Macro Final
1) In the expectations-augmented Phillips curve, π= πe - 3(u- 0.05). When π= 0.03 andπe = 0.06, the unemployment rate is A) 0.04. B) 0.05. C) 0.06. D) 0.07.
Answer: C
1) Suppose the current level of output is 5000. A 10% increase in productivity would increase the current level of output to A) 5050. B) 5100. C) 5500. D) 6000.
Answer: C
2) A temporary decline in productivity would cause the IS curve to A) shift up and to the right. B) shift down and to the left. C) remain unchanged. D) shift up and to the right only if people face borrowing constraints.
Answer: C
Money demand is given by 𝑀𝑑𝑃=1000+0.2𝑌−1000𝑖MdP=1000+0.2Y−1000i. Given that 𝑃=200P=200, 𝑌=2000Y=2000, and 𝑖=0.10i=0.10, what is velocity equal to?
1.54
According to the Taylor rule with equal weights and an equilibrium interest rate of 2%, if inflation in the last year was 1% and output gap was 2%, the nominal Fed funds rate should be (no units necessary in the answer) ____________which means that the Fed should ________
0.035, decrease money supply.
In the expectations-augmented Phillips curve, if inflation is 0.03, the unemployment is 0.06, the expected inflation is 0.06, and h (the constant) is 3, then what is the natural rate of unemployment?
0.05
Assume that the reserve—deposit ratio is 0.2. The Federal Reserve carries out open-market operations, purchasing $1,000,000 worth of bonds from banks. This action increased the money supply by $2,600,000. What is the currency—deposit ratio?
0.3
Suppose the marginal product of labor in the economy is given by 𝑀𝑃𝑁=0.002(16,000−𝑁)MPN=0.002(16,000−N), while the supply of labor is 1000+1000𝑤1000+1000w. Find the equilibrium level of employment. (Enter the number only. No units are necessary here.)
11000
Over the past year, output grew 4\%, capital grew 2\%, and labor grew 1\%. If the elasticities of output with respect to capital and labor are 0.3 and 0.7, respectively, how much did productivity grow?
2.7
Supose the production function is 𝑌=𝐴𝐾0.25𝑁0.75Y=AK0.25N0.75. What is the marginal product of labor when 𝐴=12A=12, 𝐾=625K=625, and 𝑁=10000N=10000?
4.5
If the Consumer Price Index (CPI) last year was 100.0 and today it is 140, what is the inflation rate over this period?
40
Supose a country has the per-worker production function 𝑦𝑡=6𝑘2/3𝑡yt=6kt2/3. The depreciation rate is 0.1 and the population growth rate is 0.1. The saving function is 𝑆𝑡=0.1𝑌𝑡St=0.1Yt. What is the steady-state value of output per worker?
54
An economy has government purchases of 2000. Desired national saving and desired investment are given by 𝑆𝑑=200+5000𝑟+0.10𝑌−0.20𝐺Sd=200+5000r+0.10Y−0.20G and 𝐼𝑑=1000−4000𝑟Id=1000−4000r. When the full-employment level of output equals 5000, then the level of investment when the goods market is in equilibrium will be
688.9
4) A liquidity trap occurs when A) any additions to the monetary base are held as cash by people or reserves at banks. B) the Fed increases the money supply, causing the expected inflation rate to rise more than the real interest rate declines, so that the nominal interest rate increases. C) there are runs on banks that are solvent but illiquid. D) the demand for loans increases in a country on the gold standard, so that the monetary supply is not able to increase and interest rates rise dramatically. E) None of the above.
A) any additions to the monetary base are held as cash by people or reserves at banks.
3) The new monetary policy tool that the Fed began using in 2008 is A) changing the interest rate paid on reserves. B) imposing a surcharge on credit cards. C) putting a tax on all financial transactions. D) borrowing from China. E) None of the above.
A) changing the interest rate paid on reserves.
3) If there is a financial panic and increased uncertainty about the returns in the stock market and bond market, what is the likely effect on money demand? A) Money demand declines first, then rises when inflation increases. B) Money demand rises. C) The overall effect is ambiguous. D) Money demand declines.
Answer: B
1) Compared with money, bonds have A) less risk and less liquidity. B) less risk and more liquidity. C) more risk and less liquidity. D) more risk and more liquidity.
Answer: C
7) The Taylor rule relates A) the nominal Fed funds rate to inflation deviation from its target and the deviation of output from full-employment output. B) the growth rate of the monetary base to the growth rate of nominal GDP and the change in velocity over the past year. C) the nominal Fed funds rate to the growth rate of nominal GDP and the change in velocity over the past year. D) the growth rate of the monetary base to inflation over the past year and the deviation of output from full-employment output. E) None of the above.
A) the nominal Fed funds rate to inflation deviation from its target and the deviation of output from full-employment output.
6) One cost of an unanticipated inflation is that it A) transfers wealth from lenders to borrowers. B) transfers wealth from borrowers to lenders. C) decreases menu costs. D) increases the purchasing power of money. E) None of the above.
A) transfers wealth from lenders to borrowers.
1) If the deficit is 0.1 of GDP, the existing debt/GDP ratio is 0.5, and the growth rate of nominal GDP is 0.04, then the change in the debt-GDP ratio is A) +0.08 B) +0.075. C) 0. D) -0.075.
Answer: A
1) The table below represents Freedonia's macroeconomic data for Year 1 and Year 2. Suppose that the production function is given by Y = A . Between Year 1 and Year 2, total factor productivity of Freedonia's economy increased by A) -1.5%. B) 5.0%. C) 5.5%. D) 12.7%.
Answer: A
2) In a steady state A) both consumption per worker and the capital-labor ratio are constant. B) consumption per worker is constant, but the capital-labor ratio can change. C) capital and labor, by definition, are inversely related to one another. D) consumption per worker can change, but the capital-labor ratio is constant.
Answer: A
2) Suppose most people had anticipated that inflation would be 3% in the coming year because the Fed would increase the money supply by 3%. Instead, the Fed increases the money supply by 5%. In the short run, this would cause actual output to be ________ full-employment output and prices to increase by ________ 3%. A) above; more than B) above; less than C) below; more than D) below; less than
Answer: A
2) The widespread decline in the volatility of many macroeconomic variables after 1984 led economists to term this period the A) Great Moderation. B) Low Volatility Era. C) Steady State. D) Long Boom.
Answer: A
3) According to the Ricardian equivalence proposition, current deficits A) will not affect consumption or national saving. B) will affect consumption but not national saving. C) will affect national saving but not consumption. D) will affect both consumption and national saving.
Answer: A
3) In the Keynesian model in the short run, an increase in the money supply will cause A) an increase in output and a decrease in the real interest rate. B) a decrease in the real interest rate but no change in output. C) an increase in the real interest rate and an increase in output. D) no change in either the real interest rate or output.
Answer: A
4) After a shift in the aggregate demand curve, which variable adjusts to restore general equilibrium? A) price level B) real interest rate C) consumption spending D) investment spending
Answer: A
4) The IS-LM model predicts that a temporary beneficial supply shock A) increases output, national saving, and investment, but not the real interest rate. B) increases output, national saving, and the real interest rate, but not investment. C) increases the real interest rate, investment, and output, but not national saving. D) increases output, national saving, investment, and the real interest rate.
Answer: A
6) When the money supply rises by 10%, in the short run, output ________ and the price level ________. A) rises; is unchanged B) declines; falls C) is unchanged; falls D) declines; is unchanged
Answer: A
1) According to classical macroeconomists, prices adjust ________ to shocks, so the government should ________. A) slowly; do little B) rapidly; do little C) rapidly; fight recessions D) slowly; fight recessions
Answer: B
1) In the efficiency wage model with the efficiency wage above the market-clearing wage, when employment is at its full-employment level, A) labor supply equals labor demand. B) there is an excess supply of labor. C) there is an excess demand for labor. D) there could be either an excess demand for, or an excess supply of, labor.
Answer: B
1) Last year, Linus earned a salary of $25,000 and he spent $24,000, thus saving $1,000. At the end of the year, he received a bonus of $1,000 and he spent $500 of it, saving the other $500. What was his marginal propensity to consume? A) .96 B) .50 C) .04 D) .02
Answer: B
1) Peaks and troughs of the business cycle are known collectively as A) volatility. B) turning points. C) equilibrium points. D) real business cycle events.
Answer: B
2) In the Keynesian model, when the economy is not in long-run equilibrium, then the short-run equilibrium point is not on which curve? A) SRAS B) FE C) IS D) LM
Answer: B
2) Suppose the economy's production function is Y = A . Suppose K = 200, N = 2000, and A = 1. Calculate the marginal product of capital. A) 1.0 B) 1.5 C) 2.0 D) 2.5
Answer: B
2) Which of the Fed's instruments is most frequently used? A) Changing reserve requirements B) Open-market operations C) Changing the discount rate D) Changing margin requirements for the stock market
Answer: B
3) If consumers foresee future taxes completely, a reduction in taxes this year that is accompanied by an offsetting increase in future taxes would cause A) a rightward shift in the saving curve and a rightward shift in the investment curve. B) a shift in neither the saving nor the investment curve. C) a leftward shift in the saving curve, but no shift in the investment curve. D) no shift in the saving curve, but a rightward shift in the investment curve.
Answer: B
2) An increase in the marginal tax rate, with the average tax rate held constant, will A) increase the amount of labor supplied at any real wage. B) not affect the amount of labor supplied at any real wage. C) decrease the amount of labor supplied at any real wage. D) increase the amount of labor supplied at any real wage if the average tax rate is above the marginal tax rate, but decrease the amount of labor supplied at any real wage if the average tax rate is below the marginal tax rate.
Answer: C
2) The distinction between real and nominal shocks is that A) real shocks directly affect only the IS curve, but not the FE line or LM curve. B) real shocks directly affect only the FE line, but not the LM curve. C) real shocks directly affect only the IS curve or the FE line, but not the LM curve. D) real shocks have a large direct effect on the IS curve and the FE line, but only a small direct effect on the LM curve.
Answer: C
2. The Bigdrill company drills for oil, which it sells for $200 million to the Bigoil company to be made into gas. The Bigoil company's gas is sold for a total of $600 million. What is the total contribution to the country's GDP from companies Bigdrill and Bigoil? A) $200 million B) $400 million C) $600 million D) $800 million
Answer: C
3) An increase in wealth that doesn't affect labor supply would cause the IS curve to ________ and the FE line to ________. A) shift down and to the left; be unchanged B) shift down and to the left; shift left C) shift up and to the right; be unchanged D) shift up and to the right; shift left
Answer: C
3) If Jeff's wage rate rises, he decides to work fewer hours. From this, we can infer that A) for Jeff, the substitution effect is greater than the income effect. B) for Jeff, the substitution effect is equal to the income effect. C) for Jeff, the substitution effect is less than the income effect. D) Jeff is a nitwit.
Answer: C
3) In the Keynesian model, suppose the Fed sets a target for the real interest rate. If the IScurve shifts down and to the left, and the Fed wants to keep output unchanged in the short run and the price level unchanged in the long run, it will A) shift the LR curve up. B) not shift the LR curve. C) shift the LR curve down. D) shift the IS curve up and to the right.
Answer: C
3) In the textbook model of endogenous growth, long-run output growth would decline if there were either a ________ in the saving rate or a ________ in the depreciation rate. A) rise; rise B) rise; fall C) fall; rise D) fall; fall
Answer: C
4) According to the misperceptions theory, when P > Pe, output is ________ its full- employment level and the short-run aggregate supply curve must shift ________ to restore full employment. A) below; upward B) below; downward C) above; upward D) above; downward
Answer: C
1) Suppose there was a banking crisis. The money supply would shrink by the greatest amount if the public ________ their currency-deposit ratio and the banks ________ their reserve-deposit ratio. A) decreased; decreased B) decreased; increased C) increased; decreased D) increased; increased
Answer: D
1) The FE line is vertical because the level of output at full employment doesn't depend on the A) real wage rate. B) level of employment. C) marginal product of labor. D) real interest rate.
Answer: D
1. Adam Smith's idea of the "invisible hand" says that given a country's resources and its initial distribution of wealth, the use of markets will A) insulate a nation from the effects of political instability. B) eliminate problems of hunger and dissatisfaction. C) eliminate inequalities between the rich and the poor. D) make people as economically well off as possible.
Answer: D
2) A one-year bond has an interest rate of 5% today. Investors expect that in one year, a one year bond will have an interest rate equal to 7%. According to the expectations theory of the term structure of interest rates, in equilibrium, a two-year bond today will have an interest rate equal to A) 3.0%. B) 5.0%. C) 5.5%. D) 6.0%.
Answer: D
2) Which of the following machines has the lowest user cost? Machine A costs $15,000 and depreciates at a rate of 25%, machine B costs $10,000 and depreciates at a rate of 20%, machine C costs $20,000 and depreciates at a rate of 10%, and machine D costs $17,000 and depreciates at a rate of 11%. The expected real interest rate is 0%. A) Machine A B) Machine B C) Machine C D) Machine D
Answer: D
3) According to classical economists, the increase in unemployment in recessions is caused by A) slack aggregate demand. B) the failure of wages to adjust to restore equilibrium in the labor market. C) the power of labor unions, which prevent firms from cutting wages. D) a mismatch of workers and jobs.
Answer: D
3) Both classicals and Keynesians agree that policymakers A) can exploit the Phillips curve in the short run. B) cannot exploit the Phillips curve in the short run. C) can keep the unemployment rate permanently below the natural rate by permanently running a high rate of inflation. D) cannot keep the unemployment rate permanently below the natural rate by permanently running a high rate of inflation.
Answer: D
3) Which of the following is true? A) Employment and unemployment are both coincident with the business cycle. B) Employment and unemployment are both procyclical. C) Employment is procyclical and unemployment is coincident with the business cycle. D) Employment is procyclical and unemployment is countercyclical.
Answer: D
5) Classical economists think general equilibrium is attained relatively quickly because A) the real interest rate adjusts quickly. B) the level of output adjusts quickly. C) the real wage rate adjusts quickly. D) the price level adjusts quickly.
Answer: D
8) The Bank of Japan recently said that they "expected to keep extremely low interest rates until at least the spring of 2020." From this statement we can say that the Bank of Japan is engaging in A) credit easing. B) forward guidance. C) quantitative easing. D) a maturity extension program. E) None of the above.
B) forward guidance.
1) Which one below does the Fed have no control over? A) Reserve Requirement B) Discount window lending C) Federal Funds Rate D) Balance sheet E) None of the above.
C) Federal Funds Rate
5) When the Fed increases the quantity of assets it owns, it is said to be engaging in A) credit easing. B) forward guidance. C) quantitative easing. D) a maturity extension program. E) None of the above.
C) quantitative easing.
2) Which is not a barrier to monetary policy: A) Uncertainty of people's expectation. B) Uncertainty about the state of the economy. C) No complete models of the economy. D) Lags in applying government-approved the economic policy. E) None of the above.
D) Lags in applying government-approved the economic policy.
Business cycle are determined by _________ which usually dates cycles with a lag in part because of _______
National Bureau of Economic Research (NBER), data revisions.
Suppose Congress passes their new COVID stimulus relief bill and there is an increase in government spending. In the goods market graph this would cause _________ and the equilibrium value of savings will _________ and the equilibrium value of consumption will ____________ and the equilibrium value of investment will ___________ and the equilibrium value of the real interest rate will _______________
a shift in the savings curve, decrease, decrease, decrease, increase
Suppose there is an decrease in expected GDP next year. In the goods market graph this would cause _______ and the equilibrium value of savings will _______ and the equilibrium value of consumption will ________ and the equilibrium value of the real interest rate will _______
a shift in the savings curve, increase, decrease, decrease
Suppose there is a beneficial productivity shock. In the labor market graph this would cause _________ and the equilibrium value of labor will __________ and the marginal product of labor will _______ and the equilibrium value of real wages will __________
a shift of the labor demand curve, increase, increase, increase
If C = $400, I = $100, G = $50, NX = $30, and NFP = $5, how much is GDP? a. $580 b. $575 c. $585 d. $550
a. $580
A closed economy is a national economy that: a. doesn't interact economically with the rest of the world. b. has a stock market that is not open to traders from outside the country. c. has extensive trading and financial relationships with other national economies. d. has not established diplomatic relations with other national economies.
a. doesn't interact economically with the rest of the world.
The desired level of the capital stock will increase if the: a. expected future marginal product of capital increases. b. effective tax rate increases. c. price of capital increases. d. user cost of capital increases.
a. expected future marginal product of capital increases.
Suppose the Fed needs to fight inflation, but are worried about the costs. The costs of disinflation would be low if: a. expected inflation falls as inflation falls. b. wage and price controls were used. c. the Phillips curve were nearly horizontal. d. a cold turkey approach is unannouced. e. none of the above.
a. expected inflation falls as inflation falls.
The three approaches to measuring economic activity are the: a. product, income, and expenditure approaches. b. none of the above. c. private, public, and international approaches. d. ) cost, income, and expenditure approaches. e. consumer, business, and government approaches.
a. product, income, and expenditure approaches.
According to Keynesians, the primary source of business cycle fluctuations is ________ Additionally, Keynesians believe that the difference between using an increase in the money supply compared with an increase in government spending to increase aggregate demand in the event of a recession is that if government spending is increased, the ________ will be ________than if the money supply is increased.
aggregate demand shocks., real interest rate, higher
Endogenous growth theory attempts to: a. explain how societies can more easily reach the "Golden Rule." b. explain why productivity changes. c. none of the above. d. show how population growth reduces capital and output. e. replace the Solow model with a model in which money growth plays a key role.
b. explain why productivity changes.
The fact that the production function relating output to labor becomes flatter as we move from left to right means that: a. there is diminishing marginal productivity of capital. b. there is diminishing marginal productivity of labor. c. none of the above. d. the marginal product of labor is positive. e. the marginal product of capital is positive.
b. there is diminishing marginal productivity of labor.
With fixed interest rates, unanticipated deflation hurts ________ because the loan is _______
borrowers, more valuable in real dollars.
The Cat Sweater Company sells knitted sweaters for cats for a total of $100,000. Th Cat Sweater Company buys yarn from Sheeps R Us for $40,000 to make their sweaters. What is the total contribution to the country's GDP from the Cat Sweater Company and Sheeps R Us? a. $40,000 b. $60,000 c. $100,000 d. $140,000 e. too much.
c. $100,000
CPI was 251 in 2018 and 256 in 2019. Given this, what was the inflation rate in 2019?If the price level was 100 in 2014 and 102 in 2015, the inflation rate was: a. 256% b. 5.0% c. 2.0% d. 0.2%
c. 2.0%
The stock market just crashed; the Dow Jones Industrial Average fell by 750 points. You would expect the effect on aggregate consumption to be the largest if which of the following facts was true? a. Most stocks were owned by pension funds that invested in the market. b. The crash had been preceded by a large run-up in the price of stocks. c. Many individuals had invested in the stock market immediately prior to the crash. d. Most stocks were owned by insurance companies. e. none of the above.
c. Many individuals had invested in the stock market immediately prior to the crash.
If the steady-state capital—labor ratio is equal to the Golden Rule capital—labor ratio, then in the steady state: a. output per worker equals investment per worker. b. investment per worker is as large as possible. c. consumption per worker is as large as possible. d. none of the above. e. output per worker equals depreciation per worker.
c. consumption per worker is as large as possible.
The measurement of GDP includes a. nonmarket goods such as homemaking and child-rearing. b. the benefits of clean air and water. c. estimated values of activity in the underground economy. d. purchases and sales of goods produced in previous periods.
c. estimated values of activity in the underground economy.
The idea that investors today compare the returns on bonds with differing times to maturity to see which is expected to give them the highest return is the underlying principle behind the . a. investors' viewpoint analysis. b. segmented-markets theory. c. expectations theory of the term structure of interest rates. d. none of the above. e. yield comparison theory of the term structure of interest rates.
c. expectations theory of the term structure of interest rates.
The fundamental identity of national income accounting is a. total production = total income - total expenditure. b. total production = total income + total expenditure. c. total production = total income = total expenditure. d. total production = total income/total expenditure.
c. total production = total income = total expenditure.
If the expected inflation rate was 2.5%, the expected real interest rate was 4.0%, and the real interest rate turned out to be 5.1%, then the nominal interest rate equals a. 1.4%. b. 1.5%. c. 2.6%. d. 6.5%.
d. 6.5%.
In the Solow Growth Model, increasing the captial labor ratio will lead to a decrease in consumption per worker when: a. capital labor ratio is less than the golden rule. b. investment per worker is maximized. c. none of the above. d. capital labor ratio is greater than the golden rule. e. output per worker is greater than the maximized investment per worker.
d. capital labor ratio is greater than the golden rule.
An increase in population growth will lead to the steady-state capital-labor ratio to ________ and the steady-state output per worker to __________
decrease, decrease
In the Keynesian model a decrease in the money supply in the short run will cause output to _______ and the real interest rate _____ In the long run, (in the Keynesian model) a decrease in the money supply will cause output to ________ and the real interest rate _______
decrease, increase, stay the same, stay the same.
In an economy where firms in most industries are monopolistically competitive firms, individual firms in each industry would produce ________ products and have ________
differentiated, some market power and the ability to set P greater than marginal cost.
Keynesian macroeconomists argue that the short-run Phillips curve ________ represent a usable trade-off for policymakers because ___________ In the long run, Classical and Keynesian policymakers ________ that you cannot keep the unemployment rate permanently below the natural rate by permanently running a high rate of inflation.
does, prices are sticky., agree
If there is a financial panic and increased uncertainty about the returns in the stock market and bond market, what is the likely effect on money demand? a. Money demand declines. b. Money demand declines first, then rises when inflation increases. c. none of the above. d. The overall effect is ambiguous. e. Money demand rises
e. Money demand rises.
Opposite of what the Fed has been saying, suppose Congress has decided to cut government spending instead of passing a new COVID relief bill. This decrease in government purchases in the long-run causes the real interest rate _____________ and output in the long-run to ________
fall, stay the same.
2008 was a time of unconventional monetary policy. When the Fed signaled how long it expects interest rates to remain at a low level, it is engaging in ________ Additionally, when the Fed altered the types of assets it owns, it is engaging in _________
forward guidance, quantitative easing
When a person receives an increase in wealth, consumption is likely to _______ and savings is likely to _________ because of the _________
increase, decrease, consumption-smoothing motive
Suppose there is a beneficial productivity shock, such as a decrease in oil-prices, this would primarily affect _______This would lead to current employment _______ and the real wage rate to _______
labor demand, increase, increase
Suppose there is a decrease in labor demand. This would cause a shift of the ______ To get back to general equilibrium, the __________ as prices _______
long-run aggregate supply curve, short-run aggregate supply curve shifts, rise
The short-run Phillips curve is the relation between inflation and unemployment that holds for a given _________ and a given __________
natural rate of unemployment, expected rate of inflation.
A business cycle can be measured as ________ or _______
peak to peak, trough to trough
Industrial production is __________ whereas the unemployment rate is ________
procyclical, countercyclical
Firms hire labor at the point where the _______ equals the __________
real wage, marginal product of labor.
Under monetary neutrality, an increase in the money supply causes output to ________ and the price level to ________
stay the same, rise
Suppose the Fed decides to decrease the money supply. A decrease in the money supply would cause the IS curve to ___________ and the LM curve to _________ The real interest rate in the short run is ________
stay the same, shift up and left., higher
If a bank borrows from a Federal Reserve Bank, the interest rate is called _______ If a bank borrows from another bank, the interest rate is called ________
the discount rate., the Fed funds rate.
To say that business cycles are not periodic, but recurrent means ______ but __________
they do not occur at regular intervals, have regular patterns.
The Great Modertaion is identified to be a period in the US economy where _______ of macroeconomic variables has _______
volatility, decreased
According to the efficiency wage model, during a recession, firms _______ because _______
will not reduce real wages, this would reduce worker effort and productivity.
