A period of falling prices is called:
A) deflation.
B) inflation.
C) a depression.
D) a recession.
With planned expenditure and the equilibrium condition Y = PE drawn on a graph with
income along the horizontal axis, if income exceeds expenditure, then income is to the
______ of equilibrium income and there is unplanned inventory ______.
A) right; decumulation
B) right; accumulation
C) left; decumulation
D) left; accumulation
If investment does not depend on the interest rate, then the ______ curve is ______.
A) IS; vertical
B) IS; horizontal
C) LM; vertical
D) LM; horizontal
Exhibit: Policies Influence Real Exchange Rate
(Exhibit: Policies Influence Real Exchange Rate) Which of the panels illustrates the
impact on the real exchange rate of an increase in investment demand?
A) (A)
B) (B)
C) (C)
D) (D)
The money supply will increase if the:
A) currency”deposit ratio increases.
B) reserve”deposit ratio increases.
C) monetary base increases.
D) discount rate increases.
Assume that the real wage in an economy is held above equilibrium.
a. Graphically illustrate how an increase in technology that raises the demand for labor
will change the number of unemployed workers. Be sure to label the axes and the
quantities of labor hired before and after the technological progress.
b. Explain in words what happens to the number of unemployed as a result of this
change.
If the short-run aggregate supply curve is assumed to be horizontal, international capital
flows are infinitely elastic, and the nominal exchange rate is fixed, then the mother of
all models in the Appendix to Chapter 14 corresponds to which of the following special
cases?
A) classical open economy
B) IS“LM model
C) Mundell”Fleming model with floating exchange rate
D) Mundell”Fleming model with fixed exchange rate
Economic profit is zero if:
A) all factors are paid their marginal products and the law of diminishing returns is
valid.
B) all factors are paid their marginal products and there are constant returns to scale.
C) all firms maximize profits and none are competitive.
D) all firms maximize profits and all factors are paid their marginal products.
The logic of Ricardian equivalence implies that:
A) tax cuts do not influence consumer spending but changes in government spending
do.
B) neither tax cuts nor changes in government spending affect consumer spending.
C) tax cuts combined with future decreases in government spending will decrease
consumer spending.
D) if the government cuts taxes and increases current government spending, consumer
spending will increase.
John Maynard Keynes believed that the marginal propensity to consume:
A) was zero.
B) was between zero and one.
C) was one.
D) increased as income increased.
If the steady-state rate of unemployment equals 0.10 and the fraction of employed
workers who lose their jobs each month (the rate of job separations) is 0.02, then the
fraction of unemployed workers who find jobs each month (the rate of job findings)
must be:
A) 0.02.
B) 0.08.
C) 0.10.
D) 0.18.
According to the quantity theory of money, ultimate control over the rate of inflation in
the United States is exercised by:
A) the Organization of Petroleum Exporting Countries (OPEC).
B) the U.S. Treasury.
C) the Federal Reserve.
D) private citizens.
At long-run equilibrium in the dynamic model of aggregate demand and aggregate
supply, the nominal interest rate, it, equals all of the following except:
A)
B) rt + pt
C) r + Etpt + 1
D) r + rt
When an aggregate demand curve is drawn with real GDP (Y) along the horizontal axis
and the price level (P) along the vertical axis, if the money supply is decreased, then the
aggregate demand curve will shift:
A) downward and to the left.
B) downward and to the right.
C) upward and to the left.
D) upward and to the right.
Labor hoarding refers to:
A) keeping workers in low-wage jobs in order to reduce labor costs.
B) using less capital in production so that more workers will have jobs.
C) continuing to employ workers during a recession to ensure they will be available in
the recovery.
D) contractually preventing workers from obtaining jobs with competing firms.
Assume that a rancher sells McDonald’s a quarter-pound of meat for $1 and that
McDonald’s sells you a hamburger made from that meat for $2. In this case, the value
included in GDP should be:
A) $0.50.
B) $1.
C) $2.
D) $3.
When the Federal Reserve reduces the money supply, at a given price level the amount
of output demanded is ______ and the aggregate demand curve shifts ______.
A) greater; inward
B) greater; outward
C) lower; inward
D) lower; outward
Most hyperinflations end with _____ reforms that eliminate the need for _____.
A) monetary; taxes
B) monetary; currency
C) fiscal; seigniorage
D) fiscal; currency
In a small open economy, if the world real interest rate is above the rate at which
national saving equals domestic investment, then there will be a trade ______ and
______ net capital outflow.
A) surplus; negative
B) deficit; positive
C) surplus; positive
D) deficit; negative
The amount of capital in an economy is a ______ and the amount of investment is a
______.
A) flow; stock
B) stock; flow
C) final good; intermediate good
D) intermediate good; final good
In the long run, according to the quantity theory of money and the classical
macroeconomic theory, if velocity is constant, then ______ determines real GDP and
______ determines nominal GDP.
A) the productive capability of the economy; the money supply
B) the money supply; the productive capability of the economy
C) velocity; the money supply
D) the money supply; velocity
There are a number of statistics computed to measure the price level, such as the GDP
deflator and the CPI. The choice of which of these measures to use depends in many
cases on the specific question in which you are interested. For each of the following
situations, state whether the CPI or GDP deflator is a more appropriate measure to use
and explain why the statistic is preferred.
a. You are interested in looking at the impact of higher prices of imported oil in the
overall cost of living.
b. The government is interested in whether increases in defense spending are affecting
the price level.
c. An economic consulting firm is investigating the impact on the aggregate price level
of more computers and electronic technology used in production.
Business fixed investment includes:
A) rental housing that landlords buy to rent out.
B) goods that businesses put aside in fixed storage facilities, including materials and
supplies.
C) the fixed cost of borrowing that businesses pay for new equipment.
D) equipment and structures that businesses buy to use in production.
If the government levies a one-time temporary tax on the young and gives the proceeds
to the elderly, and both generations follow the life-cycle consumption pattern and are
altruistically linked:
A) both the young and the old will consume more.
B) there will be a net increase in overall consumption.
C) there will be a net decrease in overall consumption.
D) there will be no change in overall consumption.
In the Keynesian-cross model, if the MPC equals 0.75, then a $1 billion increase in
government spending increases planned expenditures by ______ and increases the
equilibrium level of income by ______.
A) $1 billion; more than $1 billion
B) $0.75 billion; more than $0.75 billion
C) $0.75 billion; $0.75 billion
D) $1 billion; $1 billion
In 2013, American net borrowings from abroad, per person, in current dollars,
amounted to approximately:
A) $100.
B) $220.
C) $1,600.
D) $10,000.
Exhibit: Steady-State Capital”Labor Ratio
In this graph, the capital”labor ratio that represents the steady-state capital”ratio is:
A) k0.
B) k1.
C) k2.
D) k3.
If all prices are stuck at a predetermined level, then when a short-run aggregate supply
curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along
the vertical axis, this curve:
A) is horizontal.
B) is vertical.
C) slopes upward and to the right.
D) slopes downward and to the right.
During the period between 1900 and 2000, the unemployment rate in the United States
was highest in the:
A) 1920s.
B) 1930s.
C) 1970s.
D) 1980s.
In a small open economy with a floating exchange rate, an effective policy to decrease
equilibrium output is to:
A) decrease government spending.
B) decrease taxes.
C) increase the money supply.
D) decrease the money supply.
National saving refers to:
A) disposable income minus consumption.
B) taxes minus government spending.
C) income minus consumption minus government spending.
D) income minus investment.
When capital increases by DK units, output increases by:
A) DL units.
B) MPL × DL units.
C) DK units.
D) MPK × DK units.
Which of the following changes would bring the U.S. capital stock, currently below the
Golden Rule level, closer to the steady-state, consumption-maximizing level?
A) increasing the population growth rate
B) increasing the rate of capital depreciation
C) increasing the rate of technological progress
D) increasing the saving rate
A shrinking U.S. budget deficit in the 1990s coincided with a ______ U.S. trade deficit.
A) shrinking
B) continuing
C) nonexistent
D) stable
A major disruption in the financial system that impedes the economy’s ability to
intermediate between those who want to save and those who want to borrow and invest
is called a:
A) moral hazard.
B) speculative bubble.
C) financial crisis.
D) stagflation.