The leverage ratio is the ratio of a bank’s
A) assets divided by its liabilities.
B) income divided by its assets.
C) assets divided by capital.
D) capital divided by its total liabilities.
Risk premiums on corporate bonds tend to ________ during business cycle expansions
and ________ during recessions, everything else held constant.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Which of the following is true when a country is experiencing a trade surplus (NX > 0)?
A) Demand for domestic goods is equal to the domestic demand for goods.
B) Demand for domestic goods is greater than the domestic demand for goods.
C) Demand for domestic goods is less than the domestic demand for goods.
D) A budget surplus exists.
Holding large amounts of bank capital helps prevent bank failures because
A) it means that the bank has a higher income.
B) it makes loans easier to sell.
C) it can be used to absorb the losses resulting from bad loans.
D) it makes it easier to call in loans.
The money demand curve will shift to the left when which of the following occurs?
A) a reduction in the interest rate
B) an increase in the interest rate
C) an open market sale of bonds by the central bank
D) an increase in income
E) none of the above
An increase in consumer confidence will tend to cause which of the following to occur?
A) a rightward shift in the IS curve
B) a leftward shift in the IS curve
C) an upward shift in the LM curve
D) a downward shift in the LM curve
Suppose the saving rate is initially greater than the golden rule saving rate. We know
with certainty that a reduction in the saving rate will cause
A) a reduction in the rate of growth in the long run.
B) a reduction in output per worker.
C) a reduction in consumption per worker.
D) all of the above
E) none of the above
Using current exchange rates, the U.S. standard of living is ranked
A) higher than it would be under the purchasing power parity method.
B) lower than it would be under the purchasing power parity method.
C) number one in the world.
D) among the lowest in the world.
E) none of the above
Suppose a country is perceived to have an overvalued real exchange rate does not
devalue. Which of the following would we expect to occur over time?
A) a reduction in its price level
B) a real depreciation of its currency
C) a reduction in its trade surplus
D) all of the above
E) none of the above
Given the zero lower bound on the nominal rate, the lowest real interest rate the central
bank can achieve is
A) – .
B) .
C) 0.
D) i.
Suppose that increased international trade makes product markets more competitive in
the U.S. Given this information, we would expect to observe which of the following?
A) an upward shift in the WS curve
B) a downward shift in the WS curve
C) an upward shift in the PS curve
D) a downward shift in the PS curve
E) none of the above
In a large country, the effect of a given change in government spending
A) on output is large and the effect on the trade balance is small.
B) on output is large and the effect on the trade balance is large.
C) on output is small and the effect on the trade balance is small.
D) on output is small and the effect on the trade balance is large.
In the model where it is assumed that the state of technology does not change, what
parameters and/or
variables cause changes in steady state output per worker?
A) savings rate
B) depreciation rate
C) human capital per worker
D) all of above
E) none of above
Suppose there are two countries that are identical in every way with the following
exception: Country A has a lower depreciation rate (δ) than country B. Given this
information, we know with certainty that
A) the growth rate will be the same in the two countries.
B) the growth rate will be higher in A than in B.
C) K/N will be higher in B.
D) Y/N will be higher in B.
An unexpected reduction in the money supply will tend to cause
A) an increase in stock prices.
B) a reduction in stock prices.
C) no change in stock prices.
D) an ambiguous effect on stock prices.
For this question, assume the interest parity conditions holds. Also assume that the
domestic interest rate is 9% and that the foreign interest rate is 5%. Given this
information, we would expect that
A) individuals will only hold foreign bonds.
B) individuals will only hold domestic bonds.
C) the domestic currency is expected to appreciate by 4%.
D) the domestic currency is expected to depreciate by 4%.
For this question, assume that firms’ of productivity are accurate while workers’
expectations of productivity adjust slowly over time. In this case, an increase in
productivity will cause which of the following?
A) an increase in both the real wage and the natural rate of unemployment
B) a decrease in both the real wage and the natural rate of unemployment
C) an increase in the real wage and a reduction in the natural rate of unemployment
D) a decrease in the real wage and an increase in the natural rate of unemployment
E) none of the above
Which of the following will cause an increase in the amount of money that one wishes
to hold?
A) an increase in the interest rate increase
B) a reduction in the interest rate increase
C) a reduction in income
D) none of the above
Which of the following variables is most directly determined in the labor market?
A) stock prices
B) nominal wages
C) interest rates
D) all of the above
E) none of the above
An open market sale of bonds by the central bank will cause which of the following
when a liquidity trap situation exists?
A) The interest rate will increase.
B) The interest rate will not change.
C) Output will decrease.
D) The money supply, M, will not change.
E) none of the above
Suppose a one-year discount bond offers to pay $1000 in one year and currently sells
for $950. Given this information, we know that the interest rate on the bond is
A) 5.3%.
B) 9.5%.
C) 10%.
D) 90%.
E) 110%.
Which of the following is evidence that consumption depends on total wealth, and not
just on current income?
A) People save very little for their retirement.
B) The pre-announced phased-in tax cuts of 1981-83 caused little change in
consumption in 1981.
C) A drop in consumer confidence, with unchanged current income, often causes total
consumption spending to fall.
D) all of the above
E) none of the above
Which of the following occurs as the economy moves rightward along a given IS
curve?
A) A reduction in the interest rate causes investment spending to decrease.
B) A reduction in the interest rate causes money demand to increase.
C) A reduction in the interest rate causes a reduction in the money supply.
D) An increase in government spending causes a reduction in demand for goods.
E) A reduction in taxes causes a reduction in demand for goods.
Siegnorage is equal to
A) the rate of inflation.
B) one divided by the rate of inflation.
C) real money balances.
D) the percentage growth rate of nominal money.
E) the percentage growth rate of nominal money times real money balances.
Suppose business confidence decreases causing a reduction in investment. Based on our
understanding of the model presented in Chapter 3, we know with certainty that a
reduction in investment will cause
A) an increase in the multiplier.
B) a reduction in the multiplier.
C) a reduction in the marginal propensity to save.
D) a reduction in consumption as the economy adjusts to this decrease in investment.
Which of the following tends to occur when the unemployment rate increases?
A) a reduction in the labor force participation rate
B) a reduction in the number of discouraged workers
C) an increase in the number of employed workers
D) all of the above
E) none of the above
Assume that constant returns to scale exists and that N and K both increase by 2%.
Given this information, we know that
A) output (Y) will increase by 4%.
B) Y will increase by 2%.
C) Y will increase by less than 2%.
D) Y will increase by less than 4% and more than 2%.
Which of the following will occur when the capital stock falls?
A) profit per unit of capital will increase
B) profit per unit of capital will decrease
C) there will be no change in profit per unit of capital
D) there will be an ambiguous effect on profit per unit of capital
E) none of the above
As of 2014, the ratio of exports to GDP for Netherlands was approximately equal to
A) 20%.
B) 40%.
C) 60%.
D) 83%.
Data on labor-force flows show that
A) in any given month, almost none of the unemployed gets jobs.
B) in any given month, almost all of the unemployed gets jobs.
C) the average duration of unemployment is about 2 weeks.
D) the average duration of unemployment is about 2 years.
E) in any given month, about one-fourth of the unemployed get jobs.
Suppose there is a Fed purchase of bonds and simultaneous tax cut. We know with
certainty that this combination of policies must cause
A) an increase in the interest rate (i).
B) a reduction in i.
C) an increase in output (Y).
D) a reduction in Y.
For this question, assume that the Phillips curve equation is represented by the
following equation:
πt – πt-1 = (m + z) – αut. Given this information, the natural rate of unemployment will
be equal to
A) m + z.
B) (m + z – α).
C) α(m + z).
D) 0.
E) none of the above
Suppose individuals now believe that there will be a future tax increase. This increase
in expected future taxes will cause which of the following to occur in the current
period?
A) the LM curve to shift down
B) the LM curve to shift up
C) the IS curve to shift rightward
D) the IS curve to shift leftward
E) none of the above
Explain the costs imposed by an increase in inflation.
Explain the three channels economists have identified through which quantitative or
credit easing may affect the economy.
What are the new rules of the Euro Plus Pact adopted in 2011?
Under what conditions will the official measure of the budget deficit be greater than,
less than, or equal to the correct measure of the budget deficit.
Balanced budget amendments are believed to be destabilizing. Explain why this is so.
Explain why economists do not use exchange rates to compare standards of living
across countries. Also, discuss what economists do to avoid these problems.
Explain what is meant by shoe-leather costs.
Explain why a comparison between the interest rates on domestic and foreign bonds
might provide misleading information about which bonds yield the highest expected
returns.
Explain what factors determine how much investment is required to maintain a given
level of capital per effective worker.
Explain what types of policies a central bank can implement to raise the interest rate.
Explain the determinants of exports and imports.
Suppose a government implements rules that result in a more independent central bank.
What effect do you think this more independent central bank will eventually have on
money growth and inflation in that country? Explain.
Explain what is meant by automatic stabilizers and how they work to minimize
fluctuations in economic activity.
Discuss the two components of fixed investment.
To what extent can changes in the rate of technological progress cause permanent
changes in the rate of growth of output per worker? Explain.
Explain the macroeconomic effects of changes in monetary policy in: 1. the short run;
and 2. the medium run.
Suppose a country is experiencing a situation where output is above the full
employment level of output and a trade deficit. Further assume that the policy makers’
goals are to achieve full employment output and balanced trade. Given this information,
what type of exchange rate and/or fiscal policy can be used to achieve simultaneously
these two goals? Explain.