Based on price setting behavior, we know that an increase in the unemployment rate
will cause
A) no change in the real wage.
B) a reduction in the real wage.
C) an increase in the real wage.
D) an upward shift of the PS curve.
The prices for which of the following goods are included in both the GDP deflator and
the consumer price index?
A) goods bought by households
B) goods bought by firms
C) good bought by governments
D) goods bought by foreign households (i.e., exports)
E) all of the above
For this question, assume that the Fed is expected to respond to any event by keeping
the interest rate constant (i.e., equal to its initial level). An unexpected tax cut will cause
A) stock prices to fall.
B) stock prices to rise.
C) no change in stock prices.
D) an ambiguous effect on stock prices.
Assume the exchange rate is allowed to fluctuate freely. Using the IS-LM-IP model,
graphically illustrate and explain what effect an increase in government spending will
have on the domestic economy. In your graphs, clearly label all curves and equilibria.
For this question, assume that the Marshall-Lerner condition does not hold. A reduction
in the real exchange rate will tend to cause which of the following to occur?
A) a reduction in NX and a reduction in foreign output (Y*)
B) a reduction in NX and an increase in domestic output (Y)
C) an increase in NX and a reduction in Y
D) an increase in NX and an increase in Y
E) none of the above
LTV ratio appears to be positively related to
A) bond price.
B) stock price.
C) housing price.
D) none of the above
E) all of the above
Which of the following long-term bonds has the lowest interest rate?
A) corporate Baa bonds
B) U.S. Treasury bonds
C) corporate Aaa bonds
D) municipal bonds
High growth in the rich countries from 1985 to 2014 was most likely due to
A) a high savings rate.
B) high capital accumulation.
C) technological progress.
D) high consumption rates.
E) monetary policy.
Suppose the rest of the world experiences an expansion that causes an increase in
foreign income (Y*). From the domestic economy’s perspective, this increase in foreign
income will cause which of the following as the domestic economy adjusts to the rise in
Y*?
A) an increase in domestic income
B) an increase in imports
C) an increase in net exports
D) all of the above
E) both A and C
A reduction in the marginal propensity to save from .4 to .3 will cause
A) the ZZ line to become steeper and a given change in autonomous consumption (c0)
to have a smaller effect on output.
B) the ZZ line to become steeper and a given change in autonomous consumption (c0)
to have a larger effect on output.
C) the ZZ line to become flatter and a given change in autonomous consumption (c0) to
have a smaller effect on output.
D) the ZZ line to become flatter and a given change in autonomous consumption (c0) to
have a larger effect on output.
When the budget deficit is financed entirely through money creation, the real budget
deficit is equal to which of the following?
A) ΔH
B) ΔH – ΔP
C) (ΔH)/P
D) (ΔH)/H
E) P[(ΔH)/H]
The IS curve will not shift when which of the following occurs?
A) a reduction in government spending
B) a reduction in the interest rate
C) a reduction in consumer confidence
D) all of the above
E) none of the above
To deal with the time inconsistency problem associated with monetary policy, some
have suggested that
A) the head of the central bank be chosen by election.
B) the central bank implement expansionary monetary policy prior to election years.
C) elected officials should have a direct influence on the implementation of monetary
policy.
D) all of the above
E) none of the above
For this question, assume that exchange rates flexible and that the exchange rate
expected to occur in one year is not constant. Suppose that individuals now expect that
the domestic central bank will pursue expansionary monetary policy in one year. This
expected future monetary expansion will cause which of the following to occur?
A) The current nominal exchange rate will decrease.
B) The current nominal exchange rate will increase.
C) The current nominal exchange rate will not change.
D) The effects on the current nominal exchange rate are ambiguous.
In the short run, an increase in the price of oil will cause
A) an increase in output.
B) a reduction in the price level.
C) an increase in the interest rate.
D) all of the above
E) none of the above
A reduction in the saving rate will not affect which of the following variables in the
long run?
A) output per worker
B) the growth rate of output per worker
C) the amount of capital in the economy
D) capital per worker
E) none of the above
Changes in which of the following variables will cause the current nominal exchange
rate to change?
A) the future expected long-run nominal exchange rate, Ee
t+n
B) future expected domestic nominal interest rates
C) future expected foreign nominal interest rates
D) all of the above
Suppose the economy is initially in the steady state. A reduction in the depreciation rate
(δ) will cause
A) an increase in K/N.
B) an increase in Y/N.
C) an increase in C/N.
D) all of the above
E) none of the above
Suppose the economy is operating on the LM curve but not on the IS curve. Given this
information, we know that
A) the goods market is in equilibrium and the money market is not in equilibrium.
B) the money market and bond markets are in equilibrium and the goods market is not
in equilibrium.
C) the money market and goods market are in equilibrium and the bond market is not in
equilibrium.
D) the money, bond and goods markets are all in equilibrium.
E) neither the money, bond, nor goods markets are in equilibrium.
An increase in the saving rate will not affect which of the following variables in the
long run?
A) output per worker
B) the growth rate of output per worker
C) the amount of capital in the economy
D) capital per worker
E) none of the above
The mortgage is said to be underwater when
A) the value of the house exceeds the value of the mortgage.
B) the house is flooded.
C) the value of the mortgage exceeds the value of the house.
D) none of the above
An increase in which of the following variables should cause an increase in profit per
unit of capital?
A) total wages and salaries
B) total sales
C) the capital stock
D) the ratio of total sales to the capital stock
E) the ratio of total sales to total wages and salaries
During most episodes of hyperinflation,
A) the inflation rate is high but constant.
B) the inflation rate decreases over time.
C) the inflation rate increases over time.
D) the inflation rate first increases, and then remains constant.
E) the inflation rate increases over time, but then rapidly decreases on its own.
In the Phillips curve equation, which of the following will cause a reduction in the
current inflation rate?
A) a reduction in the expected inflation rate
B) an increase in the unemployment rate
C) a reduction in the markup, m
D) all of the above
E) none of the above
In the absence of technological progress, which of the following is true when the
economy is operating at the steady state?
A) The growth of output per worker is zero.
B) The growth of output per worker is equal to the saving rate.
C) The growth of output per worker is equal to the rate of investment.
D) The growth of output per worker is equal to the rate of depreciation.
E) none of the above
Suppose the economy is initially in the steady state. An increase in the depreciation rate
(δ) will cause
A) a reduction in K/N.
B) a reduction in Y/N.
C) a reduction in C/N.
D) all of the above
E) none of the above
Adaptive expectations assumes that individuals
A) can accurately predict the future.
B) base predictions on random events (i.e., animal spirits).
C) form their predictions of macroeconomic variables randomly.
D) use all available information in predicting the future.
E) none of the above
Which of the following about the Phillips curve is not correct?
A) It shows the relation between GDP growth and unemployment.
B) It has been redefined as a relation between the change in the rate of inflation and the
unemployment rate.
C) It was first explored by A. W. Phillips.
D) The curve is downward sloping.
For this question, ignore tax considerations of each of the following. Assume that
consumption decisions are made according to the permanent income theory. Which of
the following would lead to the smallest increase in current consumption?
A) winning $10,000 in the lottery
B) inheriting $10,000 from a relative
C) obtaining $10,000 by winning a lawsuit
D) getting a one-time $10,000 bonus from your employer
E) all of the above
The “depreciation rate” tells us
A) the interest rate that should be used in present discounted value calculations.
B) the rate at which consumers deplete their total wealth in retirement.
C) the difference between current and expected income.
D) the difference between current and expected profits.
E) how much usefulness a machine loses from year to year.