Other things being equal, the ratio of Tobin’s q will rise if:
A) stock prices fall.
B) the replacement cost of capital rises.
C) more capital is installed.
D) stock prices rise.
When the central bank lowers its target inflation rate, it _____ the nominal and real
interest rate, which shifts the dynamic aggregate demand curve to the _____.
A) lowers; right
B) lowers; left
C) raises; right
D) raises; left
The experience of the 1980s:
A) clearly contradicted the Ricardian equivalence view because national saving was
very low.
B) clearly supported the Ricardian equivalence view, for people saved little only
because they were optimistic, as confirmed by the stock market.
C) will provide a clear answer on the validity of Ricardian equivalence as soon as
economists are able to analyze it with their computers.
D) may be used to argue both in favor of and against the Ricardian equivalence view of
the tax cuts.
The GDP deflator is a:
A) Laspeyres price index.
B) Paasche price index.
C) Laspeyres quantity index.
D) Paasche quantity index.
In the dynamic model of aggregate demand and aggregate supply, holding other factors
constant, when the natural level of output increases, then inflation:
A) increases.
B) decreases.
C) remains the same.
D) is zero.
The resolution authority over shadow banks given to the FDIC as part of the
Dodd-Frank Act, gives the FDIC authority to:
A) provide deposit insurance to shadow banks.
B) take over and close shadow banks that could create systemic risk for the economy.
C) require shadow banks to hold more capital.
D) serve as a lender of last resort to shadow banks.
The government of a small open economy wishes to promote trade policies that will
result in currency appreciation.
a. Would protectionist policies (higher tariffs and more quotas) or freer trade policies
(tariff reductions and quota eliminations) be more effective in generating currency
appreciation?
b. Illustrate graphically the impact of the trade policy on the exchange rate of the small
open economy.
c. What will happen to the trade balance of the small open economy as a result of the
trade policies, assuming that the country started from a position of free trade?
d. What will happen to the quantity of exports and imports as a result of the trade
policies?
In a small open economy, if the introduction of automatic-teller machines reduces the
demand for money, then net exports:
A) fall and the real exchange rate falls.
B) fall but the real exchange rate remains unchanged.
C) remain unchanged but the real exchange rate falls.
D) and the real exchange rate remain unchanged.
In a small open economy with a floating exchange rate, if the government increases the
money supply, then in the new short-run equilibrium the:
A) interest rate falls and the level of investment rises.
B) exchange rate falls and net exports increase.
C) interest rate falls but the level of investment does not rise.
D) exchange rate falls but net exports do not increase.
Increases in the natural level of output allow the economy to produce _____ goods and
services and make people want to buy _____ goods and services.
A) fewer; fewer
B) fewer; more
C) more; more
D) more; fewer
In a small open economy with a floating exchange rate, if the government imposes an
import quota, then in the new short-run equilibrium the IS* curve shifts to the right,
raising the exchange rate:
A) but not raising net exports or income.
B) and net exports but not income.
C) and income but not net exports.
D) net exports and income.
If the government debt, D, equals $5 trillion, the nominal interest rate is 7 percent, and
the real interest rate is 3 percent, then nominal budget deficit overstates the real deficit
by $ ___ trillion.
A) 0.35
B) 0.20
C) 0.15
D) 0.07
In the Solow growth model, if investment exceeds depreciation, the capital stock will
______ and output will ______ until the steady state is attained.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
The Phillips curve describing an economy takes the form u = un ” a(p ” Ep). The central
bank directly sets the inflation rate to minimize the following loss function, L(u, p) = u
+ gp2. The symbol u denotes the unemployment rates, un is the natural rate of
unemployment, p is the inflation rate, Ep is the expected inflation rate, and a and g are
behavioral response parameters of the economy. Private agents form their expectations
rationally before the central bank sets the inflation rate. The optimal inflation rate when
the central bank operates using a fixed rule will be ______. The optimal inflation rate
when the central bank operates with discretion will be ______.
A) un; 0
B) 0; un
C) 0; a/(2g)
D) a/(2g); 0
The unemployment resulting when real wages are held above equilibrium is called
______ unemployment, while the unemployment that occurs as workers search for a job
that best suits their skills is called ______ unemployment.
A) efficiency; inefficiency
B) efficiency; structural
C) frictional; efficiency
D) structural; frictional
If a great wave of immigration increased employment in the United States, this wave
would:
A) increase the marginal productivity of capital in the United States.
B) decrease the marginal productivity of capital in the United States.
C) leave the marginal productivity of capital in the United States unchanged.
D) increase the marginal productivity of capital in the country from which the
immigrants came.
When firms experience unplanned inventory accumulation, they typically:
A) build new plants.
B) lay off workers and reduce production.
C) hire more workers and increase production.
D) call for more government spending.
If consumption is given by C = 200 + 0.75(Y ” T) and investment is given by I = 200 ”
25r, then the formula for the IS curve is:
A) Y = 400 ” 0.75T ” 25r + G.
B) Y = 1,600 ” 3T ” 100r + 4G.
C) Y = 400 + 0.75T ” 25r ” G.
D) Y = 1,600 + 3T ” 100r ” 4G.
Which of the following is an example of adverse selection?
A) The careful driver buys extra insurance protection when renting a car.
B) The sickest people buy health insurance.
C) The person with health insurance rides a motorcycle without wearing a helmet.
D) The person with life insurance exercises daily and eats healthy foods.
When the real exchange rate rises:
A) exports will decrease but imports will be unaffected.
B) imports will decrease but exports will be unaffected.
C) exports will increase and imports will decrease.
D) exports will decrease and imports will increase.
During the financial crisis of 2008″2009, many financial institutions stopped making
loans even to creditworthy customers, which could be represented in the IS“LM model
as a(n):
A) expansionary shift in the IS curve.
B) contractionary shift in the IS curve.
C) expansionary shift in the LM curve.
D) contractionary shift in the LM curve.
In the classical model with fixed income, if the interest rate is too low, then investment
is too ______ and the demand for output ______ the supply.
A) high; exceeds
B) high; falls short of
C) low; exceeds
D) low; falls short of
The real exchange rate:
A) measures how many Japanese yen one really gets for a U.S. dollar.
B) is equal to the nominal exchange rate multiplied by the domestic price level divided
by the foreign price level.
C) is equal to the nominal exchange rate multiplied by the foreign price level divided by
the domestic price level.
D) is the price of a domestic car divided by the price of a foreign car.
Most current unemployment-insurance programs are:
A) paid for fully by state governments.
B) paid for fully by the federal government.
C) 100 percent experience rated.
D) partially experience rated.
Assume that a war reduces a country’s labor force but does not directly affect its capital
stock. If the economy was in a steady state before the war and the saving rate does not
change after the war, then, over time, capital per worker will ______ and output per
worker will ______ as it returns to the steady state.
A) decline; increase
B) increase; increase
C) decline; decrease
D) increase; decrease
The LM curve is steeper the ______ the interest sensitivity of money demand and the
______ the effect of income on money demand.
A) greater; greater
B) greater; smaller
C) smaller; smaller
D) smaller; greater
In a large open economy, the exchange rate adjusts so that net exports equal:
A) domestic saving.
B) domestic investment.
C) net capital outflow.
D) domestic investment plus net capital outflow.
The one-to-one relation between the inflation rate and the nominal interest rate, the
Fisher effect, assumes that the:
A) money supply is constant.
B) velocity is constant.
C) inflation rate is constant.
D) real interest rate is constant.
In a small open economy, if the government adopts a policy that lowers imports, then
that policy:
A) raises the real exchange rate and increases net exports.
B) raises the real exchange rate and does not change net exports.
C) raises the real exchange rate and decreases net exports.
D) lowers the real exchange rate.
How does the distinction between flexible and sticky prices impact the study of
macroeconomics?
A) The study of flexible prices is confined to microeconomics, while macroeconomics
focuses on sticky prices.
B) Macroeconomists use flexible prices to explain inflation and sticky prices to explain
unemployment.
C) Flexible prices are typically assumed in the study of the long run, while sticky prices
are assumed in the study of the short run.
D) Endogenous variables are measured using flexible prices, while exogenous variables
are measured using sticky prices.
The imperfect-information model assumes that producers find it difficult to distinguish
between changes in:
A) real wages and nominal wages.
B) the overall level of prices and relative prices.
C) the overall level of prices and the expected level of prices.
D) cost-push inflation and demand-pull inflation.
Compared with an employed white teenage male, an employed middle-aged white male
is ______ likely to become unemployed and, once unemployed, is ______ likely to find
a job.
A) less; more
B) less; just as
C) more; less
D) just as; more