As uncertainty about the effects of policy on output decreases, we would expect that
A) policy makers would be more frequently implement fine tuning policies.
B) policy makers would implement more active policies.
C) policy makers would implement less active policies.
D) both A and B
E) both A and C
Refer to the information above. Given this information, the steady state rate of growth
of output is
A) 0.
B) 2%.
C) 3%.
D) 5%.
E) 16%.
Assume that an economy experiences both positive population growth and
technological progress. Once the economy has achieved balanced growth, we know that
the capital stock is
A) constant.
B) growing at a rate of gA.
C) growing at a rate of gN.
D) growing at a rate of gA + gN.
E) none of the above
In the short run, a reduction in the price of oil will cause
A) a reduction in output.
B) an increase in the price level.
C) a reduction in the interest rate.
D) all of the above
E) none of the above
An individual is said to be a discouraged worker if he or she
A) is working, but prefers not to work.
B) is working part time, but would prefer a full time job.
C) is working in jobs she/he is not suited for.
D) wants to work, and is actively searching for a job.
E) wants to work, but has given up searching for a job.
In the medium run, an increase in the rate of growth of nominal money will cause
A) lower nominal and lower real interest rates.
B) lower nominal interest rates and no change in the real interest rate.
C) an increase in inflation and an increase in output growth.
D) a proportionate increase in inflation.
A core belief of modern macroeconomics is that in the short run,
A) fiscal policy is more effective in changing output than monetary policy.
B) monetary policy is more effective in changing output than fiscal policy.
C) fluctuations in aggregate demand affect unemployment.
D) fluctuations in aggregate demand have no impact on the price level.
E) the economy always operates at or near the natural rate of unemployment.
A change in which of the following variables will have no direct effect on domestic
demand?
A) domestic income
B) foreign income
C) government spending
D) the interest rate (r)
E) none of the above
Investment accounts for ________ of US GDP.
A) 15%
B) 20%
C) 50%
D) 70%
In the Phillips curve equation, which of the following will cause an increase in the
current inflation rate?
A) an increase in the expected inflation rate
B) a reduction in the unemployment rate
C) an increase in the markup, m
D) all of the above
E) none of the above
Among the following, which is the broadest measure of stock prices in the United
States?
A) Dow Jones Index
B) FT index
C) Nikkei Index
D) Term Structure Index
E) Standard and Poor’s 500 Composite Index
Which of the following is not included as a component of the M1 definition of money?
A) bonds
B) checkable deposits
C) coins and bills held by the nonbank public
D) all of the above
E) none of the above
________ was introduced in October 2008 to clean up banks.
A) Liquidity facilities
B) Wholesale funding
C) TARP
D) Fire sale
The user cost of capital is represented by which of the following variables?
A) Πt
B) rt
C) 1/(rt + δ)
D) Πt /( rt + δ)
E) none of the above
Assume a country is closed. Given this information, which of the following must occur?
A) demand for domestic goods will be less than the domestic demand for goods
B) demand for domestic goods will be greater than the domestic demand for goods
C) S + T = I + G
D) a budget surplus exists
E) S = I
At the current steady state capital-labor ratio, assume that the steady state level of per
capita consumption, (C/N)*, is greater than the golden rule level of steady state per
capita consumption. Given this information, we can be certain that
A) a reduction in the saving rate will cause a decrease in the steady state level of per
capita consumption ((C/N)*).
B) an increase in the capital-labor ratio will cause an increase in (C/N)*.
C) the capital labor ratio will tend to decrease over time.
D) the capital labor ratio will tend to increase over time.
E) a reduction in the saving rate will have an ambiguous effect on (C/N)*.
Suppose there is a fiscal contraction. Which of the following is a complete list of the
variables that must decrease?
A) consumption
B) consumption and investment
C) consumption and output
D) consumption, output and the interest rate
E) consumption, output and investment
During the mid-1980s, we observed a significant reduction in oil prices. In the United
States, we would expect that this reduction in oil prices would cause
A) a larger reduction in the CPI compared to the GDP deflator.
B) an equal reduction in the CPI and GDP deflator.
C) a larger reduction in the GDP deflator compared to the CPI.
D) no change in the CPI and a reduction in the GDP deflator.
As of 2005, some analysts were concerned that there was a “bubble” in the U.S. housing
market. Suppose there is a reduction in real estate prices. This reduction in real estate
prices would have the most direct effect on which of the following types of wealth?
A) financial wealth
B) housing wealth
C) human wealth
D) none of the above
The ratio of a country’s exports to its GDP must
A) be greater than one.
B) be less than one.
C) equal the ratio of imports to GDP.
D) be larger than the ratio of imports to GDP.
E) none of the above
Suppose the current one-year interest rate is 4%. Also assume that financial markets
expect the one-year interest rate next year to be 5%, and expect the one-year rate to be
6% the year after that. Given this information, the yield to maturity on a three-year
bond will be approximately
A) 4%.
B) 5%.
C) 6%.
D) 15%.
Those economists who attempt to explain why wages and prices do not freely adjust
would most likely be
A) real business cycle theorists.
B) new classical economists.
C) new Keynesian economists.
D) new growth theorists.
E) none of the above
The research by Robert Hall on the theory of consumption suggests that the best
forecast of consumption for next year would be
A) unpredictable.
B) random.
C) this year’s consumption.
D) last year’s consumption.
Suppose policy makers want to increase Y and keep NX constant. Which of the
following policies would most likely achieve this?
A) an increase in government spending
B) a real depreciation
C) an increase in government spending and a reduction in the real exchange rate
D) a reduction in the real exchange rate
E) encourage the country’s trading partners to implement policies that will cause an
increase in foreign income (Y*)
Some believe that technological progress leads to higher unemployment in the medium
run. This claim that technological progress results in an increase in unemployment in
the medium is supported by
A) economic theory, but contradicted by the evidence.
B) theory and evidence.
C) the evidence, but contradicted by theory.
D) neither theory nor evidence.
E) none of the above
An increase in domestic demand will have which of the following effects in an open
economy?
A) a smaller effect on output than in a closed economy and a positive effect on the trade
balance
B) a smaller effect on output than in a closed economy and a negative effect on the
trade balance
C) a larger effect on output than in a closed economy and a positive effect on the trade
balance
D) a larger effect on output than in a closed economy and a negative effect on the trade
balance
Suppose two countries are identical in every way with the following exception.
Economy A has a greater quantity of human capital 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.
Which of the following represents the ratio of coupon payments to the face value of a
bond?
A) the interest rate
B) the discount rate
C) the coupon rate
D) the risk premium
E) the current yield
The nominal exchange rate (E) as defined in the text represents
A) the number of units of foreign currency you can obtain with one unit of domestic
currency.
B) the number of units of domestic goods you can obtain with one unit of foreign
goods.
C) the price of domestic currency in terms of foreign currency.
D) none of the above
E) both A and C
The crisis reflects a major intellectual failure of macroeconomics to understand the
macroeconomic importance of
A) financial system.
B) growth.
C) unemployment.
D) inflation.