Assume that political business cycles do not exist. Given this assumption, we would
expect, all else fixed, the output growth to be highest in which period?
A) just prior to an election
B) just after an election
C) in the first year of an administration
D) in the second year of an administration
E) none of the above
Over the last hundred years,
A) movements in output due to recessions and recoveries dominate the movement
caused by long-run growth.
B) output has decreased in as many years as it has increased.
C) U.S. output has approximately doubled.
D) all of the above
E) none of the above
An unexpected increase in the money supply 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.
Which of the following is not included in National Income?
A) indirect taxes
B) wages and salaries
C) net interest
D) rental income of persons
For this question, assume that investment spending depends only on the interest rate
and no longer depends on output. Given this information, a reduction in government
spending
A) will cause investment to decrease.
B) will cause investment to increase.
C) may cause investment to increase or to decrease.
D) will have no effect on output.
E) will cause a reduction in output and have no effect on the interest rate.
Which of the following is a liability for the central bank?
A) currency
B) bonds
C) savings accounts
D) loans
E) checkable deposits
The yield curve is
A) the term structure of interest rates.
B) the relation between maturity and yield of a bond.
C) maturity.
D) both A and B
E) all of the above
Which of the following is a component of money?
A) coins held by the nonbank public
B) bills held by banks
C) checkable deposits
D) all of the above
Suppose policy makers underestimate the natural rate of unemployment. In situations
like these, policy makers will likely implement policies that result in
A) more unemployment than necessary.
B) an unemployment rate that is “too high.”
C) a higher inflation rate than necessary.
D) a steadily decreasing inflation rate.
E) overly contractionary monetary and fiscal policy.
Suppose there is an increase in the saving rate. This increase in the saving rate will
cause an increase in which of the following once the economy reaches its new steady
state equilibrium?
A) growth rate of output
B) growth rate of capital
C) growth rate of capital per worker
D) all of the above
E) none of the above
Assume that the interest parity condition holds. Also assume that the U.S. interest rate is
6% while the U.K. interest rate is 8%. Given this information, financial markets expect
the pound to
A) depreciate by 14%.
B) depreciate by 2%.
C) appreciate by 2%.
D) appreciate by 6%.
E) appreciate by 14%.
Which of the following is an endogenous variable in our model of the goods market in
Chapter 3?
A) consumption (C)
B) disposable income (YD)
C) saving (S)
D) total income (Y)
E) all of the above
For this question, assume that the Fed sets monetary policy according to the Taylor rule.
Suppose current U.S. macroeconomic conditions are represented by the following: π =
π?* and u < un. Given this information, we would expect that the Fed will
A) implement a monetary contraction.
B) implement a monetary expansion.
C) maintain its current stance of monetary policy.
D) more information is need to answer this question.
In the following production function, Y = f(K, NA), suppose A increases by 20%. This
20% increase in A implies that
A) the same output can be produced with 20% less labor.
B) the effective quantity of labor has increased by 20%.
C) output will increase by less than 20%.
D) all of the above
E) both A and C.
Suppose the following situation exists for an economy: Kt+1/N < Kt/N. Given this
information, we know that
A) saving per worker equals depreciation per worker in period t.
B) consumption per worker will tend to fall as the economy adjusts to this situation.
C) saving per worker is greater than depreciation per worker in period t.
D) the saving rate increased in period t.
E) none of the above
Which of the following will cause an increase in the steady-state growth rate of capital?
A) an increase in the saving rate
B) an increase in the population growth rate
C) a temporary increase in technological progress
D) all of the above
E) none of the above
With a nominal interest rate of 5%, the present discounted value of $100 to be received
in two year is
A) $90.00.
B) $90.70.
C) $95.23.
D) $110.00.
Suppose foreign exchange markets anticipate a revaluation for country A. Further
assume that policy makers in country A will continue to fix its nominal exchange rate.
In order to peg the currency at its original level, which of the following must occur?
A) Increase the domestic interest rate.
B) Increase the domestic price level.
C) Convince trading partners to raise their interest rates.
D) all of the above
E) none of the above
Let: 1. Pt be the price of one unit of a market basket of goods (i.e., a composite
commodity) in year t; 2. Pe
t + 1 be the expected price of one unit of a market basket of
goods in year t + 1; 3. πe
t + 1 be the expected rate of inflation between period t and t + 1;
and 4. it be the one-year nominal interest rate. Suppose an individual borrows the
equivalent of one unit of a composite commodity today. Given this information, which
of the following expressions represents (i.e., is equal to) the real interest rate (rt)?
A) (1 + it)(Pe
t+1)/(Pt)
B) (1 + πe
t+1)/(1 + it)
C) {(1 + πe
t+1)/(1 + it)} – 1
D) {(1 + it)(Pt)/(Pe
t+1)} – 1
E) none of the above
Which of the following generally occurs when a central bank pursues expansionary
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.
Suppose there is a simultaneous central bank sale of bonds and tax increase. 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.
Given the uncertainty about the effects of macro policy, economists generally propose
that
A) macro policies should be more active, the lower the level of unemployment or
inflation.
B) changes in money growth should only be used for fine tuning the economy, not for
correcting large imbalances (such as high inflation).
C) money growth should be set at zero by constitutional amendment.
D) elected officials should have more input in the determination of monetary policy.
E) none of the above
Assume the exchange rate is allowed to fluctuate freely. Using the IS-LM-IP model,
graphically illustrate and explain what effect monetary contraction will have on the
domestic economy. In your graphs, clearly label all curves and equilibria.
“Churning” refers to
A) changes in the real wage over the business cycle.
B) changes in the markup over the business cycle.
C) structural change associated with technological progress.
D) the increase in productivity caused by an increase in output.
E) the increase in output caused by an increase in productivity.
Which of the following will occur as a result of a tax increase?
A) private saving increases
B) investment increases
C) the trade balance improves
D) the trade balance worsens
E) the budget deficit increases
For this question, assume that a country experiences a permanent increase in its saving
rate. Which of the following will occur as a result of this increase in the saving rate?
A) a permanently faster growth rate of output
B) a permanently higher level of output per capita
C) a permanently higher level of capital per worker
D) all of the above
E) both B and C.
Data on real and nominal interest rates of one-year U.S. T-Bills show that, over the past
twenty years,
A) the nominal rate has always been less than the real rate.
B) whenever the nominal rate rises, the real rate falls, and vice versa.
C) the nominal rate has varied, but the real rate has not.
D) the real rate has varied, but the nominal rate has not.
E) the real rate has always been less than the nominal rate.
Which of the following is included in G?
A) medicare
B) social security payments
C) interest payments on the government debt
D) government purchases
E) all of the above
Which of the following is a flow variable?
A) income
B) money
C) financial wealth
D) all of the above
E) none of the above
The natural level of employment (N) will increase when which of the following occurs?
A) an increase in the markup of prices over costs
B) a reduction in unemployment benefits
C) an increase in the actual unemployment rate
D) all of the above
E) none of the above
An increase in the reserve deposit ratio, θ, 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
Based on an analysis of macroeconomic outcomes under Republican and Democratic
administrations, we would expect which of the following to occur?
A) Growth rates to be generally higher under Republican administrations.
B) Macroeconomic policy to be relatively contractionary under Democratic
administrations.
C) Unemployment rates to be generally higher under Democratic administrations.
D) Inflation rates to be generally lower under Democratic administrations.
E) none of the above
Based on our understanding of the IS-LM model that takes into account dynamics, we
know that a reduction in government spending will cause
A) an immediate drop in Y and immediate increase in i.
B) an immediate reduction in i and no initial change in Y.
C) a gradual reduction in i and gradual reduction in Y.
D) a gradual reduction in i and an immediate reduction in Y.