The Ricardian equivalence proposition states that an increase in the deficit causes
A) consumption to decrease.
B) savings to decrease.
C) investment to decrease.
D) all of the above
E) none of the above
Which of the following expressions represents the amount of foreign currency you can
obtain with one U.S. dollar?
A) Et
B) Ee
t+1
C) 1/ Ee
t+1
D) εt
E) none of the above
Suppose a country is pursuing a fixed exchange rate regime with imperfect capital
mobility. The ability of that country to move its domestic interest rate while maintaining
its exchange rate will depend on
A) the degree of development of its financial markets.
B) the degree of capital controls.
C) the amount of foreign exchange it holds.
D) all of the above
E) both A and B
Which of the following will cause the LM curve to shift up?
A) an increase in the expected future interest rate
B) an increase in current income
C) an increase in expected future taxes
D) all of the above
E) none of the above
The evidence suggests that recent technological change
A) permanently increased the natural rate of unemployment.
B) is different from past technological change, in that it has no impact on productivity.
C) has increased productivity in the service sector only.
D) has increased productivity in the manufacturing sector only.
E) has increased the wage gap between skilled and unskilled workers.
When the policy rate decreases,
A) IS curve does not change.
B) IS curve shifts to the right.
C) IS curve shifts to the left.
D) LM curve shifts upward.
E) LM curve shifts downward.
Which of the following people—none of whom has any financial or housing wealth—is
most likely to be spending all of their current income?
A) a low income person expecting continued low income throughout life
B) a low income person expecting a dramatic rise in income in the future
C) a high income person expecting continued high income throughout life
D) a high income person expecting a dramatic drop in income in the future
E) a high income person expecting to retire soon, and live for a long time afterward
Which of the following would cause a reduction in human wealth?
A) a permanent reduction in salary
B) a reduction in the value of one’s house
C) a reduction in the value of one’s stock portfolio
D) all of the above
E) none of the above
Which of the following will likely cause a reduction in output per worker?
A) a reduction in education expenditures
B) a reduction in the saving rate
C) a reduction in on-the-job training
D) all of the above
To deal with dangerous behavior in the financial system, macro prudential tools can be
used to aim directly at
A) borrowers.
B) lenders.
C) banks and other financial institutions.
D) none of the above
E) all of the above
Suppose the marginal propensity to consume equals .8 (i.e., c1 = .8). Given this
information, which of the following events will cause the largest increase in output?
A) G increases by 200
B) T decreases by 200
C) I increases by 150
D) both A and B
A change in which of the following variables will cause a shift of the IS curve in the
current period?
A) the current interest rate
B) current output
C) current taxes
D) all of the above
E) none of the above
Refer to the information above. Which of the following equals the annual growth rate of
“effective labor” in the steady state in this economy?
A) 2%
B) 3%
C) 5%
D) 10%
E) 15%
Which of the following equals demand in an open economy?
A) C + I + G + X
B) C + I + G + X – IM
C) C + I + G + IM – X
D) C + I + G
The government budget constraint tells us that the budget deficit is equal to
A) interest on the debt.
B) the primary deficit.
C) the primary deficit plus interest on the debt.
D) imports minus exports.
E) the primary deficit plus the trade deficit plus interest on the debt.
A reduction in the reserve deposit ratio, θ, will most 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
Suppose the demand for money is not very sensitive to the interest rate. Given this
information, we know that
A) the IS curve should be relatively flat.
B) the IS curve should be relatively steep.
C) the LM curve should be relatively flat.
D) the LM curve should be relatively steep.
E) neither the IS nor the LM curve will be affected.
Assume that the interest parity condition holds. Also assume that the U.S. interest rate is
8% while the U.K. interest rate is 6%. Given this information, financial markets expect
the pound to
A) depreciate by 14%.
B) depreciate by 2%.
C) appreciate by 2%.
D) appreciate by 6%.
E) appreciate by 14%.
In an open economy under flexible exchange rates, expansionary monetary policy that
results in an increase in the money supply will always cause
A) an increase in output.
B) an increase in exports.
C) a reduction in the exchange rate, E.
D) all of the above
E) only A and C
Which of the following individuals first discovered the relationship between
unemployment and inflation for the United States?
A) Solow and Friedman
B) Samuelson and Solow
C) Friedman and Phillips
D) Friedman and Phelps
Monetary policy affects which of the following variables in the long run?
A) the level of output
B) the rate of unemployment
C) the rate of inflation
D) the real interest rate
E) all of the above
For this question, assume that the Fed sets monetary policy according to the Taylor rule.
Suppose current U.S. macroeconomic conditions are represented by the following: π >
π?* and u < un. Given this information, we would expect that the Fed will
A) implement a monetary contraction.
B) implement a monetary expansion.
C) maintain its current stance of monetary policy.
D) more information is need to answer this question.
For this question, assume that investment spending depends only on output and no
longer depends on the interest rate. Given this information, an increase in government
spending
A) will cause investment to decrease.
B) will cause investment to increase.
C) may cause investment to increase or to decrease.
D) will have no effect on output.
E) will cause an increase in output and have no effect on the interest rate.
For this question, assume that the economy is initially operating at the natural level of
output. An increase in the price of oil will cause which of the following in the medium
run?
A) a reduction in the interest rate
B) a reduction in output and an increase in the aggregate price level
C) a reduction in output and a reduction in the interest rate
D) a reduction in unemployment, an increase in the nominal wage and an increase in
the aggregate price level
E) a reduction in the aggregate price level and no change in output
In 2014, the average inflation rate in the OECD countries was
A) 1.7%.
B) 2.3%.
C) 5.2%.
D) 3.8%.
E) 10.5%.
Which of the following individuals would be considered unemployed?
A) an individual who works only part-time
B) an individual who works full-time in a family business, but is not paid
C) an individual who is not working and is not looking for work
D) all of the above
E) none of the above
Based on our understanding of the U.S. budget, we know that
A) government accounts treat asset sales as revenues.
B) government accounts do not treat asset sales as revenues.
C) the NIPA accounts treat asset sales as revenues.
D) neither the government accounts nor the NIPA accounts treat asset sales as revenues.
For this question assume that technological progress does not occur. The rate of saving
in Canada has generally been greater than the saving rate in the U.S. Given this
information, we know that in the long run
A) Canada’s growth rate will be greater than the U.S. growth rate.
B) investment per worker in Canada will be no different than U.S. investment per
worker.
C) capital per worker in Canada will be no different than U.S. capital per worker.
D) all of the above
E) none of the above
Patents represent
A) the protection given to new products by the law.
B) how R&D spending translates into new ideas.
C) the extent to which firms benefit from the results of their own R&D spending.
D) the rate of technological progress.
The process of indirect finance using financial intermediaries is called
A) direct lending.
B) financial intermediation.
C) resource allocation.
D) financial liquidation.