Since 1971, the annual growth rate of real wages has been
A) remarkably high.
B) positive, but low.
C) zero.
D) negative.
E) impossible to measure accurately, and so has not been reported.
When answering this question, assume individuals consider only the medium-run
effects of changes in future variables when forming expectations of future output and
future interest rates Suppose policy makers announce a reduction in future government
spending. Which of the following will occur as a result of this expected reduction in
government spending?
A) a reduction in the expected future interest rate and no change in expected future
output
B) a reduction in the expected future interest rate and an increase in expected future
output
C) a reduction in the expected future interest rate and a reduction in expected future
output
D) a reduction in the expected future interest rate and an ambiguous effect on expected
future output
Suppose a country switches from a fixed to a flexible exchange rate. Which of the
following will occur as a result of this change?
A) Monetary policy will become a less effective tool for changing output.
B) A given change in government spending will now have a greater effect on output.
C) Both fiscal and monetary policy will become more effective in changing GDP.
D) Both fiscal and monetary policy will become completely ineffective in changing
GDP.
E) none of the above
In the medium run, an increase in government spending that causes an increase in the
budget deficit
A) affects the level of output but not its composition.
B) affects both the level and composition of output.
C) will not affect the composition of output but will affect the price level.
D) is neutral.
E) none of the above
For this question, assume that expectations of productivity are slow to adjust. Further
assume that A had been increasing by 6% a year. Now suppose that A only increases by
2% in period t. This slowdown in productivity growth will cause
A) the PS relation to shift up more than the WS relation.
B) the WS relation to shift up more than the PS relation.
C) the natural rate of unemployment to fall.
D) the real wage to fall.
Suppose you are given a rare antique by a long-lost relative. The value of this rare
antique would be included in which of the following types of wealth?
A) financial wealth
B) housing wealth
C) human wealth
D) none of the above
For this question, assume that the Phillips curve equation is represented by the
following: πt – πt-1 = (m + z) – αut. Which of the following will not cause an increase in
the natural rate of unemployment?
A) a reduction in m
B) a reduction in z
C) an increase in α
D) an increase in the expected rate of inflation
E) all of the above
Assume that an economy experiences both positive population growth and
technological progress. Once the economy has achieved balanced growth, we know that
the output per worker ratio (K/N) is
A) constant.
B) growing at a rate of gA – gN.
C) growing at a rate of gN.
D) growing at a rate of gA.
E) growing at a rate of δ + gA + gN.
Among the reasons that the poor countries have been unable to close the “technology
gap” with the rich countries is
A) poorly established property rights.
B) poorly developed financial markets.
C) low education levels.
D) all of the above
E) none of the above
Which of the following will not cause an increase in aggregate output (Y) in the long
run?
A) an increase in N
B) an increase in K
C) an increase in technology
D) a reduction in the saving rate
E) none of the above
One surprising insight from viewing policy as a “game” is that
A) central bankers should project an image of being conservative on economic policy
matters, regardless of their personal views.
B) it is more difficult to control inflation when the central bank is highly independent.
C) uncertainty over the impact of policy makes little difference in designing an optimal
policy.
D) money growth has little or no impact on inflation in the long run.
E) decreasing money growth may substantially increase the rate of inflation in the long
run.
In a flexible exchange rate regime, an increase in the expected future exchange rate will
cause
A) the IP curve to shift to the left/up.
B) the IP curve to shift to the right/down.
C) a movement along the IP curve.
D) neither a shift nor movement along the IP curve.
In an open economy, which of the following will cause a reduction in the size of the
multiplier?
A) an increase in the marginal propensity to import
B) an increase on foreign output
C) a reduction in the marginal propensity to save
D) all of the above
E) none of the above
Assume individuals consider only the short run effects of changes in future macro
variables when forming expectations of future output and future interest rates. Suppose
individuals expect the central bank to pursue a monetary expansion in the future. Given
this information, we know with certainty that
A) current output and the current interest rate will both increase.
B) current output will decrease.
C) the current interest rate will decrease.
D) the current output effects are ambiguous.
If the Ricardian equivalence proposition is correct, then
A) deficits harm future generations.
B) deficits reduce investment spending.
C) deficits stimulate the economy in the short run.
D) all of the above
E) none of the above
Which of the following occurs when disposable income is zero?
A) consumption must be zero
B) saving must be zero
C) saving must be positive
D) consumption is negative
E) none of the above
Assume that an economy experiences both positive population growth and
technological progress. Once the economy has achieved balanced growth, we know that
growth rate of K/NA is
A) gA gN.
B) gA + gN.
C) 0.
D) gA.
E) none of the above
The Okun’s law shows the relationship between
A) inflation and unemployment rate.
B) output growth and unemployment.
C) inflation and output growth.
D) output growth and money supply.
The official measure of the deficit is equal to
A) iB + G – T.
B) iB + T – G.
C) rB – G + T.
D) (i – π)B + G – T.
E) none of the above
The Masstricht treaty set the budget ratio to GDP to be ________ in order for countries
to qualify to join the Euro area.
A) below 3%
B) below 4%
C) below 5%
D) below 6%
Which of the following is true for a “closed economy”?
A) government spending equals taxes
B) there are no imports or exports
C) exports equal imports
D) there is no saving
E) there is no government spending or taxes
Assume that expected inflation is based on the following: πe
t = θπt-1. If θ = 0, we know
that
A) a reduction in the unemployment rate will have no effect on inflation.
B) low rates of unemployment will cause steadily increasing rates of inflation.
C) high rates of unemployment will cause steadily declining rates of inflation.
D) the Phillips curve illustrates the relationship between the level of inflation rate and
the level of the unemployment rate.
Because of labor hoarding, a reduction in output may signal
A) an increase in employment.
B) a reduction in employment.
C) no change in employment.
D) a reduction in productivity.
Which of the following affects demand for money?
A) prices
B) nominal income
C) interest rate
D) all of the above
E) none of the above
In a given year, suppose a company spends $100 million on intermediate goods and
$200 million on wages, with no other expenses. Also assume that its total sales are $800
million. The value added by this company equals
A) $200 million.
B) $300 million.
C) $500 million.
D) $700 million.
E) $800 million.
Refer to the information above. The official unemployment rate is
A) .1.
B) .2.
C) .33.
D) .4.
E) .66.
The debt-to-GDP ratio will tend to decline over time when
A) r > g.
B) r < g.
C) the primary deficit increases.
D) the initial level of debt increases.
One problem with real business cycle theory is that
A) it is more successful in explaining expansions than in explaining contractions.
B) it relies almost entirely on Keynes’ original ideas, ignoring much of the progress
made since then.
C) it treats government officials as well-meaning public servants, despite much
evidence to the contrary.
D) it defines “productivity” in a new and not very intuitive way.
E) its models downplay the importance of technological progress in the economy.
Suppose workers and firms expect the overall price level to increase by 5%. Given this
information, we would expect that
A) the nominal wage will increase by less than 5%.
B) the nominal wage will increase by exactly 5%.
C) the nominal wage will increase by more than 5%.
D) the real wage will increase by 5%.
E) the real wage will increase by less than 5%.
Which of the following will cause the LM curve to shift down?
A) a reduction in the expected future interest rate
B) a reduction in current income
C) a reduction in expected future taxes
D) all of the above
E) none of the above
Let α represent labor’s share of total output. The Solow residual is, therefore,
represented by
A) αgy.
B) αgA.
C) αgK.
D) αgN.
E) 1/α.
The number of workers employed will not change as a result of an increase in
productivity when which of the following occurs?
A) The AS curve shifts downward.
B) Output growth exceeds productivity growth.
C) Productivity growth is equal to output growth.
D) The AD curve shifts to the right.
E) none of the above
From 2000 to 2007, which country had the maximum LTV allowed?
A) United Kingdom
B) Australia
C) Netherlands
D) Canada
E) United States
The new classical interpretation of the economy suggests that
A) output is always above the natural level.
B) output is always below the natural level.
C) output is always equal to the natural level.
D) recessions will not occur.