Measuring the rate of inflation using a market basket that excludes food and energy
prices is preferred by some analysts because this measure, called core inflation,
A) provides a real, rather than a nominal, rate of inflation.
B) gives a better measure of ongoing, sustained price changes.
C) is more consistent with measures of inflation used in other countries.
D) fluctuates more than measures of inflation that include food and energy prices.
The income velocity of money:
A) is defined in the identity MV = PY.
B) is defined in the identity MV = PT.
C) is the same thing as the transactions velocity of money.
D) is the same as the number of times a dollar bill changes hands.
At any particular point in time, the output of the economy:
A) is fixed because the supplies of capital and labor and the technology are fixed.
B) is fixed because the demand for goods and services is fixed.
C) varies because the supplies of capital and labor vary.
D) varies because the technology for turning capital and labor into goods and services
varies.
If the short-run aggregate supply curve is horizontal, an increase in union
aggressiveness that pushes wages and prices up will result in ______ prices and ______
output in the short run.
A) higher; lower
B) lower; higher
C) higher; higher
D) lower; lower
Evidence from the past 40 years in the United States supports the Fisher effect and
shows that when the inflation rate is high, the ______ interest rate tends to be ______.
A) nominal; high
B) nominal; low
C) real; high
D) real; low
In the Solow model with technological change, the Golden Rule level of capital is the
steady state that maximizes:
A) output per worker.
B) output per effective worker.
C) consumption per worker.
D) consumption per effective worker.
The aggregate demand curve is the ______ relationship between the quantity of output
demanded and the ______.
A) positive; money supply
B) negative; money supply
C) positive; price level
D) negative; price level
A recent study suggests that the spectacular growth rates experienced by Hong Kong,
Singapore, South Korea, and Taiwan are largely due to:
A) rapid growth in total factor productivity.
B) increases in factor inputs.
C) high rates of saving.
D) low rates of capital depreciation.
A consumption function based on the Fisher two-period model is consistent with the
Keynesian consumption function for consumers who:
A) would like to borrow, but cannot.
B) are initially borrowers when future income increases.
C) are initially savers when future income increases.
D) are initially borrowers when the interest rate increases.
If the real interest rate declines by 1 percent and the inflation rate increases by 2
percent, the nominal interest rate must:
A) increase by 2 percent.
B) increase by 1 percent.
C) remain constant.
D) decrease by 1 percent.
Assume that the money demand function is (M/P)d = 2,200 ” 200r, where r is the
interest rate in percent. The money supply M is 2,000 and the price level P is 2. The
equilibrium interest rate is ______ percent.
A) 2
B) 4
C) 6
D) 8
The percentage change in the nominal exchange rate equals the percentage change in
the real exchange rate plus the:
A) foreign inflation rate minus the domestic inflation rate.
B) domestic inflation rate minus the foreign inflation rate.
C) foreign exchange rate minus the domestic exchange rate.
D) domestic interest rate minus the foreign interest rate.
The lower the real exchange rate is, the ______ expensive domestic goods are relative
to foreign goods, and the ______ the demand is for net exports.
A) more; greater
B) more; smaller
C) less; greater
D) less; smaller
In a small open economy with a fixed exchange rate, if the government increases
government purchases, then in the new short-run equilibrium:
A) the exchange rate rises but income does not rise.
B) income rises but the exchange rate does not rise.
C) both income and the exchange rate rise.
D) neither income nor the exchange rate rises, as the money supply contracts.
The Phillips curve depends on all of the following forces except:
A) the current exchange rate.
B) expected inflation.
C) the deviation of unemployment from its natural rate.
D) supply shocks.
Conventional monetary policy was limited during the 2008″2009 financial crisis
because the central bank could not:
A) purchase enough bonds through open market operations.
B) print a sufficient quantity of money.
C) reduce the target interest rate below zero.
D) adjust the discount rate quickly enough.
In a small open economy with perfect capital mobility, if the domestic interest rate were
to rise above the world interest rate, then ______ would drive the domestic interest rate
back to the level of the world interest rate.
A) capital inflow
B) capital outflow
C) the central bank
D) a decline in domestic saving
The dynamic aggregate supply curve will shift if any of the following changes except
the:
A) current inflation rate.
B) past inflation rate.
C) natural level of output.
D) supply shock.
If the real rental price of capital is $10,000 per unit and the real cost of capital is $9,000
per unit, to maximize profits a firm should:
A) add to its capital stock.
B) let its capital stock shrink.
C) keep its capital stock unchanged.
D) reduce the real rental price of capital.
The total income of everyone in the economy is exactly equal to the total:
A) expenditure on the economy’s output of goods and services.
B) consumption expenditures of everyone in the economy.
C) expenditures of all businesses in the economy.
D) government expenditures.
According to the Solow growth model, high population growth rates:
A) force the capital stock to be spread thinly, thereby reducing living standards.
B) place great strains on an economy’s productive resources, resulting in perpetual
poverty.
C) are a prerequisite for technological advances and higher living standards.
D) are not a factor in determining living standards.
In the Solow model, it is assumed that a(n) ______ fraction of capital wears out as the
capital”labor ratio increases.
A) smaller
B) larger
C) constant
D) increasing
Examples of “active” labor-market policies include all of the following except:
A) job-search assistance
B) subsidized employment
C) unemployment insurance
D) job-training programs
Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C
= 500 + 0.6(Y ” T). Taxes (T) are equal to 1,000. Government spending is 600. In this
case, equilibrium investment is:
A) 600.
B) 1,100.
C) 1,500.
D) 2,200.
The national income accounts identity, for an open economy, is:
A) Y = C + I + G ” NX.
B) Y = C + I + G + NX.
C) Y = C + I + G.
D) Y = C + I ” G.
The real wage is the return to labor measured in:
A) dollars.
B) units of output.
C) units of labor.
D) units of capital.
In Irving Fisher’s two-period model, if the consumer is initially saving in period one and
the real interest rate rises, then:
A) both the income and substitution effects will make the consumer want to consume
less in period one.
B) both the income and substitution effects will make the consumer want to consume
more in period one.
C) the substitution effect will make the consumer want to consume less in period one
but the income effect will make him or her want to consume more.
D) the income effect will make the consumer want to consume less in period one, but
the substitution effect will make him or her want to consume more.
In the Keynesian-cross model, if government purchases increase by 250, then the
equilibrium level of income:
A) increases by 250.
B) increases by more than 250.
C) decreases by 250.
D) increases, but by less than 250.
Schumpeter’s thesis of “creative destruction” is an explanation of economic progress
resulting from:
A) using up scarce natural resources to create new products.
B) breaking down barriers to trade and development.
C) new product producers driving incumbent producers out of business.
D) creating new methods to destroy the environment.
An example of an imputed value in the GDP is the:
A) value-added of meals cooked at home.
B) housing services enjoyed by homeowners.
C) services of automobiles to their owners.
D) value of illegal drugs sold.