In 2007 in the United States among labor-force members ages 16 to 19, the highest
unemployment rate was for:
A) black females.
B) black males.
C) white females.
D) white males.
Tax cuts stimulate ______ by improving workers’ incentive and expand ______ by
raising households’ disposable income.
A) velocity; demand for loanable funds
B) demand for loanable funds; velocity
C) aggregate demand; aggregate supply
D) aggregate supply; aggregate demand
The demand for housing is brought into equilibrium with the existing stock of housing
by changes in the:
A) real interest rate.
B) nominal interest rate.
C) relative price of housing.
D) overall price level.
In the Solow growth model with population growth and technological change, the
steady-state growth rate of income per person depends on:
A) the rate of population growth.
B) the saving rate.
C) the rate of technological progress.
D) the rate of population growth plus the rate of technological progress.
Assume two economies are identical in every way except that one has a higher
population growth rate. According to the Solow growth model, in the steady state the
country with the higher population growth rate will have a ______ level of output per
person and ______ rate of growth of output per worker as/than the country with the
lower population growth rate.
A) higher; the same
B) higher; a higher
C) lower; the same
D) lower; a lower
Assume that the consumption function is given by C = 200 + 0.7(Y ” T), the tax
function is given by T = 100 + t1Y, and Y = 50K0.5L0.5, where K = 100 and L = 100. If t1
increases from 0.2 to 0.25, then consumption decreases by:
A) 70.
B) 140.
C) 175.
D) 250.
The goods produced in U.S. industries may be made more competitive in world markets
by:
A) appreciating the U.S. currency.
B) depreciating the U.S. currency.
C) keeping the exchange rate fixed.
D) expanding the money supply.
Explain how tight credit markets (credit crunches) affect:
a. business fixed investment,
b. residential investment, and
c. inventory investment.
In the liquidity preference model, what adjusts to move the money market to
equilibrium following a change in the money supply?
A) planned spending
B) the interest rate
C) production
D) the price level
Predetermined variables in a model are treated as if they are essentially:
A) endogenous variables.
B) exogenous variables.
C) parameters.
D) equilibrium conditions.
In the small open economy in equilibrium:
A) saving is fixed, and investment is determined by the investment function and the
world interest rate.
B) investment is fixed, and saving is determined by the saving function and the world
interest rate.
C) saving is fixed, and investment is determined by the trade balance.
D) investment is fixed, and saving is determined by the trade balance.
If the Fed reduces the money supply by 5 percent, then the real interest rate will:
A) rise in both the short run and the long run.
B) rise in the short run but return to its original equilibrium level in the long run.
C) rise in the short run but will fall below its original equilibrium level in the long run.
D) be unaffected in both the short run and the long run.
The imperfect-information model bases the difference in the short-run and long-run
aggregate supply curve on:
A) sticky wages.
B) sticky prices.
C) temporary misperceptions about prices.
D) procyclical real wages.
Exhibit: IS*”LM*
(Exhibit: IS*”LM*) A small open economy with a fixed exchange rate e2 is initially at
equilibrium A with and equilibrium output Y1. If there is a monetary
expansion to the new equilibrium will be at ____, holding everything else
constant.
A) A
B) B
C) C
D) D
The pull of instant gratification may lead consumers to save ______ they would like to
save.
A) more than
B) less than
C) approximately the amount
D) precisely the amount
A typical trend during a recession is that:
A) the unemployment rate falls.
B) the popularity of the incumbent president rises.
C) incomes fall.
D) the inflation rate rises.
A strict balanced-budget rule would:
A) permit the use of fiscal policy for stabilization.
B) allow the use of tax smoothing to reduce tax distortions.
C) redistribute tax burdens across generations.
D) restrain political incompetence and opportunism.
Macroeconomic models are used to explain how ______ variables influence ______
variables.
A) endogenous; exogenous
B) exogenous; endogenous
C) microeconomic; macroeconomic
D) macroeconomic; microeconomic
Over the business cycle, investment spending ______ consumption spending.
A) is inversely correlated with
B) is more volatile than
C) has about the same volatility as
D) is less volatile than
If purchasing-power parity held, if a Big Mac costs $2 in the United States, and if 10
Mexican pesos trade for $1 dollar, then a Big Mac in Cancun, Mexico, should cost:
A) 2 pesos.
B) 5 pesos.
C) 10 pesos.
D) 20 pesos.
In a small open economy with a floating exchange rate, if the government adopts an
expansionary fiscal policy, in the new short-run equilibrium:
A) income and the exchange rate will both rise.
B) the exchange rate will rise, but income will remain unchanged.
C) income will rise, but the exchange rate will remain unchanged.
D) both income and the interest rate will rise.
For a closed economy, 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.
An appreciation of the real exchange rate in a small open economy could be the result
of:
A) an increase in government spending.
B) an increase in taxes.
C) a decrease in the world interest rate.
D) the expiration of an investment tax-credit provision.
If money demand is infinite below some certain r (e.g., r*) and zero above r*, then the
LM curve is ______ and ______ policy has no effect on output.
A) vertical; fiscal
B) horizontal; fiscal
C) vertical; monetary
D) horizontal; monetary
Which of the following would be represented by a negative value of the random
demand shock, et?
A) an irrational wave of optimism among investors
B) a decrease in government spending
C) an aggressive increase in oil prices by a cartel
D) a decrease in the central bank’s inflation target
Using decade-long data across countries from 2000″2010, countries with high money
growth tend to have _____ inflation.
A) high
B) low
C) constant
D) decreasing
Suppose that two economies are identical, having the same saving rates, population
growth rates, and efficiency of labor. What will be the steady state level of income per
person in the economy when
a. One country has smaller capital stock than the other, and
b. One country has lower saving rate than the other.
Starting from long-run equilibrium in the dynamic model of aggregate demand and
aggregate supply, a permanent reduction in the central bank’s inflation target causes the
nominal interest rate to:
A) decline continuously until reaching a lower level in the long run.
B) increase initially and then decline until reaching a lower level in the long run.
C) decline immediately to a lower level in the long run.
D) fall below and then rise continuously to long-run level below the initial level.
If corporate profit were defined as the real price of capital minus the properly defined
cost of capital, then:
A) having a tax on corporate profits would be more favorable to investment than having
no tax at all.
B) having a tax on corporate profits would be less favorable to investment than having
no tax at all.
C) having a tax on corporate profits would leave investment incentives the same as
having no tax at all.
D) whether a corporate profits tax was more or less favorable for investment than no tax
at all would depend on the rate of tax.
In the United States, bank reserves consist of:
A) currency and demand deposits.
B) vault cash and deposits at the Federal Reserve.
C) gold deposits at the Federal Reserve.
D) the money supply.
Automatic stabilizers:
A) require congressional action before each time that they are put into effect.
B) have no outside lag.
C) have no inside lag.
D) have long and variable inside lags.
The Keynesian consumption function exhibits all of the following properties except
that:
A) the marginal propensity to consume is between 0 and 1.
B) the average propensity to consume decreases as income increases.
C) only unexpected policy changes influence consumption.
D) current income is the primary determinant of consumption.
The version of Okun’s law studied in Chapter 10 assumes that with no change in
unemployment, real GDP normally grows by 3 percent over a year. If the
unemployment rate rose by 2 percentage points over a year, Okun’s law predicts that
real GDP would:
A) decrease by 1 percent.
B) decrease by 2 percent.
C) decrease by 3 percent.
D) increase by 1 percent.
Assume that a society consists of two types of workers. For type A, 3 million workers
lose their jobs each year, and each one takes a year to find a new one. For type B, 36
million workers lose their jobs each year (3 million per month), and each takes one
month to find a new job. Thus, at any given time, 6 million are unemployed in this
economy.
a. How many ‘spells” of unemployment occur each year in this economy?
b. What percentage of the ‘spells” are only one month long?
c. If you take all the workers unemployed each year and multiply each by the length of
his or her unemployment ‘spell,” how many “months” of unemployment would there be
in this economy each year?
d. Of all the “months” of unemployment, how many are accounted for by the workers
unemployed a year at a time?
The basic aggregate supply equation implies that output exceeds natural output when
the price level is:
A) low.
B) high.
C) less than the expected price level.
D) greater than the expected price level.