In the absence of technological progress, we know that the level of output per worker in
the steady state will
A) increase over time.
B) remain constant.
C) decrease as a result of decreasing returns to scale.
D) increase or decrease, depending on the rate of saving.
E) increase or decrease, depending on the rate of depreciation.
The staggering of wage and price decisions suggests that
A) people do not possess rational expectations.
B) people do possess rational expectations.
C) the economy will adjust slowly to shocks even if people possess rational
expectations.
D) the Lucas critique is entirely correct.
E) real business cycle theory is correct.
The money demand curve will shift to the right when which of the following occurs?
A) an increase in income
B) a reduction in the interest rate
C) an increase in the money supply
D) all of the above
E) none of the above
The ratio of exports to GDP for the United States in 2014 is approximately equal to
A) 6%.
B) 13%.
C) 21%.
D) 31%.
When a liquidity trap situation exists, the most appropriate policy to increase output
would be
A) a central bank sale of bonds.
B) an increase in government spending.
C) a central bank purchase of bonds.
D) none of the above
Broad money is represented by
A) H.
B) M1.
C) M2.
D) higher powered money.
E) the monetary base.
After continuing crises in 1993, the EMS countries
A) agreed to entirely abandon the system.
B) stood firm, refusing to adjust central parities.
C) narrowed the band of allowable fluctuations around central parities.
D) removed France from its leading role in the system.
E) widened the band of allowable fluctuations around central parities.
Fill in the blank for the following: GDP is the value of all ________ produced in a
given period.
A) final and intermediate goods and services produced by the private sector only
B) final goods and services
C) final and intermediate goods and services, plus raw materials
D) all of the above
E) none of the above
Suppose the U.S. one-year interest rate is 3% per year, while a foreign country has a
one-year interest rate of 5% per year. Ignoring risk and transaction costs, a U.S. investor
should invest in foreign bonds as long as the expected yearly rate of depreciation of the
foreign currency is
A) less than 5%.
B) greater than 5%.
C) greater than 2%.
D) less than 2%.
E) less than 1%.
According to rational expectations theory, monetary policy will affect output only if it is
A) anticipated.
B) unanticipated.
C) a very large change.
D) a very small change.
E) a policy that has been tried in the past.
For this question, assume that policy makers are pursuing a fixed exchange rate regime.
Now suppose that a reduction in stock market wealth causes a decrease in consumption.
Which of the following will tend to occur in a fixed exchange rate regime?
A) a reduction in Y
B) a reduction in the money supply
C) no change in the domestic interest rate
D) all of the above
Which of the following individuals was responsible for introducing rational
expectations into macroeconomic models?
A) Keynes
B) Tobin
C) Phillips
D) Solow
E) none of the above
Which of the following would cause an increase in M1?
A) a reduction in the required ratio of reserves to deposits
B) an increase in the discount rate
C) an open market operation where the Fed buys bonds
D) all of the above
E) none of the above
Suppose the consumption equation is represented by the following: C = 250 + .8YD.
The multiplier for the above economy equals
A) 2.
B) 3.
C) 4.
D) 5.
E) none of the above
Graphically illustrate and explain the effects of an increase in the saving rate 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 the saving rate.
Which of the followings is not a bank’s assets?
A) reserves
B) loans
C) government bonds
D) checkable deposits
For this question, assume expectations of P and A are correct. Now suppose that there is
a 3% reduction in A. Given this information, which of the following will occur?
A) The PS relation will shift up by 2%.
B) The WS relation will shift down by less than 2%.
C) The WS relation will shift down by 2%.
D) There will be no change in the real wage.
An economy is said to be in the liquidity trap when the short-term ________ is down to
zero.
A) real interest rate on corporate bonds
B) nominal interest rate on government bonds
C) nominal interest rate on corporate bonds
D) real interest rate on government bonds
Ted spread is
A) the difference between the riskless rate and the rate at which banks are willing to
lend to each other.
B) the difference between the riskless rate and the yield on corporate bonds.
C) the difference between the riskless rate and return on stocks.
D) none of the above
The deficit at natural level of output is called
A) full-employment deficit.
B) mid-cycle deficit.
C) structural deficit.
D) cyclically adjusted deficit.
E) all of the above
Suppose the Fed increases the money supply in the current period with no other policy
change implemented or anticipated. This policy action will cause which of the
following shifts in the IS and/or LM curves in the current period?
A) IS left; LM up
B) IS right; LM up
C) no shift in IS; LM down
D) IS left; LM down
E) IS right; LM down
An adjustment of central parities in the EMS is called a
A) realignment.
B) nominal appreciation or nominal depreciation.
C) real appreciation or real depreciation.
D) re-coupling.
E) re-paritization.
From 1996 to 2011, the rate of growth of output per worker in China has been
approximately equal to
A) 5%.
B) 10%.
C) 15%.
D) 18%.
E) 23%.
Using the ZZ/Y and NX graphs, illustrate graphically and explain what effect a
reduction in foreign output (Y*) will have on output, exports, imports, and net exports.
Clearly label all curves and clearly label the initial and final equilibria.
The IS curve will shift to the left when which of the following occurs?
A) a reduction in the money supply
B) a reduction in government spending
C) an increase in the interest rate
D) all of the above
E) none of the above
When we use ordinary least squares to determine the relationship between changes in
consumption and changes in both current and lagged income, we find that
A) only current income influences current consumption.
B) current income has no impact on current consumption.
C) consumption is not affected by income in any quarter.
D) current income, last quarter’s income, and income two quarter’s ago all have the
same impact on current consumption.
E) current income has a greater impact on consumption than income lagged one quarter.
In a country like Saudi Arabia, which earns substantial income from holding the stocks
and bonds of other countries, we would expect
A) GNP to be larger than GDP.
B) a current account deficit.
C) a current account surplus larger than GNP.
D) a current account surplus larger than GDP.
E) GDP to be larger than GNP.
To reduce distortions in the economy, it is probably better to finance temporary large
government spending with
A) deficits.
B) taxes.
C) exports.
D) all of the above
E) none of the above
For this question, assume that policy makers are pursuing a fixed exchange rate regime.
Now suppose that an increase in stock market wealth causes an increase in
consumption. Which of the following will tend to occur in a fixed exchange rate
regime?
A) an increase in Y
B) an increase in the money supply
C) no change in the domestic interest rate
D) all of the above
Let: 1. Pt be the price of one unit of a market basket of goods (i.e., a composite
commodity) in year t; 2. Pe
t+1 be the expected price of one unit of a market basket of
goods in year t + 1; 3. πe
t+1 be the expected rate of inflation between period t and t + 1;
and 4. it be the one-year nominal interest rate. Suppose an individual borrows the
equivalent of one unit of a composite commodity today. Given this information, which
of the following expressions represents (i.e., is equal to) the amount of the composite
commodity one must repay in one year?
A) (1 + it)(Pe
t+1)/(Pt)
B) (1 + πe
t+1)/(1 + it)
C) {(1 + πe
t+1)/(1 + it)} – 1
D) {(1 + it)(Pt)/(Pe
t+1)} – 1
E) none of the above
Which of the following are reasons to suspect spending on education might
overestimate human capital investment?
A) Education spending leaves out foregone wages.
B) Part of total spending on education is really consumption.
C) Much human capital investment comes from on-the-job training.
D) all of the above
E) none of the above
An increase in the budget deficit can be reflected in
A) an increase in private saving.
B) a reduction in investment.
C) a reduction in net exports.
D) all of the above
E) none of the above
Assume policy makers in a fixed exchange rate regime decide to peg the exchange rate
at a higher level. This is called
A) a devaluation.
B) a revaluation.
C) a depreciation.
D) an appreciation.
Suppose the central bank announces that it will pursue a monetary expansion in the
current period and a monetary expansion in the future. Explain how the credibility of
the central bank might influence the effectiveness of this monetary policy action and
announcement of a future monetary policy action.
Suppose policy makers pass a budget that results in an increase in the budget deficit.
Also assume that this fiscal policy action results in a reduction in the saving rate. To
what extent will this reduction in the saving rate cause permanent changes in the rate of
growth of output per worker? Explain.
Compare the following three ways to model expectations: animal spirits, adaptive
expectations, and rational expectations.
First, write out the expression/equation for the real exchange rate. Second, explain all
factors that determine the real exchange rate.
Suppose policy makers pass a budget that results in a reduction in the budget deficit.
Also assume that this fiscal policy action results in an increase in the saving rate. To
what extent will this increase in the saving rate cause permanent changes in the rate of
growth of output per worker? Explain.
Suppose the central bank increases the rate of growth of the money supply. What effect
will this increase in money growth have on seignorage in: 1. the short run; and 2. the
medium run? Explain.
Increases in the budget deficit are believed to cause reductions in investment. Based on
your understanding of the IS-LM model, will a fiscal policy action that causes a
reduction in the budget deficit cause an increase in investment? Explain.
Suppose the domestic and foreign interest rates are both initially equal to 3%. Now
suppose the domestic interest rate rises to 5%. Explain what effect this will have on the
exchange rate. Also explain what must occur for the interest parity condition to be
restored.
First, define and explain the cyclically adjusted deficit. Second, explain what effect a
recession caused, for example, by a reduction in consumer confidence will have on the
size of the cyclically adjusted deficit.
Assume the economy has achieved the balanced growth steady state. Explain what
factors determine the rates of growth of each of the following variables when balanced
growth is achieved: output per effective worker, capital per effective worker, output per
worker, output, and consumption per worker.
First, what is the Lucas critique? Second, explain how it might relate to the
implementation of monetary policy.
For this question, assume that Ricardian Equivalence proposition does not hold. Briefly
discuss the short-run, medium-run and long-run effects of a fiscal expansion (e.g. tax
cut).
Explain what is meant by the fertility and appropriability of the research process.
Suppose an economy experiences a reduction in productivity. Explain both the
short-run and medium-run effects of this reduction in productivity on output,
employment, and the unemployment rate.
Explain the difference between the unemployment rate and the participation rate.
What are the factors that will determine the size of some future required tax increase to
pay off all debt?