During the 1980s and early 1990s, it was believed that the natural rate of
unemployment in the U.S. was equal to
A) 4%.
B) 4.5%.
C) 5%.
D) 6.5%.
E) 7%.
A discount bond is a bond
A) with no coupon payments.
B) where the price of the bond is greater than its face value.
C) where the interest rate is zero.
D) where the face value is zero.
E) that never matures.
In the United States, how many workers become unemployed, on average, every day?
A) 5,000
B) 10,000
C) 50,000
D) 100,000
For this question, assume that firms experience an increase in sales. We would expect
that this increase in sales will 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
Suppose you have one U.S. dollar with which you wish to purchase U.K. (one-year)
bonds in period t. Which of the following expressions represents the amount of U.S.
dollars you will receive in one year (i.e., period t + 1) from purchasing U.K. bonds in
period t?
A) i
B) 1 + i*
C) (1 + i*)Ee
t+1/Et
D) (1 + i*)Et/Ee
t+1
E) none of the above
The IS-LM model was developed by
A) Friedman and Phelps.
B) Hicks and Hansen.
C) Modigliani and Friedman.
D) Lucas and Sargent.
E) none of the above
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 price-setting relation will now
be
A) a vertical line.
B) a horizontal line.
C) an upward sloping line.
D) a downward sloping line.
E) kinked at the natural rate of unemployment.
Which of the following will occur when the capital stock increases?
A) profit per unit of capital will increase
B) profit per unit of capital will decrease
C) there will be no change in profit per unit of capital
D) there will be an ambiguous effect on profit per unit of capital
E) none of the above
Based on price setting behavior, which of the following will cause a reduction in the
price level?
A) an increase in productivity
B) a reduction in the nominal wage
C) a reduction in the markup
D) all of the above
E) none of the above
Using the ZZ/Y and NX graphs, illustrate graphically and explain what effect an
increase in government spending will have on output, exports, imports, and net exports.
Clearly label all curves and clearly label the initial and final equilibria.
For a closed economy, which of the following conditions must be satisfied for
equilibrium to be maintained?
A) G = T
B) X = IM = 0
C) C = S
D) none of the above
Which of the following best defines the IS curve?
A) the combinations of i and Y that maintain equilibrium in the goods market
B) illustrates the effects of changes in i on investment
C) illustrates the effects of changes in i on desired money holdings by individuals
D) the combinations of i and Y that maintain equilibrium in financial markets
When x increases leading decrease in output, a better policy tool is
A) decrease in policy rate.
B) increase in policy rate.
C) increase in government spending.
D) decrease in government spending.
Because of labor hoarding, an increase in output may signal
A) an increase in employment.
B) a reduction in employment.
C) no change in employment.
D) a reduction in productivity.
When policy makers decide to revalue the currency, such an action generally represents
A) an increase in the pegged value of the domestic currency.
B) a decision to let the currency float.
C) a reduction in the foreign price level.
D) an increase in the domestic price level.
E) none of the above
A share of stock will pay a dividend of $20 in one year, and will be sold for an expected
price of $500 at that time. If the current one-year interest rate is 5%, the current price of
the stock will be approximately equal to
A) $100.
B) $495.
C) $500.
D) $525.
E) none of the above
An increase in money growth, holding all other factors constant, will cause
A) a reduction in seignorage.
B) an increase in seignorage.
C) no change in seignorage.
D) an ambiguous effect on seignorage.
Suppose the aggregate production function is given by the following: Y = N. Given this
information, we know that labor productivity is represented by which of the following?
A) 1/N
B) N
C) N/Y
D) 1
Over the last half-century, which of the following countries has had the highest growth
rate of output per capita?
A) Japan
B) France
C) United Kingdom
D) United States
Suppose there are two countries that are identical in every way with the following
exception: Country A has a higher saving rate 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) the level of consumption per worker will be higher in A.
D) the level of consumption per worker will be higher in B.
For this question, assume the Marshal-Lerner condition holds. Which of the following
would occur as a result of an increase in the real exchange rate?
A) an improvement of the trade balance
B) a reduction in the quantity of imports
C) an increase in domestic output
D) all of the above
E) none of the above
Which of the following, according to the Maastricht treaty, was a condition for
participating in the common currency area?
A) a relatively small budget deficit-to-GDP ratio
B) at least half the population of the country must speak German, French and English
C) a promise that any future devaluations will be announced in advance
D) the replacement of the country’s prime minister with an appointee of the new
“United States of Europe”
E) a relatively small amount of foreign aid to countries outside the area
From the perspective of the United States, a reduction in the nominal exchange rate will
cause which of the following?
A) The dollar becomes more expensive to foreigners.
B) Foreign goods are less expensive to Americans.
C) Foreign currency is less expensive to Americans.
D) American goods are less expensive to foreigners.
E) none of the above
If the government thinks the natural unemployment rate is 5%, when it is really 6%,
then the government will
A) overestimate the actual deficit.
B) underestimate the actual deficit.
C) overestimate the cyclically adjusted deficit.
D) underestimate the cyclically adjusted deficit.
E) none of the above
An expected tax cut will tend to cause
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.
Refer to the information above. The labor force participation rate is
A) .2.
B) .3.
C) .4.
D) .6.
E) .8.
Assume that expected inflation is based on the following: πe
t = θπt-1. An increase in θ
will cause
A) an increase in the natural rate of unemployment.
B) a reduction in the natural rate of unemployment.
C) no change in the natural rate of unemployment.
D) inflation in period t to be more responsive to changes in unemployment in period t.
The participation rate in the United States in 2010 was approximately equal to
A) 96%.
B) 90%.
C) 65%.
D) 26%.
E) 5%.
Suppose you are provided with the following data for your country for a particular
month: 200 million people are working, 20 million are not working but are looking for
work, and 40 million are not working and have given up looking for work. The official
unemployment rate for that month is
A) 7.7%.
B) 9.1%.
C) 10%.
D) 23%.
E) 30%.
In the absence of technological progress, we know with certainty that an decrease in the
saving rate will cause which of the following?
A) decrease steady state consumption
B) increase steady state consumption
C) have no effect on steady state consumption
D) decrease steady state consumption only if the decrease in saving exceeds the
increase in depreciation
E) decrease steady state consumption only if the decrease in saving is less than the
decrease in depreciation
Are changes in consumption and investment typically occur in the same direction and at
roughly the same magnitude? Explain.
Suppose the central bank implements a monetary expansion in the current period and is
not expected to continue this policy in the future. Explain what effect this policy will
have on the shape of the yield curve and on stock prices.
Explain several of the key contributions of Keynes.
Suppose the interest parity condition holds. Also assume that the one-year interest rate
in the United States is 5% and that the one-year interest rate in Canada is 6%. What
does this imply about the current versus future expected exchange rate (for the U.S. and
Canadian dollars)? Explain.
Assume that policy makers are pursuing a fixed exchange rate regime. Now suppose
that the foreign interest rate falls. Discuss what policy makers must do to maintain the
pegged exchange rate. Also discuss what effect this will have on domestic output and
net exports.
Explain why current consumption is likely to respond less than one for one to changes
in current income.
Explain what effect a reduction in future expected output will have on the IS curve and
LM curve in the current period.
Explain why economists care about inflation.
Discuss the various components of wealth.
Suppose the yield curve is upward sloping. How should one interpret this particular
yield curve?
Use the ZZ-Y model presented in chapter 3 to illustrate the effects of a reduction in
consumer confidence on the economy. Also, explain what effect this reduction in
consumer confidence has on the economy.
Explain the difference between: 1. the demand for domestic goods; and 2. the domestic
demand for goods.
Explain what effect a reduction in productivity has on wage setting behavior, price
setting behavior, the equilibrium real wage, the natural rate of unemployment, and the
natural level of output.
In addition to capital accumulation and technological progress, what are some of the
other possible explanations for recent output growth in China?
Explain in detail what effect a Fed sale of bonds will have on: 1. the LM curve; and 2.
the IS curve.
Explain some of the causes of increased wage inequality.
First, write out the equation that represents the Taylor rule. Second, discuss how the
Taylor rule is used to explain the implementation of monetary policy.
Suppose the central bank decreases the rate of growth of the money supply. What effect
will this decrease in money growth have on seignorage in: 1. the short run; and 2. the
medium run? Explain.
Explain the two relations that determine the evolution of output in the long run.
Based on your understanding of the IS-LM model, graphically illustrate and explain
what effect a monetary expansion will have on output, the interest rate, and investment.