Suppose that financial market participants expect that the central bank will pursue a
monetary expansion in the future. Also assume that the yield curve is initially upward
sloping. Given this information, we would expect which of the following to occur?
A) The yield curve will become steeper.
B) i2t will increase.
C) i2t will decrease.
D) The yield curve will become downward sloping.
Which of the following represents the fertility of research?
A) the protection given to new products by the law
B) how R&D spending translates into new ideas
C) the extent to which firms benefit from the results of their own R&D spending
D) the rate of technological progress
E) both B and C
American Recovery and Reinvestment Act 2009 calls for
A) both tax reductions and government spending reductions.
B) both tax reductions and government spending increases.
C) both tax increases and government spending increases.
D) both tax increases and government spending reductions.
A change in which of the following will have a direct effect on the amount of money
individuals wish to hold in the current period?
A) the current nominal interest rate
B) the current real interest rate
C) the expected future nominal interest rate
D) the expected future real interest rate
E) all of the above
The marginal propensity to consume represents
A) the level of consumption that occurs if disposable income is zero.
B) the ratio of total consumption to disposable income.
C) total income minus total taxes.
D) the change in output caused by a one-unit change in autonomous demand.
E) the change in consumption caused by a one-unit change in disposable income.
Suppose there is a simultaneous central bank purchase of bonds and increase in taxes.
We know with certainty that this combination of policies must cause
A) an increase in the interest rate (i).
B) a reduction in i.
C) an increase in output (Y).
D) a reduction in Y.
Suppose that financial market participants now expect a future tax increase in one year.
Also assume that the yield curve is initially upward sloping. Given this information, we
would expect which of the following to occur?
A) The yield curve will become steeper.
B) i2t will increase
C) i2t will decrease
D) The yield curve will become downward sloping.
AIG provide CDS against
A) insolvency.
B) default risk.
C) illiquidity.
D) none of the above
As an economy adjusts to an increase in the saving rate, we would expect output per
worker
A) to increase at a constant rate and continue increasing at that rate in the steady state.
B) to increase at a permanently higher rate.
C) to decrease at a permanently higher rate.
D) to return to its original level.
E) none of the above
In chapter 20, the expected future nominal exchange rate in the long run say, Ee
t+n, is
assumed to be the nominal exchange rate at which
A) the current account is in balance.
B) the future rate of appreciation or depreciation is constant.
C) domestic and foreign price levels are equal.
D) one unit of foreign currency exchanges for one unit of domestic currency.
E) none of the above
As the unemployment rate falls,
A) the proportion of the unemployed finding a job increases.
B) the separation rate increases.
C) the young and unskilled experience larger-than-average decreases in unemployment.
D) both A and C.
E) all of the above
If the exchange rate between two countries is expected to remain fixed at its current
rate, then
A) output growth rates must be equal in the two countries.
B) price levels must be equal in the two countries.
C) inflation rates must be equal in the two countries.
D) nominal interest rates must be equal in the two countries.
E) none of the above
The evidence suggests that in rich countries, a depreciation
A) immediately improves the trade balance.
B) eventually improves the trade balance.
C) first improves, but then worsens the trade balance.
D) has no effect on the trade balance.
E) none of the above
Econometric models of the U.S. economy generally agree
A) on the quantitative impact of monetary policy over a horizon of several years.
B) that an increase in money growth will increase output in the short run.
C) that an increase in money growth will decrease output in the short run.
D) that an increase in money growth will decrease output in the long run.
E) that “rational expectations” is the best way to generate policy forecasts.
The large increases in the deficit during the 1980s in the United States were associated
with
A) large increases in public saving.
B) no change in public saving.
C) large increases in private saving.
D) all of the above
E) none of the above
Assume individuals consider only the medium run effects of changes in future macro
variables when forming expectations of future output and future interest rates. Suppose
current taxes are cut AND that individuals expect future taxes to decrease. Given this
information, we know with certainty that
A) current output and the current interest rate will both increase.
B) current output will increase.
C) the current interest rate will increase.
D) the expected future interest rate will increase.
The average amount of time people spend unemployed is approximately
A) 1 month.
B) 6 months .
C) 12 months.
D) none of the above
Which of the following long-term bonds has the highest interest rate?
A) corporate Baa bonds
B) U.S. Treasury bonds
C) corporate Aaa bonds
D) municipal bonds
An increase in the money supply must cause which of the following?
A) a leftward shift in the IS curve
B) a reduction in the interest rate and ambiguous effects on investment
C) an increase in investment and a rightward shift in the IS curve
D) no change in the interest rate if investment is independent of the interest rate
E) no change in output if investment is independent of the interest rate
Use the following information to answer this question. If nominal GDP rises from $100
trillion to $120 trillion, while the GDP deflator rises from 2.0 to 2.2, the percentage
change in real GDP is approximately equal to
A) -10%.
B) 10%.
C) 20%.
D) 9.1%.
E) 0%.
Inflation represents
A) an increase in output.
B) an increase in the aggregate price level.
C) an increase in the unemployment rate.
D) a recession.
Suppose there is an increase in income. This increase in income would have a direct
effect on which of the following?
A) financial wealth
B) housing wealth
C) human wealth
D) all of the above
The federal funds rate is determined in which of the following markets?
A) the market for U.S. treasury securities
B) the money market
C) the bond market
D) the market for central bank money
E) none of the above
Which of the following would not be considered part of fixed investment spending (I)?
A) Toyota buys a new robot for its automobile assembly line.
B) Apple computer builds a new factory.
C) Exxon increases its inventories of unsold gasoline.
D) An accountant buys a newly built home for herself and her family.
E) all of the above
An increase in the rate of depreciation will cause the discounted present value of
expected profits to
A) decrease.
B) increase.
C) remain unchanged if the real interest rate increases by the same amount.
D) none of the above
During the EMS crisis in 1992,
A) all the EMS countries abandoned the system.
B) Germany abandoned the system.
C) England and Italy abandoned the system.
D) France was put in charge of the system.
E) all the EMS countries stood firm, and refused to change central parities.
Which of the following will cause a reduction in the steady-state growth rate of output
per worker?
A) a reduction in the saving rate
B) an increase in the population growth rate
C) an increase in the rate of depreciation
D) an increase in the saving rate
E) none of the above
Suppose the consumption equation is represented by the following: C = 250 + .75YD,
then private savings is
A) -250+0.25YD.
B) -250+0.75YD.
C) -1000+0.25YD.
D) -1000+0.75YD.
Graphically illustrate and explain the effects of an increase in the saving rate on the
Solow growth model. In your graph, clearly label all curves and equilibria.
Which of the following is hypothesized to explain the reduction in the rate of
technological progress?
A) measurement error
B) the increase in the size of the service sector
C) a reduction in R&D spending
D) all of the above
E) none of the above
For the U.S. economy, which of the following represents the largest component of
GDP?
A) imports
B) investment
C) government spending
D) exports
E) none of the above
Suppose policy makers wish to increase steady state consumption per worker. Explain
what must happen to the saving rate to achieve this objective.
Give two explanations why stock prices might deviate from their fundamental values.
Suppose the Fed implements a monetary expansion that is at least partially unexpected.
Explain what effect this will have on stock prices.
Explain what decisions and calculations a very foresighted consumer must make to
determine her consumption decisions in any period.
Explain the difference between gross domestic product and gross national product.
What are the lessons from the crisis for monetary policy?
Explain what role money illusion plays in determining the Fed’s ability to affect output
in the short run.
Explain Mathusian trap.