econ eh
If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply equals:
800 bil
If the number of employed workers equals 200 million and the number of unemployed workers equals 20 million, the unemployment rate equals ______ percent (rounded to the nearest percent). a. 11 b. 9 c. 20 d. 0
9
In a small open economy, if the world real interest rate is above the rate at which national saving equals domestic investment, then there will be a trade ______ and ______ net capital outflow a. surplus; positive b. deficit; positive c. deficit; negative d. surplus; negative
a
The money supply consists of: a. currency plus demand deposits. b. the monetary base plus demand deposits. c. currency plus reserves. d. currency plus the monetary base.
a
The real wage is the return to labor measured in: a. units of output. b. units of labor. c. dollars. d. units of capital.
a
The size of the monetary base is determined by: a. the Federal Reserve. b. preferences of households about the form of money they wish to hold. c. the Federal Reserve and banks. d. business policies of banks and the laws regulating banks.
a
The value of net exports is also the value of: a. the difference of national saving and domestic investment. b. national saving. c. net investment. d. net saving.
a
To increase the money supply, the Federal Reserve: a. buys government bonds. b. buys corporate stocks. c. sells government bonds. d. sells corporate stocks.
a
What determines the ratio of the wage to rental rate of capital in a competitive, profit-maximizing economy with constant returns to scale? a. the marginal productivity of labor relative to the marginal productivity of capital b. the ratio of public saving to private saving c. the interest rate d. the quantity of economic profits earned by firm owners
a
The classical dichotomy: a. is said to hold when the values of real variables can be determined without any reference to nominal variables or the existence of money. b. cannot hold if money is "neutral." c. arises because money depends on the nominal interest rate. d. fully describes the world in which we live, especially in the short run.
a.
In the Solow growth model, where s is the saving rate, y is output per worker, and i is investment per worker, consumption per worker ( c) equals: a. (1 - s) y b. (1 - s) y - i c. (1 + s) y d. sy
a. (1 - s) y
In the Solow model with technological progress, the steady-state growth rate of capital per effective worker is: a. 0. b. n + g. c. n. d. g.
a. 0.
In this graph, initially the economy is at point E, with price P 0 and output aggregate demand is given by curve AD 0, and SRAS and LRAS represent, respectively, short-run and long-run aggregate supply. Now assume that the aggregate demand curve shifts so that it is represented by AD 1. The economy moves first to point ______ and then, in the long run, to point ______. a. C; B b. D; A c. B; C d. A; D
a. C; B
In the Solow model with technological change, the Golden Rule level of capital is the steady state that maximizes: a. consumption per effective worker. b. consumption per worker. c. output per effective worker. d. output per worker.
a. consumption per effective worker.
In the Solow growth model with population growth and labor-augmenting technological change, the break-even level of investment must cover: a. depreciating capital, capital for new workers, and capital for new effective workers. b. depreciating capital and capital for new workers. c. depreciating capital and capital for new effective workers. d. depreciating capital.
a. depreciating capital, capital for new workers, and capital for new effective workers.
When an aggregate demand curve is drawn with real GDP ( Y) along the horizontal axis and the price level ( P) along the vertical axis, if the money supply is decreased, then the aggregate demand curve will shift: a. downward and to the left. b. downward and to the right. c. upward and to the right. d. upward and to the left.
a. downward and to the left.
The short run refers to a period: a. during which prices are sticky and cyclical unemployment may occur. b. during which capital and labor are fully employed. c. of several days. d. during which there are no fluctuations.
a. during which prices are sticky and cyclical unemployment may occur.
The number of effective workers takes into account the number of workers and the: a. efficiency of each worker. b. saving rate of each worker. c. rate of growth of the number of workers. d. amount of capital available to each worker.
a. efficiency of each worker.
If a short-run equilibrium occurs at a level of output above the natural rate, then in the transition to the long run prices will ______, and output will ______. a. increase; decrease b. decrease; increase c. increase; increase d. decrease; decrease
a. increase; decreasea.
When a long-term aggregate supply curve is drawn with real GDP ( Y) along the horizontal axis and the price level ( P) along the vertical axis, this curve: a. is vertical. b. slopes upward and to the right. c. is horizontal. d. slopes downward and to the right.
a. is vertical.
Okun's law is the ______ relationship between real GDP and the ______. a. negative; unemployment rate b. positive; unemployment rate c. positive; inflation rate d. negative; inflation rate
a. negative; unemployment rate
The production function y = f ( k) means: a. output per worker is a function of capital per worker. b. output per worker is a function of labor productivity. c. labor is not a factor of production. d. the production function exhibits increasing returns to scale.
a. output per worker is a function of capital per worker.
In the Solow growth model, for any given capital stock, the ______ determines how much output the economy produces, and the ______ determines the allocation of output between consumption and investment. a. production function; saving rate b. depreciation rate; population growth rate c. population growth rate; saving rate d. saving rate; production function
a. production function; saving rate
The natural level of output is: a. the level of output at which the unemployment rate is at its natural level. b. permanent and unchangeable. c. affected by aggregate demand. d. the level of output at which the unemployment rate is zero.
a. the level of output at which the unemployment rate is at its natural level.
All of the following are considered major functions of money except as a: a. unit of account. b. way to display wealth. c. medium of exchange. d. store of value.
b
Efficiency-wage theories suggest that a firm may pay workers more than the market-clearing wage for all of the following reasons except to: a. improve the quality of the firm's labor force. b. reduce the firm's wage bill. c. increase worker effort. d. reduce labor turnover.
b
Frictional unemployment is unemployment caused by: a. minimum-wage legislation. b. the time it takes workers to search for a job. c. wage rigidity. d. clashes between the motives of insiders and outsiders.
b
Given that M / P = kY, when the demand for money parameter, k, is large, the velocity of money is ______, and money is changing hands ______. a. large; infrequently b. small; infrequently c. small; frequently d. large; frequently
b
If the purchasing-power parity theory is true, then: a. all changes in the real exchange rate result from changes in price levels. b. all changes in the nominal exchange rate result from changes in price levels. c. changes in saving or investment influence only the real exchange rate. d. the net exports schedule is very steep.
b
If the quantity of real money balances is kY, where k is a constant, then velocity is: a. kP. b. 1/k. c. P/k. d. k.
b
If the real interest rate declines by 1 percent and the inflation rate increases by 2 percent, the nominal interest rate implied by the Fisher equation: a. remains constant. b. increases by 1 percent. c. decreases by 1 percent. d. increases by 2 percent.
b
If wage rigidity holds the real wage above the equilibrium level, an increase in the supply of labor will ______ the number unemployed. a. possibly increase, decrease, or leave unchanged b. increase c. decrease d. not change
b
In a small, open economy if net exports are negative, then: a. net capital outflows are positive. b. domestic spending is greater than output. c. imports are less than exports. d. saving is greater than investment.
b
In the United States, the money supply is determined: a. only by the behavior of individuals who hold money and of banks in which money is held. b. jointly by the Fed and by the behavior of individuals who hold money and of banks in which money is held. c. according to a constant-growth-rate rule. d. only by the Fed.
b
In the long run, the level of national income in an economy is determined by its: a. real and nominal interest rate. b. factors of production and production function. c. government budget surplus or deficit. d. rate of economic and accounting profit.
b
Net capital outflow is equal to the amount that: a. domestic investors lend abroad. b. domestic investors lend abroad minus the amount that foreign investors lend here. c. foreign investors lend here. d. foreign investors lend here minus the amount domestic investors lend abroad.
b
Public saving: a. is the overall level of household wealth held in government bonds. b. depends on the government's tax collections relative to its expenditures. c. is decided by the Federal Reserve. d. is always positive.
b
Starting from a trade balance, if the world interest rate falls, then, holding other factors constant, in a small open economy the amount of domestic investment will _____, and net exports will _____. a. decrease; increase b. increase; decrease c. increase; not change d. increase; increase
b
The concept of monetary neutrality in the classical model means that an increase in the money supply growth rate will increase: a. real GDP. b. nominal interest rates. c. both saving and investment by the same amount. d. real interest rates.
b
The demand for loanable funds is equivalent to: :a. national saving .b. investment. c. private saving. d. public saving.
b
The demand for real money balances is generally assumed to: a. be constant. b. increase as real income increases. c. decrease as real income increases. d. be exogenous.
b
The lower the real exchange rate is, the ______ expensive domestic goods are relative to foreign goods, and the ______ the demand is for net exports. a. more; smaller b. less; greater c. less; smaller d. more; greater
b
The marginal product of labor is: a. additional output produced when one additional unit of labor and one additional unit of capital are added. b. additional output produced when one additional unit of labor is added. c. value of additional output when one dollar's worth of additional labor is added. d. output divided by labor input.
b
The natural rate of unemployment is: a. about 10 percent of the labor force. b. the average rate of unemployment around which the economy fluctuates. c. the transition of individuals between employment and unemployment. d. a rate that never changes.
b
The real exchange rate: a. is equal to the nominal exchange rate (measured in units of the foreign currency divided by units of home currency) multiplied by the foreign price level divided by the domestic price level. b. is equal to the nominal exchange rate (measured in units of the foreign currency divided by units of home currency) multiplied by the domestic price level divided by the foreign price level. c. is the price of a domestic car divided by the price of a foreign car. d. measures how many Japanese yen you can get for one U.S. dollar.
b
The real interest rate is equal to the: a. nominal interest rate. b. nominal interest rate minus the inflation rate. c. nominal interest rate plus the inflation rate. d. amount of interest that a lender actually receives when making a loan.
b
The supply of loanable funds is equivalent to: a. private saving. b. national saving. c. public saving. d. investment.
b
The two most important factors of production are: a. labor and energy. b. capital and labor. c. saving and investment. d. goods and services.
b
To increase the monetary base, the Fed can: a. raise the interest rate paid on reserves. b. conduct open-market purchases. c. conduct open-market sales. d. lower the required reserve ratio.
b
If the labor force is growing at a 3 percent rate and the efficiency of a unit of labor is growing at a 2 percent rate, then the number of effective workers is growing approximately at a rate of: a. 2 percent. b. 5 percent. c. 6 percent. d. 3 percent.
b. 5 percent.
In this graph, assume that the economy starts at point A, and there is a favorable supply shock that does not last forever. In this situation, point ______ represents short-run equilibrium, and point ______ represents long-run equilibrium. a. B; A b. E; A c. B; C d. E; D
b. E; A
The short-run aggregate supply curve is horizontal at: a. the natural level of output. b. a fixed price level. c. a level of output determined by aggregate demand. d. the level of output at which the economy's resources are fully employed.
b. a fixed price level.
In the Solow growth model, the steady-state occurs when: a. output per worker equals consumption per worker. b. capital per worker is constant. c. consumption per worker is maximized. d. the saving rate equals the depreciation rate.
b. capital per worker is constant.
In the Solow model, it is assumed that a(n) ______ fraction of capital wears out as the capital-labor ratio increases. a. increasing b. constant c. smaller d. larger
b. constant
The efficiency of labor: a. is the marginal product of labor. b. depends on the knowledge, health, and skills of labor. c. is the rate of growth of the labor force. d. equals output per worker.
b. depends on the knowledge, health, and skills of labor.
International differences in income per person in accounting terms must be attributed to differences in ______ and/or ______. a. unemployment rates; depreciation rates b. factor accumulation; production efficiency c. constant returns to scale; the marginal product of capital d. consumption; interest rates
b. factor accumulation; production efficiency
For a fixed money supply, the aggregate demand curve slopes downward because at a lower price level, real money balances are ______, generating a ______ quantity of output demanded. a. lower; smaller b. higher; greater c. lower; greater d. higher; smaller
b. higher; greater
With population growth at rate n and labor-augmenting technological progress at rate g, the Golden Rule steady state requires that the marginal product of capital ( MPK): a. plus g be equal to the depreciation rate plus n. b. net of depreciation be equal to n + g. c. plus n be equal to the depreciation rate plus g. d. net of depreciation be equal to the depreciation rate plus n + g.
b. net of depreciation be equal to n + g.
A short-run aggregate supply curve shows fixed ______, and a long-run aggregate supply curve shows fixed ______. a. output; prices b. prices; output c. output; output d. prices; prices
b. prices; output
Investment per worker ( i) as a function of the saving ratio ( s) and output per worker ( f ( k)) may be expressed as: a. s + f (k). b. sf (k). c. s - f (k). d. s / f (k).
b. sf (k).
Which of the following is an example of a demand shock? a. unions obtain a substantial wage increase b. the introduction and greater availability of credit cards c. a drought that destroys agricultural crops d. a large increase in the price of oil
b. the introduction and greater availability of credit cards
In the Solow growth model, the steady-state growth rate of output per effective worker is ______, and the steady-state growth rate of output per actual worker is ______. a. zero; zero b. zero; the rate of technological progress c. the rate of technological progress; the rate of population growth d. the sum of the rate of technological progress plus the rate of population growth; zero
b. zero; the rate of technological progress
Based on the graph, if the economy starts from a short-term equilibrium at A, then the long-run equilibrium will be at _____, with a _____ price level. a. B; higher b. B; lower c. C; higher d. C; lower
b. B; lower
An increase in investment demand for any given level of income and interest rates-- due, for example, to more optimistic "animalistic spirits" -- will, within the IS-LM framework, ________ output and ________ interest rates a. increase in the money supply b. increase in government purchases c. decrease in taxes d. increase in money demand
b. increase in government purchases
In the IS-LM model in a closed economy, an increase in government spending increases the interest rate and crowds out: a. prices b. investment c. the money supply d. taxes
b. investment
Based on the graph, starting from equilibrium at interest rate r1 and income Y1, a decrease in government spending would generate the new equilibrium combination of interest rate and income: a, r2, Y2 b. r3, Y2 c. r2, Y3 d. r1, Y2
b. r3, Y2
Disposable personal income is defined as income after the payment of all: a. social insurance contributions. b. loans. c. taxes. d. interest.
c
If currency held by the public equals $100 billion, reserves held by banks equal $50 billion, and bank deposits equal $500 billion, then the money supply equals: a. $100 billion. b. $650 billion. c. $600 billion. d. $150 billion.
c
If domestic saving exceeds domestic investment, then net exports are ______ and net capital outflows are ______. a. positive; negative b. negative; negative c. positive; positive d. negative; positive
c
If net capital outflow is positive, then: a. exports must be negative. b. imports must be positive. c. the trade balance must be positive. d. the trade balance must be negative.
c
If the currency-deposit ratio equals 0.5 and the reserve-deposit ratio equals 0.1, then the money multiplier equals: a. 0.6. b. 1.67. c. 2.5. d. 2.0
c
If you hear in the news that the Federal Reserve conducted open-market purchases, then you should expect ______ to increase. a. reserve requirements b. the reserve-deposit ratio c. the money supply d. the discount rate
c
In a small open economy with a floating exchange rate, if the government adopts an expansionary fiscal policy, in the new short-run equilibrium: a income will rise, but the exchange rate will remain unchanged. b. income and the exchange rate will both rise. c. the exchange rate will rise, but income will remain unchanged. d. both income and the interest rate will rise.
c
In a small open economy, if exports equal $5 billion and imports equal $7 billion, then there is a trade ______ and ______ net capital outflow. a. surplus; negative b. surplus; positive c. deficit; negative d. deficit; positive
c
In a system with 100-percent-reserve banking: a. the banking system completely controls the size of the money supply. b. all banks must hold reserves equal to 100 percent of their loans. c. no banks can make loans using deposits made at their institutions. d. no banks can accept deposits.
c
Sectoral shifts: a. explain the payment of efficiency wages. b. lead to wage rigidity. c. make frictional unemployment inevitable. d. depend on the level of the minimum wage.
c
The costs of reprinting catalogs and price lists because of inflation are called a. fixed costs. b. variable yardstick costs. c. menu costs. d. shoeleather costs.
c
The inconvenience associated with reducing money holdings to avoid the inflation tax is called a. fixed costs. b. menu costs. c. shoeleather costs. d. variable yardstick costs.
c
The marginal propensity to consume is: a. equal to disposable income divided by consumption. b. normally assumed to increase as taxes increase. c. expected to be between zero and one. d. the amount by which consumption changes when wealth increases by one dollar.
c
The money supply will increase if the: a. currency-deposit ratio increases. b. reserve-deposit ratio increases. c. monetary base increases. d. discount rate increases.
c
The opportunity cost of holding money is the: a. federal funds rate. b. prevailing Treasury bill rate. c. nominal interest rate. d. real interest rate.
c
The percentage change in the nominal exchange rate equals the percentage change in the real exchange rate plus the: a. domestic interest rate minus the foreign interest rate. b. domestic inflation rate minus the foreign inflation rate. c. foreign inflation rate minus the domestic inflation rate. d. foreign exchange rate minus the domestic exchange rate.
c
The quantity theory of money assumes that: a. income is constant. b. the money supply is constant. c. velocity is constant. d. prices are constant.
c
When the real exchange rate rises: a. imports will decrease but exports will be unaffected. b. exports will increase and imports will decrease. c. exports will decrease and imports will increase. d. exports will decrease but imports will be unaffected.
c
If Y is output, K is capital, u is the fraction of the labor force in universities, L is labor, and E is the stock of knowledge, and the production Y = F ( K,(1 - u) EL) exhibits constant returns to scale, then output ( Y) will double if: a. K is doubled. b. K and u are doubled. c. K and E are doubled. d. L is doubled.
c. K and E are doubled.
In the long run, the level of output is determined by the: a. money supply and the levels of government spending and taxation. b. interaction of supply and demand. c. amounts of capital and labor and the available technology. d. preferences of the public.
c. amounts of capital and labor and the available technology.
The Golden Rule level of capital accumulation is the steady state with the highest level of: a. output per worker. b. savings per worker. c. consumption per worker. d. capital per worker.
c. consumption per worker.
If the saving rate increases, the: a. economy will grow at a faster rate forever. b. capital-labor ratio will eventually decline. c. economy will grow at a faster rate until a new, higher, steady-state capital-labor ratio is reached. d. capital-labor ratio will increase forever.
c. economy will grow at a faster rate until a new, higher, steady-state capital-labor ratio is reached.
Most economists believe that prices are: a. flexible in both the short and long runs. b. flexible in the short run but many are sticky in the long run. c. flexible in the long run but many are sticky in the short run. d. sticky in both the short and long runs.
c. flexible in the long run but many are sticky in the short run.
Which of the following changes would bring the U.S. capital stock, currently below the Golden Rule level, closer to the steady-state, consumption-maximizing level? a. increasing the rate of technological progress b. increasing the population growth rate c. increasing the saving rate d. increasing the rate of capital depreciation
c. increasing the saving rate
The endogenous growth model's assumption of constant returns to capital is more plausible if capital is defined to include: a. plant and equipment. b. depreciation. c. knowledge. d. technology.
c. knowledge.
The aggregate demand curve is the ______ relationship between the quantity of output demanded and the ______. a. negative; money supply b. positive; price level c. negative; price level d. positive; money supply
c. negative; price level
An adverse supply shock ______ the short-run aggregate supply curve ______ the natural level of output. a. raises; but cannot affect b. lowers; and may also lower c. raises; and may also lower d. lowers; but cannot affect
c. raises; and may also lower
The Solow model predicts that two economies will converge if their economies have the same: a. capital stocks. b. production functions. c. steady states. d. populations.
c. steady states.
According to the Solow model, persistently rising living standards can only be explained by: a. population growth. b. saving rates. c. technological progress. d. capital accumulation.
c. technological progress.
Long-run growth in real GDP is determined primarily by ______, while short-run movements in real GDP are associated with ______. a. changes in velocity; money supply growth rates b. variations in labor-market utilization; technological progress c. technological progress; shifts in aggregate demand d. money supply growth rates; changes in velocity
c. technological progress; shifts in aggregate demand
Long-run growth in real GDP is determined primarily by ______, while short-run movements in real GDP are associated with ______. a. variations in labor-market utilization; technological progress b. changes in velocity; money supply growth rates c. technological progress; variations in labor-market utilization d. money supply growth rates; changes in velocity
c. technological progress; variations in labor-market utilization
The rate of labor-augmenting technological progress ( g) is the growth rate of: a. capital. b. output. c. the efficiency of labor. d. labor.
c. the efficiency of labor.
Conditional convergence occurs when economies converge to: a. the balanced-growth steady state. b. the same steady state as other economies. c. their own individual steady states. d. the Golden Rule steady state.
c. their own individual steady states.
In an economy with population growth at rate n, the change in capital stock per worker is given by the equation: a. Δk = sf (k) - δk. b. Δk = sf (k) + (δ + n) k. c. Δk = sf (k) - (δ + n) k. d. Δk = sf (k) + δk.
c. Δk = sf (k) - (δ + n) k.
An increase in the money supply shifts the ______ curve to the right, and aggregate demand curve _________. a. IS; shifts to the right b. IS; does not shift c. LM; shifts to the right d. LM; does not shift
c. LM; shifts to the right
All of the following are reasons for frictional unemployment except: a. workers have different preferences and abilities. b. the flow of information is imperfect. c. geographic mobility takes time. d. unemployed workers accept the first job offer that they receive.
d
An example of a nominal variable is the: a. relative price of bread. b. real wage. c. quantity of goods produced in a year. d. money supply.
d
Discouraged workers are counted as: a. employed. b. part of the labor force. c. unemployed. d. out of the labor force.
d
Discouraged workers are individuals who: a. have been unemployed for more than 26 weeks. b. call themselves unemployed but are not seriously looking for a job. c. have jobs that do not match their skills (e.g., a Ph.D. driving a taxi cab). d. want a job but have given up looking for one.
d
If s is the rate of job separation, f is the rate of job finding, and both rates are constant, then the steady state unemployment rate is approximately: a. (s + f) / s. b. (f + s) / f. c. f / (f + s). d. s / (s + f)
d
If the monetary base is denoted by B, rr is the ratio of reserves to deposits, and cr is the ratio of currency to deposits, then the money supply is equal to ______ multiplied by B. a. (rr + 1)/ (rr + cr) b. (rr + cr)/ (cr + 1) c. (rr + cr)/ (rr + 1) d. (cr + 1)/ (cr + rr)
d
If there are 100 transactions in a year and the average value of each transaction is $10, then if there is $200 of money in the economy, transactions velocity is ______ times per year. a. 10 b. 0.2 c. 2 d. 5
d
In a closed economy, the components of GDP are: a. consumption, investment, government purchases, and net exports. b. consumption, investment, government purchases, and exports. c. consumption and investment. d. consumption, investment, and government purchases.
d
National saving refers to: a. taxes minus government spending. b. income minus investment. c. disposable income minus consumption. d. income minus consumption minus government purchases.
d
Net exports equal GDP minus domestic spending on: a. all goods and services plus foreign spending on domestic goods and services. b. domestic goods and services minus foreign spending on domestic goods and services. c. domestic goods and services. d. all goods and services.
d
One reason for unemployment is that: a. all jobs are identical. b. the labor market is always in equilibrium. c. a laid-off worker can immediately find a new job at the market wage. d. it takes time to match workers and jobs.
d
The definition of the transactions velocity of money is: a. money divided by prices multiplied by transactions. b. money multiplied by prices divided by transactions. c. transactions divided by prices multiplied by money. d. prices multiplied by transactions divided by money.
d
The most frequently used tool of monetary policy is: a. changes in reserve requirements. b. changes in the discount rate. c. changes in interest rate paid on reserves. d. open-market operations.
d
The nominal exchange rate between the U.S. dollar and the Japanese yen (measured in $ / yen) is the: a. price of Japanese goods divided by the price of U.S. goods. b. number of yen you can get for lending one dollar in Japan for one year. c. price of U.S. goods divided by the price of Japanese goods. d. number of yen you can get for one dollar.
d
The rate of inflation is the: a. average level of prices. b. median level of prices. c. measure of the overall level of prices. d. percentage change in the level of prices.
d
The ratio of the money supply to the monetary base is called: a. the currency-deposit ratio. b. high-powered money. c. the reserve-deposit ratio. d. the money multiplier.
d
The right of seigniorage is the right to: a. draft citizens into the armed forces. b. borrow money from the public. c. levy taxes on the public. d. print money.
d
The value of a bank's owners' equity is called bank: a. deposits. b. reserves. c. liquidity. d. capital.
d
Unions contribute to structural unemployment when collective bargaining results in wages: a. below the minimum wage. b. below the equilibrium level. c. above the level of unemployment compensation. d. above the equilibrium level.
d
Wage rigidity: a. forces labor demand to equal labor supply. b. is caused by sectoral shifts. c. increases the rate of job finding. d. prevents labor demand and labor supply from reaching the equilibrium level.
d
When exports exceed imports, all of the following are true except: a. net capital outflows are positive. b. domestic output exceeds domestic spending. c. net exports are positive. d. domestic investment exceeds domestic saving.
d
When insiders have a much greater impact on the wage-bargaining process than do outsiders, the negotiated wage is likely to be ______ the equilibrium wage. a. much less than b. about one-half of c. almost equal to d. much greater than
d
When the real wage is above the level that equilibrates supply and demand: a. the labor market clears. b. there is no unemployment. c. the quantity of labor demanded exceeds the quantity supplied. d. the quantity of labor supplied exceeds the quantity demanded.
d
When the unemployment rate is at a steady state: :a. no hiring or firings are occurring. b. the number of people finding jobs exceeds the number of people losing jobs .c. the number of people losing jobs exceeds the number of people finding jobs. d. the number of people finding jobs equals the number of people losing jobs.
d
Which of the following is an example of frictional unemployment? a. Elaine is willing to work for less than the minimum wage, but employers cannot hire her for less than the minimum wage. b. Bill is qualified and would like to be an airline pilot, but airlines do not find it profitable to hire him at the wage established by the airline pilots' union. c. Joan is willing to work for less than the going wage, but there are no jobs available. d. Dave searches for a new job after voluntarily moving to San Diego.
d
If MPC= 0.6 (and there are no income taxes) when G increases by 200, then the IS curve for any given interest rate shifts to the right by: a. 200. b. 300. c. 400. d 500.
d 500.
In the Solow model with technological progress, the steady-state growth rate of output per effective worker is: a. g. b. n + g. c. n. d. 0.
d. 0.
If the per-worker production function is given by y = k 1/2, the saving rate ( s) is 0.2, and the depreciation rate is 0.1, then the steady-state ratio of capital to labor is: a. 2. b. 1. c. 9. d. 4.
d. 4.
______ cause(s) the capital stock to rise, while ______ cause(s) the capital stock to fall. a. Inflation; deflation b. Interest rates; the discount rate c. International trade; depressions d. Investment; depreciation
d. Investment; depreciation
In an economy with no population growth and no technological change, steady-state consumption is at its greatest possible level when the marginal product of: a. labor equals the depreciation rate. b. capital equals zero. c. labor equals the marginal product of capital. d. capital equals the depreciation rate.
d. capital equals the depreciation rate.
In this graph, capital-labor ratio k 2 is not the steady-state because: a. gross investment is greater than depreciation. b. the investment ratio is too high. c. the saving rate is too high. d. depreciation is greater than gross investment.
d. depreciation is greater than gross investment.
In the Solow growth model, capital exhibits ______ returns. In the basic endogenous growth model, capital exhibits ______ returns. a. diminishing; diminishing b. constant; diminishing c. constant; constant d. diminishing; constant
d. diminishing; constant
In the Solow model with technological progress, the steady-state growth rate of output per worker is: a. n. b. n + g. c. 0. d. g.
d. g.
In the Solow growth model, if investment exceeds depreciation, the capital stock will ______, and output will ______ until the steady state is attained. a. increase; decrease b. decrease; increase c. decrease; decrease d. increase; increase
d. increase; increase
In this graph, when the capital stock per worker is OA, AB represents: a. consumption per worker, and AC represents investment per worker. b. consumption per worker, and BC represents investment per worker. c. investment per worker, and AC represents consumption per worker. d. investment per worker, and BC represents consumption per worker.
d. investment per worker, and BC represents consumption per worker.
A higher saving rate leads to a: a. higher rate of economic growth in the short run but a decline in the long run. b. higher rate of economic growth in both the short run and the long run. c. higher rate of economic growth only in the long run. d. larger capital stock and a higher level of output in the long run.
d. larger capital stock and a higher level of output in the long run.
In the Solow growth model the demand for goods equals investment: a. minus depreciation. b. plus depreciation. c. plus saving. d. plus consumption.
d. plus consumption.
If the long-run aggregate supply curve is vertical, then changes in aggregate demand affect: a. both prices and level of output. b. level of output but not prices. c. neither prices nor level of output. d. prices but not level of output.
d. prices but not level of output.
In the Solow growth model, investment equals: a. consumption. b. the marginal product of capital. c. output. d. saving.
d. saving.
In a steady-state economy with a saving rate s, population growth n, depreciation rate δ, and labor-augmenting technological progress g, the formula for the steady-state ratio of capital per effective worker ( k*), in terms of output per effective worker ( f ( k*)), is a. s / ((f (k))(δ + n + g)). b. (s - f (k)) / (δ + n + g). c. f (k) / ((s)(δ + n + g)). d. sf (k) / (δ + n + g).
d. sf (k) / (δ + n + g).
Along an aggregate demand curve, which of the following are held constant? a. the money supply and real output b. real output and prices c. nominal output and velocity d. the money supply and velocity
d. the money supply and velocity
The steady-state level of capital occurs when the change in the capital stock per worker (Δ k) equals: a. the population growth rate. b. the saving rate. c. the depreciation rate. d. 0.
d. 0.
The U.S. recession of 2001 can be explained in part by a declining stock market and terrorist attacks. Both of these shocks can be represented in the IS-LM model by shifting the ________ curve to the _________. a. LM; right b. LM; left c. IS; right d. IS; left
d. IS; left
The interaction of the IS curve and the LM curve determines: a. the price level and the inflation rate b. the level of output and the price level c. investment and the money supply d. the equilibrium level of the interest rate and output
d. the equilibrium level of the interest rate and output
A policy that increases the job-finding rate _____ the natural rate of unemployment. a. will decrease b. could either increase or decrease c. will not change d. will increase
a
According to the classical dichotomy, when the money supply decreases, _____ will decrease. a. the price level b. investment spending c. consumption spending d. real GDP
a
According to the quantity theory of money, if money is growing at a 10 percent rate and real output is growing at a 3 percent rate, but velocity is growing at increasingly faster rates over time as a result of financial innovation, the rate of inflation must be: a. increasing. b. 7 percent. c. decreasing. d. constant.
a
An example of a real variable is the: a. quantity of goods produced in a year. b. price level. c. nominal interest rate. d. dollar wage a person earns.
a
Any policy aimed at lowering the natural rate of unemployment must either ______ the rate of job separation or ______ the rate of job finding. a. reduce; increase b. reduce; reduce c. increase; increase d. increase; reduce
a
Assume that equilibrium GDP ( Y) is 5,000. Consumption ( C) is given by the equation C = 500 + 0.6 Y. In addition, assume G=0. In this case, equilibrium investment is: a. 1,500. b. 2,000. c. 2,500. d. 3,000.
a
Bank reserves equal: a. currency plus demand deposits. b. deposits that banks have received but have not lent out. c. gold kept in bank vaults. d. gold kept at the central bank.
a
Banks create money in: a. a fractional-reserve banking system but not in a 100-percent-reserve banking system. b. neither a 100-percent-reserve banking system nor a fractional-reserve banking system. c. a 100-percent-reserve banking system but not in a fractional-reserve banking system. d. both a 100-percent-reserve banking system and a fractional-reserve banking system.
a
By paying efficiency wages, firms contribute to higher unemployment because they: a. keep the wage above the equilibrium level. b. keep the wage below the equilibrium level. c. increase the wage bill. d. make workers more productive.
a
Demand deposits are funds held in: a. checking accounts. b. certificates of deposit. c. currency. d. money markets.
a
If a country has a high rate of inflation relative to the United States (holding the real exchange rate fixed), the dollar will buy: a. more of the foreign currency over time. b. an amount of foreign currency determined by the real exchange rate. c. the same amount of the foreign currency over time. d. less of the foreign currency over time.
a
If disposable income is 4,000, consumption is 3,500, government purchases is 1,000, and taxes minus transfers are 800, national saving is equal to: a. 300. b. 700. c. 500. d. 1,000.
a
If government purchases exceed taxes minus transfer payments, then the government budget is: a. in deficit. b. in surplus. c. endogenous. d. balanced.
a
If inflation was 6 percent last year and a worker received a 4 percent nominal wage increase last year, then the worker's real wage: a. decreased 2 percent. b. increased 4 percent. c. decreased 6 percent. d. increased 2 percent.
a
If the consumption function is given by C = 150 + 0.85 Y and Y increases by 1 unit, then C increases by: a. 0.85 units. b. 1 unit. c. 0.5 units. d. 0.15 units.
a
In a small open economy, if exports equal $20 billion, imports equal $30 billion, and domestic national saving equals $25 billion, then net capital outflow equals: a. -$10 billion. b. $25 billion. c. -$25 billion. d. $10 billion.
a
A tax cut shifts the ________ curve to the right, and the aggregate demand curve _______. a. IS; shifts to the right b. IS; does not shift c. LM; shifts to the right d. LM; does not shift
a. IS; shifts to the right
In the IS-LM model, a decrease in the interest rate would be the result of a(n): a. increase in the money supply b. increase in government purchases c. decrease in taxes d. increase in money demand
a. increase in the money supply
Based on the graph, starting from equilibrium at interest rate r3, income Y2, IS1, and LM1, if there is an increase in government spending that shifts the IS curve to IS2, then in order to keep the interest rate constant, the Federal Reserve should _________ the money supply, shifting to ________. a. increase; LM2 b. decrease; LM2 c. increase; LM3 d. decrease; LM3
a. increase; LM2
based on the graph, starting from the equilibrium at interest rate r1 and income Y1, a decrease in the money supply would generate the new equilibrium combination of interest rate and income: a. r2, Y2 b. r3, Y2 c. r2, Y3 d. r3, Y3
a. r2, Y2
