Macro Exam 3
Gene Grossman and Alan Krueger found that as growth progresses and countries become richer, pollution tends to increase a. true b. false
b. false
If a country has an absolute advantage in the production of all goods, it is impossible for that country to benefit from trade a. true b. false
b. false
If an auto worker who was earning $75,000 per year before he was laid off due to a contraction in the auto industry, refuses to accept a job paying only $60,000, this means that the labor market is not working properly because the worker remains unemployed a. true b. false
b. false
If the inflation rate abroad is high, US import prices are likely to fall a. true b. false
b. false
If the market clearing wage for some groups of workers is above the legal minimum wages, this group will be unemployed a. true b. false
b. false
Most economists now agree, after the experience of the 1970s, that monetary and fiscal tools are finely calibrated a. true b. false
b. false
The marginal propensity to consume domestic goods is the marginal propensity to consume all goods plus the marginal propensity to import a. true b. false
b. false
The quantity theory of money assumes that velocity of money is erratic a. true b. false
b. false
When a country has an absolute advantage in the production of a product, it means that a country can produce the product at a lower opportunity cost than other countries a. true b. false
b. false
When the labor supply increases, this is referred to as an increase in human capital a. true b. false
b. false
The Lucas supply function in combination with the assumption that expectations are rational implies that anticipated policy changes have ____________ effect on real output, and policy surprises have _____________ effect on real output a. temporary; no b. no; a temporary c. a permanent; no d. a temporary; a permanent
b. no; a temporary
According to the classical view of the labor market, if there is an excess supply of labor, a. there will be unemployment equal to the amount of excess labor b. some workers will work for a lower wage rate and other will exit the labor market c. labor supply will decrease until the market clears d. the demand for labor will increase until the market clears
b. some workers will work for a lower wage rate and others will exit the labor market
Social/implicit contracts can result in sticky wages because a. wages can be negotiated b. these contracts would maintain wages when business cycles occur c. wages would contract during recessions d. wages would increase during expansions
b. these contracts would maintain wages when business cycles occur
In an economy with reasonably flexible prices and wages, full employment is almost always maintained because a. price adjust to clear the labor market and wages adjust to clear the goods market b. when there is unemployment, wages will fall, and the quantity of labor demanded will increase, and the quantity of labor supplied will fall until there is no more excess supply c. when output is beyond the full employment level, prices will fall, reducing the quantity of aggregate demand d. all of the above
b. when there is unemployment, wages will fall, and the quantity of labor demanded will increase, and the quantity of labor supplied will fall until there is no more excess supply
According to Keynesian economics, when the economy is experiencing inflation, the best course of action is to a. cut taxes and increase incentives to save and incest, which will increase aggregate supply b. continue to follow a monetary rule c. increase the money supply through open-market operations d. do nothing; the economy will return to equilibrium quickly on its own e. reduce government spending or increase taxes
e. reduce government spending or increase taxes
An innovation is an advance in knowledge and an invention is using that knowledge to produce a new product or to produce an existing product more efficiently a. true b. false
b. false
Because the Phillips Curve broke down during the 1970s, this shows that aggregate demand has no effect on inflation a. true b. false
b. false
Disembodied technical change results in an improvement in the quality of capital a. true b. false
b. false
Explicit contracts are unspoken agreements between workers and firms, that firms will not cut wages a. true b. flase
b. false
You are offered a 3% wage increase and the inflation rate for the year turns out to be -3%. The change in your real wage is _________%. With a 6% change in your real wage, you are ____________ than you were before (better off, worse off, neither)
6%...better off
Which of the following transactions would be recorded as a credit in the U.S. current account? A U.S. company receives profits from a foreign subsidiary. B. A Mexican citizen purchases stock in a U.S. company. C. A Japanese company sells some cars to buyers in the United States. D. A U.S. citizen purchases some French wine. E. A U.S. exporter purchases shipping insurance from a German company.
A U.S. company receives profits from a foreign subsidiary.
Which of the following best describes the price feedback effect? A. Higher prices in Canada increases the price of imported inputs in the United States, which in turn raise the price of U.S. exports to Canada. B. Higher incomes in Canada increase imports from the United States, which in turn increases U.S. income and Canadian exports. C. Higher prices for goods entering the United States increases the U.S. price level. D. Higher import prices increase the demand for domestic goods, increasing aggregate demand and thus inflation. E. All of the above are examples of the price feedback effect.
A. Higher prices in Canada increases the price of imported inputs in the United States, which in turn raise the price of U.S. exports to Canada.
In an open economy with flexible exchange rates, expansionary fiscal policy is likely to have less of a positive impact because A. expansionary fiscal policy lowers interest rates, which causes the dollar to appreciate, which decreases exports and increases imports. B. increased spending raises money demand and thus interest rates, which causes the dollar to appreciate, reducing exports and increasing imports. C. expansionary fiscal policy lowers interest rates, which causes the dollar to depreciate, which increases exports and decreases imports. D. increased spending lowers money demand and thus interest rates, which causes the dollar to depreciate, reducing exports and increasing imports.
B. increased spending raises money demand and thus interest rates, which causes the dollar to appreciate, reducing exports and increasing imports.
Which of the following is part of the U.S. supply of foreign exchange? A.U.S. citizen wishes to buy stock in a Japanese corporation.A B. A Mexican citizen wishes to purchase stock in Sony, a Japanese company. C. A French citizen wishes to travel to the United States and stay in a hotel in New York City. D. A U.S. company wishes to buy parts from a Canadian company. E. A U.S. citizen wishes to buy euros to spend on French champagne.
C. A French citizen wishes to travel to the United States and stay in a hotel in New York City.
Which of the following is part of the U.S. demand for foreign exchange? A U.S. citizen wishes to sell euros brought back from a European vacation. B. A Mexican citizen wishes to purchase stock in Kodak, a U.S. company. C. A U.S. citizen wishes to buy stock in a Japanese corporation. D. A French citizen wishes to travel to the United States and stay in a hotel in New York City. E. A Swedish company wishes to purchase a U.S. company.
C. A U.S. citizen wishes to buy stock in a Japanese corporation.
Which of the following transactions would be recorded as a debit to the U.S. current account? A U.S. citizen purchases stock in an Australian company. B. A U.S. citizen receives a birthday gift of money from her grandmother in France. C. A U.S. investor receives dividends from holdings of stock in an Italian company. D. A U.S. exporter purchases shipping insurance from a German company. E. A U.S. company sells some jam to supermarkets in the United Kingdom.
D. A U.S. exporter purchases shipping insurance from a German company
The difference between a country's exports of goods and services and its imports of goods and services is its A. balance on capital account B. balance on current account. C. balance of payments. D. balance of trade.
D. balance of trade.
Aside from measurement errors, a current account deficit must be financed by changed in a country's net liabilities to the rest of the world and its net financial-derivative receipts. a. true b. false
a. true
It can be argued that minimum wages laws raise the unemployment rate for teenagers as a group In response to this problem, Congress established a sub-minimum wage for teens. It allows employers to hire teenagers at an opportunity wage of a. $4.25 for up to 90 days b. $4.25 for up to 6 months c. $5.15 for up to 90 days d. $5.15 until their 21st birthday
a. $4.25 for up to 90 days
If the MPC is 0.6 and the MPM is 0.2, then the open-economy multiplier is a. 1.67 b. 1.25 c. 2.5 d. 5
a. 1.67
In the _______________, there was a remarkably smooth relationship between the unemployment rate and the rate of inflation a. 1950s and 1960s b. 1980s and 1990s c. 1970s and 1980s d. 1950s and 1970s
a. 1950s and 1960s
Suppose the inflation-unemployment relationship depicted by the Phillips Curve was stable. Which of the following is NOT a reason why the US trade off and he Japanese trade-off may be different? a. Japan has a higher natural rate of unemployment than the US b. Japan has a tradition of lifetime employment for male workers in the country's largest industries and therefore there are fewer layoffs in Japan c. There are differences in the institutions of the two countries d. All of the above
a. Japan has a higher natural rate of unemployment than the US
A nation's balance of payments is always equal to zero a. true b. false
a. True
Supply-side personal income tax cuts are expected to work by increasing work incentives. Which of the following explains why such a tax cuts might not have the expected effect? a. Workers may use their increased real income to purchase more leisure, and thus labor supply will not increase b. firms will be able to reduce wages when income tax rates fall, since real wages are now higher c. firms will invest more and replace workers with capital when there are income tax cuts d. workers do not respond to change in tax rates since they have to work anyway e. since there are rational expectations, it will be expected that tax cuts are only temporary
a. Workers may use their increased real income to purchase more leisure, and thus labor supply will not increase
why do economists generally agree that high budget deficits today will reduce the growth rate of the economy in the future? a. budget deficits today represent higher consumption today and the reduction of investment in capital goods which are used to produce output in the future b. budget deficit today simply represent the amount of consumption goods being consumed today and not overall output c. spending from budget deficits could be utilized for investment goods and not just for consumption d. all the above
a. budget deficits today represent higher consumption today and the reduction of investment in capital goods which are used to produce output in the future
Classical economists believe that wages adjust to clear the labor market, so there is an absence of sticky wages and this results in a vertical aggregate supply curve a.true b.fale
a. true
According to supply-side economics, when the economy is experiencing unemployment, the best course of action is to a. cut taxes and increase incentives to save and invest b. do nothing; the economy will return to equilibrium quickly on its own c. increase the money supply through open-market operations d. continue to follow a monetary rule e. increase government spending
a. cut taxes and increase incentives to save and invest
The increase in unemployment that occurs during recessions and depressions is called a. cyclical unemployment b. structural unemployment c.frictional unemployment d.natural unemployment
a. cyclical unemployment
Which of the following statements is incorrect? When taxes are cut..... a. demand-side effects show that the aggregate demand curve will shift left, indicating a contractionary effect b. supply-side effects would indicate that incentives to work, save, and incest will increase c. demand-side effects show that disposable income will increase, causing aggregate expenditures to rise d. supply-side effects show that the workforce and capital will expand, allowing the economy to grow more rapidly
a. demand-side effects show that the aggregate demand curve will shift left, indicating a contractionary effect b. supply-side effects would indicate that incentives to work, save, and incest will increase
With international trade, the availability of less-expensive goods is the result of a. each trading country specializing in production where it has a comparative advantage b. each trading country specializing in production where it has an absolute advantage c. the imposition of tariffs on imports d. consumers demonstrating a preference for domestically-produced goods
a. each trading country specializing in production where it has a comparative advantage
In a foreign exchange market consisting of Swiss francs and Mexican pesos, an excess supply of pesos will cause the price of pesos to ________, and the peso will ________ relative to the franc. A. fall; depreciate B. fall; appreciate C. rise; appreciate D. rise; depreciate
a. fall; depreciate
According to the Lucas supply function, positive price surprises cause firms to supply more in the short run because a. firms are fooled into thinking that relative prices have changed and that they are getting more for their output b. firms known that prices will fall in the future, so they must sell as much as they can at the current high prices c.firms have lower costs when there are prices surprises, so aggregate supply increases d. firms want to gain by increasing investment during a potential economic expansion e. firms have an incentive to supply more when the price level increases
a. firms are fooled into thinking that relative prices have changed and that they are getting more for their output
According to advocates of the long-run vertical Phillips Curve, the natural rate of unemployment is determined by a. frictional and structural unemployment b. cyclical unemployment only c. frictional unemployment only d. structural, frictional, and cyclical unemployment
a. friction and structural unemployment
In normal times when there is no zero lower interest rate bound and the Fed is following the Fed rule, flexible exchange rates are ________ to the Fed in its efforts to stimulate the economy and are ________ to fiscal authorities in their efforts to stimulate the economy. a. helpful; harmful b. harmful; helpful c. harmful; harmful d. helpful; helpful
a. helpful; harmful
When a tariff is imposed on a foreign-produced product, domestic producers receive a ___________ price and domestic consumers pay a __________ price for the product a. higher; higher b. lower; lower c. higher; lower d. lower; higher
a. higher; higher
In Mexico, a pound of cashews costs 125 pesos and a pound of walnuts costs 95 pesos. In the US, a pound of cashews costs $7 and a pound of walnuts costs $5. If the exchange rate is $1 is 16 pesos and there are no transportation costs, Mexico will a. import cashews and walnuts from the United States b. import cashews from the US and export walnuts to the US c. export cashews and walnuts to the US d. import walnuts from the US and export cashews to the US
a. import cashews and walnuts from the United States
If you were a Keynesian and assuming activist central banks, you might argue that... a. increase in the money supply raise the demand for goods and services and stimulate the growth of real GDP b. increase in the money supply stimulate inflation and retard the growth of real GDP c. increases in the demand for goods/services raise the money supply and retard the of real GDP d. all of the above
a. increase in the money supply raise the demand for goods and services and stimulate the growth of real GDP
Many workers commit to employment contracts with 1-3 year terms. These contracts stipulate workers' wages for each year of the contract. Given the uncertainty of the future economic conditions, why do workers and firms bind themselves in this way? a. negotiating wages is costly b. workers value job security over potentially higher wages c. unions require long-term contracts d. explicit contracts make workers accountable for the quality of their work
a. negotiating wages is costly
If inflationary expectations decrease, the result will be a decrease in the rate of inflation even though the unemployment rate may not have changed. In this case, a. the Phillips Curve will shift left b. there will be movement down and to the right along the existing Phillips Curve c. there will be movement up and to the left along the existing Phillips Curve d. the Phillips Curve will shift to the right
a. the Phillips Curve will shift left
According to the Heckscher-Ohlin theorem, a country has a comparative advantage in the production of a product if that country is relatively well endowed with inputs used intensively in the production of that product a. true b. false
a. true
According to the law of one price, for a good with trivial transportation costs the price of a good should be the same regardless of where we buy it. a. true b. false
a. true
According to the quantity theory of the money, changes in the stock of money cause equal percentage changes in nominal GDP a. true b. false
a. true
An argument against rational expectations is that it requires households and firms to know too much a. true b. false
a. true
An increase in the quality of labor as well as an increase in the quantity of labor will each lead to long-run growth a. true b. false
a. true
Consumers and firms who maximize should form their expectations by actively seeking to forecast the future. Operationalizing the idea of more informed expectations is at the heart of new macroeconomics a. true b. false
a. true
Convergence theory suggest that when poorer, less developed countries begin to develop, they typically have higher growth rates as they catch up with the more developed countries a. true b.false
a. true
Cyclical unemployment exists because wages are sticky on the downward side a. true b.false
a. true
Embodied technical change results in an improvement in the quality of capital a. true b. false
a. true
Following the passage of the Smoot-Hawley tariff, the average rate in the US was 60% a. true b. false
a. true
For the efficiency wage theory to operate, it must be the case that the wage offered by firms is above the market wage a. true b. false
a. true
Foreign direct investment is any investment in enterprises made in a country by residents outside that country a. true b. false
a. true
If the actual unemployment rate is above the NAIRU, the change in the inflation rate will be negative. a. true b. false
a. true
Imperfect information may result in firms not knowing what the market-clearing wage is in their industry. a. true b. false
a. true
In the absence of increases in the capital stock, as labor increases, diminishing returns will set in a. true b. false
a. true
In the absence of increases in the supply of labor, as the capital stock increases, diminishing returns will set in a. true b. false
a. true
John Maynard Keynes was the first economist to emphasize aggregate demand and links between the money market and the goods market a. true b. false
a. true
The aggregate labor market is complicated and there are no simple answers to why there is unemployment a. true b. false
a. true
US exports tend to decrease when US prices rise relative to foreign prices a. true b. false
a. true
Until the mid 1970s, the US generally ran a trade surplus a. true b. false
a. true
When the balance on current account is positive, a nation has spent less on foreign goods and services (plus investment income and transfers paid) than it has earned through the sales of its goods and services to the rest of the world (plus investment income and transfers received) a. true b. false
a. true
When the balance on current account is positive, a nation has spent less on foreign goods and services (plus investment income and transfers paid) than it has earned through the sales of its goods and services to the rest of the world (plus investment income and transfers received). a. true b. false
a. true
if firms have rational expectations and if they set prices and wages based on these rational expectations, on average, prices and wages will be set at levels that ensure equilibrium in the goods and labor markets a. true b. false
a. true
one countries trade is because of product differentiation a. true b. false
a. true
The unemployment rate stood at 9.6% in 2010. Despite the fact that the economy had been growing out of the recession for over a year (real GDP was up 3% by Q2 2010), there was only modest job growth during 2010. While a fiscal stimulus package provided some help, labor was stuck in the mud. Identify the MOST important factor that contributed to the problem a. wages are sticky downward, which prevents the labor market from clearing b. we have minimum wage laws in the US c. employment and unemployment are always lagging indicators since its difficult to hire and fire in a down turn d. the Census Bureau hired and then fired thousands of workers, throwing all the numbers off
a. wages are sticky downward, which prevents the labor market from clearing
if the stock of money is $40 million, the price level is 2 and real output is 80 million, the velocity of money is a. 0.5 b. 4 c. 2 d. 20
b. 4
Of the following decades, which had the highest productivity growth in the US a. 80s b. 60s c. 90s d. 70s
b. 60s
Which of the following statements would be associated with Keynesian economics? a. since expectations are rational, anticipated policy changes will have no effect on real output, and only "surprises" matter b. Because wages and prices are sticky and it can take a long time for the economy to return to full employment, the government should intervene in the macroeconomy c. Because there are significant lags in recognizing and implementing activist policies, the best government policy is nonintervention d. economic problems can best be addressed by reducing taxation and regulation and thus increasing incentives to save and incest
b. Because wages and prices are sticky and it can take a long time for the economy to return to full employment, the government should intervene in the macroeconomy
IN June 2015, the US unemployment rate dropped to 5.3%, its lowest level in more than 7 years. At the same time, inflation remained at a very low level by historical standards. Which of the following is NOT a possible factor for the improved trade-off between inflation and unemployment? a. a reduction in world prices b. an increase in resource prices c. a more efficient labor market d. increase in productivity
b. an increase in resource prices
The nation of Pixley has an absolute advantage in everything it produces compared to the nation of Hooterville. These two nations a. can still benefit by trading with each other since the basis of trade is based on absolute advantage b. can still benefit by trading with each other since the basis of trade is based on comparative advantage c. cannot benefit by trading with each other since the basis of trade is based on comparative advantage d. cannot benefit by trading with each other since the basis of trade is based on absolute advantage
b. can still benefit by trading with each other since the basis of trade is based on comparative advantage
According to the price feedback effect, an increase in the price level in one country can ____________ in other countries, which in turn _______________ the price level in the first country a. cause a decrease in prices; results in a decrease in b .cause an increase in prices; further increases c. cause a decrease in prices; further increases d. cause an increase in prices; results in a decrease in
b. cause an increase in prices; further increases
Expansionary monetary policy has people concerned about future inflation, which causes an increase in expected inflation. This will... a. not affect the Phillips Curve b. cause the Phillips Curve to shift right c. cause a breakdown of the unemployment-inflation tradeoff d. cause the Phillips Curve to shift left
b. cause the Phillips Curve to shift right
When governments imposes a tax on imports, this is knows as a. an export subsidy b. a quota c. a tariff d. dumping
c. a tariff
Some empirical trade economists have noted that for many products, countries are both importers and exporters. For example, the US both imports and exports shirts. How can this be explained? a. Even though the US has a comparative advantage in producing shirts, the country allows others to produce goods and keep the world more politically stable b. instead of focusing on comparative advantage, countries should produce some of any good in which the country has an absolute advantage, therefore becoming both an importer and exporter c. because different consumers have tastes and preferences for different types of shirts, the US could have a comparative advantage in the production of specific kinds of shirts but not all shirts d. This shows that the idea of comparative advantage and specialization must not be accurate; otherwise, this type of activity could not occur
c. because different consumers have tastes and preferences for different types of shirts, the US could have a comparative advantage in the production of specific kinds of shirts but not all shirts
Which of the following policies is NOT intended to alter structural unemployment? a. lowering the minimum wage for teen b. providing retraining programs for workers who need to learn new skills to find employment c. creating public employment for those without jobs d. all of the above are designed to alter this type of unemployment
c. creating public employment for those without jobs
You are laid off from you job because of a general downturn in economic activity. This is an example of a. frictional unemployment b. structural unemployment c. cyclical unemployment d. seasonal unemployment
c. cyclical unemployment
If the U.S. price level decreases relative to the price level in Canada, the demand for Canadian dollars will likely ________, and at the same time the supply of Canadian dollars will likely ________. a. increase; decrease b. decrease; decrease c. decrease; increase d. increase; increase
c. decrease; increase
When a firm or industry sells products on the world market at prices below the cost of production, this is known as a. a tariff b. an export subsidy c. dumping d. a quota
c. dumping
How is it possible for the poor to benefit from economic growth? a.economic growth can raise the level of capital being used in the economy, allowing additional resources to be put to alternative uses b. economic growth can create additional levels of pollution in an economy c. economic growth raises the level of income everyone can earn. It raises income at the bottom, not just the top, even if income goes up quicker at higher levels d. all of the above
c. economic growth raises the level of income everyone can earn. It raises income at the bottom, not just the top, even if income goes up quicker at higher levels
Empirical studies of labor markets have identified several benefits firms receive from paying workers more than the market-clearing wage. These studies tend to support a. minimum turnover theory b. COLA theory c. efficiency wage theory d. productivity wage theory
c. efficiency wage theory
According to the Bureau of Labor Statistics, during the first quarter of 2015, non farm business productivity in the US fell 3.1% and manufacturing productivity fell 1% compared to the first quarter of 2014. During this same time, GDP increased by 2.9%. Productivity can decrease when real GDP is increasing if.... a. more output is being produced per hour and more hours are being worked b. less output is being produced per hour and fewer hours are being workerd c. less output is being produced per hour but more hours are being worked d. more output is being produced per hour but fewer hours are being worked
c. less output is being produced per hour but more hours are being worked
If people have rational expectations, a. unemployment can last for a significant period of time b. anticipated policy changed will have a significant effect on output c. on average, all markets will clear, and there ill be full employment d. aggregate supply will increase, creating economic growth
c. on average, all markets will clear, and there ill be full employment
Which of the following is not an argument for protectionism in international trade a. protecting national security b. protecting domestic jobs and employment c. protecting a key source of government revenue d. protecting infant industries
c. protecting a key source of government revenue
A cornerstone of new classical economics is the notion that expectations are "rational". Assuming the economy is going to be in a recession for a number of years, what do you think will happen to the prices of single-family homes if people utilized rational expectations? Housing prices would... a. substantially increase during the period b. increase during the period c. remain flat or slowly decline d. not be affected by a recession in an economy
c. remain flat or slowly decline
Economic growth shifts the production possibilities frontier a. up and left b. down and right c. up and right d. down and left
c. up and right
If the opportunity cost of producing one gallon of milk is 1 dozen eggs in France and the opportunity cost of producing one gallon of milk is 4 dozen eggs in Sweden, both countries would benefit from trading with each other if the terms of trade were one gallon of milk for __________ dozen eggs a. 6 b. 4 c. 3 d. 1
c.3
Before 1995, proponents of the NAIRU theory argued that the value of the NAIRU in the US was around 6%. After 1995, the unemployment rate steadily declined and by 2000, it was 3.9%. Further, the 1995 to 2000 period saw slightly declining inflation. This evidence would suggest that... a.increase worker productivity led to a leftward shift of the PP curve b. Increased worker productivity led to a rightward shift of the PP curve c. The NAIRU theory is vacuous (without meaning) d. Both A and C
d. Both A and C
During the 1960s there seemed to be an obvious trade-off between inflation and unemployment (lower inflation implies higher unemployment). However, from the 1970s onward, that relationship appeared to break-down. Which of the following are possible causes of this apparent breakdown? a. The AS shifts but the AD doesn't b. The AD shifts but the AS doesn't c. Both the AD and AS supply curves shift d. Both A and C
d. Both A and C
The existence of trade for country that has developed an expertise or reputation for quantity in the production of a particular good is best explained by a. factor endownments b. Heckscher-Ohlin theorem c. economies of scale d. acquired comparative advantage
d. acquired comparative advantage`
How could budget deficits not lead to reduced growth in the economy in the future? a. if the spending from the deficit is used for education, this may create more productive workers who can produce larger amounts of output in the future b. if the deficit encourages additional investment from businesses, then additional resources will be created c. if the deficit is created from lower taxes, the tax reductions may actually create additional investment which will create more capital in the future d. all of the above
d. all of the above
Which of the following arguments have been used in favor of protectionism a. protection saves domestic jobs b. protection discourages dependency on trading partners c. protection safeguards national security d. all of the above
d. all of the above
Which of the following is a problem faced by macroeconomists in testing alternative macroeconomic theories? a. macroeconomic models differ in ways tat are hard to standardize b. the amount of data available is small c. not knowing whether the model taken to be the true model is actually the true model when testing the rational expectations assumption d. all of the above
d. all of the above
Why can growth lead to a more unequal distribution of income? a. even if lower income earners continue to experience increases in income from economic growth, the increases to higher income earners may increase at a quicker rate. b. Growth requires high incentives for those who work and invest in the way that matches consumer desires more closely, and this means that the rewards for work and investment will be unequally distributed c. capital investment requires saving and saving comes mostly from the rich rather than the poor d. all of the above
d. all of the above
Which of the following has NOT been offered by economists as an explanation for the US productivity slowdown of the late 1970s and early 1980s a. diminished spending on R and D b. a low saving rate c. increased regulation of businesses d. an American moral and spiritual crisis e. high energy costs
d. an American moral and spiritual crisis
All else equal, a depreciation of a country's currency will likely result in ________ in aggregate expenditure on domestic output and ________ in the country's GDP. a. a decrease; a decrease b. no change; no change c. a decrease; no change d. an increase; an increase
d. an increase; an increase
The difference between a country's exports of goods and services and its imports of goods and services is its a. balance of payments b. balance on capital account c. balance on current account d. balance of trade
d. balance of trade
An increase in interest rates should __________ spending on domestically produced goods and ____________ spending on foreign-produced goods a. encourage; encourage b. discourage; encourage c. encourage; discourage d. discourage; discourage
d. discourage; discourage
In July 2015, the euro was trading at $1.09. If, in the most recent month, the euro was trading at $1.04, you can conclude that ____________. a. U.S. GDP growth could have caused the demand for euros to increase. b. falling U.S. GDP could have caused the supply of euros to decrease. c. U.S. GDP growth could have caused the demand for euros to decrease. d. falling U.S. GDP could have caused the demand for euros to decrease.
d. falling U.S. GDP could have caused the demand for euros to decrease.
There is no systematic relationship between the inflation rate and the unemployment rate a. unless the AD and AS curve are shifting simultaneously b. if only the AD curve shifts while the AS curve doesn't shift c. if only the AS curve shifts while the AD curve doesn't shift d.if both the AD and AS curves are shifting simultaneously
d. if both the AD and the AS curves are shifting simultaneously
The Phillips Curve models the relationship between______________. It asserts that these variables are ______________ correlated. a. price level and unemployment; negatively b. inflation and unemployment; postively c. Price level and unemployment; positively d. inflation and unemployment; negatively
d. inflation and unemployment; negatively
Which of the following is a true statement about inflation? a. inflation occurs when the growth rate of the money supply is less than the growth rate of real GDP b. inflation only occurs when the velocity of money is not constant c. inflation is always caused by changes in a money supply d. inflation cannot continue indefinitely without increases in the money supply
d. inflation cannot continue indefinitely without increases in the money supply
If households and firms have rational expectations, a. it is possible for the unemployment rate to exceed the natural rate of unemployment in the long term b. wages and prices cannot seek market-clearing values c. the unemployment rate will be less than the natural rate of unemployment d. it is possible for the unemployment rate to exceed the natural rate of unemployment in the short term
d. it is possible for the unemployment rate to exceed the natural rate of unemployment in the short term
Assume the classical view of the labor market. During a recession, a. labor demand will decrease, real wage will fall, and unemployment increase b. labor demand increases, real wage increases, and unemployment increases c. labor demand increases, real wage falls, no unemployment d. labor demand decreases, real wage falls, no unemployment
d. labor demanded decreases, real wage falls, no unemployment
Evaluate the following statement: "If a lower exchange rates increase a nation's exports, the government should do everything in its power to ensure that the exchange rate for its currency is as low as it can possibly be." This statement does not acknowledge that lower exchange rates a. make a nation's imports more expensive b. could result in a reluctance from other countries to accept this nation's currency for payment of any goods or services c. could make a currency virtually worthless d. none of the above responses are acknowledged by the statement
d. none of the above responses are acknowledged by the statement
Since the 1970s changes in expected inflation and the price of oil and other imports have shown the Phillips Curve to be unstable. This has led economists to conclude that a. a short-run trade-off between inflation and unemployment doesn't exist b. a short-run trade-off between inflation and unemployment only existed prior to 1970 c. A.W. Phillips research was flawed d. policy involves more than choosing a point along a nice smooth Phillips Curve
d. policy involves more than choosing a point along a nice smooth Phillips Curve
Real business cycle theory assumes a. neither rational expectations nor completely flexible prices and wages b. completely flexible prices and wages, but not rational expectations c. rational expectations, but not completely flexible prices and wages d. rational expectations and completely flexible prices and wages
d. rational expectations and completely flexible prices and wages
New Keynesian economics assumes a. neither rational expectations nor completely flexible prices and wages b. rational expectations and completely flexible prices and wages c. completely flexible prices and wages, but not rational expectations d. rational expectations, but not completely flexible prices and wages
d. rational expectations, but not completely flexible prices and wages
In a foreign exchange market consisting of U.S. dollars and Japanese yen, an excess demand for yen will cause the price of yen to ________, and the yen will ________ relative to the dollar. A. fall; appreciate B. fall; depreciate C. rise; depreciate D. rise; appreciate
d. rise; appreciate
The Laffer curve examines the relationship between a. interest rate and planned investment b. price level and unemployment rate c. stock of money and velocity of money d. tax rates and tax revenues
d. tax rates and tax revenues
Increases in income in the United States cause U.S. citizens to buy more imports from China. This increases income in China, and thus Chinese citizens will buy more imports from the United States. This in turn increases U.S. income. The statement above is an example of a. the price feedback effect b. the open-economy multiplier c. the gains from trade d. the trade feedback effect
d. the trade feedback effect
If the economy is operating above potential GDP, then a. unemployment is above the natural rate and wages will fall b. unemployment is above the natural rate and wages will rise c. unemployment is below the natural rate and wages will fall d. unemployment is below the natural rate and wages will rise
d. unemployment is below the natural rate and wages will rise
Which of the following statements would be associated with new classical economics? a. because wages and prices are sticky and it can take a long time for the economy to return to full employment, the government should intervene in the macroeconomy b. economic problems can best be addressed by reducing taxation and regulation and thus increasing incentives to save and invest c. because there are significant lags in recognizing and implementing activist policies, the best government policy is nonintervention d. since expectations are rational, anticipated policy changes will have no effect on real output, and only "surprises" matter
d.since expectations are rational, anticipated policy changes will have no effect on real output, and only "surprises" matter