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According to the Solow model, persistently rising living standards can only be
explained by:
A) population growth.
B) capital accumulation.
C) saving rates.
D) technological progress.
Exhibit: Risk Premium
(Exhibit: Risk Premium) A small open economy with a floating exchange rate is
initially in equilibrium at A with If there is an increase in the risk premium,
then will shift to _____ and will shift to _____.
A)
B)
C)
D)
According to Christina Romer, the reduction in real economic volatility in the period
since World War II compared to the period before World War I is the result of improved
economic:
A) policy.
B) performance.
C) data.
D) forecasting.
A situation in which a solvent bank does not have sufficient cash on hand to satisfy the
withdrawal demands of depositors is called a(n) _____ crisis.
A) lending
B) shadow
C) insolvency
D) liquidity
A production function is a technological relationship between:
A) factor prices and the marginal product of factors.
B) factors of production and factor prices.
C) factors of production and the quantity of output produced.
D) factor prices and the quantity of output produced.
According to the Mundell"Fleming model, under floating exchange rates a fiscal
expansion:
A) lowers the exchange rate, but a monetary expansion raises it.
B) raises the exchange rate, but a monetary expansion or an import restriction lowers it.
C) or an import restriction lowers the exchange rate, but a monetary expansion raises it.
D) or an import restriction raises the exchange rate, but a monetary expansion lowers it.
The U.S. dollar exchange rate (units of foreign currency per U.S. dollar) for currencies
of countries with high inflation rates relative to the United States has tended to ______,
and the U.S. dollar exchange rate (units of foreign currency per U.S. dollar) for
currencies of countries with low inflation rates relative to the United States has tended
to ______.
A) appreciate; appreciate
B) appreciate; depreciate
C) depreciate; depreciate
D) depreciate; appreciate
The law of one price is enforced by:
A) governments.
B) producers.
C) consumers.
D) arbitrageurs.
In the Solow growth model, with a given production function, depreciation rate, no
technological change, and no population growth, a higher saving rate produces a:
A) higher MPK in the new steady state.
B) higher steady-state growth rate of output per worker.
C) higher steady-state growth rate of total output.
D) higher steady-state level of output per worker.
All of the following statements about sticky prices are true except:
A) in the short run, some wages and prices are sticky.
B) the sticky-price model describes the equilibrium toward which the economy slowly
gravitates.
C) for studying year-to-year fluctuations, most macroeconomists believe that price
stickiness is a better assumption than is price flexibility.
D) magazine publishers tend to change their newsstand prices only every three or four
years.
Exhibit: Steady-State Consumption II
(Exhibit: Steady-State Consumption II) The Golden Rule level of steady-state
consumption per worker is:
A) AC.
B) AB.
C) BC.
D) DE.
For an open economy with perfect capital mobility, when net capital outflow is
measured along the horizontal axis and the real interest rate is measured along the
vertical axis, net capital outflow is drawn as a:
A) vertical line at 0.
B) horizontal line at the world real interest rate.
C) line that slopes up and to the right.
D) line that slopes down and to the right.
In a closed economy, Y " C " G equals:
A) national saving.
B) private saving.
C) public saving.
D) financial saving.
Relative to the size of GDP, the U.S. federal government debt was at its maximum:
A) at the end of the Revolutionary War.
B) at the end of the Civil War.
C) at the end of World War II.
D) following the 9/11 terrorist attacks in 2001.
From the Ricardian point of view, a consumer should not raise his or her consumption
when taxes are cut but government spending is not cut because:
A) the government is going to raise taxes by exactly as much as the cut in the next year.
B) the government is going to raise taxes by exactly as much as the cut plus interest in
the next year.
C) the government is sure to raise taxes by an amount equal in present value to the debt
incurred this year, sometime in the taxpayer's lifetime.
D) even if the government does not raise enough extra taxes during the taxpayer's
lifetime to pay off, in present value, the debt incurred this year, the taxpayer should
make provision for the taxes that will be levied on his or her heirs.
According to the neoclassical model of investment, business fixed investment does not
depend on:
A) the realized profits of firms.
B) the marginal product of capital.
C) the interest rate.
D) tax rules affecting firms.
The ability of macroeconomists to predict the future course of economic events:
A) is no better than the meteorologist's ability to predict the next month's weather.
B) is much better than the meteorologist's ability to predict the next month's weather.
C) has gotten worse over time.
D) is less precise than it was in the 1920s.
Cyclically adjusted budgets are useful because they:
A) systematically account for changes in government assets and liabilities.
B) reflect policy changes, but not current economic conditions.
C) account for tax burdens on different generations of taxpayers.
D) correctly account for the impact of inflation on government indebtedness.
If an economy is in a steady state with no population growth or technological change
and the capital stock is below the Golden Rule:
A) a policymaker should definitely take all possible steps to increase the saving rate.
B) if the saving rate is increased, output and consumption per capita will both rise, both
in the short and long runs.
C) if the saving rate is increased, output per capita will at first decline and then rise
above its initial level, and consumption per capita will rise both in the short and long
runs.
D) if the saving rate is increased, output per capita will rise and consumption per capita
will first decline and then rise above its initial level.
Assume that an economy has the Phillips curve p = p"1 " 0.5(u " 0.06). Then the natural
rate of unemployment is:
A) 0.5.
B) 0.12.
C) 0.06.
D) 0.03.
Using the sticky-price model, the higher the average rate of inflation, the more
frequently firms must adjust their prices, which implies that a high rate of inflation:
A) has no effect on the slope of the short-run aggregate supply curve.
B) should make the short-run aggregate supply curve flatter.
C) makes the short-run aggregate supply curve steeper.
D) causes prices to be sticky.
Permanent and transitory incomes differ in the way that permanent income is ______
than is transitory income.
A) larger
B) more persistent
C) taxed at a higher rate
D) more variable
If the short-run IS"LM equilibrium occurs at a level of income above the natural level of
output, in the long run the ______ will ______ in order to return output to the natural
level.
A) price level; increase
B) interest rate; decrease
C) money supply; increase
D) consumption function; decrease
Price flexibility plays a key role in the classical model by ensuring that the markets
reach equilibrium.
a. Explain which price adjusts to bring equilibrium in the labor market. Describe how
the price adjusts when demand exceeds supply in this market.
b. Explain which price adjusts to bring equilibrium in the loanable funds market.
Describe how the price adjusts when supply exceeds demand in this market.
In the Solow growth model, technological change is ______, whereas in endogenous
growth theories, technological change is ______.
A) assumed; explained
B) explained; assumed
C) persistent; constant
D) constant; persistent
The steady-state level of capital occurs when the change in the capital stock (Dk)
equals:
A) 0.
B) the saving rate.
C) the depreciation rate.
D) the population growth rate.
Assume that a government has a balanced budget when the economy is at full
employment. If the economy then enters a recession, with no change in tax or spending
laws, then the budget of the government is most likely to:
A) remain balanced.
B) be in deficit.
C) be in surplus.
D) be in either deficit or surplus, depending on the severity of the recession.
Current measures of the U.S. federal government's budget deficit account for all of the
following except:
A) government expenditures.
B) government revenues.
C) changes in government indebtedness.
D) changes in government capital assets.
If a country chooses to have free capital flows and to conduct an independent monetary
policy, then it must:
A) live with exchange-rate volatility.
B) restrict its citizens from participating in world financial markets.
C) give up the use of monetary policy for purposes of domestic stabilization.
D) have a fixed exchange rate.
Money that has no value other than as money is called ______ money.
A) fiat
B) intrinsic
C) commodity
D) government
