The difference between the official and correct measures of the deficit will be greater,
A) the lower is inflation.
B) the lower is the level of debt, B.
C) the higher is growth of output.
D) all of the above
E) none of the above
With a constant nominal interest rate equal to i, the present discounted value of $1.00 to
be received 4 years from today is equal to
A) 1 + i.
B) i4.
C) (1 + i)4.
D) 1/(1 + i) 4.
E) 4(1 + i).
With a nominal interest rate of 10%, the present discounted value of $200 to be
received in one year is
A) $90.91.
B) $165.29.
C) $181.82.
D) $190.00.
E) $220.00.
From 1970 to the mid-1990s, the relative price of crude petroleum
A) steadily increased.
B) steadily decreased.
C) increased dramatically, then decreased dramatically.
D) decreased dramatically, then increased dramatically.
E) remained more or less the same.
In 2014 , the U.S. GDP accounts for ________ of world output.
A) 20%
B) 23%
C) 45%
D) 50%
Assume that the interest parity holds and that the dollar is expected to appreciate
against the pound. Given this information, we know that
A) U.S. and U.K. interest rates are equal.
B) the U.S. interest rate exceeds the U.K. interest rate.
C) the U.K. interest rate exceeds the U.S. interest rate.
D) individuals will prefer to hold U.S. bonds because the U.S. interest rate exceeds the
U.K. interest rate.
E) none of the above
Which of the following will occur when the central bank pursues expansionary
monetary policy?
A) a leftward shift in the money demand curve and a leftward shift in the money supply
curve
B) a rightward shift in the money demand curve and a leftward shift in the money
supply curve.
C) a leftward shift in the money demand curve and a rightward shift in the money
supply curve.
D) a rightward shift in the money demand curve and a rightward shift in the money
supply curve.
E) none of the above
Depositors have a strong incentive to show up first to withdraw their funds during a
bank crisis because banks operate on a
A) last-in, first-out constraint.
B) sequential service constraint.
C) double-coincidence of wants constraint.
D) everyone-shares-equally constraint.
A revaluation causes which of the following to occur in the short run in the AS/AD
model?
A) a reduction in net exports
B) a reduction in the price level
C) a reduction in output
D) all of the above
E) none of the above
For this question, assume productivity has been increasing by 5% per year. Also assume
that workers’ expectations of productivity growth adjust slowly over time. For this
economy, a reduction in productivity growth from 5% to 2% will most likely cause
which of the following to occur?
A) an increase in the natural rate of unemployment
B) a reduction in the real wage
C) an increase in the markup over labor costs
D) all of the above
E) none of the above
When the Fed wants to signal the public about the direction of monetary policy, it will
likely use
A) a change in the discount rate.
B) open market operations.
C) a change in the reserve requirement.
D) a public announcement about a change in the targeted federal funds rate.
E) all of the above
Liquidity preference refers to
A) Keynes’ name for the demand for money.
B) the “random walk” behavior of consumption spending.
C) monetarists explanations for stagflation.
D) real business cycle theorists’ explanations for stagflation.
E) the controversy sparked by the Lucas critique.
Suppose there is a real appreciation. This real appreciation is more likely to cause a
reduction in net exports when
A) domestic output is relatively low.
B) foreign output is relatively high.
C) the Marshall-Lerner condition does not hold.
D) imports are not at all sensitive to price changes.
E) exports and imports are relatively sensitive to price changes.
An increase in unemployment benefits will tend to cause which of the following?
A) a downward shift in the WS curve
B) an upward shift in the PS curve
C) an upward shift in the WS curve
D) a downward shift in the PS curve
E) none of the above
In a fixed exchange rate regime, which of the following policies could lead to a greater
trade deficit and leave aggregate demand constant?
A) Devalue the currency.
B) Increase government spending.
C) Decrease government spending.
D) Decrease government spending and devalue the currency.
E) Increase government spending and revalue the currency.
Over the past fifty years, convergence has generally occurred for all of the following
groups of countries with the exception of
A) the five richest countries.
B) European countries.
C) the ‘four tigers’ in Asia.
D) OECD countries.
E) none of the above
In 2006, the average U.S. household held approximately how much currency (dollar
bills and coins)?
A) $50
B) $100
C) $600
D) $1600
E) none of the above
Suppose the consumption equation is represented by the following: C = 250 + .75YD.
Given this information, the marginal propensity to save is
A) .25.
B) .7.
C) 1.
D) 4.
E) none of the above
The debt-ratio is the ratio of the debt to
A) government spending.
B) saving.
C) taxes.
D) personal disposable income.
E) GDP.
For this question, assume that there is a simultaneous increase in government spending
and monetary contraction. In a flexible exchange rate regime, we know with certainty
that such a policy mix will cause which of the following?
A) an increase in the domestic interest rate
B) an increase in the exchange rate
C) a reduction in net exports
D) all of the above
E) only A and C
A reduction in the real exchange rate will cause
A) a reduction in net exports.
B) a reduction in the quantity of imports.
C) a reduction in output.
D) an increase in government spending.
E) all of the above
In 2014, which of the following countries had the lowest ratio of exports to GDP?
A) Japan
B) Switzerland
C) Austria
D) Netherlands
E) United States
As the economy moves up and to the right along the IS curve, which of the following
will occur when exchange rates are flexible?
A) investment spending increases
B) consumption increases
C) the domestic currency depreciates
D) all of the above
E) none of the above
At what point could the Euro be used as currency?
A) January 1, 1998
B) January 1, 1999
C) January 1, 2000
D) January 1, 2002
Assume that policy makers are pursuing a fixed exchange rate regime and that the
economy is initially operating at the natural level of output. Which of the following will
occur as a result of a revaluation?
A) The real exchange rate will be permanently higher in the medium run.
B) The real exchange rate will be permanently lower in the medium run.
C) The effects of this revaluation on the real exchange rate will be ambiguous in the
medium run.
D) The real exchange rate will be unchanged in medium run.
E) The nominal exchange will initially fall in the short run and then increase in the
medium run.
Assume the exchange rate is allowed to fluctuate freely. Using the IS-LM-IP model,
graphically illustrate and explain what effect monetary expansion will have on the
domestic economy. In your graphs, clearly label all curves and equilibria.
There are how many members of the Federal Open Market Committee?
A) 15
B) 14
C) 12
D) 7
E) 5
Which of the following will not increase equilibrium output in the short run?
A) increases in R&D
B) increases in consumer confidence
C) increases in investment demand
D) increases in government spending
E) decreases in taxes
Suppose the nominal interest rate is zero. In this situation, the present discounted value
of a finite sequence of future payments is equal to which of the following?
A) zero
B) the sum of the all payments divided by the rate of inflation
C) the average value of each payment
D) the sum of all payments
E) the square of the sum of all payments
Suppose the central bank reduces the money supply. This monetary contraction will
always cause a greater reduction in output when it is accompanied by
A) an increase in expected future taxes.
B) an increase in expected future interest rates.
C) a reduction in expected future output.
D) all of the above
E) none of the above
Which of the following will not cause aggregate private spending to decrease?
A) a reduction in expected future real interest rates
B) a reduction in government spending
C) an increase in future taxes
D) all of the above
E) none of the above
Which of the following events will cause a reduction in equilibrium output?
A) an increase in the marginal propensity to save
B) an increase in taxes
C) a reduction in the marginal propensity to consume
D) all of the above
E) none of the above
Stagflation refers to
A) a reduction in inflation.
B) a simultaneous reduction in inflation and reduction in unemployment.
C) a liquidity trap.
D) reduction in the price level and a reduction in the unemployment rate.
E) none of the above
In practice, under the EMS, a member country
A) could never change its interest rate.
B) could change its interest rate only if other countries changed theirs as well.
C) must apply to a special European Commission in order to change its interest rate.
D) had complete freedom in choosing the interest rate it wanted.
E) had complete freedom in choosing its interest rate only if it is a very small country.
Assume that investment does not depend on the interest rate. A reduction in the money
supply will cause which of the following for this economy?
A) no change in the interest rate
B) no change in output
C) a reduction in investment
D) an increase in investment