Based on price setting behavior, which of the following will cause an increase in the
price level?
A) a reduction in productivity
B) an increase in the nominal wage
C) an increase in the markup
D) all of the above
E) none of the above
Which of the following led a strong attack against mainstream macroeconomists during
the 1970s?
A) Friedman and Phelps
B) Hicks and Hansen
C) Modigliani and Friedman
D) Lucas, Barro, and Sargent
An increase in government spending will 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
In the United States, the average length of time people spend unemployed is
A) approximately one month.
B) between two and three months.
C) between ten and eleven months.
D) greater than twelve months.
We will generally observe that the more open an economy
A) the larger the effect of fiscal policy on output and the larger the effect of fiscal
policy on the trade position.
B) the larger the effect of fiscal policy on output and the smaller the effect of fiscal
policy on the trade position.
C) the smaller the effect of fiscal policy on output and the larger the effect of fiscal
policy on the trade position.
D) the smaller the effect of fiscal policy on output and the smaller the effect of fiscal
policy on the trade position.
The official measure of the deficit
A) always underestimates the correct measure of the deficit when inflation is positive.
B) differs from the correct measure by the inflation rate times taxes.
C) depends on the nominal interest rate.
D) depends on the real interest rate.
E) none of the above
Because the nominal interest rate is always positive, the discount factor is always
A) negative.
B) greater than one.
C) zero.
D) less than one.
We would expect which of the following to occur when the central bank conducts an
open market sale of bonds?
A) a reduction in the monetary base (H)
B) a reduction in the money multiplier
C) an increase in H
D) an increase in the money multiplier
E) both C and D
Changes in business inventories will be negative when
A) production exceeds sales.
B) production is less than sales.
C) a trade surplus exists.
D) a budget surplus exists.
Under a fixed exchange rate regime, suppose there is a reduction in housing wealth that
causes a reduction in consumption. This wealth-induced reduction in consumption will
cause
A) a reduction in investment.
B) an increase in net exports.
C) a reduction in imports.
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 one year is
A) $90.91.
B) $95.23.
C) $181.82.
D) $190.00.
E) $220.00.
Analysis of U.S. budget deficits in the United States between 1990 and 2000 indicates
that which of the following is primarily responsible for the reduction in the budget
deficit?
A) decrease in spending
B) increase in tax revenues
C) decrease in spending and increase in tax revenues
D) lower interest rates
E) increases in tax rates
The quantity of imports will decrease when there is
A) an increase in the real exchange rate.
B) a reduction in domestic output.
C) a reduction in foreign output.
D) all of the above
E) none of the above
Which of the following would be a violation of the rational expectations assumption?
A) “Over the past twenty years, people have consistently under-predicted the inflation
rate for the following year.”
B) “Over the past twenty years, people have never once accurately predicted the
inflation rate for the following year.”
C) “The Fed’s announcement that it might ease interest rates caused an immediate drop
in short-term rates, even before the Fed took any action.”
D) all of the above
E) none of the above
Which of the following best defines the LM curve?
A) the combinations of i and Y that maintain equilibrium in the goods market
B) illustrates the effects of changes in i on investment
C) illustrates the effects of changes in i on desired money holdings by individuals
D) the combinations of i and Y that maintain equilibrium in financial markets
Assume an economy experiences, for a given period, a 1% increase in output and a 5%
increase in productivity. Given this information, we know that which of the following
occurred for this economy during this period?
A) The unemployment rate increased during this period.
B) The unemployment rate decreased during this period.
C) The unemployment rate did not change during this period.
D) The effects on the unemployment rate are ambiguous.
E) none of the above
Which of the following would serve to reduce the costs caused by the variability of
inflation?
A) seignorage
B) bracket creep
C) a higher capital gains tax
D) indexed wages
E) none of the above
Suppose the consumption equation is represented by the following: C = 250 + .75YD.
The multiplier in this economy is
A) .25.
B) .75.
C) 1.
D) 4.
E) 5.
The PAYGO rule was allowed to expire in which year?
A) 1990
B) 1991
C) 2002
D) the PAYGO rule still exists
A reduction in the marginal propensity to import will cause
A) the multiplier to increase and a given change in government spending (G) to have a
larger effect on domestic output.
B) the multiplier to increase and a given change in government spending (G) to have a
smaller effect on domestic output.
C) the multiplier to decrease and a given change in government spending (G) to have a
larger effect on domestic output.
D) the multiplier to decrease and a given change in government spending (G) to have a
smaller effect on domestic output.
Suppose the Phillips curve is represented by the following equation: πt – πt-1 = 20 – 2ut.
Given this information, which of the following is most likely to occur if the actual
unemployment in any period is equal to 6%?
A) the rate of inflation will tend to increase
B) the rate of inflation will be constant
C) the rate of inflation will tend to decrease
D) none of the above
According to Keynes,
A) the Great Depression was caused by ill-considered expansionary fiscal policy.
B) balancing the budget in the midst of a depression would be a serious mistake.
C) inflation is always and everywhere a monetary phenomenon.
D) the Phillips curve is stable.
E) none of the above
Graphically illustrate and explain the effects of an increase in population growth on the
Solow growth model. In your answer, you must clearly label all curves and the initial
and final equilibria. In your answer, explain what happens to the rate of growth of
output per worker and the rate of growth of output as the economy adjusts to this
increase in population growth.
Suppose policy makers implement an unexpected fiscal expansion. Further assume that
monetary policy is expected to keep interest rates constant in response to this
unexpected fiscal expansion. Given this information, we would expect that
A) stock prices will rise.
B) stock prices will remain constant.
C) this policy will have an ambiguous effect on stock prices.
D) the effect on stock prices will depend on the slope of the IS curve.
Henry Ford’s experiment with efficiency wages resulted in
A) a dramatic drop in productivity.
B) a dramatic increase in the turnover rate.
C) a reduction in the layoff rate.
D) new problems with the work force, like drunkenness and reckless driving.
E) no noticeable effects.
Inventory investment refers to
A) the difference between production and sales in a given year.
B) fixed investment.
C) nonresidential investment.
D) the purchase by firms of new machines.
Assuming the Marshall-Lerner condition holds and using the ZZ/Y and NX graphs,
illustrate graphically and explain what effect a real depreciation will have on output,
exports, imports, and net exports. Clearly label all curves and clearly label the initial
and final equilibria.
Which of the following events would likely cause the largest increase in current
consumption?
A) a permanent increase in annual salary of $2000
B) a one-time tax cut of $4000
C) a one-time increase in income (e.g. a bonus) of $4000
D) both B and C
For this question, assume that the expected rate of inflation is a function of past year’s
inflation. Also assume that the unemployment rate has greater than the natural rate of
unemployment for a number of years. Given this information, we know that
A) the rate of inflation will approximately be equal to zero.
B) the rate of inflation should neither increase nor decrease.
C) the rate of inflation should steadily increase over time.
D) the rate of inflation should steadily decrease.
E) the inflation rate will be approximately equal to the natural rate of unemployment.
A reduction in which of the following variables will cause a reduction in the user cost
of capital?
A) rt
B) Πt
C) Πe
t
D) all of the above
E) none of the above
A country which does not revalue when financial markets expect it to will probably
suffer
A) a real depreciation of its currency.
B) lower interest rates.
C) a default on its national debt.
D) all of the above
E) none of the above
As the IS curve becomes flatter, we know that
A) a given change in the money supply will cause a larger change in output.
B) a given change in the money supply will cause a smaller change in output.
C) a given change in the money supply will cause the same change in output.
D) monetary policy becomes less effective.