Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Holding other factors constant, legislation to cut taxes in an open economy will:
A) increase national saving and lead to a trade surplus.
B) increase national saving and lead to a trade deficit.
C) reduce national saving and lead to a trade surplus.
D) reduce national saving and lead to a trade deficit.
When the French money supply was reduced by 45 percent over a period of seven
months in 1724, the only values in the economy that adjusted fully and instantaneously
were:
A) prices in grain markets.
B) real wages.
C) foreign exchange rates.
D) interest rates.
Equation: Monetary Policy Rule
it = pt + r + qp(pt " p*t) + qY(Yt " )
(Equation: Monetary Policy Rule) Given the monetary policy rule of the dynamic
model of aggregate demand and aggregate supply, if the inflation rate increases by 1
percentage point, by how much does the nominal interest increase:
A) 1
B) 1 + r
C) 1 + qp
D)
When a firm sells a product out of inventory, GDP:
A) increases.
B) decreases.
C) is not changed.
D) increases or decreases, depending on the year the product was produced.
Milton Friedman argued that, on average, consumption is:
A) proportional to income.
B) a fraction of permanent income that rises as permanent income rises.
C) a fraction of permanent income that falls as permanent income falls.
D) proportional to permanent income.
When a person purchases a 90-day Treasury bill, he or she cannot know the:
A) ex post real interest rate.
B) ex ante real interest rate.
C) nominal interest rate.
D) expected rate of inflation.
If the demand function for money is M/P = 0.5Y " 100r and if M/P increases by 100,
then the LM curve for any given interest rate shifts to the:
A) left by 100.
B) left by 200.
C) right by 100.
D) right by 200.
If the short-run aggregate supply curve is horizontal and the Fed increases the money
supply, then:
A) output and employment will increase in the short run.
B) output and employment will decrease in the short run.
C) prices will increase in the short run.
D) prices will decrease in the short run.
The government raises lump-sum taxes on income by $100 billion, and the neoclassical
economy adjusts so that output does not change. If the marginal propensity to consume
is 0.6, national saving:
A) rises by $100 billion.
B) rises by $60 billion.
C) falls by $60 billion.
D) falls by $100 billion.
Two countries, Highland and Lowland, are described by the Solow growth model. Both
countries are identical, except that the rate of labor-augmenting technological progress
is higher in Highland than in Lowland.
a. In which country is the steady-state growth rate of output per effective worker
higher?
b. In which country is the steady-state growth rate of total output higher?
c. Does the Solow growth model predict that the two economies will converge to the
same steady state?
In the Keynesian-cross model, the equilibrium level of income is determined by:
A) the factors of production.
B) the money supply.
C) planned spending.
D) liquidity preference.
Real GDP means the value of goods and services is measured in ______ prices.
A) current
B) actual
C) constant
D) average
According to the sticky-price model, output will be at the natural level if:
A) firms expect a high price level and the demand for goods is high.
B) the proportion of firms with flexible prices equals the proportion of firms with sticky
prices.
C) the price level equals the expected price level.
D) expectations are formed adaptively, but not if expectations are formed rationally.
A fall in consumer confidence about the future, which induces consumers to spend less
and save more, will, according to the Mundell"Fleming model with floating exchange
rates, lead to:
A) a fall in consumption and income.
B) no change in consumption or income.
C) no change in income but a rise in net exports.
D) no change in income or net exports.
If the unemployment rate is 6 percent and the number of employed is 188 million, then
the labor force equals ______ million.
A) 11.28
B) 176.72
C) 188
D) 200
Endogenous growth theory rejects the assumption of exogenous:
A) production functions.
B) rates of depreciation.
C) population growth rates.
D) technological change.
The value added of an item produced refers to:
A) a firm's profits on the item sold.
B) the value of the labor inputs in the production of an item.
C) the value of a firm's output less the value of its costs.
D) the value of a firm's output less the value of the intermediate goods that the firm
purchases.
In the national income accounts, net exports equal:
A) exported goods minus imported goods.
B) exported goods and services minus imported goods and services.
C) exported goods minus imported services.
D) exported goods and services plus imported goods and services.
Permitting a lower minimum wage for teenagers would likely:
A) raise teenage unemployment.
B) raise teenage wages overall.
C) prevent teenagers from getting job experience.
D) raise unemployment among unskilled adults.
The production function y = f(k) means:
A) labor is not a factor of production.
B) output per worker is a function of labor productivity.
C) output per worker is a function of capital per worker.
D) the production function exhibits increasing returns to scale.
Assume that a series of inflation rates is 1 percent, 2 percent, and 4 percent, while
nominal interest rates in the same three periods are 5 percent, 5 percent, and 6 percent,
respectively.
a. What are the ex post real interest rates in the same three periods?
b. If the expected inflation rate in each period is the realized inflation rate in the
previous period, what are the ex ante real interest rates in periods two and three?
c. If someone lends in period two, based on the ex ante inflation expectation in part b,
will he or she be pleasantly or unpleasantly surprised in period 3 when the loan is
repaid?
The IS"LM model takes ______ as exogenous.
A) the price level and national income
B) the price level
C) national income
D) the interest rate
During the period from 1990 to 2006, in the United States, most spells of
unemployment lasted:
A) less than one month, yet most of the weeks of unemployment occurred in spells
lasting two or more months.
B) more than one month, and most weeks of unemployment occurred in spells of two or
more months.
C) less than one month, and most weeks of unemployment occurred in spells of one
month or less.
D) more than one month, but most weeks of unemployment occurred in spells of one
month or less.
If there is no currency and the proceeds of all loans are deposited somewhere in the
banking system and if rr denotes the reserve"deposit ratio, then the total money supply
is:
A) reserves divided by rr.
B) 1/rr.
C) reserves times rr.
D) reserves divided by (1 "rr).
The difference between banks and other financial intermediaries is that only banks have
the legal authority to:
A) transfer funds from savers to borrowers.
B) pay interest on debt obligations.
C) manage portfolios of assets.
D) create assets that are part of the money supply.
High-powered money is another name for:
A) currency.
B) demand deposits.
C) the monetary base.
D) M2.
The risk premium included in the interest rate of small open economies incorporates:
A) country risk and expectations of future exchange-rate changes.
B) the law of one price.
C) inefficient activity by arbitrageurs.
D) capital mobility.
Suppose that over the course of a year 100 people are unemployed for 4 weeks each
(the short-term unemployed), while 10 people are unemployed for 52 weeks each (the
long-term unemployed). Approximately what percentage of the total weeks of
unemployment were attributable to the long-term unemployed?
A) 9 percent.
B) 10 percent.
C) 43.5 percent.
D) 56.5 percent.
The debt-deflation hypothesis explains the fall in income as a consequence of
unexpected deflation transferring wealth ______, and that creditors have ______
propensity to consume than debtors.
A) from debtors to creditors; a smaller
B) from debtors to creditors; a larger
C) from creditors to debtors; a smaller
D) from creditors to debtors; a larger
Which of the following is an endogenous variable in the dynamic model of aggregate
demand and aggregate supply?
A) pt, inflation
B) central bank's inflation target
C) r, the natural rate of interest
D) pt " 1, previous period's inflation
The classical dichotomy breaks down for a Phillips curve, which shows the relationship
between a nominal variable, ______, and a real variable, ______.
A) output; prices
B) money; output
C) inflation; unemployment
D) unemployment; inflation
If many banks fail, this is likely to:
A) cause surviving banks to lower their ratios of reserves to deposits.
B) cause surviving banks to raise their ratios of reserves to deposits.
C) have no effect on the ratio of reserves to deposits in surviving banks.
D) cause surviving banks to hold less currency.
