) the barter system.
Based on a Cobb”Douglas production function and perfect capital mobility, capital
should flow to economies in which:
A) capital is relatively scarce.
B) capital is relatively abundant.
C) technological production capabilities are inferior.
D) labor is relatively scarce.
If the productivity of farmers has risen substantially over time because of technological
progress, and workers can move freely between being farmers and barbers, the
neoclassical theory of distribution predicts that the real wage(s) of:
A) both barbers and farmers should have remained constant over time.
B) both barbers and farmers should have risen over time.
C) farmers should have risen while the real wage of barbers should have remained
constant.
D) barbers should have risen while the real wage of farmers should have remained
constant.
What determines the distribution of national income between labor and capital in a
competitive, profit-maximizing economy with constant returns to scale?
A) the relative quantity of labor to capital
B) the interest rate
C) the ratio of public saving to private saving
D) the marginal productivity of labor relative to the marginal productivity of capital
As the relative demand for unskilled workers falls, wages for unskilled workers ______
and unemployment compensation becomes a ______ attractive option.
A) fall; more
B) fall; less
C) rise; more
D) rise; less
If the permanent-income hypothesis is correct, and if consumers have rational
expectations, then changes in consumption over time should be:
A) predictable.
B) unpredictable.
C) mostly positive.
D) mostly negative.
According to Euler’s theorem, if competitive firms pay each factor its marginal product
and the production function has constant returns to scale, the sum of all factor payments
will equal:
A) total investment.
B) total saving.
C) total profits.
D) total output.
In the basic endogenous growth model, income can grow forevereven without
exogenous technological progressbecause:
A) the saving rate equals the rate of depreciation.
B) the saving rate exceeds the rate of depreciation.
C) capital does not exhibit diminishing returns.
D) capital exhibits diminishing returns.
Analogous to the role of expected profits from owning installed capital in the q theory
of business fixed investment is the role played by the _____ in the model of the housing
market.
A) real interest rate
B) nominal interest rate
C) expected imputed rent from owning housing
D) stock of existing housing
When prices of different goods are increasing by different amounts, the price index that
will rise the fastest is:
A) Fisher’s ideal index.
B) the CPI.
C) the GDP deflator.
D) a Paasche index.
In Irving Fisher’s two-period consumption model, if Y1 = 15,000, Y2 = 20,000, the
interest rate r is 0.50 (50 percent), and there is a constraint on borrowing that is binding,
then C1 equals:
A) 15,000.
B) 20,000.
C) 28,333.
D) 35,000.
If the U.S. production function is Cobb”Douglas with capital share 3, output growth is 3
percent per year, depreciation is 4 percent per year, and the capital”output ratio is 2.5,
the saving rate that is consistent with steady-state growth is:
A) 12.5 percent.
B) 14 percent.
C) 17.5 percent.
D) 20 percent.
The quantity equation, viewed as an identity, is a definition of the:
A) quantity of money.
B) quantity of transactions.
C) price level.
D) transactions velocity of money.
One argument favoring a fixed-exchange-rate system is that it:
A) allows monetary policy to be used for stabilizing output and prices.
B) reduces exchange-rate uncertainty, thereby promoting more international trade.
C) leads to excessive growth of the money supply.
D) requires no actions on the part of the central bank to implement.
Funds flow directly between savers and investors in financial _____ and flow indirectly
between savers and investors through financial _____.
A) stocks; bonds
B) intermediaries; markets
C) bonds; stocks
D) markets; intermediaries
The investment component of GDP includes all of the following except:
A) purchases of corporate stock.
B) spending on new plants and equipment.
C) purchases of new housing by households.
D) changes in business inventories.
According to the neoclassical theory of distribution, total output is divided between
payments to capital and payments to labor depending on their:
A) supply.
B) equilibrium growth rates.
C) relative political power.
D) marginal productivities.
Adverse selection concerns hidden knowledge about _____, while moral hazard
concerns hidden knowledge about _____.
A) systematic risk; idiosyncratic risk
B) attributes; actions
C) equity finance; debt finance
D) financial markets; financial intermediaries
Variables expressed in terms of physical units or quantities are called ______ variables.
A) real
B) nominal
C) endogenous
D) exogenous