Econ 313 - Assignment Essays

question

A(n) _____ variable is calculated from within the model. A(n) _____ variable can never be taken as given.
a) exogenous; exogenous
b) endogenous; endogenous
c) endogenous; exogenous
d) exogenous; endogenous
e) none of the above

answer

b) endogenous; endogenous

question

The Bureau of Labor Statistics (BLS) reports the CPI _____.
a) every year
b) twice a year
c) every month
d) every two months
e) every three months

answer

c) every month

question

The real interest rate differs from the nominal rate in that _____.
a) it more accurately represents the true cost of borrowing
b) it is the better indicator of credit market conditions
c) it varies negatively with changes in the rate of inflation
d) all of the above
e) none of the above

answer

d) all of the above

question

The Fisher equation implies that an increase in the nominal rate of interest relative to the real rate indicates that _____.
a) inflation is expected to decrease
b) inflation is expected to rise
c) the real cost of borrowing has decreased
d) the real cost of borrowing has increased
e) none of the above

answer

b) inflation is expected to rise

question

An increase in the actual rate of inflation is most likely to cause a decrease in
a) the nominal interest rate
b) the ex post real interest rate
c) the ex ante real interest rate
d) the expected real interest rate
e) none of the above

answer

b) the ex post real interest rate

question

Assume that the economy is in equilibrium when technology progress causes an increase in total factor productivity. Once the economy has adjusted to its new equilibrium, and assuming that the supplies of capital and labor remain unchanged, which of the following has increased?
a) the share of labor income in the national income
b) the real wage
c) the share of capital income in national income
d) all of the above
e) none of the above

answer

b) the real wage

question

An economy's total labor income is $2 trillion, and total capital income is $1 trillion. In the Cobb-Douglas production function, the exponent on capital is _____.
a) 0.3
b) two-thirds
c) one-half
d) one-third
e) none of the above

answer

d) one-third

question

Government saving refers to _____.
a) national plus private saving
b) tax revenues minus transfers minus government purchases
c) the savings rate times transfers
d) tax revenues plus transfers minus government consumption
e) none of the above

answer

b) tax revenues minus transfers minus government purchases

question

The real interest rate _____.
a) keeps the market for saving and consumption in equilibrium
b) is the cost of borrowing not adjusted for inflation
c) describes the real benefit of saving
d) all of the above
e) none of the above

answer

c) describes the benefit of saving

question

_____ typically lead to increases in _____.
a) increases in disposable income; consumption
b) decreases in interest rates; investment
c) increases in autonomous investment; investment
d) all of the above
e) none of the above

answer

d) all of the above

question

"Crowding out" refers to the decrease in _____ that may result from an increase in government spending.
a) private investment
b) private saving
c) imports
d) all of the above
e) none of the above

answer

a) private investment

question

The domestic real interest rate (r) for a given country must be the same as the world real interest rate (rW) _____.
a) because with no barriers to capital flows, if rw>r domestic residents would just lend abroad putting upward pressures on the domestic rate until both rates equal each other
b) only if capital is not perfectly mobile
c) because with no barriers to capital flows, if rw<r domestic residents would just lend to foreigners putting upward pressures on the domestic rate until both rates equal each other
d) all of the above
e) none of the above

answer

a)because with no barriers to capital flows, if rw>r domestic residents would just lend abroad putting upward pressures on the domestic rate until both rates equal each other

question

If there is a decline in world autonomous consumption _____.
a) domestic investment would decline
b) net exports would go up
c) the domestic real interest rate would fall
d) all of the above
e) none of the above

answer

c) the domestic real interest rate would fall

question

Which of the following is true about total factor productivity (TFP)?
a) while it cannot be measured directly, it has an exponent of 0.7 in the Cob-Douglas production function
b) it can be measured just like capital and labor
c) it cannot be directly measured so it has to be calculated from given values of capital, labor, and output
d) while it cannot be directly measured, it has an exponent of 0.3 in the Cobb-Douglas production function
e) none of the above

answer

c) it cannot be directly measured so it has to be calculated from given values of capital, labor, and output

question

Suppose that an economy has output Y=AK.3L.7, that Y equals $12 trillion, capital K is $27 trillion, and L is 64 million workers. Given the information, what is the closest approximation of total factor productivity A?
a) less than 0.01
b) around .25
c) roughly .33
d) close to 0.4
e) exactly 144

answer

b) around .25

question

Given the production function Y=AK.3L.7, if an economy's capital per worker k is $27 thousand, and its total factor productivity A is .5, the the output per worker is approximately ______.
a) $5,000
b) $3,000
c) $13,500
d) $40,500
e) $1,500

answer

e) $1,500

question

If country X has a higher capital per person than country Y, then _____.
a) the only way for country X to be richer than country Y is if X is less productive (has a lower TFP) than Y
b) country X is richer than country Y
c) he only way for country X to be richer than country Y is if X is just as productive (has the same TFP) than Y
d) he only way for country X to be richer than country Y is if X is more productive (has a higher TFP) than Y
e) none of the above

answer

d) the only way for country X to be richer than country Y is if X is more productive (has a higher TFP) than Y

question

Constant returns to scale (CRS) implies that _____.
a) increasing all the factor inputs by the same percentage lead to a lower percentage increase in output
b) increasing all the factor inputs by the same percentage lead to a higher percentage increase in output
c) increasing all the factor inputs by the same percentage leads to the same percentage increase in output
d) increasing all the factor inputs by the same percentage leaves output unchanged
e) none of the above

answer

c) increasing all the factor inputs by the same percentage leads to the same percentage increase in output

question

Using the Cobb-Douglas production function, while holding other inputs constant, if the amount of a specific factor is increasing _____.
a) that factor's share of output is declining
b) the increased amount of output from an extra unit of input increases
c) that factor's share of output is increasing
d) the increased amount of output from an extra unit declines
e) none of the above

answer

d) the increased amount of output from an extra unit declines

question

The marginal product of capital (MPK) measures _____.
a) by how much total factor productivity increases for each additional unit of capital
b) by how much capital increases for each additional unit of output
c) by how much capital increases for each additional unit of labor
d) by how much output increases for each additional unit of capital
e) none of the above

answer

d) by how much output increases for each additional unit of capital

question

As the capital stock increases, ______. This means that the marginal product of capital (MPK) _____.
a) the slope of the production function increases; declines
b) the slope of the production function falls; goes up
c) the slope of the production function falls; declines
d) the slope of the production function increases; goes up
e) none of the above

answer

c) the slope of the production function falls; declines

question

What do we learn from the shape of the Cobb-Douglas production function?
a) the marginal product of labor declines as the labor input falls
b) there are diminishing returns to labor
c) its slope remains constant as labor input increases
d) all of the above
e) none of the above

answer

b) there are diminishing returns to labor

question

A technology shock could have a different impact than a natural catastrophe because
a) the former would likely lower labor productivity and the latter would lower TFP
b) the former would likely lower TFP and the latter raise labor productivity
c) the former would likely raise TFP and the latter would curtail production
d) the former would likely raise output and the latter would raise TFP
e) the former would likely lower output and the latter raise production

answer

c) the former would likely raise TFP and the latter would curtail production

question

In modern economies, the supply of money depends mainly on the economy's _____.
a) growth of output of goods and services
b) tax rates
c) mining of precious metals
d) net exports
e) none of the above

answer

e) none of the above

question

When the Fed sells government securities in the open market, the money supply _____ because _____.
a) increases; banks lose liquidity, they make more loans and checking account deposits increase
b) increases; banks gain liquidity, they make more loans and checking account deposits increase
c) decreases; banks gain liquidity, they make fewer loans and checking account deposits decrease
d) decreases; banks lose liquidity, they make fewer loans and checking account deposits decrease
e) none of the above

answer

d) decreases; banks lose liquidity, they make fewer loans and checking account deposits decrease

question

M1 differs from M2 because _____.
a) M1 includes currency held by the nonbank public and M2includes only currency held by banks
b) M2 includes interest bearing time deposit accounts and M1 does not
c) M1 includes demand and deposits and M2 does not
d) all of the above
e) none of the above

answer

b) M2 includes interest bearing time deposit accounts and M1 does not

question

Current Federal Reserve policy focuses on interest rates, rather than on monetary aggregates, because _____.
a) according to the Fisher effect, the interest rate is a key determinant of the inflation rate
b) monetary aggregates do not provide clear or consistent signals to guide policy makers
c) open market operations affect interest rates more directly than they affect monetary aggregates
d) all of the above
e) none of the above

answer

b) monetary aggregates do not provide clear or consistent signals to guide policy makers

question

The velocity of money _____.
a) time the money supply should equal total income, according to the equation of exchange
b) represents the average number of times a dollar turns over through the year
c) provides the link between the money supply and nominal income
d) all of the above
e) none of the above

answer

d) all of the above

question

The equation of exchange _____.
a) describes a relationship that is true by definition
b) states that the quantity of money multiplies by the velocity must equal nominal income in a given year
c) shows that real GDP must equal real money balances times the number of times a dollar turns over in a year
d) all of the above
e) none of the above

answer

d) all of the above

question

In the quantity theory of money, which of these variables is endogenous?
a) real output
b) the money supply
c) the price level
d) the velocity of money
e) none of the above

answer

c) the price level

question

In the quantity theory of money, the assumption that aggregate output is fixed is based on the view that _____.
a) changes in the quantity of money lead to proportional changes in the price level
b) the velocity of money is constant in the short run
c) the demand for real money balances is proportional to income
d) wages and prices are perfectly flexible in the long run
e) none of the above

answer

d) wages and prices are perfectly flexible in the long run

question

The proposition that changes in the money supply have no long-run effect on the real variables in known as the _____.
a) classical dichotomy
b) quantity theory of money
c) Fisher effect
d) neutrality of money
e) none of the above

answer

d) neutrality of money

question

The Fisher effect _____.
a) predicts that in the long run, nominal rates will rise with increases in expected inflation
b) comes from combining the Fisher equation and the classical dichotomy
c) shows that in high inflation we typically see high nominal interest rates
d) all of the above
e) none of the above

answer

d) all of the above

question

The quantity theory of money explains how _____ depends on _____.
a) the money supply; the velocity of money
b) real GDP; the money supply
c) the price level; the demand for money
d) all of the above
e) none of the above

answer

e) none of the above

question

Countries with different initial levels of per capita income may gravitate to a similar level of per capita income. Economists call this phenomenon _____.
a) convergence
b) simulation
c) depreciation
d) gravitation

answer

a) convergence

question

The Solow model is _____.
a) based on the notion of diminishing marginal product of capital and labor
b) one of the dominant explanations of the business cycle
c) the foundation for the classical economic thought of Adam Smith
d) the basic model of how technology changes over time

answer

a) based on the notion of diminishing marginal product of capital and labor

question

In the Solow model, which of the following is an exogenous variable?
a) consumption per worker
b) investment per worker
c) total factor productivity
d) the capital-labor ratio

answer

c) total factor productivity

question

In a closed economy _____.
a) investment equals consumption
b) savings equals consumption
c) investment equals savings
d) exports are greater than imports

answer

c) investment equals savings

question

Changes in the capital stock are caused by changes in _____.
a) depreciation and investment
b) depreciation and the quantity of labor
c) the quantity of labor
d) depreciation and entrepreneurship

answer

a) depreciation and investment

question

If an economy initially starts away from the steady state _____.
a) consumption spending must be greater than investment spending
b) consumption spending must rise
c) the economy will converge to the steady state in the long-run
d) output will gradually fall over time

answer

c) the economy will converge to the steady state in the long run

question

A higher rate of saving at the national level will, in the long-run _____.
a) cause a decrease in levels of capital and output
b) lead to an increase in population growth
c) cause an increase in levels of capital and output
d) have no effect on levels of capital and output

answer

c) cause an increase in levels of capital and output

question

Other things the same, in the Solow model in the steady state, a higher rate of population growth _____ the level of output per worker.
a) has no long-run effect on
b) leads to a decrease in
c) has an ambiguous effect on
d) leads to an increase in

answer

b) leads to a decrease in

question

Population growth is similar to depreciation, in that _____.
a) each lowers the capital-labor ratio
b) each helps to explain how economies can sustain a positive growth rate of output
c) capital wears out faster when used by more workers
d) each tends to encourage saving

answer

a) each lowers the capital-labor ratio

question

The slowdowns in US economic growth in the period 1974-95 was primarily caused by _____.
a) falling labor growth
b) falling productivity growth
c) falling capital growth
d) none of the above

answer

b) falling productivity growth

question

The Romer model is distinct from the Solow model in that the former assumes that _____.
a) output per worker is fixed
b) some labor is devoted to producing new technology
c) an increase in price affects quantity demanded, rather than demand
d) technology is fixed

answer

b) some labor is devoted to producing new technology

question

Endogenous growth theory supports the conclusion that _____.
a) per capita income growth is a function of real factors, such as the supply of money
b) increased government spending on research and development is useful
c) government spending cannot influence the level of research and development
d) increased government spending on research and development is counterproductive

answer

b) increased government spending on research and development is useful

question

The Romer and Solow models reach the same conclusion with respect to _____.
a) the effect of an increase in the saving rate
b) the impact of changing population
c) the general level of prices
d) output growth in the long-run

answer

a) the effect of an increase in the saving rate

question

A graph with a jump at time t=0 might represent the _____.
a) response to a rise in the productiveness of research and development
b) response to an increase in the total population
c) response to an increase in the fraction of the population engaged in research and development
d) response to a rise in the saving rate

answer

c) response to an increase in the fraction of the population engaged in research and development

question

John Maynard Keynes _____.
a) carved out macroeconomics as a distinct field in the 1930's
b) questioned the classical view that economies move quickly to their long-run equilibrium levels
c) advocated focusing on short run fluctuations
d) all of the above
e) none of the above

answer

d) all of the above

question

The classical view believes that _____.
a) a rise in the quantity of money leads to increases in saving and investment
b) economies move slowly to their long run equilibrium levels
c) a rise in the quantity of money has no impact on economic activity
d) all of the above
e) none of the above

answer

a) a rise in the quantity of money leads to increases in saving and investment

question

Keynesians believe _____.
a) that the government should pursue active policies to stabilize economic fluctuations
b) that the long run is more important than short-run fluctuations
c) that economies move quickly to their long run equilibrium levels
d) all of the above
e) none of the above

answer

a) that the government should pursue active policies to stabilize economic fluctuations

question

According to the flexible price framework _____.
a) an increase in inflation lowers real investment
b) an increase in the money supply raises real output
c) an increase in inflation raises real savings
d) all of the above
e) none of the above

answer

e) none off the above

question

An increase in the price level that leads to no expansion of economic activity _____.
a) is a strictly short-run phenomenon
b) implies that there has been no change in the money supply
c) is consistent with the classical models
d) all of the above
e) none of the above

answer

b) implies that there has been no change in the money supply

question

Empirical evidence that changes in monetary policy do not cause rapid price adjustments _____.
a) is consistent with the classical dichotomy
b) suggests that policymakers need not worry much about inflation
c) remains limited and unconvincing
d) is consistent with the Keynesian emphasis on short-run economic fluctuations
e) none of the above

answer

d) is consistent with the Keynesian emphasis on short-run economic fluctuations

question

Consumption Expenditures decrease when _____.
a) autonomous consumption increases
b) the real interest rate falls
c) disposable oncome increases
d) all of the above
e) none of the above

answer

e) none of the above

question

An increase in the real interest rate will cause an increase in _____.
a) net exports
b) planned investment
c) saving
d) all of the above
e) none of the above

answer

c) saving

question

Fixed investment is typically _____.
a) is heavily influenced by what Keynes coined as "animal spirits"
b) is negatively related to the real interest rate
c) is comprised of fixed and inventory investment
d) all of the above
e) none of the above

answer

d) all of the above

question

A change in which of the following causes a shift in the IS curve?
a) autonomous investment
b) taxes
c) autonomous net exports
d) all of the above
e) none of the above

answer

d) all of the above

question

The idea behind the Phillips curve is that _____.
a) when firms raise wages to attract new workers, prices decrease
b) when the unemployment rate is low wages will increase
c) tightness in the labor market puts downward pressures on wages and prices
d) all of the above
e) none of the above

answer

b) when the unemployment rate is low wages will increase

question

What can be concluded from Milton Friedman and Edmund Phelps' expectations-augmented Phillips curve?
a) that there is no long run trade off between unemployment and inflation
b) that there are two types of Phillips curves
c) that there is a short run trade off between unemployment and inflation
d) all of the above
e) none of the above

answer

d) all of the above

question

As wages and prices become more sticky _____.
a) wages become less responsive to unemployment deviations from the natural rate
b) the short-run Phillips curve gets flatter
c) it becomes easier to differentiate the short-run from the long-run Phillips curve
d) all of the above
e) none of the above

answer

d) all of the above

question

In the long run_____.
a) fluctuations in the inflation rate have no impact on output and unemployment
b) the aggregate supply is vertical with respect to output
c) the Phillips curve is vertical with respect to unemployment
d) all of the above
e) none of the above

answer

d) all of the above

question

According to the short-run aggregate supply curve, if output minus potential output equals zero, then _____.
a) cyclical unemployment will be positive
b) unemployment might be zero
c) inflation will be equal to the predicted inflation
d) inflation will be greater than expected inflation
e) none o the above

answer

...

question

The federal funds rate is ______.
a) a nominal interest rate
b) a real interest rate
c) set periodically by Congress
d) all of the above
e) none of the above

answer

a) a nominal interest rate

question

A central bank can control the real interest rate precisely, so long as _____ remains constant.
a) the nominal interest rate
b) expected inflation
c) monetary policy
d) all of the above
e) none of the above

answer

b) expected inflation

question

Changes in liquidity in the banking system affect _____.
a) the real interest rate
b) the nominal interest rate
c) the federal funds rate
d) all of the above
e) none of the above

answer

d) all of the above

question

The MP curve indicates the relationship between _____ and the _____.
a) the real interest rate; the inflation rate
b) taxes; price levels
c) monetary policy; the IS curve
d) all of the above
e) none of the above

answer

a) the real interest rate; the inflation rate

question

If inflation rises, monetary policy _____.
a) must be tightened, to prevent further increases in inflation
b) is rendered ineffective
c) is designed to increase the nominal interest rate by more than the increase in inflation
d) will prevent any increase in the real interest rate
e) none of the above

answer

c) is designed to increase the nominal interest rate by more than the increase in inflation

question

Autonomous tightening of monetary policy involves _____.
a) raising interest rates and shifting the MP curve to the right
b) raising interest rates and shifting the MP curve to the left
c) lowering interest rates and shifting the MP curve to the left
d) lowering interest rates and shifting the MP curve to the right

answer

b) raising interest rates and shifting the MP curve to the left

question

The MP curve may be used to represent how _____.
a) movements of the real interest rate are related to the inflation rate
b) monetary policy responds to changes in the real interest rate
c) movements of the inflation rate are determined by the real interest rate
d) all of the above
e) none of the above

answer

a) movements of the real interest rate are related to the inflation rate

question

A graph the x-axis is inflation and the y is real interest rate. A positive line has H and I respectively on it. What might they represent?
a) the increase in the inflation rate that occurs when the real interest rate rises
b) an autonomous tightening in monetary policy
c) the automatic response of monetary policy to an increase in the inflation rate
d) all of the above
e) none of the above

answer

c) the automatic response of monetary policy to an increase in the inflation rate

question

The IS curve _____.
a) explains short run fluctuations in output and inflation
b) demonstrates how central banks respond to changes in inflation with changes in the interest rate
c) shows how changes in interest rates effect equilibrium output
d) all of the above
e) none of the above

answer

c) shows how changes in interest rates effect equilibrium output

question

An increase in the real interest rate occurs when _____.
a) expected inflation increases, relative to the nominal interest rate
b) monetary policy responds automatically to an increase in inflation
c) an increase in autonomous spending causes an increase in equilibrium output
d) all of the above
e) none of the above

answer

b) monetary policy responds automatically to an increase in inflation

question

Factors that shift the AD curve include _____.
a) government purchases
b) taxes
c) autonomous investment
d) all of the above
e) none of the above

answer

d) all of the above

question

If the Federal Reserve raises interest rates in an autonomous tightening _____.
a) the MP curve shifts up, there is an upward movement along the IS curve, and the AD curve shifts to the left to a lower level of equilibrium output
b) the MP curve shifts up, there is an downward movement along the IS curve, and the AD curve shifts to the left to a lower level of equilibrium output
c) the MP curve shifts down, there is an upward movement along the IS curve, and the AD curve shifts to the left to a higher level of equilibrium output
d) the MP curve shifts down, there is an downward movement along the IS curve, and the AD curve shifts to the left to a higher level of equilibrium output
e) none of the above

answer

a) the MP curve shifts up, there is an upward movement along the IS curve, and the AD curve shifts to the left to a lower level of equilibrium output

question

Demand for the real money balances depends on _____.
a) the opportunity cost of holding money
b) the price level
c) the real interest rate
d) all of the above
e) none of the above

answer

a) the opportunity cost of holding money

question

According to liquidity preference theory, an increase in the price level would _____.
a) increase the supply of real money balances
b) decrease the demand for real money balances
c) decrease the real interest rate
d) all of the above
e) none of the above

answer

e) none of the above

question

A rightward shift of the money supply _____.
a) leads to a decrease in interest rates ceteris paribus
b) may come about from an increase in the quantity of money supplied by the Federal Reserve
c) may come about from a decrease in the price level
d) all of the above
e) none of the above

answer

d) all of the above

question

The aggregate demand has a negative slope, because households and businesses respond to an increase in _____ by reducing their expenditures.
a) output
b) the inflation rate
c) the real interest rate
d) all of the above
e) none of the above

answer

c) the real interest rate

.If the unemployment rate is below its natural rate, then _____.
a) there is excess tightness in the labor market
b) wages and prices will rise more rapidly and the AS curve will shift to the left
c) output is above its potential level
d) all of the above
e) none of the above

*d) all of the above

question

The equilibrium real interest rate is the rate _____.
a) controlled by the central bank
b) at which the output gap is zero
c) at which the inflation rate is low
d) all of the above
e) none of the above

answer

b) at which the output gap is zero

question

When an aggregate demand shock it's the economy _____.
a) the long-run level of output is unaffected
b) there is no conflict for the central bank between pursuing price or output stability because of the divine coincidence
c) the same long-run equilibrium real interest rate is reached whether the central bank intervenes or not
d) all of the above
e) none of the above

answer

d) all of the above

question

When a permanent negative supply shock hits the economy _____.
a) there is no long-run effect on inflation whether the central bank reacts or not
b) in the long-run, output is permanently lowered whether the central bank reacts or not
c) inflation decreases in the short-run
d) all of the above
e) none of the above

answer

b) in the long-run, output is permanently lowered whether the central bank reacts or not

question

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and choses to raise it, _____.
a) it would likely conduct and easing of monetary policy where the real interest rate would increase due to the ensuing decrease in aggregate demand
b) it would likely conduct and easing of monetary policy by lowering the real interest rate for any given inflation rate
c) it would likely conduct and tightening of monetary policy where the real interest rate would increase due to the ensuing increase in aggregate demand
d) it would likely conduct and tightening of monetary policy by lowering the real interest rate for any given inflation rate
e) none of the above

answer

b) it would likely conduct and easing of monetary policy by lowering the real interest rate for any given inflation rate

question

Asset-price bubbles _____.
a) end with an increase in asset prices
b) are a relatively recent phenomenon
c) are likely to be prevented by advances in computer technology and telecommunications
d) have been a feature of market economies for centuries

answer

d) have been a feature of market economies for centuries

question

In the Great Depression, investment spending fell by _____.
a) nine-tenth of one percent
b) nine hundred percent
c) ninety percent
d) nine percent

answer

c) ninety percent

question

If the value of a home falls below the amount owed on the mortgage for that property, the house is _____.
a) underwater
b) swamped
c) in a short sale
d) collateralized

answer

a) underwater

question

In the event that nominal short-term interest rates cannot be lowered further, the Federal Reserve might rely on ______.
a) federal government fiscal policy
b) targeting the inflation rate
c) targeting the fed funds rate
d) quantitative easing

answer

d) quantitative easing

question

Supply-side economics focuses on _____.
a) the impact of an increase in the rate of inflation on aggregate supply
b) the impact of changes in aggregate supply on market demand
c) the trade-off between aggregate demand and aggregate supply
d) the positive effect of tax cuts on aggregate supply

answer

d) the positive effect of tax cuts on aggregate supply

question

A decline in Tobin's q can be caused by _____.
a) an increase in stock prices
b) a decline in the replacement cost of capital
c) a decline in stock prices
d) a rise in the market value of a firm

answer

c) a decline in stock prices

question

A decline in real mortgage rates will lead, other things the same to _____.
a) an increase in residential investment
b) a lower relative price of housing
c) tighter financing constraints
d) lower demand for housing

answer

a) an increase in residential investment

question

According to the Richardian equivalence, consumers may not respond to a tax cut _____.
a) if that tax cut is directed solely at lower income groups
b) if that tax cut is directed solely at upper income groups
c) since they understand a tax cut today will lead to a tax increase in the future
d) if they lack patriotic fervor

answer

c) since they understand a tax cut today will lead to a tax increase in the future

question

According to supply-side theory, if one starts from a balanced budget, a cut in taxes will tend to cause _____.
a) a decrease in aggregate supply and an increase in aggregate demand
b) a budget surplus
c) a budget deficit
d) no change in the federal government budget

answer

b) a budget surplus

question

Examining the US business cycles over time reveals that they _____.
a) occur at regular intervals
b) are of similar magnitude
c) are of uniform duration
d) all of the above
e) none of the above

answer

e) none of the above

question

A leading variable _____.
a) reaches a peak or trough after the turning point of the business cycle
b) reaches a peak or trough before the turning point of the business cycle
c) reaches a peak or trough at the same time as the turning point of the business cycle
d) none of the above

answer

b) reaches a peak or trough before the turning point of the business cycle

question

A characteristic of the unemployment rate is that _____.
a) it is not clear whether it is a leading or lagging indicator
b) it typically goes up in a recession
c) it typically goes down in a boom
d) all of the above
e) none of the above

answer

d) all of the above

question

Interest rates spreads between long-term and short-term Treasury bills _____.
a) are countercyclical
b) are a lagging indicator
c) are good predictors of recessions
d) all of the above
e) none of the above

answer

c) are good predictors of recessions

question

Which of these economic variables is countercyclical?
a) unemployment
b) investment spending
c) demand for foreign products
d) all of the above
e) none of the above

answer

a) unemployment

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answer

b) endogenous; endogenous

question

The Bureau of Labor Statistics (BLS) reports the CPI _____.
a) every year
b) twice a year
c) every month
d) every two months
e) every three months

answer

c) every month

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answer

d) all of the above

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answer

b) inflation is expected to rise

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b) the ex post real interest rate

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b) the real wage

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d) one-third

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b) tax revenues minus transfers minus government purchases

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answer

c) describes the benefit of saving

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d) all of the above

question

"Crowding out" refers to the decrease in _____ that may result from an increase in government spending.
a) private investment
b) private saving
c) imports
d) all of the above
e) none of the above

answer

a) private investment

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answer

a)because with no barriers to capital flows, if rw>r domestic residents would just lend abroad putting upward pressures on the domestic rate until both rates equal each other

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c) the domestic real interest rate would fall

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c) it cannot be directly measured so it has to be calculated from given values of capital, labor, and output

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answer

b) around .25

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e) $1,500

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d) the only way for country X to be richer than country Y is if X is more productive (has a higher TFP) than Y

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c) increasing all the factor inputs by the same percentage leads to the same percentage increase in output

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answer

d) the increased amount of output from an extra unit declines

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d) by how much output increases for each additional unit of capital

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answer

c) the slope of the production function falls; declines

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b) there are diminishing returns to labor

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c) the former would likely raise TFP and the latter would curtail production

question

In modern economies, the supply of money depends mainly on the economy's _____.
a) growth of output of goods and services
b) tax rates
c) mining of precious metals
d) net exports
e) none of the above

answer

e) none of the above

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answer

d) decreases; banks lose liquidity, they make fewer loans and checking account deposits decrease

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answer

b) M2 includes interest bearing time deposit accounts and M1 does not

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answer

b) monetary aggregates do not provide clear or consistent signals to guide policy makers

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answer

d) all of the above

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answer

d) all of the above

question

In the quantity theory of money, which of these variables is endogenous?
a) real output
b) the money supply
c) the price level
d) the velocity of money
e) none of the above

answer

c) the price level

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answer

d) wages and prices are perfectly flexible in the long run

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answer

d) neutrality of money

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d) all of the above

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answer

e) none of the above

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answer

a) convergence

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a) based on the notion of diminishing marginal product of capital and labor

question

In the Solow model, which of the following is an exogenous variable?
a) consumption per worker
b) investment per worker
c) total factor productivity
d) the capital-labor ratio

answer

c) total factor productivity

question

In a closed economy _____.
a) investment equals consumption
b) savings equals consumption
c) investment equals savings
d) exports are greater than imports

answer

c) investment equals savings

question

Changes in the capital stock are caused by changes in _____.
a) depreciation and investment
b) depreciation and the quantity of labor
c) the quantity of labor
d) depreciation and entrepreneurship

answer

a) depreciation and investment

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answer

c) the economy will converge to the steady state in the long run

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answer

c) cause an increase in levels of capital and output

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answer

b) leads to a decrease in

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a) each lowers the capital-labor ratio

question

The slowdowns in US economic growth in the period 1974-95 was primarily caused by _____.
a) falling labor growth
b) falling productivity growth
c) falling capital growth
d) none of the above

answer

b) falling productivity growth

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answer

b) some labor is devoted to producing new technology

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b) increased government spending on research and development is useful

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answer

a) the effect of an increase in the saving rate

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c) response to an increase in the fraction of the population engaged in research and development

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d) all of the above

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answer

a) a rise in the quantity of money leads to increases in saving and investment

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answer

a) that the government should pursue active policies to stabilize economic fluctuations

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e) none off the above

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b) implies that there has been no change in the money supply

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answer

d) is consistent with the Keynesian emphasis on short-run economic fluctuations

question

Consumption Expenditures decrease when _____.
a) autonomous consumption increases
b) the real interest rate falls
c) disposable oncome increases
d) all of the above
e) none of the above

answer

e) none of the above

question

An increase in the real interest rate will cause an increase in _____.
a) net exports
b) planned investment
c) saving
d) all of the above
e) none of the above

answer

c) saving

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answer

d) all of the above

question

A change in which of the following causes a shift in the IS curve?
a) autonomous investment
b) taxes
c) autonomous net exports
d) all of the above
e) none of the above

answer

d) all of the above

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answer

b) when the unemployment rate is low wages will increase

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answer

d) all of the above

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answer

d) all of the above

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answer

d) all of the above

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answer

...

question

The federal funds rate is ______.
a) a nominal interest rate
b) a real interest rate
c) set periodically by Congress
d) all of the above
e) none of the above

answer

a) a nominal interest rate

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b) expected inflation

question

Changes in liquidity in the banking system affect _____.
a) the real interest rate
b) the nominal interest rate
c) the federal funds rate
d) all of the above
e) none of the above

answer

d) all of the above

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answer

a) the real interest rate; the inflation rate

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c) is designed to increase the nominal interest rate by more than the increase in inflation

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answer

b) raising interest rates and shifting the MP curve to the left

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answer

a) movements of the real interest rate are related to the inflation rate

question

answer

c) the automatic response of monetary policy to an increase in the inflation rate

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answer

c) shows how changes in interest rates effect equilibrium output

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answer

b) monetary policy responds automatically to an increase in inflation

question

Factors that shift the AD curve include _____.
a) government purchases
b) taxes
c) autonomous investment
d) all of the above
e) none of the above

answer

d) all of the above

question

answer

a) the MP curve shifts up, there is an upward movement along the IS curve, and the AD curve shifts to the left to a lower level of equilibrium output

question

Demand for the real money balances depends on _____.
a) the opportunity cost of holding money
b) the price level
c) the real interest rate
d) all of the above
e) none of the above

answer

a) the opportunity cost of holding money

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answer

e) none of the above

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answer

d) all of the above

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answer

question

answer

b) at which the output gap is zero

question

answer

d) all of the above

question

answer

b) in the long-run, output is permanently lowered whether the central bank reacts or not

question

answer

b) it would likely conduct and easing of monetary policy by lowering the real interest rate for any given inflation rate

question

answer

d) have been a feature of market economies for centuries

question

In the Great Depression, investment spending fell by _____.
a) nine-tenth of one percent
b) nine hundred percent
c) ninety percent
d) nine percent

answer

c) ninety percent

question

If the value of a home falls below the amount owed on the mortgage for that property, the house is _____.
a) underwater
b) swamped
c) in a short sale
d) collateralized

answer

a) underwater

question

answer

d) quantitative easing

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answer

d) the positive effect of tax cuts on aggregate supply

question

A decline in Tobin's q can be caused by _____.
a) an increase in stock prices
b) a decline in the replacement cost of capital
c) a decline in stock prices
d) a rise in the market value of a firm

answer

c) a decline in stock prices

question

answer

a) an increase in residential investment

question

answer

c) since they understand a tax cut today will lead to a tax increase in the future

question

answer

b) a budget surplus

question

Examining the US business cycles over time reveals that they _____.
a) occur at regular intervals
b) are of similar magnitude
c) are of uniform duration
d) all of the above
e) none of the above

answer

e) none of the above

question

answer

b) reaches a peak or trough before the turning point of the business cycle

question

answer

d) all of the above

question

answer

c) are good predictors of recessions

question

Which of these economic variables is countercyclical?
a) unemployment
b) investment spending
c) demand for foreign products
d) all of the above
e) none of the above

answer

a) unemployment

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