The level of investment necessary to keep the capital-labor ratio constant is called
A) capital investment.
B) break-even investment.
C) depreciated investment.
D) diluted investment.
If a household is credit rationed, the MPC out of current disposable income is ________
compared to the MPC out of current disposable income if a household is not credit
rationed.
A) higher
B) lower
C) the same
D) negative
Demand and supply of labor are given by:
LD = 250 – 4w
LS = 50 + w
where w is the real wage and LD and LS are the quantities of labor demanded and labor
supplied, respectively.
a. What are the equilibrium wage and quantity of employment?
b. If the government imposed a minimum wage of $45, what would be the new
quantities of labor and demanded and supplied?
c. How many people would lose their jobs because of the minimum wage, and how
many people are now unemployed?
d. Draw a graph to show your results of parts (a), (b), and (c).
Which of the following is a normative economic statement?
A) Income tax revenues decreased during the recession.
B) Despite government stimulus spending, the unemployment rate remained above 9%
in 2010.
C) When the price of gasoline rises, transportation costs rise.
D) The government should decrease spending on foreign aid to lower the federal deficit.
One option the government has to restore funding to transfer programs such as Social
Security is to raise or eliminate the income cap on Social Security payments. Other
things equal, this would result in ________ in the opportunity cost of leisure and cause
households to supply ________ labor.
A) an increase; more
B) an increase; less
C) a decrease; more
D) a decrease; less
Labor productivity in the United States was 5.4 times higher in the United States than in
China in 2010. A key reason that labor productivity is higher in the United States is
because the United States
A) has a higher growth rate, based on GDP per capita, than China.
B) has a higher life expectancy and higher birth rate than China.
C) devotes more resources than China to developing new technology and accumulating
human capital.
D) devotes more resources than China to developing export markets to boost its real
GDP and income.
Figure 13.1
Refer to Figure 13.1. All else equal, an increase in corporate taxes would best be
represented by a movement from
A) point A to point B.
B) point B to point A.
C) point B to point C.
D) point C to point B.
The Vuvuza Corporation currently has 10 million shares of stock outstanding, the stock
is trading for $42 per share, and its stock of capital goods is valued at $70 million. The
Tobin’s q value for the Vuvuza Corporation is
A) 0.14
B) 1.7
C) 6
D) 7
The growth rate of real GDP in Astoria is 7.5%. Assume the growth rate of velocity is
0%. If Astoria wishes to decrease the inflation rate from the annual rate of 5.99% to a
target rate of 4.5% and maintain its current growth rate of real GDP, by how many
percentage points will the growth rate of the money supply need to change?
A) -3
B) -2.99
C) -1.49
D) 2.99
The main source of loans to small businesses are
A) financial markets.
B) privately-issued bonds.
C) shares of stock issued by the businesses.
D) financial intermediaries.
There is no trade-off between inflation and unemployment when expectations are
________ and policy changes are ________.
A) adaptive; anticipated
B) adaptive; unanticipated
C) rational; anticipated
D) rational unanticipated
In building an economic model, variables that are taken as given are referred to as
________ variables.
A) exogenous
B) endogenous
C) concrete
D) presumptive
The economy is in long-run equilibrium when ________ and ________.
A) real GDP equals potential GDP; the unemployment rate equals zero
B) the output gap equals zero; the inflation rate equals the target inflation rate and the
expected inflation rate
C) the output gap is at its maximum; the inflation rate equals the target inflation rate
and the expected inflation rate
D) the unemployment rate equals the natural rate of unemployment; the inflation rate
equals zero
Assume the economy is initially in equilibrium with real GDP equal to potential GDP.
Other things equal, if the economy enters a recession and there are no automatic
stabilizers, the IS curve would shift to the ________, and the shift would be equal to
________.
A) right; decline in investment spending
B) left; decline in investment spending
C) right; decline in investment spending times the multiplier
D) left; decline in investment spending times the multiplier
Suppose the economy is in a recession and the government decides it needs to reduce
the budget deficit. Other things equal, this would tend to
A) shift the IS curve to the right.
B) shift the IS curve further to the left.
C) shift the MP curve further down.
D) shift the MP curve up.
If manufacturer’s new orders received for consumer goods are starting to fall, real GDP
is most likely
A) beginning to rise.
B) bottoming out.
C) getting ready to decrease.
D) already decreasing.
China has recently been experiencing rapid economic growth, and current Chinese real
GDP per capita is
A) roughly equal to real GDP per capita in the United States.
B) still significantly less than real GDP per capita in the United States.
C) on par with real GDP per capita in most high-income countries.
D) still at a level equivalent to real GDP per capita in the poorest countries in the world.
If the substitution effect is stronger than the income effect, a decrease in real interest
rates will ________ current consumption for households who are lenders and will
________ current consumption for households who are borrowers.
A) increase; decrease
B) decrease; increase
C) increase; increase
D) increase; have an unclear effect on
In the Solow growth model, investment is a ________ variable and depreciation is a
________ variable.
A) stock; stock
B) stock; flow
C) flow; stock
D) flow; flow
________ refers to alternating periods of economic expansion and economic recession
in an economy.
A) Fiscal policy
B) Labor productivity
C) The business cycle
D) Positive economic analysis
If the current account is in surplus and the capital account is zero, then
A) net exports must be positive.
B) the balance of payments must be in surplus.
C) the financial account must be in deficit.
D) there is a capital inflow.
If the money supply grows at 6% and the inflation rate is 2%, the quantity theory
predicts that the change in real GDP will be
A) 0.33%.
B) 3%.
C) 4%.
D) 8%.
Which of the following is true about the consumer price index?
A) It is updated continuously to account for the introduction of new goods.
B) It accounts for people switching away from goods whose prices have risen.
C) It assumes that consumers purchase the same quantity of each product in the market
basket each month.
D) It accurately reflects quality changes in goods and services over time.
If a policy change by the Fed is ________, then the change in policy has exactly the
same result on the economy as it does when we assume that households and firms have
adaptive expectations.
A) unannounced or not credible
B) unannounced or credible
C) announced or credible
D) announced or not credible
The process by which productivity raises the average standard of living is referred to as
A) long-run economic growth.
B) labor productivity.
C) population growth analysis.
D) the economic prosperity hypothesis.
The Fed’s dual mandate is to pursue the goals of
A) high employment and price stability.
B) interest rate stability and financial market stability.
C) rapid economic growth and low inflation.
D) interest rate stability and a balanced budget.
A decrease in the inflation rate will lead to a ________ nominal interest rate, which will
________ the debt-to-GDP ratio.
A) higher; raise
B) higher; reduce
C) lower; raise
D) lower; reduce
Figure 10.3
Panel (a) Panel (b)
Refer to Figure 10.3. A positive demand shock accompanied by a decrease in the real
interest rate is best represented by ________ in panel (a) and ________ in panel (b).
A) a shift from AE2 to AE3; a movement from point B to point C
B) a shift from AE3 to AE2; a shift from IS2 to IS1
C) a shift from AE1 to AE2; a movement from point A to point B
D) a shift from AE1 to AE3; a movement from point A to point C
If the short-term nominal interest rate is 3.4%, the term structure effect is 1.2%, the
default-risk premium is 1.4%, and the expected rate of inflation is 2.7%, the long-term
real interest rate will be
A) -1.9%.
B) 0.5%.
C) 3.3%.
D) 8.7%.
Holding all else constant, a decrease in consumption taxes, such as sales taxes or a VAT,
will ________ aggregate expenditure and ________ employment.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Suppose y = k1/2, total factor productivity is constant and equal to 1, s = 0.40, and d =
0.10. When the economy reaches the steady state, the capital-labor ratio is ________ of
capital per worker.
A) $2
B) $4
C) $8
D) $16
One advantage of a floating exchange rate system compared to a fixed or managed float
exchange rate system is
A) it is easier for central banks to control inflation.
B) there is no need for government intervention.
C) it allows greater exchange rate stability.
D) it eliminates the possibility of depreciation during a recession.
Figure 10.4
Refer to Figure 10.4. Suppose the economy’s equilibrium starts out with an output gap
of 1, and real GDP increases so the output gap increases to 2. If the Fed wants to keep
the interest rate at the target, the money demand curve will ________ and the money
supply curve will ________.
A) shift from MD1 to MD2; shift from MS1 to MS2
B) shift from MD2 to MD1; shift from MS2 to MS1
C) remain at MD1; remain at MS1
D) remain at MD2; remain at MS2
One option the government has to restore funding to transfer programs such as Social
Security is to raise or eliminate the income cap on Social Security payments. Other
things equal, this would result in ________ in the after-tax return to capital goods and
cause firms and households to accumulate ________ capital.
A) an increase; more
B) an increase; less
C) a decrease; more
D) a decrease; less