A decrease in the real interest rate in the United States will cause net capital outflows to
________ and cause the dollar to ________ relative to other currencies.
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
Some policymakers claim that raising the minimum wage will result in economic
growth. If increasing the minimum wage would actually generate economic growth, we
would expect to eventually see nominal wages ________ and unemployment ________.
A) rise; rise
B) rise; fall
C) fall; rise
D) fall; fall
Minimum wage laws create unemployment for low-skilled workers because the legal
minimum wage is set
A) above the market wage, causing the quantity of labor supplied to be greater than the
quantity of labor demanded.
B) below the market wage, causing the quantity of labor supplied to be greater than the
quantity of labor demanded.
C) above the market wage, causing the quantity of labor supplied to be less than the
quantity of labor demanded.
D) below the market wage, causing the quantity of labor supplied to be less than the
quantity of labor demanded.
Figure 14.1
Refer to Figure 14.1. Other things equal, an increase in transfer payments is best
represented as a movement from
A) point A to point B.
B) point B to point A.
C) point C to point A.
D) point B to point C.
If the government is running a cyclically adjusted budget deficit, ________ fiscal policy
is ________ because aggregate expenditure is increasing.
A) discretionary; contractionary
B) discretionary; expansionary
C) expansionary; ineffective
D) contractionary; appropriate
If the expected inflation rate rises from 3% to 5% when the nominal interest rate is 4%,
the Fisher effect asserts that the nominal interest rate would
A) not change.
B) rise to 6%.
C) fall to 2%.
D) fall to 3%.
All else equal, in an economy with an upward-sloping production function, as an
economy accumulates more capital goods,
A) the labor supply must increase.
B) real GDP increases.
C) the labor supply must decrease.
D) the marginal product of capital will increase.
Since the 1950s,
A) U.S. business cycle fluctuations have not changed.
B) U.S. business cycle fluctuations have become milder.
C) U.S. business cycle fluctuations have become more severe.
D) the Unites States has experienced more economic recessions than expansions.
Figure 1
Refer to Figure 10.1. If the level of real GDP is initially Y3, spending is ________
production and there is an unexpected ________ in inventories.
A) greater than; increase
B) greater than; decrease
C) less than; increase
D) less than; decrease
The money demand curve will shift to the left if real GDP ________ or if the price level
________.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
An increasing federal budget deficit will ________ the federal government debt as this
will ________ the total value of U.S. Treasury bonds outstanding.
A) increase; increase
B) increase; decrease
C) not impact; not change
D) not impact; be offset by
Figure 14.1
Refer to Figure 14.1. Other things equal, which of the following will cause a
movement from point Y to point X?
A) an increase in the real interest rate
B) a decrease in disposable income
C) a decrease in expected profits for firms
D) an increase in net exports
Figure 4.1
Refer to Figure 4.1. A shift from S2 to S1 will result from which of the following?
A) an increase in expected future profits
B) an increase in net exports
C) a decrease in corporate taxes
D) an increase in tax credits for savings
When attempting to decrease the federal funds rate, the Fed can
A) increase reserve requirements.
B) engage in an open market purchase.
C) increase the discount rate.
D) raise the interest rate paid on bank reserves.
Which of the following best represents government saving?
A) T – (G + TR)
B) (Y – TR) + I
C) (Y – C – G – NX)
D) (Y + TR – T) + C
Table 15.1
The data in the table represents budget figures for the nation of Arugula for 2012
Refer to Table 15.1. The primary budget deficit for Arugula in 2012 is
A) $135 million.
B) $195 million.
C) $380 million.
D) $600 million.
The Fisher equation states that the
A) expected real interest rate minus the expected inflation rate equals the nominal
interest rate.
B) expected inflation rate plus the nominal interest rate equals the expected real interest
rate.
C) nominal interest rate equals the expected real interest rate plus the expected inflation
rate.
D) expected real interest rate equals the expected inflation rate minus the nominal
interest rate.
The automatic budget deficits and budget surpluses that occur in the federal budget over
the business cycle
A) destabilize the economy.
B) stabilize the economy.
C) decrease potential GDP.
D) increase potential GDP.
Under a fixed exchange rate system, at low domestic real interest rates the demand for
domestic currency ________, so the central bank ________ foreign-exchange reserves.
A) increases; acquires
B) increases; loses
C) decreases; acquires
D) decreases; loses
To increase the money supply, the Federal Reserve could
A) engage in an open market purchase.
B) increase reserve requirements.
C) decrease income tax rates.
D) raise the discount rate.
A fiscal policy is considered sustainable when the debt-to-GDP ratio is ________, and it
is considered unsustainable when the debt-to-GDP ratio is ________.
A) constant; increasing or decreasing
B) constant or decreasing; increasing
C) decreasing; constant or increasing
D) constant or increasing; decreasing
Figure 11.2
Refer to Figure 11.2. Assume the economy is in equilibrium at 1, where real GDP
equals potential GDP, and then the economy experiences a negative demand shock.
Other things equal, the negative demand shock is best represented by a(n)
A) movement up along the Phillips curve.
B) movement down along the Phillips curve.
C) upward shift of the Phillips curve.
D) downward shift of the Phillips curve.
Figure 16.1
Refer to Figure 16.1. If a firm expects that consumer preference for its product will
increase in the future, this is best represented by a movement from
A) point A to point C.
B) point B to point A.
C) point A to point B.
D) point C to point A.
In the production function for new ideas and technology in ________, a decrease in the
labor force will ________ the growth rate of technological change.
A) the AK growth models; decrease
B) the AK growth models; increase
C) the two-sector growth model; decrease
D) the two-sector growth model; increase
Two of the most important factors that influence total factor productivity are
A) the stock of knowledge that the world possesses and the associated level of
technology.
B) the quantity and quality of labor available in an economy.
C) capital accumulation and the total level of investment in an economy.
D) population growth rates and the geographic location of the population.
Assume the economy is initially in equilibrium where potential GDP equals real GDP.
If the expected inflation rate, the term structure effect, and the default-risk premium are
constant and the Fed wants to ________ the inflation rate, the Fed could lower the
target short-term nominal interest rate, which will result in an output gap which is
________.
A) raise; greater than zero
B) raise; less than zero
C) lower; greater than zero
D) lower; less than zero
If the GDP deflator is less than 100 in 2013, then nominal GDP ________ real GDP in
2013.
A) is less than
B) is greater than
C) is equal to
D) may be greater than or less than
Figure 11.2
Refer to Figure 11.2. Assume the economy is in equilibrium at 1, where real GDP
equals potential GDP. The economy experiences a negative demand shock, and the Fed
responds by decreasing real interest rates to bring real GDP and inflation back to their
original levels. Other things equal, the Fed’s response following the negative demand
shock is best represented by a(n)
A) movement up along the Phillips curve.
B) movement down along the Phillips curve.
C) upward shift of the Phillips curve.
D) downward shift of the Phillips curve.
A hypothesis in an economic model is a statement that ________ about an economic
variable.
A) is correct
B) is incorrect
C) may be either correct or incorrect
D) can not be proven either correct or incorrect
Under a fixed exchange rate system, if the government decides to increase the fixed
exchange rate, net exports will ________ and the IS curve will shift to the ________.
A) increase; left
B) increase; right
C) decrease; left
D) decrease; right
Using economic efficiency as the standard, most economic models imply that ________
when trying to reduce the debt.
A) increasing taxes is preferable to reducing government expenditure
B) reducing government expenditure is preferable to increasing taxes
C) increasing taxes is equally efficient as reducing government expenditure
D) reducing government expenditure is no more effective than increasing taxes
Table 10.1
(all values are in billions of dollars)
Refer to Table 10.1. Suppose that all of the information given in the Table remains the
same except that taxes increase by $1.0 billion and transfers increase by $1.5 billion.
Equilibrium real GDP for this economy is equal to
A) $6.25 billion.
B) $17 billion.
C) $25 billion.
D) $47 billion.
Explain how firms choose the amount of capital goods to purchase and the amount of
labor to hire.
Suppose a Treasury bond will mature in 4 years. If the bond pays a coupon of $425 per
year and will make a final par value payment of $10,000 at maturity, what is its price if
the relevant market interest rate is 4%?
As countries that currently use the euro, what are the two ways that Spain and Greece
could reduce the prices of their exports and of their domestic goods to remain
competitive with their trading partners?
What determines the supply of loanable funds and the demand for loanable funds?
Explain what an asset bubble is, when an asset bubble would form, and why the bubble
will eventually burst.
What do economists mean when they characterize households and firms as forward
looking?
What happened to real GDP and the inflation rate during the recession of 2007-2009?
Explain how changes in corporate taxes affect the investment decisions of firms.
Explain how the “euro crisis” could potentially affect the following:
Exports from the United States
Supply chains of U.S. manufacturers.
U.S. banks
What is necessary for fiscal policy to be sustainable? Why is fiscal policy in countries
like Greece, Ireland, Spain, Italy and Portugal not considered sustainable?
List five factors that will cause the MP curve to shift. Explain what needs to happen to
each of these factors to cause the MP curve to shift upward and to shift downward.
Over the past 10 years, the average growth rate in real GDP has been 2 to 3 times
greater in India than in the United States. What does this indicate about the
XOAXOAerence in the level of income in India and the United States over the past 10
years.
What is the goal of fiscal policy, and what tools have policymakers traditionally used to
conduct fiscal policy?
When a government has a large budget deficit, it must issue government bonds to
finance the deficit. Explain if it matters for the rate of inflation if the government sells
the bonds to the public or sells the bonds to the central bank?
Why does the Fed attempt to achieve a low, stable rate of inflation rather than an
inflation rate of 0%?
Describe the relationship between the production function, the investment function, and
the capital-labor ratio.
The severity of the 2007-2009 recession was due to the severity of the accompanying
financial crisis. Explain what is meant by financial crisis.
Suppose that the production function is Y = AK0.35L0.65, the number of workers equals
800, the capital stock is $150,000, and real GDP is $750,000. What is the value of total
factor productivity?
Why were traditional Federal Reserve policies ineffective during the 2007-2009
recession?
Table 2.6
2011 2012
Refer to Table 2.6. What is the inflation rate for 2012?