The less 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.
Suppose individuals expect that interest rates will increase in the future. Also assume
that the Fed wants to prevent any change in current output. Given this goal of the Fed,
the Fed should implement a policy in the current period that
A) shifts the IS curve rightward.
B) shifts the IS curve leftward.
C) shifts the IS curve leftward and the LM curve upward.
D) shifts the LM curve upward.
E) shifts the LM curve downward.
If output per capita grows by a constant 6% per year, then the standard of living would
grow by about ________ over 3 years.
A) 12%
B) 17%
C) 18%
D) 19%
E) 20%
Republican administrations generally are relatively more concerned about which of the
following?
A) increasing expenditures
B) reducing the rate of inflation
C) reducing unemployment
D) raising taxes
E) none of the above
When the economy is in the steady state, we know with certainty that
A) investment per worker is equal to depreciation per worker.
B) consumption per worker is maximized.
C) output per worker is maximized.
D) the growth rate is maximized.
E) all of the above
Suppose there are two countries that are identical with the following exception. The
saving rate in country A is greater than the saving rate in country B. Given this
information, we know that in the long run
A) the capital-labor ratio (K/N) will be greater in B than in A.
B) the capital-labor ratio (K/N) will be greater in A than in B.
C) the capital-labor ratio (K/N) will be the same in the two countries.
D) economic growth will be higher in A than in B.
The Taylor rule (where a and b are positive parameters) is represented by
A) i = i* + a(π* – π) – b(un – u).
B) i = i* + a(π – π *) + b(u – un).
C) i = i* + a(π* – π) – b(u – un).
D) none of the above
In an open economy, net exports will be equal to which of the following?
A) X – IM/ε
B) T – G
C) DD
D) Z
E) S – I
Suppose the actual unemployment rate increases. This will cause
A) an upward shift in the WS curve.
B) a downward shift in the WS curve.
C) an upward shift in the PS curve.
D) a movement along the WS and the PS curves.
E) none of the above
Suppose individuals wish to obtain the most accurate comparison of living standards
between the Canada and Saudi Arabia. To do so, one would convert Saudi Arabian
output into dollars using
A) the current nominal exchange rate.
B) the current real exchange rate.
C) the prior year’s real exchange rate.
D) an average of the last five years’ exchange rates.
E) purchasing power parity methods.
Which of the following will cause a real appreciation?
A) a reduction in E
B) a decrease in P
C) an increase in P*
D) none of the above
Which of the following calculations will yield the correct measure of real GDP?
A) divide nominal GDP by the consumer price index
B) divide the GDP deflator by the consumer price index
C) multiply nominal GDP by the consumer price index
D) multiply nominal GDP by the GDP deflator
E) none of the above
Which of the following is part of “M2” but not “M1”?
A) money market mutual fund shares
B) saving deposits
C) time deposits (under $100,000)
D) all of the above
E) none of the above
Graphically illustrate and explain the effects of an increase in the rate of technological
progress on the Solow growth model. In your answer, you must clearly label all curves
and the initial and final equilibria. In your answer, explain what happens to the rate of
growth of output per worker and the rate of growth of output as the economy adjusts to
this increase in the rate of technological progress.
Which of the following bonds are considered to be default-risk free?
A) municipal bonds
B) investment-grade bonds
C) U.S. Treasury bonds
D) junk bonds
A major explanation for the decline in employment projected in textiles is
A) increases in income.
B) social problems in the U.S.
C) shifts in production toward low-wage countries.
D) inaccurate expectations about productivity growth.
E) inaccurate expectations about the price level.
Suppose the following situation exists for an economy: Kt+1/N = Kt/N. Given this
information, we know with certainty that
A) the economy is operating at the golden rule equilibrium in period t.
B) saving per worker is less than depreciation per worker in period t.
C) saving per worker is greater than depreciation per worker in period t.
D) investment per worker equals depreciation per worker in period t.
Based on recent research, which of the following is the most likely cause of the
reduction in the rate of technological progress?
A) measurement error
B) the increase in the size of the service sector
C) a reduction in R&D spending
D) a reduction in the fertility of research
E) all of the above
The empirical evidence suggests that periods of high productivity growth will cause
which of the following in the short run?
A) higher markups
B) lower unemployment
C) constant real wages
D) greater equality in wages
E) none of the above
For this question, assume that expectations of P and A are correct. Now suppose that
there is a 4% increase in A. Given this information, which of the following will occur?
A) The PS relation will shift up by 4%.
B) The WS relation will shift up by less than 4%.
C) The WS relation will shift down by 4%.
D) The PS relation will shift down by 4%.
Which of the following best defines total wealth?
A) financial wealth only
B) financial wealth and housing wealth only
C) human wealth only
D) non-human wealth and human wealth
E) none of the above
The deficit (as a fraction of GDP) is anticipated to rise over the next several decades
due to projections of
A) increased defense spending.
B) increased spending on entitlements.
C) increased inflation.
D) decreased corporate tax revenues.
E) decreased income tax revenues.
Because the U.S. traditionally gives more foreign aid than it receives, the U.S.
traditionally has a negative value for
A) the capital account balance.
B) the trade balance.
C) investment income.
D) net transfers received.
E) all of the above
Which of the following conditions will occur when two countries are engaged in a
credible, fixed exchange rate regime?
A) E = 1
B) E > 1
C) i = i*
D) E < 1
For this question, assume that the domestic interest rate is 6% and that the foreign
interest rate 4%. And finally, assume that the domestic currency is expected to
appreciate by 3% during the coming year. Given this information, we know that
A) individuals will only hold domestic bonds.
B) individuals will only hold foreign bonds.
C) individuals will be indifferent about holding domestic or foreign bonds.
D) the interest parity condition holds.
With the real wage on the vertical axis and the unemployment rate on the horizontal
axis, we know that
A) the WS curve is upward sloping.
B) the WS curve is downward sloping.
C) the PS curve is upward sloping.
D) the PS curve is downward sloping.
Assume that investment does not depend on the interest rate. A reduction in government
spending will cause which of the following for this economy?
A) no change in the interest rate
B) no change in output
C) no change in investment
D) an increase in investment
E) none of the above
As the LM curve becomes steeper, an unexpected decrease in consumer confidence
A) will cause a relatively large increase in output and relatively large increase in the
interest rate.
B) will cause a relatively small increase in output and relatively small increase in the
interest rate.
C) is more likely to cause stock prices to rise.
D) is more likely to cause stock prices to fall.
Based on our understanding of the model presented in Chapter 3, we know that an
increase in c1 (where C = c0 + c1YD) will cause
A) the ZZ line to become steeper and a given change in autonomous consumption (c0)
to have a smaller effect on output.
B) the ZZ line to become steeper and a given change in autonomous consumption (c0)
to have a larger effect on output.
C) the ZZ line to become flatter and a given change in autonomous consumption (c0) to
have a smaller effect on output.
D) the ZZ line to become flatter and a given change in autonomous consumption (c0) to
have a larger effect on output.
Suppose there are two types of bonds (one-year bonds and two-year bonds) and that the
yield curve is initially upward sloping in period t. Note: For this question assume that:
1. expected inflation is zero; and 2. the relevant interest rate on the vertical axis of the
IS-LM model is the one-year interest rate. Based on our understanding of the IS-LM
model, of the yield curve and of financial markets, we know with certainty that an
announcement in period t of a partially unexpected future increase in taxes (to be
implemented in period t + 1) will have which of the following effects?
A) stock prices will increase in period t
B) stock prices will fall in period t
C) the yield curve will become steeper in period t
D) none of the above
