The golden rule level of capital refers to
A) the level of capital that maximizes output per worker.
B) the level of capital that maximizes the standard of living.
C) the level of capital that maximizes consumption per worker in the steady state.
D) all of the above
E) none of the above
Assume individuals consider only the short run effects of changes in future macro
variables when forming expectations of future output and future interest rates. Suppose
individuals expect future taxes to decrease. Given this information, individuals will
expect
A) an increase in the expected future interest rate and no change in expected future
output.
B) an increase in the expected future interest rate and an increase in expected future
output.
C) an increase in the expected future interest rate and a reduction in expected future
output.
D) an increase in the expected future interest rate and an ambiguous effect on expected
future output.
Suppose we compare the average growth rates of output for Republican and Democratic
administrations. In which year, on average, is the difference in growth rates for
Republican and Democratic administrations greatest?
A) first
B) second
C) third
D) fourth
E) the growth rates are nearly identical for both parties
Which of the following will cause a reduction in output per worker (Y/N)?
A) a reduction in the capital stock (K)
B) a reduction in the saving rate
C) a reduction in K/N
D) all of the above
Refer to the information above. Given this information, we know that effective labor
(NA) grows at which rate?
A) 0
B) 1%
C) 4%
D) 5%
E) 15%
“Leapfrogging” refers to
A) the typical irregular pattern of growth: rapid in some decades, and almost
non-existent in others.
B) the tendency for a country’s output per capita to catch up to, and then exceed, that of
another country.
C) “one-upsmanship” by politicians who use growth statistics to help win elections.
D) the increased likelihood that a country with very high growth will have a recession,
during which some other country will have the highest growth rate.
E) the interchangeability of capital and labor in the aggregate production function.
Which of the following is one possible explanation for the change in the natural rate of
unemployment in the United States during the 1970s?
A) contractionary fiscal policy
B) an increase in the proportion of labor contracts that were indexed
C) contractionary monetary policy
D) all of the above
E) none of the above
A tariff is
A) a foreign bond.
B) an order for foreign goods that have not yet been delivered.
C) a barter arrangement between importers and exporters.
D) a tax on imported goods.
E) a restriction on the quantity of imported goods allowed into the country.
For this question, assume that the J-curve effect exists. Which of the following will
occur after a real appreciation?
A) The trade deficit will improve temporarily before it worsens.
B) The trade deficit will worsen temporarily before it improves.
C) The real exchange rate will fall temporarily before it rises.
D) The real exchange rate will rise temporarily before it falls.
E) none of the above
Which of the following will most likely cause a change in the natural rate of
unemployment?
A) changes in monetary policy
B) changes in fiscal policy
C) changes in expected inflation
D) all of the above
E) none of the above
Suppose individuals now believe that there will be an increase in the future expected
interest rate. This increase in the expected future interest rate will cause which of the
following to occur in the current period?
A) an upward shift of the LM curve
B) a leftward shift of the IS curve
C) the IS curve to become flatter
D) the LM curve to become steeper
E) none of the above
Between 2010 and 2014, the annual rate of output growth in China was approximately
equal to
A) 2%.
B) 5%.
C) 9%.
D) 20%.
An expected tax increase will tend to cause
A) an increase in stock prices.
B) a reduction in stock prices.
C) no change in stock prices.
D) an ambiguous effect on stock prices.
When inflation has been persistent, as was the case in the United States during the
1970s, low unemployment rates will likely be associated with
A) low natural rates of unemployment.
B) high natural rates of unemployment.
C) low but stable rates of inflation.
D) high but stable rates of inflation.
E) increases in the inflation rate.
Which of the following statements about wage setting is true?
A) most workers in the U.S. have their wages set by formal contracts.
B) formal contracts play a more important role in Japan and Western Europe than in the
United States.
C) the minimum wage in the U.S. is about 75% of the average wage.
D) all of the above
Which of the following represents debt monetization?
A) an increase in the budget deficit that is financed by money creation
B) an increase in the budget deficit that is financed by foreigner investors’ purchases of
domestic bonds
C) an increase in the budget deficit that coincides with a central bank sale of bonds
D) an open market purchase of bonds that results in inflation
E) none of the above
For this question, assume that 1980 is the base year. Given macroeconomic conditions
in the United States over the past three decades, we know that
A) nominal GDP is always smaller than real GDP since 1980.
B) real GDP and nominal GDP would be equal for the entire period.
C) real GDP is larger than nominal GDP from 2002 to 2008.
D) real GDP and nominal GDP were equal in 1980.
E) none of the above
A share of stock will pay a dividend of $25 in one year, and will be sold for an expected
price of $500 at that time. If the current one-year interest rate is 5%, the current price of
the stock will be approximately equal to
A) $100.
B) $475.
C) $500.
D) $525.
E) none of the above
Under a fixed exchange rate regime, expansionary fiscal policy will tend to cause which
of the following?
A) an increase in imports
B) an increase in net exports
C) a reduction in investment
D) all of the above
How many countries are in the Euro area?
A) 19
B) 27
C) 21
D) 11
Which of the following is an asset for both a bank and a central bank?
A) currency
B) deposits
C) bonds
D) all of the above
E) none of the above
Assume that expected inflation is based on the following: πe
t = θπt-1. If θ = 1, we know
that
A) a reduction in the unemployment rate will have no effect on inflation.
B) low rates of unemployment will cause steadily increasing rates of inflation.
C) the actual unemployment rate will not deviate from the natural rate of
unemployment.
D) the Phillips curve illustrates the relationship between the level of inflation rate and
the level of the unemployment rate.
Refer to the information above. Given this information, the steady state rate of growth
of output per worker is
A) 0.
B) 2%.
C) 3%.
D) 5%.
E) 16%.
Which of the following will cause an increase in the rental cost/user cost of capital?
A) The rate of depreciation increases.
B) The real interest rate decreases.
C) The expected profit from the machine decreases.
D) all of the above
E) none of the above
The primary cause of the reduction in the nominal money supply during the early years
of the Great Depression was
A) the Fed’s sale of bonds.
B) the Fed’s purchase of bonds.
C) a reduction in the money multiplier.
D) none of the above
For an open economy, which of the following expressions represents net exports (NX)?
A) S + G – T – I
B) S + G – T + I
C) S + T – G + I
D) G – T + I – S
E) none of the above
In the early 1990s, European unemployment rose largely because of
A) reductions in stock prices.
B) undervalued currencies.
C) overvalued currencies.
D) high inflation.
E) none of the above
Which of the following prices will be used when calculating the rate of growth of real
GDP between the year’s 2005 and 2006 using the chain method?
A) prices in the base year (2002)
B) prices in 2005
C) prices in 2006
D) the average of prices in 2005 and 2006
E) prices in 2005, 2006, and in 2002 (the base year)
Moore’s law refers to which of the following?
A) The steady state rate of growth of output per capita will equal the rate of growth of
technological progress.
B) The number of transistors in a chip would double approximately every 18-24
months.
C) The steady state rate of growth of output per effective worker will be zero.
D) The saving rate that maximizes steady state consumption is .5 (s = 0.5).
E) none of the above
The Current Population Survey interviews approximately how many households each
month?
A) 5,000
B) 10,000
C) 60,000
D) 100,000
Which of the following represents the effects in period t of an increase in the saving rate
in period t?
A) no change in K/N
B) no change in Y/N
C) a reduction in C/N
D) all of the above
Discuss the change of the design of monetary policy over time.
What are the two primary sources of economic growth in China since 1980?
Explain why consumption is less volatile than investment.
Explain what can occur to cause an increase in the debt ratio.
Explain the determinants of investment. Include in your answer an explanation of how a
change in each determinant affects investment.
Joseph Schumpeter argued that growth was a process of creative destruction. Explain
what is meant by the phrase, “creative destruction.”
What factors determine technological progress?
Explain what condition must occur for each of the following to occur: 1. the capital
stock to increase; 2. the capital stock to decrease; and 3. the capital stock to remain
constant.
Explain the economic costs of hyperinflation.
Graphically derive the IS curve from the goods market equilibrium.
For this question, assume that expectations of productivity growth adjust slowly. Now,
suppose that there is a 5% increase in productivity. Explain how this 5% increase in
productivity can cause changes in the unemployment rate.
First, define the LM curve. Second, explain why it has its particular shape.
Some commentators will argue that increases in productivity may have no effect or
even a negative effect on employment in the short run. Explain what must occur for an
increase in productivity to have no effect or even a negative effect on employment in
short run.
First, explain each of the following: hysterisis and Eurosclerosis. Second, explain how
each of them can be used to explain the relatively high natural rate of unemployment in
Europe.
Explain fiscal dominance.
Discuss the types of policies that could be implemented to reduce European
unemployment.
Explain how a reduction in the unemployment rate will affect bargaining power and
nominal wages.
Suppose individuals expect a cut in future taxes. Explain what effect this expected
reduction in future taxes will have on the yield curve and on stock prices in the current
period.
A number of factors are believed to have caused changes in the natural rate of
unemployment in the United States during the 1990s. Briefly comment on each of these
factors.