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In instances of hyperinflation, the delays involved in collecting taxes often result in:
A) decreased real government tax revenue.
B) large capital gains for creditors.
C) higher shoeleather costs of inflation.
D) higher ex ante real interest rates.
Assume that GDP (Y) is 6,000. Consumption (C). is given by the equation C = 600 +
0.6(Y " T). Investment (I) is given by the equation I = 2,000 " 100r, where r is the real
rate of interest in percent. Taxes (T) are 500 and government spending (G) is also 500.
a. What are the equilibrium values of C, I, and r?
b. What are the values of private saving, public saving, and national saving?
c. If government spending rises to 1,000, what are the new equilibrium values of C, I,
and r?
d. What are the new equilibrium values of private saving, public saving, and national
saving?
In the Mundell"Fleming model, if political turmoil raises the risk premium in a
country's interest rate, then the exchange rate will ______.
A) increase
B) decrease
C) remain constant
D) either increase or decrease, depending on whether the IS* or LM* curve shifts more.
The asset price that experienced a boom prior to the 2008"2009 recession was the price
of:
A) oil.
B) residential real estate.
C) technology stocks.
D) food.
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 this data, a Laspeyres price index of
2009 prices using 2004 as the base year would be:
A) 1.05.
B) approximately 1.07.
C) approximately 1.33.
D) 1.50.
If a larger share of national output is devoted to investment, then living standards will:
A) always decline in the short run but rise in the long run.
B) always rise in both the short and long runs.
C) decline in the short run and may not rise in the long run.
D) rise in the short run but may not rise in the long run.
A graph of the U.S. unemployment rate over the twentieth century shows:
A) an overall upward trend in the unemployment rate interrupted by a large upturn in
the 1930s.
B) an overall downward trend in the unemployment rate interrupted by a large upturn in
the 1930s.
C) rates of unemployment always greater than zero with substantial variations from
year to year.
D) alternating periods of positive and negative rates of unemployment.
If the currency"deposit ratio equals 0.5 and the reserve"deposit ratio equals 0.1, then the
money multiplier equals:
A) 0.6.
B) 1.67.
C) 2.0.
D) 2.5.
If there are 100 transactions in a year and the average value of each transaction is $10,
then if there is $200 of money in the economy, transactions velocity is ______ times per
year.
A) 0.2
B) 2
C) 5
D) 10
Suppose that GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 +
0.5(Y " T). Investment (I) is given by the equation I = 2,000 " 100r, where r is the real
interest rate in percent. Government spending (G) is 1,000 and taxes (T) is also 1,000.
When a technological innovation changes the investment function to I = 3,000 " 100r:
A) I rises by 1,000 and r rises by 10 percentage points.
B) I rises by 1,000 and r is unchanged.
C) I is unchanged and r rises by 10 percentage points.
D) I is unchanged and r rises by 15 percentage points.
Simon Kuznets found that, over long periods of time in the United States, as income
rose, the average propensity to consume:
A) rose.
B) fell.
C) remained constant.
D) rose and then fell.
If the short-run IS"LM equilibrium occurs at a level of income below the natural level
of output, then in the long run the price level will ______, shifting the ______ curve to
the right and returning output to the natural level.
A) increase; IS
B) decrease; IS
C) increase; LM
D) decrease; LM
According to Blanchard, Europeans are more likely to use increases in real wages
resulting from technological progress to increase ______, and Americans are more
likely to use these increases in real wages to increase ______.
A) hours of work; hours of leisure
B) consumption of goods and services; hours of leisure
C) hours of leisure; consumption of goods and services
D) unemployment insurance benefits; efficiency wages
In the Solow growth model of Chapter 8, investment equals:
A) output.
B) consumption.
C) the marginal product of capital.
D) saving.
A revaluation of a currency under a fixed-exchange-rate system occurs when the level
at which the currency is fixed is:
A) increased.
B) decreased.
C) allowed to float.
D) kept fixed within a band.
An "open" economy is one in which:
A) the level of output is fixed.
B) government spending exceeds revenues.
C) the national interest rate equals the world interest rate.
D) there is trade in goods and services with the rest of the world.
The productivity slowdown that began in the 1970s has been attributed, at least partly,
to each of the following except:
A) running out of new ideas about how to produce.
B) a deterioration in the quality of education.
C) a decline in the number of workers in the labor force.
D) a lower average level of experience among workers.
Transitory income is:
A) income that persists.
B) average income.
C) random deviations from average income.
D) current income.
According to the quantity theory of money, if money is growing at a 10 percent rate and
real output is growing at a 3 percent rate, but velocity is growing at increasingly faster
rates over time as a result of financial innovation, the rate of inflation must be:
A) increasing.
B) decreasing.
C) 7 percent.
D) constant.
If many banks fail, this is likely to:
A) increase the ratio of currency to deposits.
B) decrease the ratio of currency to deposits.
C) have no effect on the ratio of currency to deposits.
D) decrease the amount of currency in circulation, if the Fed takes no action.
When the Fed increases the interest rate paid on reserves, it:
A) increases the reserve"deposit ratio (rr).
B) decreases the reserve"deposit ratio (rr).
C) increases the monetary base (B).
D) decreases the monetary base (B).
A macroeconomist threatens to call the Secret Service to have Mr. Biggy Rich arrested
for counterfeiting because Mr. Rich claims he "makes a lot of money."
a. Carefully explain why the macroeconomist is making this threat based on the
macroeconomic definition of money. Be sure to explain the macroeconomic functions
of money.
b. Suggest an alternative phrase that Mr. Rich can use that will not result in a charge of
counterfeiting.
Assume that a tire company sells 4 tires to an automobile company for $400, another
company sells a compact disc player for $500, and the automobile company puts all of
these items in or on a car that it sells for $20,000. In this case, the amount from these
transactions that should be counted in GDP is:
A) $20,000.
B) $20,000 less the automobile company's profit on the car.
C) $20,900.
D) $20,900 less the profits of all three companies on the items that they sold.
The efficiency of labor:
A) is the marginal product of labor.
B) is the rate of growth of the labor force.
C) includes the knowledge, health, and skills of labor.
D) equals output per worker.
In the Solow model with technological progress, the steady-state growth rate of output
per (actual) worker is:
A) 0.
B) g.
C) n.
D) n + g.
Economists based their prediction that secular stagnation would occur as economies
prospered on the conjecture that:
A) the marginal propensity to consume is greater than zero.
B) the marginal propensity to consume is less than one.
C) the average propensity to consume falls as income rises.
D) income is the primary determinant of consumption.
In the aggregate demand"aggregate supply model, short-run equilibrium occurs at the
combination of output and prices where:
A) aggregate demand equals long-run aggregate supply.
B) aggregate demand equals short-run aggregate supply.
C) aggregate demand equals short-run and long-run aggregate supply.
D) short-run aggregate supply equals long-run aggregate supply.
Consumption depends positively on ______ and investment depends negatively on
______.
A) disposable income; the real interest rate
B) the real interest rate; disposable income
C) private saving; public saving
D) public saving; private saving
If nominal GDP increased by 5 percent and the GDP deflator increased by 3 percent,
then real GDP ______ by ______ percent.
A) increased; 2
B) decreased; 2
C) increased; 8
D) decreased; 8
Starting from a steady-state situation, if the saving rate increases, the rate of growth of
capital per worker will:
A) increase and continue to increase unabated.
B) increase until the new steady state is reached.
C) decrease until the new steady state is reached.
D) decrease and continue to decrease unabated.
