Measuring the size of government debt is complicated by all of the following factors
except:
A) inflation.
B) uncounted liabilities.
C) capital assets of the government.
D) failure of the Office of Management and Budget to disclose figures on capital
expenditures and credit programs.
Public saving is:
A) always positive.
B) always negative.
C) always zero.
D) either positive, negative, or zero.
In 2013 in the United States, total government purchases per person (in current dollars)
amounted to approximately:
A) $1,900.
B) $9,900.
C) $13,500.
D) $25,600.
The Phillips curve shows a ______ relationship between inflation and unemployment,
and the short-run aggregate supply curve shows a ______ relationship between the
price level and output.
A) positive; positive
B) positive; negative
C) negative; negative
D) negative; positive
In comparing two countries with different levels of education but the same saving rate,
same rate of population growth, and same rate of technological progress, one would
expect the more highly educated country to have:
A) a higher growth rate of total income and a higher real wage.
B) a higher growth rate of total income and the same real wage.
C) the same growth rate of total income and a higher real wage.
D) the same growth rate of total income and the same real wage.
The investment demand function would shift for all of the following reasons except:
A) an improvement in technology raises the marginal product of capital.
B) an increase in population raises the demand for housing.
C) an increase in government spending raises the real interest rate.
D) the investment tax credit is reinstated.
The assumption of rational expectations for inflation means that people will form their
expectations of inflation by:
A) optimally using all available information, including information about current
policies, to forecast the future.
B) asking the opinions of the best experts.
C) subscribing to the forecasting service that uses the best econometric model.
D) basing their opinions on recently observed inflation.
In a small open economy with a floating exchange rate, if the government decreases the
money supply, then in the new short-run equilibrium:
A) income falls and the exchange rate rises.
B) the exchange rate falls and income rises.
C) income remains unchanged but the exchange rate rises.
D) the exchange rate remains unchanged but income falls.
A policy rule:
A) must specify money growth at a constant rate.
B) must specify an active policy.
C) must specify a passive policy.
D) may specify either an active or a passive policy.
The idea that the amount of any currency that can buy a particular good in one country
should be able to buy (after being exchanged for the local currency) the same quantity
of the same good anywhere in the world is called:
A) the theory of the real exchange rate.
B) equal currency conversion.
C) international monetary exchange.
D) purchasing-power parity.
An increase in the central bank’s target rate of inflation is represented by:
A) a movement up the DAD curve.
B) a movement down the DAD curve.
C) a rightward shift in the DAD curve
D) a leftward shift in the DAD curve.
Some firms do not instantly adjust the prices they charge in response to changes in
demand for all of the following reasons except:
A) it is costly to alter prices.
B) they do not want to annoy their frequent customers.
C) prices do not adjust when there is perfect competition.
D) some prices are set by long-term contracts between firms and customers.
According to the theory of liquidity preference, if the demand for real money balances
exceeds the supply of real money balances, individuals will:
A) sell interest-earning assets in order to obtain non-interest-bearing money.
B) purchase interest-earning assets in order to reduce holdings of non-interest-bearing
money.
C) purchase fewer goods and services.
D) be content with their portfolios.
If the real exchange rate depreciates from 1 Japanese good per U.S. good to 0.5
Japanese good per U.S. good, then U.S. exports ______ and U.S. imports ______.
A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease; increase
Issuing bonds is called _____ financing, while issuing stocks is called _____ financing.
A) debt; equity
B) equity; debt
C) capital; investment
D) private; public
The general demand function for real balances depends on the level of income and the:
A) real interest rate.
B) nominal interest rate.
C) rate of inflation.
D) price level.
Keeping the money supply constant over the business cycle is an example of:
A) active monetary policy.
B) active fiscal policy.
C) passive monetary policy.
D) passive fiscal policy.
Unlike the GDP deflator, the CPI includes the prices of:
A) goods purchased by firms.
B) goods purchased by governments.
C) exported goods.
D) imported goods.
The nominal exchange rate between the U.S. dollar and the Japanese yen is the:
A) number of yen you can get for lending one dollar in Japan for one year.
B) number of yen you can get for one dollar.
C) price of U.S. goods divided by the price of Japanese goods.
D) price of Japanese goods divided by the price of U.S. goods.
If price expectations are assumed to be correct, money demand is proportional to
income, and net capital flow is infinitely elastic, then the mother of all models in the
Appendix to Chapter 14 corresponds to which of the following special cases?
A) classical closed economy
B) classical open economy
C) IS“LM model
D) Mundell”Fleming model with floating exchange rate
The economies of two countries, Thrifty and Profligate, have the same production
functions and depreciation rates. There is no population growth or technological
progress in either country. The economies of each country can be described by the
Solow growth model. The saving rate in Thrifty is 0.3. The saving rate in Profligate is
0.05.
a. In which country is the level of steady-state output per worker larger? Explain.
b. In which country is the steady-state growth rate of output per worker larger?
c. In which country is the growth rate of steady-state total output greater?
A key obstacle facing regulators who want to prevent financial institutions from taking
excessive risks is the difficulty in:
A) finding diversified pools of assets to reduce risk.
B) drawing the line between excessive and appropriate risk taking.
C) eliminating idiosyncratic risk through diversification.
D) distinguishing between equity and debt financing.
Assume that apples cost $0.50 in 2002 and $1 in 2009, whereas oranges cost $1 in 2002
and $1.50 in 2009. If 4 apples were produced in 2002 and 5 in 2009, whereas 3 oranges
were produced in 2002 and 5 in 2009, then the GDP deflator in 2009, using a base year
of 2002, was approximately:
A) 1.5.
B) 1.7.
C) 1.9.
D) 2.0.
Exhibit: IS”LM Fiscal Policy
(Exhibit:IS“LM Fiscal Policy) Based on the graph, starting from equilibrium at interest
rate r1 and income Y1, a decrease in government spending would generate the new
equilibrium combination of interest rate and income:
A) r2, Y2
B) r3, Y2
C) r2, Y3
D) r3, Y3
The Solow growth model with population growth but no technological progress can
explain:
A) persistent growth in output per worker.
B) persistent growth in total output.
C) persistent growth in consumption per worker.
D) persistent growth in the saving rate.
(Table: Bank Balance Sheet) Based on the table, what is the leverage ratio at the bank?
A) 3
B) 4.67
C) 5
D) 10
The dynamic aggregate supply curve illustrates a short-run _____ relationship between
output and _____.
A) positive; inflation
B) positive; the price level
C) negative; inflation
D) negative; the price level
According to Friedman’s permanent-income hypothesis, if the marginal propensity to
consume out of permanent income equals 0.9 and current income equals $55,000 (of
which $5,000 is transitory income), then consumption should equal:
A) $5,000.
B) $45,000.
C) $49,500.
D) $55,000.
One explanation for greater economic development in moderate versus tropical climates
is that institutions established by colonial settlers in moderate climates ______, while
institutions established by colonists in tropical climates ______.
A) were based on English common law; were based on the Napoleonic Code
B) were based on the Napoleonic Code; were based on English common law
C) protected property rights; were extractive and authoritarian
D) were extractive and authoritarian; protected property rights
The characteristic of the classical model that the money supply does not affect real
variables is called:
A) the monetary basis.
B) monetary policy.
C) the quantity theory of money.
D) monetary neutrality
In the sticky-price model, the relationship between output and the price level depends
on:
A) the proportion of firms with flexible prices.
B) the target real wage rate.
C) the target nominal wage rate.
D) the implicit agreements between workers and firms.
During the American Revolution, the price of gold measured in continental dollars
increased to more than ______ times its previous level.
A) 2
B) 10
C) 50
D) 100
One avenue by which a loss of confidence in one financial institution spreads to another
financial institution is through:
A) a steep decline in asset prices driven by fire sales to restore liquidity.
B) a sharp decline in interest rates to compensate for added risk.
C) an increase in government deposit-insurance coverage.
D) a rapid slowdown in the withdrawal of deposits.
Any policy aimed at lowering the natural rate of unemployment must either ______ the
rate of job separation or ______ the rate of job finding.
A) reduce; reduce
B) increase; increase
C) reduce; increase
D) increase; reduce
The doctrine of purchasing-power parity:
A) is a completely accurate description of the real world.
B) would be entirely accurate if only goods were traded.
C) would be entirely accurate if all consumers had the same preferences.
D) provides a reason to expect that movements in the real exchange rate will typically
be small or temporary.