Human wealth is a function (i.e., affected by changes in) of which of the following
variables?
A) future expected income
B) future expected taxes
C) current interest rates
D) all of the above
E) none of the above
The primary deficit is represented by which of the following?
A) G – T
B) iB – G + T
C) iB + G – T
D) rB – G + T
E) rB + G – T
Suppose the country that pegs its currency has an overvalued real exchange rate and
that output is currently above the natural level of output. Which of the following will
occur as the economy adjusts to this situation?
A) P will decrease over time until Y = Yn.
B) A reduction in the pegged value of the domestic currency will cause a leftward shift
of the AD curve.
C) Net exports will increase as the economy adjusts to this situation.
D) Domestic goods will become less competitive as the economy adjusts by itself.
E) none of the above
Liquidity preference refers to the theory of
A) money demand.
B) consumption.
C) investment.
D) expectations.
A reduction in the unemployment rate will tend to cause which of the following?
A) an increase in the separation rate
B) a reduction in the nominal wage
C) a reduction in the duration that one is unemployed
D) none of the above
An open market purchase of bonds by the central bank will cause which of the
following when a liquidity trap situation exists?
A) The interest rate will decrease.
B) The interest rate will not change.
C) Output will increase.
D) The money supply, M, will not change.
E) none of the above
The correct measure of the deficit is represented by which of the following expressions?
A) iB – G + T.
B) iB + T – G.
C) rB – G + T.
D) (i – π)B + G – T.
E) none of the above
Exports will increase when there is
A) a reduction 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
The Case-Shiller index is normalized to equal 100 in January
A) 1999.
B) 1990.
C) 2000.
D) 2001.
Research suggests that the relatively higher rate of growth of output per capita between
in China between 1996 and 2011 was the result of which of the following?
A) an increase in the rate of technological progress
B) an increase in K/NA
C) an increase in the rate of growth of N
D) an increase in the saving rate
E) both A and D
For this question, assume that the aggregate production function is represented by Y =
AN. Which of the following represents the price setting relation for this economy?
A) (1 + m)A
B) (1 + m)A/W
C) (1 + m)W
D) W/A
E) none of the above
Suppose the one-year nominal interest rate is 2.0% in the United States and 5.0% in
Canada. Should you hold Canadian bonds or U.S. bonds? Explain.
A reduction in unemployment benefits will tend to cause which of the following?
A) an upward shift in the WS curve
B) a downward shift in the WS curve
C) an upward shift in the PS curve
D) a downward shift in the PS curve
E) none of the above
Another name for “current account transactions” is
A) “capital account transactions.”
B) “investment income.”
C) “net transfers received.”
D) “checking account transactions.”
E) “transactions above the line.”
If output per capita grows by a constant 5% per year, then the standard of living would
grow by about ________ over 3 years.
A) 12%
B) 16%
C) 17%
D) 18%
E) 20%
In 2010, the debt-to-GDP ratio for the United States was approximately equal to
A) 90%.
B) 17%.
C) 37%.
D) 67%.
Suppose there is a simultaneous reduction in the expected future interest rate and
increase in future expected output. This will cause which of the following to occur?
A) the IS curve to shift left in the current period
B) the IS curve to shift right in the current period
C) the LM curve to shift up in the current period
D) the LM curve to shift down in the current period
E) an ambiguous effect on the position of the IS curve in the current period
Which of the following will not cause an increase in the natural rate of unemployment?
A) an increase in m
B) an increase in z
C) an increase in the expected inflation rate
D) a reduction in m
E) none of the above
When using the income approach to measure GDP, the largest share of GDP generally
consists of
A) interest income.
B) labor income.
C) indirect taxes.
D) profits.
E) capital income.
When a government partially defaults its debt, a “haircut” of 20% means that
A) creditors receive 20% of what they owed.
B) creditors receive 80% of what they owed.
C) creditors receive 40% of what they owed.
D) creditors receive 10% of what they owed.
During 2008 in the United States, consumer confidence fell significantly. Which of the
following will occur as a result of this reduction in consumer confidence?
A) The LM curve will shift up.
B) The LM curve will shift down.
C) The IS curve will shift rightward.
D) The IS curve will shift leftward.
E) The IS curve will shift rightward, and the LM curve will shift up.
Which of the following best explains why the long-term interest rate will generally
change by less than 1% when the short-term interest rate changes by 1%?
A) The mathematical calculations are more difficult for analysts in the case of
long-term bonds.
B) Long-term rates are always lower than short-term rates, so there is less room for
them to change.
C) Financial market participants will not expect this increase in the short-term interest
rate to persist fully in the future.
D) Financial markets are often affected by bubbles and fads.
E) none of the above
An increase in the reserve ratio, θ, will cause
A) an increase in the monetary base (H).
B) a reduction in H.
C) an increase in the money multiplier.
D) a reduction in the money multiplier.
E) none of the above
Which of the following is the most powerful argument for putting restraints on policy
makers (as opposed to self-restraint by policy makers themselves)?
A) time inconsistency
B) uncertainty about Okun’s coefficient
C) uncertainty about the natural rate of unemployment
D) uncertainty about the timing of policy impacts
E) disagreements about the proper structure of an econometric model
Assume that employment decreases by 3%. Holding all other factors constant, we know
with certainty that which of the following will occur?
A) output will decrease by 3%
B) output per capita will decrease by 3%
C) output will decrease by less than 3%
D) the capital labor ratio will decrease
E) none of the above
Okun’s law shows that when the unemployment rate is above the natural rate,
A) inflation is higher than expected.
B) inflation is lower than expected.
C) output is below potential.
D) output is above potential.
Which of the following expressions represents the real exchange rate (ε)?
A) E/P.
B) EP*/P.
C) EP*.
D) EP/P*.
E) none of the above
Assuming the Marshall-Lerner condition holds and using the ZZ/Y and NX graphs,
illustrate graphically and explain what effect a real appreciation will have on output,
exports, imports, and net exports. Clearly label all curves and clearly label the initial
and final equilibria.
Technological unemployment is a macroeconomic phenomenon that occurs when
A) unemployment changes due to the effects of technology in high-technology
industries.
B) unemployment changes due to the effects of monetary and fiscal policy in the New
Economy.
C) hysterisis.
D) Eurosclerosis.
E) unemployment changes as a result of technological change.
In the U.S., over the past forty years,
A) exports as a percentage of GDP have increased, while imports has a percentage of
GDP have decreased.
B) exports as a percentage of GDP have decreased, while imports has a percentage of
GDP have increased.
C) both exports and imports as a percentage of GDP have decreased.
D) both exports and imports as a percentage of GDP have increased.
E) both exports and imports as a percentage of GDP have remained constant.
Which of the following best defines time inconsistency?
A) the increasing inaccuracy of econometric models as the time horizon becomes
longer
B) the tendency for the rise in output to be greater in the early years of a president’s
term, and smaller in the later years
C) the effects of political electoral cycles on the business cycle
D) the tendency for policy makers to deviate from a pre-announced optimal policy once
agents in the economy have adjusted their behavior and expectations based on the
pre-announced policy
E) the effect of economic uncertainty on short-run stabilization policy