Intermediate Macro MC

If the steady-state rate of unemployed equals 0.10 and the fraction of employed workers who lose their jobs each month (the rate of job separation) is 0.2, then the fraction of unemployed workers who find jobs each month (the rate of job findings) must be:

0.18

According to the Keynesian-cross analysis, if the marginal propensity to consume is 0.6 and government expenditures and autonomous taxes are both increased by 100, equilibrium income will rise by:

100

Assume that the money demand function is (M/P)^d = 2200 - 200r, where r is the interest rate in percent. If the price level is fixed at P = 2, and the FED wants to fix the interest rate at 7%, it should set the money supply at:

1600

Assume the economy is at point B. With no further shocks or supply moves, the economy in the long run will be at point:

A (original efficient level)

The version of Okun's law studied in chapter 11 assumes that with no change in unemployment, real gross domestic product (GDP) normally grows by 3% over a year. If the unemployment rate rose by 2% over a year, Okun's law predicts that real GDP would:

Decrease by 1%

In the Keynesian-cross model, actual expenditures equal:

GDP

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.

Higher, greater.

Over the business cycle, investment spending ___ consumption spending.

Is more volatile than

Measures of average workweeks and building permits for new housing units are included in the index of leading indicators, because shorter workweeks tend to indicate ___ future economic activity and increased permits for new units tend to indicate ___ future economic activity.

Weaker, stronger.

A policy that increases the job finding rate ___ the natural rate of employment.

Will decrease

According to studies of individual unemployed workers, these workers are most likely to find a job:

Within a few weeks of their unemployment insurance running out.

In the Keynesian-cross model, if the MPC equals 0.75, then a $3 billion decrease in taxes increases planned expenditures by __ and increases the equilibrium level of income by __.

a. 3 billion, 9 billion.

Suppose that over the course of a year 100 people are unemployed for four weeks each (short term unemployed) , while 10 people are unemployed for 52 weeks each (long term unemployed). Approximately what percentage of the total spells of unemployment were attributable to short term unemployed?

a. 43.5

Using the Keynesian-cross analysis, assume that the consumption function is given by C = 200 + 0.7(Y-T). If planned investment is 100 and T Is 100, then the level of G needed to make equilibrium Y = 1000 is

a. 70

Which of these characteristics made the 2008-2009 recession differ MOST sharply from previous recessions?

a. A large spike in the duration of unemployment.

Based on the Keynesian model, one reason to support government spending increases over tax cuts as measures to increase output is that:

a. The government-spending multiplier is larger than the tax multiplier.

The LM curve shows combinations of __ that are consistent with equilibrium in the market for real money balances.

a. The interest rate and the level of income.

The IS curve shifts when any of the following economic variables change except:

a. The interest rate.

One efficiency wage theory implies that firms pay high wages because:

a. The more a firm pays its workers, the greater their incentive to stay with the firm.

When the unemployment rate is at a steady state:

a. The number of people finding jobs equals the number of people losing jobs.

All of these are reasons for frictional unemployment except:

a. Unemployed workers accept the first job offer they receive.

All of these are causes of structural unemployment except:

a. Unemployment insurance.

The macroeconomic problem that affects individuals most directly and severely is:

a. Unemployment.

A decrease in the nominal money supply, other things being equal, will shift the LM curve:

a. Up and to the left.

Unemployment insurance increases the amount of frictional unemployment by:

a. Softening the economic hardship of unemployment.

If the interest rate is above the equilibrium value, then:

a. Supply of real balances exceeds the supply.

Along an IS curve all of these are always true except:

a. The demand for real balances equals the supply of real balances.

The LM curve, in the usual case:

a. Slopes up to the right.

If Central Bank A only cares about keeping the price level stable and Central Bank B cares only about keeping output at its natural level, then in response to an exogenous decrease in the velocity of money:

a. Both Central Bank A and Central Bank B should increase quantity of money.

The IS and LM curves together generally determine:

a. Both income and the interest rate.

The economic response to the overnight reduction in the French money supply by 20% in 1724:

a. Confirmed that money is not neutral in the short run because both output and prices dropped.

Which is an example of frictional unemployment?

a. Dave searches for a new job after voluntarily moving to San Diego.

According to the Keynesian-cross analysis, if MPC stands for propensity to consume, then a rise in taxes ∆T will:

a. Decrease equilibrium income by ∆T / (1-MPC).

An explanation for the slope of the IS curve is that as the interest rate increases, the quantity of investment ___, and this shifts the expenditure function __, thereby decreasing income.

a. Decreases, downward.

A difference between the economic long run and the short run is that:

a. Demand can affect output and employment in the short run, whereas supply is the ruling force in the long run.

The assumption of constant velocity in the quantity equation is the equivalent of the assumption of a constant:

a. Demand for real balances per unit of output.

The earned income tax credit:

a. Does not raise labor costs.

As the relative demand for unskilled workers falls, wages for unskilled workers ___, and unemployment compensation becomes a ___ attractive option.

a. Fall, more.

Which of these hypotheses is consistent with fewer hours worked per year in Europe than in the US?

a. Higher tax rates in Europe than in the US

If the short run aggregate supply curve is horizontal, an increase in union aggressiveness that pushes wages and prices up will result in ___ prices and ___ output in the short run.

a. Higher, lower.

According to Oliver Blanchard, Europeans are more likely to use increases in real wages resulting from technological progress to increase ___, and Americans are more likely to use these increases in real wages to increase ___.

a. Hours of leisure, consumption of goods and services.

Assume that the economy is initially at point A with aggregate demand given by AD2. A shift in the aggregate demand curve to AD0 could be the result of either a ___ in the money supply or a ___ in velocity.

a. Increase, increase

According to the theory of liquidity preference, decreasing the money supply will __ nominal interest rates in the short run, and, according to the Fisher effect, decreasing the money supply will __ nominal interest rates in the long run.

a. Increase, increase.

Since the COVID-19 health crisis cause many businesses to temporarily shut down and lay off their workers, there was a ____ in the natural rate of unemployment and in the long run aggregate supply (LRAS) curve shifted ____.

a. Increase, left.

Business cycles are:

a. Irregular and unpredictable.

When firms experience unplanned inventory accumulation, they typically:

a. Lay off workers and reduce production.

Using the aggregate demand aggregate supply (AD-AS) model, the economic downturn caused by COVID-19 can be best described by a:

a. Leftward shift of long run aggregate supply (LRAS) and leftward shift of AD (aggregate demand).

If the FED accommodates an adverse supply shock, output falls ___, and prices rise ___.

a. Less, more.

Government policies directed at reducing frictional unemployment include:

a. Making unemployment insurance 100% experience rated.

The IS-LM model is generally used:

a. Only in the short run

If the short run aggregate supply curve is horizontal and the long run aggregate supply curve is vertical, then a change in the money supply will change ___ in the short run and change ___ in the long run.

a. Only output, only prices.

If the short run aggregate supply curve is horizontal and the FED increases the money supply, then:

a. Output and employment will increase in the short run.

Wage rigidity:

a. Prevents labor demand and labor supply from reaching the equilibrium level.

In the short run, a favorable supply shock causes:

a. Prices to fall and output to rise.

A short-run aggregate supply curve shows fixed ___, and a long-run aggregate supply curve shows fixed ___.

a. Prices, output

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.

Stabilization policy refers to policy actions aimed at:

a. Reducing the severity of short run economic fluctuations.

In this graph, if firms are producing at level Y3, then inventories will __, inducing firms to __ production.

a. Rise, decrease.

Economists call the changes in the composition of demand among industries and regions:

a. Sectoral trade

Based on the graph, if the interest rate is r3, then people will __ bonds, and the interest rate will __.

a. Sell, rise.