macro - Assignment Essays

question

Suppose that in producing a GDP of 3000, goods worth 200 go unsold and are unintentionally added to business inventories. These goods:
a) are not counted in in total expenditure
b) are part of the investment component of expenditure
c) are nonetheless part of the consumption component of expenditure
d) are classified as net exports and are subtracted from total expenditure

answer

b) are part of the investment component of expenditure

question

Stability of the US economy between 1985 and 2007 referred to as:
a) Great Moderation
b) the Great Depression
c) Automatic Stabilizer
d) Fiscal Discretion

answer

a) Great Moderation

question

As used in this text, "autonomous" variables are:
a) spontaneous variables that are completely unpredictable
b) completely independent of income, although they can be explained by movements in other variables
c) determined by income levels
d) the same as endogenous variables

answer

b) completely independent of income, although they can be explained by movements in other variables

question

If business firms are more optimist during the expansion phase of the business cycle, they
a) raise their expected rates of return on projects and investment increases
b) lower their expected rates of return on projects and investment increases
c) raise their expected rates of return on projects and investment decreases
d) lower their prices and increase investment

answer

a) raise their expected rates of return on projects and investment increases

question

When stock prices fall significantly, people may feel less healthy and thus decided to consume less of their current flow of disposable income. In our consumption function, this can be presented by a
a) fall in (Y-T)
b) rise in T
c) rise in c
d) fall in a

answer

a) fall in (Y-T)

question

In our consumption function, when disposable income in zero, consumption is
a) a
b) -cT
c) cT
d) -a

answer

a) a

question

Saving is positive for all levels of disposable income
a) above zero
b) above where the consumption line intersects the 45-degree line
c) below where the consumption line intersects the 45-degree line
d) above where the consumption function intersects the vertical axis
e) above autonomous consumption

answer

b) above where the consumption line intersects the 45-degree line

question

Changes in consumer confidence, business optimism, government spending, and foreign events that cause economic volatility are known as
a) supply shocks
b) demand shocks
c) aggregate demand
d) real business cycles

answer

b) demand shocks

question

Since business firms will undertake a project who's rate of return exceeds the present level of interest rates, when interest rates
a) rise planned investment rises, ceteris paribus
b) fall planned investment fall, ceteris paribus
c) rise planned investment does not change
d) rise planned investment falls, ceteris paribus

answer

d) rise planned investment falls, ceteris paribus

question

In the simplest Keynesian model of the determination of income, interest rates are assumed
a) to be exogenous and to influence desired spending
b) to be endogenous and not to influence desired spending
c) to be endogenous and to influence desired spending
d)to be exogenous and not to influence desired spending

answer

a) to be exogenous and to influence desired spending

question

The portion of net exports determined by income in foreign countries is
a) induced net exports
b) autonomous net exports
c) total net exports
d) always equal to zero

answer

b) autonomous net exports

question

The one type of expenditure that we assume can differ from what spenders have planned is
a) consumption
b) investment
c) government expenditure
d) net exports

answer

b) investment

question

When an economy is in equilibrium
a) planned expenditures exceed production and income
b) there is no savings nor investment
c) government tax revenues equal planned government expenditures
d) production and income equal planned expenditures

answer

d) production and income equal planned expenditures

question

When planned autonomous spending rises, the planned expenditure line
a) makes a parallel shift downward
b) makes a parallel shift upward
c) pivots upward from the vertical intercept
d) pivots downward from the vertical intercept

answer

b) makes a parallel shift upward

question

Should autonomous consumption rise by one dollar, the effect of this on equilibrium income can be offset if net taxes are
a) raised by one dollar
b) lowered by one dollar
c) raised by c dollars
d) lowered by c dollars
e) raised by (1/c) dollars

answer

e) raised by (1/c) dollars

question

Higher real GDP growth usually causes
a) a drop in net exports
b) a rise in net exports
c) a drop in the trade deficit
d) A and C

answer

a) a drop in net exports

question

Should autonomous consumption fall by one dollar, the effect of this on equilibrium income can be offset if government expenditure
a) falls by one dollar
b) rises by one dollar
c) falls by 1/(1-c) dollars
d) rises by 1/(1-c) dollars
e) rises by c/(1-c) dollars

answer

b) rises by one dollar

question

The IS curve represents
a) investment and saving when the commodity markets are in disequilibrium
b) equilibrium in the goods markets for every combination of interest rates and output level
c) the determination of the level of interest rate
d) the determination of the level of income and output

answer

b) equilibrium in the goods markets for every combination of interest rates and output level

question

The inauguration of a new president often increase the degree of optimism in business firms and households, causing planned autonomous expenditure to
a) rise and IS to shift leftward
b) fall and IS to shift leftward
c) fall and IS to increase
d) rise and IS to shift rightward

answer

d) rise and IS to shift rightward

question

The IS curve plots for each level of income the ______ that causes income to equal ______.
a) interest rate, planned expenditures
b) interest rate, planned autonomous spending
c) planned autonomous spending, planned expenditure
d) planned autonomous spending, planned autonomous spending

answer

a) interest rate, planned expenditures

question

The IS curve shows that higher income levels require ______ interest rates to ensure that income equals ______.
a) higher, planned autonomous spending
b) higher, planned expenditures
c) lower, planned autonomous spending
d) lower, planned expenditures

answer

lower, planned expenditures

question

Events that shift the planned expenditure function to the left also cause the ______ the IS curve
a) movement downward along
b) movements upward along
c) parallel rightward shifts of
d) parallel leftward shifts of

answer

d) parallel leftward shifts of

question

Following the housing market collapse, US personal saving rates have
a) increased
b) decreased
c) remained the same
d) data not yet available

answer

a) increased

question

An increase in government expenditures
a) shifts the IS curve leftward as taxes must increase too
b) shifts the IS curve rightward as taxes must increase too
c) rotates the IS rightward
d) rotates the IS leftward
e) none of the above

answer

e) none of the above

question

The IS shifts by the same horizontal distance for any $1 change in autonomous expenditures.
a) true
b) false

answer

a) true

question

Among all assets, only money can be a
a) unit of account
b) store of value
c) medium of exchange
d) a way of amassing wealth

answer

c) medium of exchange

question

In deriving an LM curve, higher incomes shift the money demand schedule to the ______, yet the unchanged real money supply continuers to be equally demanded so long as the interest rate ______
a) right, rises
b) right, falls
c) left, rises
d) left, falls

answer

a) right, rises

question

If spending is NOT responsive to changes in the interest rate, then the
a) LM curve is vertical
b) IS and LM curves are vertical
c) IS curve is vertical
d) IS curve is vertical and the LM is horizontal

answer

c) IS curve is vertical

question

From an initial IS-LM equilibrium with normally sloped IS and LM curves, the money supply falls. As the new IS-LM equilibrium we have some combination of a ______ income and a ______ interest rate
a) higher, higher
b) higher, lower
c) lower, higher
d) lower, lower

answer

c) lower, higher

question

An increase in real GDP causes the demand for real money balances to
a) rise
b) fall
c) remain unaffected
d) rise, fall, or remain unaffected depending on the interest rate at the time

answer

a) rise

question

Consider an initial IS-LM equilibrium with normally sloped curves. An increase in government spending takes us to a new equilibrium with ______ income and _____ interest rate
a) higher, a higher
b) higher, a lower
c) an unchanged, a higher
d) an unchanged, a lower
e) lower, an unchanged

answer

a) higher, a higher

question

"Real money balances" refers to
a) the currency part of the total money supply
b) the money supply divided by the price level
c) the money supply times one minute the interest rate
d) the non-interest-earning part of the money supply

answer

b) the money supply divided by the price level

question

Complete "crowding-out" describes the situation in the economy when
a) fiscal policy is effective in changing output
b) the shift in the LM curve by monetary policy is "impotent"
c) the shift in the IS curve by fiscal policy is "impotent"
d) fiscal policy crowds out monetary policy

answer

c) the shift in the IS curve by fiscal policy is "impotent"

question

Suppose the government increase its expenditures by $100 billion and simultaneously reduces the money supply by $100 billion. We definitely know that
a) equilibrium GDP will fall
b) equilibrium GDP will rise
c) the interest rate will rise
d) the interest rate will fall

answer

c) the interest rate will rise

question

Monetary policy will have a large income effect provided the
a) IS curve is flat
b) LM curve is steep
c) IS curve is steep
d) LM curve is flat

answer

a) IS curve is flat

question

Monetary policy will have a large income effect provided the
a) sensitivity of autonomous spending to interest rates is high
b) sensitivity of autonomous spending to interest rates is low
c) sensitivity of output changes to interest rates is low
d) none of the above

answer

a) sensitivity of autonomous spending to interest rates is high

question

A daily auction at the Chicago Board of Trade sets
a) federal funds rate
b) 10-year bond rate
c) discount rate
d) prime rate
e) credit cards rate

answer

b) 10-year bond rate

question

Fully accommodating monetary policy results in
a) a constant interest rate
b) the simple fiscal-policy multiplier of Chapter 3
c) an increase in the money supply when there is a rise in government spending
d) all of these

answer

d) all of these

question

Monetary policy loses its effectiveness in all of the following situations EXCEPT
a) when the IS curve is vertical
b) when the LM curve is nearly horizontal
c) when interest rate controlled by the Fed reaches zero
d) when the IS curve is horizontal

answer

d) when the IS curve is horizontal

question

The difference between the corporate bond rate and the risk-free rate of Treasury bonds is called
a) risk premium
b) term premium
c) Fed's premium
d) monetary policy

answer

a) risk premium

question

As shown by the IS-LM model, there are two reasons that the Fed can lose control of the economy. One of these reasons is
a) federal funds rate can never reach zero percent
b) zero federal funds rate is not sustainable
c) household and business borrowers do not base their decision to borrow on interest rates
d) that the zero federal funds rate achieved by the Fed is irrelevant to household and business borrowers

answer

d) that the zero federal funds rate achieved by the Fed is irrelevant to household and business borrowers

question

If the intersection of the IS curve with horizontal axis comes at a level of output below the natural level of output, the Fed
a) can easily bring the economy back to the full-employment level of output
b) loses control of the economy
c) must use contractionary model policy to correct economic problem
d) must decrease money supply and ignore interest rates

answer

b) loses control of the economy

question

________ occurs when a central bank purchases assets with the intention not of lowering the short-term interest rate, which is already at zero, but with the purpose of increasing bank reserves
a) quantitative easing
b) fiscal incrementing
c) loan originating
d) fiscal easing

answer

a) quantitative easing

question

Securitization is
a) the process of combining many different debt instruments like home mortgages into a pool of thousands of individual contracts and then selling new financial instruments
b) the process of securing loans at the bank
c) the process of combining assets and debt into a pool of individual contracts and then selling new financial instruments
d) the process that FDIC uses to insure

answer

a) the process of combining many different debt instruments like home mortgages into a pool of thousands of individual contracts and then selling new financial instruments

question

The SAS curve is positively sloped because workers, in the short-un, will supply the labor required by
a) business firms at the fixed real wage
b) business firms at the fixed nominal wage
c) households at the fixed real wage
d) A and B

answer

b) business firms at the fixed nominal wage

question

If, other things constant, the actual real wage is below the equilibrium real wage, the short-run aggregate supply curve in the next period would
a) shift downward and the price level would fall
b) be vertical and the price level would increase
c) be unaffected and the price level would remain constant
d) shift upward and the price level would increase

answer

d) shift upward and the price level would increase

question

If firms are willing to produce and sell more output when prices rise, this implies
a) a horizontal aggregate supply curve
b) an upward-sloping aggregate demand curve
c) an upward-sloping short-run supply curve
d) a vertical short-run aggregate supply curve

answer

c) an upward-sloping short-run supply curve

question

The equilibrium real wage rate
a) is equal to the nominal wage rate
b) equals the actual real wage rate at every point on the SS curve
c) is determined by the intersection of the labor supply and demand curves
d) equals the actual real wage rate in short-run equilibrium

answer

c) is determined by the intersection of the labor supply and demand curves

question

Classical economists believed that
a) monetary policy was ineffective
b) movements away from the natural rate of output were only temporary
c) monetary impotence would make fiscal policy necessary to bring the economy out of a depression
d) government intervention was necessary to stabilize the economy

answer

b) movements away from the natural rate of output were only temporary

question

If the interest responsiveness of business firms investment is great than the
a) IS curve is steeper and the AD curve is steeper
b) IS curve is horizontal and the AD curve is perfectly horizontal
c) IS curve is horizontal and the AD curve is perfectly vertical
d) IS curve is flatter and the AD curve is flatter

answer

d) IS curve is flatter and the AD curve is flatter

question

The SAS curve will be steeper the
a) greater is the marginal product of each additional worker
b) greater is MC
c) the faster the MPN falls for each additional worker
d) greater is the nominal wage

answer

c) the faster the MPN falls for each additional worker

question

What is held constant at all points along a single SAS curve?
a) the price level
b) real GDP
c) the amount of labor employed
d) the nominal wage rate
e) the real wage rate

answer

d) the nominal wage rate

question

Assuming constant wages implies that
a) a decrease in the price of goods lowers profits and SAS is horizontal
b) an increase in the price of goods raises profits and SAS is positively sloped
c) an increase in the price of goods raises profits and SAS is vertical
d) an increase in the price of goods lowers profits and SAS is vertical

answer

b) an increase in the price of goods raises profits and SAS is positively sloped

question

An "easy money, easy fiscal" policy combination would shift AD
a) downward to the left and lower the price level
b) upward to the left and raise the price level
c) upward to the right and raise the price level
d) downward to the left and raise the price level

answer

c) upward to the right and raise the price level

question

During the Great Depression,
a) wages fell continuously
b) there is good evidence that the IS curve was vertical
c) there is good evidence that the LM curve was horizontal
d) there was almost prefect price flexibility

answer

b) there is good evidence that the IS curve was vertical

question

Suppose the aggregate demand curve shifts rightward against a horizontal short-run aggregate supply curve. Real GDP would ______ while the price level ________
a) reamin unchanged, falls
b) rises, rises
c) rise, remain unchanged
d) remain unchanged, rises
e) fall, rises

answer

c) rise, remain unchanged

question

Refer to the information above. If the nominal money supply falls by 4 percent, accompanied by a 4 percent fall in the price level, the resulting IS-LM equilibrium corresponds to a point in the AD diagram
a) directly to the left of A on a new AD curve
b) 4 percent straight below A on a new AD curve
c) directly to the right of A on a new AD curve
d) which is acutely point A again
e) 4 percent straight above A on a new AD curve

answer

b) 4 percent straight below A on a new AD curve

question

A doubling of the nominal money supply would create a new AD curve at double the vertical position of the original AD curve because
a) at each price level there is a decrease in autonomous spending
b) the rise in the money supply causes an excess supply of money and generate rising interest rates
c) the rise in money supply causes increased expectation of further price increases and investment declines
d) each output level requires the same real money supply as in the original situation

answer

d) each output level requires the same real money supply as in the original situation

question

A rise in the nominal money supply will
a) shift the AD curve and raise the equilibrium level of nominal GDP
b) shift the AD curve and raise the equilibrium price level
c) shift the IS curve and shift the AD curve
d) all of the above are correct

answer

d) all of the above are correct

question

Crop failures generally produce _____ supply shocks in which the price level rises and then _______.
a) temporary, returns to its previous level
b) permanent, returns to its previous level
c) temporary, holds at its new higher level
d) permanent, holds as its new higher level

answer

a) temporary, returns to its previous level

question

The stock of high-powered money in the economy is $80 billion. The bank reserve-holding ratio is 0.12 and the public wishes to hold 10% of its deposits as cash. The money supply will be approximately
a) $327 billion assuming the 80 billion of high-powered money is not held by the Fed or in bank vaults
b) $400 billion assuming the 80 billion of high-powered money is held by the Fed or in bank vaults
c) $363 billion assuming the 80 billion of high-powered money is held by banks
d) $425 billion assuming the 80 billion of high-powered money is held by banks

answer

b) $400 billion assuming the 80 billion of high-powered money is held by the Fed or in bank vaults

question

Gradually over the last two decades, _____ policy has emerged as the major stabilization policy total in the United States.
a) fiscal
b) deregulatory
c) monetary
d) exchange rates

answer

c) monetary

question

The immediate impact when the Federal Reserve buys government securities
a) from government security dealers is that the level of bank reserves will increase and the level of deposits will decrease
b) from banks is that the level of bak reserves will decrease
c) from government security dealers is that the level of bank reserves and deposits will increase
d) from banks is that the level of deposits will increase but bank reserves will decline

answer

c) from government security dealers is that the level of bank reserves and deposits will increase

question

In the 1979-82 period, the Fed pursued a monetary policy which targeted the growth rate of the money supply. Given the effects of financial deregulation on money demand you would expect, ceteris paribus,
a) slow growth in interest rates
b) volatile interest rates
c) stable interest rates
d) a constant interest rate

answer

b) volatile interest rates

question

M1 is a definition of money largely confined to which function(s) of money?
a) medium of exchange
b) store of value
c) unit of account
d) a constant interest rate

answer

a) medium of exchange

question

The money-creation multiplier is affected by the
a) bank reserve-holding ratio as a proportion of demand deposits
b) public's demand for currency as a proportion of demand deposits
c) rediscount rate applied to loans from the Fed to banks
d) both A and B are correct

answer

d) both A and B are correct

question

Stagflation may be explained by
a) a stagnating level of AD
b) a downward shift in the SP curve
c) a stagnating level of SAS
d) an upward shift of the SP curve

answer

d) an upward shift of the SP curve

question

At every current AD/SAS equilibrium point to the right of the LAS curve, the price level is ______ than that expected on average and figured into the wage contracts in force, and thus there is pressure on the SAS curve to shift ______ with wage renegotiations
a) less, upward
b) greater, upward
c) greater, downward
d) less, downward

answer

d) greater, upward

question

As a result of the financial deregulation that allowed banks to issue new types of interest-bearing checking accounts
a) the demand for money M1 curve became vertical
b) the demand for money M1 curve will shift to the right
c) people are less willing to hold M1 at a given interest rate on alternative assets
d) the demand for money M1 curve became more stable

answer

b) the demand for money M1 curve will shift to the right

question

If the discount rate is lowered further by the market interest rate, banks tend to
a) borrow less from the Fed
b) borrow more from the Fed
c) lend less to the Fed
d) lend more the Fed

answer

b) borrow more from the Fed

question

When the Fed targets interest rates, rightward shifts in the IS curve force the Fed to _____ the money supply to hold to that target, which acts to ______ velocity
a) lower, destabilize
b) lower, stabilize
c) raise, destabilize
d) raise, stabilize

answer

c) raise, destabilize

question

An adverse supply shock will shift the short-run Phillips Curve
a) outward to the right
b) downward to the right
c) upward to the right
d) upward to the left

answer

...

question

Given an adverse supply shock, an 'accommodating policy' will
a) maintain the output ratio but allow inflation to increase
b) maintain the inflation rate and the output radio
c) raise the inflation rate and the output ratio
d) lower the inflation rate and the output ratio

answer

a) maintain the output ratio but allow inflation to increase

question

If there is a permanent adverse supply shock,
a) the level of employment at the natural level of real GDP will remain constant only if the labor supply curve is vertical
b) the rate of inflation can be held constant if real wages are kept from falling
c) an extinguishing policy will produce an acceleration of inflation
d) the natural level of real GDP will remain the same if the supply curve of labor is vertical

answer

a) the level of employment at the natural level of real GDP will remain constant only if the labor supply curve is vertical

question

When the actual inflation rate is equal to the expected inflation rate the economy will be ____ and the SP curve will be _____
a) in disequilibrium, at an output level less than the natural rate of output; shift upward
b) in short and long-run equilibrium; be stable
c) in long-run equilibrium; shift upward
d) in short-run equilibrium; shift upward

answer

b) in short and long-run equilibrium; be stable

question

When the expected rate of inflation falls, the short-run Phillips Curve
a) shifts downward
b) shifts upward
c) remains unaffected
d) becomes vertical

answer

a) shifts downward

question

An extinguishing policy response to a supply shock
a) is one that maintains a fixed growth of real GDP
b) attempts to keep real GDP from changing
c) changes the expected inflation rate
d) causes a downward shift in the SP curve

answer

c) changes the expected inflation rate

question

If interest rates are falling, then, ceteris paribus,
a) bond holders are suffering capital losses
b) income must be rising
c) the liquidity demand for money will be falling
d) bond prices are rising

answer

d) bond prices are rising

question

With unstable commodity demand and this an unstable ____ curve, fluctuations in output ate _____ by the fortuitous selection of ______ targeting.
a) LM, eliminated, interest rate
b) LM, minimized, interest rate
c) IS, eliminated, interest rate
d) LM, minimized, money supply
e) IS, minimized, money supply

answer

e) IS, minimized, money supply

question

A growing government budget deficit and national debt reduced economic growth because
a) it diverts private savings from the financing of private investment
b) it insures that future generations will have to pay the debt
c) it reduces household saving
d) it reduces public investment

answer

a) it diverts private savings from the financing of private investment

question

Probably the best measure of a country's economic growth is the growth of
a) real domestic investment
b) real GDP per person
c) real consumption expenditures
d) real GDP

answer

b) real GDP per person

question

When we study economic growth, we are most concerned about changes in
a) the absolute difference between natural and actual real output
b) the output ratio
c) the level of natural real output
d) none of these

answer

c) the level of natural real output

question

When an equal percentage increase in the factors of production raises real GDP by the same percentage, the production function has the characteristic known as
a) constant returns to scales
b) increasing returns to scale
c) constant marginal productivity
d) diminishing marginal productivity

answer

a) constant returns to scales

question

The output-capital ratio (Y/K) depends on the following four determinants. Which determinant of these four is most likely to be affected by government growth policy?
a) the growth of capital per person
b) the growth rate of labor input
c) the depreciation rate
d) the nature of the production function

answer

a) the growth of capital per person

question

Net investment is
a) investment net of savings
b) total investment less replacement investment
c) savings less replacement savings
d) replacement investment

answer

b) total investment less replacement investment

question

The general form of the production function used in Chapter 11 is
a) Y = A + F(K,N)
b) Y = AF(K,N)
c) Y = A - F(K,N)
d) Y = A/F(K,N)

answer

b) Y = AF(K,N)

question

Using the textbook's production function, an increase in A requires that one percent more labor working with _____ capital produces more ______.
a) an unchanged amount of, real GDP per labor input
b) one percent more, real GDP per labor input
c) an unchanged amount of, real GDP
d) one percent more, real GDP

answer

b) one percent more, real GDP per labor input

question

Steady state growth will occur according to Robert Solow when
a) kn=y
b) k=n
c) y=n
d) y=k

answer

b) k=n

question

The application of Solow's growth theory to the explanation of the slowdown in productivity growth in the United States suggest that the slowdown is primarily caused by
a) reduced growth in the technical change or total factor productivity
b) ignorance since people save and invest less
c) slow residual growth of the capital stock
d) reduced growth in the capital stock per hour of work

answer

a) reduced growth in the technical change or total factor productivity

question

Suppose that the government passes a law requiring households to increase savings 10% above previous levels. According to Solow's growth theory, in the short run
a) output per capita grows more rapidly
b) output per capita stays constant
c) output per capital grows at the constant steady state rate, n
d) none of the above

answer

a) output per capita grows more rapidly

question

Suppose that the government passes a law requiring households to increase savings 10% above previous levels. According to Solow's growth theory, in the long run
a) output per capita grows at the constant steady rate, n
b) output per capita stays constant
c) output per capita grows more rapidly
d) none of the above

answer

a) output per capita grows at the constant steady rate, n

question

One of the shortcomings of the Solow growth model is that in it the rate of technological change is
a) zero unless the saving rate exceeds the depreciation rate
b) left unexplained
c) assumed to be equal to the population growth
d) assumed to be zero

answer

b) left unexplained

question

The most plausible way to produce a continuous increase in the standard of living within the Solow growth model is to assume
a) continuous increases in the national saving rate
b) a positive rate of population growth
c) continuous growth in the capital stock
d) continuous technological improvement
e) a zero rate of depreciation

answer

d) continuous technological improvement

question

The neoclassical model predicts that nations that are initially poor should have
a) slower growth rates than nations that are rich
b) faster growth rates than nations that are rich
c) negative growth rates
d) growth rates equal to those of nations that are rich

answer

b) faster growth rates than nations that are rich

question

The new endogenous growth theory concludes that sustained economic growth in a country comes from the interaction of labor, investments in physical and human capital, and what is perhaps the key ingredient:
a) immigration into that country
b) the production of ideas
c) post-secondary education within that country
d) natural resources

answer

b) the production of ideas

1 of 95

question

answer

b) are part of the investment component of expenditure

question

Stability of the US economy between 1985 and 2007 referred to as:
a) Great Moderation
b) the Great Depression
c) Automatic Stabilizer
d) Fiscal Discretion

answer

a) Great Moderation

question

answer

b) completely independent of income, although they can be explained by movements in other variables

question

answer

a) raise their expected rates of return on projects and investment increases

question

answer

a) fall in (Y-T)

question

In our consumption function, when disposable income in zero, consumption is
a) a
b) -cT
c) cT
d) -a

answer

a) a

question

answer

b) above where the consumption line intersects the 45-degree line

question

answer

b) demand shocks

question

answer

d) rise planned investment falls, ceteris paribus

question

answer

a) to be exogenous and to influence desired spending

question

The portion of net exports determined by income in foreign countries is
a) induced net exports
b) autonomous net exports
c) total net exports
d) always equal to zero

answer

b) autonomous net exports

question

The one type of expenditure that we assume can differ from what spenders have planned is
a) consumption
b) investment
c) government expenditure
d) net exports

answer

b) investment

question

answer

d) production and income equal planned expenditures

question

answer

b) makes a parallel shift upward

question

answer

e) raised by (1/c) dollars

question

Higher real GDP growth usually causes
a) a drop in net exports
b) a rise in net exports
c) a drop in the trade deficit
d) A and C

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a) a drop in net exports

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b) rises by one dollar

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b) equilibrium in the goods markets for every combination of interest rates and output level

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d) rise and IS to shift rightward

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a) interest rate, planned expenditures

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lower, planned expenditures

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d) parallel leftward shifts of

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Following the housing market collapse, US personal saving rates have
a) increased
b) decreased
c) remained the same
d) data not yet available

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a) increased

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e) none of the above

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The IS shifts by the same horizontal distance for any $1 change in autonomous expenditures.
a) true
b) false

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a) true

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Among all assets, only money can be a
a) unit of account
b) store of value
c) medium of exchange
d) a way of amassing wealth

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c) medium of exchange

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a) right, rises

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c) IS curve is vertical

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c) lower, higher

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An increase in real GDP causes the demand for real money balances to
a) rise
b) fall
c) remain unaffected
d) rise, fall, or remain unaffected depending on the interest rate at the time

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a) rise

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a) higher, a higher

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b) the money supply divided by the price level

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c) the shift in the IS curve by fiscal policy is "impotent"

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c) the interest rate will rise

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Monetary policy will have a large income effect provided the
a) IS curve is flat
b) LM curve is steep
c) IS curve is steep
d) LM curve is flat

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a) IS curve is flat

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a) sensitivity of autonomous spending to interest rates is high

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A daily auction at the Chicago Board of Trade sets
a) federal funds rate
b) 10-year bond rate
c) discount rate
d) prime rate
e) credit cards rate

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b) 10-year bond rate

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d) all of these

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d) when the IS curve is horizontal

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The difference between the corporate bond rate and the risk-free rate of Treasury bonds is called
a) risk premium
b) term premium
c) Fed's premium
d) monetary policy

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a) risk premium

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d) that the zero federal funds rate achieved by the Fed is irrelevant to household and business borrowers

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b) loses control of the economy

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a) quantitative easing

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a) the process of combining many different debt instruments like home mortgages into a pool of thousands of individual contracts and then selling new financial instruments

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b) business firms at the fixed nominal wage

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d) shift upward and the price level would increase

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c) an upward-sloping short-run supply curve

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c) is determined by the intersection of the labor supply and demand curves

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b) movements away from the natural rate of output were only temporary

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d) IS curve is flatter and the AD curve is flatter

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The SAS curve will be steeper the
a) greater is the marginal product of each additional worker
b) greater is MC
c) the faster the MPN falls for each additional worker
d) greater is the nominal wage

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c) the faster the MPN falls for each additional worker

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What is held constant at all points along a single SAS curve?
a) the price level
b) real GDP
c) the amount of labor employed
d) the nominal wage rate
e) the real wage rate

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d) the nominal wage rate

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b) an increase in the price of goods raises profits and SAS is positively sloped

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c) upward to the right and raise the price level

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b) there is good evidence that the IS curve was vertical

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c) rise, remain unchanged

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b) 4 percent straight below A on a new AD curve

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d) each output level requires the same real money supply as in the original situation

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d) all of the above are correct

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a) temporary, returns to its previous level

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b) $400 billion assuming the 80 billion of high-powered money is held by the Fed or in bank vaults

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Gradually over the last two decades, _____ policy has emerged as the major stabilization policy total in the United States.
a) fiscal
b) deregulatory
c) monetary
d) exchange rates

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c) monetary

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c) from government security dealers is that the level of bank reserves and deposits will increase

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b) volatile interest rates

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M1 is a definition of money largely confined to which function(s) of money?
a) medium of exchange
b) store of value
c) unit of account
d) a constant interest rate

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a) medium of exchange

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d) both A and B are correct

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Stagflation may be explained by
a) a stagnating level of AD
b) a downward shift in the SP curve
c) a stagnating level of SAS
d) an upward shift of the SP curve

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d) an upward shift of the SP curve

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d) greater, upward

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b) the demand for money M1 curve will shift to the right

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If the discount rate is lowered further by the market interest rate, banks tend to
a) borrow less from the Fed
b) borrow more from the Fed
c) lend less to the Fed
d) lend more the Fed

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b) borrow more from the Fed

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c) raise, destabilize

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An adverse supply shock will shift the short-run Phillips Curve
a) outward to the right
b) downward to the right
c) upward to the right
d) upward to the left

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...

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a) maintain the output ratio but allow inflation to increase

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a) the level of employment at the natural level of real GDP will remain constant only if the labor supply curve is vertical

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b) in short and long-run equilibrium; be stable

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When the expected rate of inflation falls, the short-run Phillips Curve
a) shifts downward
b) shifts upward
c) remains unaffected
d) becomes vertical

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a) shifts downward

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c) changes the expected inflation rate

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If interest rates are falling, then, ceteris paribus,
a) bond holders are suffering capital losses
b) income must be rising
c) the liquidity demand for money will be falling
d) bond prices are rising

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d) bond prices are rising

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e) IS, minimized, money supply

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a) it diverts private savings from the financing of private investment

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Probably the best measure of a country's economic growth is the growth of
a) real domestic investment
b) real GDP per person
c) real consumption expenditures
d) real GDP

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b) real GDP per person

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c) the level of natural real output

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a) constant returns to scales

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a) the growth of capital per person

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Net investment is
a) investment net of savings
b) total investment less replacement investment
c) savings less replacement savings
d) replacement investment

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b) total investment less replacement investment

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The general form of the production function used in Chapter 11 is
a) Y = A + F(K,N)
b) Y = AF(K,N)
c) Y = A - F(K,N)
d) Y = A/F(K,N)

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b) Y = AF(K,N)

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b) one percent more, real GDP per labor input

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Steady state growth will occur according to Robert Solow when
a) kn=y
b) k=n
c) y=n
d) y=k

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b) k=n

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a) reduced growth in the technical change or total factor productivity

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a) output per capita grows more rapidly

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a) output per capita grows at the constant steady rate, n

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b) left unexplained

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d) continuous technological improvement

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b) faster growth rates than nations that are rich

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b) the production of ideas

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