When deciding whether the economy has entered an economic recession, the NBER’s
Business Cycle Dating Committee examines and compares the behavior of various
measures of broad activity. The measures the committee focuses on include all of the
following except
A) real GDP measured on the product and income sides.
B) production data for specific, individual industries.
C) economy-wide employment.
D) real income.
The nation of Futura has an actual capital-labor ratio which is in steady state. Futura
will experience
A) no growth from convergence and the economy will remain on its balanced growth
path.
B) positive growth from convergence to keep the economy on its balanced growth path.
C) positive growth from convergence, but the growth will be less than the balanced
growth rate in order to remain on its balanced growth path.
D) negative growth from convergence to offset the increase in the balanced growth rate
in order to remain on its balanced growth path.
One difference between stocks and bonds is that
A) unlike bonds, stocks do not represent a claim on a share in the profits and assets of
firms.
B) stocks are financial securities and bonds are labor market securities.
C) unlike bonds, stocks do not promise to repay a fixed amount of money.
D) stocks represent ownership in companies and bonds represent ownership in the
government.
Suppose the separation rate is 3% and the finding rate is 24%.
a. What is the natural rate of unemployment?
b. If the separation rate remains at 3% and finding rate doubles, what is the new natural
rate of unemployment?
c. If the separation rate is cut in half and the finding rate remains at 24%, what is the
new natural rate of unemployment?
d. Which has more impact: a doubling of the finding rate or a halving of the separation
rate?
Suppose that the production function for the economy is Y = AK0.5L0.5. If the capital
stock = 40,000, the quantity of labor = 10,000, and the efficiency index = 3, real GDP is
A) $60,000.
B) $75,000.
C) $150,000.
D) $300,000.
________ Treasury bonds tend to have lower interest rates than ________ Treasury
bonds.
A) Lower coupon payment; higher coupon payment
B) Higher denomination; lower denomination
C) Longer-maturity; shorter-maturity
D) Shorter-maturity; longer-maturity
Assume the economy is initially in equilibrium with real GDP equal to potential GDP.
Other things equal, if the economy enters a recession and there are automatic
stabilizers, the initial decrease in investment expenditure resulting from the recession is
________ what the decrease would be without automatic stabilizers, and the multiplier
is ________ what the multiplier would be without automatic stabilizers.
A) less than; smaller than
B) greater than; larger than
C) equal to; smaller than
D) equal to; greater than
A firm that wishes to maximize profits will continue to purchase capital goods until the
A) nominal rental price of capital = MPK.
B) real rental price of capital = MPK.
C) nominal rental price of capital = the real rental price of capital.
D) nominal rental price of capital = the price level.
The conventional view among economists is that persistent budget deficits lead to a
________ capital stock and a ________ level of potential GDP in the long run.
A) larger; higher
B) larger; lower
C) smaller; higher
D) smaller; lower
With its goal of price stability, the Fed attempts to
A) keep the inflation rate from falling below 5% and rising above 10%.
B) maintain an inflation rate of zero.
C) achieve a low, stable inflation rate.
D) counteract periods of inflation with periods of deflation.
A firm that wishes to maximize profits will continue to hire labor until the
A) real wage = MPL.
B) nominal wage = MPL.
C) nominal wage = the real wage.
D) nominal wage = the price level.
Suppose a bank has $200 million in checking account deposits with no excess reserves
and the required reserve ratio is 15%. If the Fed reduces the required reserve ratio to
10%, the bank will now have excess reserves of
A) $0.
B) $10 million.
C) $20 million.
D) $30 million.
In the United States, periods of deflation
A) primarily occurred during times of war.
B) were virtually nonexistent until after 1980.
C) only occurred before the Civil War.
D) were relatively common prior to 1930.
All else equal, continued increases in the labor supply in an economy will lead to
A) continued increases in the capital stock.
B) higher levels of total factor productivity.
C) smaller increases in real GDP.
D) an increase in labor’s share of income.
As a percentage of GDP, all of the following federal government expenditures are
expected to increase from 2012 to 2042 except
A) Social Security.
B) Medicare and Medicaid.
C) the net interest on the federal debt.
D) national defense.
Balanced growth occurs when
A) the economy is in steady state.
B) the growth rates for the capital-labor ratio and real GDP per worker are the same.
C) total factor productivity and capital accumulation each account for the same amount
of growth in labor productivity.
D) nations converge to the same level of real GDP per worker from equal increases in
total factor productivity.
A decrease in the real interest rate outside of the United States will ________ the
demand for the dollar and ________ the demand for foreign financial assets.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
When the Fed makes an open market purchase, the money supply will ________, which
will cause long-term real interest rates to ________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
The effects of tax incentive programs such as IRAs and 401(k) accounts suggest that
these government programs designed to increase saving lead to
A) a decrease in the private capital stock.
B) decreased labor productivity.
C) an increase in the standard of living.
D) an increase in the real interest rate.
Figure 5.1
Refer to Figure 5.1. All else equal, an increase in the number of workers will cause a
A) shift from PF1 to PF2.
B) shift from PF2 to PF1.
C) movement up and to the right along PF1.
D) movement down and to the left along PF2.
If the capital-labor ratio is below the steady-state value, investment is ________ than
break even investment, and the capital-labor ratio ________.
A) greater; increases
B) greater; decreases
C) less; increases
D) less; decreases
Which of the following would be classified as fiscal policy?
A) States increase taxes to fund education.
B) The Federal Reserve lowers interest rates to stimulate the economy.
C) The federal government passes tax cuts to encourage households to install solar
panels.
D) The federal government lowers tax rates to stimulate the economy.
Table 15.1
The data in the table represents budget figures for the nation of Arugula for 2012
Refer to Table 15.1. The uses of government funds for Arugula in 2012 total
A) $135 million.
B) $195 million.
C) $380 million.
D) $600 million.
In countries with very restrictive labor laws , many firms are reluctant to hire workers.
This reluctance can
A) reduce cyclical unemployment and the natural rate of unemployment.
B) reduce structural unemployment and the natural rate of unemployment.
C) reduce frictional unemployment and the natural rate of unemployment.
D) increase the natural rate of unemployment.
Table 3
Cordelia Saldinia
The above table contains data for the nations of Cordelia and Saldinia for 2012. Assume
seigniorage is zero.
Refer to Table 15.3. Based on the data in the table, the primary budget deficit necessary
to make fiscal policy sustainable in Cordelia is ________ of GDP.
A) -1.5%
B) 0%
C) 5%
D) 6%
Figure 1
Refer to Figure 10.1. If the level of real GDP is initially Y2, firms will ________
production until equilibrium is reached at ________.
A) increase; Y2
B) decrease; Y2
C) increase; Y1
D) decrease; Y1
When the Fed pursues a monetary policy of low interest rates, the exchange rate
between the dollar and other currencies will tend to ________, generally making it
________ for foreign firms to sell their goods in the United States.
A) rise; easier
B) rise; more difficult
C) fall; easier
D) fall; more difficult
A country in which a substantial amount of the factories and stores that produce
domestic goods and services are foreign-owned is most likely a country in which
A) GDP is much larger than GNP.
B) GNP is much larger than GDP.
C) GDP is roughly equal to GNP.
D) the relationship between GDP and GNP no longer exists.
Table 2.4
2011 2012
Refer to Table 2.4. The GDP deflator for 2011 is
A) 86.5
B) 115.6
C) 135.1
D) 156.3
If the MPC is 0.9 and the tax rate is 15%, a $100 increase in autonomous investment
will increase equilibrium income by
A) $131.
B) $426.
C) $599.
D) $850.
Suppose you purchase a new home for $250,000, making a down payment of 25% and
taking out a mortgage on the balance. What is the return on your investment in your
home if one year later the price of your home increases by 30%?
A) 5%
B) 7%
C) 3%
D) 120%
If the MPC = 0.80, the government purchases multiplier is
A) 2
B) 4
C) 5
D) 8
If the government issues new government bonds to finance a budget deficit, the real
interest rate in financial markets will ________ and investment spending will
________.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
The relationship between the inputs employed by a firm and the maximum output it can
produce with those inputs is called the firm’s
A) total factor productivity.
B) marginal production level.
C) technological ratio.
D) production function.
If Greece chose to abandon the euro and the Greek government decided to exchange
euro bank deposits for drachmas, the affected bank depositors would suffer losses if the
A) euro then appreciated.
B) euro then depreciated.
C) drachma then appreciated.
D) drachma then depreciated.