In 2010, output per capita in China was approximately equal to
A) $2,100.
B) $7,627.
C) $22,100.
D) $32,100.
Which of the following statements about Keynes’ contribution to macroeconomics is
correct?
A) Although he published his most important ideas about the economy long before the
1930s, few economists paid attention to Keynes until the Great Depression proved him
correct.
B) Keynes argued that depressions and recessions were almost always caused by
changes in the money supply.
C) Keynes argued that balancing the budget could be an effective way to cure a
recession or depression.
D) all of the above
E) none of the above
Using the ZZ/Y and NX graphs, illustrate graphically and explain what effect a
reduction in taxes will have on output, exports, imports, and net exports. Clearly label
all curves and clearly label the initial and final equilibria.
The wage setting relation is
A) downward sloping.
B) upward sloping.
C) vertical.
D) horizontal.
A devaluation causes which of the following to occur in the medium run?
A) an increase in net exports
B) an increase in the price level
C) an increase in output
D) all of the above
E) none of the above
For this question, assume that the there exists uncertainty about the impact of monetary
policy on the macroeconomy. Given this information, it would be most appropriate for
the central bank to increase money growth
A) at the midpoint of a recession.
B) by more than the increase that will yield the desired response.
C) by less than the increase that will yield the desired response.
D) by an amount equal to the increase that will yield the desired response.
E) only after it is certain that the economy has entered a recession.
For this question, assume that the Fed sets monetary policy according to the Taylor rule.
Suppose current U.S. macroeconomic conditions are represented by the following: π =
π?* and u > un. Given this information, we would expect that the Fed will
A) implement a monetary contraction.
B) implement a monetary expansion.
C) maintain its current stance of monetary policy.
D) more information is need to answer this question.
Suppose country A pegs its nominal exchange rate to country B and that country A has a
higher inflation rate than country B. In this situation, country A will experience
A) a real appreciation.
B) a worsening trade position.
C) an increase in the real exchange rate.
D) all of the above
E) none of the above
An increase in private saving (S) can be reflected in
A) a reduction in the budget deficit.
B) a reduction in investment.
C) an increase in net exports.
D) all of the above
Suppose policy makers overestimate the natural rate of unemployment. In situations
like these, policy makers will likely implement policies that result in
A) less unemployment than necessary.
B) an unemployment rate that is “too low.”
C) a lower inflation rate than necessary.
D) a steadily increasing inflation rate.
E) overly expansionary monetary and fiscal policy.
Using the ZZ/Y and NX graphs, illustrate graphically and explain what effect an
increase in taxes will have on output, exports, imports, and net exports. Clearly label all
curves and clearly label the initial and final equilibria.
A rule of thumb is that a 1% increase in output leads automatically to a reduction in the
deficit of what percentage of GDP?
A) 0.5%
B) 1%
C) 1.5%
D) 2%
Which of the following must occur to sustain economic growth in the long run?
A) technological progress
B) capital accumulation
C) a higher saving rate
D) all of the above
Based on our understanding of the IS-LM model that takes into account dynamics, we
know that an increase in the money supply will cause
A) an immediate increase in i and no initial change in Y.
B) an immediate decrease in i and no initial change in Y.
C) a gradual decrease in i and gradual increase in Y.
D) none of the above
Suppose there is a reduction in expected future taxes. This will cause which of the
following to occur?
A) the IS curve to shift left in the current period
B) the IS curve to shift right in the current period
C) the LM curve to shift up in the current period
D) the LM curve to shift down in the current period
“Convergence” has been occurring among the OECD countries because
A) the richer countries give away more of their output than the poorer ones.
B) the poorer countries have had higher growth rates than the richer ones.
C) the richer countries have had higher growth rates than the poorer ones.
D) the poorer countries have had positive growth rates, while the richer ones have had
negative growth rates.
E) the procedures for measuring output per capita have been changing.
Since the 1980s, “NOW” accounts have been included in
A) M1, but not M2.
B) M2, but not M1.
C) both M1 and M2.
D) the monetary base and M1, but not M2.
E) neither M1 nor M2.
As fiscal consolidation takes place, the central bank should
A) decrease the policy rate.
B) increase the policy rate.
C) increase inflation rate.
D) decrease money supply.
Suppose the aggregate production function is represented by the following: Y = AN.
Given this information, labor productivity is given by
A) Y.
B) N/A.
C) A/N.
D) A.
E) none of the above
Which of the following countries had the lowest level of output per capita in 1950?
A) United States
B) France
C) Japan
D) United Kingdom
Disposable income equals
A) income minus saving.
B) income minus both saving and taxes.
C) consumption minus taxes.
D) the sum of consumption and saving.
E) none of the above
The existence of the time inconsistency problem in macro policy suggests which of the
following?
A) Use fiscal and monetary policy to fine tune the economy.
B) Reduce the independence of the central bank.
C) Appoint someone who is more conservative (economically) than the rest of the
government to head the central bank.
D) Intervene frequently in the foreign exchange market.
E) Eliminate rational expectations from econometric models used for forecasting.
In virtually all hyperinflations, rapid money growth begins to occur because of
A) a war.
B) a change of government.
C) union demands for higher wages.
D) large and/or growing budget deficits.
E) the introduction of wage indexation in labor contracts.
Which of the following statements about consumption and investment is correct?
A) Consumption is more volatile than investment.
B) Investment and consumption exhibit approximately the same degree of volatility.
C) A permanent change in income will have a relatively larger effect on consumption
than on investment.
D) none of the above
If the expected real interest rate 5% and expected inflation 3%, the nominal interest rate
in year t is approximately
A) 2%.
B) 3%.
C) 5%.
D) 8%.
E) 11%.
For this question, assume that Y = N. Based on our understanding of the labor market
model presented in Chapter 6, we know that an increase in the minimum wage will
cause
A) an increase in the natural level of output.
B) a reduction in the natural level of output.
C) no change in the natural level of output.
D) an increase in the natural level of employment.
Assume the exchange rate is allowed to fluctuate freely. Using the IS-LM-IP model,
graphically illustrate and explain what effect a reduction in foreign output (Y*) will
have on the domestic economy. In your graphs, clearly label all curves and equilibria.
In an open economy under flexible exchange rates, a reduction in consumer confidence
that causes a reduction in consumption will cause which of the following?
A) an appreciation of the domestic currency
B) a reduction in the exchange rate, E
C) a reduction in net exports
D) all of the above
E) none of the above
In an open economy under flexible exchange rates and represented by the IS-LM-IP
model, a reduction in government spending will cause a reduction in which of the
following?
A) net exports
B) the exchange rate, E
C) exports
D) all of the above
E) none of the above
An increase in income will cause
A) a reduction in the supply of central bank money.
B) a reduction in the demand for currency.
C) an increase in the demand for reserves.
D) none of the above
Based on the information above, the labor force participation rate is
A) 36%.
B) 40%.
C) 44%.
D) 90.1%.
E) 66%.
The existence of menu costs are often used to explain why
A) fiscal and monetary policies should be relatively effective.
B) the price of services, like those provided by restaurants and barbers, rise at a faster
rate than the price of goods, like automobiles and clothing.
C) food prices tend to rise disproportionately rapidly in the consumer price index.
D) price and wage adjustments will be relatively rapid.
E) people prefer to look backward, instead of forward, when anticipating the future.
Reducing the maximum LTV is likely to ________ demand and thus ________ the
housing price increase.
A) decrease; slow down
B) increase; slow down
C) decrease; speed up
D) increase; speed up
Explain what human capital is and discuss how changes in human capital can affect
output per worker.
Explain how the unexpectedly high rate of productivity growth at the end of the 1990s
affected inflation and unemployment during this period.
Discuss what is meant by labor market rigidities and explain how they might cause the
relatively high unemployment in Europe.
Explain why current consumption might change even if current income does not
change.
Technological progress has played a very important role in China’s economic growth.
Where does the technological progress in China come from?
Discuss the current debate on the optimal inflation target.
Suppose firms expect future output to be higher and future interest rates to be higher.
Given this information, how will firms alter investment in the current period? Explain.
Discuss some of the potential benefits and costs of the adoption of the Euro.
Explain what the Marshall-Lerner condition represents.
Explain the cases for and against flexible and fixed exchange rate regimes.
Discuss and explain what is meant by the “state of technology.”
Discuss research on the role of banks and other financial institutions in the
intermediation of funds between lenders and borrowers.
Explain what types of policies a central bank can implement to reduce the interest rate.
According to Mundell, countries to constitute an optimal currency area need to satisfy
one of the two conditions. Explain these conditions.
Explain the determinants of aggregate private spending.
Assume that policy makers are pursuing a fixed exchange rate regime. Now suppose
that the foreign interest rate increases. Discuss what policy makers must do to maintain
the pegged exchange rate. Also discuss what effect this will have on domestic output
and net exports.
Suppose fiscal policy makers pass a budget that increases taxes in the current period
and are expected to raise taxes in the future. Use the IS-LM model to illustrate
graphically and explain the effects of this policy on current output and the current
interest rate.
