Between 1880 and 1896, the price level in the United States fell 23 percent. This
movement was ______ for bankers of the Northeast and ______ for farmers of the
South and West.
A) bad; bad
B) good; good
C) good; bad
D) bad; good
In the Solow growth model, the steady-state occurs when:
A) capital per worker is constant.
B) the saving rate equals the depreciation rate.
C) output per worker equals consumption per worker.
D) consumption per worker is maximized.
In the two-sector endogenous growth model, the steady-state stock of physical capital is
determined by _____, and the growth in the stock of knowledge is determined by
_____.
A) the fraction of labor in universities; the saving rate
B) the efficiency of labor; the saving rate
C) the production function; the efficiency of labor
D) the saving rate; the fraction of labor in universities
In the Mundell”Fleming model, expectations that a currency will lose value in the
future will cause the current exchange rate to:
A) increase in the present.
B) decrease in the present.
C) remain constant in the present.
D) decrease only in the future.
Most economists believe that the classical dichotomy:
A) holds approximately in both the short run and the long run.
B) holds approximately in the long run but not at all in the short run.
C) holds approximately in the short run but not at all in the long run.
D) does not hold even approximately in either the long run or the short run.
In fourteenth-century Europe, the bubonic plague:
A) reduced the population of Europe by about one-half.
B) substantially increased economic output in Europe.
C) substantially increased real rentals on land in Europe.
D) substantially increased real wages in Europe.
With a per-worker production function y =k1/2, the steady-state capital stock per worker
(k*) as a function of the saving rate (s) is given by:
A) k* = (s/d)2.
B) k* = (d/s)2.
C) k* = s/d.
D) k* = d/s.
In 2013, the GDP of the United States totaled about:
A) $16.8 billion.
B) $168 billion.
C) $16.8 trillion.
D) $168 trillion.
If a short-run equilibrium occurs at a level of output below the natural rate, then in the
transition to the long run prices will ______ and output will ______.
A) increase; increase
B) decrease; decrease
C) increase; decrease
D) decrease; increase
Under a fixed-exchange-rate system, the central bank of a small open economy must:
A) have a reserve of its own currency, which it must have accumulated in past
transactions.
B) have a reserve of foreign currency, which it can print.
C) allow the money supply to adjust to whatever level will ensure that the equilibrium
exchange rate equals the announced exchange rate.
D) follow a rule specifying a constant growth rate for the money supply.
The dynamic aggregate supply curve shows the short-run relation between:
A) the natural rate of output and inflation
B) the natural rate of output and expected rate of inflation
C) output and inflation
D) output and the natural rate of interest
Assume that an employer believes that the “efficiency” (e) it can get from a particular
worker, as a function of the hourly wage (w), is given by function e = “0.125w + 0.15w2
” 0.005w3, at least up to a wage of 30.
a. Create a table of w, e, e/w, and w/e for wages equal to 5, 10, 14, 15, 16, 20, and 25.
b. Which wage gives the highest ratio of efficiency per unit of labor cost?
c. Once the firm has hit on an optimal w, whatever it is, would cutting wages whenever
demand falls off increase or decrease wages per unit of efficiency?
According to the Mundell”Fleming model, under fixed exchange rates expansionary
fiscal policy causes income to ______, and under flexible exchange rates expansionary
fiscal policy causes income to ______.
A) increase; increase
B) increase; remain unchanged
C) remain unchanged; remain unchanged
D) remain unchanged; increase
A farmer grows wheat and sells it to a miller for $1; the miller turns the wheat into flour
and sells it to a baker for $3; the baker uses the flour to make bread and sells the bread
for $6. The value added by the miller is:
A) $1.
B) $2.
C) $3.
D) $6.
Assume that the market basket of goods and services purchased in 2004 by the average
family in the United States costs $14,000 in 2004 prices, whereas the same basket costs
$21,000 in 2009 prices. However, the basket of goods and services actually purchased
by the average family in 2009 costs $20,000 in 2009 prices, whereas this same basket
would have cost $15,000 in 2004 prices. Given these data, a Paasche index for 2009
using 2004 prices would be:
A) 1.05.
B) approximately 1.07.
C) approximately 1.33.
D) 1.50.
Deposit insurance is an example of ______ used to prop up the financial system.
A) a giveaway of public funds
B) risky lending
C) a capital injection
D) conventional monetary policy
In a small open economy with a fixed exchange rate, an effective policy to increase
equilibrium output is to:
A) decrease government spending.
B) decrease taxes.
C) increase the money supply.
D) decrease the money supply.
Ricardian equivalence refers to the same impact of financing government:
A) whether by printing money or raising taxes.
B) in the long run as in the short run.
C) whether by debt or taxes.
D) in an open economy as in a closed economy.
In the United States, having a balanced budget is currently enforced for:
A) the federal government.
B) no state governments.
C) all state governments.
D) many state governments.
For any given interest rate and price level, an increase in the money supply:
A) lowers income.
B) raises income.
C) has no effect on income.
D) lowers velocity.
Total investment in the United States averages about ______ percent of GDP.
A) 10
B) 15
C) 20
D) 25
Using average rates of money growth and inflation in the United States over many
decades, Friedman and Schwartz found that decades of high money growth tended to
have ______ rates of inflation and decades of low money growth tended to have
______ rates of inflation.
A) high; high
B) high; low
C) low; low
D) low; high
Holding other factors constant, an increase in population due to a large increase in
immigrants will ______ the price of housing and ______ the flow of residential housing
investment.
A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease
Exhibit: Saving and Investment in a Small Open Economy
(Exhibit: Saving and Investment in a Small Open Economy) In a small open economy,
if the world interest rate is r1, then the economy has:
A) a trade surplus.
B) balanced trade.
C) a trade deficit.
D) negative capital outflows.
According to the theory of liquidity preference, holding the supply of real money
balances constant, an increase in income will ______ the demand for real money
balances and will ______ the interest rate.
A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase
Franco Modigliani’s answer to Simon Kuznets’s puzzle regarding long-term constancy
of the average propensity to consume is that:
A) the average propensity to consume depends on the wealth-to-income ratio, and
income and wealth tend to grow together over time.
B) both rich and poor individuals have the same average propensity to consume.
C) demographic shifts have acted to just cancel out movements in the average
propensity to consume.
D) every consumer consumes all of his or her income over a lifetime, so the average
propensity to consume is constant at one.
The factors most responsible for forecasts of the U.S. government debt spiraling out of
control in the next half century are the projected:
A) slowdowns in the rates of technological change and human capital growth.
B) decrease in high-skilled domestic workers and the increase in immigration of
low-skilled workers into the United States.
C) aging of the U.S. population and rising health care costs.
D) increase in international competition and the outsourcing of U.S. jobs.
The use of fei as money on the island of Yap illustrates the idea of money as a social
convention because:
A) only fei physically in the possession of the owner is accepted in transactions.
B) legal claim to a fei never seen by current generations was accepted in transactions.
C) the central bank of Yap accepts fei in exchange for paper certificates.
D) the government of Yap verifies the authenticity of fei used for transactions.
The rate of inflation is the:
A) median level of prices.
B) average level of prices.
C) percentage change in the level of prices.
D) measure of the overall level of prices.
In the Solow growth model, the steady-state growth rate of output per effective worker
is ______, and the steady-state growth rate of output per actual worker is ______.
A) the sum of the rate of technological progress plus the rate of population growth; zero
B) zero; the rate of technological progress
C) zero; zero
D) the rate of technological progress; the rate of population growth
The production of an economy is explained by a function: Y = 20 (L.5K.5) where L is
labor and K is capital with L = 400 and K = 400. Does this economy support constant
returns to scale?
Explain the controversial views held by the classical economists and Keynes about the
determinant of consumption.
What is aggregate demand? Why is the aggregate demand curve downward sloping?
It is said that some frictional unemployment is inevitable. What is the reason that some
frictional unemployment is inevitable?
A U.S. Congressman wants to reduce the U.S. trade deficit by imposing tariffs on
imports. Use a model of a large open economy with a flexible exchange rate to predict
the impact of tariffs on U.S. imports, exports, net exports, the exchange rate, and the
interest rate.
If the congress announces a rise in taxes, how will the Fed react to this rise, according
to the IS-LM model?
Some economists have predicted that as members of the baby-boom generation (a large
segment of the population) age, they will have a smaller demand for housing. Use the
model of residential investment to illustrate graphically the impact of this prediction on
housing prices and residential investment.
Explain the economist Robert Lucas’s view on the imperfect-information model?
When an economy enters expansion, the unemployment rate first increases and then
decreases. Why does this happen?
John withdraws $100 from his checking account and deposits it in his saving account.
What will be the effect of this transaction on different measures of money, i.e. C, M1,
and M2?
Assume that the typical household behaves according to Irving Fisher’s two-period
model, that consumption in both periods is a normal good and that households are
initially savers. Illustrate graphically how a tax cut in period one affects consumption in
both periods. Assume that the average consumer does not believe that he or she or
anyone in the family will ever have to pay higher taxes in the future to offset the current
cuts.
How much effect do the purchase and sale of bonds through open-market operations
have on the money supply?
The total output of the closed economy Moneyland is 10,000. Consumptionis explained
by the function C = 3,800 + 0.7T ” 150r, where r is the real interest rate. Investment (I)
is given by the equation, I = 1,500 + 50r. Taxes (T) are 1,000 and government spending
(G) is 3,500. What are the values of consumption, investment, and real interest rate?
How does TED spread indicate the confidence level the people in an economy have in
the banking system?
How do deposit insurance and the “too big to fail” policy increase moral hazard?
Use the following to answer question 58:
Refer to the following graph and identify the years for which Country A and Country B
experienced recession.
What does the Malthusian model predict about population growth and its impact? How
does the Kremerian model contradict the Malthusian model?