Economists call the changes in the composition of demand among industries and
regions:
A) insider-outsider conflicts.
B) sectoral shifts.
C) moral hazard.
D) adverse selection.
The public policy implication of Goldin and Katz’s analysis of growing income
inequality is that reversing this trend will require that more of society’s resources be put
into:
A) space exploration.
B) capital expenditures.
C) education.
D) transfer payments.
According to the IS“LM model, if Congress raises taxes but the Fed wants to hold the
interest rate constant, then the Fed must ______ the money supply.
A) increase
B) decrease
C) first increase and then decrease
D) first decrease and then increase
Assume the following model of the economy, with the price level fixed at 0:
C = 0.8(Y ” T) T = 1,000
I = 800 ” 20r G = 1,000
Y = C + I + G Ms/P = Md/P = 0.4Y ” 40r
Ms = 1,200
a. Write a numerical formula for the IS curve, showing Y as a function of r alone. (Hint:
Substitute out C, I, G, and T.)
b. Write a numerical formula for the LM curve, showing Y as a function of r alone.
(Hint: Substitute out M/P.)
c. What are the short-run equilibrium values of Y, r, Y ” T, C, I, private saving, public
saving, and national saving? Check by ensuring that C + I + G = Y and national saving
equals I.
d. Assume that G increases by 200. By how much will Y increase in short-run
equilibrium? What is the government-purchases multiplier (the change in Y divided by
the change in G)?
e. Assume that G is back at its original level of 1,000, but Ms (the money supply)
increases by 200. By how much will Y increase in short-run equilibrium? What is the
multiplier for money supply (the change in Y divided by the change in Ms)?
If Central Bank A cares only about keeping the price level stable and Central Bank B
cares only about keeping output at its natural level, then in response to an exogenous
decrease in the velocity of money:
A) both Central Bank A and Central Bank B should increase the quantity of money.
B) Central Bank A should increase the quantity of money whereas Central Bank B
should keep it stable.
C) Central Bank A should keep the quantity of money stable whereas Central Bank B
should increase it.
D) both Central Bank A and Central Bank B should keep the quantity of money stable.
To reduce the demand for goods and services, the central bank will ___ its target
inflation rate and _____ nominal and real interest rates.
A) reduce; decrease
B) reduce; increase
C) raise; decrease
D) raise; increase
The quantity equation for money, by itself:
A) may be thought of as a definition for velocity of money.
B) implies that the velocity of money is constant.
C) implies that the price level is proportional to the money supply.
D) implies that real gross domestic product (GDP) is proportional to the money supply.
In the model of the steady-state unemployment rate with a fixed labor force, the rate of
job finding equals the percentage of the ______ who find a job each month, while the
rate of job separation equals the percentage of the ______ who lose their job each
month.
A) labor force; labor force
B) labor force; unemployed
C) employed; labor force
D) unemployed; employed
Suppose that the government is considering two tax cuts, one temporary and one
permanent. Each cut will give each taxpayer the same amount in the first year. The
permanent-income hypothesis predicts that:
A) each tax cut will lead to the same amount of consumption in the first year.
B) the temporary tax cut will lead to more extra consumption in the first year.
C) the permanent tax cut will lead to more extra consumption in the first year.
D) the temporary tax cut will lead to no extra consumption at all in the first year.
When the real wage is above the level that equilibrates supply and demand:
A) the quantity of labor supplied exceeds the quantity demanded.
B) the quantity of labor demanded exceeds the quantity supplied.
C) there is no unemployment.
D) the labor market clears.
Skill-biased technological change ______ the demand for high-skilled workers, while
the slowdown in the pace of educational advancement reduces the supply of skilled
workers, resulting in relatively _____ wages for skilled workers.
A) increases; higher
B) increases; lower
C) decreases; higher
D) decreases; lower
In the Solow model with technological progress, the steady-state growth rate of total
output is:
A) 0.
B) g.
C) n.
D) n + g.
Exhibit: AD”AS Shifts
(Exhibit: AD“AS Shifts) Starting from long-run equilibrium at A with output equal to
and the price level equal to P1, a demand-pull inflation would be represented by a shift
from:
A) AD1 to AD2
B) AD1 to AD3
C) AS1 to AS2
D) AS1 to AS3
Which of the combinations listed is not a U.S. president and an important economic
issue of his administration?
A) President Carter, inflation
B) President Reagan, budget deficits
C) President G.H.W. Bush, budget deficits
D) President Clinton, inflation
Short-run fluctuations in output and employment are called:
A) sectoral shifts.
B) the classical dichotomy.
C) business cycles.
D) productivity slowdowns.
Deflation occurs when:
A) real GDP decreases.
B) the unemployment rate decreases.
C) prices fall.
D) prices increase, but at a slower rate.
In recent years, Europe has experienced ______ unemployment than the United States,
and employed Europeans work ______ hours than employed Americans.
A) more; more
B) more; fewer
C) less; fewer
D) less; more
A country’s exports may be written as equal to:
A) GDP minus consumption minus investment minus government spending.
B) GDP minus consumption of domestic goods and services minus investment of
domestic goods and services minus government purchases of domestic goods and
services.
C) imports.
D) GDP minus imports.
If nominal GDP grew by 5 percent and real GDP grew by 3 percent, then the GDP
deflator grew by approximately ______ percent.
A) 2
B) 3
C) 5
D) 8
If money demand does not depend on income, then the ______ curve is ______.
A) IS; vertical
B) IS; horizontal
C) LM; vertical
D) LM; horizontal
The Malthusian model that predicts mankind will remain in poverty forever:
A) underestimated the possibility for technological progress.
B) failed to predict that scarcity would be eliminated in the modern world.
C) assumed that prosperity would lead to declining human fertility.
D) recognized that the ability of natural resources to sustain humans is far greater than
the power of population to consume resources.
In the event that a bank converted previously issued CoCo bonds (contingent
convertible debt), then holders of the bonds would change from _____ of the bank.
A) creditors to part owners
B) creditors to debtors
C) debtors to creditors
D) part owners to creditors
According to Friedman’s permanent-income hypothesis, the marginal propensity to
consume out of permanent income is ______ the marginal propensity to consume out of
transitory income.
A) greater than
B) less than
C) equal to
D) one minus
The minimum amount of owners’ equity in a bank mandated by regulators is called a
_____ requirement.
A) reserve
B) margin
C) liquidity
D) capital
If the number of dollars per yen rises, this is called a(n):
A) appreciation of the dollar.
B) appreciation of the yen.
C) increase in the terms of trade.
D) decrease in the terms of trade.
Based on the Keynesian model, one reason to support government spending increases
over tax cuts as measures to increase output is that:
A) government spending increases the MPC more than tax cuts.
B) the government-spending multiplier is larger than the tax multiplier.
C) government-spending increases do not lead to unplanned changes in inventories, but
tax cuts do.
D) increases in government spending increase planned spending, but tax cuts reduce
planned spending.
Macroeconomics is the study of the:
A) activities of individual units of the economy.
B) decision making by households and firms.
C) economy as a whole.
D) interaction of firms and households in the marketplace.
Variable inflation hurts both debtors and creditors because:
A) inflation makes the money-fixed assets of creditors worth less.
B) inflation makes the money-fixed liabilities of debtors worth less.
C) most debtors and creditors are risk averse.
D) most debtors and creditors are risk neutral.
Economists who have studied minimum-wage laws in the United States find that a 10
percent increase in the minimum wage increases teenage unemployment by about:
A) 10 to 30 percent.
B) 5 percent.
C) 1 to 3 percent.
D) 0 percent.
Banks create money in:
A) a 100-percent-reserve banking system but not in a fractional-reserve banking
system.
B) a fractional-reserve banking system but not in a 100-percent-reserve banking system.
C) both a 100-percent-reserve banking system and a fractional-reserve banking system.
D) neither a 100-percent-reserve banking system nor a fractional-reserve banking
system.