In general, if the Fed increases its target for the federal funds rate,
A) short-term nominal interest rates will increase and long-term nominal interest rates
will not change.
B) short-term nominal interest rates will not change and long-term nominal interest
rates increase.
C) short-term nominal interest rates will increase and long-term nominal interest rates
will also increase.
D) short-term nominal interest rates will not change and long-term nominal interest
rates will also not change.
Of the determinants of labor productivity, the more important one is
A) the capital-labor ratio.
B) the size of the labor force.
C) total factor productivity.
D) the hours worked by the labor force.
A decrease in the money supply will shift the money supply curve to the ________,
causing the nominal interest rate to ________.
A) right; increase
B) right; decrease
C) left; increase
D) left; decrease
AK growth models argue that which type or types of capital may not be subject to
diminishing returns?
A) only physical capital
B) physical capital and human capital
C) human capital and knowledge
D) knowledge and physical capital
The estimates of the magnitude of government spending increase needed to have ended
the 2007-2009 recession in the United States vary, based on the actual size of the
expenditure multiplier, and range from
A) $250 million to $1 billion.
B) $50 billion to $250 billion.
C) $400 billion to $2.5 trillion.
D) $5 trillion to $15 trillion.
If the purchasing power of a dollar is less than the purchasing power of the Mexican
peso, purchasing power parity would predict that
A) in the short run, the dollar will appreciate relative to the peso to equalize the
purchasing power of the dollar and the peso.
B) in the short run, the dollar will depreciate relative to the peso to equalize the
purchasing power of the dollar and the peso.
C) in the long run, the dollar will appreciate relative to the peso to equalize the
purchasing power of the dollar and the peso.
D) in the long run, the dollar will depreciate relative to the peso to equalize the
purchasing power of the dollar and the peso.
Federal spending was highly expansionary during the 2007-2009 recession. During this
same period, state and local government spending rose ________, and it ________
from 2009-2011.
A) more than would be expected; rose again
B) more than would be expected; fell
C) less than would be expected; continued to rise
D) less than would be expected; fell
Assume that the term structure effect and the default-risk premium remain unchanged
and that households and firms have adaptive expectations. At the beginning of 2013, a
bank is offering car loans at a nominal interest rate of 7% and the expected rate of
inflation is 2 %, and at the beginning of 2014, the bank decreases the nominal interest
rate to 5%. The real interest rate at the beginning of 2014 is
A) 2%.
B) 3%.
C) 5%.
D) This cannot be determined without being given the expected inflation rate for 2014.
Gross federal debt held by the public is equal to
A) total gross federal debt.
B) the federal debt held by the Fed minus the federal debt held by other countries.
C) the federal debt held by other countries plus the federal debt held by private
investors.
D) the federal debt held by the Fed plus the federal debt held by private investors.
If the nominal rental price of capital divided by the price of output is less than the
marginal product of capital, a firm that wishes to maximize profits will
A) purchase more capital goods.
B) purchase fewer capital goods.
C) maintain the current level of capital goods.
D) allow capital goods to wear out without purchasing additional capital goods.
The quantity equation states that the
A) money supply times the velocity of money equals the price level times real GDP.
B) money supply times the price level equals real GDP divided by the velocity of
money.
C) money supply times the price level equals real GDP times the velocity of money.
D) money supply divided by the velocity of money equals the price level divided by
real GDP.
The measure of GDP which effectively updates the prices for the base year each year
and reduces the errors from changes in relative prices and the introduction of new
goods and services is called the
A) nominal GDP.
B) real GDP.
C) deflated GDP.
D) chain-weighted GDP.
The conventional view among economists is that persistent budget deficits lead to
________ real interest rates and ________ private investment.
A) higher; crowd in
B) higher; crowd out
C) lower; crowd in
D) lower; crowd out
The growth rate of real GDP is best represented as
A) (Contribution from capital) + (Contribution from labor) + (Contribution from total
factor productivity)
B) (Contribution from capital + Contribution from labor) / (Contribution from total
factor productivity)
C) (Contribution from total factor productivity) / (Contribution from capital +
Contribution from labor)
D) (Contribution from capital) × (Contribution from labor) × (Contribution from total
factor productivity)
The financial market shock which occurred during the recession of 2007-2009
increased the default-risk premium, and the housing shock which occurred during the
recession of 2007-2009 reduced wealth and residential construction. These two events
would result in
A) a positive output gap and a rising inflation rate.
B) a negative output gap and a rising inflation rate.
C) a positive output gap and a falling inflation rate.
D) a negative output gap and a falling inflation rate.
According to a recent study, college students who graduate during an economic
recession end up accepting jobs that, on average, pay ________ less than the jobs
accepted by students who graduate during economic expansions, and will continue to
earn less for ________ after they graduate.
A) 26%; 5 years
B) 9%; 8 to 10 years
C) 4%; 3 to 5
D) 17%; 12 to 15
A decrease in the real interest rate outside of the United States will cause net capital
outflows to ________ and cause the dollar to ________ relative to other currencies.
A) increase; appreciate
B) increase; depreciate
C) decrease; appreciate
D) decrease; depreciate
The market for money is in equilibrium
A) only if the non-money asset market is in equilibrium.
B) whenever the economy is at potential GDP.
C) when the cyclical unemployment rate is zero.
D) the Fed achieves its target for the expected inflation rate.
Suppose you purchase a new home for $300,000, making a down payment of 50% and
taking out a mortgage on the balance. What is the return on your investment in your
home if one year later the price of your home increases by 50%?
A) 0%
B) 10%
C) 50%
D) 100%
The financial market shock which occurred during the recession of 2007-2009
increased the default-risk premium, causing the
A) IS curve to shift to the right.
B) IS curve to shift to the left.
C) MP curve to shift up.
D) MP curve to shift down.
Hector’s wealth is zero, he expects to work for another 45 years at a constant salary of
$80,000 and live for another 60 years. If yearly taxes are $20,000 and Hector
completely smooths consumption over his lifetime, his annual consumption is
A) $37,500.
B) $45,000.
C) $60,000.
D) $70,000.
An increase in foreign investment in Brazil’s mining industry will increase the capital
stock in Brazil. Holding labor and total factor productivity constant, continued increases
in the capital stock will lead to
A) larger and larger increases in real GDP.
B) smaller and smaller increases in real GDP.
C) larger and larger decreases in real GDP.
D) small increases, followed by small decreases, in real GDP.
A nation’s growth rate will most likely ________ as it converges to a new, higher
balanced growth path.
A) speed up
B) slow down
C) maintain its current pace
D) become negative
An unexpected exogenous event which has a significant impact on an important sector
of the economy or on the economy as a whole is called a(n)
A) macroeconomic shock.
B) countercyclical fluctuation.
C) downward economic spiral.
D) autonomous destabilizer.
In the United States, interest payments on the federal debt were about ________ of total
federal expenditures in 2011, and therefore large tax increases or significant cutbacks in
other types of federal spending are generally considered ________ for the government
to be able to continue making the interest payments.
A) 55%; necessary
B) 28%; unnecessary
C) 28%; necessary
D) 6%; unnecessary
The Board of Governors of the Federal Reserve consists of seven members, each of
which are
A) appointed by the president of the United States.
B) elected by the public every two years.
C) presidents of one of the 12 regional Federal Reserve Banks.
D) CEOs of commercial banks within each Federal Reserve district.
Research shows that prices tend to remain sticky for a longer period of time
A) in the manufacturing sector than in the service sector.
B) in the service sector than in the manufacturing sector.
C) in Western Europe than in the United States.
D) in the United States than in Western Europe.
For each of the following scenarios, state the short-run effect on the AD curve.
a. The price level decreases.
b. The target inflation rate increases.
c. The U.S. dollar falls in value relative to other currencies.
d. Government spending increases.
e. The Fed becomes more tolerant of deviations from the target inflation rate.
Holding other factors constant, increasing the availability of disability benefits would
likely
A) decrease cyclical unemployment and the natural rate of unemployment.
B) increase structural unemployment and the natural rate of unemployment.
C) increase frictional unemployment and the natural rate of unemployment.
D) decrease the natural rate of unemployment.
The Taylor rule is consistent with the Fed’s dual mandate of
A) stable exchange rates and price stability.
B) price stability and maximum sustainable employment.
C) financial market stability and stable exchange rates.
D) maximum sustainable employment and financial market stability.
Table 2.1
2012 2013
Quantity Price Quantity Price
Table 1 gives quantities and prices for each good produced in a simple economy in 2011
and 2012.
Refer to Table 2.1. GDP in 2013 is
A) $243.00.
B) $267.50.
C) $294.00.
D) $302.50.
If the rate of job finding equals 19%, and the natural rate of unemployment is 5%, then
the rate of job separation equals
A) 1%.
B) 5.26%.
C) 20.8%.
D) 26.3%.
As the capital-labor ratio increases, investment per worker
A) increases at an increasing rate.
B) decreases at a constant rate.
C) increases at a decreasing rate.
D) decreases at an increasing rate.