Which of the following is not believed to cause recent increases in wage inequality?
A) international trade
B) contractionary monetary policy
C) skill-biased technological progress
D) all of the above
E) none of the above
Which of the following will cause the rental cost/user cost of capital to decrease?
A) The rate of depreciation decreases.
B) The real interest rate increases.
C) The expected profit from the machine decreases.
D) all of the above
E) none of the above
Suppose the following situation exists for an economy: Kt+1/N = Kt/N. Given this
information, we know that
A) saving per worker equals depreciation per worker in period t.
B) saving per worker is less than depreciation per worker in period t.
C) saving per worker is greater than depreciation per worker in period t.
D) the saving rate fell in period t.
E) steady state consumption is equal to the golden rule level of steady state
consumption.
Suppose the annual inflation rate is 10%, and an asset bought at the beginning of the
year for $100,000 is sold for $115,000. If the capital-gains tax rate is 30%, what is the
(approximate) effective tax rate on the sale of this asset?
A) 10%
B) 20%
C) 25%
D) 30%
E) 4%
Suppose an elected official wishes to introduce a new government program. Under a
PAYGO rule, this new program would be adopted only if
A) the budget deficit is reduced by the same amount as the costs of the new program.
B) the budget deficit is reduced by half the amount of the costs of the new program.
C) the new program does not result in an increase in the current or future budget deficit.
D) none of the above
Under a “crawling peg” system, a country’s exchange rate
A) is fixed except for small, surprise changes.
B) changes at a predetermined rate against the dollar or some other major currency.
C) can fluctuate within a narrow band.
D) can change, but the changes are kept secret from the public.
E) is determined by the central bank of another country.
Using taxes to finance a war, rather than deficits,
A) leads to a greater future capital stock.
B) is generally not proposed by economists.
C) shares less of the burden of the war with future generations.
D) all of the above
E) none of the above
The nominal interest
A) will never be negative.
B) can be negative if inflation is unexpected.
C) can be negative if the inflation rate is greater than the nominal interest rate.
D) can be negative if deflation occurs.
E) can be negative when the real interest rate is negative.
Suppose there is a reduction in cash flow. This suggests that
A) firms have decreased their expectations of future profits.
B) the real interest rate has increased.
C) the rate of depreciation has increased.
D) current profits have decreased.
E) all of the above
If a country experiences persistently low inflation, which of the following tends NOT to
occur?
A) wage indexation will become less important
B) nominal wages will be set for shorter periods of time
C) the markup over labor costs will decrease
D) all of the above
Assume an economy experiences, for a given period, a 5% increase in output and a 1%
increase in productivity. Given this information, we know that which of the following
occurred for this economy during this period?
A) The unemployment rate increased during this period.
B) The unemployment rate decreased during this period.
C) The unemployment rate did not change during this period.
D) The effects on the unemployment rate are ambiguous.
E) none of the above
Assume the exchange rate is allowed to fluctuate freely. Using the IS-LM-IP model,
graphically illustrate and explain what effect an increase in foreign output (Y*) will
have on the domestic economy. In your graphs, clearly label all curves and equilibria.
If the nominal interest rate is less than the real interest rate, we know that
A) both the nominal or real interest rate must be negative.
B) the nominal interest rate must be equal to expected inflation.
C) expected deflation must be occurring.
D) expected inflation must be positive.
E) expected inflation must be zero.
Suppose the current one-year interest rate is 4%, and financial markets expect the
one-year interest rate next year to be 8%. Given this information, the yield to maturity
on a two-year bond will be approximately
A) 4%.
B) 6%.
C) 8%.
D) 12%.
E) none of the above
Milton Friedman attributed the Great Depression primarily to
A) the government’s failure to respond to an increase in the budget deficit.
B) a reduction in the money supply.
C) economists’ and policy-makers’ failure to acknowledge their limited knowledge.
D) the failure of wages to rise.
E) inaccurate expectations by consumers and firms.
Which of the following is an entitlement program?
A) Social Security
B) Medicare
C) Medicaid
D) all of the above
E) none of the above
If C = 2000 + .9YD, what decrease in taxes must occur for equilibrium output to
increase by 1000?
A) 111
B) 100
C) 1000
D) 500
If government spending and taxes increase by the same amount,
A) the IS curve does not shift
B) the IS curve shift leftward
C) the IS curve shifts rightward
D) the LM curve shifts downward
In the wage setting relation W = PeF(u,z), the variable z does not include which of the
following variables?
A) the minimum wage
B) unemployment benefits
C) the extent to which firms mark up prices over their marginal cost
D) all of the above
E) none of the above
The spread between the interest rates on bonds with default risk and default-free bonds
is called the
A) risk premium.
B) junk margin.
C) bond margin.
D) default premium.
In which of the following decades did the Phillips curve break down for the U.S.?
A) 1940s
B) 1950s
C) 1960s
D) none of the above
Junk bonds, bonds with a low bond rating, are also known as
A) high-yield bonds.
B) investment grade bonds.
C) high quality bonds.
D) zero-coupon bonds.
Which of the following best characterizes the economic growth for OECD countries
since the mid-1970s?
A) Growth has come to a complete halt.
B) Growth has slowed down.
C) Growth has not changed since the 1950s and 1960s.
D) Growth has increased slightly.
E) Growth has increased dramatically.
Using the ZZ/Y and NX graphs, illustrate graphically and explain what effect an
increase in foreign output (Y*) will have on output, exports, imports, and net exports.
Clearly label all curves and clearly label the initial and final equilibria.
As the LM curve becomes steeper, an unexpected increase in consumer confidence
A) will cause a relatively large increase in output and relatively large increase in the
interest rate.
B) will cause a relatively small increase in output and relatively small increase in the
interest rate.
C) is more likely to cause stock prices to rise.
D) is more likely to cause stock prices to fall.
Channeling funds from individuals with surplus funds to those desiring funds when the
saver does not purchase the borrower’s security is known as
A) barter.
B) redistribution.
C) financial intermediation.
D) taxation.
The difference between the official and correct measures of the deficit will be smaller,
A) the higher is government spending.
B) the higher is the level of debt, B.
C) the smaller is inflation.
D) none of the above
Suppose two countries are identical in every way with the following exception.
Economy A has a higher rate of depreciation (δ) than economy B. Given this
information, we know with certainty that
A) steady state consumption in A is higher than in B.
B) steady state consumption in A is lower than in B.
C) steady state consumption in A and in B are equal.
D) steady state growth of output per worker is higher in A than in B.
E) none of the above
Which of the following statements about indexed bonds is correct?
A) They were relatively recently introduced in the United States.
B) They exist in England.
C) They have a nominal interest rate that rises when the inflation rate rises.
D) all of the above
E) none of the above
Pure inflation occurs when
A) nominal wages rise faster than all prices.
B) all prices rise faster than nominal wages.
C) all prices and nominal wages rise by the same percentage.
D) the GDP deflator and Consumer Price Index rise by the same percentage.
E) none of the above
In a flexible exchange rate regime, a reduction in the foreign interest rate (i*) 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.
For this question, assume that the saving rate decreases. We know that this decrease in
the saving rate will cause which of the following?
A) a temporary decrease in the level of output per capita
B) no permanent change in the level of output per capita
C) a temporary decrease in the rate of growth of output per capita
D) a permanently lower rate of growth of output per capita
E) none of the above
Which of the following bonds (of equal maturity) would have the lowest risk premium?
A) U.S. government bonds
B) German government bonds
C) the bonds of a financially stable corporation, like IBM
D) Bonds rated Aaa by Moody’s
E) junk bonds
Under a fixed exchange rate regime, contractionary fiscal policy will tend to cause
which of the following?
A) a reduction in imports
B) a reduction in net exports
C) an increase in investment
D) all of the above
Changes in GDP in the short run are caused primarily by
A) demand factors.
B) supply factors.
C) technology.
D) capital accumulation.
E) all of the above