The difference between the official and correct measures of the deficit will be greater,
A) the lower is government spending.
B) the lower is the level of debt, B.
C) the higher is inflation.
D) none of the above
Each governor of the Federal Reserve is
A) appointed by the President to a 4-year term.
B) appointed by the President to a 14-year term.
C) appointed by the President for life.
D) elected by the Presidents of banks and savings institutions.
For this question, assume that the economy is initially operating at the natural level of
output. A reduction in consumer confidence will cause
A) an increase in the real wage in the medium run.
B) a reduction in the real wage in the medium run.
C) no change in the real wage in the medium run.
D) ambiguous effects on the real wage in the medium run.
The price setting relation is
A) horizontal.
B) upward sloping.
C) downward sloping.
D) vertical.
For this question, assume that expectations of productivity are slow to adjust. Further
assume that A had been increasing by 2% a year. Now suppose that A increases by 5%
in period t. This increase in productivity growth will cause
A) the real wage to rise and no change in the natural rate of unemployment.
B) the WS relation to shift up more than the PS relation.
C) the natural rate of unemployment to fall.
D) the real wage to fall.
In mid-2008, estimated losses on mortgages were estimated to be about ________ of
U.S. GDP.
A) 2%
B) 5%
C) 7%
D) 9%
For this question, assume that investment spending depends only on the interest rate
and no longer depends on output. Given this information, a reduction in the money
supply
A) will cause investment to decrease.
B) will cause investment to increase.
C) may cause investment to increase or to decrease.
D) will have no effect on output.
E) will cause a reduction in output and have no effect on the interest rate.
Since the early 1980s, debt ratios for the OECD countries have
A) increased.
B) remained constant.
C) decreased slightly.
D) decreased dramatically, and are now close to zero.
E) become impossible to define.
The data suggest that in the European Union countries, the natural rate of
unemployment
A) is now higher than in the U.S.
B) is no longer a relevant concept.
C) has steadily declined over the past two decades.
D) will soon exceed the percentage of the labor force that is working.
E) has become less “natural,” since it is now almost entirely determined by the policies
of a few large corporations.
A reduction in sales will generally cause
A) an increase in profit per unit of capital.
B) a decrease in profit per unit of capital.
C) no change in profit per unit of capital.
D) ambiguous effects on profit per unit of capital.
E) none of the above
Based on wage setting behavior, we know that a reduction in the unemployment rate
will cause
A) no change in the real wage.
B) a reduction in the real wage.
C) an increase in the real wage.
D) an upward shift of the WS curve.
The J-curve illustrates the effects of
A) changes in Y* on NX.
B) changes in Y on NX.
C) changes in the real exchange rate on NX.
D) changes in Y on imports.
Suppose there are two countries that are identical in every way with the following
exception: Country A has a higher stock of human capital than country B. Given this
information, we know with certainty that
A) the growth rate will be higher in A than in B.
B) the growth rate will be the same in the two countries.
C) output per worker will be the same in the two countries.
D) K/N will be higher in B.
An increase in taxes will cause
A) a reduction in investment.
B) an increase in investment.
C) no change in investment.
D) no change in autonomous spending.
Hyperinflation typically leads to
A) a reduction in barter.
B) a reduction in real money balances.
C) a preference for domestic over foreign currency.
D) an increase in real tax revenues collected by the government.
E) all of the above
Suppose nominal GDP in 2009 does not change (compared its previous level in 2008).
Given this information, we know with certainty that
A) real GDP increased during 2009.
B) the GDP deflator increased during 2009.
C) both the GDP deflator and real GDP fell during 2009.
D) more information is needed to answer this question.
Year-to-year movements in real exchange rates between industrialized countries like the
U.S. and Canada are caused mostly by
A) changes in relative rates of inflation.
B) changes in relative growth rates of output.
C) changes in quotas or tariffs.
D) changes in capital controls.
E) changes in nominal exchange rates.
Which of the following countries had the highest rate of growth of output per worker
between 1985 and 2014?
A) France
B) Japan
C) United States
D) United Kingdom
The intellectual leader of new classicals is
A) Edward Prescott.
B) John Taylor.
C) Stanley Fischer.
D) Ben Bernanke.
Assume the Marshall-Lerner condition holds. Which of the following will cause a
reduction in net exports?
A) a reduction in government spending
B) a reduction in investment
C) an increase in foreign output
D) an increase in the real exchange rate
E) all of the above
Which of the following is not correct about quantitative easing?
A) It is one of the conventional monetary policy tools.
B) It refers to the Fed’s asset purchasing program.
C) It helped reduce term premium on long-term government bonds.
D) As a result, the balance sheet of the Fed is much larger than it was before the crisis.
Suppose that, when the price of steel drops, steel companies tend to cut back on
investment in their non-steel activities more than other firms in these same non-steel
activities. This would support the idea that
A) cash flow matters for investment.
B) cash flow does not matter for investment.
C) business firms do not care about profit.
D) business firms do not care about interest rates.
E) business firms do not use discounting.
Very high debt burdens can result in
A) fine tuning.
B) automatic stabilizer.
C) the structural deficit.
D) tax smoothing.
E) debt repudiation.
Suppose we wish to examine the determinants of the equilibrium real wage and
equilibrium level of employment (N). In a graph with the real wage on the vertical axis,
and the level of employment on the horizontal axis, the wage-setting relation will now
be
A) a vertical line.
B) a horizontal line.
C) an upward sloping line.
D) a downward sloping line.
E) a curve that first slopes upward, then downward.
The more staggered are labor contracts,
A) the more rapidly the economy will adjust to changes in aggregate demand.
B) the less rapidly the economy will adjust to changes in aggregate demand.
C) the greater the inflationary effects of a given change in money growth in the medium
run.
D) the less inflationary effects of a given change in money growth in the medium run.
Hedonic pricing is used to
A) convert nominal values to real values.
B) calculate the difference between nominal GDP and real GDP.
C) measure the rate of change in real GDP.
D) obtain chain-weight indexes.
E) none of the above
Based on our understanding of consumption and saving, we know that the marginal
propensity to consume and the marginal propensity to save must
A) be equal to each other.
B) sum to exactly one.
C) sum to less than one.
D) sum to more than one.
E) be equal to the multiplier.
Suppose there is an increase in autonomous consumption. Specifically, suppose c0
increases where C = c0 + c1YD. This increase in autonomous consumption will cause
which of the following to increase?
A) equilibrium income
B) equilibrium disposable income
C) demand
D) all of the above
E) none of the above
A nominal appreciation of the Mexican peso (against all currencies) indicates that
A) the peso price of foreign currency has risen.
B) the Mexican real exchange rate will not change if the price level in Mexico falls.
C) the peso price of, for example, the U.K. pound has decreased.
D) the number of units of foreign currency that one can obtain with one peso has
increased.
According to convention, a recession is referred to if an economy goes through
A) at least two consecutive quarters of negative growth.
B) at least three consecutive quarters of negative growth.
C) at least four quarters of negative growth.
D) at least two consecutive months of negative growth.
A change in which of the following variables would affect the cash flow for a firm?
A) changes in the nominal interest rate
B) expected future profit
C) changes in the real interest rate
D) changes in expected inflation
E) none of the above
Which of the following statements are true?
A) A bank’s assets are its sources of funds.
B) A bank’s liabilities are its uses of funds.
C) A bank’s balance sheet shows that total assets equal total liabilities plus equity
capital.
D) A bank’s balance sheet indicates whether or not the bank is profitable.
When a liquidity trap situation exists, we know that
A) an open market operation will have no effect on the supply of money.
B) an open market operation will have no effect on the monetary base.
C) fiscal policy will have no effect on the demand for goods.
D) expansionary monetary policy will be deflationary.
E) none of the above
Graphically illustrate and explain what effect an increase in real income will have on
the money market.
Explain what the multiplier represents.
Suppose an economy experiences an increase in inflation. Explain the possible
macroeconomic benefits of this increase in inflation.
The participation rate in the U.S. has increased steadily over time. First, explain what
the participation rate represents. Second, explain why the participation rate has
increased.
In the model discussed in Chapter 3, why do we assume G and T are exogenous?
Suppose depreciation per worker is less than saving per worker. Given this situation,
explain what will happen to each of the following variables over time: capital per
worker, output per worker, saving per worker, and consumption per worker.
Suppose there is a decrease in the saving rate. Explain what effect this decrease in the
saving rate will have on the rate of growth of output per worker.
Suppose the capital stock increases by 10% and the number of employed workers
increases by 5%. Given this information, explain what will happen to output and to
output per worker.
Use the money market to answer this question. Suppose there is a reduction in income.
First, briefly explain what effect this will have on the interest rate. Second, explain all
types of policies the central bank could implement to prevent this reduction in income
from affecting the interest rate.
For this question, assume that expectations of productivity growth adjust slowly. Now,
suppose that there is a 3% reduction in productivity. Explain how this 3% reduction in
productivity can cause changes in the unemployment rate.
Explain what effect a reduction in the future expected interest rate will have on the IS
curve and LM curve in the current period.
For this question, assume that taxes are independent of income (i.e., the income tax rate
is zero). Now suppose that fiscal policy makers wish to decrease equilibrium output by
$500 billion. Further suppose that policy makers can choose one of the following two
options: 1. change in government spending; or 2. change in taxes. Compare and explain
the relative size of the changes in government spending and taxes needed to obtain this
desired change in output.
Suppose the saving rate is greater than the golden rule saving rate (sG). First, explain
what must happen to the saving rate in order to increase steady state consumption.
Second, what are the advantages and disadvantages of this policy to increase steady
state consumption.
Explain each of the determinants of the present value of expected profits from a buying
a new machine.
First, explain what seignorage is. Second, write out and explain the expression that
represents seignorage. And finally, what policies can a central bank implement to
increase seignorage?
During which decade did the original Phillips curve break down? Also, briefly explain
why the original Phillips curve broke during this period.