People use money as a unit of account when they:
A) hold money to transfer purchasing power into the future.
B) use money as a measure of economic transactions.
C) use money to buy goods and services.
D) hold money to gain power and esteem.
Efficiency-wage theories suggest that a firm may pay workers more than the
market-clearing wage for all of the following reasons except to:
A) reduce labor turnover.
B) improve the quality of the firm’s labor force.
C) increase worker effort.
D) reduce the firm’s wage bill.
a. Suppose Congress passes legislation that significantly reduces taxes. Use the
Keynesian-cross model to illustrate graphically the impact of a reduction in taxes on the
equilibrium level of income. Be sure to label: i. the axes; ii. the curves; iii. the initial
equilibrium values; iv. the direction the curve shifts; and v. the terminal equilibrium
values.
b. Explain in words what happens to equilibrium income as a result of the tax cut and
the time horizon appropriate for this analysis.
A positive relationship between nominal interest rates and inflation in the United States
is obvious in:
A) both recent data and nineteenth-century data.
B) recent data but not nineteenth-century data.
C) nineteenth-century data but not recent data.
D) neither nineteenth-century data nor recent data.
Quantitative easing is most closely akin to:
A) discount lending.
B) open-market operations.
C) fractional-reserve banking.
D) capital requirements.
Unlike a monetarist policy rule, an inflation target has the advantage of:
A) eliminating the need to announce the policy target.
B) providing a real target rather than a nominal one.
C) allowing the central bank unlimited discretion.
D) insulating the economy from changes in money velocity.
Investment spending is:
A) generally countercyclical.
B) generally procyclical.
C) unrelated to the business cycle.
D) generally procyclical for some components and generally countercyclical for others.
In a small open economy with a fixed exchange rate, if the government increases
government purchases, then in the process of adjusting to the new short-run equilibrium
the money supply:
A) increases to keep the exchange rate unchanged, thus augmenting the effect of
government spending on income.
B) decreases to keep the exchange rate unchanged, thus offsetting the effect of
government spending on income.
C) remains unchanged, and there is no effect of government spending on income.
D) remains unchanged to keep the interest rate at the world interest rate, so that
government spending reduces income.
In the Keynesian-cross model with a given MPC, the government-expenditure
multiplier ______ the tax multiplier.
A) is larger than
B) equals
C) is smaller than
D) is the inverse of the
The inconvenience associated with reducing money holdings to avoid the inflation tax
is called:
A) menu costs.
B) shoeleather costs.
C) variable yardstick costs.
D) fixed costs.
If the quantity of real money balances is kY, where k is a constant, then velocity is:
A) k.
B) 1/k.
C) kP.
D) P/k.
Capital budgeting is a procedure that:
A) adjusts the deficit for inflation.
B) estimates what the deficit would be if the economy were operating at the natural rate
of output.
C) accounts for assets as well as liabilities.
D) measures the impact of fiscal policy on the lifetime incomes of individuals of
different ages.
In the IS“LM model, changes in taxes initially affect planned expenditures through:
A) consumption.
B) investment.
C) government spending.
D) the interest rate.
Starting from long-run equilibrium, if the velocity of money increases (due to, for
example, the invention of automatic teller machines), the Fed might be able to stabilize
output by:
A) decreasing the money supply.
B) increasing the money supply.
C) decreasing the price level.
D) increasing the price level.
Historically, the primary cause of increases in government debt is:
A) printing too much money.
B) cutting taxes.
C) increasing interest rates.
D) financing wars.
Changes that can increase measured total factor productivity include:
A) increased expenditures on education.
B) regulations requiring reductions in pollution.
C) regulations requiring increases in worker safety.
D) increases in the capital”labor ratio.
In a Solow model with technological change, if population grows at a 2 percent rate and
the efficiency of labor grows at a 3 percent rate, then in the steady state, total output
grows at a ______ percent rate.
A) 0
B) 2
C) 3
D) 5
An economy is initially in long-run equilibrium. The introduction of an electronic
payments system dramatically reduces the demand for money in the economy.
a. What is the short-run impact on prices and output of the new system?
b. What can the central bank do, if anything, to counteract the short-run changes in
output and prices?
c. If the central bank does not take any policy actions, what will be the long-run impact
of the electronic payments system on prices and output?
According to the classical theory of money, inflation does not make workers poorer
because wages increase:
A) faster than the overall price level.
B) more slowly than the overall price level.
C) in proportion to the increase in the overall price level.
D) in real terms during periods of inflation.
A short-run aggregate supply curve shows fixed ______, and a long-run aggregate
supply curve shows fixed ______.
A) output; output
B) prices; prices
C) prices; output
D) output; prices
A rate of inflation that exceeds 50 percent per month is typically referred to as a(n):
A) conflagration.
B) hyperinflation.
C) deflation.
D) disinflation.
In the mid-1980s, oil prices ______, inflation was ______, and the unemployment rate
______.
A) rose rapidly; high; rose
B) rose slowly; moderate; high
C) fell; low; declined
D) fell; low; rose
The major source of government revenue in most countries that are experiencing
hyperinflation is:
A) customs duties.
B) income taxes.
C) seigniorage.
D) borrowing.
Discouraged workers are individuals who:
A) have jobs that do not match their skills (e.g., a Ph.D. driving a taxi cab).
B) have been unemployed for more than 26 weeks.
C) call themselves unemployed but are not seriously looking for a job.
D) want a job but have given up looking for one.
An increase in the supply of capital will:
A) increase the real rental price of capital.
B) decrease the real rental price of capital.
C) increase the productivity of capital.
D) decrease the real interest rate.
In the Solow growth model, the steady state level of output per worker would be higher
if the _____ increased or the _____ decreased.
A) saving rate; depreciation rate
B) population growth rate; depreciation rate
C) depreciation rate; population growth rate
D) population growth rate; saving rate
Inflation inertia is represented in the aggregate supply”aggregate demand model by
continuing upward shifts in the:
A) aggregate demand curve.
B) short-run aggregate supply curve.
C) long-run aggregate supply curve.
D) aggregate demand and short-run aggregate supply curves.
Exhibit: Supply Shock
(Exhibit: Supply Shock) Assume that the economy is at point E. With no further shocks
or policy moves, the economy in the long run will be at point:
A) A.
B) B.
C) C.
D) D.
According to Franco Modigliani’s life-cycle hypothesis, the time of life at which an
individual has the largest amount of wealth is at:
A) birth.
B) death.
C) retirement.
D) his or her parents’ death.
The neoclassical theory of distribution:
A) was developed by Karl Marx.
B) is rejected by most economists today.
C) shows that the national income of an economy is not equal to total output.
D) is a theory of how national income is divided among the factors of production.
European unemployment rates are positively correlated with each of the following
except:
A) the percentage of the previous wage replaced by unemployment insurance.
B) the percentage of the labor force that is unionized.
C) the length of the period during which unemployment benefits can be collected.
D) the amount of coordination among employers in bargaining with unions.
At a given interest rate, an increase in the nominal money supply ______ the level of
income that is consistent with equilibrium in the market for real balances.
A) raises
B) lowers
C) does not change
D) may either raise or lower