Under the Gold Standard,
A) exchange rates could float.
B) real interest rates were fixed.
C) real exchange rates were fixed.
D) nominal interest rates were fixed.
E) none of the above
In the wage-setting relation, the nominal wage tends to decrease when
A) the price level increases.
B) the unemployment rate decreases.
C) unemployment benefits decrease.
D) the minimum wage increases.
E) all of the above
A higher deficit in the current year will lead to increased debt in the future only if
A) the deficit is greater than the previous year’s deficit.
B) the deficit-to-GDP ratio is greater than the debt-to-GDP ratio.
C) it causes a drop in private saving.
D) it causes an increase in private saving.
E) none of the above
A reduction in which of the following variables will cause a reduction in the user cost
of capital?
A) δ
B) Πt
C) Πe
t
D) all of the above
E) none of the above
A reduction in private saving (S) can be reflected in
A) an increase in the budget deficit.
B) an increase in investment.
C) a reduction in net exports.
D) all of the above
The rate of growth of output per worker in the United States between 1985 and 2014
was approximately equal to which of the following?
A) 1.7%
B) 3.8%
C) 4.8%
D) 5.8%
For an open economy, which of the following expressions represents saving (S)?
A) I + T – G + NX
B) I + T – G – NX
C) I + G – T + NX
D) G – T + NX – I
E) none of the above
For this question, assume that the Fed is expected to respond to any event by keeping
the interest rate constant (i.e., equal to its initial level). An unexpected tax increase will
cause
A) stock prices to fall.
B) stock prices to rise.
C) no change in stock prices.
D) an ambiguous effect on stock prices.
Suppose the domestic interest rate is 3% and that the foreign interest rate is 6%. And
finally, assume that the domestic currency is expected to appreciate by 4% 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.
Given nominal money growth, the amount of seignorage will be greater when
A) tax revenues are higher.
B) real money balances are larger.
C) the inflation rate is higher.
D) foreign lending is higher.
E) none of the above
Suppose the aggregate production function is given by the following: Y = AN. Given
this information, we know that labor productivity is represented by which of the
following?
A) 1/A
B) A
C) 1/N
D) N/Y
For this question, assume that the Fed sets monetary policy according to the Taylor rule.
Suppose current U.S. macroeconomic conditions are represented by the following: π >
π?* and u = un. Given this information, we would expect that the Fed will
A) implement a monetary contraction.
B) implement a monetary expansion.
C) maintain its current stance of monetary policy.
D) more information is need to answer this question.
In a fixed exchange rate regime, an increase in the price level will cause which of the
following?
A) a real appreciation and a leftward shift in the aggregate demand curve
B) a real appreciation and no shift in the aggregate demand curve
C) a real depreciation and a rightward shift in the aggregate demand curve
D) a real depreciation and no shift in the aggregate demand curve
E) no change in the real exchange rate, and no change in aggregate demand
If GDP is more than GNP, we know with certainty that
A) a budget deficit exists.
B) a trade surplus exists.
C) a trade deficit exists.
D) none of the above
In a fixed exchange rate regime, a reduction in the price level will cause which of the
following?
A) a real appreciation and a leftward shift in the aggregate demand curve
B) a real appreciation and no shift in the aggregate demand curve
C) a real depreciation and a rightward shift in the aggregate demand curve
D) a real depreciation and no shift in the aggregate demand curve
E) no change in the real exchange rate, and no change in aggregate demand
Empirically output growth 1% above normal for one year leads to a ________ in the
employment rate.
A) 0.6%
B) 0.7%
C) 0.8%
D) 0.5%
Refer to the information above. Which of the following represents the amount of
investment per effective worker needed to maintain a constant level of capital per
effective worker (K/NA)?
A) .02(K/NA)
B) .03(K/NA)
C) .05(K/NA)
D) .13(K/NA)
E) .16(K/NA)
Empirically it takes nearly ________ years for monetary policy to have its full effect on
output.
A) 2
B) 1
C) 3
D) 4
When the dollar depreciates relative to the pound, the pound price of the dollar
A) increases.
B) decreases.
C) does not change.
D) increases or decreases, depending on the amount of the depreciation.
E) changes in the next period.
A “junk bond” is a bond with a
A) low yield to maturity.
B) value of zero.
C) low face value, but high coupon rate.
D) high default risk.
E) very low maturity.
If the saving rate is 1 (i.e., s = 1), we know that
A) K/N will be at its highest level.
B) Y/N will be at its highest level.
C) C/N = 0.
D) all of the above
Disposable income equals
A) income minus saving.
B) income minus both saving and taxes.
C) consumption minus taxes.
D) the sum of consumption and saving.
E) none of the above
The borrowing rate is
A) the rate at which consumers and firms can borrow.
B) a nominal interest rate.
C) determined by monetary policy.
D) a risk premium.
Exports will decrease when there is
A) an increase in the real exchange rate.
B) an increase in domestic output.
C) an increase in foreign output.
D) all of the above
E) none of the above
If the nominal interest rate 8% and expected inflation 3%, the expected real interest rate
in year t is approximately
A) 2%.
B) 3%.
C) 5%.
D) 8%.
E) 11%.
For this question, assume that the economy is initially operating at the natural level of
output. An increase in unemployment benefits 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.
Which of the following assumptions best characterized the assumption about how
individuals formed expectations of inflation by the early 1970s?
A) Expected inflation for the current year was smaller than the previous year’s inflation
rate.
B) Expected inflation for the current year was approximately equal to the previous
year’s inflation rate.
C) Expected inflation for the current year was less than the previous year’s inflation
rate.
D) Expected inflation for the current year equal to the average inflation rate over the
past five years.
E) Expected inflation for the current year equal to the average inflation rate over the
past ten years.
For this question, assume that the Fed is expected to respond to any event by keeping
output constant (i.e., equal to its initial level). An unexpected increase in government
spending will cause
A) stock prices to fall.
B) stock prices to rise.
C) no change in stock prices.
D) an ambiguous effect on stock prices.
Which of the following was one of the main rules in the 1990 “Budget Enforcement
Act”?
A) flat tax rate
B) spending caps
C) indexation of income tax brackets
D) consumption tax
E) none of the above
A reduction in the parameter c, the proportion of money individuals wish to hold as
currency, will tend to cause which of the following?
A) an increase in the monetary base (H)
B) a reduction in H
C) an increase in the money multiplier
D) a reduction in the money multiplier
Suppose bank A has assets of 100, liabilities of 80, and capital of 20. Its capital ratio is
A) 20%.
B) 25%.
C) 11%.
D) 10%.
From the perspective of the United States, an increase in the nominal exchange rate will
cause which of the following?
A) the dollar becomes less expensive to foreigners
B) foreign goods are more expensive to Americans
C) foreign currency is more expensive to Americans
D) American goods are more expensive to foreigners
E) none of the above
Which of the following conditions will most likely coincide with the existence of a
liquidity trap?
A) inflation is rising
B) inflation is constant
C) inflation is zero
D) individuals prefer to hold only money and not bonds
E) the real interest rate is negative
The nominal interest rate is
A) the interest rate measured in terms of goods.
B) always less than the real interest rate.
C) equal to the real interest rate minus the rate of inflation.
D) the type of interest rate typically reported in the financial pages of newspapers.
E) equal to the expected rate of inflation.
Suppose there is a reduction in the saving rate. This decrease in the saving rate will
cause a reduction in which of the following once the economy reaches its new steady
state equilibrium?
A) growth rate of output
B) growth rate of capital
C) growth rate of capital per worker
D) all of the above
E) none of the above