Monetary neutrality, the irrelevance of the money supply in determining values of
_____ variables, is generally thought to be a property of the economy in the long run.
A) real
B) nominal
C) real and nominal
D) neither real nor nominal
In the classical model with fixed income, if the interest rate is too high, then investment
is too ______ and the demand for output ______ the supply.
A) high; exceeds
B) high; falls short of
C) low; exceeds
D) low; falls short of
If Y = AK0.5L0.5 and A, K, and L are all 100, the marginal product of capital is:
A) 50.
B) 100.
C) 200.
D) 1000.
According to the efficient markets hypothesis, changes in stock prices:
A) follow a random walk.
B) can be predicted from available information.
C) are driven by irrational waves of optimism and pessimism.
D) are based on what investors expect other investors to pay.
If the short-run aggregate supply curve is horizontal, then changes in aggregate demand
affect:
A) level of output but not prices.
B) prices but not level of output.
C) both prices and level of output.
D) neither prices nor level of output.
In the Keynesian-cross model, if government purchases increase by 100, then planned
expenditures ______ for any given level of income.
A) increase by 100
B) increase by more than 100
C) decrease by 100
D) increase, but by less than 100
If currency held by the public equals $100 billion, reserves held by banks equal $50
billion, and bank deposits equal $500 billion, then the monetary base equals:
A) $50 billion.
B) $100 billion.
C) $150 billion.
D) $600 billion.
Between August 1929 and March 1933, the money supply fell 28 percent. At that time
the monetary base ______ and the currency”deposit and reserve”deposit ratios both
______.
A) fell; fell
B) fell; rose
C) rose; fell
D) rose; rose
Sam wants a loan from Dean. While discussing the interest, Dean told Sam that he will
give him two options. Which one should Sam choose and why? The options are:
a. Sam will pay the nominal interest of 8 percent per annum.
b. Sam will pay real interest of 4 percent per annum.
In a closed economy, private saving equals:
A) Y ” C ” G.
B) Y ” T ” C.
C) Y ” I ” C.
D) Y ” T.
If the investment demand function is I = c ” dr and the quantity of real money
demanded is eY ” fr, then monetary policy is relatively potent in influencing aggregate
demand when d is ______ and f is ______.
A) large; small.
B) small; also small.
C) small; large.
D) large; also large.
“Inflation tax” means that:
A) as the price level rises, taxpayers are pushed into higher tax brackets.
B) as the price level rises, the real value of money held by the public decreases.
C) as taxes increase, the rate of inflation also increases.
D) in a hyperinflation, the chief source of tax revenue is often the printing of money.
According to the Phillips curve, the inflation rate depends on all of the following
except:
A) previously expected inflation.
B) an exogenous supply shock.
C) the real interest rate.
D) the deviation of output from its natural rate.
The market value of all final goods and services produced within an economy in a given
period of time is called:
A) industrial production.
B) gross domestic product.
C) the GDP deflator.
D) general durable purchases.
A tax cut combined with tight money, as was the case in the United States in the early
1980s, should lead to a:
A) rise in the real interest rate and a fall in investment.
B) fall in the real interest rate and a rise in investment.
C) rise in both the real interest rate and investment.
D) fall in both the real interest rate and investment.
Unlike the real world, the classical model with fixed output assumes that:
A) all factors of production are fully utilized.
B) all capital is fully utilized but some labor is unemployed.
C) all labor is fully employed but some capital lies idle.
D) some capital lies idle and some labor is unemployed.
An increase in taxes lowers 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 increasing
consumption and lowering investment.
C) in the short run, but leaves it unchanged in the long run, while lowering consumption
and increasing investment.
D) and the interest rate in both the short and long runs.
When the LM curve is drawn, the quantity that is held fixed is:
A) the nominal money supply.
B) the real money supply.
C) government spending.
D) the tax rate.
The CPI is a:
A) Laspeyres price index.
B) Paasche price index.
C) Laspeyres quantity index.
D) Paasche quantity index.
The model of aggregate demand and aggregate supply is consistent with short-run
monetary ______ and long-run monetary ______.
A) neutrality; neutrality
B) nonneutrality; nonneutrality
C) neutrality; nonneutrality
D) nonneutrality; neutrality
When the Fed decreases the interest rate paid on reserves, if the ratio of currency to
deposits decreases also while the monetary base is constant, then:
A) it cannot be determined whether the money supply increases or decreases.
B) the money supply increases.
C) the money supply decreases.
D) the two changes exactly offset each other.
In the IS“LM model, starting with no expected inflation, if expected inflation becomes
negative, then the:
A) IS curve shifts leftward.
B) IS curve shifts rightward.
C) LM curve shifts leftward.
D) LM curve shifts rightward.
Explain which expenditure category of GDP changes and the direction of the change
that results for each transaction described.
a. A domestic business purchases a domestically produced computer to use in a business
office.
b. A domestic business produces a computer that is sold to a foreign company.
c. The federal government purchases a domestically produced computer to use in a
courthouse.
d. A domestic household purchases a domestically produced computer to use in a home.
e. A domestic household purchases a computer produced in a foreign country to use in a
home.
There are a number of measures of aggregate economic activity, such as GDP, GNP,
national income, personal income, and disposable personal income. Each of these
measures can be a good indicator depending on the issue under consideration. For each
of the following issues, give your reasons for selecting one of the measures just
mentioned as the best indicator to use in studying the issue:
a. the proportion of income households save;
b. the relative share of earnings going to labor versus capital;
c. the total output of final goods and services.
Which of the following statements about economic models is true?
A) There is only one correct economic model.
B) All economic models are based on the same assumptions.
C) The purpose of economic models is to show how endogenous variables affect
exogenous variables.
D) Economists use different models to address different economic phenomenon.
Increases in the rate of growth of income per person in the United States in the
mid-1990s is mostly likely the result of:
A) increases in human capital.
B) increases in physical capital.
C) advances in information technology.
D) an increase in the saving rate.
Unemployment caused by the time it takes workers to search for a job is called ______
unemployment.
A) frictional
B) structural
C) efficiency
D) insider
In computing GDP,
A) expenditures on used goods are included.
B) production added to inventories is excluded.
C) the amount of production in the underground economy is imputed.
D) the value of intermediate goods is included in the market price of the final goods.
Long-run growth ____ the demand for goods and services.
A) increases
B) decreases
C) does not change
D) may either increase or decrease
Planned expenditure is a function of:
A) planned investment.
B) planned government spending and taxes.
C) planned investment, government spending, and taxes.
D) national income and planned investment, government spending, and taxes.
Two ways for banks to borrow reserves from the Federal Reserve are through:
A) the discount window and the Term Auction Facility.
B) open-market operations and excess reserve swaps.
C) decreasing the reserve”deposit ratio and decreasing the currency”deposit ratio.
D) fractional-reserve banking and financial intermediation.
The mortgage defaults during the 2008″2009 financial crisis severely reduced the
capital positions of:
A) major investment banks.
B) government-sponsored enterprises involved in the mortgage market.
C) a large insurance company (AIG).
D) all of the above.