Conventional monetary and fiscal policies used in a recession are aimed at:
A) increasing aggregate supply.
B) increasing aggregate demand.
C) decreasing aggregate supply.
D) decreasing aggregate demand
The outside lag is the time:
A) before automatic stabilizers respond to economic activity.
B) when automatic stabilizers are not effective.
C) between a shock to the economy and the policy action responding to the shock.
D) between a policy action and its influence on the economy.
When the central bank acts as a lender of last resort, it:
A) requires the borrower to put up collateral.
B) is able to confiscate some of the borrower’s assets.
C) requires voting rights on the borrower’s board of directors.
D) takes over ownership of the borrower.
What variables, in addition to current income, are hypothesized to influence
consumption in the:
a. Fisher two-period model?
b. life-cycle model?
c. permanent-income hypothesis?
d. random-walk hypothesis?
As the U.S. budget deficit shrank in the 1990s, the increase in U.S. national saving was
______ than the expansionary shift in the U.S. investment function, resulting in a trade
______.
A) stronger; deficit
B) stronger; surplus
C) weaker; deficit
D) weaker; surplus
According to the life-cycle model, the short-run consumption function will not continue
to hold in the long run because:
A) increases in wealth shift the short-run function upward.
B) decreases in the average propensity to consume shift the short-run function
downward.
C) increases in income shift the short-run function upward.
D) increases in the average life span shift the short-run function upward.
The average unemployment rate in western Europe is higher than in the United States.
a. Explain one difference between the European and U.S. economies that is consistent
with more structural unemployment in Europe.
b. Explain one difference between the European and U.S. economies that is consistent
with more frictional unemployment in Europe.
In a small open economy with a fixed exchange rate, if the country devalues its
currency, then in the new short-run equilibrium the exchange rate ______, and the LM*
curve shifts to the ______.
A) decreases; left
B) increases; left
C) decreases; right
D) increases; right
Use the data in the exhibit to complete a and b.
Exhibit: Factors of Production Data
a. Compute and report the value of growth in total factor productivity ((At ” At”1)/At”1)
in each period from periods 2 through 5. If the value of A is 1.000 in period 1, also
report the value of A in each period.
b. Does the value of A rise in each period? If it declines, do you think this decline is
because technological progress works backward? If so, explain your answer. If not,
provide another explanation.
Assume that the adult population of the United States is 191.6 million, total
employment is 117.6 million, and 9.4 million are unemployed. Then the unemployment
rate, as normally computed, is approximately ______ percent.
A) 4.9
B) 7.4
C) 7.9
D) 9.4
The GDP deflator is equal to:
A) the ratio of nominal GDP to real GDP.
B) the ratio of real GDP to nominal GDP.
C) real GDP minus national GDP.
D) nominal GDP minus real GDP.
Macroeconomists are like scientists because they both:
A) design data and conduct controlled experiments to test their theories.
B) rely on data analyzed from experiments they set up in a laboratory.
C) are unlimited in their use of controlled experiments.
D) collect data, develop hypotheses, and analyze the results.
According to the usual seasonal pattern of the U.S. economy, GDP is highest in the
quarter of the year that includes:
A) January, February, and March.
B) April, May, and June.
C) July, August, and September.
D) October, November, and December.
The LM curve generally determines:
A) income.
B) the interest rate.
C) both income and the interest rate.
D) neither income nor the interest rate.
For each of the two models of short-run aggregate supply (sticky price and imperfect
information) compare the following characteristics:
a. the nature of the market imperfection that generates the short-run movements in
output associated with unexpected movements in the price level;
b. whether prices are flexible or fixed;
An increase in government spending raises income:
A) and the interest rate in the short run, but leaves both unchanged in the long run.
B) in the short run, but leaves it unchanged in the long run, while lowering investment.
C) in the short run, but leaves it unchanged in the long run, while lowering
consumption.
D) and the interest rate in both the short and long runs.
Recessions typically, but not always, include at least ______ consecutive quarters of
declining real GDP.
A) two
B) four
C) six
D) eight
All of the following policies were adopted by the government in an attempt to reduce
the natural rate of unemployment except:
A) unemployment insurance.
B) government employment agencies.
C) public retraining programs.
D) the Illinois bonus program for unemployment insurance claimants who found jobs
quickly.
In the mortgage market, a rise in the real interest rate:
A) lowers housing demand, housing prices, and residential investment.
B) raises housing demand, housing prices, and residential investment.
C) lowers housing demand and residential investment but raises housing prices.
D) raises housing demand but lowers housing prices and residential investment.
If the short-run aggregate supply curve is assumed to be horizontal and money demand
is proportional to income, then the mother of all models in the Appendix to Chapter 14
corresponds to which of the following special cases?
A) classical closed economy
B) aggregate demand and aggregate supply
C) IS“LM model
D) Mundell”Fleming model with floating exchange rate
If the labor force is growing at a 3 percent rate and the efficiency of a unit of labor is
growing at a 2 percent rate, then the number of effective workers is growing at a rate of:
A) 2 percent.
B) 3 percent.
C) 5 percent.
D) 6 percent.
The amount the government would owe if a borrower were to default on a
government-guaranteed loan is an example of:
A) capital budgeting.
B) a contingent liability.
C) a cyclically adjusted liability.
D) Ricardian equivalence.
If consumers have rational expectations and follow the permanent-income hypothesis,
their current consumption will increase when:
A) previously announced tax reductions are implemented.
B) they receive an anticipated raise.
C) they receive an unexpected inheritance.
D) they make the last payment on their automobile loan.
According to the Taylor rule, when real GDP is above its natural level, the nominal
federal funds rate should be _____, and when inflation is below 2 percent, the nominal
federal funds rate should be _____.
A) raised; raised
B) raised; lowered
C) lowered; raised
D) lowered; lowered
All of the following are endogenous variables in the dynamic model of aggregate
demand and aggregate supply except:
A) Yt, output
B) central bank’s inflation target
C) rt, real interest rate
D) Etpt + 1, expected inflation
The analysis in Chapter 9 of the current capital stock in the United States versus the
Golden Rule level of capital stock shows that the capital stock in the United States is:
A) well above the Golden Rule level.
B) about equal to the Golden Rule level.
C) well below the Golden Rule level.
D) slightly above the Golden Rule level.
When a country abandons its national currency and adopts the currency of the United
States, this is known as:
A) a floating exchange rate system.
B) dollarization.
C) a speculative attack on the United States.
D) a currency board.
According to the permanent income hypothesis, households will finance a temporary
increase in taxes by: reducing _______ or increasing _____.
A) consumption; saving
B) saving; borrowing
C) permanent income; transitory income
D) transitory income; permanent income
A decrease in the price level, holding nominal money supply constant, will shift the LM
curve:
A) upward and to the right.
B) downward and to the right.
C) downward and to the left.
D) upward and to the left.
In a small open economy with a floating exchange rate, the exchange rate will
depreciate if:
A) the money supply is decreased.
B) import quotas are imposed.
C) government spending is increased.
D) taxes are decreased.
If productivity growth in the United States had remained at its level before the recent
productivity slowdown, real income today would be more than ______ percent higher.
A) 10
B) 20
C) 30
D) 40
The labor-force participation rate is the percentage of the:
A) adult population that is employed.
B) adult population that is in the labor force.
C) labor force that is employed.
D) labor force that is unemployed.