From 2000 to 2007, which country had the highest nominal house price increase?
A) Spain
B) Portugal
C) Greece
D) Italy
In the 1960s, the monetarist school of thought held that
A) monetary and fiscal policy could explain most of the output fluctuations in U.S.
history.
B) there is a long-run tradeoff between inflation and unemployment.
C) efforts to fine-tune the economy are likely to do more harm than good.
D) all of the above
E) none of the above
Hedonic pricing is
A) the way that luxury goods are priced in a market economy.
B) the tendency for the inflation rate to rise by greater and greater amounts.
C) the tendency for nominal GDP to rise when the price level rises.
D) the process of translating nominal GDP into real GDP.
E) the process of pricing individual characteristics of a good or service.
Suppose policy makers are pursuing a policy to fix the exchange rate. In such a system
with perfect capital mobility, an open market sale of domestic bonds by the domestic
central bank will eventually result in
A) a permanent increase in the monetary base.
B) a permanent reduction in the monetary base.
C) a gradual reduction in the domestic interest rate.
D) a change in the composition of the monetary base.
When E decreases by 3%, we know that
A) a real appreciation will occur if P also falls by 3%.
B) a real depreciation will occur if P increases by 3%.
C) nominal appreciation.
D) nominal depreciation.
An upward-sloping straight line on a linear scale will become a (an) ________ on a
logarithmic scale.
A) upward sloping straight line
B) upward sloping curve that gets continually steeper
C) upward sloping curve that gets continually flatter
D) horizontal line
E) downward sloping straight line
Use the following Phillips curve equation to answer this question: πt – πt-1 = (m + z) –
αut. Which of the following will cause an increase in the natural rate of unemployment?
A) a reduction in m
B) an increase in z
C) an increase in α
D) a reduction in expected inflation
E) none of the above
An increase in the price of oil will likely cause which of the following?
A) increase the markup in the Phillips curve equation
B) increase the sum “m + z” in the Phillips curve equation
C) increase the natural rate of unemployment
D) all of the above
E) none of the above
A reduction in the aggregate price level, P, will most likely have which of the following
effects?
A) a rightward shift in the IS curve
B) a leftward shift in the IS curve
C) an upward shift in the LM curve
D) a downward shift in the LM curve
Suppose nominal GDP increased in a given year. Based on this information, we know
with certainty that
A) real output has increased.
B) the price level (GDP deflator) has increased.
C) real output and the price level (GDP deflator) have both increased.
D) either real output or the price level (GDP deflator) have increased.
E) real output has increased and the price level has decreased.
Which of the following policies toward kidnappings would you recommend to
authorities?
A) State policy of NO negotiations. If a kidnapping occurs, authorities should negotiate.
B) State policy of negotiations. If a kidnapping occurs, authorities should NOT
negotiate.
C) State policy of negotiations. If a kidnapping occurs, authorities should negotiate.
D) none of the above
Suppose the saving rate is initially less than the golden rule saving rate. We know with
certainty that a reduction in the saving rate will cause
A) a reduction in the capital labor ratio.
B) a reduction in output per worker.
C) a reduction in consumption per worker.
D) all of the above
E) none of the above
When answering this question, assume individuals consider only the short-run effects of
changes in future variables when forming expectations of future output and future
interest rates. Suppose policy makers announce a reduction in future government
spending. Which of the following will occur as a result of this expected reduction in
government spending?
A) a reduction in the expected future interest rate and no change in expected future
output
B) a reduction in the expected future interest rate and an increase in expected future
output
C) a reduction in the expected future interest rate and an ambiguous effect on expected
future output
D) none of the above
The interest parity condition indicates that the domestic interest rate must be equal to
A) the foreign interest rate.
B) the expected rate of depreciation of the domestic currency.
C) the expected rate of appreciation of the domestic currency.
D) the foreign interest rate minus the expected rate of appreciation of the foreign
currency.
E) none of the above
FDIC deposit insurance is ________ per account.
A) $100,000
B) $150,000
C) $200,000
D) $250,000
Assume that employment increases by 3%. Holding all other factors constant, we know
with certainty that which of the following will occur?
A) output will increase by 3%
B) output per capita will increase by 3%
C) output will increase by less than 3%
D) the capital labor ratio will increase
E) none of the above
When a worker’s nominal wage is indexed, the nominal wage is usually automatically
adjusted based on movements in which of the following variables?
A) productivity
B) the price of the firm’s product
C) the average wage in the country
D) the average wage in the industry
E) none of the above
Which of the following is not constant when balanced growth is obtained?
A) Y/NA
B) NA
C) K/NA
D) all of the above
E) none of the above
Suppose there is a fiscal expansion in the current period. This fiscal expansion will tend
to cause a smaller increase in current output when
A) an increase in current output causes an increase in expected future output.
B) an increase in the current interest rate causes expectations of expansionary monetary
policy in the future.
C) an increase in the current interest rate causes an increase in expected future interest
rates.
D) both A and B
E) all of the above
Which of the following would increase the cyclically adjusted deficit?
A) an increase in income.
B) a decrease in income.
C) an increase in the primary deficit.
D) a decrease in the primary deficit.
E) none of the above
The labor force in the United States is defined as
A) the total number of individuals who are employed.
B) the sum of the total number of individuals who are employed and the officially
unemployed.
C) the sum of the total number of individuals who are employed, the officially
unemployed, and discouraged workers.
D) the total number of individuals who are 16 years old and older, but not retired.
E) none of the above
Which of the following generally occurs when a central bank pursues contractionary
monetary policy?
A) the central bank purchases bonds and the interest rate increases.
B) the central bank purchases bonds and the interest rate decreases.
C) the central bank sells bonds and the interest rate increases.
D) the central bank sells bonds and the interest rate decreases.
In the IS-LM-PC model, which of the following is assumed to be exogenous?
A) G
B) C
C) I
D) Y
Research by Richard Layard indicates that an increase in a country’s level of output per
capita will
A) always increase happiness in that country.
B) always decrease happiness in that country.
C) generally have no effect on happiness in that country.
D) increase happiness in that country if output per capita is relatively low.
Suppose there are two countries that are identical with the following exception. The
saving rate in country A is greater than the saving rate in country B. Given this
information, we know that in the long run
A) the growth rate of output per capita will be greater in B than in A.
B) the growth rate of output per capita will be greater in A than in B.
C) the capital-labor ratios (K/N) will be the same in both countries.
D) the growth rate of output per capita will be the same in both countries.
With a nominal interest rate of 5% per year, the present discounted value of $100 to be
received in 10 years is
A) $50.00.
B) $61.39.
C) $95.24.
D) $150.00.
E) $163.89.
All else equal, a rise in the debt-to-GDP ratio implies
A) a greater ratio of interest payments to GDP.
B) a greater difference between the official and correct measures of the deficit as a
fraction of GDP.
C) a greater surplus is needed to prevent further rises in the debt-to-GDP ratio.
D) all of the above
E) none of the above
Assume that the uncovered interest parity condition holds. Also assume that the U.S.
interest rate is less than the U.K. interest rate. Given this information, we know that
investors expect
A) the pound to depreciate.
B) the pound to appreciate.
C) the dollar-pound exchange rate to remain fixed.
D) the U.S. interest rate to fall.
E) none of the above
The neoclassical synthesis
A) was a name coined by Keynes himself for his new theories.
B) rejected virtually all of Keynes’ insights.
C) held that econometric models of the economy could not be used to predict the future.
D) held that economy always operated at or very near the natural rate of unemployment.
E) was the dominant school of thought among economists in the 1950s and 1960s.
In the absence of technological progress, we know with certainty that an increase in the
saving rate will cause which of the following?
A) increase steady state consumption
B) decrease steady state consumption
C) have no effect on steady state consumption
D) increase steady state consumption only if the increase in saving exceeds the increase
in depreciation
E) increase steady state consumption only if the increase in saving is less than the
increase in depreciation
Wars of attrition arise in which of the following contexts?
A) fiscal policy
B) deficit reduction
C) hyperinflation
D) all of above
E) A and B
Explain how changes in the proportion of contracts that are indexed affect how a given
change in monetary policy will affect economic activity.
Graphically illustrate and explain what effect a purchase of bonds by the Federal
Reserve will have on the money market.
Explain what the IP curve is and why it is upward sloping.
Briefly comment on the predictions of economists Milton Friedman and Edmund
Phelps about the ability to exploit a trade-off between inflation and unemployment.
Explain why economists care about unemployment.
Explain whether a fiscal policy that causes an increase in current and future government
spending can cause a reduction in current output.
Discuss what factors could cause a real depreciation.
Explain the difference between endogenous and exogenous variables.
Suppose a government have a stated policy that it will not negotiate with hostage takers.
Now someone is taken hostage, what would be the best policy for the government?
Explain.
Use the market for central bank money to answer this question. Graphically illustrate
and explain what effect an increase in the reserve deposit ratio (θ) will have on this
market and on the equilibrium interest rate.
Discuss and explain each of the instruments of monetary policy.
Discuss the consensus on the adjustment process after the crisis.
Briefly explain why the reported official unemployment rate in Spain in 1994 may have
provided an over-estimate of unemployment in Spain.
Explain what is meant by the “wage-price” spiral.
Suppose the economy is operating below the natural level of output. Discuss the
arguments for and against using a devaluation in such a situation.
Explain exchange rate crisis.
What is Tobin’s q? How tight is the relation between Tobin’s q and investment?
Explain why the new IS curve that takes into account expectations is likely steeper than
the original IS curve that ignored expectations.
What are the factors that will determine the optimal inflation rate?