The number of households interviewed in the monthly employment survey of the U.S.
Bureau of Labor Statistics is approximately:
A) 6,000.
B) 60,000.
C) 600,000.
D) 6 million.
A capital rental firm makes a profit if the ______ is ______ the cost of capital.
A) real rental price of capital; less than
B) equilibrium marginal product of capital; less than
C) equilibrium marginal product of capital; equal to
D) equilibrium marginal product of capital; greater than
Two striking features of a graph of U.S. real GDP per capita over the twentieth century
are the:
A) overall upward trend interrupted by a large downturn due to the economic
depression in the 1930s.
B) nearly constant level with a large downturn in the 1930s.
C) downward trend in the first half of the century followed by the upward trend in the
second half.
D) constant level in the first half of the century followed by the upward trend in the
second half.
Conventional fiscal policy was limited during the 2008″2009 financial crisis because of:
A) concerns about increasing the government’s budget deficit and debt.
B) difficulties paying out tax rebates.
C) the inability of the government to reduce spending below zero.
D) the inability of the government to raise taxes above 100 percent of income.
If the ratio of currency to deposits (cr) increases, while the ratio of reserves to deposits
(rr) is constant and the monetary base (B) is constant, then:
A) it cannot be determined whether the money supply increases or decreases.
B) the money supply increases.
C) the money supply decreases.
D) the money supply does not change.
If stock prices follow a random walk, then:
A) changes in stock prices cannot be predicted from available information.
B) managed mutual funds should outperform index funds.
C) it would be easy to beat the market by buying undervalued stocks and selling
overvalued stocks.
D) stock prices fluctuate for no good reason.
If the short-run aggregate supply curve is horizontal and the long-run aggregate supply
curve is vertical, then a change in the money supply will change ______ in the short run
and change ______ in the long run.
A) only prices; only output
B) only output; only prices
C) both prices and output; only prices
D) both prices and output; both prices and output
Assume that an economy is characterized by the following equations:
C = 100 + (2/3)(Y ” T)
T = 600
G = 500
I = 800 ” (50/3)r
Ms/P = Md/P = 0.5Y ” 50r
a. Write the numerical IS curve for the economy, expressing Y as a numerical function
of G, T, and r.
b. Write the numerical LM curve for this economy, expressing r as a function of Y and
M/P.
c. Solve for the equilibrium values of Y and r, assuming P = 1.0 and M = 1,200. How do
they change when P = 2.0? Check by computing C, I, and G.
d. Write the numerical aggregate demand curve for this economy, expressing Y as a
function of G, T, and M/P.
If money demand is extremely sensitive to the interest rate, then the ______ curve is
______.
A) IS; vertical
B) IS; horizontal
C) LM; vertical
D) LM; horizontal
The reserve”deposit ratio is determined by:
A) the Federal Reserve.
B) business policies of banks and the laws regulating banks.
C) preferences of households about the form of money they wish to hold.
D) the Federal Deposit Insurance Corporation (FDIC).
Assume that the Democrats always had a policy of high money growth while the
Republicans followed a policy of low money growth, and the economy had a standard
Phillips curve. Then, if the two parties took regular terms in office:
A) there would be no political business cycle, but inflation would be higher under the
Democrats.
B) there would be no political business cycle, but inflation would be higher under the
Republicans.
C) unemployment would be lower under the Democrats but inflation would be higher.
D) both unemployment and inflation would be higher under the Democrats.
A bank with assets worth less than liabilities is said to be _____, while a bank without
adequate funds immediately available to make promised payments is said to be _____.
A) inflated; inverted
B) inverted; inflated
C) insolvent; illiquid
D) illiquid; insolvent
Exhibit: Shift in Aggregate Demand
(Exhibit: Shift in Aggregate Demand) In this graph, initially the economy is at point E,
with the price P0 and output Y. Aggregate demand is given by curve AD0, and SRAS and
LRAS represent, respectively, short-run and long-run aggregate supply. Now assume
that the aggregate demand curve shifts so that it is represented by AD2. The economy
moves first to point ______ and then, in the long run, to point ______.
A) A; D
B) D; A
C) A; B
D) B; A
In a closed economy with fixed output, when government spending increases:
A) private saving decreases.
B) private saving increases.
C) public saving decreases.
D) public saving increases.
Policies that stimulate or depress the economy without any deliberate policy change are
called:
A) leading indicators.
B) time-inconsistent policies.
C) rational expectations policies.
D) automatic stabilizers.
To follow a monetary policy rule, the central bank raises the nominal interest rate by:
A) raising the inflation target.
B) decreasing the money supply.
C) increasing the GDP gap.
D) decreasing inflation expectations.
When GDP growth declines, investment spending typically ______ and consumption
spending typically ______.
A) increases; increases
B) increases; decreases
C) decreases; decreases
D) decreases; increases
If income is 4,800, consumption is 3,500, government spending is 1,000, and taxes
minus transfers are 800, public saving is:
A) “200.
B) 200.
C) 500.
D) 1,800.
According to the Keynesian-cross analysis, if the marginal propensity to consume is
0.6, and government expenditures and autonomous taxes are both increased by 100,
equilibrium income will rise by:
A) 0.
B) 100.
C) 150.
D) 250.
Exhibit: Saving, Investment, and the Interest Rate 2
(Exhibit: Saving, Investment, and the Interest Rate 2) The economy begins in
equilibrium at Point E, representing the real interest rate, r1, at which saving, S1, equals
desired investment, I1. What will be the new equilibrium combination of real interest
rate, saving, and investment if there is a tax law change that makes investment projects
less profitable and decreases the demand for investment goods (but does not change the
amount of taxes collected in the economy)?
A) Point A
B) Point B
C) Point C
D) Point D
Exhibit: Policies Influence Real Exchange Rate
(Exhibit: Policies Influence Real Exchange Rate) Which of the panels illustrates the
impact on the real exchange rate of contractionary fiscal policies abroad?
A) (A)
B) (B)
C) (C)
D) (D)
If the adult population equals 250 million, of which 145 million are employed and 5
million are unemployed, the labor force participation rate equals ______ percent.
A) 50
B) 58
C) 60
D) 67
If investors in a large open economy become more willing to substitute foreign and
domestic assets, then this will make the net capital outflow function:
A) steeper, and the slope of the IS curve steeper.
B) steeper, and the slope of the IS curve flatter.
C) flatter, and the slope of the IS curve steeper.
D) flatter, and the slope of the IS curve flatter.
In a small open economy with perfect capital mobility, a reduction in the government’s
budget deficit ______ net exports and the real exchange rate ______.
A) increases; appreciates
B) increases; depreciates
C) decreases; appreciates
D) decreases; depreciates
An increase in consumer saving for any given level of income will shift the:
A) LM curve upward and to the left.
B) LM curve downward and to the right.
C) IS curve downward and to the left.
D) IS curve upward and to the right.
The economy of Macroland can be described by the Solow growth model. In
Macroland the labor force grows at 3 percent per year, labor-augmenting technology
increases at 2 percent per year, the saving rate is 15 percent per year, and the rate of
capital depreciation is 10 percent per year. Choosing from among the following
variablesoutput per effective worker, output per worker, total output, labor force, capital
per worker, and capital per effective workerwhich variables will be growing at a:
a. 2 percent rate?
b. 3 percent rate?
c. 5 percent rate?
d. 0 percent rate?
To compute the value of GDP:
A) goods and services are valued at market prices.
B) the sale of used goods is included.
C) production for inventory is not included.
D) goods and services are valued by weight.
If capital budgeting procedures were employed, then a budget deficit would be
measured as:
A) the sum of government debt.
B) the change in government debt.
C) the change in government debt minus the change in government capital assets.
D) the change in government capital assets.
An increase in the rate of population growth with no change in the saving rate:
A) increases the steady-state level of capital per worker.
B) decreases the steady-state level of capital per worker.
C) does not affect the steady-state level of capital per worker.
D) decreases the rate of output growth in the short run.
In a typical recession, more than half the fall in spending comes from a decline in:
A) consumption spending.
B) net foreign investment.
C) government spending.
D) inventory investment.
The interaction of the IS curve and the LM curve together determine:
A) the price level and the inflation rate.
B) the interest rate and the price level.
C) investment and the money supply.
D) the equilibrium level of the interest rate and output.