Macro

Intertemporal substitution tends to magnify a. both negative and positive shocks. b. positive shocks only. c. neither negative nor positive shocks. d. negative shocks only.

a. both negative and positive shocks.

Suppose that Congress decided to exempt seniors from paying income tax on labor income. What would happen to the labor force participation rate for seniors? a. It would remain the same. b. It would increase. c. It would decrease. d. It is impossible to tell.

b. It would increase.

Gross domestic product is the market value of a. all intermediate goods and services produced within a country in a year. b. all final goods and services produced within a country in a year. c. all final goods and services produced within a country in two years. d. all intermediate goods and services produced outside of a country in a year.

b. all final goods and services produced within a country in a year.

Which of the following is an explanation for why prices may be sticky in the short run? a. money illusion b. menu costs c. price expectations d. Solow growth curve

b. menu costs

Increased uncertainty will cause the economy's AD to a. become steeper. b. shift inward. c. become flatter. d. shift outward.

b. shift inward.

If the growth rate of the money supply in an economy is 5 percent, the growth rate of output is 2 percent, and the velocity of money is constant, what will the inflation rate in this economy be? a. 7 percent b. 5 percent c. 3 percent d. 2 percent

c. 3 percent

If real GDP per capita in a country was $14,000 in year 1 and $14,560 in year 2, then the economic growth rate for this country from year 1 to year 2 was a. 3 percent. b. 1 percent. c. 4 percent. d. 2 percent.

c. 4 percent.

The Real Business Cycle (RBC) model implies that a. business cycles are the result of fluctuations in the money supply. b. the rate of inflation is closely linked to the real rate of output growth. c. business cycles are driven by real shocks to the economy. d. real output will always fluctuate around the aggregate demand curve.

c. business cycles are driven by real shocks to the economy.

In the Solow model production function, Y = F(A, K, eL), K stands for a. Keynes. b. consumption. c. capital. d. kurtosis.

c. capital.

Which measure of the average price level most closely corresponds to a student's daily economic activities? a. producer price index b. household price index c. consumer price index d. GDP deflator

c. consumer price index

A Solow growth model features ______ returns to human capital, ceteris paribus. a. increasing b. constant c. decreasing d. zero

c. decreasing

Suppose you spent $10,000 in 2010 remodeling your house, which you originally built for $200,000 in 2000. As a result, GDP in 2010 would a. increase by $210,000. b. increase by $200,000. c. increase by $10,000. d. not change.

c. increase by $10,000.

Long-lasting unemployment benefits tend to a. decrease the rate of structural unemployment. b. decrease the rate of frictional unemployment. c. increase the rate of structural unemployment. d. increase the rate of frictional unemployment.

c. increase the rate of structural unemployment.

If the Fed reduces to fight inflation after a negative real shock, which of the following should occur? a. higher inflation b. high real growth c. low real growth d. no change

c. low real growth

We would expect a negative real shock, such as a major countrywide drought, to result in a. a decrease in the inflation rate and a decrease in the growth rate of output. b. a decrease in the inflation rate and an increase in the growth rate of output. c. an increase in the inflation rate and an increase in the growth rate of output. d. an increase in the inflation rate and a decrease in the growth rate of output.

d. an increase in the inflation rate and a decrease in the growth rate of output.

In the past 100 years, there has been a decline in the use of unpaid child labor on family farms. Therefore, a. there has been no change in production over the past 100 years. b. changes in GDP understate the true increase in production over the past 100 years. c. there has been no change in GDP over the past 100 years. d. changes in GDP overstate the true increase in production over the past 100 years.

d. changes in GDP overstate the true increase in production over the past 100 years.

The national spending approach to calculating GDP states that GDP is equal to a. wages + rent + interest + profit. b. investment + profit. c. investment + wages + rent + profit. d. consumption + investment + government spending + net exports.

d. consumption + investment + government spending + net exports.

Which of the following money supply components is the smallest? a. monetary base b. M1 c. M2 d. currency

d. currency

The primary reason we think of inflation as bad even when wages rise with it is that it: a. increases the velocity of money. b. makes things more expensive for consumers. c. leads to lower real wages. d. distorts the information delivered by prices.

d. distorts the information delivered by prices.

Historical data on India's rainfall amounts and real GDP growth show that a. economic fluctuations have no correlation with any shocks. b. economic fluctuations are negatively correlated with real shocks. c. real shocks affect only long-term economic growth but not short-run economic fluctuations. d. economic fluctuations are positively correlated with real shocks.

d. economic fluctuations are positively correlated with real shocks.

Marginal product of capital is ______ in China relative to marginal product of capital in developed economies. a. low b. moderate c. zero d. high

d. high

Which of the following is NOT an example of intertemporal substitution? a. Sandy works 10-hour days as a ski instructor during the winter months but takes a three-week vacation during the summer. b. David decides to go to college after high school, since he has graduated in the middle of a big recession and jobs are hard to come by. c. Thomas studies economics two hours every night in order to get a good grade in the course. d. Luke is an accountant who works overtime during tax season.

Thomas studies economics two hours every night in order to get a good grade in the course.

GDP per capita is a. the market value of all final goods and services produced within a country in a year divided by population. b. the market value of all final goods and services produced by a country's permanent residents, wherever located, in a year. c. the market value of all final goods and services produced within a country in a year. d. a significant, widespread decline in real income and employment.

a. the market value of all final goods and services produced within a country in a year divided by population.

If the money supply is $1 million, the velocity of money is 10, and the price level is 100, what is real GDP? a. $100,000 b. $1 million c. $10,000 d. $1,000

a. $100,000

If the adult population of a country is 200 million, 100 million are employed, and 10 million are unemployed, this country's labor force is a. 110 million. b. 100 million. c. unknown given the above information. d. 200 million.

a. 110 million.

Real GDP for the year 2000 (measured in 2005 dollars) is equal to a. 2005 prices × 2000 quantities. b. 2005 prices × 2005 quantities. c. 2000 prices × 2005 quantities. d. 2000 prices × 2000 quantities.

a. 2005 prices × 2000 quantities.

The average rate of inflation in the United States over the past 10 years has been around 2.6 percent. If this trend continues, how long will it take for prices in the United States to double? a. 26.9 years b. 10.5 years c. 38.5 years d. 18.4 years

a. 26.9 years

GDP in the United States was $14,119 billion in 2009, and grew to $14,660.4 billion in 2010. This represents an annual growth rate of a. 3.83 percent. b. $541.4 billion. c. 3.69 percent. d. 1.04 percent.

a. 3.83 percent.

If the down payment for a $250,000 home is $50,000 and the mortgage is $200,000, the leverage ratio is a. 4. b. 5. c. 0.25. d. 1.25.

a. 4.

If the average level of prices in an economy equals 100, the money supply equals $100,000, and the level of real output equals $5,000, then the velocity of money is: a. 5. b. 100. c. 1,000. d. 20.

a. 5.

Which of the following explain why the supply of savings is upward sloping? a. A decrease in the interest rate leads to an increase in the opportunity cost of saving. b. An increase in time preference leads to an increase in the quantity of saving. c. An increase in the interest rate leads to an increase in the quantity of saving. d. An increase in investment leads to an increase in the level of saving.

a. A decrease in the interest rate leads to an increase in the opportunity cost of saving.

Which of the following best represents time preference? a. Alex smokes a pack of cigarettes per day even though he knows that he may face poor health down the road because of his smoking habit. b. Thomas invests money in Apple today, which is subsequently used by Apple to fund additional investment purchases that will benefit future shareholders. c. Sarah is spending $20,000 per year in tuition and other expenses to attend college with the hopes of earning a higher income in the future. d. Max saves $300 per month from his paychecks for retirement.

a. Alex smokes a pack of cigarettes per day even though he knows that he may face poor health

Why might it be a good thing for the United States if more people in India and China start dying of cancer and heart disease instead of malnutrition and preventable disease? a. Companies will invest more in curing cancer and heart disease. b. Companies will invest less in curing cancer and heart disease. c. More people in the United States will die of malnutrition and preventable disease. d. Companies will invest more in solving malnutrition and preventable disease.

a. Companies will invest more in curing cancer and heart disease.

The paper currency circulated in the United States is called a. a Federal Reserve note. b. a bank note. c. a United States note. d. an American note.

a. a Federal Reserve note.

Nobel Prize-winner Milton Friedman advocated which of the following as an adequate monetary policy? a. a strict rule in which the money supply should grow at the rate of the long-run economic growth rate b. a discretionary rule in which the money supply should be adjusted to counteract aggregate demand shocks c. a strict rule in which the money supply should grow 2 percent higher than the long-run economic growth rate d. a discretionary rule in which the money supply should be adjusted to control the level of inflation rate

a. a strict rule in which the money supply should grow at the rate of the long-run economic growth rate

If the Federal Reserve wished to avoid short-run increases in the unemployment rate, the correct response to a negative AD shock would be a. an increase in money supply growth. b. an increase in government spending growth. c. a tax cut. d. a lower goal for inflation.

a. an increase in money supply growth.

Which of the following would cause the aggregate demand curve to shift to the right? a. an increase in the growth rate of the money supply b. a decrease in the velocity of money c. a decrease in the inflation rate d. an increase in the growth rate of output

a. an increase in the growth rate of the money supply

Collateral shocks tend to amplify business cycles because a. assets are typically worth more in booms than in recessions, and the value of assets tends to be positively correlated to firms' ability to obtain investment funding. b. the returns to investment are higher when others are investing as well; thus we see more investment during booms and less during recessions. c. the returns to work are higher in booms than in recessions, so people work more during booms and less during recessions. d. the uncertainty of recessions tends to increase people's job search time, while greater certainty decreases search time during booms.

a. assets are typically worth more in booms than in recessions, and the value of assets tends to be positively correlated to firms' ability to obtain investment funding.

In North Korea, workers are rewarded for a. being loyal to the ruling Communist Party. b. providing goods and services of value to consumers. c. inventing new ideas for more efficient production. d. investing in human and physical capital.

a. being loyal to the ruling Communist Party.

The ultimate cause for the different economic performance in North and South Korea is a. better economic institutions in South Korea than in North Korea. b. more foreign aid in South Korea than in North Korea. c. more corruption in South Korea than in North Korea. d. more abundant natural resources in South Korea than in North Korea.

a. better economic institutions in South Korea than in North Korea.

When the Fed buys short-term Treasury securities, short-term interest rates a. fall. b. rise. c. could rise or fall. d. stay the same.

a. fall.

Uncertainty tends to keep resources a. in less productive uses. b. moving from country to country. c. in more productive uses. d. fully employed.

a. in less productive uses.

Savings is defined as a. income not spent on consumption goods. b. income not spent on investment goods. c. income not taxed by the government. d. the purchase of new capital goods.

a. income not spent on consumption goods.

If prices are completely flexible, then an increase in spending growth will lead to an immediate a. increase in inflation without any change in real output growth. b. decrease in inflation without any change in real output growth. c. increase in real output growth without any change in inflation. d. decrease in real output growth without any change in inflation.

a. increase in inflation without any change in real output growth.

In the long run, the quantity theory of money says that the growth rate of the money supply will be approximately equal to the: a. inflation rate. b. velocity of money. c. growth rate of real GDP. d. price level.

a. inflation rate.

Many economists worry about the Federal Reserve overstimulating the economy because such overstimulation will lead to rising a. inflation. b. Solow growth. c. output growth. d. unemployment.

a. inflation.

Disinflation in the 1980s was a result of a. leftward shifts in the aggregate demand curve due to money supply reductions. b. leftward shifts in the aggregate supply curve due to sticky wages and prices. c. the gradual return of the economy toward the Solow growth curve. d. leftward shifts in the Solow growth curve due to negative real shocks.

a. leftward shifts in the aggregate demand curve due to money supply reductions.

Since 1974 Nigeria's growth rate has been a. negative. b. high and positive. c. approximately zero. d. low and positive.

a. negative.

In the long run, money is: a. neutral. b. temporary. c. velocity. d. expansionary.

a. neutral.

Which of the following is an example of an active labor market policy? a. paying unemployed workers who find a job b. minimum wage laws c. extending unemployment benefits d. worker unions

a. paying unemployed workers who find a job

When the government of Zimbabwe ran out of money, President Robert Mugabe: a. printed more money. b. raised taxes. c. slashed spending. d. collapsed.

a. printed more money.

GNP measures a. production by U.S. citizens wherever they work in the world. b. the same things as GDP. c. goods produced outside of U.S. borders. d. the production of both intermediate and final goods.

a. production by U.S. citizens wherever they work in the world.

A real shock is also called a a. productivity shock, which is any shock that increases or decreases the potential growth rate. b. demand shock, which is any shock that increases or decreases the aggregate demand. c. supply shock, which is any shock that increases or decreases the aggregate supply. d. productivity shock, which is any shock that increases or decreases the level of production.

a. productivity shock, which is any shock that increases or decreases the potential growth rate.

All of the following policies can reduce structural unemployment EXCEPT a. raising unemployment benefits. b. work tests. c. job retraining. d. job search assistance.

a. raising unemployment benefits.

When the expected rate of inflation is higher than the actual rate of inflation, wealth is: a. redistributed from borrowers to lenders. b. redistributed from lenders to borrowers. c. redistributed at random. d. not redistributed at all.

a. redistributed from borrowers to lenders.

For most of recorded human history, real GDP per capita has a. remained steady. b. fallen at a modest rate. c. increased at a rapid rate. d. increased at a modest rate.

a. remained steady.

Relative to Japan, Argentina was ______ in 1950 and ______ in 2000. a. rich; poor b. poor; poor c. poor; rich d. rich; rich

a. rich; poor

Disinflation occurs when the overall price level: a. rises at a decreasing rate. b. rises at an exponential rate. c. falls at an increasing rate. d. falls.

a. rises at a decreasing rate.

The process of bundling loans together and selling them on the market as financial assets is called a. securitization. b. arbitrage. c. crowding out. d. collaterallization.

a. securitization.

During the Great Depression, the U.S. aggregate demand curve a. shifted inward. b. became flatter. c. shifted outward. d. became steeper.

a. shifted inward.

Over the past few decades, the U.S. economy has switched from a primarily manufacturing economy to a service economy. Many individuals working in manufacturing positions lost their jobs, and many new jobs opened up in services. For those who lost jobs in manufacturing, this is an example of a. structural unemployment. b. cyclical unemployment. c. industry unemployment. d. frictional unemployment.

a. structural unemployment.

Systemic risk is present when a. the failure of one financial institution will bring down other institutions as well. b. the Fed increases the money supply when it should decrease it. c. the U.S. government will default on Treasury securities. d. a bank or other financial institution acts recklessly, hoping that the Fed and regulators will later bail them out.

a. the failure of one financial institution will bring down other institutions as well.

Which quarter of the year produces the most economic output? a. the fourth b. the third c. the second d. the first

a. the fourth

When facing a real shock, a central bank will encounter a dilemma that forces it to choose between a. too low a rate of growth or too high a rate of inflation. b. too high a rate of growth or too low a rate of inflation. c. too high a rate of growth or too high a rate of inflation. d. too low a rate of growth or too low a rate of inflation.

a. too low a rate of growth or too high a rate of inflation.

The short-run aggregate supply curve is upward sloping because a. wages and prices are sticky in the short run. b. in the short run, an increase in spending leads to an increase in output. c. an increase in spending only leads to an increase in prices. d. wages increase with an increase in output in the short run.

a. wages and prices are sticky in the short run.

Suppose you are forced to take a pay cut of 5 percent when the economy is experiencing overall deflation of 5 percent. If in response to your pay cut you also reduce your consumption by 5 percent, then economists would say: a. you are exhibiting money illusion. b. the quantity theory of money held. c. you made a rational decision. d. your real wage decreased by 5 percent.

a. you are exhibiting money illusion.

If a country has 5 percent real GDP growth and 5 percent population growth, how much per capita real GDP growth does it have? a. 5 percent b. 0 percent c. 10 percent d. 2.5 percent

b. 0 percent

A zero-coupon bond matures in one year. The price of the bond is $500, and it will pay $1,000 in one year's time. What is the rate of return on the bond? a. 500 percent b. 100 percent c. 50 percent d. 20 percent

b. 100 percent

If in 2010 nominal GDP was $220 million and real GDP was $200 million, the GDP deflator in 2010 was a. 88. b. 110. c. 91. d. 100.

b. 110.

Females started entering the labor force, and particularly professional schools, in increasing numbers beginning around a. 1960. b. 1970. c. 1940. d. 1950.

b. 1970.

U.S. housing prices peaked in a. 2008. b. 2006. c. 1997. d. 2001.

b. 2006.

On a dynamic aggregate demand curve, if = 7% and = 3%, then the real growth rate and inflation rate are likely to be a. 2% and 8% respectively. b. 3% and 7% respectively. c. 4% each. d. 10% each.

b. 3% and 7% respectively.

In the United States, approximately what percent of scientists and engineers work for private firms? a. 30 percent b. 70 percent c. 10 percent d. 50 percent

b. 70 percent

Which of the following is widely considered to be the most irreversible decision for a typical person? a. Buying a house. b. Having a baby. c. Getting engaged with a loved one. d. Buying a car.

b. Having a baby.

The effective reserve ratio is determined primarily by a. The size of banks' vaults. b. How liquid banks wish to be. c. How greedy banks wish to be. d. The number of bank employees.

b. How liquid banks wish to be.

The shadow banking system I. typically borrows short-term and invests in longer-term assets. II. operates with higher leverage ratios than commercial banks. III. includes investment banks, hedge funds, money markets and a variety of other complex financial entities. a. II and III only b. I and III only c. I, II, and III d. I and II only

b. I and III only

Which of the following is a concern among economists regarding the aging of the U.S. population? a. Since older people typically consume different goods (more health care and prescription drugs, less pizza and beer), an aging population will lead to increased structural unemployment in certain areas of the economy (such as the pizza and beer industries). b. Since older people are less likely to work, an aging population will lead to a decreased labor force participation rate in the United States and lower tax revenues. c. Since older people are more likely to favor increasing Medicare and prescription drug benefits, an aging population will alter political support for such programs. d. Since older people typically consume less, the aging of the population will lead to lower consumption and thus lower GDP.

b. Since older people are less likely to work, an aging population will lead to a decreased labor force participation rate in the United States and lower tax revenues.

Conditional convergence refers to the condition that given similar steady states, a. all countries grow at the same rate regardless of their initial output levels. b. a country with a higher output level tends to grow more slowly. c. a country with a higher output level tends to grow more rapidly. d. whether one country's output converges to that of another country depends on their geographical proximity.

b. a country with a higher output level tends to grow more slowly.

Countries are on the catching-up growth path primarily through a. creation of new technological knowledge. b. adoption of simple ideas. c. idea generation. d. development of advanced productivity.

b. adoption of simple ideas.

Financial intermediation can breakdown as a result of a. free adjustments in the loanable funds market. b. bank panics. c. a high saving rate. d. the government's granting property rights.

b. bank panics.

The interest rate that the Fed has the most control over is the a. long-term government bond rate. b. federal funds rate. c. prime rate. d. mortgage loan rate.

b. federal funds rate.

An increase in the rate of spending must flow into either higher inflation or a. lower growth. b. higher growth. c. lower inflation. d. higher deflation.

b. higher growth.

In the case of a negative shock to aggregate demand, the central bank should a. decrease the rate of growth in the price level to keep real growth high. b. increase the rate of growth in the money supply to restore spending growth. c. decrease the rate of growth in the money supply to control inflation. d. do nothing.

b. increase the rate of growth in the money supply to restore spending growth.

Low interest rates in 2003-2004 a. made it more difficult to borrow. b. increased demand for homes. c. decreased demand for homes. d. lowered real growth.

b. increased demand for homes.

If it takes people more time to make employment decisions, then a given negative economic shock will cause a decline in economic growth a. smaller in size but longer in duration. b. larger in size and longer in duration. c. larger in size but shorter in duration. d. smaller in size and shorter in duration.

b. larger in size and longer in duration.

The most likely influence of the Internet on the rate of frictional unemployment has been to a. It is impossible to tell. b. lower it. c. raise it. d. have no effect on it.

b. lower it.

According to Ben Bernanke, bank failures during the onset of the Great Depression a. increased the rate of investment, which ultimately got the United States out of depression. b. made it harder for households, farmers, and small firms to get credit, worsening the recession. c. are urban legends. d. were not as harmful as the stock market crash.

b. made it harder for households, farmers, and small firms to get credit, worsening the recession.

According to the quantity theory, what causes inflation in the long run? a. aggregate demand shocks b. money supply c. unemployment d. unexpected inflation

b. money supply

If minimum wages are higher relative to the median wage, then minimum wage will affect a. fewer people and create less unemployment. b. more people and create more unemployment. c. more people and create less unemployment. d. fewer people and create more unemployment.

b. more people and create more unemployment.

Which of the following is NOT one of the three major tools the Fed uses to control the money supply? a. open market operations b. printing paper money c. paying interest on reserves held by banks at the Fed d. discount rate lending and the term auction facility

b. printing paper money

Financial intermediaries a. are inefficient middlemen, raising the cost of economic activity. b. reduce the costs of moving savings from savers to borrowers and investors. c. have liabilities that exceed their assets. d. profit by keeping resources in their least valuable uses.

b. reduce the costs of moving savings from savers to borrowers and investors.

When a bubble arises, asset prices are driven by a. changes in aggregate demand and aggregate supply. b. shifts in market psychology and successive waves of irrational exuberance. c. policymakers. d. shifts in money growth rate.

b. shifts in market psychology and successive waves of irrational exuberance.

If the recent financial crisis raises awareness about the dangers of not saving, leading to an increase in overall savings rates across the country, the loanable funds market will experience an increase in the ______ loanable funds and ______ in equilibrium interest rates. a. demand for; an increase b. supply of; a decrease c. supply of; an increase d. demand for; a decrease

b. supply of; a decrease

The phrase "persistent long-term unemployment" means a. that the unemployment problem has lasted for a long time. b. that a substantial fraction of the unemployed have been so for more than one year and that this problem has lasted for a long time. c. that a substantial fraction of the unemployed have been so for more than one year. d. that a small fraction of the unemployed have been so for more than one year but that this problem has not lasted for a long time.

b. that a substantial fraction of the unemployed have been so for more than one year and that this problem has lasted for a long time.

Crowding-out is a. a sophisticated IOU that documents who owes how much and when payment must be made. b. the decrease in private consumption and investment that occurs when government borrows more. c. the first time a corporation sells stock to the public in order to raise capital. d. something

b. the decrease in private consumption and investment that occurs when government borrows more.

Which of the following would shift the Solow growth curve to the right? a. an increase in the growth rate of spending b. the invention of a new computer chip that makes assembly production twice as fast c. a decrease in the rate of inflation d. a severe drought that decreases crop production and as a result raises prices

b. the invention of a new computer chip that makes assembly production twice as fast

Many economic activities tend to cluster together in time because a. the returns to working are lower in the evening hours. b. the returns to coordinating with others are high. c. of cultural norms that tell us we are supposed to work during the day. d. the opportunity cost is higher than when these activities are not clustered.

b. the returns to coordinating with others are high.

Which of the following statements about the effects of patents is correct? a. Patents reduce the incentive to research and develop new products but increase monopoly power once the products are created. b. Patents increase the incentive to research and develop new products and also increase competition on the market. c. Patents increase the incentive to research and develop new products but also increase monopoly power once the products are created. d. Patents reduce the incentive to research and develop new products but also reduce competition on the market.

c. Patents increase the incentive to research and develop new products but also increase monopoly power once the products are created.

Suppose a doctor spends half of the year in the United States and the other half in Canada and works in both places. How does his production get allocated between U.S. and Canadian GDP? a. Half of the doctor's income counts toward U.S. GDP and half toward Canadian GDP. b. It depends on whether the doctor is a permanent resident of the United States or Canada. c. The value of the services produced in the United States gets counted in U.S. GDP, and the value of the services produced in Canada gets counted in Canadian GDP. d. The full income gets counted in both U.S. and Canadian GDP.

c. The value of the services produced in the United States gets counted in U.S. GDP, and the value of the services produced in Canada gets counted in Canadian GDP.

If the average reserve ratio in the banking system is 20 percent and the Fed increases bank reserves by $100,000, what will be the total potential increase in the money supply? a. $2 million b. $120,000 c. $500,000 d. $100,000

c. $500,000

If a house is worth $600,000, its owner owes $400,000 on the mortgage, and the value of the house falls to $300,000, how much equity will the owner have? a. $200,000 b. $0 c. -$100,000 d. $100,000

c. -$100,000

The value of a car produced and sold in 2005 and sold again in 2011 is included in a. Neither 2005's nor 2011's GDP. b. 2011's GDP only. c. 2005's GDP only. d. both 2005's GDP and 2011's GDP.

c. 2005's GDP only.

Per capita GDP 2,000 years ago was about the same in all regions of the world, but today it is about ______ times as large in the richest countries as in the poorest countries. a. 10 b. 20 c. 50 d. 5

c. 50

If the average price level rises from 120 in year 1 to 130 in year 2, the inflation rate between years 1 and 2 will be: a. 7.69 percent. b. 10 percent. c. 8.33 percent. d. 9.23 percent.

c. 8.33 percent.

Which of the following does NOT explain why the 1997-2006 housing boom increased aggregate demand? a. Homeowners felt wealthier as they saw their homes rising in value every year. b. Homeowners tended to spend more money and even borrow money, hoping that rising wealth from the home values will let them repay the money in the future. c. During the boom, some builders were working 60 or 80 hours a week instead of 40. d. The construction sector created new employment and higher wages.

c. During the boom, some builders were working 60 or 80 hours a week instead of 40.

According to the Fisher effect, an, increase in expected inflation will cause: I. the nominal rate of interest to increase. II. the real rate of interest to increase. III. inflation to increase. a. I, II, and III b. II only c. I only d. II and III only

c. I only

Which of the following is the reason India uses its capital inefficiently? a. International trade is restricted. b. Small businesses are subsidized by the government. c. Large-scale production is prohibited. d. Technological knowledge is lacking.

c. Large-scale production is prohibited.

Which of the following identities represents the quantity theory of money? a. MP = Yv. b. Mv = YR. c. Mv = PYR. d. P = M.

c. Mv = PYR.

If the economy is hit by a negative real shock that reduces real GDP growth below the Solow growth rate, which of the following is the appropriate monetary policy to move real GDP growth back to the Solow growth rate without raising inflation? a. Increase the growth rate of the money supply. b. Decrease the growth rate of the money supply. c. No monetary policy can achieve that goal. d. Keep the growth rate of the money supply constant while lowering interest rates.

c. No monetary policy can achieve that goal.

______ refers to the Federal Reserve's purchase of longer-term government bonds or other securities. a. An open market sale b. Quantitative tightening c. Quantitative easing d. An open market purchase

c. Quantitative easing

Which of the following would be included in GDP for the United States? a. a tire manufacturer making and selling tires to Ford to be used in their new cars b. Jane's car being stolen so she is forced to purchase a used car as a replacement c. Toyota, a Japanese car company, producing cars in the United States d. a U. S. professor taking a year off to teach at the London School of Economics

c. Toyota, a Japanese car company, producing cars in the United States

Akemi, who is a Japanese citizen, works in the United States as a computer programmer. The value of her output is included in a. both U.S. and Japan's GNP. b. U.S. GNP and Japan's GDP. c. U.S. GDP and Japan's GNP. d. both U.S. and Japan's GDP.

c. U.S. GDP and Japan's GNP.

Deflation is a decrease in the: a. exchange rate. b. velocity of money. c. average level of prices. d. inflation rate.

c. average level of prices.

The Solow production function can shift upward because of a. higher depreciation. b. an increase in investment. c. better ideas. d. an increase in capital stock.

c. better ideas.

The Smoot-Hawley Tariff of 1930 raised tariff rates on tens of thousands of imported goods, and the results were that a. imports rose but exports fell, thereby reducing aggregate demand. b. both exports and imports rose, thereby increasing aggregate demand. c. both exports and productivity fell, thereby reducing aggregate demand. d. exports rose but imports fell, thereby increasing aggregate demand.

c. both exports and productivity fell, thereby reducing aggregate demand.

If spending grows by 2 percent, real GDP growth is 5 percent, and velocity is stable, then prices will be ______ at a rate of ______ percent according to the dynamic aggregate demand curve. a. rising; 3 b. falling; 2 c. falling; 3 d. rising; 2

c. falling; 3

Communal property creates a a. corruption problem. b. self-selection problem. c. free rider problem d. stability problem.

c. free rider problem

Which type of unemployment is an outcome of economist Joseph Shumpeter's creative destruction process within an industry? a. seasonal unemployment b. structural unemployment c. frictional unemployment d. cyclical unemployment

c. frictional unemployment

From 1950 to 1970 Japan's growth rate was a. approximately zero. b. negative. c. high and positive. d. low and positive.

c. high and positive.

The supply of labor a. decreases during a boom and increases during a recession. b. increases during booms and recessions alike. c. increases during a boom and decreases during a recession. d. decreases during booms and recessions alike.

c. increases during a boom and decreases during a recession.

Ideas are not rivalrous, meaning that a. only one person can benefit from an idea at a time. b. most ideas are generated by the government. c. many people can consume them at once. d. no one can benefit from an idea.

c. many people can consume them at once.

Which of the following is NOT an example of physical capital? a. cell phones b. computers c. money d. tractors

c. money

Deflation causes the economy's aggregate demand curve to shift inward because debt contracts are a. not adjusted for changes in the interest rate. b. adjusted for changes in the interest rate. c. not adjusted for inflation. d. adjusted for inflation.

c. not adjusted for inflation.

The Fed recapitalizes banks a. on a regular basis as a way to increase the money supply. b. as a way of earning profits, which in turn are passed on to the federal government. c. only in dire emergencies to avoid insolvency. d. as an attempt to limit the number of new loans extended by banks.

c. only in dire emergencies to avoid insolvency.

Monetizing the debt occurs when a government: a. decreases the money supply to pay off the debts. b. issues more debt to finance its budget deficit. c. pays off its debts by printing money. d. raises tax to pay off the debt.

c. pays off its debts by printing money.

The monetary base consists of currency a. with the inclusion of coins. b. plus checkable deposits. c. plus total reserves held at the Fed. d. plus checkable and savings deposits.

c. plus total reserves held at the Fed.

GDP per capita is a country's GDP divided by its a. capital stock. b. money supply. c. population. d. labor force.

c. population.

Human capital is the a. stock of tools including machines, structures, and equipment. b. growth rate of real GDP per capita. c. productive knowledge and skills that workers acquire through education, training, and experience. d. knowledge about how the world works that is used to produce goods and services.

c. productive knowledge and skills that workers acquire through education, training, and experience.

For savers, the role of financial intermediaries is to a. earn more returns on their investments. b. ensure that all borrowers can fund their investments. c. reduce the default risk on money they save and lend. d. avoid taxes from income earned on investments.

c. reduce the default risk on money they save and lend.

The term economic institutions refers to the a. amount of physical capital and infrastructure. b. religious and social structure of a country. c. rules of the game that promote economic incentives. d. the presence of government intervention in markets.

c. rules of the game that promote economic incentives.

All of the following are transmission mechanisms EXCEPT a. irreversible investments. b. time bunching. c. shocks to the Solow growth rate. d. intertemporal substitution.

c. shocks to the Solow growth rate.

Tyler owes $100,000, but he owns Mexican Amati paintings that he could sell immediately for $80,000 or within a few months for $120,000. If these are all the assets and liabilities that Tyler has, Tyler is a. insolvent but liquid. b. insolvent and illiquid. c. solvent but illiquid. d. solvent and liquid.

c. solvent but illiquid.

Collateral is a. the decrease in private consumption and investment that occurs when government borrows more. b. a sophisticated IOU that documents who owes how much and when payment must be made. c. something of value that by agreement becomes the property of the lender if the borrower defaults. d. the first time a corporation sells stock to the public in order to raise capital.

c. something of value that by agreement becomes the property of the lender if the borrower defaults.

Which of the following is the best example of an irreversible investment? a. the decision to work an extra 2 hours per week b. hiring a new employee c. starting a new automobile line d. a first date

c. starting a new automobile line

The industrial revolution was centered in a. France. b. the United States. c. the United Kingdom. d. China.

c. the United Kingdom.

Labor adjustment costs are a. valuable assets that are pledged to a lender to secure a loan. b. reductions in the value of collateral. c. the costs of shifting workers from declining sectors of the economy to the growing sectors. d. the tendency for economic activities to be coordinated at common points in time.

c. the costs of shifting workers from declining sectors of the economy to the growing sectors.

In the late 1990s, America's economy a. experienced stagflation: high inflation and low real growth. b. grew at its historical pace. c. was booming and unemployment was very low. d. suffered from several severe nominal shocks, producing low inflation and growth.

c. was booming and unemployment was very low.

If instead of buying short-term Treasury securities, the Fed decides to purchase the country's supply of paper clips, the money supply a. will not change. b. will contract. c. will expand. d. might expand or contract.

c. will expand.

In the face of a shock to consumer confidence, politicians are on the fence about whether to implement policies based on the advice of economists or to make decisions on the basis of Tarot card readings. What would happen during the period in which they are making up their minds about which strategy to pursue? a. would rise. b. would rise. c. would fall. d. would rise.

c. would fall.

Suppose the nominal interest rate is 4 percent and the inflation rate is 5 percent. The real interest rate is: a. 0 percent. b. 9 percent. c. 1 percent. d. -1 percent.

d. -1 percent.

At an average growth rate of 4 percent, how long would it take for an economy to double its GDP? a. 70 years b. 25 years c. 50 years d. 17.5 years

d. 17.5 years

In the United States, the first oil price shock took place in a. 2007. b. 1978. c. 1989. d. 1973.

d. 1973.

A country has 50 million people, 30 million of whom are adults. Of the adults, 5 million are not interested in working, another 5 million are interested in working but have given up looking for work, and 5 million are still looking for work. Of those who do have jobs, 5 million are working part time but would like to work full time, and the remaining 10 million are working full time. How many people in this country are in the labor force? a. 30 million b. 15 million c. 25 million d. 20 million

d. 20 million

With labor held constant, Y = F(K) = , 400 units of capital, the fraction of output invested in new capital at γ = 0.2, and a depreciation rate of δ = .05, how much total capital will there be in the next period? a. 400 b. 404 c. 380 d. 384

d. 384

If a lender expects an inflation rate of 5 percent and asks for a nominal interest rate of 10 percent, then the lender expects to earn a real interest rate of: a. 2 percent. b. 10 percent. c. 15 percent. d. 5 percent.

d. 5 percent.

At an annual growth rate of 1.4 percent, approximately how long does it take for real GDP per capita to increase from $30,000 to $60,000 in a country? a. 400 years b. 100 years c. 200 years d. 50 years

d. 50 years

When consumers suddenly become more pessimistic about the economy, a negative aggregate demand shock shifts the a. Solow curve outward, reducing the real growth rate in the short run. b. Solow curve inward, reducing the real growth rate in the short run. c. AD curve outward, reducing the real growth rate in the short run. d. AD curve inward, reducing the real growth rate in the short run.

d. AD curve inward, reducing the real growth rate in the short run.

If newspapers and magazines report a lot of good news about the economy, what is likely to happen to velocity? a. It will fall. Incorrect. Consumption growth and investment growth are likely to rise as a result of the good news, and this will increase the growth in velocity. b. It will fall in the short run and rise in the long run. Incorrect. Consumption growth and investment growth are likely to rise as a result of the good news, and this will increase the growth in velocity. c. It will remain unchanged. Incorrect. Consumption growth and investment growth are likely to rise as a result of the good news, and this will increase the growth in velocity. d. It will rise. Correct. Consumption growth and investment growth are likely to rise as a result of the good news.

d. It will rise. Correct. Consumption growth and investment growth are likely to rise as a result of the good news.

Which of the following is the best example of cyclical unemployment? a. Heather recently graduated with her doctorate in economics. She is searching for a job that matches her skills. b. John is a house painter in northern Michigan. During the winter months, John is unemployed. c. Allison, a recent high school graduate with high aspirations, is seeking a job as the CEO of a Fortune 500 company. d. Peter, a highly skilled construction worker, lost his job when the recession began. He is looking for work, but demand in the construction industry is still low.

d. Peter, a highly skilled construction worker, lost his job when the recession began. He is looking for work, but demand in the construction industry is still low.

Which of the following is a reason it might be hard for the Fed to restore aggregate demand in the face of a nominal shock? a. The Fed might run out of money. b. Banks usually don't do what the Fed demands of them. c. The economy responds to the Fed's actions with no lag. d. The Fed must operate in real time, when a lot of the data about the state of the economy are unknown.

d. The Fed must operate in real time, when a lot of the data about the state of the economy are unknown.

Which of the following is true of the effects of employment protection laws? a. They reduce the duration of unemployment. b. They make labor markets more flexible in adjusting for changes in market conditions. c. They reduce the unemployment rates among young and minority workers. d. They create employment security for workers with a job.

d. They create employment security for workers with a job.

Tom works as an editor for a textbook company and devotes some of his time to his dream of writing a novel. Will he devote more time to writing the novel when the textbook company is busy and pays him overtime or when work is slow and no overtime pay is available? a. Equal amounts of time under both conditions. b. When work is busy. c. He will only talk about his novel; he will never actually write it. d. When work is slow.

d. When work is slow.

All of the following are counted as employed persons EXCEPT a. a part-time worker. b. an employee working overtime every day. c. an underemployed person. d. a discouraged worker.

d. a discouraged worker.

A binding interest rate ceiling creates ______ savings. a. an equilibrium quantity of b. a surplus of c. increase in d. a shortage of

d. a shortage of

There is a. no correlation between per capital GDP and infant survival. b. a weak negative correlation between per capita GDP and infant survival. c. a weak positive correlation between per capita GDP and infant survival. d. a strong positive correlation between per capita GDP and infant survival.

d. a strong positive correlation between per capita GDP and infant survival.

A liquid asset is a. an asset that cannot be used for payments or quickly and without loss of value be converted to an asset that can be used for payments. b. a very narrowly accepted means of payment. c. gold and only gold. d. an asset that can be used for payments or quickly and without loss of value be converted to an asset that can be used for payments.

d. an asset that can be used for payments or quickly and without loss of value be converted to an asset that can be used for payments.

In the loanable funds market, which group best represents the demand side of the market? a. banks b. stock markets c. savers d. borrowers

d. borrowers

All of the following are reasons for the financial crisis of 2007-2008 EXCEPT a. increases in the leverage ratios for financial intermediaries. b. excessive securitization of liabilities. c. collapse of the shadow banking system. d. excessive confidence about the stock market.

d. excessive confidence about the stock market.

The principle of diminishing returns in capital implies that a country that lost much of its capital during a war will a. never catch up with countries that never go to war. b. grow more slowly than its enemy during the war. c. keep it from being permanently rich. d. experience a higher growth rate than before the war.

d. experience a higher growth rate than before the war.

GDP is the market value of all a. final and household goods produced within a country in a year. b. final goods and services produced by the permanent residents of a nation. c. final and intermediate goods and services produced in a nation. d. final goods and services produced within a country in a year.

d. final goods and services produced within a country in a year.

The level of capital stock increases when investment in capital is a. greater than investment in human capital. b. less than depreciation. c. greater than personal consumption. d. greater than depreciation.

d. greater than depreciation.

Shortly after September 11, 2011, the Federal Reserve a. decreased its lending to individuals. b. decreased its lending to banks. c. increased its lending to individuals. d. increased its lending to banks.

d. increased its lending to banks.

The discount rate is the a. interest rate on short-term Treasury securities. b. overnight lending rate from one major bank to another. c. ratio of reserves to deposits. d. interest rate banks pay when they borrow directly from the Fed.

d. interest rate banks pay when they borrow directly from the Fed.

Uncertainty drives people away from a. investment spending and toward less liquid assets. b. more liquid assets and toward more investment spending. c. less liquid assets and toward more investment spending. d. investment spending and toward more liquid assets.

d. investment spending and toward more liquid assets.

A typical worker in India works with ______ physical capital than a typical worker in the United States. a. many times more b. slightly more c. about the same amount of d. much less

d. much less

The federal funds rate is the a. interest rate on short-term Treasury securities. b. interest rate banks pay when they borrow directly from the Fed. c. ratio of reserves to deposits. d. overnight lending rate from one major bank to another.

d. overnight lending rate from one major bank to another.

After the 9/11 attacks a. the Solow growth rate increased. b. people rushed to invest in New York City. c. the need for information about the future went out the window. d. people held off on business investment until it became clear that the attacks would not become regular occurrences.

d. people held off on business investment until it became clear that the attacks would not become regular occurrences.

In economics, investment refers to the a. amount of personal savings in a bank. b. fund used to settle a debt. c. purchase of stocks and bonds. d. purchase of new capital goods.

d. purchase of new capital goods.

According to the quantity theory of money, a change in the money supply affects: a. nominal GDP in the short run but not in the long run. b. real GDP in the long run but not in the short run. c. nominal GDP in the long run but not in the short run. d. real GDP in the short run but not in the long run.

d. real GDP in the short run but not in the long run.

A reduction in oil supply will cause the Solow growth curve to a. become flatter. b. become steeper. c. shift outward. d. shift inward.

d. shift inward.

The key reason for the growth miracle of China to begin in the late 1970s is a. pure luck. b. the enforcement of communal property. c. increases in foreign investment from developed countries. d. the assignment of private property rights.

d. the assignment of private property rights.

The term economies of scale refers to a. a system of well-defined property rights that leads to higher profits for entrepreneurs. b. a rise in growth rates above average. c. the value of small-scale production. d. the decrease in average production costs when output rises.

d. the decrease in average production costs when output rises.

The most basic U.S. employment law stipulating that an employee may quit and employer may fire at any time and for any reason is called a. affirmative action. b. the employee privacy law. c. the Equal Employment Opportunity Act. d. the employment at will doctrine.

d. the employment at will doctrine.

Time bunching tends to amplify business cycles because a. the returns to work are higher in booms than in recessions, so people work more during booms and less during recessions. b. assets are typically worth more in booms than in recessions. c. the uncertainty of recessions tend to increase people's job search time, while greater certainty decreases search time during booms. d. the returns to investment are higher when others are investing as well, thus we see more investment during booms and less during recessions.

d. the returns to investment are higher when others are investing as well, thus we see more investment during booms and less during recessions.

Solow estimated that better ideas are responsible for about ______ of the U.S. standard of living. a. one-half b. one-fourth c. all d. three-fourths

d. three-fourths

According to the text, the term "eL" in the production function refers to a. technological advance. b. physical capital. c. the size of population. d. workers adjusted for their skill levels.

d. workers adjusted for their skill levels.

Intertemporal substitution refers to a. the decision on how to allocate time between work and leisure. b. the preference for households to smooth their consumption over time. c. the tendency to work more when the returns to work are higher. d. the decision to substitute one television show for another during the same time slot.

the tendency to work more when the returns to work are higher.