Suppose that the nominal interest rate increases while the expected inflation rate rises.
Given this information, we know with certainty that the real interest rate
A) will not change.
B) will fall.
C) will fall, but only if the increase in the nominal rate is smaller than the increase in
expected inflation.
D) will fall, but only if the increase in the nominal rate is greater than the increase in
expected inflation.
E) none of the above
Graphically illustrate and explain the effects of an increase in the rate of depreciation
(δ) on the Solow growth model. In your graph, clearly label all curves and equilibria.
The debt ratio will increase by more in any given year when
A) the real interest rate is lower.
B) the growth rate of GDP is higher.
C) the initial debt ratio is greater.
D) all of the above
E) none of the above
At the current steady state capital-labor ratio, assume that the steady state level of per
capita consumption, (C/N)*, is less than the golden rule level of steady state per capita
consumption. Given this information, we can be certain that
A) an increase in the saving rate will cause an increase in the steady state level of per
capita consumption ((C/N)*).
B) a reduction in the capital-labor ratio will cause a reduction in (C/N)*.
C) the capital labor ratio will tend to increase over time.
D) the capital labor ratio will tend to decrease over time.
E) a reduction in the saving rate will have an ambiguous effect on (C/N)*.
Suppose households unexpectedly decrease consumption. Which of the following will
occur as a result of this unexpected reduction in consumption?
A) an increase in stock prices
B) a reduction in stock prices
C) no change in stock prices
D) an ambiguous effect on stock prices
During republican presidential administration since 1948, economic growth was highest
in ________ year of the administration?
A) first
B) second
C) third
D) fourth
Policy makers can select from a number of different exchange rate regimes and
exchange rate policies. Which of the following policies would most likely represent a
hard peg?
A) a revaluation
B) a devaluation
C) a flexible exchange rate regime
D) a dollarization
A firm’s value added equals
A) its revenue minus all of its costs.
B) its revenue minus its wages.
C) its revenue minus its wages and profit.
D) its revenue minus its cost of intermediate goods.
E) none of the above
An increase in which of the following variables will cause a reduction in the demand
for domestic goods?
A) foreign income
B) the real exchange rate
C) consumer confidence
D) domestic income
E) all of the above
Which country had the highest rate of technological progress from 1985 to 2013?
A) Japan
B) France
C) United States
D) United Kingdom
We know with certainty that a tax increase must cause which of the following?
A) an increase in investment
B) a reduction in investment
C) no change in investment
D) none of the above
Which of the following events will cause the largest real depreciation for the domestic
economy?
A) a 6% reduction in E and a 6% increase in the foreign price level (P*)
B) a 6% increase in the domestic price level (P) and a 6% reduction in P*
C) a 6% reduction in E and a 6% reduction in P*
D) a 3% increase in E
E) a 2% increase in E and a 2% increase in P
If the price level in Japan is 1.0, the price level in the U.S. is 2.0, and it costs 100 Yen to
buy one dollar, then the real exchange rate between the U.S. and Japan is
A) 2.
B) 10.
C) 50.
D) 100.
E) 200.
A bank is insolvent when
A) its liabilities exceed its assets.
B) its assets exceed its liabilities.
C) its capital exceeds its liabilities.
D) its assets increase in value.
The Great Depression had led economists to suggest a larger role for
A) market mechanism.
B) government intervention.
C) price mechanism.
D) international trade.
In an open economy, an increase in government spending will cause
A) a reduction in domestic output.
B) a reduction in imports.
C) a reduction in net exports.
D) all of the above
E) none of the above
Which of the following will always cause an increase in net exports?
A) a reduction in domestic output
B) an increase in the real exchange rate
C) an increase in government spending
D) an increase in investment
E) all of the above
As an economy adjusts to an decrease in the saving rate, we would expect output per
worker
A) to decrease at a constant rate and continue decreasing at that rate in the steady state.
B) to decrease at a permanently higher rate.
C) to increase at a permanently higher rate.
D) to return to its original level.
E) none of the above
The difference between net capital flows and the current account deficit is called the
A) capital account surplus.
B) capital account deficit.
C) international error.
D) missing number.
E) statistical discrepancy.
Seignorage is defined as which of the following?
A) the part of a budget deficit financed by the issuance of bonds sold to the private
sector
B) revenue from money creation
C) the increase in income tax revenues that occurs during a hyperinflation
D) the increase in income tax revenues that occurs as a result nominal income tax
brackets not being adjusted to changes in
E) the part of a budget deficit financed with foreign lending
If C = 2000 + .9YD, what increase in government spending must occur for equilibrium
output to increase by 1000?
A) 100
B) 200
C) 250
D) 500
E) 1000
Which of the following best defines the real interest rate (r)?
A) the amount of goods we must give up next year in order to consume more goods
today
B) the amount of dollars we must give up next year in order to consume more goods
today
C) the amount of dollars we must give up next year in order to have more dollars today
D) the amount of dollars we must give up today in order to have more dollars next year
E) the amount of dollars we must give up today in order to consume more goods today
For this question, assume that there are decreasing returns to capital, decreasing returns
to labor, and constant returns to scale. Now suppose that both capital and labor decrease
by 5%. Given this information, we know that output (Y) will
A) not change.
B) decrease by less than 5%.
C) decrease by 5%.
D) decrease by more than 5% but less than 10%.
E) none of the above
Hyperinflation refers to inflation in excess of ________ per month.
A) 30%
B) 10%
C) 20%
D) 25%
Which of the following can help explain the technology gap that exists between some
countries?
A) poorly established property rights
B) political instability
C) the relative absence of entrepreneurs
D) all of the above
E) none of the above
The IS curve shifts to the right where there is
A) an increase in current taxes.
B) a reduction in expected future taxes.
C) a reduction in expected future output.
D) all of the above
E) none of the above
During the Great Depression, the actual unemployment rate in the U.S. ________, and
the natural rate apparently ________.
A) increased; decreased
B) increased; remain unchanged
C) increased; increased as well
D) decreased; increased
E) decreased; remained unchanged
There are how many members of the Board of Governors in the Federal Reserve
system?
A) 15
B) 12
C) 7
D) 4
E) none of the above
Assume that policy makers are pursuing a fixed exchange rate regime. Assume that the
economy is initially operating at the natural level (i.e., Y = Yn). Suppose a reduction in
wealth causes households to reduce consumption. This wealth-induced decrease in
consumption will cause which of the following to occur?
A) The real exchange rate will be permanently higher in the medium run.
B) The real exchange rate will be permanently lower in the medium run.
C) The effects of this devaluation on the real exchange rate will be ambiguous in the
medium run.
D) The real exchange rate will be unchanged in the medium run.
For this question, assume that policy makers are pursuing a fixed exchange rate regime.
Now suppose that households decide to decrease consumption because of, for example,
a reduction in consumer confidence. Given this information, we would expect which of
the following to occur?
A) a reduction in the domestic interest rate
B) an increase in E
C) a reduction in E
D) a reduction in investment
E) none of the above
A Fed purchase of securities 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
Of the following, the most often used measure of changing living standards is
A) the growth rate of nominal GDP.
B) the growth rate of real GDP.
C) the growth rate of nominal GDP per capita.
D) the growth rate of real GDP per capita.
E) unemployment per capita.
We would expect which of the following to occur when the central bank conducts an
open market purchase of bonds?
A) a reduction in the monetary base (H)
B) a reduction in the money multiplier
C) an increase in the money multiplier
D) an increase in the money supply
Changes in GDP in the long run are determined primarily by
A) monetary policy.
B) fiscal policy.
C) demand.
D) all of the above
E) none of the above
The new term introduced in the extended IS-LM model is
A) risk premium.
B) nominal interest rate.
C) taxes.
D) G.