ECON305 chapter quizes

An increase in the propensity to consume will​ ___________. A. raise consumption spending. B. increase the demand for output. C. raise equilibrium output in the short run. D. all of the above.

D. all of the above

Which of the following accurately describes the relationship between an​ economy's production of goods and​ services, its sales of goods and​ services, and its inventory​ investment? A. Sales = Production − Inventory investment B. Production = Sales + Inventory investment C. Inventory investment = Production − Sales D. All of the above

D. all of the above

Central bank money refers to A. currency held by people plus reserves held by banks. B. the money that the central bank has issued. C. the liabilities of the central bank. D. all of the above.

D. all of the above.

riskless bond and a risky bond will yield the same expected​ return? If the two bonds have the same expected​ return, investors will still prefer the ___. The preference investors have for riskless bonds even when risky bonds possess the same expected return as riskless bonds is attributed to investors being risk ___.

(1+i) = (1+i+x)(1-p)+p(0). riskless bond. averse.

The bank will remain solvent provided its assets decline by no more than

1 less than its capital

Which of the following factors determines the risk premium that bond holders require to hold​ bonds?

Borrowers' probability of default.

Government policy can increase output without changing the interest rate when

an expansionary fiscal policy is used.

When GDP is measured by summing the wages and profits earned by resource owners​, the approach is said to be taken from the ____ side.

income

When government spending increases by​ $100, equilibrium output in the short run is expected to​ ____________.

increase by more than​ $100.

An increase in unemployment benefits would be expected to​ ___________.

increase the natural rate of unemployment because it allows unemployed workers to hold out for better wages.

Lower unemployment leads to increased​ wages, which in turn lead to ____prices. The higher the proportion of wage contracts that are​ indexed, the ___ wages can​ adjust, causing ____increases in prices during the year.

increased; quicker; even more

Which of the following is true about the effect of an increase in government​ spending? An increase in government spending

increases output.

The​ expectations-augmented Phillips curve

is consistent with workers and firms adapting their expectations after the macroeconomic experience of the 1960s.

Which of the following is a true statement about the Phillips curve​ relationship? The original Phillips curve

is the negative relation between unemployment and inflation first observed in the United Kingdom.

In any given​ year, inventory investment

is typically small and may be​ positive, negative, or zero.

The predictive reliability of the IS​-LM model appears to weaken over time because the assumption of a given price level becomes ____ realistic

less

An exploration of the factors underlying an​ economy's capital stock and its level of technology indicates that the relevant time frame is the __ run

long

Inflation in the United States and the European Union has been ______ in the last few decades recently.

lower

When an analysis is conducted of the factors underlying supply, (e.g., the capital stock) as the determinant of output in an​ economy, the time frame under consideration is the ___ run

medium

For an equilibrium condition to occur in the goods​ market, ___________.

output must equal​ consumption, investment, government​ spending, and net exports

According to some​ economists, the relatively high unemployment in some Euro area countries stems from efforts by those countries to ______. For those holding this​ view, these efforts promote high unemployment by A. deterring firms from hiring workers. B. discouraging the unemployed from taking jobs quickly. C. creating rigidities in the labor market that block its efficient operation. D. all of the above. Other economists contend that the problem is not the degree of protection afforded workers but rather the manner in which the protection is ______

overly protect workers. D. all of the above. implemented.

The demand for money curve shown in the accompanying figure becomes horizontal when the interest rate falls to zero because

people become indifferent between holding money and holding bonds at zero percent

In the ​IS-LM​ framework, the​ ________ interest rate directly reflects central bank​ actions, while the​ ________ rate is taken as the relevant rate for consumers and firms.

policy; borrowing

Investment is

positively related to the level of sales and negatively related to the interest rate.

Output per hour worked is referred to as _____ and is a key economic variable.

productivity

The term investment​, as used by​ economists, refers to the​ ___________.

purchase of new plants and equipment by firms and the purchase of new houses by households.

Factors that one might explore to understand the pace at which a​ country's capital stock and its level of technology are advancing include the

quality of its education system; role of the government; saving rate.

expressions captures the approximate relationship between the nominal interest rate, the real interest rate, and the expected rate of inflation? what are the implications of the equation

r = i - pi^e. When expected inflation equals​ zero, the nominal interest rate and the real interest rate are equal. Because expected inflation is typically​ positive, the real interest rate is typically lower than the nominal interest rate. The expected rate of inflation can be discerned by examining the difference between the nominal interest rate and the real interest rate.

A government seeking to decrease output through the use of fiscal policy may consider

raising taxes​ and/or decreasing government spending.

China's impressive economic growth over the past 30 years is primarily attributable to ​

rapid technological progress and substantial capital accumulation.

The interest rate relevant to consumers and​ firms, known as the real borrowing​ rate, is determined by combining the

real policy rate and the risk premium.

If the​ bank's assets decline in​ value, its leverage ratio will ___

rise

The rate of unemployment tends to ___ during recessions and ____ during expansions.

rise; fall

The immediate effects of the financial crisis on the macroeconomy included ​

sharply higher borrowing rates for consumers and firms. limited access to credit for many​ borrowers, especially small firms. a dramatic decline in confidence

When an assessment is made of an​ economy's prospects over a period​ of, say, a few years​, the time frame under consideration is the ___ run

short

According to the​ wage-setting relation, a decrease in the unemployment rate the​ workers' bargaining power and consequently the real wage.

strengthens; raises.

In the late​ 1960s, the economists Milton Friedman and Edmund Phelps said

that the​ inflation-unemployment tradeoff could not be sustained below the natural rate of unemployment.

An econometric study of the dynamics of monetary policy using U.S. data covering three decades indicates that

the IS​-LM model accurately captures the​ short-run behavior of the economy in response to these policies.

Equilibrium in the goods market requires that production Y be equal to ___

the demand for goods.

Suppose there is a decrease in the​ economy's level of nominal income. What happens to money demand?

the money supply stays; the money demand curve shifts left and equilibrium moves down.

The prices that firms set are a function of the costs they​ incur, and these​ costs, in​ turn, depend on

the nature of the production function. the prices of inputs.

If the central bank wants to reduce the real policy​ rate, the minimum value it can take is

the negative of inflation

The substantial attention commonly paid to China today derives largely from

the rapid economic growth it has achieved in recent decades.

The United States is

the richest nation in the world but also borrows huge amounts from the rest of the world each year

The decline in U.S. housing prices starting in 2006 was amplified into a major financial crisis as a result of several contributory factors.

the spread of securitization. banks becoming highly leveraged. the increased reliance by banks on wholesale funding.

The measurement of GDP can be accomplished in ____ different but equivalent ways.

three

If the price of bonds​ increases, the interest rate​ ____________.

will fall.

The upward slope of curve ZZ is attributable to

​consumption's positive relation to disposable income. investment's positive dependence on sales.

Decisions regarding investment are made by​ __________, whereas decisions regarding saving are made by​ __________.

​firms; consumers and the government

Income is a​ _______ variable, and financial wealth is a​ _______ variable.

​flow; stock.

The LM relation is given algebraically as ___. According to this​ relation, equilibrium in the financial market requires that the real demand for money be equal to the money​ stock, measured in terms of ____

M/P = YL(i). goods

Which of the following best describes the relationship between​ workers' actual wages and their reservation​ wages?

Most workers are typically paid a wage that is greater than their reservation wage.

If the goods market is not perfectly​ competitive, then

P>W

Suppose the​ government's enforcement of existing antitrust legislation becomes more stringent. In this​ case, the ____ curve shifts ___ and the natural rate of unemployment ___

PS; up; falls

When inflation is relatively​ low, the Fed may focus more on avoiding a recession in the United States. How does it do​ so?

The Fed tries to increase demand by lowering interest rates

Which of the following best explains how the participation rate in the United States has changed over​ time?

The labor force participation rate has increased over time largely due to the increasing participation of women.

What is the effect of the increase in μ on the natural rate of​ unemployment?

The natural rate of unemployment will increase.

A simplified production function showing output ​(Y) as a function of employment ​(N​) and labor productivity ​(A) can be written as

Y = AN

The financial crisis that struck in 2007-2008 was ignited by

a decline in U.S. housing prices and the accompanying risks faced by banks.

The textbook indicates that China has been growing at a staggering pace in recent years. This has contributed to the U.S. trade​ deficit, the situation in which ______

a nation's imports are greater than its exports

In the IS​-LM ​model, investment spending is specified as

a positive function of output and a negative function of the interest rate.

If investors become more risk averse​ and/or more concerned about the health of the financial​ system, consumers and firms are likely to see ____ in the rate they pay to obtain funds.

a rise

U.S. data covering the 1996-2014 period show that the proportion of unemployed workers finding jobs has

a strong inverse relationship with the unemployment rate.

U.S. data covering the 1996-2014 period show that the separation rate has ____. The same U.S. data indicate that from periods of low unemployment to periods of high​ unemployment, the probability that employed workers will lose their jobs ______

a strong positive relationship with the unemployment rate. nearly doubles

Consider an economy where the nominal interest rate is 8.4​% and the expected inflation rate is 6.7​%. The real interest rate is __

1.7

The real wage implied by the​ price-setting behavior of firms having some market power is given by

1/1+m. This wage does not depend on the rate of unemployment.

The average unemployment rate in the United States in the 1980s was around ____, in the 1990s the average rate was around ____, and the average rate for the early 2000s was around ____

7.3; 5.8%; 5.0%

The IS curve is downward sloping because equilibrium in the

goods market implies that interest rate and output are inversely related.

Which of the following contributed to the transformation of the financial crisis into a major economic​ crisis? ​(Check all that apply​.) A. Reduced investment spending. B. Sharply declining consumption. C. A collapse in stock prices. D. Competitive currency devaluations by major countries. E. Weak responses by policy​ makers, particularly the Fed.

A. Reduced investment spending. B. Sharply declining consumption. C. A collapse in stock prices.

Fiscal policy refers to the​ ____________.

government's decisions on the uses of government spending and taxes.

Consider the following statements. All of the following are true except​ ___________. A. about​ two-thirds of U.S. currency is held outside the United States. B. about​ one-third of U.S. currency is held in the United States. C. more than​ 50% of U.S. currency is held outside the United States. D. about​ one-third of U.S. currency is held outside the United States

D. about​ one-third of U.S. currency is held outside the United States

During prolonged​ recessions, it is difficult for workers to find a job and many workers become discouraged. Which of the following is a correct​ statement? A. Discouraged workers are counted in the labor force and cause the participation rate to rise. B. Discouraged workers are counted in the labor force and cause the participation rate to fall. C. Discouraged workers are not counted in the labor force and cause the participation rate to fall. D. Discouraged workers are not counted in the labor force and cause the participation rate to rise.

Discouraged workers are not counted in the labor force and cause the participation rate to fall.

The labor market is characterized by the flows of workers in and out of employment. What best describes the size of these​ flows?

Each​ month, the flows in and out of employment are large relative to the number of workers who are unemployed.

In response to the financial​ crisis, policymakers enacted an assortment of corrective measures. Which of the following were among​ these?

Efforts to strengthen the financial system via financial policies. Stimulation of demand via fiscal policy. Attempts to reduce borrowing costs for consumers and firms

For the last 25 years Europe has had a higher average unemployment rate than the United States. Given that Europe has not experienced any sustained decrease in inflation over that​ period, what is the most likely explanation for this​ difference?

Europe has a higher natural rate of unemployment than the United States.

Which of the following best describes the change in nominal and real GDP from 1960 to 2014 in the United​ States?

GDP in 2014 was about 32 times higher in nominal terms and about 5 times higher in real terms compared to 1960 levels.

What are some of the possible causes for​ Europe's high average unemployment​ rate?

High levels of employment protection. A generous system of unemployment benefits. Bargaining rules that strengthen unions

If government spending and taxes increase by equal​ amounts, then the

IS curve will shift to the right.

The​ downward-sloping curve is the __ ​curve, and at any point on this​ curve, we know that the ___ market is in equilibrium. The horizontal line is the ___ ​curve, and at any point on this​ curve, we know that the ___ market is in equilibrium. At point Upper A in the​ figure, both the markets you identified above are in​ equilibrium, so this point (Yi) defines the​ economy's ___ equilibrium.

IS; goods. LM; financial. overall.

Suppose the​ bank's assets fall. In this​ case, the bank might consider which of the following​ options?

Increasing its capital from investors. A​ one-for-one reduction in assets and liabilities

Equilibrium in the goods market can be expressed as Production​ = Demand. Alternatively, it can be stated as

Investment​ = Saving.

Which of the following is true about U.S. productivity growth in the​ mid-1990s?

Productivity growth was high in the​ mid-1990s, but it is not realistic to expect that high growth rate to continue indefinitely.

What is true regarding wage​ indexation?

Wage indexation allows​ workers' wages to increase automatically in line with inflation. Wage indexation becomes more likely to be used during periods of high inflation.

Suppose the probability that a particular bond issuer​ (firm) will default becomes lowerlower. If at the same​ time, the risk aversion of bond holders falls​, the risk premium on the​ issuer's bonds ___

become smaller

If the central bank wants to increase the money​ supply, it can​ ___________.

buy bonds in the market for bonds

The LM curve is horizontal because equilibrium in

financial markets implies that as output​ increases, the central bank adjusts the money supply to maintain its interest rate target

In the expression for equilibrium​ output, autonomous spending is given by

c0+I+G−c1T

Central bank money differs from money in general in that central bank money excludes _____

checkable deposits

More often than​ not, policymakers find it useful to employ monetary and fiscal policies in ___

combination

A​ government's use of fiscal policy to promote a desirable level or growth rate of output is

complicated by a variety of factors.

Y=N. According to the production​ function, labor's productivity​ (output per​ worker) is

constant and equal to 1.

If all the exogenous variables in the IS​ relation, such as taxes and government​ spending, are​ constant, then an increase in the interest rate will

decrease output.

If the central bank wants to keep the borrowing rate at some target​ value, and the risk premium rises​, then the real policy rate must be

decreased

The demand for money​ ____________.

depends negatively on the interest rate.

The Federal Reserve can​ ____________.

determine the federal funds rate by changing the supply of central bank money.

Given the value of​ labor's productivity in the simplified production​ function, Y =N ​, it follows that the cost of one more unit of output​ (that is, the marginal​ cost) is _____ the cost of employing one more​ worker, at wage W.

equal to

If the central bank wants to maintain the​ economy's output at its initial​ level, the change cited above will require ___ monetary policy.

expansionary

The fight against a recession is done via __ monetary and fiscal policies.

expansionary

If the money supply intersects the horizontal portion of the money​ demand, ____ monetary policy no longer​ works, and the economy is said to be stuck in a _____

expansionary; liquidity trap.

Nominal interest rates differ from real interest rates in that real interest rates are expressed in terms of __

goods