ECON 2315 FINAL REVIEW

Rank the following assets in terms of​ liquidity, from the most liquid to the least​ liquid: ​a) Savings​ Account; ​b) Cash; ​c) Land; ​d) a U.S. Savings Bond A. Cash; Savings​ Account; U.S. Savings​ Bond; Land B. ​Land; U.S. Savings​ Bond; Cash; Savings Account C. Cash; Land; Savings​ Account; U.S. Savings Bond D. Cash; U.S. Savings​ Bond; Savings​ Account; Land

A. Cash; Savings​ Account; U.S. Savings​ Bond; Land

Which one of the following four characteristics of assets is least important to holders of​ wealth? A. Denomination B. Liquidity C. Risk D. Expected return Complete the following sentence on how money compares with other assets for each​ characteristic? Money has a low expected return compared to other​ assets, low risk since it always maintains its nominal​ value, is the most liquid of all​ assets, and has the lowest time to maturity

A. Denomination

Which of the following does not occur during a​ hyperinflation? A. Shoe leather costs decrease. B. Prices are not a reliable indicator of supply and demand. C. Real tax revenue declines. D. Menu costs increase.

A. Shoe leather costs decrease.

Why does desired investment fall as the real interest rate​ rises? A. The user cost of capital​ increases, resulting in a smaller desired capital stock. B. A higher interest rate makes capital less​ productive, resulting in a smaller desired capital stock. C. A higher interest rate results in less existing capital that needs to be replaced.

A. The user cost of capital​ increases, resulting in a smaller desired capital stock.

Why is equilibrium in the asset market described by the condition that real money supply equal real money ​demand? A. When supply equals demand for​ money, demand must also equal supply for non-monetary assets. B. Money is the only asset. C. If the asset market were not in​ equilibrium, then money would not be really demanded. D. The Fed makes sure that money supply equals money demand.

A. When supply equals demand for​ money, demand must also equal supply for non-monetary assets.

The production function slopes​ upward, but its slope declines from left to right. It slopes upward because A. additional units of input lead to additional output. B. prices rise as output increases. C. supply shocks cause output to increase. D. supply shocks cause output to decrease. Its slope declines from left to right because A. there is diminishing marginal productivity because at least one input is fixed. B. the quality of the labor force declines as more workers are employed. C. there are decreasing returns to scale in the production of all goods. D. the economy produces less as prices increase.

A. additional units of input lead to additional output. A. there is diminishing marginal productivity because at least one input is fixed.

National wealth is equal to A. domestic physical assets plus net foreign assets. B. domestic physical assets plus private saving plus domestic investment. C. domestic physical assets minus net foreign assets. D. domestic physical assets plus net foreign assets minus the government budget deficit. E. domestic physical assets plus net foreign assets plus private saving.

A. domestic physical assets plus net foreign assets.

Which policy would decrease national​ saving? A. exchanging sales taxes for higher taxes on interest and dividends B. reducing deficit spending C. increasing allowable contributions to​ tax-free retirement accounts D. replacing income taxation with​ consumption-based taxation

A. exchanging sales taxes for higher taxes on interest and dividends

Improved technology is likely to A. increase the marginal product of labor. B. create the need for universal guaranteed income. C. displace​ workers, causing high unemployment. D. reduce wages.

A. increase the marginal product of labor.

The revenue that the government raises by printing money is called A. seignorage. B. an indirect tax. C. fiscal policy. D. a direct tax. Another name for seignorage is A. the surcharge. B. the marginal tax. C. the inflation tax. D. the fiscal tax.

A. seignorage. C. the inflation tax.

Which of the following is NOT an example of government​ capital? A. ten-year Treasury bonds B. public hospitals C. schools D. roads Which type of government capital does the U.S. government mostly invest​ in? equipment Which type of government capital do state and local governments mostly invest​ in? structures

A. ten-year Treasury bonds

Two countries are IDENTICAL in every way except that one has a much higher​ capital-labor ratio than the other. According to the Solow​ model, which​ country's total output will grow more​ quickly? A. the country with the lower​ capital-labor ratio B. the country with the higher​ capital-labor ratio C. both countries will grow at the same rate D. not enough information to answer the question Does your answer depend on whether one country or the other is in a steady​ state? A. Yes. The country in the steady state will grow more quickly. B. Yes. The country in the steady state will grow more slowly. C. No. The country with the lower​ capital-labor ratio will always grow faster. D. No. The country with the higher​ capital-labor ratio will always grow faster. In general​ terms, how will your answer be affected if the two countries are allowed to trade with each​ other? A. the country with the lower​ capital-labor ratio will grow even​ faster, and the other will grow the same or slower B. the country with the higher​ capital-labor ratio will grow even​ faster, and the other will grow the same or slower C. both countries will grow even faster D. both countries will grow even slower E. there will be no change in growth speed

A. the country with the lower​ capital-labor ratio C. No. The country with the lower​ capital-labor ratio will always grow faster. C. both countries will grow even faster

Full-employment output is A. the level of output that firms supply when wages and prices in the economy have fully adjusted. B. the level of output that firms supply when capital is fully employed. C. the level of output that firms supply when the unemployment rate is zero. D. the level of output that firms supply when the inflation rate is zero. How is​ full-employment output affected by an increase in labor​ supply? A. Full-employment output will not change. B. Full-employment output will increase. C. Full-employment output will decrease. D. The effect on​ full-employment output cannot be determined. How is​ full-employment output affected by a beneficial supply​ shock? A. Full-employment output will decrease. B. Full-employment output will not change. C. Full-employment output will increase. D. The effect on​ full-employment output cannot be determined.

A. the level of output that firms supply when wages and prices in the economy have fully adjusted. B. Full-employment output will increase. C. Full-employment output will increase.

Which one of the following four expressions uses the​ economists' definition of​ money? A. ​"When I go to the​ store, I always make sure that I have enough​ money." B. "How much money did you make last​ week?" C. "Collecting money is a wonderful​ hobby." D. "The love of money is the root of all​ evil."

A. ​"When I go to the​ store, I always make sure that I have enough​ money."

What is the desired capital​ stock? A. The desired capital stock is the difference between gross investment and net investment. B. The desired capital stock is the amount of capital that allows the firm to earn the largest possible profit. C. The desired capital stock is defined where the marginal productivity of capital equals zero. D. The desired capital stock is the amount of capital that exactly replaces worn out capital.

B. The desired capital stock is the amount of capital that allows the firm to earn the largest possible profit.

A technological breakthrough raises a​ country's total factor productivity A by​ 10%. How does this change affect the graphs of both the production function relating output to capital and the production function relating output to​ labor? A. The graphs of both production functions shift downward. B. The graphs of both production functions shift upward. C. The graph of the production function relating capital to output shifts upward and the graph of the production function relating labor to output shifts downward. D. The graph of the production function relating capital to output shifts downward and the graph of the production function relating labor to output shifts upward. A​ 10% increase in A will increase the MPK by 10% and increase the MPN by 10%.

B. The graphs of both production functions shift upward.

How does the change in the​ money-demand equation affect the algebraic expression for the​ general-equilibrium value of​ employment? A. decreases employment B. no effect C. increases employment D. increases employment if i^m ​> 0; decreases employment if i^m ​< 0 How does the change in the​ money-demand equation affect the algebraic expression for the​ general-equilibrium value of the real​ wage? A. increases the real wage B. increases the real wage if i^m ​> 0; decreases the real wage if i^m ​< 0 C. decreases the real wage D. no effect How does the change in the​ money-demand equation affect the algebraic expression for the​ general-equilibrium value of​ output? A. no effect B. increases output C. increases output if i^m ​> 0; decreases output if i^m ​< 0 D. decreases output How does the change in the​ money-demand equation affect the algebraic expression for the​ general-equilibrium value of the real interest​ rate? A. increases the real interest rate B. no effect C. decreases the real interest rate D. increases the real interest rate if i^m ​> 0; decreases the real interest rate if i^m ​< 0 The algebraic expression for the price level in general equilibrium is now...... sorry no answer for this one bc I can't type equations Given the equation for the price​ level, the equilibrium value of the price level is now​ _____ it was​ before, assuming that i^m ​> 0. A. higher than B. the same as C. lower than D. ambiguous compared with what

B. no effect D. no effect A. no effect B. no effect C. lower than

What is the effect on the​ steady-state of an increase in h​? What is the effect on the​ steady-state value of​ per-worker capital? A. per-worker capital increases B. per-worker capital decreases C. per-worker capital remains the same D. not enough information to answer this question What is the effect on the​ steady-state value of​ per-worker output? A. per-worker output increases B. per-worker output decreases C. per-worker output remains the same D. not enough information to answer this question What is the effect on the steady state of​ per-worker consumption? A. per-worker consumption increases B. per-worker consumption decreases C. per-worker output remains the same D. not enough information to answer this question

B. per-worker capital decreases B. per-worker output decreases B. per-worker consumption decreases

In each of the following​ cases, what is the effect on the FE​ line? An adverse supply shock A. does not change the FE line. B. shifts the FE line leftward. C. shifts the FE line rightward. An increase in the labor supply A. shifts the FE line leftward. B. does not change the FE line. C. shifts the FE line rightward. An increase in the money supply A. does not change the FE line. B. shifts the FE line leftward. C. shifts the FE line rightward.

B. shifts the FE line leftward. C. shifts the FE line rightward. A. does not change the FE line.

Keynesians think that wages and prices adjust​ _____ when the economy is out of equilibrium. If the Keynesian theory is​ correct, unemployment​ _____. A. slowly; will not persist B. slowly; will persist C. rapidly; will persist D. rapidly; will not persist

B. slowly; will persist

A temporary increase in the wage rate is likely to increase the amount of labor supplied. This is because for temporary wage​ changes, the income effect is likely to be less than the substitution effect. Which of the following statements best states the effect of a permanent increase in the real​ wage? A. For a permanent wage​ increase, the income effect is likely to exceed the substitution​ effect, thus the quantity of labor supplied will rise. B. For a permanent wage​ increase, the income effect is likely to be less than the substitution​ effect, thus the quantity of labor supplied will rise. C. For a permanent wage​ increase, the income effect is likely to exceed the substitution​ effect, thus the quantity of labor supplied will fall. D. For a permanent wage​ increase, the income effect is likely to be less than the substitution​ effect, thus the quantity of labor supplied will fall.

C. For a permanent wage​ increase, the income effect is likely to exceed the substitution​ effect, thus the quantity of labor supplied will fall.

What is​ comovement? A. Macroeconomics variables that are always perfectly correlated with each another B. Macroeconomic variables the change independently of each another over time. C. Macroeconomic variables that tend to move in the same direction over time.

C. Macroeconomic variables that tend to move in the same direction over time.

This problem adds the government to the Solow model. Which of the following expressions characterizes the steady state​ capital-labor ratio? A. sf(k) − g​ = (n​ + d)k B. sf(k) =​ (n + d​ + g)k C. [f(k) − ​g] =​ (n +​ d)k D. sf(k)​ = ​(n​ + d −g​)k The following graphically shows how the ​sf(k​) curve shifts after the addition of​ government, and the resulting​ steady-state level of capital per​ worker, k​*. If the government permanently increases purchases per worker​ (an increase in g​), Output per worker A. remains the same in the steady state. B. can not be determined qualitatively. C. is lower in the steady state. D. is higher in the steady state. If the government permanently increases purchases per worker​ (an increase in g​), Capital per worker A. can not be determined qualitatively. B. is higher in the steady state. C. is lower in the steady state. D. remains the same in the steady state. If the government permanently increases purchases per worker​ (an increase in g​), Consumption per worker A. is higher in the steady state. B. remains the same in the steady state. C. can not be determined qualitatively. D. is lower in the steady state.

C. [f(k) − ​g] =​ (n +​ d)k C. is lower in the steady state. C. is lower in the steady state. D. is lower in the steady state.

What is the marginal product of labor ​(MPN​)? A. the additional amount of output produced when one unit of capital and one unit of labor is added. B. the additional amount of output produced when one unit of capital is added. C. the additional amount of output produced when one unit of labor is added. D. the total amount of output produced when an additional unit of labor is added. How is the MPN curve related to labor​ demand? A. The MPN curve is identical to the labor demand curve. B. The MPN curve multiplied by the price level is the labor demand curve. C. The MPN curve is not related to the labor demand curve. D. The MPN curve divided by the price level is the labor demand curve.

C. the additional amount of output produced when one unit of labor is added. A. The MPN curve is identical to the labor demand curve.

Which concept of the government budget deficit indicates what the government budget deficit would be​ (given the tax and spending policies currently in​ force) if the economy were operating at its​ full-employment level? A. the real deficit B. the​ general-equilibrium deficit C. the​ full-employment deficit D. the potential deficit In a​ recession, which deficit concept tends to rise relative to the other​ one, the​ full-employment deficit or the actual​ deficit? actual deficit

C. the​ full-employment deficit

What is a business​ cycle? A. the​ long-run growth trend of the economy B. the​ short-run movements​ (inflations and​ deflations) of prices C. the​ short-run movements​ (expansions and​ recessions) of economic activity D. the relationship between political activity and economic activity The unemployment rate increases during recessions and decreases during​ expansions, and never reaches zero

C. the​ short-run movements​ (expansions and​ recessions) of economic activity

a. The Solow​ residual, the most common measure of productivity shocks is strongly procyclical. b. Which of the following does not cause a change in the Solow​ residual? A. A change in the labor utilization rate. B. A change in the capital utilization rate. C. A change in total factor productivity. D. A change in expectations.

D. A change in expectations.

Which of the following causes the aggregate supply of labor to shift to the​ right? A. A decrease in the participation rate. B. A decrease in the​ working-age population. C. An increase in the wealth of workers. D. A decrease in the expected future real wage.

D. A decrease in the expected future real wage.

What are some of the reasons given why the U.S. experienced the large growth in productivity during the​ 1990's? A. the revolution in information and communications technologies​ (ICT) B. existing U.S. laws allowed firms to take advantage of the ICT improvements C. intangible investment​ (such as research and​ development, reorganization of​ firms, and worker​ training) allowed firms to take advantage of the ICT improvements D. All of the above have been cited as reasons to explain the increases in worker productivity. E. None of the above are correct.

D. All of the above have been cited as reasons to explain the increases in worker productivity.

1.) The yield curve slopes upward. Which of the following best explains this​ observation? A. Treasury bonds and municipal bonds have about the same amount of default risk. B. The interest rate on a municipal bond tends to be higher than the interest rate on a Treasury bill. C. There are many interest rates in the​ economy, but they all tend to rise and fall together. D. The interest rate on a bond with a​ 30-year maturity tends to be higher than the interest rate on a bond with a​ 10-year maturity. ​2.) The basic rate that banks charge on loans to their best customers is called the prime rate​, the interest rate on a Treasury bond is called the default risk free rate and the interest rate on overnight loans between banks is called the federal funds rate. ​ 3.) Which of the following would cause a bond to have a relatively high interest​ rate? ​(Select all that​ apply) A. A bond that has high default risk. B. The bond being a U.S. Treasury bill. C. A bond that has a long maturity. D. There is a high probability that the firm issuing the bond will go out of business. ​ 4.) In​ general, the prime interest rate and the federal funds rate tend to move in the same direction.

D. The interest rate on a bond with a​ 30-year maturity tends to be higher than the interest rate on a bond with a​ 10-year maturity. A. A bond that has high default risk. C. A bond that has a long maturity. D. There is a high probability that the firm issuing the bond will go out of business.

Why is equilibrium in the asset market described by the condition that real money supply equal real money ​demand? A. If the asset market were not in​ equilibrium, then money would not be really demanded. B. Money is the only asset. C. The Fed makes sure that money supply equals money demand. D. When supply equals demand for​ money, demand must also equal supply for nonmonetary assets.

D. When supply equals demand for​ money, demand must also equal supply for nonmonetary assets.

An increase in the saving rate will affect which of the following variables in the long​ run? A. capital per worker. B. the level of investment. C. output per worker. D. all of the above.

D. all of the above.

For the purposes of assessing an​ economy's growth​ performance, the more important statistic is real GDP. Real GDP is a better measure of economic growth than nominal GDP because A. an increase in nominal GDP does not correctly measure market values of production in the economy. B. an increase in nominal GDP only shows increases in prices. C. an increase in nominal GDP only shows increases in output. D. an increase in nominal GDP may show an increase in prices rather than an increase in output.

D. an increase in nominal GDP may show an increase in prices rather than an increase in output.

Private saving is equal to A. government spending minus taxes. B. income minus consumption minus taxes plus government spending. C. income minus consumption. D. disposable income minus consumption. National saving is equal to A. government saving plus private saving. B. the same as government saving. C. the same as private saving. D. government saving plus private saving plus capital inflow from abroad.

D. disposable income minus consumption. A. government saving plus private saving.

Money is said to be neutral ​if: A. if a change in the money supply changes the price level and all real variables proportionately. B. if a change in the money supply does not change the level of​ full-employment output. C. if a change in the money supply does not change the price level or other nominal variables. D. if a change in the money supply changes the price level and other nominal variables but has no effect on real variables. After prices​ adjust, money is neutral in the ​IS-LM model​ because: A. when the economy returns to the​ full-employment level, there is no net change in the price level. B. the shift in the LM curve due to the change in the money supply is matched by an equal shift of the IS curve. C. any shift in the aggregate demand curve caused by the change in the money supply is offset by a shift of the aggregate supply curve. D. any change in money supply that shifts the LM curve is finally matched by a proportional change in the price level that shifts the LM curve to its original position. Regarding neutrality of​ money: A. classical economists believe that money is neutral in both the short run and the long​ run, but Keynesians believe that money is neutral only in the short run but not in the long run. B. Keynesian economists believe that money is neutral in both the short run and the long​ run, but classical economists believe that money is neutral only in the long run but not in the short run. C. both classical and Keynesian economists agree that money is neutral only in the long run but not in the short run. D. classical economists believe that money is neutral in both the short run and the long​ run, but Keynesians believe that money is neutral only in the long run but not in the short run due to sluggish adjustment of the price level in the short run.

D. if a change in the money supply changes the price level and other nominal variables but has no effect on real variables. D. any change in money supply that shifts the LM curve is finally matched by a proportional change in the price level that shifts the LM curve to its original position. D. classical economists believe that money is neutral in both the short run and the long​ run, but Keynesians believe that money is neutral only in the long run but not in the short run due to sluggish adjustment of the price level in the short run.

The main difference between the classical ​IS-LM model and the Keynesian ​IS-LM model is that A. in the classical​ model, demand for money is less interest elastic than in the Keynesian model. B. in the classical​ model, prices are assumed to be​ fixed, while in the Keynesian model prices are flexible. C. in the Keynesian​ model, prices are assumed to adjust quickly to restore​ equilibrium, while in the classical​ model, prices are slow to adjust to restore equilibrium. D. in the classical​ model, prices are assumed to adjust quickly to restore​ equilibrium, while in the Keynesian​ model, prices are slow to adjust to restore equilibrium. The distinction between the classical ​IS-LM model and the Keynesian ​IS-LM model is important because classicals are less likely​ than/as Keynesians to recommend government intervention to restore equilibrium.

D. in the classical​ model, prices are assumed to adjust quickly to restore​ equilibrium, while in the Keynesian​ model, prices are slow to adjust to restore equilibrium.

1.) Events in the stock market in August 1987​ _________, while events in the stock market in October 1987​ ________. A. decreased​ consumption; decreased consumption further B. increased​ consumption; increased consumption further C. decreased​ consumption; increased consumption D. increased​ consumption; decreased consumption ​2.) In the 1980s and​ 1990s, increases in consumption A. were a surprise because of generally poor stock market growth in the 1990s. B. occurred because of decreases in GDP. C. occurred at least in part due to a​ long-term trend unrelated to events in the stock market. D. came almost entirely from wealth gains due to a booming stock market. ​ 3.) The theory described in the text suggests that an increase in stock prices should lead to increases in consumption. Which of the following time periods exhibited the opposite effect—that ​is, an inverse​ (negative) relationship—between stock prices and​ consumption? A. Stock market crash of 1987. B. Early 2000s with its decline in stock prices. C. Late 1990s with its growth in the stock market. D. Financial crisis of 2008. ​ 4.) The explanation given for the high consumption following the decline in stock prices in the early 2000s is best described by which of the​ following? A. Consumers refused to change their behavior from the​ record-high increases in consumption in the late 1990s. B. Consumption changed in nominal​ terms, but not real terms. C. Home prices before the early 2000s were so low that consumption had already gone as low as it could. D. Increases in​ consumption, like​ wealth, are spread out over the​ consumer's lifetime.

D. increased​ consumption; decreased consumption C. occurred at least in part due to a​ long-term trend unrelated to events in the stock market. B. Early 2000s with its decline in stock prices. D. Increases in​ consumption, like​ wealth, are spread out over the​ consumer's lifetime.

According to the expectations theory of the term structure of interest rates A. investors lock into a particular time to maturity for their bonds and​ don't compare interest rates on bonds with other times to maturity. B. interest rates are​ higher, the longer the term to maturity. C. interest rates depend on​ people's expectations of future inflation. D. investors compare bonds with different times to maturity and choose the ones that yield the highest return. Why​ isn't the expectations theory sufficient to describe the data on interest rates that we​ observe? A. on​ average, short-term interest rates exceed​ long-term interest rates B. data on expected inflation show that the expected real interest rate is often negative C. nominal interest rates never decline below zero D. on​ average, long-term interest rates exceed​ short-term interest rates

D. investors compare bonds with different times to maturity and choose the ones that yield the highest return. D. on​ average, long-term interest rates exceed​ short-term interest rates

In the classical​ model, money is neutral. This seems to be inconsistent with the business cycle fact​ that: A. money is a​ non-cyclical variable, which is not related with the business cycle. B. money is a countercyclical variable. C. the real wage is weakly procyclical. D. money is a​ leading, procyclical variable.

D. money is a​ leading, procyclical variable.

A beneficial supply shock A. shifts the graph of the production function downward. B. occurs if total factor productivity declines. C. occurs if the price of oil rises. D. shifts the graph of the production function upward. A common​ _____ is a rise in the price of oil. A. beneficial supply shock. B. adverse supply shock. C. beneficial demand shock. D. adverse demand shock. Suppose an adverse supply shock reduces the marginal product of labor for each quantity of labor. As a​ result, A. the labor demand curve shifts up. B. the labor supply curve shifts down. C. the labor supply curve shifts up. D. the labor demand curve shifts down.

D. shifts the graph of the production function upward. B. adverse supply shock. D. the labor demand curve shifts down.

The chief economic advisor of a small open economy makes the following​ announcement: "We have good news and bad​ news: The good news is that we have just had a temporary beneficial productivity shock that will increase​ output; the bad news is that the increase in output and income will lead domestic consumers to buy more imported​ goods, and our current account balance will​ fall." Analyze this​ statement, taking as given that a beneficial productivity shock has indeed occurred. The shock​ _____ the desired saving curve​ _____ . A. shifts; to the left B. there is not enough information to answer the question C. does not​ shift; at all D. shifts; to the right The shock​ _____ the desired investment curve​ _____ . A. shifts; to the left B. shifts; to the right C. there is not enough information to answer the question D. does not​ shift; at all The current account balance​ _____ because the equilibrium amount of saving ​ _____ and the equilibrium amount of investment​ _____. A. rises; falls; rises B. rises; rises; is unchanged C. rises; rises; falls D. ​falls; rises; falls

D. shifts; to the right D. does not​ shift; at all B. rises; rises; is unchanged

The LM curve shows A. the combinations of the price level and output such that both the goods market and the money market are in equilibrium. B. the combinations of the real interest rate and output such that the goods market is in equilibrium. C. the combinations of price level and output that maintain labor market equilibrium. D. the combinations of the real interest rate and output such that the asset market is in equilibrium. All of the following can shift the LM curve down and to the right except A. an increase in excepted inflation. B. a decrease in the risk of holding alternative assets relative to the risk of holding money. C. a reduction in price level. D. a reduction in money supply.

D. the combinations of the real interest rate and output such that the asset market is in equilibrium. D. a reduction in money supply.

Menu costs​ are, by definition A. a measure of inefficiency in an inflationary market economy. B. the costs associated with reprinting menus in the restaurant industry. C. the variety of costs​ (or prices) of different goods and services. D. the costs of changing prices.

D. the costs of changing prices.

How is the fact that some economic variables are known to lead the cycle used in macroeconomic​ forecasting? A. those variables can be used to forecast coincident variables B. you know a recession is coming because one of those variables begins to decline C. those variables can be used to forecast lagging variables D. the fact can be used to develop an index of leading indicators

D. the fact can be used to develop an index of leading indicators

The position of the FE line is determined​ by: A. the money supply and government purchases. B. consumption and investment. C. the price level and interest rate. D. the labor market and the production function. All of the following will shift the FE line​ except: A. an increase in labor supply. B. an increase in the price level. C. an increase in the capital stock. D. a beneficial supply shock.

D. the labor market and the production function. B. an increase in the price level.

General equilibrium occurs at which point in the IS−LM​ diagram? A. the point at which the FE line and the LM curve intersect B. the point at which the IS and LM curves intersect C. the point at which the FE line and the IS curve intersect D. the point at which the FE line and the IS and LM curves intersect If the economy​ isn't in general​ equilibrium, what determines output and the real interest​ rate? A. the point at which the IS and LM curves intersect B. the point at which the FE line and the IS curve intersect C. the point at which the FE line and the IS and LM curves intersect D. the point at which the FE line and the LM curve intersect What economic forces act to bring the economy back to general​ equilibrium? A. adjustment of the price level moves the LM curve B. adjustment of output moves the LM curve C. adjustment of the real interest rate moves the IS curve D. adjustment of future income moves the IS curve

D. the point at which the FE line and the IS and LM curves intersect A. the point at which the IS and LM curves intersect A. adjustment of the price level moves the LM curve

Which of the following is NOT a source of uncertainty affecting monetary​ policy? A. incomplete models of the economy B. difficulty evaluating the current state of the economy C. the impact of policy actions on public expectations D. the size of the central​ bank's balance sheet

D. the size of the central​ bank's balance sheet

Price stickiness​ is: A. the notion that prices never change over time. B. the concept that prices only​ rise, but do not​ fall, over time. C. the tendency of prices to adjust in unison with changes in GDP. D. the tendency of prices to adjust slowly to changes in the economy

D. the tendency of prices to adjust slowly to changes in the economy

We distinguish between small open economies and large open economies based​ on: A. rates of inflation. B. whether they are net lenders or net borrowers to the world economy. C. GDP or output measures. D. their influence on the world interest rate.

D. their influence on the world interest rate.

Which of the following does not represent a potential explanation of the changing natural unemployment rate in the United​ States? A. A more efficient labor market in the 1990s. B. The increasing productivity of workers in the second half of the 1990s. C. The Internet and temporary agencies have improved the matching of workers and jobs. D. Women and teenagers entering the workforce between World War II through 1980. E. The increased value of the dollar in the 1990s

E. The increased value of the dollar in the 1990s

The natural rate of unemployment is the rate of unemployment A. that occurs when both the goods and financial markets are in equilibrium. B. where the markup of prices over costs is equal to its historical value. C. that occurs when the money market is in equilibrium. D. that occurs when the markup of prices over costs is zero. E. none of the above.

E. none of the above.

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 positive. C. the nominal interest rate must be equal to the real interest rate. D. the real interest rate is negative. E. none of the above.

E. none of the above.

What is the J​ curve? A. The J curve shows the response of net exports to a real​ depreciation, in which at first net exports​ decline, but later they rise. B. The J curve shows the response of net exports to a real​ appreciation, in which at first net exports​ decline, but later they rise. C. The J curve shows the response of net exports to a real​ appreciation, in which at first net exports are​ unchanged, but later they decline. D. The J curve shows the response of net exports to a real​ depreciation, in which at first net exports​ rise, but later they decline.

A. The J curve shows the response of net exports to a real​ depreciation, in which at first net exports​ decline, but later they rise.

What is the effect on the monetary base when the Federal Reserve purchases U.S. Treasury securities in the open​ market? A. The monetary base increases. B. The monetary base decreases. C. The monetary base does not change. D. You have insufficient information to answer this question. What is the effect on the money​ supply? A. The money supply increases. B. The money supply decreases. C. The money supply does not change. D. You have insufficient information to answer this question.

A. The monetary base increases. A. The money supply increases.

Who suffers when there is cyclical​ unemployment? A. Those individuals that are unemployed. B. Those individuals that are employed. C. Corporate executives. D. Foreign workers.

A. Those individuals that are unemployed.

Which of the following represents a cost of unanticipated​ inflation? A. Wealth transfer. B. Menu costs. C. Shoe leather costs. D. Seigniorage​ (an inflation​ tax).

A. Wealth transfer.

Generalizing from your answers​ above, an increase in foreign output causes the domestic nominal exchange rate to​ _____; an increase in domestic output causes the domestic nominal exchange rate to​ _____. A. increase; decrease B. decrease; increase C. increase; increase D. decrease; decrease

A. increase; decrease

Define nominal exchange rate. A. the rate at which two currencies can be exchanged for each other in the market. B. the reciprocal of the real exchange rate. C. the real exchange rate times the price level. D. the price of domestic goods relative to foreign goods. Define real exchange rate. A. the price of domestic goods relative to foreign goods. B. the reciprocal of the nominal exchange rate. C. the rate at which two currencies can be exchanged for each other in the market. D. the nominal exchange rate times the price level. How are changes in the real exchange rate and the nominal exchange rate​ related? change in e nom divided by e nom = change in e divided by e + pi FOR - pi

A. the rate at which two currencies can be exchanged for each other in the market. A. the price of domestic goods relative to foreign goods.

In what ways is the government debt a potential burden on future​ generations? A. distortions from lower future tax rates and lower future capital B. distortions from higher future tax rates and lower future capital C. distortions from lower future tax rates and higher future capital D. distortions from higher future tax rates and higher future capital What is the relationship between Ricardian equivalence and the idea that government debt is a​ burden? A. If the Ricardian equivalence proposition is​ valid, a tax cut does not cause consumption to​ rise, so there is a decrease in national saving. B. If the Ricardian equivalence proposition is​ valid, a tax cut does not cause consumption to​ rise, so there is no change in national saving. C. If the Ricardian equivalence proposition is​ valid, a tax cut does not cause consumption to​ rise, so there is an increase in national saving. D. If the Ricardian equivalence proposition is​ valid, a tax cut causes consumption to​ rise, so there is no change in national saving.

B. distortions from higher future tax rates and lower future capital B. If the Ricardian equivalence proposition is​ valid, a tax cut does not cause consumption to​ rise, so there is no change in national saving.

Use the LR curve to show the impact of each of the following shocks on the economy in the short run and the long​ run, following the Keynesian model. Draw a diagram to answer each question. a. An increased investment tax credit designed to stimulate investment is put into​ place, and the Fed does not change its target for the real interest rate. In the short​ run, A. output does not change and the real interest rate does not change B. output increases and the real interest rate does not change C. output increases and the real interest rate increases D. output does not change and the real interest rate increases In the long​ run, A. output does not change and the real interest rate does not change B. output increases and the real interest rate increases C. output does not change and the real interest rate increases D. output increases and the real interest rate does not change b. An increased investment tax credit designed to stimulate investment is put into​ place, and the Fed changes its target for the real interest rate to keep output from changing in the short run. In the short​ run, A. output increases and the real interest rate does not change B. output increases and the real interest rate increases C. output does not change and the real interest rate does not change D. output does not change and the real interest rate increases In the long​ run, A. output does not change and the real interest rate does not change B. output does not change and the real interest rate increases C. output increases and the real interest rate does not change D. output increases and the real interest rate increases c. The expected inflation rate​ increases, and the Fed keeps its target for the nominal interest rate unchanged. In the short​ run, A. output increases and the real interest rate decreases B. output does not change and the real interest rate increases C. output increases and the real interest rate increases D. output does not change and the real interest rate decreases In the long​ run, A. output does not change and the real interest rate increases B. output does not change and the real interest rate does not change C. output increases and the real interest rate increases D. output increases and the real interest rate does not change d. The expected inflation rate​ increases, and the Fed keeps its target for the real interest rate unchanged. In the short​ run, A. output increases and the real interest rate increases B. output increases and the real interest rate does not change C. output does not change and the real interest rate does not change D. output does not change and the real interest rate increases In the long​ run, A. output does not change and the real interest rate increases B. output does not change and the real interest rate does not change C. output increases and the real interest rate does not change D. output increases and the real interest rate increases

B. output increases and the real interest rate does not change C. output does not change and the real interest rate increases D. output does not change and the real interest rate increases B. output does not change and the real interest rate increases A. output increases and the real interest rate decreases B. output does not change and the real interest rate does not change C. output does not change and the real interest rate does not change B. output does not change and the real interest rate does not change

Which of the following best represents the relationship between inflation and the unemployment​ rate? A. The aggregate demand curve B. The​ long-run aggregate supply curve C. The Phillips curve D. The​ short-run aggregate supply curve

C. The Phillips curve

Price stickiness​ is: A. the notion that prices never change over time. B. the tendency of prices to adjust in unison with changes in GDP. C. the tendency of prices to adjust slowly to changes in the economy D. the concept that prices only​ rise, but do not​ fall, over time.

C. the tendency of prices to adjust slowly to changes in the economy

How is government debt related to the government​ deficit? A. The government deficit is not related to the change in the government debt. B. The government debt is the change in the government deficit. C. The government deficit is the change in the government debt times the real interest rate. D. The government deficit is the change in the government debt. What of the following factors would contribute to a large increase in the​ debt-GDP ratio? A. a low deficit relative to the real interest rate times nominal GDP B. a high inflation rate C. a high deficit relative to GDP D. a fast growth rate of nominal GDP

D. The government deficit is the change in the government debt. C. a high deficit relative to GDP

1.) The Lucas critique implies that A. measuring the effect of policy is capable of changing the policy. B. the effects of economic policy cannot be accurately measured. C. people are not rational in reacting to policy changes. D. changes in policy may change human behavior. ​2.) Lucas implies that the best models will include information on how​ ______________ changes when policy does. A. behavior B. tax policy C. the government budget balance D. income elasticity of demand ​ 3.) Lucas's ideas can be applied to the Phillips Curve. We can guess that in the past economists wrongly assumed that the Phillips Curve A. held only in the long run. B. did not shift. C. was​ upward-sloping. D. was horizontal.

D. changes in policy may change human behavior. A. behavior B. did not shift.

Both transfer programs and taxes affect incentives. Consider a program designed to help the poor that promises each aid recipient a minimum income of​ $10,000. That​ is, if the recipient earns less than​ $10,000, the program supplements his income by enough to bring him up to​ $10,000. Explain why this program would adversely affect incentives for​ low-wage recipients. A. The program has very bad incentive​ effects, because the marginal tax rate for any income earned below​ $10,000 is​ 100%. B. The program has very good incentive​ effects, because the marginal tax rate for any income earned below​ $10,000 is​ 0%. C. The program has very bad incentive​ effects, because the marginal tax rate for any income earned below​ $10,000 is​ 50%. D. The program has very good incentive​ effects, because the marginal tax rate for any income earned below​ $10,000 is minus−​50%. Consider a program with a better incentive effect would be to provide a subsidy to labor income. The program subsidizes labor income at a​ 25% rate. If a person worked 2000 hours per year at a wage of​ $4 per​ hour, to get labor income of​ $8000, the subsidy would increase the​ person's wage by​ 25% to​ $5 per​ hour, so he or she would earn​ $10,000 per year. What are the advantages and disadvantages of this​ program? A. Advantage: there is a substitution effect toward lower work​ effort; disadvantage: there is an income effect toward lower work effort. B. Advantage: there is a substitution effect toward greater work​ effort; disadvantage: there is an income effect toward greater work effort. C. Advantage: there is a substitution effect toward lower work​ effort; disadvantage: there is an income effect toward greater work effort. D. Advantage: there is a substitution effect toward greater work​ effort; disadvantage: there is an income effect toward lower work effort.

A. The program has very bad incentive​ effects, because the marginal tax rate for any income earned below​ $10,000 is​ 100%. D. Advantage: there is a substitution effect toward greater work​ effort; disadvantage: there is an income effect toward lower work effort.

What is the impact on the money supply when the Federal Reserve increases reserve​ requirements? A. The money supply increases. B. The money supply decreases. What is the impact on the money supply when banks reduce the amount of borrowing from the discount​ window? A. The money supply increases. B. The money supply decreases. What is the impact on the money supply when the Federal Reserve decreases the discount​ rate? A. The money supply increases. B. The money supply decreases. What is the impact on the money supply when the Federal Reserve increases the interest rate it pays on​ reserves? A. The money supply increases. B. The money supply decreases.

B. The money supply decreases. B. The money supply decreases. A. The money supply increases. B. The money supply decreases.

What effects does expansionary monetary policy have on the nominal exchange rate in both the short and long​ run? A. In the short​ run, the nominal exchange rate​ appreciates, but in the long​ run, the nominal exchange rate returns to its original level. B. In the short​ run, the nominal exchange rate​ depreciates, but in the long​ run, the nominal exchange rate returns to its original level. C. In both the short run and the long​ run, the nominal exchange rate appreciates. D. In both the short run and the long​ run, the nominal exchange rate depreciates.

D. In both the short run and the long​ run, the nominal exchange rate depreciates.

An automatic stabilizer is a provision in the budget that causes A. government spending to rise or taxes to fall automatically when GDP falls. B. an increase in the money supply automatically when GDP falls. C. government spending to fall or taxes to rise automatically when GDP falls. D. a decrease in the money supply automatically when GDP falls. For proponents of antirecessionary fiscal​ policies, what advantage do automatic stabilizers have over other types of taxing and spending​ policies? The advantage of automatic stabilizers over legislated changes in spending and taxes is that they​ _____, while legislation​ _____. A. cause the real interest rate to​ decline; causes the real interest rate to rise B. can be coordinated with monetary​ policy; cannot be coordinated with monetary policy C. occur​ quickly; takes a long time to put in place D. take a long time to put in​ place; occurs quickly

A. government spending to rise or taxes to fall automatically when GDP falls. C. occur​ quickly; takes a long time to put in place

What are the major characteristics of an inflation targeting​ regime? A. Inflation targeting is a system in which a central bank uses wage and price controls to keep inflation pegged. B. Inflation targeting is a system in which a central bank decides on a specific numerical target for inflation and a plan for achieving it. C. Inflation targeting is a system in which no company is allowed to raise prices by more than the inflation target. D. Inflation targeting is a system in which a central bank is concerned only about the inflation​ rate, and puts no weight on the unemployment rate or the growth rate of real GDP.

B. Inflation targeting is a system in which a central bank decides on a specific numerical target for inflation and a plan for achieving it.

To fight an​ on-going 10%​ inflation, the government makes raising wages or prices illegal.​ However, the government continues to increase the money supply​ (and hence aggregate​ demand) by​ 10% per year. The economy starts at​ full-employment output, which remains constant. This is shown by point​ 'B'. a. Using the Keynesian ​AD-AS graph to the​ right, determine the​ short-run equilibrium point based on the policy described above. A. Point E B. Point C C. Point D D. Point B E. Point A b. After several years in which the controls have kept prices from​ rising, the government declares victory over inflation and removes the controls. The​ long-run equilibrium will occur​ at: A. Point C B. Point B C. Point D D. Point A E. Point E

B. Point C C. Point D

Why do foreigners demand dollars in the foreign exchange​ market? A. to speculate that U.S. inflation will increase more than expected. B. to speculate on a depreciation of the dollar. C. to be able to buy U.S.​ goods, services, and assets. D. to gain economic advantage over the United States. Why do U.S. residents supply dollars to the foreign exchange​ market? A. to gain economic advantage over other countries. B. to speculate that U.S. inflation will decrease below what is expected. C. to speculate on an appreciation of the dollar. D. to be able to buy foreign​ goods, services, and assets.

C. to be able to buy U.S.​ goods, services, and assets. D. to be able to buy foreign​ goods, services, and assets.

1.) The notion of a zero lower bound refers to the improbability that nominal interest rates will become negative. ​ 2.) History shows that the episodes of negative nominal interest rates that have occurred have been of relatively short duration on very short-term securities. ​ 3.) Which one of the following is not a reason why an individual or company would be willing to accept a negative nominal interest​ rate? A. Altruism. B. Insurance. C. Convenience. D. Security. ​ 4.) In the aftermath of the 2008 financial​ crisis, negative nominal interest rates occurred in a number of countries in Europe.

A. Altruism.

The idea of the invisible hand is that A. with free markets and individuals acting in their best​ interests, the economy will function well. B. since prices adjust​ slowly, it is necessary for governments to intervene in markets to give them a helping hand. C. the government must invisibly guide markets to achieve the best outcomes for the economy. D. there is no role for the goverment in a market economy.

A. with free markets and individuals acting in their best​ interests, the economy will function well.

Suppose that total capital and labor both increase by the same percentage​ amount, so that the amount of capital per worker​ doesn't change. Writing the production function in​ per-worker terms requires that this increase in capital and labor must not change the amount of output produced per worker. Based on the growth accounting​ equation, equal percentage increases in capital and labor will leave output per worker unaffected only if a aK + aN = A. 0. B. 1. C. -1. D. 100.

B. 1.

Various explanations have been suggested for​ real-wage rigidity in the Keynesian model. Which is NOT one of​ them? A. Legal and institutional factors B. Labor hoarding C. Turnover costs D. The​ efficiency-wage model

B. Labor hoarding

Give two equivalent ways of describing equilibrium in the goods market. A. Y = Cd + Id + G - T and Sd = Id - G B. Y = Cd + Id + G and Sd = Id C. Y = Cd + Sd + G and Sd = Id + (G - T) D. Y = Cd + Id and Sd = Y - Id

B. Y = Cd + Id + G and Sd = Id

Classical economists believe that the best way to solve the problem of high unemployment is A. increases in the money supply to increase investment. B. to do​ nothing; the economy will rapidly adjust on its own. C. increases in taxes to reduce consumption D. increases in government spending to stimulate demand.

B. to do​ nothing; the economy will rapidly adjust on its own.

Which of the following is a policy with a reasonable chance of increasing productivity​ growth? A. increasing population B. increasing the labor force C. increasing taxes on investment income D. increasing the number of grants for scientific research

D. increasing the number of grants for scientific research

Which of the following is an explanation for why M1 velocity increased between 1959 and​ 1980? A. Technological advancements such as cash management accounts and automated teller machines reduced the need to carry money at all times. B. Rising inflation and nominal interest rates led people to seek alternatives to​ non-interest-bearing money, such as money market mutual funds. C. Higher income led to a less than proportional rise in real money​ demand, so velocity increased. D. A and B are correct E. All of the above are correct

E. All of the above are correct

Economists agree that U.S. business cycles have definitely become less severe over time a. ture b. false

b. false

The National Bureau of Economic Research​ (NBER) identifies and dates U.S. business cycles strictly on the basis of changes in real GDP. a. true b. false

b. false

Which of the following will cause an increase in the demand for​ labor? A. An increase in the productivity of workers. B. A reduction in the stock of capital. C. A decrease in the supply of labor. D. An increase in the real wage.

A. An increase in the productivity of workers.

To prepare for this​ problem, read carefully the In Touch with Data and Research box on Developing and Testing an Economic Theory. ​ 1) Which of the following best describes the use of assumptions in the creation of economic​ theory? A. Assumptions should be simple but should also capture the most important aspects of the issue or problem. B. A theory​ should, as a​ rule, use as few assumptions as possible. C. Assumptions should be as complex as possible to reflect all aspects of the complicated issues they attempt to explain. D. None of the above are​ true--assumptions irreparably hurt the ability of theory to mirror a​ real-world issue. ​ 2) When an economist is conducting empirical​ analysis, she A. creates a mathematical model and tests it with hypothetical numeric data. B. makes provisional assumptions to get ready to test a theory. C. compares her written analysis with the writings of others on the same topic. D. compares​ real-world data with a​ theory's implications. ​3) Which of the following is true about what happens after a theory has been compared to​ real-world data? A. There is never a reason to make do with a theory that fits only somewhat well with​ real-world data B. If the theory fits poorly with​ real-world data, it is best to move on to an entirely new research question before attempting to revise the failed theory. C. If the theory fits well with the​ data, you can use that theory to make predictions. D. If the theory fits poorly with the​ data, the researcher should keep trying to find a new data set that matches well with the theory and gives him the results he was hoping​ for, even if this requires using several different data sets.

A. Assumptions should be simple but should also capture the most important aspects of the issue or problem. D. compares​ real-world data with a​ theory's implications C. If the theory fits well with the​ data, you can use that theory to make predictions.

Suppose the government levies a​ lump-sum tax on workers. Which of the following best explains the effect on the supply of​ labor? A. A​ lump-sum tax has only an income​ effect, so increasing the tax will cause the supply of labor to increase. B. A​ lump-sum tax has only a substitution​ effect, so increasing the tax will cause the supply of labor to decrease. C. A​ lump-sum tax has only an income​ effect, so increasing the tax will cause the supply of labor to decrease. D. A​ lump-sum tax has only a substitution​ effect, so increasing the tax will cause the supply of labor to increase. E. A​ lump-sum tax has both income and substitution​ effects, so the overall effect on the supply of labor is uncertain.

A. A​ lump-sum tax has only an income​ effect, so increasing the tax will cause the supply of labor to increase.

A​ nation's gross domestic product​ (GDP) is defined as the market value of final goods and services newly produced within a nation during a fixed period of time. There are many practical issues that arise in measuring economic activity as defined above. Which is NOT one of​ them? A. Capital goods are those that are used to produce other goods but not used up in the same period. Hence they are intermediate goods but classified as final goods. B. Some​ non-market goods and​ services, such as activities in the underground​ economy, are estimated and partially incorporated in official GDP measure. C. The measure leaves out the economic costs of environmental degradation in the calculation of​ firms' contribution to​ output, creating an upward bias. D. There are some useful goods and services that are not sold in formal markets and so they are excluded from the​ measure, creating a downward bias.

A. Capital goods are those that are used to produce other goods but not used up in the same period. Hence they are intermediate goods but classified as final goods.

1.) Which of the following is true about the availability of balance of payments information for the United​ States? A. Full information on the balance of payments is available​ quarterly, but some aspects are available monthly. B. Full information on the balance of payments is available monthly. C. Full information on the balance of payments is available​ annually, but some aspects are available quarterly. D. Full information on the balance of payments is available​ quarterly, with none made available monthly. ​ 2.) The sum of the current account plus the capital and financial account should sum to zero. If the sum is not the amount you identified​ above, this is due to A. statistical discrepancy. B. negative externalities. C. incentives to lie about figures. D. measurement bias.

A. Full information on the balance of payments is available​ quarterly, but some aspects are available monthly. A. statistical discrepancy.

The diagram to the right shows the current account balance as a percentage of nominal GDP for the U.S. from 1959 to 2004. Which of the following is not a plausible explanation for the trend in this​ data? A. Greater demand for U.S. exports. B. The growth in U.S. budget deficits. C. Increased saving activity by foreign households. D. Increased opportunities for international investment.

A. Greater demand for U.S. exports.

What is structural​ unemployment? A. Long-term, chronic unemployment that exists even when the economy is not in a recession. B. The difference between the actual rate of unemployment and the natural rate of unemployment. C. Unemployment arising as workers search for suitable jobs and firms search for suitable workers. D. Temporary unemployment due to recessions. What are the two principal sources of structural​ unemployment? A. workers with limited​ skills, and​ long-term declines in some industries B. sticky wages that prevent the labor market from reaching​ equilibrium, and minimum wages C. recessions and inflationary periods D. the time it takes to find a good job​ match, and the mismatch of jobs and skills

A. Long-term, chronic unemployment that exists even when the economy is not in a recession. A. workers with limited​ skills, and​ long-term declines in some industries

Which of the following fits the definition of a job from the gig​ economy? ​(Select all that​ apply) A. Selling items at a farmers market. B. Child care services. C. Selling used cars at a dealership. D. Driving for Uber. The Federal Reserve performed a study to find the number of people active in the gig​ economy, which of the following represents one of their​ findings? A. The study found that the percent of adults engaged in gig work declined from 2016 to 2017. B. The study found that a majority of all adults engaged in gig work in 2017. C. Less than​ 20% of gig workers said doing gig work was their main source of income in 2017. D. A majority of gig workers said they did gig work as their main source of income in 2017. The Federal Reserve finds that the gig economy is large and growing.

A. Selling items at a farmers market. + B. Child care services. + D. Driving for Uber. C. Less than​ 20% of gig workers said doing gig work was their main source of income in 2017.

1.) Productivity growth in the United States has averaged about 1 percent per year since 1929. This growth in productivity has been erratic with the lowest growth rate occurring between 1973-1982. ​ 2.) Which of the following could explain why productivity growth appears to arrive in waves over​ time? A. Since there are many years between transformational​ innovations, their positive impacts on productivity growth will appear in waves. B. Since oil prices only increase substantially about once per​ decade, its positive impact on productivity growth will appear in waves. C. The United States government only takes measurements of productivity growth every five​ years, this makes all productivity growth appear to come in waves. D. All of the above are true. ​ 3.) Which of the following are likely true of future innovations such as artificial​ intelligence, self-driving​ cars, and robotics as they relates to jobs in the​ economy? ​(Select all that​ apply) A. Large scale innovations tends to suppress wages causing them to fall dramatically. B. There would likely be an increase in wages across the economy. C. These new technologies can directly replace jobs currently done by​ people, resulting in at least some displacement of jobs. D. These innovations can be complementary to existing jobs and therefore increase the marginal product of labor.

A. Since there are many years between transformational​ innovations, their positive impacts on productivity growth will appear in waves. B. There would likely be an increase in wages across the economy. + C. These new technologies can directly replace jobs currently done by​ people, resulting in at least some displacement of jobs. + D. These innovations can be complementary to existing jobs and therefore increase the marginal product of labor.

Which is NOT a correct statement about the national income​ accounts? A. The income approach to measuring economic activity provides a figure that is equal to the sum of revenues by the producers of​ output, which in turn is equivalent to that of the product approach. B. The product approach to measuring economic activity is calculated as the sum of the value added by producers. C. There are three approaches to measuring current economic​ activity: the product​ approach, the income​ approach, and the expenditure approach. In​ principle, the three approaches give the same answer. D. The alternative approaches to measuring economic activity are useful because each approach gives a different perspective on the economy.

A. The income approach to measuring economic activity provides a figure that is equal to the sum of revenues by the producers of​ output, which in turn is equivalent to that of the product approach.

How is the price level related to nominal money​ demand? A. They are directly related-the higher the price​ level, the higher the demand for money. B. They are inversely related-the higher the price​ level, the lower the demand for money. C. They are unrelated-changes in the price level have no effect on the demand for money. How is the level of real income related to money​ demand? A. They are directly related-the higher the level of real​ income, the higher the demand for money. B. They are inversely related-the higher the level of real​ income, the lower the demand for money. C. They are unrelated-changes in the level of real income have no effect on the demand for money. How is the interest rate on other assets​ (stocks and bonds for​ example) related to money​ demand? A. They are inversely related-the higher the interest rate on other​ assets, the lower the demand for money. B. They are directly related-the higher the interest rate on other​ assets, the higher the demand for money. C. They are unrelated-change in the interest rate on other assets have no effect on the demand for money.

A. They are directly related-the higher the price​ level, the higher the demand for money. A. They are directly related-the higher the level of real​ income, the higher the demand for money. A. They are inversely related-the higher the interest rate on other​ assets, the lower the demand for money.

How does the expected rate of return on an asset affect its​ desirability? A. They are directly related​ - the higher the expected​ return, all else​ equal, the more attractive the asset. B. They are inversely related​ - the higher the expected​ return, all else​ equal, the less attractive the asset. C. They are unrelated​ - expected return does not affect an​ asset's desirability. How does the level of risk affect an​ asset's desirability? A. They are directly related​ - the higher the level of​ risk, all else​ equal, the more attractive the asset. B. They are inversely related​ - the higher the level of​ risk, all else​ equal, the less attractive the asset. C. They are unrelated​ - an​ asset's level of risk is unrelated to its desirability. How does the level of liquidity affect an​ asset's desirability? A. They are directly related​ - the more liquid the​ asset, all else​ equal, the more desirable the asset. B. They are inversely related​ - the more liquid the​ asset, all else​ equal, the less desirable the asset. C. They are unrelated​ - liquidity does not affect an​ asset's desirability.

A. They are directly related​ - the higher the expected​ return, all else​ equal, the more attractive the asset. B. They are inversely related​ - the higher the level of​ risk, all else​ equal, the less attractive the asset. A. They are directly related​ - the more liquid the​ asset, all else​ equal, the more desirable the asset.

Classicals generally believe that fiscal policy A. should not be used to dampen the business cycle. B. should not be used to fight​ recessions, only to reduce inflation. C. should be used to dampen the business cycle. D. should not be used to reduce​ inflation, only to fight recessions. A change in fiscal policy may not be effective in stabilizing the economy because of A. a liquidity trap. B. lags. C. the LM​ curve's dominant role in determining the​ short-run equilibrium. D. the zero lower bound.

A. should not be used to dampen the business cycle. B. lags.

1. The U.S. government sells​ F-16 fighter planes to a foreign government. An example of an offsetting entry to the entry of this transaction in the balance of payments accounts​ is: A. U.S. citizens buy cars from the foreign​ country, which is a negative entry in the current account. B. No transaction needed. C. A foreign bank buys U.S. government​ bonds, which is a negative entry in the financial account. D. Kuwait pays for the services of Red​ Adair's U.S. team of oil fire​ fighters, which is a positive entry in the current account. 2. A London bank sells yen​ to, and buys dollars​ from, a Swiss bank. An example of an offsetting entry to the entry of this transaction in the balance of payments accounts​ is: A. Kuwait pays for the services of Red​ Adair's U.S. team of oil fire​ fighters, which is a positive entry in the current account. B. A U.S. bank buys U.K. government​ bonds, which is a negative entry in the financial account. C. U.S. citizens buy cars from the foreign​ country, which is a negative entry in the current account. D. No transaction needed. 3. The Federal Reserve sells yen​ to, and buys dollars​ from, a Swiss bank. An example of an offsetting entry to the entry of this transaction in the balance of payments accounts​ is: A. U.S. citizens buy cars from the foreign​ country, which is a negative entry in the current account. B. The Federal Reserve sells dollars​ to, and buys euros​ from, the European Central​ Bank, which is a negative entry in the financial account. C. No transaction needed. D. The IRS sells a bankrupt​ singer's home to an Egyptian​ citizen, which is a positive entry in the financial account. 4. A New York bank receives the interest on its loans to Brazil. An example of an offsetting entry to the entry of this transaction in the balance of payments accounts​ is: A. Kuwait pays for the services of Red​ Adair's U.S. team of oil fire​ fighters, which is a positive entry in the current account. B. A U.S. bank buys U.K. government​ bonds, which is a negative entry in the financial account. C. No transaction needed. D. Brazilian citizens receive interest on U.S. Treasury bonds they​ own, which is a negative entry in the current account. 5. A U.S. collector buys some ancient artifacts from a collection in Egypt. An example of an offsetting entry to the entry of this transaction in the balance of payments accounts​ is: A. Kuwait pays for the services of Red​ Adair's U.S. team of oil fire​ fighters, which is a positive entry in the current account. B. A U.S. bank buys U.K. government​ bonds, which is a negative entry in the financial account. C. No transaction needed. D. The IRS sells a bankrupt​ singer's home to an Egyptian​ citizen, which is a positive entry in the financial account. 6. A U.S. oil company buys insurance from a Canadian insurance company to insure its oil rigs in the Gulf of Mexico. An example of an offsetting entry to the entry of this transaction in the balance of payments accounts​ is: A. Kuwait pays for the services of Red​ Adair's U.S. team of oil fire​ fighters, which is a positive entry in the current account. B. U.S. citizens buy cars from the foreign​ country, which is a negative entry in the current account. C. No transaction needed. D. The IRS sells a bankrupt​ singer's home to an Egyptian​ citizen, which is a positive entry in the financial account. 7. A U.S. company borrows from a British bank. An example of an offsetting entry to the entry of this transaction in the balance of payments accounts​ is: A. No transaction needed. B. The IRS sells a bankrupt​ singer's home to an Egyptian​ citizen, which is a positive entry in the financial account. C. U.S. citizens buy cars from the foreign​ country, which is a negative entry in the current account. D. A U.S. bank buys U.K. government​ bonds, which is a negative entry in the financial account.

A. U.S. citizens buy cars from the foreign​ country, which is a negative entry in the current account. D. No transaction needed. B. The Federal Reserve sells dollars​ to, and buys euros​ from, the European Central​ Bank, which is a negative entry in the financial account. D. Brazilian citizens receive interest on U.S. Treasury bonds they​ own, which is a negative entry in the current account. D. The IRS sells a bankrupt​ singer's home to an Egyptian​ citizen, which is a positive entry in the financial account. A. Kuwait pays for the services of Red​ Adair's U.S. team of oil fire​ fighters, which is a positive entry in the current account. D. A U.S. bank buys U.K. government​ bonds, which is a negative entry in the financial account.

Can average labor productivity fall even though total output is​ rising? A. Yes, if employment rises faster than output.. B. No, average labor productivity cannot fall if total output is rising. C. Yes, if output rises faster than employment. Which of the following cases would result in increased total output but a higher unemployment​ rate? (Check all that​ apply) A. The labor force decreases by​ 1%. The level of employment decreases by​ 3%. Labor productivity increases by​ 5%. B. The labor force​ doesn't change. The level of employment increases by​ 2%. Labor productivity increases by​ 5%. C. The labor force​ doesn't change. The level of employment decreases by​ 5%. Labor productivity increases by​ 3%. D. The labor force increases by​ 7%. The level of employment increases by​ 5%. Labor productivity decreases by​ 3%.

A. Yes, if employment rises faster than output. A. The labor force decreases by​ 1%. The level of employment decreases by​ 3%. Labor productivity increases by​ 5%. + D. The labor force increases by​ 7%. The level of employment increases by​ 5%. Labor productivity decreases by​ 3%.

Consumer expenditures on durable goods such as cars and​ furniture, as well as purchases of new​ houses, fall much more than expenditures on nondurable goods and services during most recessions. Why do you think that​ is? A. because people can more easily change the timing of their expenditure on durables B. because prices of​ cars, furniture, and houses rise sharply in recessions C. because companies stop making​ cars, furniture, and houses in recessions D. because the government increase taxes on​ cars, furniture, and houses in recessions

A. because people can more easily change the timing of their expenditure on durables

In November of​ 2007, the Fed announced that it would increase the frequency of its forecasts of inflation and other variables from 2 times per year to 4 times per year. At its FOMC​ meetings, the Fed reports A. both the overall PCE inflation rate and core PCE inflation rate. B. the CPI inflation rate. C. the overall PCE inflation rate. D. the core PCE inflation rate. Using the data in the​ figure, which data series displays the least amount of​ volatility? A. Core PCE inflation. B. Both series exhibit about the same amount of volatility. C. Overall PCE inflation.

A. both the overall PCE inflation rate and core PCE inflation rate. A. Core PCE inflation.

1.) If we want to study the current state of the​ economy, we would use a A. coincident index such as the Chicago Fed National Activity Index​ (CFNAI). B. leading index such as the Chicago Fed National Activity Index​ (CFNAI). C. leading index such as The Conference​ Board's index of economic indicators. D. coincident index such as The Conference​ Board's index of economic indicators. ​2.) Which of the following is not true about the​ Aruoba-Diebold-Scotti (ADS) Business Conditions​ Index? A. It uses fewer economic variables than the CFNAI. Your answer is not correct. B. It uses data that vary in frequency of collection. C. It is older than the CFNAI. D. Its average value over time is zero by design. ​ 3.) Which of the following is a problem with the composite index of leading economic​ indicators? A. It almost never gives false signals​ (predicting recessions that never actually​ occur). B. Its data are rarely revised. C. It gives no information on how severe a recession is predicted to be. D. It gives no information on whether a recession is likely.

A. coincident index such as the Chicago Fed National Activity Index​ (CFNAI). C. It is older than the CFNAI. C. It gives no information on how severe a recession is predicted to be.

In each of the following​ cases, what is the effect on the IS​ curve? An increase in the effective tax rate on capital A. shifts the IS curve down and to the left. B. does not change the IS curve. C. shifts the IS curve up and to the right. An increase in the money supply A. shifts the IS curve down and to the left. B. shifts the IS curve up and to the right. C. does not change the IS curve. A temporary increase in government spending A. shifts the IS curve down and to the left. B. shifts the IS curve up and to the right. C. does not change the IS curve.

A. shifts the IS curve down and to the left. C. does not change the IS curve. B. shifts the IS curve up and to the right.

The four characteristics of assets that are the most important to holder of wealth are A. expected​ return, risk, liquidity and time to maturity. B. expected​ return, risk, velocity and liquidity. C. expected​ return, real​ income, risk and time to maturity. D. real​ income, risk, velocity and liquidity. E. expected​ return, real​ income, liquidity and time to maturity. Money has an expected return that is lower than other assets. Money has a risk level that is lower than other assets. Which statement below is true when comparing money against other assets in terms of liquidity​? A. Money is considered to be of average liquidity. B. Money is considered to be of low liquidity. C. Money is considered the most liquid asset. Compared to other​ assets, money has the lowest time to maturity.

A. expected​ return, risk, liquidity and time to maturity. C. Money is considered the most liquid asset.

How have total output and output per worker changed over time in the United​ States? Total output has​ ________ and output per worker has​ ________. A. grown​ strongly; grown strongly B. declined​ slightly; declined slightly C. grown​ strongly; declined slightly D. declined​ slightly; declined strongly These changes have affected the lives of typical people by leading to A. a lower standard of living. B. a higher standard of living. C. greater inflation. D. lower standards of living in other countries.

A. grown​ strongly; grown strongly B. a higher standard of living.

1.) High inflation​ rates, such as those in European economies in transition described by the​ application, are most often explained by A. high rates of money growth. B. high rates of unemployment. C. corrupt politicians. D. all of the above. 3.) If high rates of money growth tend to cause​ inflation, why would national leaders tolerate high rates of money​ growth? A. The leaders must​ "print money" in this case to finance government spending. B. Leaders do not decide the rate of money grow—citizens do. C. Money growth is the only way to maintain the​ currency's value against that of other nations. D. Monetary policy is out of the hands of national leaders in most​ cases, and this policy causes high inflation.

A. high rates of money growth. A. The leaders must​ "print money" in this case to finance government spending.

This problem asks you to work out in more detail the example of reverse causation described in the text. Suppose that firms that expect to increase production in the future have to increase their current transactions​ (for example, they may need to purchase more raw​ materials). For this​ reason, current real money demand rises when expected future output rises. a. Under the assumption that real money demand depends on expected future​ output, use the classical​ IS-LM model to find the effects of an increase in expected future output on the current price level. For​ simplicity, assume that any effects of the increase in expected future output on the labor market or on desired saving and investment are small and can be ignored. A. higher future output increases money​ demand, so the price level declines in equilibrium B. higher future output decreases money​ demand, so the price level increases in equilibrium C. higher future output decreases money​ demand, so the price level declines in equilibrium D. higher future output increases money​ demand, so the price level increases in equilibrium b. Suppose that the Fed wants to stabilize the current price level. How will the Fed respond to the increase in expected future​ output? A. The Fed will increase the money supply in response to the increase in money​ demand, which shows a lack of reverse causation. B. The Fed will decrease the money supply in response to the increase in money​ demand, which shows a lack of reverse causation. C. The Fed will increase the money supply in response to the increase in money​ demand, which shows reverse causation. D. The Fed will decrease the money supply in response to the increase in money​ demand, which shows reverse causation.

A. higher future output increases money​ demand, so the price level declines in equilibrium C. The Fed will increase the money supply in response to the increase in money​ demand, which shows reverse causation.

The misperceptions theory concludes​ that: A. in the short​ run, anticipated monetary changes are neutral but unanticipated monetary changes are not neutral. B. in the short​ run, unanticipated monetary changes are neutral but anticipated monetary changes are not neutral. C. in the short​ run, both anticipated and unanticipated monetary changes are not neutral. D. unanticipated monetary changes are not neutral in either the short run or the long run.

A. in the short​ run, anticipated monetary changes are neutral but unanticipated monetary changes are not neutral.

​1.) The mean duration of unemployment usually rises during and immediately following a recession and then falls after an expansion has been underway for a time. ​2.) Compared to previous​ recessions, the mean duration of unemployment during the 2007dash-2009 recession A. increased—rising to a level about twice its typical level. B. decreased—falling to a level almost half its typical level. C. followed the same trend as previous recessions. D. due to the housing and financial crisis cannot be compared to other recessions. ​ 3.) According to the​ article, what explains this change in unemployment duration during the 2007-2009 ​recession? A. An extension of unemployment benefits from 26 weeks to up to 99 weeks. B. A decrease in​ wealth, which led to a decrease in demand for consumer goods. C. A change in the measurement data used to calculate unemployment duration. D. All of the above are possible explanations.

A. increased—rising to a level about twice its typical level. D. All of the above are possible explanations.

The growth rate of the Solow residual A. is equal to the growth in productivity as measured by the parameter A. B. is less than the growth in productivity as measured by the parameter A. C. is greater than the growth in productivity as measured by the parameter A. D. may be greater​ than, less than or equal to the growth in A​, depending on the production function.

A. is equal to the growth in productivity as measured by the parameter A.

According to the misperceptions​ theory, what effect does an increase in the price level have on the amount of output supplied by​ producers? A. it fools producers of goods into producing more B. it convinces producers of goods that they should increase their inventories C. fools producers of goods into producing less D. it causes producers to fire workers and reduce output Does it matter whether the increase in the price level was​ expected, for an increase in the price level to increase​ output? A. the change in prices must be unexpected B. no, the change could be expected or unexpected C. the change in prices must be expected

A. it fools producers of goods into producing more A. the change in prices must be unexpected

When​ workers' skills do not match the skills needed for available​ jobs, there is said to be A. job mismatch. B. cyclical unemployment. C. frictional unemployment. D. a Harberger triangle. Job mismatch causes A. cyclical unemployment. B. structural unemployment. C. frictional unemployment. D. inflation.

A. job mismatch. B. structural unemployment.

In each of the following​ cases, what is the effect on the LM​ curve? An increase in the expected inflation rate A. shifts the LM curve down and to the right. B. does not shift the LM curve. C. shifts the LM curve up and to the left. An increase in government spending A. shifts the LM curve up and to the left. B. shifts the LM curve down and to the right. C. does not shift the LM curve. An increase in the price level A. shifts the LM curve down and to the right. B. shifts the LM curve up and to the left. C. does not shift the LM curve.

A. shifts the LM curve down and to the right. C. does not shift the LM curve. B. shifts the LM curve up and to the left.

What conclusion does the basic classical model​ (with no misperceptions of the price​ level) allow about the neutrality or nonneutrality of​ money? A. money is neutral in both the short run and the long run B. money is neutral in neither the short run nor the long run C. money is neutral in the short run but not in the long run D. money is neutral in the long run but not in the short run In what ways is this conclusion modified by the extended classical model based on the misperceptions​ theory? A. anticipated monetary changes are neutral in the short​ run, but unanticipated monetary changes are not neutral in the short run B. unanticipated monetary changes are neutral in the short​ run, but anticipated monetary changes are not neutral in the short run C. neither anticipated nor unanticipated monetary changes are neutral in the short run D. both anticipated and unanticipated monetary changes are neutral in the short run

A. money is neutral in both the short run and the long run A. anticipated monetary changes are neutral in the short​ run, but unanticipated monetary changes are not neutral in the short run

Assume that prices and wages adjust rapidly so that the labor​ market, the goods​ market, and asset market are always in equilibrium. What are the effects of each of the following events on​ output, the real interest​ rate, and current price​ level? ​(​Hint: you may need to review the labor market from chapter 3 and the goods market from chapter 4.​) There is a temporary increase in government purchases. A. no change in​ output; an increase in the real interest​ rate; an increase in the price level B. an increase in​ output; an increase in the real interest​ rate; and no change in the price level C. an increase in all three​ - output, the real interest​ rate, and the price level D. an increase in​ output; no change in the real interest​ rate; and an increase in the price level E. No change in either​ output, the real interest rate or the price level. There is a reduction in expected inflation. A. an increase in​ output; an increase in the real interest​ rate; no change in the price level B. a decrease in​ output; an increase in the real interest​ rate; an increase in the price level C. a decrease in​ output; no change in the real interest​ rate; no change in the price level D. no change in​ output; no change in the real interest​ rate; a decrease in the price level E. an increase in​ output; no change in the real interest​ rate; a decrease in the price level There is a temporary increase in labor supply. A. an increase in​ output; a decrease in the real interest​ rate; a decrease in the price level B. an increase in​ output; no change in the real interest​ rate; a decrease in the price level C. no change in​ output; an increase in the real interest​ rate; a decrease in the price level D. an increase in​ output; an increase in the real interst​ rate; an increase in the price level E. a decrease in all three​ - output, the real interest rate and the price level There is an increase in the interest rate paid on money. A. decrease in​ output; decrease in the real interest​ rate; no change in the price level B. no change in​ output; no change in the real interest​ rate; decrease in the price level C. decrease in​ output; increase in the real interest​ rate; increase in the price level D. no change in​ output; decrease in the real interest​ rate; decrease in the price level E. no change in​ output, the real interest rate or the price level

A. no change in​ output; an increase in the real interest​ rate; an increase in the price level D. no change in​ output; no change in the real interest​ rate; a decrease in the price level A. an increase in​ output; a decrease in the real interest​ rate; a decrease in the price level B. no change in​ output; no change in the real interest​ rate; decrease in the price level

For constant​ output, if the real money supply exceeds the real quantity of money demanded at some initial real interest​ rate, A. people with excess money balances purchase non-monetary​ assets, thus increasing the market price of the non-monetary assets and reducing the real interest rate until an equilibrium is reached. B. people with excess money balances purchase non-monetary​ assets, thus increasing the market price of the non-monetary assets and increasing the real interest rate until an equilibrium is reached. C. the price level in the economy increases until a new equilibrium is reached. D. nothing happens until output adjusts.

A. people with excess money balances purchase non-monetary​ assets, thus increasing the market price of the non-monetary assets and reducing the real interest rate until an equilibrium is reached.

The definition of an inflationary period is a A. period in which average prices are rising over time. B. one-time increase in the price level. C. one-time decrease in the price level. D. period in which average prices are falling over time. Before World War​ II, consumer prices in the United States generally rose during wars and fell during peacetime. After World War​ II, consumer prices in the United States have generally increased steadily

A. period in which average prices are rising over time.

What problem does government control of prices create for economists attempting to measure a​ country's GDP? A. prices do not measure market value B. inflation is biased upwards C. the government sets prices systematically too high D. taxes are not accounted for properly In countries in which people grow their own​ food, make their own​ clothes, and provide services for one another within a family or village​ group, why might official GDP figures underestimate these​ nations' actual​ GDPs? A. such goods and services are not sold on the​ market, making their value difficult to measure B. the lack of prices for such goods and services leads to an upward bias in inflation and a downward bias in GDP C. since no one pays for the goods and​ services, they are worthless D. such goods and services are undervalued in the market

A. prices do not measure market value A. such goods and services are not sold on the​ market, making their value difficult to measure

1.) The job loss rate is the​ _____ and the job finding rate is the​ ______. A. probability that an employed person will lose his or her job during the​ month; probability that an unemployed person will find a job during the month. B. probability that an unemployed person will find a job during the​ month; probability that an employed person will lose his or her job during the month. C. probability that an employed person will lose his or her job during the​ year; probability that an unemployed person will find a job during the year. D. probability that an unemployed person will find a job during the​ year; probability that an employed person will lose his or her job during the year. ​ 3.) Explain why a large fall in the job finding rate during recessions does not necessarily imply that the job finding rate is mainly responsible for the rise in​ unemployment, even though the job loss rate does not rise very much. A. The job loss rate rises more than the job finding rate declines. B. The job loss rate rises less than the job finding rate declines. C. The number of people who are unemployed is much larger than the number who are employed. D. The number of people who are employed is much larger than the number who are unemployed.

A. probability that an employed person will lose his or her job during the​ month; probability that an unemployed person will find a job during the month. D. The number of people who are employed is much larger than the number who are unemployed.

Describe the​ short-run aggregate supply ​(SRAS​) curve and the​ long-run aggregate supply ​(LRAS​) curve. A. the SRAS curve is horizontal and the LRAS curve is vertical B. the SRAS curve is vertical and the LRAS curve is horizontal C. the SRAS curve is vertical and the LRAS curve is upward sloping D. the SRAS curve is horizontal and the LRAS curve is upward sloping Why is the​ short-run aggregate supply curve​ horizontal? A. because prices remain fixed in the short run B. because capital is fixed in the short run C. because the real interest rate is fixed in the short run D. because output is fixed in the short run Why is the​ long-run aggregate supply curve​ vertical? A. because the price level depends on the amount of output B. because the capital stock changes to produce the fixed amount of output in the long run C. because the aggregate amount of output supplied is the​ full-employment level, regardless of the price level D. because prices are fixed in the long run

A. the SRAS curve is horizontal and the LRAS curve is vertical A. because prices remain fixed in the short run C. because the aggregate amount of output supplied is the​ full-employment level, regardless of the price level

Since U.S. investment is generally higher than U.S. national​ saving: A. the U.S. current account balance is generally negative. B. U.S. national saving will rise in the future. C. the U.S. current account balance is generally positive. D. U.S. investment will fall in the future.

A. the U.S. current account balance is generally negative.

An unemployment spell is a period of time that a person is continually unemployed​, and unemployment duration is the length of time that a person is continuously unemployed. The duration of most unemployments spells is short​, but most people who are unemployed at a particular time are experiencing spells with long durations. This seemingly contradictory observation about unemployment spells and duration can be explained because A. there are many people unemployed very briefly and a few people who are unemployed for long periods of time. B. in​ reality, there are very few people who have short spells of unemployment. C. there are many people who are unemployed for very long periods of time. D. unemployment statistics do not correctly measure spells and duration of unemployment.

A. there are many people unemployed very briefly and a few people who are unemployed for long periods of time.

Consider two large open​ economy, the home economy and the foreign economy. Which of the following lowers the world real interest rate ​(rw​)? A. A decrease in the willingness of foreigners to save. B. A decrease in the domestic expected marginal product of capital. C. An increase in foreign government purchases. D. An increase in foreign expected marginal product of capital.

B. A decrease in the domestic expected marginal product of capital.

Which of the following best describes a general​ equilibrium? A. The asset market is in​ equilibrium, but the goods market might not be in equilibrium. B. All markets are simultaneously in equilibrium. C. The goods market is in​ equilibrium, but the asset market might not be in equilibrium. D. The level of output is equal to​ full-employment output. E. Aggregate supply is equal to aggregate demand.

B. All markets are simultaneously in equilibrium.

Consider the impact of a temporary adverse supply shock on the economy. The shock is most likely to affect the A. LM curve. B. FE line. C. AD curve. D. IS curve. In the short​ run, before general equilibrium is​ restored, the FE line shifts​ _____ and causes​ _____. A. right; no change in output or the real interest rate B. right; output to rise and the real interest rate to decline C. ​left; no change in output or the real interest rate D. left; output to decline and the real interest rate to rise After general equilibrium is​ restored, output is​ _____ and the real interest rate is​ _____. (Compare with the situation before the​ shock.) A. lower; lower B. higher; higher C. lower; higher D. higher; lower

B. FE line. C. ​left; no change in output or the real interest rate C. lower; higher

True or false. A worker cannot be included in more than one measure of unemployment. A. True B. False Will the​ U-4 measure of unemployment always be equal to or greater than​ U-3? A. Yes, because​ U-4 includes the same people as​ U-3 plus marginally attached and discouraged workers. B. No, if the​ U-3 measure contains an unusually large number of structurally unemployed​ workers, U-4 will be lower. C. No, it's possible for​ U-4 to be lower than​ U-3 if the number of discouraged workers is very low. D. Yes, because​ U-4 includes the same people as​ U-3 plus discouraged workers. John has been looking for work for the past 6 months and recently accepted a​ part-time job, which is​ not, for economic​ reasons, ideal. Although he wants and needs a​ job, he is considering quitting his​ part-time job and giving up his job search. Which of the following statements is​ false? A. John is considered as employed in​ U-1. B. John would be marginally attached if he quit his​ part-time job. C. Using the​ U-4 measure of​ unemployment, John would not be considered unemployed. D. John is considered as unemployed in​ U-3.

B. False D. Yes, because​ U-4 includes the same people as​ U-3 plus discouraged workers. D. John is considered as unemployed in​ U-3.

Intermediate goods and services are used up in the production of other goods and services​, and include items such as grain, crude oil, and lumber. Why is the distinction between intermediate and final goods important for measuring​ GDP? A. Intermediate goods do not go through markets and thus do not have market value. B. GDP only includes final​ goods, in order to avoid double counting. C. Intermediate goods have no value until they are used in production. D. Only final goods are part of the production of a nation.

B. GDP only includes final​ goods, in order to avoid double counting

Is money neutral in the short run or the long​ run, according to the ​AD-AS​ model? A. In both the short run and the long​ run, money is not neutral B. In the short​ run, money is not​ neutral, but in the long run it is neutral C. In both the short run and the long​ run, money is neutral D. In the short​ run, money is​ neutral, but in the long run it is not neutral

B. In the short​ run, money is not​ neutral, but in the long run it is neutral

1.) How could a recession decrease a deficit in the current​ account? A. Income falls during a​ recession, thereby increasing the demand for imports. B. Income falls during a​ recession, thereby reducing the demand for imports. C. Income rises during a​ recession, thereby increasing the demand for imports. D. Income rises during a​ recession, thereby reducing the demand for imports. ​ 2.) Which of the following is true about historical trends in the current account balance for the United​ States? A. There was a big increase in the current account balance from the 1970s to the mid 1980s. B. During the​ 1970s, the current account balance moved up and down around a zero balance. C. The current account balance increased throughout the 1990s. D. The current account balance was generally negative during the 1960s. ​ 3.) Which of the following is one explanation for the decrease in the current account balance from 1991 to​ 2005? A. Europe experienced relatively quick economic growth during this period. B. There was a significant decrease in oil prices during this period. C. The saving rate increased in developing nations during this period. D. There were relatively few opportunities for international financial investment during this period.

B. Income falls during a​ recession, thereby reducing the demand for imports. B. During the​ 1970s, the current account balance moved up and down around a zero balance. C. The saving rate increased in developing nations during this period.

Why is the classical model of the labor market discussed in this chapter not very useful for studying​ unemployment? A. It assumes that the production function has a constant slope. B. It assumes that any worker who wants to work at the equilibrium real wage can find a job. C. It assumes that the number of workers employed has no effect on output. D. It assumes that the labor market is not in equilibrium.

B. It assumes that any worker who wants to work at the equilibrium real wage can find a job.

1.) Which of the following is true about​ China's 2006 real GDP per capita compared to that of Japan and the United​ States? A. It is high but growing slowly. B. It is low but growing rapidly. C. It is low and growing slowly. D. It is high and growing rapidly. ​ 2.) Since​ 2001, China's economic growth has been about five times larger than that in the United States. Which of the following does not help to explain this​ difference? A. China has changed aspects of its structure from a centrally planned economy to a market economy. B. China has had fast growth in productivity. C. China has increased its technology investment by sacrificing investment in capital. D. China has increased its trade with other countries. ​3.) Which of the following is are true of future growth of GDP in​ China? ​(Select all that​ apply) A. If​ China's economic growth remains at about five times larger than that in the United States it will take over 30 years to catch the up to the GDP level in the United States. B. If​ China's economic growth remains at about five times larger than that in the United States it will take less than 15 years to catch the up to the GDP level in the United States. C. It is impossible for China to ever reach the GDP level of the United States. D. As they transition to being a more developed nation their growth rate will slow.

B. It is low but growing rapidly. C. China has increased its technology investment by sacrificing investment in capital. A. If​ China's economic growth remains at about five times larger than that in the United States it will take over 30 years to catch the up to the GDP level in the United States. + D. As they transition to being a more developed nation their growth rate will slow.

In​ 2002, President George W. Bush imposed tariffs on certain types of imported steel. He argued that foreign steel producers were dumping their steel on the U.S. market at low prices. The foreign steel producers were able to sell steel cheaply because they received subsidies from their governments. The Bush administration argued that the influx of steel was disrupting the U.S.​ economy, harming the domestic steel​ industry, and causing unemployment among U.S. steel workers.​ _____ economists are most likely to be sympathetic to these​ claims, because they​ _____ government intervention in the economy. A. Keynesian; oppose B. Keynesian; favor C. Classical; oppose D. Classical; favor

B. Keynesian; favor

How could changes in the labor market lead to lower overall economic​ volatility? A. Greater volatility in employment demand increases the probability of a worker losing his or her job. B. Less volatility in employment demand reduces the probability of a worker losing his or her job. C. Greater volatility in employment demand reduces the probability of a worker losing his or her job. D. Less volatility in employment demand increases the probability of a worker losing his or her job.

B. Less volatility in employment demand reduces the probability of a worker losing his or her job.

Which of the statements​ below, regarding the functions of​ money, is​ true? A. Money serves as a medium of exchange and a store of​ value, but not as a unit of account. B. Money serves as a medium of​ exchange, as a unit of​ account, and as a store of value. C. Money serves as a medium of exchange and as a unit of​ account, but not a store of value. D. Money serves as a medium of​ exchange, but does not serve as a unit of account or a store of value. Suppose that Sam Student buys a new iPod for​ $200. In this​ example, money serves the role of medium of exchange. Suppose that Sam Student saved​ $15 every week for the past 10 weeks in order to buy the iPod. ​ Here, money served the role of store of value. While​ shopping, Sam Student noticed that an iPod was priced at​ $200, a competing MP3 player was selling for​ $100. When he realized that the iPod was twice as expensive as the MP3​ player, money served the role of unit of account

B. Money serves as a medium of​ exchange, as a unit of​ account, and as a store of value.

What is the difference between gross investment and net​ investment? Can gross investment be positive when net investment is​ negative? A. Gross investment is the overall increase in the capital​ stock;Yes B. Net investment is the overall increase in the capital​ stock;Yes. C. Gross investment is the overall increase in the capital​ stock; No. D. The difference is equal to depreciated​ capital; No.

B. Net investment is the overall increase in the capital​ stock;Yes.

Saving is a flow variable​, while wealth is a stock variable. Which of the following best describes the relationship between saving and​ wealth? A. Wealth is a flow into the stock of saving. B. Saving is a flow into the stock of wealth. C. Saving is a flow out of current​ income, but wealth is a flow into current income. D. Saving and wealth are unrelated variables.

B. Saving is a flow into the stock of wealth.

The CPI is calculated as A. The current cost of a fixed market basket of producer goods divided by prices of the same goods in a base year multiplied by 100. B. The current cost of the basket of consumer items divided by the cost of the same basket of items in the reference base period multiplied by 100. C. The prices of all goods that are part of GDP divided by prices of the same goods in a base year multiplied by 100. D. The prices of a changing market basket of consumer goods divided by prices of similar goods in a base year multiplied by 100. E. Nominal GDP divided by real GDP multiplied by 100. Which of the following is a reason why CPI inflation may overstate true​ inflation? A. The CPI does not include the prices of intermediate goods and raw materials. B. The CPI does not account for substitution away from relatively more expensive goods to relatively cheaper goods. C. The CPI measures quantities of​ goods, not prices of​ goods, and thus does not measure inflation accurately. D. The CPI includes imported​ goods, which are not relevant to domestic inflation.

B. The current cost of the basket of consumer items divided by the cost of the same basket of items in the reference base period multiplied by 100. B. The CPI does not account for substitution away from relatively more expensive goods to relatively cheaper goods.

According to the classical​ model, after an economic​ disturbance, which of the following is​ true? A. Price adjustment will eventually return the economy to general​ equilibrium, but this may take several years. B. The economy will rapidly return to general equilibrium as prices adjust quickly. C. The economy will be unable to return to general equilibrium without government intervention. D. The economy will be unable to return to general equilibrium without intervention by the Federal Reserve. According to the Keynesian​ model, after an economic​ disturbance, which of the following is​ true? A. The economy will be unable to return to general equilibrium without intervention by the Federal Reserve. B. Price adjustment will eventually return the economy to general​ equilibrium, but this may take several years. C. The economy will be unable to return to general equilibrium without government intervention. D. The economy will rapidly return to general equilibrium as prices adjust quickly.

B. The economy will rapidly return to general equilibrium as prices adjust quickly. B. Price adjustment will eventually return the economy to general​ equilibrium, but this may take several years.

What are the two components of the user cost of​ capital? A. The real interest rate and salvage cost. B. The real interest rate and the rate of depreciation. C. The rate of depreciation and salvage cost. D. The price of a unit of capital and the rate of inflation

B. The real interest rate and the rate of depreciation.

For a household with a given level of​ income, how are consumption and saving​ linked? Saving = Income − Consumption What is the basic motivation for​ saving? A. To reduce tax obligations. B. To provide for future consumption. C. To maximize the returns from saving. D. To maximize current consumption.

B. To provide for future consumption.

1.) The biggest reason for the discrepancy between the stock of money per person in the United States and the actual cash holdings of the average person is A. the underground economy. B. U.S. currency held in foreign countries. C. mismanagement of funds. D. statistical​ and/or measurement error. ​ 2.) The underground economy would include A. the purchase of cocaine. B. the income of someone who mows lawns for cash and does not report this income for tax purposes. C. profits from games at an illegal gambling den. D. all of the above. ​3.) Which of the following is a situation that would contribute to people in other countries wanting to hold U.S.​ dollars? A. High inflation makes their local currency a poor store of value. B. High inflation in the United States increases the purchasing power of U.S. dollars. C. The local currency experiences constant appreciation. D. All of the above are situations that would contribute to foreign holdings of U.S. dollars. From the point of view of the United​ States, dollars held abroad act as an interest-free loan to the U.S. government.

B. U.S. currency held in foreign countries. D. all of the above. A. High inflation makes their local currency a poor store of value.

Okun's law states that the gap between output and​ full-employment output increases by​ 2% for each​ 1% that the unemployment rate increases. Why does a​ 1% increase in unemployment lead to twice as large an effect on​ output? A. If firms are employing fewer​ workers, they must also be choosing to produce lower output due to recession and a falling price level. B. When cyclical unemployment is​ rising, other factors such as the labor force and worker hours tend to be​ falling, further reducing output. C. With fewer​ workers, the marginal productivity of labor is​ lower, and thus output is lower. D. According to​ Okun's law, every worker produces two units of output.

B. When cyclical unemployment is​ rising, other factors such as the labor force and worker hours tend to be​ falling, further reducing output.

Under the​ rational-expectations hypothesis, A. a central bank solely depends on fiscal policy to stabilize output and employment. B. a central bank cannot surprise the public​ systematically, and hence cannot use monetary policy to stabilize output. C. a central bank can always surprise the public systematically about the timing and the size of changes in money supply and hence can effectively use monetary policy to stabilize output. D. a central bank can rationally expect the​ public's reaction to any possible changes in monetary policy.

B. a central bank cannot surprise the public​ systematically, and hence cannot use monetary policy to stabilize output.

1.) Cigarettes were traded for goods and services in POW camps. In this​ case, cigarettes served as A. a store of value. B. a medium of exchange. C. fiat money. D. a unit of account. Imagine that a POW camp became infested with insects that devoured cigarettes if they were left in storage for more than a few days. In this​ case, cigarettes would fail to serve well as A. a store of value. B. a unit of account. C. fiat money D. a medium of exchange. ​ 2.) Which of the following is not a significant advantage of the use of cigarettes as​ money? A. Ease of deciding value. B. Necessity. C. Portability. D. All of the above are significant advantages of cigarettes as money. ​ 3.) Which of the following is closest to the​ article's meaning when it says there is a​ "resource cost" of using cigarettes as​ money? A. Paper used to roll cigarettes could be better used for writing notes. B. Time spent figuring the value of items in terms of cigarettes could be used in producing those items. C. A cigarette used as money cannot be smoked. D. Trading cigarettes encourages​ smoking, which makes the labor resource less healthy.

B. a medium of exchange. A. a store of value. B. Necessity. C. A cigarette used as money cannot be smoked.

Which of the following would increase the​ public's expected rate of​ inflation? A. an increase in wealth B. an increase in money growth C. an increase in income growth D. an increase in the real interest rate All else being​ equal, how would this increase in the expected inflation rate affect interest​ rates? A. increase the real interest rate B. increase the​ short-term nominal interest rate but decrease the​ long-term nominal interest rate C. increase the nominal interest rate D. decrease the nominal interest rate

B. an increase in money growth C. increase the nominal interest rate

In a world with two large open​ economies, in​ equilibrium, desired international lending by one country must equal desired international​ _____ by the other country. The equilibrium real world interest rate is determined by the point at which the current account balance of one country equals the​ _____ balance of the other country. A. borrowing; current account B. borrowing; financial account C. lending; financial account D. lending; current account

B. borrowing; financial account

1.) The goal of calibration is to A. compare one​ researcher's results with​ another's. B. create a numerical example from a more general theoretical model. C. produce a more general model from detailed numerical data. D. produce policy implications from economic models. ​ 2.) Which step in calibration is done with the assistance of a​ computer's random number​ generator? A. Comparison of simulation results to actual economic behavior. B. Assignment of numbers to a​ theory's general functions. C. Creation of economic shocks. D. None of the above. ​ 3.) Edward​ Prescott's calibration​ work, as described in the​ Application, A. used GDP to measure economic output. B. revealed no correlation between GNP and investment. C. indicated that his model did a good job modeling volatilities in output. D. did best at predicting the correlation between output and productivity.

B. create a numerical example from a more general theoretical model. C. Creation of economic shocks. C. indicated that his model did a good job modeling volatilities in output.

In a small open​ economy, national saving​ _____ investment and output​ _____ absorption. A. must​ equal; does not have to equal B. does not have to​ equal; does not have to equal C. must​ equal; must equal D. does not have to​ equal; must equal

B. does not have to​ equal; does not have to equal

Suppose the Japanese​ firm, Toyota, builds a new plant to produce cars in Ohio. This is A. net private domestic investment in the United States. B. foreign direct investment in the United States. C. a payments deficit for Japan. D. net private foreign domestic investment in Japan. ​ Toyota's investment in the new plant causes A. no change in the financial account balance in either country. B. an increase in the current account balance in the United States. C. an increase in the financial account balance in the United States. D. an increase in the financial account balance in Japan.

B. foreign direct investment in the United States. C. an increase in the financial account balance in the United States.

Which of the following is NOT a reasonable explanation for the Great​ Moderation? A. changes in the behavior of the labor market B. higher oil prices C. changes in technology D. improved​ supply-chain management

B. higher oil prices

1.) Evidence suggests that the 2001 tax rebates were A. almost entirely saved by consumers. B. initially saved by consumers who later increased their spending. C. almost entirely spent by consumers. D. initially spent by consumers who later increased their saving. ​ 2.) Compared to earlier​ research, later research indicates that a larger amount of the 2001 tax rebates was spent than originally​ thought, implying that the rebates did a better job of stimulating the economy than originally thought. ​3.) Agarwal,​ Liu, and​ Souleles's study indicates that the Ricardian equivalence theory seems to hold A. true for neither those with high credit limits nor low credit limits. B. equally true for those with high credit limits and low credit limits. C. more true for people with low credit limits than for people with high credit limits. D. more true for people with high credit limits than for people with low credit limits. ​ 4.) The application implies that younger people are more likely to have binding borrowing constraints and therefore that they are likely to spend more of a tax rebate than other groups.

B. initially saved by consumers who later increased their spending. D. more true for people with high credit limits than for people with low credit limits.

The correct interest rate for studying most economic decision is the expected real interest rate. A problem with using the expected real interest rate to study economic decisions is​ that: A. people do not generally make informed economic decisions. B. it is difficult to determine what the​ public's expected rate of inflation is. C. interest rates are important to banks and businesses but not to consumers. D. interest rates change​ frequently, so the public cannot form stable expectations.

B. it is difficult to determine what the​ public's expected rate of inflation is.

If Ricardian equivalence​ holds, a reduced government budget deficit caused by a​ lump-sum tax increase in an open economy leads to A. a decline in the current account balance. B. no change in the current account balance. C. a rise in the current account balance. D. a rise in the current account balance in a large open​ economy; no change in the current account balance in a small open economy. If Ricardian equivalence does not​ hold, a reduced government budget deficit caused by a​ lump-sum tax increase in an open economy leads to A. a rise in the current account balance in a large open​ economy; no change in the current account balance in a small open economy. B. no change in the current account balance. C. a rise in the current account balance. D. a decline in the current account balance.

B. no change in the current account balance. C. a rise in the current account balance.

What terms are used to describe the way a variable moves in terms of direction when economic activity is rising or​ falling? A. peak and trough B. procyclical and countercyclical C. stable and unstable D. leading, coincident, and lagging What terms are used to describe the timing of cyclical changes in economic​ variables? A. leading, coincident, and lagging B. stable and unstable C. peak and trough D. procyclical and countercyclical

B. procyclical and countercyclical A. leading, coincident, and lagging

In order to explain the link between money growth and economic​ expansion, real business cycle theorists use the concept​ of: A. rational expectations. B. reverse causation. C. a misperception of price changes. D. the neutrality of money.

B. reverse causation.

In each of the following​ cases, what is the effect on the AD​ curve? An increase in the effective tax rate on capital A. shifts the AD curve up and to the right. B. shifts the AD curve down and to the left. C. does not shift the AD curve. An increase in the money supply A. does not shift the AD curve. B. shifts the AD curve down and to the left. C. shifts the AD curve up and to the right. An increase in the price level A. shifts the AD curve down and to the left. B. does not shift the AD curve. C. shifts the AD curve up and to the right.

B. shifts the AD curve down and to the left. C. shifts the AD curve up and to the right. B. does not shift the AD curve.

How do a​ country's current account and financial account balances affect its net foreign​ assets? The net amount of new foreign assets that a country acquires equals its current account​ _____, which in turn must equal its financial account​ _____. A. deficit; deficit B. surplus; deficit C. surplus; surplus D. ​deficit; surplus If country A has greater net foreign assets per citizen than does country​ B, is country A necessarily better off than country​ B? A. No; total GDP matters more B. No; net foreign assets and net official assets together matter most C. No; total national wealth is what matters D. Yes

B. surplus; deficit C. No; total national wealth is what matters

What is the relationship between the equilibrium price level and the nominal money​ supply? A. the equilibrium price level has no relationship with the nominal money supply. B. the equilibrium price level is proportional to the nominal money supply. C. the equilibrium price level is inversely proportional to the nominal money supply. D. the equilibrium price level is proportional to the squared value of the nominal money supply.

B. the equilibrium price level is proportional to the nominal money supply.

​1,200 tons of goods need to be moved from one city to another each day. The cities are 50 miles apart. Assuming that it takes no time to load and unload the​ trains, how many trains would be needed if one train carries 50 tons and moves at 50 mph and trains ran 24 hours per​ day? 2 trains. How about if one train carries 50 tons but now moves at​ 100mph? 1 How does this relate to money velocity and the quantity theory of​ money? A. when money is worth​ more, less is needed B. the faster that money​ moves, the less of it is needed to do the same work in facilitating transactions C. if money has greater​ velocity, fewer types of currency are needed D. none of these relate the above example to money velocity

B. the faster that money​ moves, the less of it is needed to do the same work in facilitating transactions

What are the three approaches to measuring economic​ activity? A. the income​ approach, the expenditure​ approach, and the international approach B. the income​ approach, the expenditure​ approach, and the product approach C. the income​ approach, the international​ approach, and the product approach D. the international​ approach, the expenditure​ approach, and the product approach

B. the income​ approach, the expenditure​ approach, and the product approach

Consider two​ economies, A and​ B, with the same constant growth rate of nominal money supply and a constant real interest rate r​=0.05. Also assume the​ economies' output grows at the same rate of 0.04. Which of the following comparisons is NOT​ valid? A. The growth rates of the real demand for money in the two economies may not be the same.may not be the same. B. the one with the > C. The nominal interest rates of the two economies may may differ.may differ. D. the one with the =

B. the one with the >

According to Keynesian business cycle​ theory, A. the procyclical movement of investment is well explained when shocks to durable goods are themselves a main source of the cycle​ (so-called "animal​ spirits"), but not when cycles are caused by fluctuations in the LM curve. B. the procyclical behavior of labor productivity occurs due to​ firms' labor hoarding practices. C. inflation is procyclical and leading. D. beneficial aggregate demand​ shocks, regardless of whether they shift the IS curve or the LM​ curve, will increase both output and the real interest rate.

B. the procyclical behavior of labor productivity occurs due to​ firms' labor hoarding practices.

Consider a large open economy​ (the home​ country) that currently has a zero current account balance. Suppose that the country now runs a government budget deficit that affects desired national saving. In the new​ equilibrium, the world real interest rate​ _____ and investment in the home country​ _____. A. rises; rises B. ​rises; declines C. declines; declines D. declines; rises In the new​ equilibrium, in the foreign​ country, investment​ _____ and the current account balance​ _____. A. rises; rises B. declines; declines C. rises; declines D. declines; rises

B. ​rises; declines D. declines; rises

​1.) What is a subprime​ mortgage? A. A mortgage loan that is in default. B. A mortgage loan made to a borrower who has declared bankruptcy. C. A mortgage loan made to a borrower who does not meet the​ lender's usual standards for income. D. A mortgage loan that is sold from one bank to another. ​ 2.) How could a bad decision by banks to make substantial amounts of subprime mortgages potentially cause a​ recession? A. The mortgage crisis led most banks to declare bankruptcy. B. The mortgage crisis led to credit problems throughout the economy. C. Most housing developers went​ bankrupt, causing a depression. D. So many people went bankrupt that consumer spending declined sharply. ​ 3.) Why would some borrowers agree to the higher interest rates charged by subprime​ loans? A. The oversupply of houses meant that they could miss payments and banks would still not seize the houses. B. Though​ high, the interest rates were still lower than those charged on other types of home loans. C. They knew they did not meet the usual credit standards and they expected home prices to keep​ rising, making refinancing easy. D. All of the above explain why some borrowers agreed to the higher interest rates. Why would​ risk-averse lenders agree to make subprime​ loans? A. The relatively low creditworthiness of subprime borrowers made them willing to put up high amounts of collateral. B. Extensive credit checks on these borrowers made the lenders feel secure. C. The relatively low creditworthiness of subprime borrowers made them willing to pay high interest rates. D. All of the above explain why​ risk-averse lenders agreed to make subprime loans.

C. A mortgage loan made to a borrower who does not meet the​ lender's usual standards for income. B. The mortgage crisis led to credit problems throughout the economy. C. They knew they did not meet the usual credit standards and they expected home prices to keep​ rising, making refinancing easy. C. The relatively low creditworthiness of subprime borrowers made them willing to pay high interest rates.

Which of the following best explains why the​ profit-maximizing level of employment for a firm occurs when the marginal revenue product of labor ​(MRPN​) equals the nominal wage ​(W​)? A. At that level of​ employment, the firm has the optimal quantity of capital and thus is maximizing profit. B. At that level of​ employment, further increases in employment would reduce total output. C. At that level of​ employment, the marginal benefit from the last worker is equal to the marginal cost of the last worker. D. At that level of​ employment, the​ firm's output is maximized and thus it earns the highest possible profit. How can this​ profit-maximizing condition be expressed in real​ terms? In the equations​ below, MPN is the marginal product of​ labor, MRPN is the marginal revenue product of​ labor, W is the nominal​ wage, and P is the price level. A. MPN​ = P/W B. MPN​ = W C. MPN​ = W/P D. MRPN​ = W/P E. MRPN​ = P/W

C. At that level of​ employment, the marginal benefit from the last worker is equal to the marginal cost of the last worker. C. MPN​ = W/P

1.) Why might low taxes be associated with a decrease in​ investment? A. Congress decreases taxes to lower investment in expansionary fiscal policy. B. Congress decreases taxes to lower investment in contractionary fiscal policy. C. Congress might lower taxes as a response to​ already-low investment spending. D. A decrease in taxes tends to lower the interest rate and therefore investment spending. ​ 2.) The application discusses a 1994 study by​ Cummins, Hubbard, and Hassett. Which of the following would seriously undermine the assumptions of this​ study? A. Evidence that changes in investment during periods of large tax changes are attributable to some​ non-tax factor. B. Evidence that any factors other than tax laws changed during the periods studied. C. Evidence that tax laws are different for different types of capital. D. All of the above. ​ 3.) The study by​ Cummins, Hubbard, and Hassett implies that a decrease in taxes related to investment in factories A. would have no significant effect on investment for firms who already heavily invest in factories. B. would result in the biggest increase in investment for firms who already heavily invest in factories. C. would result in the same increase in investment regardless of whether a firm tends to invest in factories or machines. D. could convince firms that currently heavily invest in machines to switch to investment in factories.

C. Congress might lower taxes as a response to​ already-low investment spending. A. Evidence that changes in investment during periods of large tax changes are attributable to some​ non-tax factor. B. would result in the biggest increase in investment for firms who already heavily invest in factories.

National income and product data are generally revised. What effects would the following revisions have on​ consumption, investment, government​ purchases, net​ exports, and​ GDP? It is discovered that consumers bought​ $6 billion more furniture than previously thought. This furniture was manufactured during the current year in North Carolina. A. Investment increases by​ $6 billion, imports increase by​ $6 billion, and GDP does not change. B. Investment increases by​ $6 billion and GDP increases by​ $6 billion. C. Consumption increases by​ $6 billion and GDP increases by​ $6 billion. D. Consumption increases by​ $6 billion, imports increase by​ $6 billion, and GDP does not change. E. None of the above answers are correct. It is discovered that consumers bought​ $6 billion more furniture than previously thought. This furniture was manufactured during the current year in Sweden. A. Consumption increases by​ $6 billion and GDP increases by​ $6 billion. B. Consumption increases by​ $6 billion, imports increase by​ $6 billion, and GDP does not change. C. Investment increases by​ $6 billion and GDP increases by​ $6 billion. D. Investment increases by​ $6 billion, imports increase by​ $6 billion, and GDP does not change. E. None of the above answers are correct. It is discovered that businesses bought​ $6 billion more furniture than previously thought. This furniture was manufactured during the current year in North Carolina. A. Investment increases by​ $6 billion, imports increase by​ $6 billion, and GDP does not change. B. Consumption increases by​ $6 billion, imports increase by​ $6 billion, and GDP does not change. C. Consumption increases by​ $6 billion and GDP increases by​ $6 billion. D. Investment increases by​ $6 billion and GDP increases by​ $6 billion. E. None of the above answers are correct. It is discovered that businesses bought​ $6 billion more furniture than previously thought. This furniture was manufactured during the current year in Sweden. A. Investment increases by​ $6 billion, imports increase by​ $6 billion, and GDP does not change. B. Consumption increases by​ $6 billion, imports increase by​ $6 billion, and GDP does not change. C. Consumption increases by​ $6 billion and GDP increases by​ $6 billion. D. Investment increases by​ $6 billion and GDP increases by​ $6 billion. E. None of the above answers are correct.

C. Consumption increases by​ $6 billion and GDP increases by​ $6 billion. B. Consumption increases by​ $6 billion, imports increase by​ $6 billion, and GDP does not change. D. Investment increases by​ $6 billion and GDP increases by​ $6 billion. A. Investment increases by​ $6 billion, imports increase by​ $6 billion, and GDP does not change.

1.) Which of the following is not true of​ cryptocurrencies? A. Cryptocurrencies can be bought and sold with dollars at a flexible exchange rate. B. One popular cryptocurrency is called Bitcoin. C. Cryptocurrencies come in both a digital and physical form for purchases. D. Cryptocurrencies are sponsored and backed by the government. Transactions through Bitcoin can be ​anonymous, therefore people trying to avoid taxes or to launder money will be likely to use bitcoins. ​ 2.) Which of the following is a benefit of blockchain technology used by​ cryptocurrencies? A. Since blockchain technology is implemented by the​ government, all deposits in cryptocurrency are fully insured by the government. B. All blockchain transactions are executed and recorded on a​ well-protected centralized computer to ensure the system is anonymous and safe from hacking. C. Blockchain technology allows for multiple records of transactions across the system to help avoid fraudulent activity. D. Blockchain technology keeps the exchange rate between cryptocurrencies and the dollar within a specified range in order to maintain its value. ​ 3.) To be considered money an asset must serve as a medium of​ exchange, a unit of​ account, and a store of value. Which of the following best describes how Bitcoin falls short on these functions of​ money? A. It is not possible to list the prices of goods in the economy in terms of bitcoins so it fails the store of value function. B. Bitcoin is still not widely accepted across the economy so it fails the medium of exchange function. C. It is not possible to list the prices of goods in the economy in terms of bitcoins so it fails the medium of exchange function. D. Bitcoin's value has experienced large upswings and downswings making it fail the unit of account function.

C. Cryptocurrencies come in both a digital and physical form for purchases. C. Blockchain technology allows for multiple records of transactions across the system to help avoid fraudulent activity B. Bitcoin is still not widely accepted across the economy so it fails the medium of exchange function.

Which of the following is a true statement about economic​ modeling? A. A theory can be useful even if it cannot be tested by empirical analysis. B. A theory can only be useful if it fits the data very well. C. Economists often disagree on the best way to model a given economic situation. D. Macroeconomic research is done only at colleges and​ universities, not in the private sector.

C. Economists often disagree on the best way to model a given economic situation.

How does GDP differ from​ GNP? A. GDP and GNP both measure​ production, so there is no difference between them. B. GDP measures production but GNP measures income. C. GNP measures the output of factors of production owned by a​ nation, while GDP measures production taking place in a nation. D. GDP measures national​ productivity, while GNP measures both national and international productivity. If a country employs many foreign​ workers, GDP is likely to be higher than GNP.

C. GNP measures the output of factors of production owned by a​ nation, while GDP measures production taking place in a nation.

Which of the following statements below describe what is meant by a steady​ state, in terms of the Solow​ model?​ (Assume there is no productivity​ growth) I. Output per worker​ = consumption per worker​ = capital per worker. II. Output per​ worker, consumption per worker and capital per worker are constant. III. Output per​ worker, consumption per worker and capital per worker all grow at the same positive rate. IV. Total​ output, total consumption and total capital all grow at the same rate​ (the growth of the labor​ force). A. I only B. I and IV C. II and IV D. II and III E. I, II, III and IV​ - all of the above statements describe the steady state as given by the Solow model.

C. II and IV

According to the Solow model of economic​ growth, if there is no productivity​ growth, what will happen to output per​ worker, consumption per​ worker, and capital per worker in the long​ run? A. all will decrease B. all will increase C. all will remain the same D. output and capital per worker will​ increase, while consumption will decrease

C. all will remain the same

Define the velocity of money. A. It is the ratio of nominal GDP to the price level. B. It is the ratio of real GDP to the amount of money in circulation. C. It is the ratio of nominal GDP to the amount of money in circulation. D. It is the ratio of the amount of money in circulation to the price level. In the quantity theory of​ money, velocity is assumed to be highly stable.

C. It is the ratio of nominal GDP to the amount of money in circulation.

According to the​ text, which of the following conditions is necessary for a theory to be​ useful? A. The theory must be applicable to all situations found in the real world. B. The​ theory's assumptions must be applicable to all economic models. C. It must have implications that can be tested by empirical analysis. D. It must include all markets. E. All of the above conditions must hold for a theory to be useful.

C. It must have implications that can be tested by empirical analysis.

1.) Which of the following is an example of a time period in the United States when changes in consumer sentiment were not met with changes in consumption spending in the same​ direction? A. The period of large productivity gains in the United States in the​ mid-1990s. B. Late 2007 to early​ 2008, when financial markets crashed. C. Late​ 1998, when the Russian government defaulted on a large amount of debt. D. The recession between 1978 and 1980. ​ 2.) Which of the following statements best summarizes the behavior of the Thomson​ Reuters/University of Michigan Index of Consumer Sentiment as related to a​ recession? A. The index turns down sharply during an economic expansion and turns up sharply during an economic recessionlong dash—the opposite of initial economic expectations. B. The index tends to turn down sharply during​ recessions, but there are also significant turndowns when no recession exists. C. The index remains roughly constant over time regardless of what is going on in terms of a recession or expansion in the economy as a whole. D. The index exhibits sharp downturns that begin months before recessions​ occur, providing economists and politicians with reliable warnings of recessions to come. ​ 3.) The application indicates that the Thomson​ Reuters/University of Michigan Index of Consumer Sentiment is useful as a way to measure consumer perceptions about the current​ economy, useful as a tool to help explain past changes in​ spending, useful as a way to measure consumer perceptions about likely future changes in the​ economy, and not useful as a method of forecasting consumer spending. ​4.) The study by Croushore cited in the application indicates that the best models to predict future consumer spending would include information on A. consumer knowledge of monetary and fiscal​ policy, but not necessarily past consumer spending. B. consumer sentiment and interest​ rates, but not necessarily consumer income. C. past consumer spending and stock​ prices, but not necessarily consumer sentiment. D. stock prices and consumer​ sentiment, but not necessarily interest rates.

C. Late​ 1998, when the Russian government defaulted on a large amount of debt. B. The index tends to turn down sharply during​ recessions, but there are also significant turndowns when no recession exists. C. past consumer spending and stock​ prices, but not necessarily consumer sentiment.

What is national​ wealth? A. National wealth is a​ country's domestic physical and financial assets minus its net foreign assets. B. National wealth is a​ country's domestic physical and financial assets plus its net foreign assets. C. National wealth is a​ country's domestic physical assets plus its net foreign assets. D. National wealth is a​ country's domestic physical assets minus its net foreign assets. Why is national wealth​ important? A. The exchange rate depends on one​ country's wealth compared to another​ country's wealth. B. The​ long-run economic​ well-being of a country depends on wealth. C. Interest rates are​ lower, the greater a​ country's wealth. D. Wealth is more important than income in affecting consumption. How is national wealth linked to national​ saving? A. National wealth is the change in private national saving minus government saving. B. National saving is the change in private national wealth minus government wealth. C. National saving is the flow of additions to the stock of national wealth. D. National wealth is the flow of additions to the stock of national saving.

C. National wealth is a​ country's domestic physical assets plus its net foreign assets. B. The​ long-run economic​ well-being of a country depends on wealth. C. National saving is the flow of additions to the stock of national wealth.

Which of the following best describes the FE​ line? A. The FE line slopes upward. B. The FE line slopes downward. C. The FE line is vertical at the​ full-employment level of output. D. The FE line is horizontal at the equilibrium real interest rate.

C. The FE line is vertical at the​ full-employment level of output.

1.) Who publishes money data in the FRED​ database, and which of the following is a source of that​ data? A. The Federal​ Reserve; American central banks. B. The​ Treasury; Individual banks. C. The Federal​ Reserve; The Treasury. D. The​ Treasury; The Federal Reserve. ​ 2.) Which of the following might cause a revision in the reported M1 money​ supply? A. A correction of​ mistakenly-reported data on holdings of MMMFs​ (money market mutual​ funds). B. New data on the amount of​ travelers' checks. C. A change in the definition of​ small-denomination time deposits. D. None of the above. ​ 3.) Given the information in the article and what we know about M1 and​ M2, the M3 measure of the money supply A. was reported for approximately 35 years. B. is closest to the theoretical definition of money. C. is the best way of measuring the​ nation's money supply today. D. was probably the smallest measure of the money supply.

C. The Federal​ Reserve; The Treasury. B. New data on the amount of​ travelers' checks. A. was reported for approximately 35 years.

In what periods has the U.S. had twin​ deficits? A. The U.S. had twin deficits in the 1970s and first half of the 1980s. B. The U.S. has never had twin deficits. C. The U.S. had twin deficits in the 1980s and first half of the 1990s. D. The U.S. had twin deficits in the 1990s and first half of the 2000s. In what periods did the deficits move in opposite​ directions? A. The deficits moved in opposite directions in the late 1980s. B. The deficits moved in opposite directions in the late 1960s and from 1998 to 2001. C. The deficits moved in opposite directions in the late 1970s. D. The deficits moved in opposite directions in the late 1990s and from 2008 to 2011.

C. The U.S. had twin deficits in the 1980s and first half of the 1990s. D. The deficits moved in opposite directions in the late 1990s and from 2008 to 2011.

The​ prisoner-of-war camp described by Radford​ ("In Touch with Data and​ Research: Money in a​ Prisoner-of-War Camp") periodically received large shipments of cigarettes from the Red Cross or other sources. How did cigarette shipments affect the price level​ (the prices of goods in terms of​ cigarettes) in the POW​ camp? A. The price level declined. B. The price level did not change. C. The price level rose. On some occasions the prisoners knew in advance when the cigarette shipments were to arrive. What happened to the demand for cigarette money and the price level in the camp in the days just before an anticipated​ shipment? A. demand for money​ increases; the price level falls B. demand for money​ increases; the price level rises C. demand for money​ declines; the price level falls D. demand for money​ declines; the price level rises

C. The price level rose. D. demand for money​ declines; the price level rises

What is the key difference that determines whether an international transaction appears in the current account or the financial​ account? A. Trade in currently produced goods is services are entered in the financial​ account, trade in assets is entered in the current account. B. Gold movements are entered in the financial​ account, all other transactions are entered in the current account. C. Trade in currently produced goods and services is entered in the current​ account, trade in assets is entered in the financial account. D. Receipts are entered in the current​ account, payments are entered in the financial account.

C. Trade in currently produced goods and services is entered in the current​ account, trade in assets is entered in the financial account.

The components of total spending are A. consumption, imports,​ investment, and the money supply. B. consumption, investment,​ exports, and imports. C. consumption, investment, government​ spending, and net exports. D. investment, intermediate​ goods, and factors of production. Why are imports subtracted when GDP is calculated in the expenditure​ approach? A. They are not part of consumption in the domestic economy. B. They do not go through formal markets and thus cannot be counted in GDP. C. They are valued in currencies other than the domestic currency. D. They are produced​ abroad, and GDP only counts domestic production.

C. consumption, investment, government​ spending, and net exports. D. They are produced​ abroad, and GDP only counts domestic production.

1.) Today, the United States is more of an importer than an exporter and more of a net international debtor than a net international creditor. When we say that the United States is a net international debtor​, we mean that more A. goods and services made in the United States are sold to foreigners than goods and services made by foreigners are sold to those living in the United States. B. foreign assets are owned by those living in the United States than U.S. assets are owned by foreigners. C. U.S. assets are owned by foreigners than foreign assets are owned by those living in the United States. D. goods and services made by foreigners are sold to those living in the United States than goods and services made in the United States are sold to foreigners. ​ 2.) According to Figure 5.6 in the Application​ box, from the mid 1980s to 2006 in the United​ States, both exports and imports started growing A. more slowly than they had in the​ past, with imports exceeding exports. B. more slowly than they had in the​ past, with exports exceeding imports. C. more rapidly than they had in the​ past, with imports exceeding exports. D. more rapidly than they had in the​ past, with exports exceeding imports. ​ 3.) Overall, according to​ economists, for the United States international trade A. both creates and destroys​ jobs, creating more jobs than it destroys. B. both creates and destroys​ jobs, destroying more jobs than it creates. C. only creates jobs. D. only destroys jobs.

C. U.S. assets are owned by foreigners than foreign assets are owned by those living in the United States. C. more rapidly than they had in the​ past, with imports exceeding exports. A. both creates and destroys​ jobs, creating more jobs than it destroys.

What are the two components of a theory of business​ cycles? A. leading and lagging variables B. procyclical and countercyclical variables C. a description of shocks and how the economy responds to the shocks D. exogenous and endogenous variables

C. a description of shocks and how the economy responds to the shocks

The main difference between a real shock and a nominal shock is that A. a nominal shock is a disturbance to the economy that affects the IS curve or the FE​ line, while a real shock is a disturbance that affects the LM curve. B. a real shock represents a really large disturbance to the​ economy, while a nominal shock represents a relatively small or minor disturbance. C. a real shock is a disturbance to the real side of the economy that affects the IS curve or the FE​ line, while a nominal shock is a disturbance to money supply or money demand that affects the LM curve. D. a real shock only affects the real interest​ rate, while a nominal shock affects the nominal interest rate. According to the real business cycle​ theory, which one of the following shocks is not considered to be a productivity​ shock? A. Changes in the real demand for money. B. Development of new products or production methods. C. Introduction of new management techniques. D. Changes in the quality of​ capital, labor, or raw materials.

C. a real shock is a disturbance to the real side of the economy that affects the IS curve or the FE​ line, while a nominal shock is a disturbance to money supply or money demand that affects the LM curve. A. Changes in the real demand for money.

Which of the following will cause an increase in the amount of money that one wishes to​ hold? A. a reduction in income. B. an increase in the interest rate increase. C. a reduction in the interest rate increase. D. none of the above

C. a reduction in the interest rate increase.

The main components that any theory of the business cycle must contain or describe are A. how expectations are formed and how they affect the macroeconomy. B. how the central bank adjusts money supply and maintains an interest rate target. C. a specification of the types of shocks affecting the economy and a model of the macroeconomy that explains how the economy responds to such shocks. D. how government spending and taxation decisions are made. In the real business cycle​ theory, the primary source of cyclical fluctuations is A. productivity shocks. B. foreign trade shocks. C. government spending shocks. D. real interest rate shocks. The model of the macroeconomy that is used in the real business cycle theory is A. the classical ​IS-LM model that assumes that prices adjust quickly to restore equilibrium. B. the classical ​IS-LM model that assumes that prices adjust slowly to restore equilibrium. C. the​ Mundell-Fleming model under fixed exchange rates. D. the​ efficiency-wage model.

C. a specification of the types of shocks affecting the economy and a model of the macroeconomy that explains how the economy responds to such shocks. A. productivity shocks. A. the classical ​IS-LM model that assumes that prices adjust quickly to restore equilibrium.

Which of the following outcomes of a change in the government budget deficit would increase the current account deficit of a small open​ economy? A. an increase in the budget surplus that has no effect on national saving because of Ricardian equivalence. B. an increase in the budget deficit that has no effect on national saving because of Ricardian equivalence. C. an increase in the budget deficit that reduces national saving. D. an increase in the budget surplus that raises national saving. If a change in the government budget deficit changes the current account deficit of a small open​ economy, by how much does the current account deficit​ change? A. By the amount that national saving changes. B. By zero. C. By the average change in national saving and investment. D. By the amount that national investment changes. What is the connection between the government budget deficit and the current account​ balance, if an increase in the budget deficit reduces national​ saving? A. They move in opposite directions. B. They move in the same direction in expansions and in opposite directions in recessions. C. They move in the same direction. D. Their movements are uncorrelated.

C. an increase in the budget deficit that reduces national saving. A. By the amount that national saving changes. C. They move in the same direction.

According to the misperceptions​ theory, producers are unable to determine whether an increase in prices is an increase in relative prices or an increase in the general price level. This inability​ generates: A. a vertical​ short-run aggregate supply curve. B. a horizontal​ short-run aggregate supply curve. C. an upward sloping​ short-run aggregate supply curve. D. reverse causation.

C. an upward sloping​ short-run aggregate supply curve.

​1.) From the point of view of the United​ States, "net foreign​ borrowing" refers to A. foreign nations buying assets owned by the United States. B. foreign nations lending to the United States. C. both of the above. D. neither of the above. ​ 2.) If a nation has net foreign assets of dash-​$100 ​million, we can also correctly say that the nation has A. net foreign debt of dash-​$100 million. B. a budget deficit of​ $100 million. C. net exports of​ $100 million. D. net foreign debt of​ $100 million. ​3.) The​ world's largest international debtor in absolute​ (dollar) terms is currently the United States​, and the largest direct investor in the United States is currently the United Kingdom. Can we say definitively that a nation with a high dollar amount of debt is in financial​ trouble? A. Not​ necessarily, as we must consider the dollar figure relative to the​ nation's GDP. B. Not​ necessarily, as we must consider what the nation spends the debt on. C. Both of the above are correct. D. Neither of the above are​ correct: High dollar amounts of debt lead directly to big financial trouble.

C. both of the above. D. net foreign debt of​ $100 million. C. Both of the above are correct.

1.) Say that Americans view butter and cream cheese as perfect substitutes​ - in other​ words, they are completely indifferent between them. If the price of butter increases greatly while the price of cream cheese stays the​ same, Americans will likely A. buy more cream​ cheese, the price of the market basket will look too​ high, and inflation will look lower than it really is. B. buy more cream​ cheese, the price of the market basket will look too​ low, and inflation will look higher than it really is. C. buy more cream​ cheese, the price of the market basket will look too​ high, and inflation will look higher than it really is. D. buy more​ butter, the price of the market basket will look too​ high, and inflation will look higher than it really is. ​ 2.) Consider a common medical procedure included in the market basket of the CPI. Over time the price of this procedure increases​ significantly, but so does the quality of the procedure​ (in terms of reduced mortality rates and decreased pain and recovery time​ afterward). If the CPI does not include accurate information about quality in its market basket A. the procedure will seem less expensive in real terms than it really is and inflation will be overstated. B. the procedure will seem more expensive in real terms than it really is and inflation will be understated. C. the procedure will seem more expensive in real terms than it really is and inflation will be overstated. D. the procedure will seem less expensive in real terms than it really is and inflation will be understated. ​ 3.) Which of the following is a potential problem if official measures of the inflation rate make it look higher than it is in​ reality? A. Social Security recipients will not receive enough money to keep up with inflation. B. The economy will look better than it actually​ is, giving citizens a false sense of security. C. The government deficit will rise faster because the government will spend more than necessary on public programs. D. All of the above.

C. buy more cream​ cheese, the price of the market basket will look too​ high, and inflation will look higher than it really is. C. the procedure will seem more expensive in real terms than it really is and inflation will be overstated. C. The government deficit will rise faster because the government will spend more than necessary on public programs.

Consider a permanent increase in government purchases of 100 per year​ (in real​ terms). The increase in purchases is financed by a permanent increase in​ lump-sum taxes of 100 per year. a. As compared with a temporary increase in government purchases that is also financed by a tax​ increase, such a permanent increase in government purchases A. causes a smaller income effect than a temporary increase in government purchases. B. causes a larger substitution effect than a temporary increase in government purchases. C. causes a larger income effect than a temporary increase in government purchases. D. causes a smaller substitution effect than a temporary increase in government purchases. b. Because the tax increase is​ permanent, assume that at any constant levels of output and the real interest​ rate, consumers respond by reducing their consumption each period by the full amount of the tax increase.​ Also, assume that investment is unaffected by any change in government purchases. Under these​ assumptions, determine how a permanent increase in government purchases affect the following​ curves: - The national saving curve does not shift. - The IS curve does not shift. c. Suppose that after such a permanent increase in​ taxes, consumers respond by reducing their consumption each period by less than the full amount of the tax​ increase, in contrast to the behavior assumed in part b.​ Also, suppose that investment is unaffected by any change in government purchases. Under these​ assumptions, determine how a permanent increase in government purchases financed by a permanent increase in taxes affect the following​ curves: - The national saving curve shifts to the left. - The IS curve shifts up and to the right. d. Assume that consumers respond to permanent increase in taxes by reducing their consumption in each period by the full amount of the tax increase. Also assume that investment remains unchanged. Using the classical ​IS-LM model determine the effects of a permanent increase in government purchases which is financed by an increase in​ taxes, on the following​ curves: - The FE line shifts to the right. - The IS curve does not shift. - The LM curve shifts down and to the right. e. Determine the effects of a permanent increase in government purchases financed by a permanent increase in​ lump-sum taxes on the following variables in the current​ period, assuming that consumers respond to permanent increase in taxes by reducing their consumption in each period by the full amount of the tax increase and assuming that investment remains unchanged. - Output increases. - The price level decreases. - The real interest rate decreases. f. Consider a permanent increase in government purchases of 100 per year​ (in real​ terms). The increase in purchases is financed by a permanent increase in​ lump-sum taxes of 100 per year. Assume that after such a permanent increase in​ taxes, consumers respond by reducing their consumption each period by less than the full amount of the tax increase.​ Also, assume that investment is unaffected by any change in government purchases. As a result of these fiscal changes A. the IS curve does not​ shift, but the FE line shifts to the right and the LM curve shifts down and to the​ right; output​ increases, but the price level and the real interest rate fall. B. the IS curve shifts up and to the​ right, the FE line shifts to the​ right, and the LM curve shifts down and to the​ right; output​ increases, the real interest rate remains unchanged and the price level declines. C. the IS curve shifts up and to the right and the FE line shifts to the​ right; output, the price​ level, and the real interest rate all increase. D. the IS curve shifts up and to the right and the FE line shifts to the​ right; output​ increases, but the effects on the price level and real interest are​ ambiguous; they depend on the relative shifts of the IS curve and the FE line.

C. causes a larger income effect than a temporary increase in government purchases. D. the IS curve shifts up and to the right and the FE line shifts to the​ right; output​ increases, but the effects on the price level and real interest are​ ambiguous; they depend on the relative shifts of the IS curve and the FE line.

In the event of a​ recession, a Keynesian economist is likely to recommend​ _____ the money supply or temporarily​ _____ government spending. A. increasing; decreasing B. decreasing; decreasing C. increasing; increasing D. ​decreasing; increasing In the event of a​ recession, a Keynesian economist might recommend​ _____ taxes because Ricardian equivalence​ _____. A. ​cutting; does not hold B. cutting; holds C. raising; holds D. raising; does not hold

C. increasing; increasing A. ​cutting; does not hold

Since the​ 2007-2009 recession labor participation rates have declined​, over that same period participation rates among​ prime-age workers​ (aged 25-54) have A. risen significantly. B. declined significantly. C. declined slightly. Other than the​ recession, what factors could have caused this change in overall labor participation​ rates? ​(Select all that​ apply) A. An increase in the number of people retiring. B. An increase in the number of discouraged workers. C. An increase in the number of people claiming disability. D. An increase in the number of people becoming working age. ​Overall, since the​ 1960's prime-age labor force participation rates have increased​, this was driven by changes in women's participation rates. If a country provides benefits that are family friendly​ (such as paid parental​ leave) there would likely be A. a decrease in the labor force participation​ rate, especially among men. B. an increase in the labor force participation​ rate, especially among men. C. an increase in the labor force participation​ rate, especially among women. D. a decrease in the labor force participation​ rate, especially among women.

C. declined slightly. A. An increase in the number of people retiring. + B. An increase in the number of discouraged workers. + C. An increase in the number of people claiming disability. C. an increase in the labor force participation​ rate, especially among women.

In the context of the relationship between the money supply and real economic​ activity, what is meant by reverse​ causation? A. expected future increases in the current money supply cause increases in output B. expected future increases in output cause increases in the current government budget deficit C. expected future increases in output cause increases in the current money supply D. expected future increases in the current government budget deficit cause increases in output Which of the following is an example of reverse​ causation? A. businesses increase their money demand for transactions before they increase output B. consumers increase their credit card debt before they increase demand for output C. building contractors spend more cash before they build more​ houses, increasing output D. financial firms make fewer​ loans, which leads to increased output What business cycle fact is reverse causation intended to​ explain? A. the fact that industrial production is procyclical and a coincident variable B. the fact that money is procyclical and a leading variable C. the fact that unemployment is countercyclical and a lagging variable D. the fact that government spending is procyclical and a leading variable

C. expected future increases in output cause increases in the current money supply A. businesses increase their money demand for transactions before they increase output B. the fact that money is procyclical and a leading variable

The U.S. seasonal cycle is one with a boom every year in the​ _____ quarter. A. third B. second C. fourth D. first Seasonally adjusted data are those that A. remove the regular seasonal pattern from the data. B. are strongest in the winter. C. show a regular seasonal pattern in the data. D. are strongest in the summer.

C. fourth A. remove the regular seasonal pattern from the data.

This problem asks you to work out in more detail the example of reverse causation described in the text. Suppose that firms that expect to increase production in the future have to increase their current transactions​ (for example, they may need to purchase more raw​ materials). For this​ reason, current real money demand rises when expected future output rises. a. Under the assumption that real money demand depends on expected future​ output, use the classical​ IS-LM model to find the effects of an increase in expected future output on the current price level. For​ simplicity, assume that any effects of the increase in expected future output on the labor market or on desired saving and investment are small and can be ignored. A. higher future output decreases money​ demand, so the price level declines in equilibrium B. higher future output decreases money​ demand, so the price level increases in equilibrium C. higher future output increases money​ demand, so the price level declines in equilibrium D. higher future output increases money​ demand, so the price level increases in equilibrium b. Suppose that the Fed wants to stabilize the current price level. How will the Fed respond to the increase in expected future​ output? A. The Fed will increase the money supply in response to the increase in money​ demand, which shows a lack of reverse causation. B. The Fed will decrease the money supply in response to the increase in money​ demand, which shows reverse causation. C. The Fed will decrease the money supply in response to the increase in money​ demand, which shows a lack of reverse causation. D. The Fed will increase the money supply in response to the increase in money​ demand, which shows reverse causation.

C. higher future output increases money​ demand, so the price level declines in equilibrium D. The Fed will increase the money supply in response to the increase in money​ demand, which shows reverse causation.

Keynes believed that the classical model was inconsistent with​ real-world data because A. in the real​ world, markets do not clear without government intervention. B. in the real​ world, individuals do not act in their own self interest. C. in the real​ world, unemployment persists for long periods of time. D. in the real​ world, prices are completely flexible.

C. in the real​ world, unemployment persists for long periods of time.

According to​ Okun's law, if unemployment increases by 1​%, the gap between actual output and​ full-employment output will A. decrease by 2​%. B. decrease by 1%. C. increase by 2​%. D. not change. E. increase by 1​%.

C. increase by 2​%.

You just read that forecasters predict the United States will run a current account surplus in 2025. From this you would infer that the United States will also A. run a financial account surplus in 2025. B. run a balance of payments surplus in 2025. C. increase its net foreign assets in 2025. D. decrease its official reserve assets in 2025.

C. increase its net foreign assets in 2025.

Keynesian economists believe that the best way to solve the problem of high unemployment is A. increases in the money supply to increase investment. B. to do​ nothing; the economy will rapidly adjust on its own. C. increases in government spending to stimulate demand. D. increases in taxes to reduce consumption.

C. increases in government spending to stimulate demand.

Macroeconomic forecasting is mainly concerned with predicting what will happen to the economy in the future. According to the​ text, there are relatively few economists focused on economic forecasting because A. there is no value in economic​ forecasting, because it is not perfectly accurate. B. economic analysis of the current economy is more valuable and important. C. it is very​ difficult, because it is impossible to take into account all factors that impact future trends. D. economic research into how the economy works is more valuable and important.

C. it is very​ difficult, because it is impossible to take into account all factors that impact future trends.

​1.) The​ uses-of-saving identity ​(Eq. 1LOADING...​) implies​ that, assuming national private saving is​ unchanged, an increase in the budget deficit must be met with A. a decrease in investment by firms. B. an increase in the current account deficit. C. option​ (A), option​ (B), or some combination of the two. D. none of the above. ​ 2.) The​ twin-deficits idea states that A. a budget deficit in one nation tends to cause a budget deficit in its biggest trading partner nation. B. budget deficits tend to cause current account deficits. C. current account deficits tend to cause budget deficits. D. a decrease in taxes tends to cause a budget deficit. ​ 3.) The Ricardian equivalence proposition predicts that tax cuts will not affect saving and will not affect the current account. The​ twin-deficits idea does not agree with the Ricardian equivalence​ proposition, implying that tax cuts will increase the budget deficit.

C. option​ (A), option​ (B), or some combination of the two. B. budget deficits tend to cause current account deficits.

​1.) If macroeconomic data were not seasonally​ adjusted, graphs like those throughout the book would indicate that A. there would generally be a boom in the first quarter of each year. B. the economy would generally be in recession in October and November. C. output would be about​ 5% higher in the fourth quarter than in the third. D. all of the above would tend to be true. ​2.) Which of the following is not significantly seasonally​ procyclical, according to the findings of Barsky and Miron in their 1989​ study? A. Government spending. B. Expenditure on durable goods. C. Employment. D. The real wage. ​3.) The seasonal cycle discussed here supports the idea that A. all major economic fluctuations should be offset by government policy. B. fiscal and monetary policy are ineffective at dealing with economic fluctuations. C. big economic fluctuations are not desirable under any circumstances. D. none of the above.

C. output would be about​ 5% higher in the fourth quarter than in the third. D. The real wage. D. none of the above.

The main steps in developing and testing an economic model or theory are each of the following EXCEPT A. state the research question. B. make provisional assumptions that describe the economic setting and the behavior of the economic actors. C. prove that the assumptions are valid. D. work out the implications of the theory. E. conduct an empirical analysis to compare the implications of the theory with the data. F. evaluate the results of your comparisons. The criteria for a useful theory or model are each of the following EXCEPT A. it has reasonable and realistic assumptions. B. it covers all possible situations. C. it is understandable and manageable enough for studying real problems. D. its implications can be tested empirically using​ real-world data. E. its implications are consistent with the data.

C. prove that the assumptions are valid. B. it covers all possible situations.

How do Keynesians and classicals differ in their beliefs about how long it takes the economy to reach​ long-run equilibrium? What implications do these differences in beliefs have for Keynesian and classical views about the usefulness of antirecessionary​ policies? Classical economists think prices adjust​ _____ and that antirecessionary policies are​ _____, whereas Keynesian economists think the opposite. A. rapidly; necessary B. slowly; not necessary C. rapidly; not necessary D. slowly; necessary What implications do these differences in beliefs have for the types of shocks that cause most​ recessions? Classical economists think that​ _____ shocks cause​ recessions, whereas Keynesian economists think that​ _____ shocks cause recessions. A. both aggregate demand and aggregate​ supply; aggregate supply B. aggregate​ supply; both aggregate demand and aggregate supply C. both aggregate demand and aggregate​ supply; aggregate demand D. aggregate​ demand; both aggregate demand and aggregate supply

C. rapidly; not necessary B. aggregate​ supply; both aggregate demand and aggregate supply

Suppose a large open economy​ (the home​ country) currently has a current account balance of zero.​ Then, the foreign country is hit by a temporary adverse supply shock. In the new​ equilibrium, the world real interest​ _____ and investment in the home country​ _____. A. declines; declines B. rises; rises C. rises; declines D. declines; rises In the new​ equilibrium, saving in the home country​ _____ and the current account balance in the home country​ _____. A. rises; declines B. declines; declines C. ​rises; rises D. declines; rises How would the results change if the temporary adverse supply shock hit both countries instead of just the foreign​ country? In the new​ equilibrium, the world real interest rate A. would rise more than if the shock just hit the foreign country. B. would rise less than if the shock just hit the foreign country. C. would fall more than if the shock just hit the foreign country. D. would fall less than if the shock just hit the foreign country.

C. rises; declines C. ​rises; rises A. would rise more than if the shock just hit the foreign country.

In each of the following​ cases, what is the effect on the​ short-run aggregate supply ​(SRAS​) ​curve? An increase in firm costs A. does not shift the SRAS curve. B. shifts the SRAS curve downward. C. shifts the SRAS curve upward. An increase in the money supply A. shifts the SRAS curve downward. B. does not shift the SRAS curve. C.shifts the SRAS curve upward. An increase in consumption A. shifts the SRAS curve upward. B. does not shift the SRAS curve. C. shifts the SRAS curve downward.

C. shifts the SRAS curve upward. B. does not shift the SRAS curve. B. does not shift the SRAS curve.

Wars, inventions, and droughts are examples of A. propagation mechanisms. B. endogenous variables. C. shocks. D. leading indicators. A shock that reduces the​ full-employment level of output is A. a permanent shock. B. an aggregate demand shock. C. an aggregate supply shock. D. a temporary shock.

C. shocks. C. an aggregate supply shock.

Goods and services are counted in GDP at market value A. so that price inflation can be accurately measured. B. because it is the most accurate measure of quantities of all goods produced. C. so that different types of goods and services can be added together. D. because there is no other way to count production. A problem in using market values to measure production is that A. there may be unemployment in some markets. B. market values of products are not good measures of production. C. some goods and services are not sold in formal markets. D. market values of products are not good measures of inflation.

C. so that different types of goods and services can be added together. C. some goods and services are not sold in formal markets.

The discovery of a new technology increases the expected future marginal product of capital​ (MPK Superscript fMPKf​). a. Use the classical ​IS-LM model​ (with no​ misperceptions) to determine the direct effects of such an increase in the expected future marginal product of capital on the following curves. Answer only concerning which curves are directly affected by the change in the MPKf​; do not list curves that shift to restore general equilibrium. - The LRAS curve does not shift. - The FE line does not shift. - The LM curve does not shift. - The IS curve shifts up and to the right. - The AD curve shifts up and to the right. b. Using the classical ​IS-LM model​ (with no​ misperceptions), determine the ​general-equilibrium effects of an increase in the expected future marginal product of capital on the following​ variables: - Employment remains unchanged. - Output remains unchanged. - The price level increases. - The real interest rate increases. - Consumption decreases. - Investment increases. c. Under the misperceptions​ theory, an increase in expected future marginal product of capital causes all of the following in general equilibrium except that A. the SRAS and LRAS curves do not​ shift, the AD curve shifts up and to the​ right, and the economy moves along the SRAS curve. B. both the price level and output increase. C. the SRAS and LRAS curves do not​ shift, the AD curve shifts up and to the​ right, the price level​ increases, but output remains unchanged at the​ full-employment level. D. producers misperceive the change in the price level as a change in relative prices and increase labor demand and output.

C. the SRAS and LRAS curves do not​ shift, the AD curve shifts up and to the​ right, the price level​ increases, but output remains unchanged at the​ full-employment level.

The​ full-employment level of employment​ is: A. the level of employment where there is no structural or frictional unemployment. B. the level of employment when aggregate demand is equal to​ short-run aggregate supply. C. the equilibrium level of employment reached after all wages and prices have fully adjusted.

C. the equilibrium level of employment reached after all wages and prices have fully adjusted.

The term saving refers to A. a change in wealth. B. firms' accumulation of physical capital. C. the flow of funds that is not consumed out of income. D. the stock of funds that represents the accumulated amount of net saving over time. The term savings refers to A. the flow of funds that is not consumed out of income. B. a change in wealth. C. firms' accumulation of physical capital. D. the stock of funds that represents the accumulated amount of net saving over time.

C. the flow of funds that is not consumed out of income. D. the stock of funds that represents the accumulated amount of net saving over time.

​1.) When economists say that people have rational​ expectations, they mean that A. their decisions are based on past observations and experiences. B. they understand and follow basic economic concepts. C. they utilize available information in making decisions. D. they are governed by logic instead of emotion. ​ 2.) Classical economists A. do not tend to support the idea of rational​ expectations, which goes along with their assumption that people do not tend to pursue their own​ self-interest. B. tend to support the idea of rational​ expectations, although it does not go along with their assumption that people do not tend to pursue their own​ self-interest. C. tend to support the idea of rational​ expectations, which goes along with their assumption that people pursue their own​ self-interest. D. do not tend to support the idea of rational​ expectations, although it would go along with their assumption that people pursue their own​ self-interest. ​ 3.) One way to test whether people have rational expectations is to A. ask people to make predictions about future economic events. B. put people in groups and see if their opinions about the economy tend to converge​ (move together). C. ask people to explain past economic events. D. test their knowledge of theoretical economic concepts. If rational expectations do indeed​ exist, the error term in such studies should be A. negative and falling. B. unpredictable and random. C. positive and rising. D. zero.

C. they utilize available information in making decisions. C. tend to support the idea of rational​ expectations, which goes along with their assumption that people pursue their own​ self-interest. A. ask people to make predictions about future economic events. B. unpredictable and random.

1.) The key factor influencing the effect of an oil price shock on the real interest rate is A. the size of the price shock. B. the time since the last oil price shock. C. whether the price shock is expected to be temporary or permanent. D. the direction of the oil price shock​ (whether prices rose or​ fell). ​ Specifically, A. a price shock expected to be temporary will result in a larger decrease in the real interest rate. B. a price shock expected to be permanent will result in a larger decrease in the real interest rate. C. a price shock expected to be temporary will result in a larger increase in the real interest rate. D. a price shock expected to be permanent will result in a larger increase in the real interest rate. ​ 2.) In 2008 there was an oil price shock resulting from a large increase in oil prices. Why was the negative impact on the economy after this shock much larger than​ usual? A. At the same time as the oil price shock the government began supplying more oil by releasing oil from the​ country's strategic reserves. B. Consumers did not react to the change in oil prices as predicted. Instead of demanding less oil the demand for oil rose significantly. C. The increase in oil prices that caused the shock was the largest in​ history, causing more negative impacts than normal. D. At the same time as the oil price shock there was a crisis in the housing and financial sectors. Of the oil price shocks​ mentioned, the real interest rate rose significantly A. after the shock of​ 1973-1974 only B. after the shock of​ 1979-1980 only C. after the shock of both​ 1973-1974 and​ 1979-1980 D. after the shock of neither​ 1973-1974 nor​ 1979-1980 ​ 3.) Working with the data given in the​ application, the model suggests that A. people expected only the​ 1979-1980 oil shock to be permanent B. people expected only the​ 1973-1974 oil shock to be permanent C. people expected both of the oil shocks to be permanent D. people expected neither of the oil shocks to be permanent If indeed this was their​ expectation, time has shown that they were correct.

C. whether the price shock is expected to be temporary or permanent. C. a price shock expected to be temporary will result in a larger increase in the real interest rate. D. At the same time as the oil price shock there was a crisis in the housing and financial sectors. B. after the shock of​ 1979-1980 only B. people expected only the​ 1973-1974 oil shock to be permanent

Which of the following types of changes in desired saving and desired investment does NOT lead to a larger current account deficit in a small open​ economy? A. An increase in the expected future marginal product of capital. B. An increase in government purchases to finance a military expansion. C. A temporary adverse supply shock. D. An increase in taxes to finance government infrastructure investment projects.

D. An increase in taxes to finance government infrastructure investment projects.

Which of the following are the main sources of economic​ growth, according to the growth accounting​ system? I. Growth in capital II. Growth in labor III. Growth in productivity IV. Growth in natural resources A. I only B. I and II only C. III only D. I, II and III E. I, II, III and IV

D. I, II and III

Assuming the production function is Y = AK^.3 x N^.7, what would happen to output if the quantity of capital and labor both​ doubled? A. Output would increase to more than double its original level. B. There would be no change in output. C. Output would increase to less than double its original level. D. Output would increase to double its original level. Assuming the production function is Y = AK^.3 x N^.7​, what would happen to output if total factor​ productivity, A​, ​doubled? A. Output would increase to less than double its original level. B. Output would increase to more than double its original level. C. There would be no change in output. D. Output would increase to double its original level. Assuming the production function is Y = AK^.3 x N^.7, what would happen to output if total factor​ productivity, A​, the quantity of​ capital, and the quantity of labor all​ doubled? A. Output would increase to more than double its original level. B. There would be no change in output. C. Output would increase to double its original level. D. Output would increase to less than double its original level.

D. Output would increase to double its original level. D. Output would increase to double its original level. A. Output would increase to more than double its original level.

Which of the following statements is an incorrect description of the difference between the CPI price index and PCE price​ index? A. The weights used on various consumer goods and services items are different. B. The formulas used to calculate the indexes are different. C. The PCE price index covers different items than the CPI price index. D. The PCE price index is subject to substitution​ bias, while the CPI price index is not.

D. The PCE price index is subject to substitution​ bias, while the CPI price index is not.

The world is made up of only two large​ countries: Eastland and Westland. Westland is running a large current account deficit and often appeals to Eastland for help in reducing this current account deficit.​ Currently, the government of Eastland purchases​ $10 billion of goods and​ services, and all of these goods and services are produced in Eastland. The finance minister of Eastland proposes that the government purchase half of its goods from Westland.​ Specifically, the government of Eastland will continue to purchase​ $10 billion of​ goods, but​ $5 billion will be from Eastland and​ $5 billion will be from Westland. The finance minister gives the following​ rationale: "Both countries produce identical goods so it does not really matter to us which country produced the goods we purchase.​ Moreover, this change in purchasing policy will help reduce​ Westland's large current account​ deficit." What are the effects of this change in purchasing policy on the current account balance in each country and on the world real interest​ rate? (Hint: What happens to net exports by the private sector in each country after the government of Eastland changes its purchasing​ policy?) A. The current account balance increases. B. The financial account balance and the current account balance both increase. C. The current account balance decreases. D. The current account balance is unaffected.

D. The current account balance is unaffected.

Consider an economy with a constant growth rate of nominal money supply and a constant real interest rate r​ = 0.04. Which of the following statements about the inflation rate of the economy would be​ valid? A. The​ long-term inflation rate would be equal to the money growth rate regardless of the output growth. B. The ultimate determinant of the inflation rate is how people form their expectation of future inflation. C. Without knowing the nominal interest​ rate, π ​+ 0.04​, one can not tell the real demand for money and hence the inflation rate. D. The faster the​ economy's real output​ grows, the lower the inflation rate.

D. The faster the​ economy's real output​ grows, the lower the inflation rate.

Assuming zero net unilateral​ transfers, how is the current account balance related to net​ exports? Current Account Balance = Net Exports ​+ Net income from abroad Which is an incorrect statement about the balance of payments​ accounts? A. Any transaction involving a flow of funds into a country is a positive item in the​ country's balance of payments. B. The balance of payments accounts consist of the current account and the financial account. C. Any transaction involving a flow of funds out of a country is a negative item in the​ country's balance of payments. D. The financial account measures a​ country's trade in currently produced goods and services.

D. The financial account measures a​ country's trade in currently produced goods and services.

​Okun's law states​ that: A. The gap between output and​ full-employment output increases by​ 3% for each​ 1% that the unemployment rate increases. B. The gap between output and​ full-employment output increases by​ 1% for each​ 2% that the unemployment rate increases. C. The gap between output and​ full-employment output increases by​ 3% for each​ 2% that the unemployment rate increases. D. The gap between output and​ full-employment output increases by​ 2% for each​ 1% that the unemployment rate increases.

D. The gap between output and​ full-employment output increases by​ 2% for each​ 1% that the unemployment rate increases.

In the​ U.S., the money supply is determined by A. the public. B. the White House. C. Congress. D. commercial bank presidents. E. the Federal Reserve. If all money was held in the form of​ currency, what would happen if the Federal Reserve bought financial assets​ (such as government​ bonds) from the​ public? The money supply would increase. If all money was held in the form of​ currency, what would happen if the Federal Reserve sold financial assets​ (such as government​ bonds) to the​ public? The money supply would decrease.

E. the Federal Reserve.

Which of the following is NOT a policy with a reasonable chance of increasing productivity​ growth? A. constructing a national​ high-speed rail network B. providing free university education C. increasing the number of grants for scientific research D. all of the above are policies which may increase productivity growth Will the above policies necessarily lead to an increase in economic​ growth? A. No. Increased taxes or deficit spending will lead to a decline in​ long-run economic growth. B. Yes. Productivity growth is the principal determinant of of​ long-run output and consumption per worker. C. No. The policies may divert resources from more effective investments. D. Yes. Government spending is a direct component of​ GDP, and increases will lead to an improvement in​ long-run growth

D. all of the above are policies which may increase productivity growth C. No. The policies may divert resources from more effective investments.

When economists say that money is​ neutral, this means​ that: A. a change in the money supply will stall the​ economy, preventing further growth. B. a change in the money supply has no effect on the economy. C. a change in the money supply changes real variables but not nominal variables. D. a change in the money supply changes nominal variables but not real variables.

D. a change in the money supply changes nominal variables but not real variables.

Which of the following best completes the definition of money as used by​ economists? Money​ is: A. the amount that one earns from a job in the form of income. B. the total sum of wealth held by a​ country's citizens. C. the sum of all valuable assets held by the general public. D. a special set of assets that are widely accepted as payments for goods and services. E. assets held in the form of currency only.

D. a special set of assets that are widely accepted as payments for goods and services.

During the period​ 1973-1975, the United States experienced a deep recession with a simultaneous sharp rise in the price level. Would you conclude that the recession was the result of a supply shock or a demand​ shock? A. a demand​ shock, because if it was a supply​ shock, output would have increased B. a demand​ shock, because if it was a supply​ shock, the price level would have declined C. a supply​ shock, because if it was a demand​ shock, output would have increased D. a supply​ shock, because if it was a demand​ shock, the price level would have declined

D. a supply​ shock, because if it was a demand​ shock, the price level would have declined

What two explanations of productivity growth does endogenous growth theory​ offer? A. population growth and increased saving B. increased saving and technological innovation C. population growth and technological innovation D. accumulation of human capital and technological innovation How does the production function in an endogenous growth model differ from the production function in the Solow​ model? In the Solow​ model, the production function​ _____, while in the endogenous growth​ model, the production function​ _____. A. does not exhibit diminishing marginal​ productivity; exhibits diminishing marginal productivity B. depends on capital but not​ labor; depends on labor but not capital C. exhibits diminishing marginal​ productivity; does not exhibit diminishing marginal productivity. D. depends on labor but not​ capital; depends on capital but not labor

D. accumulation of human capital and technological innovation C. exhibits diminishing marginal​ productivity; does not exhibit diminishing marginal productivity.

Which of the following will cause an increase in output per worker in the long​ run? A. an increase in the stock of human capital. B. an increase in the saving rate. C. a reduction in the depreciation rate. D. all of the above.

D. all of the above.

1.) An economist studies the effect of changes in tax laws on​ consumption, assuming that the average household spends about​ $800 of every additional​ $1,000 earned. In this​ study, the tax laws are acting as A. a parameter. B. an endogenous variable. C. an MPS variable. D. an exogenous variable. In the above​ study, the amount the average household spends of additional income is acting as A. an MPS variable. B. a parameter. C. an exogenous variable. D. an endogenous variable. ​ 2.) One of the differences between the​ FRB/US model and its predecessor the MPS is that A. the MPS model is better at incorporating​ people's expectations. B. the MPS model is better at showing how economic agents react to shocks. C. the​ FRB/US model uses newer statistical techniques than the MPS did. D. the​ FRB/US model, unlike the MPS​ model, was developed from the theoretical ​IS-LM model. ​ 3.) The​ FRB/US model's forecasts A. are reviewed and often modified by the staff of the Federal Reserve​ Board, and the forecasts made using the model have been found to be superior to private sector forecasts. B. do not involve any review or modification by members of the Federal Reserve​ Board, and yet the forecasts made using the model have been found to be superior to private sector forecasts. C. are reviewed and often modified by the staff of the Federal Reserve​ Board, but private sector forecasts have been found to be superior to those made with the​ FRB/US model. D. do not involve any review or modification by members of the Federal Reserve​ Board, and private sector forecasts have been found to be superior to those made with the​ FRB/US model.

D. an exogenous variable. B. a parameter. C. the​ FRB/US model uses newer statistical techniques than the MPS did. A. are reviewed and often modified by the staff of the Federal Reserve​ Board, and the forecasts made using the model have been found to be superior to private sector forecasts.

Each of the following is a principal professional activity of macroeconomists EXCEPT A. macroeconomic research. B. macroeconomic data development. C. macroeconomic analysis. D. analyzing a​ firm's pricing decisions. E. forecasting key macroeconomic variables.

D. analyzing a​ firm's pricing decisions.

An American publisher sells​ $200 worth of books to a resident of Brazil. By​ itself, this item is a positive item in the U.S. current account. Offsetting transactions that would ensure that the U.S. current account and the financial account balances would continue to sum to zero​ include: A. any positive item in the financial account B. a gold transfer from the U.S. to Brazil. C. any positive item in the current account D. any negative item in the financial account

D. any negative item in the financial account

In the classical model with​ misperceptions, in the short​ run, an unanticipated increase in the money​ supply: A. causes the​ short-run aggregate supply curve to shift down and to the​ right, leaving the aggregate demand curve unchanged. B. causes the aggregate demand curve to shift up and to the right and causes the​ short-run aggregate supply curve to shift up and to the left. C. causes the aggregate demand to shift up and to the right and causes the​ short-run aggregate supply curve to shift down and to the right. D. causes the aggregate demand curve to shift up and to the​ right, leaving the​ short-run aggregate supply curve unchanged.

D. causes the aggregate demand curve to shift up and to the​ right, leaving the​ short-run aggregate supply curve unchanged.

The IS curve​ represents: A. combinations of output and the real interest rate such that the real interest rate is equal to the​ full-employment interest rate. B. combinations of output and the real interest rate such the output is equal to​ full-employment output. C. combinations of output and the real interest rate such that money demand is equal to money supply. D. combinations of output and the real interest rate such that desired national saving is equal to desired investment.

D. combinations of output and the real interest rate such that desired national saving is equal to desired investment.

The desire to have a relatively even pattern of consumption over time is known as the A. ​life-cycle permanent-income hypothesis. B. relative consumption theory. C. conspicuous consumption theory. D. consumption-smoothing motive. If a​ person's income​ declines, the​ consumption-smoothing motive suggests that the person will A. reduce current consumption by the amount of the decline in income. B. reduce future consumption by the amount of the decline in income. C. reduce consumption in both the current and future periods. D. increase future consumption and reduce current consumption.

D. consumption-smoothing motive. C. reduce consumption in both the current and future periods.

Starting from a situation with no government spending and no​ taxes, the government introduces a foreign aid program​ (in which domestically produced goods are shipped​ abroad) and pays for it with a temporary​ 10% tax on current wages. Future wages are untaxed. What effects will the temporary wage tax have on labor​ supply? A. ambiguous B. increases C. unchanged D. decreases Use the classical ​IS-LM model to find the effects of the fiscal change on​ output, employment, the​ (before-tax) real​ wage, the real interest​ rate, and the price level. The​ before-tax real wage A. ambiguous B. decreases C. unchanged D. increases Employment A. increases B. ambiguous C. decreases D. unchanged Output A. unchanged B. ambiguous C. increases D. decreases The price level A. unchanged B. decreases C. ambiguous D. increases The real interest rate A. increases B. ambiguous C. unchanged D. decreases

D. decreases D. increases C. decreases D. decreases D. increases A. increases

When households first received their tax​ rebates, on average they A. increased spending on their credit cards and reduced their​ credit-card debt. B. did not increase spending on their credit cards and increased their​ credit-card debt. C. increased spending on their credit cards and increased their​ credit-card debt. D. did not increase spending on their credit cards and reduced their​ credit-card debt. Nine months after households received their tax​ rebates, on average they A. increased spending on their credit cards and reduced their​ credit-card debt. B. increased spending on their credit cards and increased their​ credit-card debt. C. did not increase spending on their credit cards and increased their​ credit-card debt. D. did not increase spending on their credit cards and reduced their​ credit-card debt.

D. did not increase spending on their credit cards and reduced their​ credit-card debt. B. increased spending on their credit cards and increased their​ credit-card debt.

According to the classical​ theory, a temporary increase in government purchases A. does not affect employment or the real wage. B. increases both labor demand and​ supply, increases​ employment, but does not affect the real wage. C. does not affect labor supply but increases labor​ demand, increases the real​ wage, and increases employment. D. does not affect labor demand but increases labor​ supply, lowers the real​ wage, and increases employment. According to the classical​ theory, a temporary increase in government purchases A. shifts the IS curve up and to the right and the FE line to the right. If the shift of the FE line is smaller than the shift to the right of the IS ​curve, it leads to a reduction in the real interest rate and an increase in the price level. B. shifts the IS curve up and to the right and the FE line to the right. If the shift of the FE line is smaller than the shift to the right of the IS ​curve, it leads to an increase in the real interest rate and an increase in the price level. C. shifts only the FE line to the right and increases both the price level and the real interest rate. D. shifts only the IS curve up and to the right and increases both the price level and the real interest rate. According to classical​ economists, fiscal policy should not be used to smooth out the business cycle.

D. does not affect labor demand but increases labor​ supply, lowers the real​ wage, and increases employment. B. shifts the IS curve up and to the right and the FE line to the right. If the shift of the FE line is smaller than the shift to the right of the IS ​curve, it leads to an increase in the real interest rate and an increase in the price level.

A variable that is taken as given in an economic model is called A. endogenous. B. a growth rate. C. a level. D. exogenous. A variable that is determined by the equilibrium in a model is called A.exogenous. B. a growth rate. C. a level. D. endogenous. A sensible question to ask is A. how does a change in an exogenous variable affect an endogenous​ variable? B. how does a change in one exogenous variable affect another exogenous​ variable? C. how does a change in an endogenous variable affect another endogenous​ variable? D. how does a change in an endogenous variable affect an exogenous​ variable?

D. exogenous. D. endogenous. A. how does a change in an exogenous variable affect an endogenous​ variable?

Which of the following is not a use of an​ economy's private​ saving? A. financing the government budget deficit B. financing investment in new​ capital, houses, and inventory C. lending to foreigners D. financing consumption E. All of the above are uses of an​ economy's private saving

D. financing consumption

1.) From the article we can guess that indexed contracts are used most where​ ____________ is especially high or unpredictable. A. productivity B. consumer confidence C. GDP D. inflation ​2.) A COLA is an agreement to A. change real wages to make up for the effects of inflation. B. change real wages to make up for the effects of changes in policy. C. change nominal wages to make up for the effects of changes in policy. D. change nominal wages to make up for the effects of inflation. ​ 3.) Lenders and borrowers must consider expected inflation when setting the interest rate on a loan. If you as a lender want to guarantee yourself a real return of 4.5 percent on a loan to your friend Bob and you believe that inflation will be 1.5 percent over that​ period, what nominal interest rate must you charge Bob over the​ loan? 6.0 ​(Round your answer to one decimal place if necessary. Do not include any percentage sign or other characters besides numerals and a decimal​ point.)

D. inflation D. change nominal wages to make up for the effects of inflation.

The implementation lag means that A. the seasonality in the data makes it hard to implement a change in policy. B. the state of the economy is known but there is not much recognition that the tools are effective. C. fiscal policy tools are difficult to implement. D. it takes time for policymakers to put a new policy into place. Fiscal policy may not be effective because of the time it takes for a policy change to affect the​ economy, which is known as the A. impact lag. B. legislative lag. C. effectiveness lag. D. implementation lag.

D. it takes time for policymakers to put a new policy into place. A. impact lag.

The recognition lag means that A. the state of the economy is known but there is not much recognition that the tools are effective. B. recognizing what tools are available to policymakers is difficult. C. the seasonality in the data makes it hard to figure out the state of the economy. D. it takes time for policymakers to realize that a policy change is needed. Fiscal policy may not be effective because of the time it takes for policymakers to enact a change in​ policy, which is known as the A. legislative lag. B. effectiveness lag. C. implementation lag. D. impact lag.

D. it takes time for policymakers to realize that a policy change is needed. A. legislative lag.

You are informed that you have won​ $3,000,000 in the New Jersey State​ Lottery, to be paid to​ you, in​ total, immediately. Which of the following best explains how this transaction would be recorded under the expenditure approach to calculating​ GDP? A. a​ $3,000,000 increase in consumption and a​ $3,000,000 increase in government spending. B. a​ $3,000,000 increase in domestic value added. C. ​$3,000,000 increase in consumption. D. no change in GDP. E. a​ $3,000,000 increase in wages. ​ Now, the New Jersey state government pays you an additional​ $5,000 fee to appear in a TV commercial publicizing the state lottery. How would this change your​ answer? A. $5,000 in consumption. B. $5,000 in government spending. C. $5,000 in advertising services. D. no change in GDP. E. $5,000 in investment.

D. no change in GDP. B. $5,000 in government spending.

In this​ problem, you will use the ​IS-LM model to analyze the​ general-equilibrium effects of a permanent increase in the price of oil​ (a permanent adverse supply​ shock) on macroeconomic variables. Assume​ that, besides reducing the current productivity of capital and​ labor, the permanent supply shock lowers both the expected future MPK and​ households' expected future incomes. The increase in the price of oil​ _____ the marginal product of​ labor, causing the labor demand curve to shift​ ____. A. increases; to the right B. ​increases; to the left C. reduces; to the right D. reduces; to the left Since​ households' expected future incomes​ ____, labor supply​ _____, shifting the labor supply curve​ _____. A. rise; increases; to the left B. decline; decreases; to the right C. decline; increases; to the left D. decline; increases; to the right Assume that the rightward shift in labor supply is smaller than the leftward shift in labor demand. In the new​ equilibrium, the real wage is​ ____ and the equilibrium amount of employment is​ _____, compared with the equilibrium before the productivity shock occurred. A. lower; higher B. higher; higher C. higher; lower D. ​lower; lower The FE curve shifts​ _____ and the IS curve shifts​ _____. A. left; up and to the right B. right; down and to the left C. left; down and to the left D. right; up and to the right In general​ equilibrium, the real interest rate is​ _____ and output is​ _____, compared with the equilibrium before the productivity shock. A. higher; lower B. ambiguous; higher C. ​lower; higher D. ambiguous; lower If the productivity shock were temporary rather than​ permanent, the main difference is that the​ _____ curve would not shift. A. LM curve B. Phillips curve C. IS curve D. FE line If the productivity shock were temporary rather than​ permanent, the main difference is that the real interest rate would​ _____ instead of being ambiguous and the price level would​ _____ instead of being ambiguous. A. increase; decrease B. ​increase; increase C. decrease; decrease D. decrease; increase

D. reduces; to the left D. decline; increases; to the right D. ​lower; lower C. left; down and to the left D. ambiguous; lower C. IS curve B. ​increase; increase

Which of the following best defines the real interest rate​ (r)? A. the amount of dollars 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 have more dollars today. C. the amount of dollars we must give up today in order to consume more goods today. D. the amount of goods we must give up next year in order to consume more goods today. E. the amount of dollars we must give up today in order to have more dollars next year.

D. the amount of goods we must give up next year in order to consume more goods today.

The unemployment rate is A. the number of workers who are not employed. B. all employed and unemployed workers. C. the fraction of the adult population that is in the labor force. D. the fraction of the labor force that is not employed. The labor force participation rate is A. the number of adult workers who are employed. B. the fraction of the adult population that is in the labor force. C. the fraction of the labor force that is employed. D. the number of the adult population who are in the labor force. The employment ratio is A. the fraction of the adult population that is in the labor force. B. all employed and unemployed workers. C. the number of adult workers who are employed. D. the fraction of the adult population that is employed.

D. the fraction of the labor force that is not employed. B. the fraction of the adult population that is in the labor force. D. the fraction of the adult population that is employed.

​Full-employment output is A. the level of output that firms supply when the unemployment rate is zero. B. the level of output that firms supply when capital is fully employed. C. the level of output that firms supply when the inflation rate is zero. D. the level of output that firms supply when wages and prices in the economy have fully adjusted. How is​ full-employment output affected by an increase in labor​ supply? A. Full-employment output will not change. B. Full-employment output will increase. C. Full-employment output will decrease. D.The effect on​ full-employment output cannot be determined. How is​ full-employment output affected by a beneficial supply​ shock? A. Full-employment output will not change. B. Full-employment output will increase. C. Full-employment output will decrease. D. The effect on​ full-employment output cannot be determined.

D. the level of output that firms supply when wages and prices in the economy have fully adjusted. B. Full-employment output will increase. B. Full-employment output will increase.

According to the Keynesian​ analysis, in what two ways does an adverse supply shock reduce​ output? A. the supply shock reduces the marginal product of labor and shifts the LM curve down and to the right B. the supply shock increases the marginal product of labor and shifts the LM curve down and to the right C. the supply shock increases the marginal product of labor and shifts the LM curve up and to the left D. the supply shock reduces the marginal product of labor and shifts the LM curve up and to the left What problems do supply shocks create for Keynesian stabilization​ policies? A. policy can do nothing to affect the location of the FE​ line; and using expansionary policy risks worsening the​ already-high rate of inflation B. policy can affect the location of the FE​ line; and using expansionary policy poses no danger for worsening the​ already-high rate of inflation C. policy can do nothing to affect the location of the FE​ line; and using expansionary policy poses no danger for worsening the​ already-high rate of inflation. D. policy can affect the location of the FE​ line; but using expansionary policy risks worsening the​ already-high rate of inflation

D. the supply shock reduces the marginal product of labor and shifts the LM curve up and to the left A. policy can do nothing to affect the location of the FE​ line; and using expansionary policy risks worsening the​ already-high rate of inflation

According to the theory of rational​ expectations, A. people have perfect foresight. B. people's forecasts are always correct. C. people expect the economy to return to equilibrium very quickly. D. the​ public's forecasts of various economic variables are based on reasoned and intelligent examination of available economic data. According to the classical​ model, what implications do rational expectations have for the ability of the central bank to use monetary policy to smooth business​ cycles? A. The central bank will use monetary policy to stabilize output and​ inflation, through its influence on​ people's expectations of future inflation. B. The central bank is subject to an inflationary bias. C. The central​ bank's policy will necessarily be destabilizing. D. The central bank will not be able to surprise the public​ systematically, and so it cannot use monetary policy to stabilize output.

D. the​ public's forecasts of various economic variables are based on reasoned and intelligent examination of available economic data. D. The central bank will not be able to surprise the public​ systematically, and so it cannot use monetary policy to stabilize output.

Colonel Hogwash purchases a Civil​ War-era mansion for​ $1,000,000. The​ broker's fee is​ 6%, which the colonel also​ pays, for a total expenditure of​ $1,060,000. Using the expenditure​ approach, this transaction would be recorded as a A. $60,000 increase in income received by the real estate broker. B. $1,060,000 increase in domestic value​ added, for the value of the house. C. $60,000 increase in domestic value added by the brokerage service. D. $1,060,000 increase in consumption. E. $60,000 increase in residential investment. According to the income​ approach, this transaction would be recorded as a A. $1,060,000 increase in residential investment. B. $60,000 increase in income received by the real estate broker. C. $1,060,000 increase in domestic value​ added, for the value of the house. D. $60,000 increase in residential investment. E. $60,000 increase in domestic value added by the brokerage service. According to the product​ approach, this transaction would be recorded as a A. $60,000 increase in income received by the real estate broker. B. $60,000 increase in residential investment. C. $1,060,000 increase in domestic value​ added, for the value of the house. D. $60,000 increase in domestic value added by the brokerage service. E. $1,060,000 increase in residential investment.

E. $60,000 increase in residential investment. B. $60,000 increase in income received by the real estate broker. D. $60,000 increase in domestic value added by the brokerage service.

Of the three sources of growth identified by growth​ accounting, which one is primarily responsible for the slowdown in U.S. economic growth after​ 1973? growth in productivity What are some of the reasons given for this decline in U.S.​ productivity? A. Inaccuracies in the measurement of​ output, such as changes in the quality of output B. A​ "learning curve" effect from the exploding IT​ (information technology) revolution C. Higher oil​ prices, causing firms in all industrialized nations to conserve energy D. Changes in the legal and human​ environment, such as growing emphasis placed on protecting the environment and worker safety E. All of the above have been offered as reasons for the decline in U.S. productivity beginning in 1973.

E. All of the above have been offered as reasons for the decline in U.S. productivity beginning in 1973.

How would each of the following affect Helena​ Handbasket's supply of​ labor? The value of​ Helena's home triples in an unexpectedly hot real estate market. A. The effect on​ Helena's labor supply is ambiguous because substitution and income effects go in opposite directions in this case. B. Helena will supply more labor due to the income effect. C. Helena will supply less labor due to both substitution and income effects. D. Helena will supply more labor due to both substitution and income effects. E. Helena will supply less labor due to the income effect. Originally an unskilled​ worker, Helena acquires skills that give her access to a job with a higher hourly wage. ​(Assume that her preferences about leisure are not affected by the change in jobs.​) A. Helena will supply more labor due to both substitution and income effects. B. Helena will supply less labor due to both substitution and income effects. C. The effect on​ Helena's labor supply is ambiguous because substitution and income effects go in opposite directions in this case. D. Helena will supply more labor due to the income effect. E. Helena will supply less labor due to the income effect. A temporary income tax surcharge raises the percentage of her income that she must pay in​ taxes, for the current year only. ​(Taxes are proportional to income in​ Helena's country.​) A. Helena is likely to supply less labor because​ short-run substitution effects are likely to exceed income effects. B. Helena will supply more labor due to the substitution effect. C. Helena will supply more labor due to both substitution and income effects. D. Helena will supply less labor due to the income effect. E. Helena is likely to supply more labor because​ short-run substitution effects are likely to exceed income effects.

E. Helena will supply less labor due to the income effect. C. The effect on​ Helena's labor supply is ambiguous because substitution and income effects go in opposite directions in this case. A. Helena is likely to supply less labor because​ short-run substitution effects are likely to exceed income effects.

A government wishes to maximize​ long-run economic growth. Assume this government consistently runs a small deficit. Which of the following policies would be most​ effective? A. Increase taxes to fund investments in​ infrastructure, research, and human capital. B. Reduce spending on investments in​ infrastructure, research, and human capital to reduce the deficit. C. Increase taxes to reduce the​ deficit, but do not change spending on investments in​ infrastructure, research, and human capital. D. Decrease taxes on the returns to saving. E. Not enough information to answer this question. Which would be more effective at increasing living​ standards: a policy which doubles the savings​ rate, or one which doubles the productivity of​ capital? A. a policy which doubles the savings rate B. a policy which doubles the productivity of capital C. both would have equal effectiveness D. not enough information is available to answer this question.

E. Not enough information to answer this question. B. a policy which doubles the productivity of capital

In the ​AD-AS​ model, the​ short-run effect of a decrease in the money supply is A. a shift up and to the right of the AD ​curve, causing output to rise at an unchanged price level. B. a shift down and to the left of the AD curve and a shift down of the SRAS ​curve, causing output and the price level to fall. C. a shift up and to the right of the AD curve and a shift up of the SRAS ​curve, causing output and the price level to rise. D. no​ change, because money is neutral in the short run. E. a shift down and to the left of the AD ​curve, causing output to fall at an unchanged price level. In the ​AD-AS​ model, the​ long-run effect of a decrease in the money supply is A. a proportionate increase in the price​ level, but no changes to real variables such as output. B. a proportionate increase in the price level and in output. C. a proportionate fall in the price level and in output. D. no change at​ all, because money is neutral in the long run. E. a proportionate fall in the price​ level, but no changes to real variables such as output.

E. a shift down and to the left of the AD ​curve, causing output to fall at an unchanged price level. E. a proportionate fall in the price​ level, but no changes to real variables such as output.

Suppose that the Fed has a policy of increasing the money supply when it observes that the economy is in recession.​ However, suppose that about six months are needed for an increase in the money supply to affect aggregate​ demand, which is about the same amount of time needed for firms to review and reset their prices. What effects will the​ Fed?s policy have on output and price​ stability? A. A lag in the impact of policy of six​ months, which is about the time it takes firms to adjust​ prices, could cause policy to be destabilizing B. A lag in the impact of policy of six​ months, which is less than the time it takes firms to adjust​ prices, allows policy to be stabilizing C. A lag in the impact of policy of six​ months, which is less than the time it takes firms to adjust​ prices, could cause policy to be destabilizing D. A lag in the impact of policy of six​ months, which is about the time it takes firms to adjust​ prices, allows policy to be stabilizing Does your answer change if​ (a) the Fed has some ability to forecast recessions or​ (b) price adjustment takes longer than six​ months? A. If the Fed could forecast recessions​ well, it could stabilize the economy by using monetary policy appropriately before a recession​ begins; but if the​ Fed's policy takes effect before firms adjust​ prices, it could not stabilize the economy. B. If the Fed could forecast recessions​ well, or if the​ Fed's policy takes effect before firms adjust​ prices, it could stabilize the economy by using monetary policy appropriately before a recession begins. C. If the​ Fed's policy takes effect before firms adjust​ prices, it could stabilize the economy by using monetary policy appropriately before a recession​ begins; but if the Fed could forecast recessions​ well, it still could not stabilize the economy. D. If the Fed could forecast recessions​ well, or if the​ Fed's policy takes effect before firms adjust​ prices, it still could not stabilize the economy.

A. A lag in the impact of policy of six​ months, which is about the time it takes firms to adjust​ prices, could cause policy to be destabilizing B. If the Fed could forecast recessions​ well, or if the​ Fed's policy takes effect before firms adjust​ prices, it could stabilize the economy by using monetary policy appropriately before a recession begins.

For a given real exchange​ rate, how are a​ country's net exports affected by an increase in domestic​ income? A. An increase in domestic income leads people to buy more​ goods, including imported​ goods, so net exports decline. B. An increase in domestic income leads people to buy fewer​ goods, including imported​ goods, so net exports increase. C. An increase in domestic income leads foreigners to buy fewer​ goods, including exported​ goods, so net exports decline. D. An increase in domestic income leads foreigners to buy more​ goods, including exported​ goods, so net exports increase. For a given real exchange​ rate, how are a​ country's net exports affected by an increase in foreign​ income? A. An increase in foreign income leads people to buy more​ goods, including imported​ goods, so net exports decline. B. An increase in foreign income leads people to buy fewer​ goods, including imported​ goods, so net exports increase. C. An increase in foreign income leads foreigners to buy more​ goods, including exported​ goods, so net exports increase. D. An increase in foreign income leads foreigners to buy fewer​ goods, including exported​ goods, so net exports decline. How does an increase in the domestic real interest rate affect the real exchange rate and net​ exports? A. The real exchange rate declines and net exports decline. B. The real exchange rate rises and net exports rise. C. The real exchange rate declines and net exports rise. D. The real exchange rate rises and net exports decline.

A. An increase in domestic income leads people to buy more​ goods, including imported​ goods, so net exports decline. C. An increase in foreign income leads foreigners to buy more​ goods, including exported​ goods, so net exports increase. D. The real exchange rate rises and net exports decline.

Can policymakers exploit the Phillips curve relationship by trading more inflation for less unemployment in the short​ run? In the long​ run? Explain both the classical and Keynesian points of view. A. Classicals say the tradeoff exists in neither the short run nor the long​ run; Keynesians say there is a tradeoff in the short run but not in the long run. B. Classicals say the tradeoff exists in the short run but not in the long​ run; Keynesians also say there is a tradeoff in the short run but not in the long run. C. Classicals say the tradeoff exists in the short run but not in the long​ run; Keynesians say there is a tradeoff in both the short run and the long run. D. Keynesians say the tradeoff exists in neither the short run nor the long​ run; Classicals say there is a tradeoff in the short run but not in the long run.

A. Classicals say the tradeoff exists in neither the short run nor the long​ run; Keynesians say there is a tradeoff in the short run but not in the long run.

1.) What are microeconomic​ foundations, and how do they figure into the disagreement between classical and Keynesian​ economists? A. Models that incorporate microeconomic foundations explicitly include individual​ decision-making; they have historically been associated more with classical economics. B. Models that incorporate microeconomic foundations include policy​ parameters; they have historically been associated more with classical economics. C. Models that incorporate microeconomic foundations include policy​ parameters; they have historically been associated more with Keynesian economics. D. Models that incorporate microeconomic foundations explicitly include individual​ decision-making; they have historically been associated more with Keynesian economics. ​2.) Which of the following is not a feature of Keynesian thought that classical economists have come to incorporate into their models​ recently? A. Sticky prices. B. Imperfect competition. C. Efficiency wages. D. All of the above are regularly included. ​ 3.) Which of the following describes one way in which classical and Keynesian economists continue to differ from each​ other? A. Classical economists have more faith in the​ government's ability to stabilize the business cycle. B. Keynesians tend to think that government actions reduce welfare. C. Keynesians tend to think that prices are slow to adjust. D. Classical economists tend to think that wages adjust slowly.

A. Models that incorporate microeconomic foundations explicitly include individual​ decision-making; they have historically been associated more with classical economics. C. Efficiency wages. C. Keynesians tend to think that prices are slow to adjust.

Discuss four reasons why the Ricardian equivalence proposition​ isn?t likely to hold exactly. A. Ricardian equivalence might not hold if people face borrowing​ constraints, if they are​ shortsighted, if they fail to leave​ bequests, or if taxes​ aren't lump sum. B. Ricardian equivalence might not hold if people do not face borrowing​ constraints, if they are​ shortsighted, if they fail to leave​ bequests, or if taxes are lump sum. C. Ricardian equivalence might not hold if people face borrowing​ constraints, if they are​ shortsighted, if they fail to leave​ bequests, or if taxes are lump sum. D. Ricardian equivalence might not hold if people do not face borrowing​ constraints, if they are​ shortsighted, if they fail to leave​ bequests, or if taxes​ aren't lump sum.

A. Ricardian equivalence might not hold if people face borrowing​ constraints, if they are​ shortsighted, if they fail to leave​ bequests, or if taxes​ aren't lump sum.

Define money multiplier. A. The number of dollars that can be created from each dollar of monetary base. B. The reciprocal of the​ reserve-deposit ratio. C. The number of dollars that can be issued by the Federal Reserve. D. All of the above are correct. If the public elects to increase their holdings of​ currency, what happens to the money​ multiplier, all else​ equal? A. It decreases B. It increases C. It remains the same​ - the desire by the public to hold more or less currency does not affect the money multiplier. If banks choose to hold more​ reserves, what happens to the money​ multiplier, all else​ equal? A. It decreases B. It increases C. It remains the same​ - the desire by banks to hold more or less reserves does not affect the money multiplier. Does the fact that the public and banks can affect the money multiplier imply that the central bank cannot control the money​ supply? A. Yes B. No

A. The number of dollars that can be created from each dollar of monetary base. A. It decreases A. It decreases B. No

Suppose that the government institutes a program to help unemployed workers learn new​ skills, find new​ jobs, and relocate as necessary to take the new jobs. a. If this program reduces structural​ unemployment, what is the effect on the​ short-run Phillips curve and the​ long-run Phillips​ curve? A. The program would shift the​ short-run Phillips curve to the left and shift the​ long-run Phillips curve to the left. B. The program would shift the​ short-run Phillips curve to the right and shift the​ long-run Phillips curve to the right. C. The program would shift the​ short-run Phillips curve to the left and shift the​ long-run Phillips curve to the right. D. The program would shift the​ short-run Phillips curve to the right and shift the​ long-run Phillips curve to the left. b. The government program is​ expensive, and critics argue that a cheaper way to cut unemployment would be by monetary expansion. Comment on which method would be permanent or temporary. A. The government program would have a temporary​ effect; monetary expansion would have a temporary effect. B. The government program would have a temporary​ effect; monetary expansion would have a permanent effect. C. The government program would have a permanent​ effect; monetary expansion would have a temporary effect. D. The government program would have a permanent​ effect; monetary expansion would have a permanent effect.

A. The program would shift the​ short-run Phillips curve to the left and shift the​ long-run Phillips curve to the left. C. The government program would have a permanent​ effect; monetary expansion would have a temporary effect.

How does the use of inflation targeting improve central bank​ credibility? A. The public can easily observe whether the central bank has achieved its goals. B. Inflation targeting requires the use of the Taylor​ rule, which locks in the central​ bank's credibility. C. The public knows that inflation will never rise above its target. D. Since inflation targeting prevents​ deflation, the zero bound is ruled​ out, enhancing the central​ bank's credibility. What is the main disadvantage of inflation​ targeting? A. The central bank cannot drive the interest rate below​ zero, so inflation targeting may not be possible. B. The central bank may fool people by stating one inflation target​ publicly, but having a different one privately. C. The central bank may not know exactly how to change policy to hit its goals and the public may not know at any time if the Fed is engaging in the best policy. D. Inflation targeting requires the use of the Taylor​ rule, which might not be compatible with stable inflation.

A. The public can easily observe whether the central bank has achieved its goals. C. The central bank may not know exactly how to change policy to hit its goals and the public may not know at any time if the Fed is engaging in the best policy.

1.) One potential disadvantage of the formation of the European Union is A. a decrease in flexibility in monetary policy for each member nation. B. an increase in financial transactions costs. C. a decrease in political cooperation among member nations. D. an increase in the difficulty of moving inputs across member nation borders. ​2.) An important difference between the European Union and the United States concerns the responsibility for responsibility for bank supervision In the case of the European​ Union, the conduct of bank supervision is more decentralized than in the United States. ​ 3.) In the aftermath of the 2008 financial​ crisis, banks in the European Union A. received loans from their respective national​ governments, but were not required to raise more private capital. B. received loans from their respective national governments and were required to raise more private capital C. did not receive loans from any​ source, but were required to raise additional capital from the private sector. D. received loans from the European Central Bank and were also required to raise more private capital. ​ 4.) One tool promoting the restoration of macroeconomic balance that is not available to individual economies sharing a common currency is adjustments to an exchange rate.

A. a decrease in flexibility in monetary policy for each member nation. A. received loans from their respective national​ governments, but were not required to raise more private capital.

1.) The U.S.​ government's 2009 stimulus package was heavily weighted toward government expenditures​, and its projected impact sparked much debate between Keynesian and classical economists. ​ 2.) In the context of the standard ​IS-LM​ model, Keynesians disagreed with classical economists and projected that the stimulus package would yield a relatively​ __________ increase in output due to the​ __________ of prices in the short run. A. large​; inflexibility B. large​; flexibility C. small​; flexibility D. small​; inflexibility ​ 3.) Because the classical version of the ​IS-LM model envisioned a wealth effect​, it ended up concurring with the Keynesian version that temporary increases in government spending would lead to higher output. ​ 4.) The latest research regarding the size of the government spending multiplier suggests the multiplier is greatest when the economy is A. in recession and the zero lower bound constrains monetary policy. B. expanding and the zero lower bound constrains monetary policy. C. in recession and the zero lower bound is not constraining monetary policy. D. expanding and the zero lower bound is not constraining monetary policy.

A. large​; inflexibility A. in recession and the zero lower bound constrains monetary policy.

1.) During the Great​ Depression, A. the​ currency-deposit ratio​ rose, the​ reserve-deposit ratio​ rose, and the money multiplier fell. B. the​ currency-deposit ratio​ fell, the​ reserve-deposit ratio​ fell, and the money multiplier fell. C. the​ currency-deposit ratio​ fell, the​ reserve-deposit ratio​ fell, and the money multiplier rose. D. the​ currency-deposit ratio​ rose, the​ reserve-deposit ratio​ rose, and the money multiplier rose. ​2.) As a result of those changes during the Great​ Depression, A. the monetary base rose and the money multiplier fell. B. both the monetary base and the money multiplier fell. C. the monetary base fell and the money multiplier rose. D. both the monetary base and the money multiplier rose. In​ theory, the effect on the money supply would be ambiguous. ​But, in​ practice, the money supply fell as a result of the changes in the monetary base and multiplier. ​ 3.) During the 2008 financial​ crisis, A. the​ currency-deposit ratio​ fell, the​ reserve-deposit ratio​ rose, and the money multiplier fell. B. the​ currency-deposit ratio​ rose, the​ reserve-deposit ratio​ fell, and the money multiplier rose. C. the​ currency-deposit ratio​ rose, the​ reserve-deposit ratio​ rose, and the money multiplier rose. D. the​ currency-deposit ratio​ fell, the​ reserve-deposit ratio​ fell, and the money multiplier fell.

A. the​ currency-deposit ratio​ rose, the​ reserve-deposit ratio​ rose, and the money multiplier fell. A. the monetary base rose and the money multiplier fell. A. the​ currency-deposit ratio​ fell, the​ reserve-deposit ratio​ rose, and the money multiplier fell.

1.) When we say that the United States was​ "pricing their products out of foreign​ markets," we mean the dollar was worth A. too much in trading partner countries. B. too little in trading partner countries. C. too much inside the United States. D. too little inside the United States. ​ 2.) Which of the following accurately depicts an event described in this application and shown in this figure LOADING...​? A. The​ dollar's real value fell between 1985 and 1987. B. The dollar was weak between 1997 and 2001. C. Net exports in the United States rose between 1985 and 1987. D. Net exports in the United States rose between 1997 and 2001. ​3.) The decrease in American net exports between 1997 and 2001 is best explained by A. bad diplomatic relations between the United States and its trading partners. B. low productive capacity in the United States. C. the high value of the dollar in trading partner nations. D. slow growth or a recession in trading partner nations.

A. too much in trading partner countries A. The​ dollar's real value fell between 1985 and 1987. D. slow growth or a recession in trading partner nations.

Describe three alternative responses available to policymakers when the economy is in recession. A. (1) make no change in macroeconomic​ policy, (2) decrease the money​ supply, or​ (3) decrease government purchases. B. (1) make no change in macroeconomic​ policy, (2) increase the money​ supply, or​ (3) increase government purchases. C. ​(1) make no change in macroeconomic​ policy, (2) increase the money​ supply, or​ (3) decrease government purchases. D. (1) make no change in macroeconomic​ policy, (2) decrease the money​ supply, or​ (3) increase government purchases. What happens in the long run if policymakers make no change in macroeconomic​ policy? A. the price level will be unchanged and employment will be lower B. the price level will be lower and employment will be lower C. the price level will be lower and employment will return to its​ full-employment level D. the price level will be unchanged and employment will return to its​ full-employment level What happens in the long run if policymakers increase the money supply​ appropriately? A. the price level will be unchanged and employment will be lower B. the price level will be lower and employment will be lower C. the price level will be unchanged and employment will return to its​ full-employment level D. the price level will be lower and employment will return to its​ full-employment level What happens in the long run if policymakers increase government purchases​ appropriately? A. the price level will be unchanged and employment will return to its​ full-employment level B. the price level will be unchanged and employment will be lower C. the price level will be lower and employment will be lower D. the price level will be lower and employment will return to its​ full-employment level

B. (1) make no change in macroeconomic​ policy, (2) increase the money​ supply, or​ (3) increase government purchases. C. the price level will be lower and employment will return to its​ full-employment level C. the price level will be unchanged and employment will return to its​ full-employment level A. the price level will be unchanged and employment will return to its​ full-employment level

For a given real exchange​ rate, how are a​ country's net exports affected by an increase in domestic​ income? A. An increase in domestic income leads foreigners to buy more​ goods, including exported​ goods, so net exports increase. B. An increase in domestic income leads people to buy more​ goods, including imported​ goods, so net exports decline. C. An increase in domestic income leads foreigners to buy fewer​ goods, including exported​ goods, so net exports decline. D. An increase in domestic income leads people to buy fewer​ goods, including imported​ goods, so net exports increase. For a given real exchange​ rate, how are a​ country's net exports affected by an increase in foreign​ income? A. An increase in foreign income leads foreigners to buy fewer​ goods, including exported​ goods, so net exports decline. B. An increase in foreign income leads people to buy more​ goods, including imported​ goods, so net exports decline. C. An increase in foreign income leads foreigners to buy more​ goods, including exported​ goods, so net exports increase. D. An increase in foreign income leads people to buy fewer​ goods, including imported​ goods, so net exports increase. How does an increase in the domestic real interest rate affect the real exchange rate and net​ exports? A. The real exchange rate declines and net exports rise. B. The real exchange rate rises and net exports rise. C. The real exchange rate declines and net exports decline. D. The real exchange rate rises and net exports decline.

B. An increase in domestic income leads people to buy more​ goods, including imported​ goods, so net exports decline. C. An increase in foreign income leads foreigners to buy more​ goods, including exported​ goods, so net exports increase. D. The real exchange rate rises and net exports decline.

"It is plain to see that discretion is a better way to run monetary policy than following a rule because a policy of discretion gives the central bank the ability to react to news about the​ economy." Which of the following best represents the monetarist response to this​ statement? A. Policy actions are always counterproductive. B. Because of information​ lags, it is difficult for the central bank to tell what the appropriate policy is at a particular time. C. Credibility does not matter in affecting the macroeconomy. D. Discretion is better than rules. Which of the following best represents a response utilizing more recent​ arguments? A. Credibility can be enhanced by using a rule. If people believe the bank is committed to a​ rule, they will believe that the central bank will not take advantage of them by using unexpected inflation to temporarily increase​ output, so inflation is lower. B. Discretion is better than rules. C. Because of​ uncertainty, no one will know what the central bank is doing. D. Policy actions are always counterproductive.

B. Because of information​ lags, it is difficult for the central bank to tell what the appropriate policy is at a particular time. A. Credibility can be enhanced by using a rule. If people believe the bank is committed to a​ rule, they will believe that the central bank will not take advantage of them by using unexpected inflation to temporarily increase​ output, so inflation is lower.

Which of the following government policies will not reduce the natural rate of​ unemployment? A. Increase efficiency in labor​ markets, through the use of technology. B. Increase unemployment insurance payments. C. Increase education spending for unemployed workers. D. Increase spending on job training programs for unemployed workers

B. Increase unemployment insurance payments.

​1.) The pioneer of inflation targeting was A. Israel. B. New Zealand. C. the United States. D. Canada. ​ 2.) Which of the following characterize inflation targeting as a monetary policy​ strategy? ​(Check all that apply​.) A. The targeting of intermediate goals​ (e.g., money​ growth) is a necessary component of inflation targeting. B. The likelihood that inflation targeting will become the preferred monetary policy strategy in the future is uncertain. C. The determination of the specific policy actions needed for any given inflation target is difficult to make. D. The​ public's assessment of the central​ bank's success in target attainment is not easily accomplished. E. The use of monetary policy for output stabilization in the short run is precluded. ​ 3.) The United States A. was the first country to introduce inflation targeting to the world. B. has a formal inflation targeting system. C. does not formally use inflation​ targeting, but does use some policies used by countries that target inflation. D. does not have a formal inflation targeting system or use any similar policies.

B. New Zealand. B. The likelihood that inflation targeting will become the preferred monetary policy strategy in the future is uncertain. C. The determination of the specific policy actions needed for any given inflation target is difficult to make. D. The​ public's assessment of the central​ bank's success in target attainment is not easily accomplished. C. does not formally use inflation​ targeting, but does use some policies used by countries that target inflation.

Some labor economists argue that it is useful to think of the labor market as being divided into two​ sectors: a primary​ sector, where​ ?good? (high-paying,​ long-term) jobs are​ located, and a secondary​ sector, which has​ ?bad? (low-paying,​ short-term) jobs. Suppose that the primary sector has a high marginal product of labor and that​ (because effort is costly for firms to​ monitor) firms pay an efficiency wage. The secondary sector has a low marginal product of labor and no efficiency​ wage; instead, the real wage in the secondary sector adjusts so that the quantities of labor demanded and supplied are equal in that sector. Workers are​ alike, and all would prefer to work in the primary sector.​ However, workers who​ can?t find jobs in the primary sector work in the secondary sector. What are the effects of each of the following on the real​ wage, employment, and output in both​ sectors? a. Expansionary monetary policy increases the demand for primary sector output. A. Primary​ market: increase in employment and​ output, decrease in the real wage. Secondary​ market: decrease in employment and​ output, increase in the real wage. B. Primary​ market: increase in employment and​ output, no change in the real wage. Secondary​ market: decrease in employment and​ output, increase in the real wage. C. Primary​ market: increase in employment and​ output, increase in the real wage. Secondary​ market: decrease in employment and​ output, no change in the real wage. D. Primary​ market: increase in employment and​ output, no change in the real wage. Secondary​ market: decrease in employment and​ output, no change in the real wage. b. Immigration increases the labor force. A. Primary​ market: increase in employment and​ output, no change in the real wage. Secondary​ market: increase in employment and​ output, no change in the real wage. B. Primary​ market: no change in employment and​ output, no change in the real wage. Secondary​ market: increase in employment and​ output, decrease in the real wage. C. Primary​ market: increase in employment and​ output, increase in the real wage. Secondary​ market: decrease in employment and​ output, no change in the real wage. D. Primary​ market: increase in employment and​ output, decrease in the real wage. Secondary​ market: decrease in employment and​ output, increase in the real wage. c. The effort curve changes so that a higher real wage is needed to elicit the greatest effort per dollar in the primary sector. Effort exerted at the higher real wage is the same as before the change in the effort curve. A. Primary​ market: increase in employment and​ output, no change in the real wage. Secondary​ market: increase in employment and​ output, no change in the real wage. B. Primary​ market: increase in employment and​ output, increase in the real wage. Secondary​ market: decrease in employment and​ output, no change in the real wage. C. Primary​ market: increase in employment and​ output, increase in the real wage. Secondary​ market: decrease in employment and​ output, increase in the real wage. D. Primary​ market: decrease in employment and​ output, increase in the real wage. Secondary​ market: increase in employment and​ output, decrease in the real wage. d. There is a temporary productivity improvement in the primary sector. A. Primary​ market: increase in employment and​ output, no change in the real wage. Secondary​ market: increase in employment and​ output, no change in the real wage. B. Primary​ market: increase in employment and​ output, increase in the real wage. Secondary​ market: decrease in employment and​ output, no change in the real wage. C. Primary​ market: increase in employment and​ output, no change in the real wage. Secondary​ market: decrease in employment and​ output, increase in the real wage. D. Primary​ market: increase in employment and​ output, increase in the real wage. Secondary​ market: decrease in employment and​ output, increase in the real wage. e. There is a temporary productivity improvement in the secondary sector. A. Primary​ market: no change in employment and​ output, no change in the real wage. Secondary​ market: increase in employment and​ output, increase in the real wage. B. Primary​ market: increase in employment and​ output, no change in the real wage. Secondary​ market: increase in employment and​ output, no change in the real wage. C. Primary​ market: increase in employment and​ output, increase in the real wage. Secondary​ market: increase in employment and​ output, no change in the real wage. D. Primary​ market: increase in employment and​ output, decrease in the real wage. Secondary​ market: increase in employment and​ output, increase in the real wage.

B. Primary​ market: increase in employment and​ output, no change in the real wage. Secondary​ market: decrease in employment and​ output, increase in the real wage. B. Primary​ market: no change in employment and​ output, no change in the real wage. Secondary​ market: increase in employment and​ output, decrease in the real wage. D. Primary​ market: decrease in employment and​ output, increase in the real wage. Secondary​ market: increase in employment and​ output, decrease in the real wage. C. Primary​ market: increase in employment and​ output, no change in the real wage. Secondary​ market: decrease in employment and​ output, increase in the real wage. A. Primary​ market: no change in employment and​ output, no change in the real wage. Secondary​ market: increase in employment and​ output, increase in the real wage.

According to Friedman and Phelps the​ expectations-augmented Phillips curve differs from the original Phillips curve in that the​ expectations-augmented Phillips curve predicts a negative relationship​ between: A. Anticipated inflation and structural unemployment. B. Unanticipated inflation and cyclical unemployment. C. Anticipated inflation and cyclical unemployment. D. Unanticipated inflation and structural unemployment.

B. Unanticipated inflation and cyclical unemployment.

Why do many governments have policies against negotiating with​ hostage-taking terrorists? A. terrorists will kill their hostages if you pay them or not B. if they negotiate with some​ terrorists, more terrorists will take hostages in the future C. it violates international agreements D. the government is heartless In the above​ game, a credible commitment by the government changes the behavior of terrorists. With that in​ mind, how is a policy against negotiating with terrorists analogous to monetary​ policy? A. If the monetary authority credibly commits to a​ rule, then the public will not change inflation expectations in anticipation of an increase in the money supply. B. If the public credibly commits to an expectation of​ inflation, then the monetary authority will not increase the money supply. C. Both parties must make a credible committment in order to achieve the best possible outcome. D. The chairman of the Federal Reserve is a terrorist.

B. if they negotiate with some​ terrorists, more terrorists will take hostages in the future A. If the monetary authority credibly commits to a​ rule, then the public will not change inflation expectations in anticipation of an increase in the money supply.

1.) The main goal of the creation of the Term Auction Facility and the Term Securities Lending Facility described in the article was to A. increase the amount of customer deposits covered in the case of a failing bank. B. increase the supply of available credit. C. ​"burst the​ bubble" that existed in the housing market. D. shift the LM curve rightward. ​ 2.) Which of the following events was instrumental in turning the financial situation in 2007 and 2008 from what could have been a fairly minor problem to a​ full-scale crisis? A. Rapid and unpredictable increase in stock prices. B. The shift left and downward of the IS curve. C. Bankruptcy of Lehman Brothers. D. Fall in housing prices. ​3.) Which of the following was not an attempt to lessen the impact of the 2008 financial​ crisis? A. Making provisions to buy temporarily undervalued financial assets. B. Policies designed to shift the IS curve to the left and downward. C. Increases in the amount of FDIC deposit coverage from​ $100,000 per account to​ $250,000. D. Efforts to increase the amount of capital available to banks.

B. increase the supply of available credit. C. Bankruptcy of Lehman Brothers. B. Policies designed to shift the IS curve to the left and downward.

For the past 35​ years, which category of U.S.​ federal, state, and local government tax receipts has been the​ largest? A. taxes on production and imports B. personal taxes C. corporate profit taxes D. contributions from social insurance For the past 35​ years, which category of U.S.​ federal, state, and local government tax receipts has been the​ smallest? A. contributions from social insurance B. corporate profit taxes C. taxes on production and imports D. personal taxes

B. personal taxes B. corporate profit taxes

What are the variables that determine the recommended fed funds rate according to the Taylor​ rule? A. inflation over the past five​ years, the deviation of output from the level of​ full-employment output, and the deviation of recent inflation from its target of​ 2% B. recent​ inflation, the deviation of output from the level of​ full-employment output, and the deviation of recent inflation from its target of​ 2% C. inflation over the past five​ years, the growth rate of​ output, and the deviation of recent inflation from its target of​ 2% D. recent​ inflation, the growth rate of​ output, and the deviation of recent inflation from its target of​ 2% How has the Taylor rule performed​ historically? A. fairly​ badly; when the Fed has set the fed funds rate below that called for by the Taylor​ rule, inflation has often decreased and when the Fed has followed the Taylor​ rule, inflation has often increased B. fairly​ badly; when the Fed has set the fed funds rate below that called for by the Taylor​ rule, inflation has often been stable and when the Fed has followed the Taylor​ rule, inflation has often increased C. fairly​ well; when the Fed has set the fed funds rate below that called for by the Taylor​ rule, inflation has often decreased and when the Fed has followed the Taylor​ rule, inflation has been stable D. fairly​ well; when the Fed has set the fed funds rate below that called for by the Taylor​ rule, inflation has often increased and when the Fed has followed the Taylor​ rule, inflation has been stable

B. recent​ inflation, the deviation of output from the level of​ full-employment output, and the deviation of recent inflation from its target of​ 2% D. fairly​ well; when the Fed has set the fed funds rate below that called for by the Taylor​ rule, inflation has often increased and when the Fed has followed the Taylor​ rule, inflation has been stable

How is​ full-employment output determined in the Keynesian model with efficiency​ wages? A. the amount of output produced by firms with employment determined by the labor supply curve at the point where workers do not shirk B. the amount of output produced by firms with employment determined by the labor demand curve at the point where the marginal product of labor equals the efficiency wage C. the amount of output produced by firms with employment determined by the labor demand curve at the point where the unemployment rate is zero D. the amount of output produced by firms with employment determined where the labor demand curve intersects the labor supply curve In this​ model, how is​ full-employment output affected by changes in productivity​ (supply shocks)? A. A productivity shock does not affect the marginal product of​ labor, so employment does not change B. A productivity shock affects the marginal product of​ labor, so employment changes C. A productivity shock does not lead to a change in the efficiency​ wage, so employment does not change D. A productivity shock changes the efficiency​ wage, since it affects work​ effort, so employment changes How is​ full-employment output affected by changes in labor​ supply? A. Labor supply changes have no effect on the efficiency wage but they change​ employment; so they affect​ full-employment output. B. Labor supply changes have no effect on the efficiency wage or​ employment; so they have no impact on​ full-employment output. C. Labor supply changes have no effect on​ employment, despite changing the efficiency​ wage; so they have no impact on​ full-employment output. D. Labor supply changes affect the efficiency wage and​ employment; so they change​ full-employment output.

B. the amount of output produced by firms with employment determined by the labor demand curve at the point where the marginal product of labor equals the efficiency wage B. A productivity shock affects the marginal product of​ labor, so employment changes B. Labor supply changes have no effect on the efficiency wage or​ employment; so they have no impact on​ full-employment output.

What is the fundamental value of a​ currency? A. the value of the exchange rate that leads to a real exchange rate of 1 B. the value of the exchange rate that would be determined by​ free-market forces of demand and supply without government intervention C. the value of the exchange rate that is determined by the government D. the value of the exchange rate that causes net exports to be zero What does saying that a currency is overvalued​ mean? A. when the exchange rate is declining B. when the official exchange rate is higher than its fundamental value C. when there is a speculative run D. when the official exchange rate is lower than its fundamental value Why is an overvalued currency a​ problem? A. the central bank will have to sell the currency and gain official reserve assets B. the central bank will have to buy the currency with official reserve assets C. the central bank will have to reduce the interest rate D. the central bank will have to impose capital controls What can a country do about an overvalued​ currency? A. the country can change the official exchange​ rate, increase international​ transactions, or use expansionary monetary policy B. the country can change the official exchange​ rate, increase international​ transactions, or use contractionary monetary policy C. the country can change the official exchange​ rate, restrict international​ transactions, or use contractionary monetary policy D. the country can change the official exchange​ rate, restrict international​ transactions, or use expansionary monetary policy

B. the value of the exchange rate that would be determined by​ free-market forces of demand and supply without government intervention B. when the official exchange rate is higher than its fundamental value B. the central bank will have to buy the currency with official reserve assets C. the country can change the official exchange​ rate, restrict international​ transactions, or use contractionary monetary policy

1.) According to Walter​ Bagehot, an early advocate of the idea of a lender of last​ resort, most banks during a financial crisis are exposed to liquidity problems but not bankruptcy. ​ 2.) A properly constructed central​ bank-lending mechanism should have borrowing banks posting marketable securities as collateral for the funds they receive. ​ 3.) The failure of a central bank to act as a lender of last resort during a financial crisis may precipitate the following sequence of​ events: A. Banks sell assets en masse right arrow→ crisis deepens right arrow→ asset prices collapse right arrow→ banks are further weakened B. Asset prices collapse right arrow→ banks sell assets en masse right arrow→ banks are further weakened right arrow→ crisis deepens C. Banks sell assets en masse right arrow→ asset prices collapse right arrow→ banks are further weakened right arrow→ crisis deepens D. Crisis deepens right arrow→ banks sell assets en masse right arrow→ asset prices collapse right arrow→ banks are further weakened ​ 4.) If the ​lender-of-last-resort mechanism works as​ designed, the severity of a financial crisis is lessened and the funds that banks borrowed during the panic are returned to the central bank.

C. Banks sell assets en masse right arrow→ asset prices collapse right arrow→ banks are further weakened right arrow→ crisis deepens

How would each of the following likely affect the natural rate of unemployment. a. A new law prohibits people from seeking employment before age eighteen. A. No effect on the natural rate of unemployment. Your answer is not correct. B. Increase in the natural rate of unemployment. C. Decrease in the natural rate of unemployment. b. A new Internet​ service, Findwork.com​, makes it easy for people to check on the availability of jobs around the country. A. Increase in the natural rate of unemployment. B. No effect on the natural rate of unemployment. C. Decrease in the natural rate of unemployment. c.The length of time that unemployed workers can receive government benefits increases from six months to one year. A. Decrease in the natural rate of unemployment. B. Increase in the natural rate of unemployment. C. No effect on the natural rate of unemployment. d. A shift in the​ public's buying habits greatly expands the demand for sophisticated consumer electronics while reducing the demand for traditional consumer goods and​ services, such as clothing and restaurant meals. A. Decrease in the natural rate of unemployment. B. Increase in the natural rate of unemployment. C. No effect on the natural rate of unemployment. e. Tight monetary​ policy, introduced to get the inflation rate​ down, drives the economy into a recession. A. No effect on the natural rate of unemployment. B. Increase in the natural rate of unemployment. C. Decrease in the natural rate of unemployment.

C. Decrease in the natural rate of unemployment. C. Decrease in the natural rate of unemployment. B. Increase in the natural rate of unemployment. B. Increase in the natural rate of unemployment. A. No effect on the natural rate of unemployment.

How do changes in the expected inflation rate account for the behavior of the Phillips curve in the​ 1960s, 1970s, and 1980s in the United​ States? A. Expected inflation was low and stable in the​ 1960s; expected inflation fell significantly in the 1970s because of supply shocks and contractionary​ policy, shifting the​ short-run Phillips curve​ down; and expected inflation rose to higher levels in the 1980s because of expansionary monetary​ policy, shifting the​ short-run Phillips curve up. B. Expected inflation was low and stable in the​ 1960s; expected inflation fell significantly in the 1970s because of supply shocks and contractionary​ policy, shifting the​ short-run Phillips curve​ down; and expected inflation fell to low levels in the 1980s because of contractionary monetary​ policy, shifting the​ short-run Phillips curve down. C. Expected inflation was low and stable in the​ 1960s; expected inflation rose significantly in the 1970s because of supply shocks and expansionary​ policy, shifting the​ short-run Phillips curve​ up; and expected inflation fell to low levels in the 1980s because of contractionary monetary​ policy, shifting the​ short-run Phillips curve down. D. Expected inflation was low and stable in the​ 1960s; expected inflation rose significantly in the 1970s because of supply shocks and expansionary​ policy, shifting the​ short-run Phillips curve​ up; and expected inflation rose to higher levels in the 1980s because of expansionary monetary​ policy, shifting the​ short-run Phillips curve up. What role do supply shocks play in explaining the behavior of the​ short-run Phillips curve in the United​ States? A. The instability of the​ short-run Phillips curve is largely because of lower expected inflation associated with good monetary policy in the​ 1970s, which offset the supply shocks. B. The instability of the​ short-run Phillips curve is largely because of higher expected inflation associated with supply shocks in the 1970s. C. The instability of the​ short-run Phillips curve is largely because of shocks to labor​ productivity, not because of higher expected inflation associated with supply shocks in the 1970s. D. The instability of the​ short-run Phillips curve is largely because of lower expected inflation associated with supply shocks in the 1970s.

C. Expected inflation was low and stable in the​ 1960s; expected inflation rose significantly in the 1970s because of supply shocks and expansionary​ policy, shifting the​ short-run Phillips curve​ up; and expected inflation fell to low levels in the 1980s because of contractionary monetary​ policy, shifting the​ short-run Phillips curve down. B. The instability of the​ short-run Phillips curve is largely because of higher expected inflation associated with supply shocks in the 1970s.

1.) The formation of a currency union​ (or area) is viewed as an alternative to fixed exchange rates among a group of countries. History shows that currency unions have been relatively rare largely because countries typically dislike not having their own monetary policies. ​ 2.) Which one of the four criteria for an optimum currency area does Europe appear to most sufficiently​ fulfill? A. Similar business cycle patterns. B. High levels of labor and capital mobility. C. Extensive trade. D. The possibility of fiscal transfers. ​ 3.) Among the four criteria for an optimum currency​ area, which one was most noticeably lacking in Europe during and after the financial​ crisis? A. Extensive trade. B. High levels of labor and capital mobility. C. Similar business cycle patterns. D. The possibility of fiscal transfers. ​ 4.) In 2016 the voters in the United Kingdom​ (UK) voted to leave the European Union​ (EU), what were the positives and negatives of this​ decision? A. The UK will have more trade with the​ EU, but they miss out on having a standardized immigration policy. B. The UK no longer has to conform to immigration and labor market standards set by the​ EU, but they miss out on having the euro as a currency and must go back to the British pound. C. The UK no longer has to conform to EU labor standards and will have an influx of financial firms into the​ country, but they miss out on having the euro as a currency and must go back to the British pound. D. The UK no longer has to conform to immigration and labor market standards set by the​ EU, but leaving means paying an exit fee and missing out on unfettered trade with Europe.

C. Extensive trade. C. Similar business cycle patterns. D. The UK no longer has to conform to immigration and labor market standards set by the​ EU, but leaving means paying an exit fee and missing out on unfettered trade with Europe.

How does the ​IS-LM model for an open economy differ from the ​IS-LM model for a closed​ economy? A. International influences may shift the LM curve. B. International influences may shift the SRAS curve. C. International influences may shift the IS curve. D. International influences may shift the FE line. Describe how a recession in one country may be transmitted to other countries. A. A recession in one country reduces the money supply of other​ countries, shifting their LM curves up and to the left. B. A recession in one country increases the money supply of other​ countries, shifting their LM curves up and to the left. C. A recession in one country increases the net exports of other​ countries, shifting their IS curves down and to the left. D. A recession in one country reduces the net exports of other​ countries, shifting their IS curves down and to the left.

C. International influences may shift the IS curve. D. A recession in one country reduces the net exports of other​ countries, shifting their IS curves down and to the left.

Define inflation tax​ (also called​ seignorage). A. The inflation tax arises when the government declines to sell​ inflation-indexed bonds. B. The inflation tax arises when the government taxes nominal interest income instead of real interest income. C. The inflation tax arises when the government raises revenue by printing money. D. The inflation tax arises when the government increases statuatory marginal tax rates when inflation increases. How does the government collect the inflation​ tax, and who pays​ it? A. The government collects the inflation tax by printing money to purchase goods and​ services; the tax is paid by anyone who holds money. B. The government collects the inflation tax by increasing excise taxes on goods and​ services; the tax is paid by anyone who buys goods and services. C. The government collects the inflation tax by increasing excise taxes on goods and​ services; the tax is paid by anyone who holds money. D. The government collects the inflation tax by printing money to purchase goods and​ services; the tax is paid by anyone who buys goods and services. Can the government always increase its real revenues from the inflation tax by increasing money growth and​ inflation? A. Yes, because even though the inflation rate is​ high, it generates a rapid economic​ expansion, increasing real money demand enough that seignorage revenue increases. B. No, because a high enough inflation rate causes a severe​ recession, so seignorage revenue decreases. C. No, because a high enough inflation rate causes the real money supply to fall enough that seignorage revenue begins to fall when inflation increases. D. Yes, no matter how high the inflation rate​ is, seignorage revenue rises when inflation​ increases, though at a decreasing rate.

C. The inflation tax arises when the government raises revenue by printing money. A. The government collects the inflation tax by printing money to purchase goods and​ services; the tax is paid by anyone who holds money. C. No, because a high enough inflation rate causes the real money supply to fall enough that seignorage revenue begins to fall when inflation increases.

Why do economists suggest that tax rates be kept roughly constant over​ time, rather than alternating between high and low​ levels? A. Varying between a high and low tax rate leads to higher inflation than keeping the tax rate constant at a medium level. B. Varying between a high and low tax rate leads to more unemployment than keeping the tax rate constant at a medium level. C. Varying between a high and low tax rate leads to a greater average distortion than keeping the tax rate constant at a medium level. D. Varying between a high and low tax rate leads to a lower average distortion than keeping the tax rate constant at a medium level.

C. Varying between a high and low tax rate leads to a greater average distortion than keeping the tax rate constant at a medium level.

The efficiency wage​ is: A. an amount that maximizes effort or efficiency per dollar of money wages. B. an amount equal to or just above the minimum wage. C. an amount that maximizes effort or efficiency per dollar of real wages. D. the equilibrium wage rate determined in competitive labor markets. An assumption about worker behavior behind the efficiency wage theory is that effort is directly related to the worker compensation.

C. an amount that maximizes effort or efficiency per dollar of real wages.

Name two strategies for reducing expected inflation. A. cold turkey and opportunistic disinflation B. gradualism and​ exchange-rate-based disinflation C. cold turkey and gradualism D. opportunistic disinflation and​ exchange-rate-based disinflation What are the pros and cons of these​ strategies? A. Cold turkey reduces inflation​ slower, but at higher​ cost; gradualism reduces inflation​ faster, but at lower cost. B. Cold turkey reduces inflation​ slower, but at lower​ cost; gradualism reduces inflation​ faster, but at higher cost. C. Cold turkey reduces inflation​ faster, but at higher​ cost; gradualism reduces inflation​ slower, but at lower cost. D. Cold turkey reduces inflation​ faster, but at lower​ cost; gradualism reduces inflation​ slower, but at higher cost.

C. cold turkey and gradualism C. Cold turkey reduces inflation​ faster, but at higher​ cost; gradualism reduces inflation​ slower, but at lower cost.

Which of the following was NOT one of the main tools the Fed used in the Great Recession to avoid problems caused by the zero lower​ bound? A. quantitative easing B. forward guidance C. exchange rate easing When the Fed alters the types of assets it​ owns, it is using A. forward guidance B. exchange rate easing C. quantitative easing When the Fed increases its quantity of​ assets, by effectively printing money and buying securities in the open​ market, it is using A. forward guidance B. exchange rate easing C. quantitative easing D. credit easing When the Fed signals to the market how long it thinks interest rates will remain​ low, it is using A. forward guidance B. credit easing C. exchange rate easing D. quantitative easing

C. exchange rate easing C. quantitative easing C. quantitative easing A. forward guidance

Compared with most other OECD​ countries, how high is the ratio of U.S. government spending to​ GDP? A. about average B. higher than most other OECD countries C. lower than most other OECD countries D. the highest of all OECD countries

C. lower than most other OECD countries

Menu costs​ are, by definition A. a measure of inefficiency in an inflationary market economy. B. the variety of costs​ (or prices) of different goods and services. C. the costs of changing prices. D. the costs associated with reprinting menus in the restaurant industry.

C. the costs of changing prices.

Define purchasing power​ parity, or PPP. A. the result that the percentage change in the nominal exchange rate equals the difference between the inflation rates in two countries. B. the notion that the percentage change in the exchange rate will equal the difference between two​ country's exchange rates. C. the idea that similar foreign and domestic​ goods, or baskets of​ goods, should have the same price when priced in terms of the same currency. D. the condition that occurs when the real exchange rate is constant over time.

C. the idea that similar foreign and domestic​ goods, or baskets of​ goods, should have the same price when priced in terms of the same currency.

Because adverse supply shocks raise both expected inflation and the natural unemployment​ rate, the​ short-run Phillips curve shifts up and to the right. Which of the following does NOT describe the effectiveness of macroeconomic policy by classical and Keynesian​ economists? A. Both classical economists and Keynesians agree that policymakers can not keep the unemployment rate permanently below the natural rate by maintaining a high rate of inflation. B. Classical economists argue​ that, because prices and​ price-level expectations respond quickly to new​ information, the government can not keep actual inflation above expected inflation in order to drive unemployment below the natural rate. C. Keynesians contend that policymakers have some ability to create unanticipated inflation and thus to bring unemployment below the natural rate while sticky prices and wages are being adjusted to the new information. D. According to the Lucas​ critique, Keynesian activist policies could not have exploited a stable Phillips curve even in the short run.

D. According to the Lucas​ critique, Keynesian activist policies could not have exploited a stable Phillips curve even in the short run.

What are the two main types of​ exchange-rate systems? A. A​ fixed-exchange-rate system and a​ general-equilibrium-exchange-rate system. B. A​ crawling-peg-exchange-rate system and a​ flexible-exchange-rate system. C. A​ crawling-peg-exchange-rate system and a​ general-equilibrium-exchange-rate system. D. A​ fixed-exchange-rate system and a​ flexible-exchange-rate system. ​Currently, which type of system determines the values of the major​ currencies, such as the​ dollar, yen, and​ euro? A. flexible-exchange-rate system B. crawling-peg-exchange-rate system C. fixed-exhange-rate system D. general-equilibrium-exchange-rate system

D. A​ fixed-exchange-rate system and a​ flexible-exchange-rate system. A. flexible-exchange-rate system

In what ways would you expect​ inflation-targeting countries to do better than​ non-inflation-targeting countries? A. Inflation targeting has not proven to be a successful policy tool as inflation is expected to be less stable in countries that use inflation​ targeting, and there is an increase in the volatility of output. B. Although there is typically an increase in the volatility of​ output, inflation is expected to be more stable in countries that use inflation targeting. C. Although inflation is expected to be less stable in countries that use inflation​ targeting, there is typically a reduction in the volatility of output. D. Inflation is expected to be more stable in countries that use inflation​ targeting, without an increase in the volatility of output.

D. Inflation is expected to be more stable in countries that use inflation​ targeting, without an increase in the volatility of output.

1.) Which of the following is true about​ supply-side economics? A. It maintains that economic behavior may react to changes in​ taxes, but only to a very small degree. B. Its supporters lobbied against ERTA and other similar tax changes in the 1980s. C. It predicted that the supply of labor would decrease significantly as a result of legal changes like ERTA. D. Supply-side economics maintains that economic behavior will react strongly to changes in taxes. ​ 2.) As a result of​ ERTA, A. average tax rates rose and marginal tax rates fell. B. average tax rates fell and marginal tax rates rose. C. both average and marginal tax rates fell. D. both average and marginal tax rates rose. As a result of the 1986 Tax Reform​ Act, A. average tax rates fell and marginal tax rates rose. B. both average and marginal tax rates fell. C. average tax rates rose and marginal tax rates fell. D. both average and marginal tax rates rose. ​3.) The tax revisions in the 1980s led to A. increases in the supply of​ labor, but larger increases than those predicted by​ supply-side economics. B. decreases in the supply of​ labor, but smaller decreases than those predicted by​ supply-side economics. C. decreases in the supply of​ labor, but larger decreases than those predicted by​ supply-side economics. D. increases in the supply of​ labor, but smaller increases than those predicted by​ supply-side economics.

D. Supply-side economics maintains that economic behavior will react strongly to changes in taxes. C. both average and marginal tax rates fell. C. average tax rates rose and marginal tax rates fell. D. increases in the supply of​ labor, but smaller increases than those predicted by​ supply-side economics.

Who determines monetary policy in the United​ States? A. The Department of Commerce B. The President C. The U.S. Congress D. The Federal Reserve System How is the Board of Governors of the Federal Reserve system​ appointed? A. All members of the Board of Governors are appointed by the Secretary of the Treasury. B. The Chairman is appointed by the​ President, while other governors are appointed by the states in each bank region. C. All members of the Board of​ Governors, including the​ Chairman, are appointed by the President. D. None of the above describe the process in which the Board of Governors is appointed.

D. The Federal Reserve System C. All members of the Board of​ Governors, including the​ Chairman, are appointed by the President.

What does the Keynesian model predict about the cyclical behavior of average labor​ productivity? A. The Keynesian theory assumes that supply shocks cause most cyclical fluctuations. This means that during expansions when employment​ rises, average labor productivity​ declines, so it is countercyclical. B. The Keynesian theory assumes that supply shocks cause most cyclical fluctuations. This means that during expansions when employment​ rises, average labor productivity​ increases, so it is procyclical. C. The Keynesian theory assumes that demand shocks cause most cyclical fluctuations. This means that during expansions when employment​ rises, average labor productivity​ increases, so it is procyclical. D. The Keynesian theory assumes that demand shocks cause most cyclical fluctuations. This means that during expansions when employment​ rises, average labor productivity​ declines, so it is countercyclical. How does the idea of labor hoarding help bring the prediction of the model into conformity with the business cycle​ facts? A. The business cycle fact is that average labor productivity is mildly procyclical. If labor hoarding​ occurs, so that a given measured amount of employment produces less output during recessions and more output during​ expansions, then measured average labor productivity would be procyclical. B. The business cycle fact is that average labor productivity is mildly procyclical. If labor hoarding​ occurs, so that a given measured amount of employment produces less output during recessions and more output during​ expansions, then measured average labor productivity would be countercyclical. C. The business cycle fact is that average labor productivity is mildly countercyclical. If labor hoarding​ occurs, so that a given measured amount of employment produces less output during recessions and more output during​ expansions, then measured average labor productivity would be procyclical. D. The business cycle fact is that average labor productivity is mildly countercyclical. If labor hoarding​ occurs, so that a given measured amount of employment produces less output during recessions and more output during​ expansions, then measured average labor productivity would be countercyclical.

D. The Keynesian theory assumes that demand shocks cause most cyclical fluctuations. This means that during expansions when employment​ rises, average labor productivity​ declines, so it is countercyclical. A. The business cycle fact is that average labor productivity is mildly procyclical. If labor hoarding​ occurs, so that a given measured amount of employment produces less output during recessions and more output during​ expansions, then measured average labor productivity would be procyclical.

Why is some state and local spending paid for by grants in aid from the Federal government instead of entirely through taxes levied by states and localities on​ residents? A. The benefits to​ education, transportation, and welfare programs accrue to states and​ localities, but these programs are not efficiently administered at the state and local level. B. The benefits to​ education, transportation, and welfare programs accrue to states and​ localities, but these programs are most efficiently administered at the national level. C. The benefits to​ education, transportation, and welfare programs accrue to the entire​ nation, but these programs are not efficiently administered at the state and local level. D. The benefits to​ education, transportation, and welfare programs accrue to the entire​ nation, but these programs are most efficiently administered at the state and local level. What are the advantages and disadvantages of a system of grants in​ aid? A. Advantage: the national government has a broader mandate than state and local​ governments; disadvantage: when state and local governments​ don't have to raise taxes to pay for their​ spending, they tend to spend too much. B. Advantage: the administration of the programs may become​ politicized; disadvantage: the national government can identify the features that make these programs have nationwide benefits. C. Advantage: the national government is more efficient than state and local​ governments; disadvantage: the national government may use the system to control the state and local governments. D. Advantage: the national government can identify the features that make these programs have nationwide​ benefits; disadvantage: the administration of the programs may become politicized.

D. The benefits to​ education, transportation, and welfare programs accrue to the entire​ nation, but these programs are most efficiently administered at the state and local level. D. Advantage: the national government can identify the features that make these programs have nationwide​ benefits; disadvantage: the administration of the programs may become politicized.

Explain the difference between the overall government budget deficit and the primary deficit. A. The overall budget deficit equals the primary budget deficit minus net interest payments. B. The overall budget deficit equals the primary budget deficit minus government investment spending. C. The overall budget deficit equals the primary budget deficit plus government investment spending. D. The overall budget deficit equals the primary budget deficit plus net interest payments. Explain the difference between the primary deficit and the primary current deficit. A. The primary current budget deficit equals the primary budget deficit minus government investment. B. The primary current budget deficit equals the primary budget deficit plus government investment. C. The primary current budget deficit equals the primary budget deficit plus net interest payments. D. The primary current budget deficit equals the primary budget deficit minus net interest payments. Why are three deficit concepts​ needed? A. The overall deficit tells how much the government must borrow currently to pay for its​ outlays; the primary deficit tells whether future revenues are sufficient to pay for future​ programs; the primary current deficit tells whether current revenues are sufficient to pay for current programs other than government entitlement programs. B. The overall deficit whether future revenues are sufficient to pay for future​ programs; the primary deficit tells tells how much the government must borrow currently to pay for its​ outlays; the primary current deficit tells whether current revenues are sufficient to pay for current programs other than government entitlement programs. C. The overall deficit tells how much the government must borrow currently to pay for its​ outlays; the primary deficit tells whether current revenues are sufficient to pay for current​ programs; the primary current deficit tells whether current revenues are sufficient to pay for current programs other than government investment. D. The overall deficit whether current revenues are sufficient to pay for current​ programs; the primary deficit tells tells how much the government must borrow currently to pay for its​ outlays; the primary current deficit tells whether current revenues are sufficient to pay for current programs other than government investment.

D. The overall budget deficit equals the primary budget deficit plus net interest payments. A. The primary current budget deficit equals the primary budget deficit minus government investment. C. The overall deficit tells how much the government must borrow currently to pay for its​ outlays; the primary deficit tells whether current revenues are sufficient to pay for current​ programs; the primary current deficit tells whether current revenues are sufficient to pay for current programs other than government investment.

Define monetary​ base: A. The total amount of money held by the​ non-bank public. B. The total amount of money held by banks as reserves. C. The total amount of money held by the Federal Reserve. D. The total amount of currency held by the​ non-bank public and money held by banks as reserves. E. The total amount of money held by the​ non-bank public, private banks as​ reserves, and the Federal Reserve. F. The total amount of money held by private banks as reserves and the Federal Reserve. G. The total amount of currency held by the​ non-bank public and money held by the Federal Reserve. How does the monetary base differ from the money​ supply? A.The monetary base equals the money supply. B. The monetary base is equal to all money held in banks. C. The monetary base is​ zero, because the reserve ratio is zero. D. The money supply equals the monetary base times the money multiplier.

D. The total amount of currency held by the​ non-bank public and money held by banks as reserves. D. The money supply equals the monetary base times the money multiplier.

Which of these statements best characterizes the movement of the U.S. federal government​ debt-GDP ratio since​ 1939? A. The​ debt-GDP ratio fell sharply in World War​ II, rose from 1946 to the early​ 1970s, fell from the 1980s to​ 2000, and has been rising since then. B. The​ debt-GDP ratio fell sharply in World War​ II, rose from 1946 to the early​ 1970s, fell in the 1980s and early​ 1990s, rose from the​ mid-1990s to​ 2000, and has been falling since then. C. The​ debt-GDP ratio rose sharply in World War​ II, declined from 1946 to the early​ 1970s, rose from the 1980s to​ 2000, and has been declining since then. D. The​ debt-GDP ratio rose sharply in World War​ II, declined from 1946 to the early​ 1970s, rose in the 1980s and early​ 1990s, declined from the​ mid-1990s to​ 2000, and has been rising since then. Which two factors would both cause the​ debt-GDP ratio to rise​ quickly? A. a low deficit relative to GDP and a fast rate of GDP growth B. a low deficit relative to GDP and a slow rate of GDP growth C. a high deficit relative to GDP and a slow rate of GDP growth D. a high deficit relative to GDP and a fast rate of GDP growth

D. The​ debt-GDP ratio rose sharply in World War​ II, declined from 1946 to the early​ 1970s, rose in the 1980s and early​ 1990s, declined from the​ mid-1990s to​ 2000, and has been rising since then. C. a high deficit relative to GDP and a slow rate of GDP growth

Classical economists argue that using fiscal policy to fight a recession​ doesn't make workers better off.​ Suppose, however, that the Keynesian model is correct. Relative to a policy of doing​ nothing, does an increase in government purchases that brings the economy to full employment make workers better​ off? A. No, because full employment is restored​ quickly, but changes in the price level would do the same. B. Yes, because even though full employment is restored​ slowly, if the price level must​ adjust, full employment may never be restored. C. No, because full employment is restored as slowly as would be the case if the price level had to adjust. D. Yes, because full employment is restored​ quickly, whereas if the price level must​ adjust, it may take a long time for full employment to be restored. How does your answer depend on​ (a) the direct benefits of the government spending program and​ (b) the speed with which prices adjust in the absence of fiscal​ stimulus? A. The less beneficial are government​ purchases, and the longer the free market takes to restore​ equilibrium, the more likely such a program is to increase economic welfare. B. The more beneficial are government​ purchases, and the shorter the free market takes to restore​ equilibrium, the more likely such a program is to increase economic welfare. C. The more beneficial are government​ purchases, and the longer the free market takes to restore​ equilibrium, the more likely such a program is to increase economic welfare. D. The less beneficial are government​ purchases, and the shorter the free market takes to restore​ equilibrium, the more likely such a program is to increase economic welfare.

D. Yes, because full employment is restored​ quickly, whereas if the price level must​ adjust, it may take a long time for full employment to be restored. C. The more beneficial are government​ purchases, and the longer the free market takes to restore​ equilibrium, the more likely such a program is to increase economic welfare.

When an exchange rate is higher than its fundamental​ value, it is A. a variable exchange rate. B. a flexible exchange rate. C. an undervalued exchange rate. D. an overvalued exchange rate.

D. an overvalued exchange rate.

Why is a country limited in changing its money supply under a​ fixed-exchange-rate system? A. because changes in the money supply cause changes in the real exchange rate in the long run B. because only one level of the money supply is consistent with zero net exports C. because changes in the money supply lead to changes in the inflation rate D. because only one level of the money supply is consistent with the official exchange rate being equal to its fundamental value Explain how policy coordination among countries in a​ fixed-exchange-rate system can increase the degree to which monetary policy may be used to pursue macroeconomic goals. A. If one country uses expansionary fiscal policy and the other uses contractionary fiscal​ policy, then the currencies​ won't become overvalued or undervalued relative to each other. B. If one country uses expansionary monetary policy and the other uses contractionary monetary​ policy, then the currencies​ won't become overvalued or undervalued relative to each other. C. If countries use expansionary monetary policy at the same​ time, then the currencies​ won't become overvalued or undervalued relative to each other. D. If countries use expansionary fiscal policy at the same​ time, then the currencies​ won't become overvalued or undervalued relative to each other.

D. because only one level of the money supply is consistent with the official exchange rate being equal to its fundamental value C. If countries use expansionary monetary policy at the same​ time, then the currencies​ won't become overvalued or undervalued relative to each other.

What are the major components of government​ outlays? A. government​ purchases, government​ consumption, and taxes B. taxes, government​ consumption, and net interest payments C. government​ purchases, transfer​ payments, and government investment D. government​ purchases, transfer​ payments, and net interest payments What are the major sources of government​ revenues? A. personal​ taxes, direct business​ taxes, and indirect business taxes B. contributions for social insurance and indirect business taxes C. personal​ taxes, contributions for social​ insurance, indirect business​ taxes, and corporate taxes D. personal​ taxes, welfare​ payments, indirect business​ taxes, and sales taxes How does the composition of the Federal​ government's outlays and revenues differ from that of state and local​ governments? A. Most spending on non-defense goods and services is done by state and local governments. B. The federal government spends far less on transfers than on nonmilitary goods and services. C. State and local governments are large payers of net​ interest, while the federal government is a net recipient of interest payments. D. Most of state and local​ governments' revenues come from personal taxes and contributions for social​ insurance, while the federal government relies more heavily on indirect business taxes​ (sales taxes)

D. government​ purchases, transfer​ payments, and net interest payments C. personal​ taxes, contributions for social​ insurance, indirect business​ taxes, and corporate taxes A. Most spending on non-defense goods and services is done by state and local governments.

Which of these represents an example in which there is a difference between the average tax rate and the marginal tax rate on a​ person's income. A. no tax on income below​ $15,000, then a tax at​ 20% on income above​ $15,000, for a person with an income of​ $12,000. B. a tax at​ 20% on all​ income, for a person with an income of​ $75,000. C. a tax at​ 20% on all income up to​ $100,000, for a person with an income of​ $47,000. D. no tax on income below​ $15,000, then a tax at​ 20% on income above​ $15,000, for a person with an income of​ $30,000. For a constant​ before-tax real​ wage, which type of tax rate most directly affects how wealthy a person​ feels? average tax rate Which type of tax rate affects the reward for working an extra​ hour? marginal tax rate

D. no tax on income below​ $15,000, then a tax at​ 20% on income above​ $15,000, for a person with an income of​ $30,000.

1.) The Application is about Henry Ford and the Ford Motor Company and A. how unions can increase wages for workers. B. the efficiency gains that can result from having workers each specialize in a small part of the production process. C. how an increase in the price of a complement can decrease demand for a good. D. how an increase in wages can be good for profitability. ​2.) Which of the following is true about the results of​ Ford's $5​ day? A. Wages​ decreased, productivity​ decreased, and profitability decreased. B. Wages​ increased, productivity​ increased, and profitability increased. C. Wages​ increased, productivity​ decreased, and profitability decreased. D. Wages​ increased, productivity​ decreased, and profitability increased. ​ 3.) Which of the following was an observed effect of​ Ford's "efficiency​ wage?" A. Increased productivity. B. Increased worker slowdowns. C. Increased absenteeism. D. All of the above.

D. how an increase in wages can be good for profitability. B. Wages​ increased, productivity​ increased, and profitability increased. A. Increased productivity.

1.) If we say that prices of Big Macs in various countries are converging​, we mean that they are A. rising. B. falling. C. moving further apart. D. moving closer together. ​2.) If the idea of PPP holds true and Big Mac prices​ converge, we would expect A. both the Canadian dollar and the euro to appreciate. B. the euro to appreciate and the Argentinian peso to depreciate. C. both the Chinese yuan and the Brazilian real to depreciate. D. both the Japanese yen and the Swiss franc to appreciate. ​ 3.) Using the Big Mac prices shown​ above, if PPP holds more true in the​ future, we would expect the A. dollar price of Big Macs in Switzerland to fall. B. dollar price of Big Macs in Japan to fall. C. dollar price of Big Macs in the United States to fall. D. dollar price of Big Macs in Brazil to rise. According to the​ table, the price of a Big Mac in Argentina is lower than the price in the U.S. The price in Argentina is 19% higher than expected after adjusting for GDP per capita.

D. moving closer together. A. both the Canadian dollar and the euro to appreciate. A. dollar price of Big Macs in Switzerland to fall.

1.) Under a​ pay-as-you-go system, as described in the​ article, the payroll taxes paid by​ today's workers A. pay interest on loans taken out to pay for​ workers' future retirement needs. B. are spent on other​ non-Social Security programs today. C. are set aside for those same workers when they retire. D. pay for the benefits of those receiving benefits today. ​ 2.) Which of the following statements accurately represents dates given in the Application​ box? A. In​ 2034, payouts from Social Security as a percentage of GDP are scheduled to increase sharply. B. The Social Security trust fund is scheduled to be exhausted by 2034. C. In​ 2021, payouts from Social Security are estimated to exceed tax revenues by about​ 1.3% of GDP. D. In​ 2016, Social Security is scheduled to start spending more tax revenue than it takes in. ​ 3.) One of the possible fixes for Social Security would be an increase in taxes. Which of the​ following, based on the Application​ box, is a downside to this​ method? A. Increases in taxes distort labor supply decisions. B. Increases in taxes could pay for future recipients but not current recipients. C. Increases in taxes would have to be invested in​ high-risk choices like the stock market. D. None of the above are mentioned in the Application box as a possible downside.

D. pay for the benefits of those receiving benefits today. B. The Social Security trust fund is scheduled to be exhausted by 2034. A. Increases in taxes distort labor supply decisions.

Why does the Federal Reserve work hard to establish its​ credibility? A. to increase the costs of disinflation B. to reduce the costs of unemployment C. to increase the costs of unemployment D. to reduce the costs of disinflation What benefits might the public gain if the Federal Reserve has a great deal of​ credibility? A. the expected inflation rate will be high and the sacrifice ratio will be high B. the expected inflation rate will be high and the sacrifice ratio will be low C. the expected inflation rate will be low and the sacrifice ratio will be low D. the expected inflation rate will be low and the sacrifice ratio will be high

D. to reduce the costs of disinflation C. the expected inflation rate will be low and the sacrifice ratio will be low