Which of the following would cause a reduction in M1?
A) an increase in the required ratio of reserves to deposits
B) a reduction in the discount rate
C) an open market operation where the Fed sells bonds
D) all of the above
E) none of the above
A reduction in the rate of depreciation will cause the discounted present value of
expected profits to
A) decrease.
B) increase.
C) remain unchanged if the real interest rate increases by the same amount.
D) none of the above
Suppose a one-year discount bond offers to pay $1000 in one year and currently has a
15% interest rate. Given this information, we know that the bond’s price must be
A) $869.56.
B) $1150.
C) $850.
D) $950.
E) none of the above
A reduction in money growth, holding all other factors constant, will cause
A) a reduction in seignorage.
B) an increase in seignorage.
C) no change in seignorage.
D) an ambiguous effect on seignorage.
Which of the following equals demand in a closed economy?
A) C + I + G + X
B) C + I + G + X – IM
C) C + I + G + IM – X
D) none of the above
Suppose that financial market participants now expect a future tax cut and that the yield
curve is initially upward sloping. Given this information, we would expect which of the
following to occur?
A) The yield curve will become steeper.
B) The yield curve will become flatter.
C) The yield curve will become horizontal.
D) The yield curve will become downward sloping.
Which of the following countries had the lowest level of output per capita in 2014?
A) Spain
B) France
C) Italy
D) German
Depositors lack of information about the quality of bank assets can lead to
A) bank panics.
B) bank booms.
C) sequencing.
D) asset transformation.
Which of the following is not a component of consumption?
A) nondurable goods
B) purchase of a new condominium
C) education expenses
D) none of the above
In the medium run, a tax increase that causes a reduction in the budget deficit will
A) affect only the price level.
B) not affect the price level but will alter the composition of output.
C) not affect the level of output, but will affect the composition of output.
D) affect both the level and composition of output.
Equilibrium in the goods market requires that
A) production equals income.
B) production equals demand.
C) consumption equals saving.
D) consumption equals income.
E) government spending equals taxes minus transfers.
The natural rate of unemployment is the rate of unemployment
A) that occurs when the money market is in equilibrium.
B) that occurs when the markup of prices over costs is zero.
C) where the markup of prices over costs is equal to its historical value.
D) that occurs when both the goods and financial markets are in equilibrium.
E) none of the above
Suppose current government spending decreases and that individuals expect future
government spending to decrease. Given this information, in which of the following
cases will output in the current period be more likely to increase?
A) Individuals consider only the short run effects of changes in future macro variables
when forming expectations of future output and future interest rates.
B) Individuals consider only the medium run effects of changes in future macro
variables when forming expectations of future output and future interest rates.
C) Individuals consider only the long run effects of changes in future macro variables
when forming expectations of future output and future interest rates.
D) The output effects will be the same in B and C.
Which of the following will cause an increase in output per worker in the long run?
A) an increase in the saving rate
B) a reduction in the depreciation rate
C) an increase in the stock of human capital
D) all of the above
Based on price setting behavior, we know that a reduction in the unemployment rate
will cause
A) no change in the real wage.
B) a reduction in the real wage.
C) an increase in the real wage.
D) an upward shift of the PS curve.
The “official measure” of the deficit (the one reported by the government)
A) tells us the change in government nominal debt.
B) is equal to nominal interest payments on the debt plus the primary deficit.
C) overestimates the real budget deficit whenever the inflation rate is positive.
D) all of the above
E) none of the above
When a government reduces its deficits by increasing taxes, in the short run,
A) output returns to potential.
B) output increases.
C) interest rate is higher.
D) IS curve shifts inward to the left.
The Marshall-Lerner condition is less likely to hold when
A) imports and exports are very price-sensitive.
B) the trade deficit is large.
C) the marginal propensity to consume is very large.
D) the marginal propensity to consume if very small.
E) none of the above
An increase in the desire to save by households will cause
A) a reduction in output.
B) a reduction in investment.
C) an increase in output.
D) no change in investment and no change in output.
Assume an economy experiences, for a given period, a 4% increase in output and a 4%
increase in productivity. Given this information, we know that which of the following
occurred for this economy during this period?
A) The unemployment rate increased during this period.
B) The unemployment rate decreased during this period.
C) The unemployment rate did not change during this period.
D) The effects on the unemployment rate are ambiguous.
E) none of the above
If the Ricardian equivalence proposition is correct, then an increase in the deficit will
lead to
A) an increase in private saving.
B) a decrease in investment spending.
C) a lower standard of living in the future.
D) all of the above
E) none of the above
In which of the following political systems would a political business cycle be more
likely to occur?
A) a democracy with elections that occur on a regular basis
B) a parliamentary
C) communist-type economies
D) socialist-type economies
E) a democracy with elections that occur on an irregular basis
Suppose the economy is initially in the steady state. A reduction in the depreciation rate
(δ) will cause
A) an increase in K/N.
B) an increase in the growth rate in the long run.
C) a reduction in C/N.
D) all of the above
Decreasing returns to capital (N) implies that a 4% increase in N will cause
A) Y to increase by more than 4%.
B) Y to increase by exactly 4%.
C) Y to increase by less than 4%.
D) no change in Y/N.
Which of the following will cause a reduction in the debt-to-GDP ratio?
A) an increase in the real interest rate
B) an increase in the ratio of the primary deficit to GDP
C) an increase in the growth rate of output
D) all of the above
Which of the following is a component of high powered money?
A) bonds held by banks, loans, and bank reserves
B) currency in circulation plus bank reserves
C) currency in circulation plus checkable deposits
D) bonds held by banks plus checkable deposits
E) the sum of currency in circulation, bank reserves, and checkable deposits
Assume individuals consider only the short run effects of changes in future macro
variables when forming expectations of future output and future interest rates. Suppose
current taxes are cut and that individuals expect future taxes to decrease. Given this
information, we know with certainty that
A) current output and the current interest rate will both increase.
B) current output will increase.
C) the current interest rate will increase.
D) the current output effects are ambiguous.
Explain what is meant by “new Keynesians” and discuss some of the research
conducted in this area.
Both the new classical and new Keynesian models had in common the belief that
A) in the medium run, output returns to its natural level.
B) output is always at its natural level.
C) in the short run, output would likely deviate from its natural level.
D) none of the above
With the real wage on the vertical axis and employment (N) on the horizontal axis, we
know that
A) the WS curve is upward sloping.
B) the WS curve is downward sloping.
C) the PS curve is upward sloping.
D) the PS curve is downward sloping.
Macroeconomists are concerned about changes in the unemployment rate because
changes in the unemployment rate provide information about
A) the state of the economy.
B) the welfare of those who are unemployed.
C) none of the above
D) both A and B
In November 2008, the leaders of the ________ met in an emergency meeting in
Washington to coordinate their responses in terms of both macroeconomic and financial
policies.
A) G20
B) G7
C) OECD countries
D) G8
Assuming that the interest parity condition holds, what type of information is contained
in interest rate differentials between domestic and foreign bonds? Explain.
Based on your understanding of the IS-LM model, graphically illustrate and explain
what effect a reduction in consumer confidence will have on output, the interest rate,
and investment.
Suppose that, at a given level of disposable income, consumers decide to save more.
Explain what effect this decision will have on equilibrium income. Also, explain what
effect this decision will have on the level of saving once the economy has reached the
new equilibrium.
Discuss what is meant by the neoclassical synthesis and explain how it emerged.
Explain Okun’s Law.
Explain what factors cause shifts of the aggregate demand curve in the open economy
model.
First, briefly explain what is meant by the policy mix. Second, explain what effect
different policy mixes might have on the level of output, investment, and the interest
rate.
When the central bank pursues contractionary monetary policy, we that this policy will
result in an increase in the interest rate, a reduction in investment, a reduction in
demand, and a lower level of equilibrium output. Explain what happens to the position
of the IS curve as the central bank pursues contractionary monetary policy.
Convergence refers to what phenomenon regarding growth theory?
Use the IS-LM model to answer this question. Suppose there is a simultaneous increase
in government spending and reduction in the money supply. Explain what effect this
particular policy mix will have on output and the interest rate. Based on your analysis,
do we know with certainty what effect this policy mix will have on investment?
Explain.
Suppose the Ricardian Equivalence proposition holds (i.e., it is correct). What does this
imply about the ability of fiscal policy to affect GDP? Explain.
When interpreting bond prices as present values, discuss what factors determine the
price of a two-year discount bond. Include in your answer an explanation of how
changes in each of these factors affects the price of a two-year discount bond.
To what extent have the three main facts of growth not held for certain countries? For
which countries have they not generally held?
To what extent can monetary policy be used to affect output in a fixed exchange rate
regime? Explain.
Explain the three ways GDP can be measured.
First, explain why the money demand curve is downward sloping. Second, explain what
factor(s) will cause shifts in the money demand curve.