MACRO EXAM 1
For this question, assume that Y = N. Based on our understanding of the labor market model presented in Chapter 7, we know that a reduction in the markup will cause A. an increase in the natural level of output. B. a reduction in the natural level of output. C. no change in the natural level of output. D. a reduction in the natural level of employment.
A. an increase in the natural level of output.
Based on price setting behavior, we know that an increase in the unemployment rate will cause A. no change in the real wage. B. a reduction in the real wage. C. an increase in the real wage. D. an upward shift of the PS curve.
A. no change in the real wage.
Suppose a one-year discount bond offers to pay $100 in one year and currently sells for $99. Given thisinformation, we know that the interest rate on the bond is A.1%. B.10%. C.5.3%. D.9.9%.
A.1%.
Which of the following occurs as the economy moves leftward along a given IS curve? A.An increase in the interest rate causes investment spending to decrease. B.An increase in the interest rate causes money demand to increase. C.An increase in the interest rate causes a reduction in the money supply. D.A reduction in government spending causes a reduction in demand for goods. E.An increase in taxes causes a reduction in demand for goods.
A.An increase in the interest rate causes investment spending to decrease.
Which of the following tends to occur when the unemployment rate increases? A.a reduction in the labor force participation rate B.a reduction in the number of discouraged workers C.an increase in the number of employed workers D.all of these E.none of these
A.a reduction in the labor force participation rate
Based on our understanding of the labor market model presented in Chapter 7, we know that a reduction in the markup will cause A.an increase in the equilibrium real wage. B.a reduction in the equilibrium real wage. C.an increase in the natural rate of unemployment. D.a reduction in the natural rate of unemployment and no change in the real wage.
A.an increase in the equilibrium real wage.
Suppose there is a simultaneous Fed sale of bonds and increase in consumer confidence. We know with certainty that these two simultaneous events will cause A.an increase in the interest rate (i). B.a reduction in i. C.an increase in output (Y). D.a reduction in Y.
A.an increase in the interest rate (i).
An increase in the minimum wage will tend to cause which of the following? A.an upward shift in the WS curve B.a downward shift in the WS curve C.an upward shift in the PS curve D.a downward shift in the PS curve E.none of these
A.an upward shift in the WS curve
The Phillips curve describes the relationship between A.inflation and unemployment . B.output growth and money supply. C.inflation and output growth. D.output growth and unemployment.
A.inflation and unemployment .
A bank is insolvent when A.its liabilities exceed its assets. B.its assets exceed its liabilities. C.its capital exceeds its liabilities. D.its assets increase in value.
A.its liabilities exceed its assets.
The Okun's law shows the relationship between A.output growth and unemployment. B.inflation and output growth. C.inflation and unemployment rate. D.output growth and money supply.
A.output growth and unemployment.
Equilibrium in the goods market requires that A.production equals demand. B.consumption equals saving. C.consumption equals income. D.government spending equals taxes minus transfers. E.production equals income.
A.production equals demand.
The new term introduced in the extended IS-LM model is A.risk premium. B.nominal interest rate. C.taxes. D.G.
A.risk premium.
Which of the following best defines the real interest rate (r)? A.the amount of goods we must give up next year in order to consume more goods today B.the amount of dollars we must give up next year in order to consume more goods today C.the amount of dollars we must give up next year in order to have more dollars today D.the amount of dollars we must give up today in order to have more dollars next year E.the amount of dollars we must give up today in order to consume more goods today
A.the amount of goods we must give up next year in order to consume more goods today
Which of the following prices will be used when calculating the rate of growth of real GDP between the year's 2005 and 2006 using the chain method? A.the average of prices in 2005 and 2006 B.prices in the base year (2002) C.prices in 2005, 2006, and in 2002 (the base year) D.prices in 2005 E.prices in 2006
A.the average of prices in 2005 and 2006
Deflation generally occurs when which of the following occurs? A.the consumer price index decreases B.nominal GDP does not change C.the rate of inflation falls, for example, from 4% to 2% D.the consumer price index is greater than the GDP deflator
A.the consumer price index decreases
Labor productivity is represented by which of the following? A.the ratio of output to employment B.workers per unit of capital C.capital per worker D.the ratio of output to population E.the ratio of output to the labor force
A.the ratio of output to employment
The labor force is defined as A.the sum of the employed and unemployed. B.the total number employed. C.the total number of working age individuals in the population. D.the sum of the number of employed, unemployed and discouraged individuals.
A.the sum of the employed and unemployed.
When using the income approach to measure GDP, the largest share of GDP generally consists of A.indirect taxes. B.labor income. C.capital income. D.interest income. E.profits.
B. Labor Income
Suppose nominal GDP increased in a given year. Based on this information, we know with certainty that A.real output and the price level (GDP deflator) have both increased. B.either real output or the price level (GDP deflator) have increased. C.the price level (GDP deflator) has increased. D.real output has increased. E.real output has increased and the price level has decreased.
B. either real output or the price level (GDP deflator) have increased.
GDP is the value of all ________ produced in a given period A. final and intermediate goods and services produced by the private sector only B. final goods and services C. final and intermediate goods and services, plus raw materials D. all of these E.none of these
B. final goods and services
Use the information provided below to answer the following question(s). Suppose a country using the United States' system of calculating official unemployment statistics has 100 million people, of whom 50 million are working age. Of these 50 million, 20 million have jobs. Of the remainder: 10 million are actively searching for jobs; 10 million would like jobs but are not searching; and 10 million do not want jobs at all. Refer to the information above. The labor force participation rate is A..3. B..6. C..2. D..4. E..8.
B..6.
Suppose the aggregate production function is given by the following: Y = AN. Given this information, we know that labor productivity is represented by which of the following? A.1/A B.A C.1/N D.N/Y
B.A
Suppose policy makers decide to reduce taxes. This fiscal policy action will cause which of the following to occur? A.The LM curve shifts and the economy moves along the IS curve. B.The IS curve shifts and the economy moves along the LM curve. C.Both the IS and LM curves shift. D.Neither the IS nor the LM curve shifts. E.Output will change causing a change in money demand and a shift of the LM curve.
B.The IS curve shifts and the economy moves along the LM curve.
Suppose there is a simultaneous central bank purchase of bonds and increase in taxes. We know with certainty that this combination of policies must cause A.an increase in the interest rate (i). B.a reduction in i. C.an increase in output (Y). D.a reduction in Y.
B.a reduction in i.
Which of the following will cause an increase in the amount of money that one wishes to hold? A.an increase in the interest rate increase B.a reduction in the interest rate C.a reduction in income D.none of these
B.a reduction in the interest rate
The natural level of employment (N) will increase when which of the following occurs? A.an increase in the markup of prices over costs B.a reduction in unemployment benefits C.an increase in the actual unemployment rate D.all of these E.none of these
B.a reduction in unemployment benefits
The IS curve will shift to the right when which of the following occurs? A.an increase in the money supply B.an increase in government spending C.a reduction in the interest rate D.all of these E.none of these
B.an increase in government spending
For a given nominal interest rate, a reduction in expected inflation will cause Select one: A.a reduction in the real interest rate. B.an increase in the real interest rate. C.an increase in investment. D.an increase in money demand.
B.an increase in the real interest rate.
Which of the following statements about wage setting is true? A.most workers in the U.S. have their wages set by formal contracts. B.formal contracts play a more important role in Japan and Western Europe than in the United States. C.the minimum wage in the U.S. is about 75% of the average wage. D.all of these
B.formal contracts play a more important role in Japan and Western Europe than in the United States.
Which of the following generally occurs when a central bank pursues expansionary monetary policy? A.the central bank purchases bonds and the interest rate increases. B.the central bank purchases bonds and the interest rate decreases. C.the central bank sells bonds and the interest rate increases. D.the central bank sells bonds and the interest rate decreases.
B.the central bank purchases bonds and the interest rate decreases.
The natural level of output is the level of output that occurs when A.the goods market and financial markets are in equilibrium. B.the economy is operating at the unemployment rate consistent with both the wage-setting and price-setting equations. C.the markup (m) is zero. D.the unemployment rate is zero. E.there are no discouraged workers in the economy.
B.the economy is operating at the unemployment rate consistent with both the wage-setting and price-setting equations.
At the current interest rate, suppose the supply of money is less than the demand for money. Given this information, we know that A.the price of bonds will tend increase. B.the price of bonds will tend to fall. C.production equals demand. D.the goods market is also in equilibrium. E.the supply of bonds also equals the demand for bonds.
B.the price of bonds will tend to fall.
For this question, assume that investment spending depends only on output and no longer depends on the interest rate. Given this information, an increase in government spending A.will cause investment to decrease. B.will cause investment to increase. C.may cause investment to increase or to decrease. D.will have no effect on output. E.will cause an increase in output and have no effect on the interest rate.
B.will cause investment to increase.
Which of the following does not represent real GDP? A.GDP in constant dollars B.GDP in base year dollars C.GDP in current dollars D.GDP in terms of goods
C. GDP in current dollars
An increase in unemployment benefits will tend to cause which of the following? A. a downward shift in the WS curve B. an upward shift in the PS curve C. an upward shift in the WS curve D. a downward shift in the PS curve E. none of these
C. an upward shift in the WS curve
During the late 1990s, Japan experienced reductions in the GDP deflator. Given this information, we know with certainty that A.real GDP fell during these periods. B.real GDP did not change during these periods. C.the overall price level in Japan decreased during these periods. D.both real GDP and the overall price level decreased during these periods.
C. the overall price level in Japan decreased during these periods.
The price setting equation is represented by the following: P = (1 + m)W. When there is perfect competition, we know that m will equal A.W. B.P. C.1. D.W/P. E.none of these
C.1.
Use the information provided below to answer the following question(s). The non-institutional civilian population is 250 million, of which 100 million are employed and 10 million are unemployed. Based on the information above, the labor force participation rate is A.36%. B.40%. C.44%. D.90.1%. E.66%.
C.44%.
If the nominal interest rate 8% and expected inflation 3%, the expected real interest rate in year t is approximately A.2%. B.3%. C.5%. D.8%. E.11%.
C.5%.
Use the information provided below to answer the following question(s). The non-institutional civilian population is 250 million, of which 100 million are employed and 10 million are unemployed. Based on the information above, the unemployment rate is Select one: A.4%. B.6.6%. C.9.1%. D.10%. E.11.1%.
C.9.1%.
Pure inflation occurs when A.nominal wages rise faster than all prices. B.all prices rise faster than nominal wages. C.all prices and nominal wages rise by the same percentage. D.the GDP deflator and Consumer Price Index rise by the same percentage. E.none of these
C.all prices and nominal wages rise by the same percentage.
Suppose there is a Fed purchase of bonds and simultaneous tax cut. We know with certainty that this combination of policies must cause A.an increase in the interest rate (i). B.a reduction in i. C.an increase in output (Y). D.a reduction in Y.
C.an increase in output (Y).
Suppose a liquidity trap situation exists. Which of the following is most likely to occur if taxes are cut? A.no change in output and no change in the interest rate B.an increase in output and an increase in the interest rate C.an increase in output and little change in the interest rate D.an increase in output and a reduction in the interest rate E.none of these
C.an increase in output and little change in the interest rate
Based on wage setting behavior, we know that a reduction in the unemployment rate will cause A.no change in the real wage. B.a reduction in the real wage. C.an increase in the real wage. D.an upward shift of the WS curve.
C.an increase in the real wage.
Which of the following is a characteristic of bonds? A.pay zero nominal interest B.can be used for transactions C.are sold for a price that varies inversely with the interest rate D.all of these E.none of these
C.are sold for a price that varies inversely with the interest rate
The leverage ratio is the ratio of a bank's A.assets divided by its liabilities. B.income divided by its assets. C.assets divided by capital. D.capital divided by its total liabilities.
C.assets divided by capital.
The capital ratio is the ratio of a bank's Select one: A.assets divided by its liabilities. B.income divided by its assets. C.capital divided by its assets. D.capital divided by its total liabilities.
C.capital divided by its assets.
Which of the following is not an asset on a bank's balance sheet? A.reserves B.loans C.checkable deposits D.all of these E.none of these
C.checkable deposits
If the nominal interest rate is less than the real interest rate, we know that A.both the nominal or real interest rate must be negative. B.the nominal interest rate must be equal to expected inflation. C.expected deflation must be occurring. D.expected inflation must be positive. E.expected inflation must be zero.
C.expected deflation must be occurring.
If government spending and taxes increase by the same amount, A.the IS curve does not shift B.the IS curve shift leftward C.the IS curve shifts rightward D.the LM curve shifts downward
C.the IS curve shifts rightward
Which of the following generally occurs when a central bank pursues contractionary monetary policy? A.the central bank purchases bonds and the interest rate increases. B.the central bank purchases bonds and the interest rate decreases. C.the central bank sells bonds and the interest rate increases. D.the central bank sells bonds and the interest rate decreases.
C.the central bank sells bonds and the interest rate increases.
A reasonable dynamic assumption for the IS-LM model is that A.the economy is always on both the IS and LM curves. B.the economy is always on the IS curve, but moves only slowly to the LM curve. C.the economy is always on the LM curve, but moves only slowly to the IS curve. D.the money market is quick to adjust, but the bond market adjusts more slowly. E.adjustment to the new IS-LM equilibrium is instantaneous after an LM shift, but not after an IS shift.
C.the economy is always on the LM curve, but moves only slowly to the IS curve.
Suppose there is a simultaneous fiscal expansion and monetary contraction. We know with certainty that A.output will increase. B.output will decrease. C.the interest rate will increase. D.the interest rate will decrease. E.both output and the interest rate will increase.
C.the interest rate will increase.
As the unemployment rate falls, A.the proportion of the unemployed finding a job decreases. B.the separation rate increases. C.the young and unskilled experience larger-than-average decreases in unemployment. D.the separation rate decreases.
C.the young and unskilled experience larger-than-average decreases in unemployment.
Suppose that the nominal interest rate increases while the expected inflation rate rises. Given this information, we know with certainty that the real interest rate A.will not change. B.will fall. C.will fall, but only if the increase in the nominal rate is smaller than the increase in expected inflation. D.will fall, but only if the increase in the nominal rate is greater than the increase in expected inflation. E.none of these
C.will fall, but only if the increase in the nominal rate is smaller than the increase in expected inflation.
For this question, assume that 1980 is the base year. Given macroeconomic conditions in the United States over the past three decades, we know that A.nominal GDP is always smaller than real GDP since 1980. B.real GDP and nominal GDP would be equal for the entire period. C.real GDP is larger than nominal GDP from 2002 to 2008. D.real GDP and nominal GDP were equal in 1980. E.none of these
D. real GDP and nominal GDP were equal in 1980.
Suppose the aggregate production function is given by the following: Y = N. Given this information, we know that labor productivity is represented by which of the following? A.1/N B.N C.N/Y D.1
D.1
Suppose the consumption equation is represented by the following: C = 250 + .8YD. The multiplier for the above economy equals A.2. B.3. C.4. D.5. E.none of these
D.5.
If the expected real interest rate 5% and expected inflation 3%, the nominal interest rate in year t is approximately A.2%. B.3%. C.5%. D.8%. E.11%.
D.8%.
Suppose fiscal policy makers implement a policy to reduce the size of a budget deficit. Based on the IS-LM model, we know with certainty that the following will occur as a result of this fiscal policy action. A.Investment spending will decrease. B.Investment spending will increase. C.There will be no change in investment spending. D.Investment spending may increase, decrease, or not change. E.none of these
D.Investment spending may increase, decrease, or not change.
For this question, assume that expected inflation is equal to the nominal interest rate. In this situation, which of the following is correct? A.The real interest rate is negative. B.The real interest rate is positive. C.The real interest rate is higher than the nominal interest rate. D.The real interest rate is zero.
D.The real interest rate is zero.
Suppose there is a simultaneous central bank sale of bonds and tax increase. We know with certainty that this combination of policies must cause A.an increase in the interest rate (i). B.a reduction in i. C.an increase in output (Y). D.a reduction in Y.
D.a reduction in Y.
The risk that interest payments will not be made, or that the face value of a bond is not repaid when a bond matures is A.interest rate risk. B.inflation risk. C.liquidity risk. D.default risk.
D.default risk.
If the expected inflation rate is negative, the expected real interest rate must be A.negative. B.less than the nominal interest rate. C.equal to the nominal interest rate. D.greater than the nominal interest rate. E.none of these
D.greater than the nominal interest rate.
The IS curve represents A.the single level of output where the goods market is in equilibrium. B.the single level of output where financial markets are in equilibrium. C.the combinations of output and the interest rate where the money market is in equilibrium. D.the combinations of output and the interest rate where the goods market is in equilibrium. E.none of these
D.the combinations of output and the interest rate where the goods market is in equilibrium.
The nominal interest rate is A.the interest rate measured in terms of goods. B.always less than the real interest rate. C.equal to the real interest rate minus the rate of inflation. D.the type of interest rate typically reported in the financial pages of newspapers. E.equal to the expected rate of inflation.
D.the type of interest rate typically reported in the financial pages of newspapers.
An economy is in equilibrium when which of the following conditions is satisfied? A.consumption equals saving B.output equals consumption C.total saving equals zero D.total saving equals investment E.all of these
D.total saving equals investment
In the United States, someone is classified as unemployed if he or she A.does not have a job. B.does not have a job, or else has a job but is looking for a different one while continuing to work. C.does not have a job, has recently looked for work, and is collecting unemployment insurance. D.does not have a job, and is collecting unemployment insurance. E.none of these
E. none of these
The GDP deflator provides a measure of which of the following? A.the ratio of GDP to the number of workers employed B.real GDP divided by the aggregate price level C.the ratio of GDP to the size of the population D.the price of a typical consumer's basket of goods E.the ratio of nominal GDP to real GDP
E. the ratio of nominal GDP to real GDP
Based on our understanding of the paradox of saving, we know that a reduction in the desire to savewill cause A.an increase in the desire to invest. B.no change in equilibrium GDP. C.a permanent reduction in the level of saving. D.a reduction in GDP. E.an increase in equilibrium GDP.
E.an increase in equilibrium GDP.
Assume that investment does not depend on the interest rate. A reduction in government spending will cause which of the following for this economy? A.no change in the interest rate B.no change in output C.no change in investment D.an increase in investment E.none of these
E.none of these
Suppose we switch the base year from 2000 to 2008. This change in the base year will cause A.nominal GDP in every year to increase. B.nominal GDP in every year to decrease. C.both nominal and real GDP in every year to decrease. D.real GDP in every year to decrease. E.none of these
E.none of these
The LM curve shifts down (or, equivalently, to the right) when which of the following occurs? A.an increase in taxes B.an increase in output C.an open market sale of bonds by the central bank D.an increase in consumer confidence E.none of these
E.none of these
The money demand curve will shift to the left when which of the following occurs? A.a reduction in the interest rate B.an increase in the interest rate C.an open market sale of bonds by the central bank D.an increase in income E.none of these
E.none of these
The natural rate of unemployment is the rate of unemployment A.that occurs when the money market is in equilibrium. B.that occurs when the markup of prices over costs is zero. C.where the markup of prices over costs is equal to its historical value. D.that occurs when both the goods and financial markets are in equilibrium. E.none of these
E.none of these
The reservation wage is A.the wage that an employer must pay workers to reduce turnover to a reasonable level. B.the wage that ensures a laid-off individual will wait for re-hire, rather than find another job. C.the lowest wage firms are allowed by law to pay workers. D.the wage offer that will end a labor-strike. E.none of these
E.none of these
When a liquidity trap situation exists, we know that A.an open market operation will have no effect on the supply of money. B.an open market operation will have no effect on the monetary base. C.fiscal policy will have no effect on the demand for goods. D.expansionary monetary policy will be deflationary. E.none of these
E.none of these
Whenever the expected inflation rate is positive A.the real interest rate is greater than the nominal interest rate. B.the real interest rate is negative. C.the real interest rate is positive. D.the nominal interest rate must be equal to the real interest rate. E.none of these
E.none of these
Which of the following is considered out of the labor force? A.the unemployed B.those temporarily laid off who will soon be recalled C.those who worked full time, but in a family business D.those individuals who have started searching for employment for the first time E.none of these
E.none of these
