Macro final exam sample

The labor-force participation rate tells us the fraction of the population that

has chosen to participate in the labor market.

Efficiency wages:

increase productivity but increase unemployment.

In 1898 (when gold served as money), prospectors on the Klondike River discovered gold. This discovery caused an unexpected price level to...

increase that benefited debtors at the expense of creditors.

When taxes decrease, consumption

increases as shown by a shift of the aggregate demand curve to the right.

The source of hyperinflations is primarily

increases in money-supply growth.

A situation in which the Fed's target interest rate has fallen as far as it can fall is sometimes described as a

liquidity trap

The Bureau of Labor Statistics places people in the "employed" category if they...

work without pay in a family member's business.

Marta lends money at a fixed interest rate and then inflation turns out to be higher than she had expected it to be. The real interest rate she earns is

lower then she had expected, and the real value of the loan is lower than she had expected.

When the money market is drawn with the value of money on the vertical axis, the price level increases if

money demand shifts left or money supply shifts right.

An increase in the price level and a reduction in output would result from

natural disasters such as hurricanes, floods, and droughts.

U.S. tax laws allow taxpayers, in computing the amount of tax they owe, to use the real value, as opposed to the nominal value, of...

neither interest income nor capital gains.

Aggregate demand shifts right if at a given price level

net exports rise and shifts right if the money supply increases.

Economic variables whose values are measured in monetary units are called

nominal variables.

Edgar is working part-time. Diane is on temporary layoff. Who is included in the Bureau of Labor Statistics' "employed" category?

only Edgar

Most economists believe that fiscal policy

primarily affects aggregate demand.

In which of the following cases would the quantity of money demanded be largest? . r = 0.03, P = 1.3 b. r = 0.04, P = 1.2 c. r = 0.03, P = 1.2 d. r = 0.05, P = 0.9

r = 0.03, P = 1.3

In the 1990's Ireland made unemployment benefits less generous. This change would likely have

reduced frictional unemployment and the natural rate of unemployment

In the mid-1970s the price of oil rose dramatically. This...

shifted aggregate supply left.

Of the following groups, who is eligible for unemployment insurance benefits?

the unemployed who were laid off because their previous employers no longer needed their skills

The primary argument against active monetary and fiscal policy is that

these policies affect the economy with a long lag.

Economists use the word "money" to refer to...

those assets regularly used to buy goods and services.

Unemployment data are collected

through a regular survey of about 60,000 households.

From 2001 to 2005 there was a dramatic rise in the price of houses. If this rise made people feel wealthier, then it would have shifted...

aggregate demand right.

Suppose a shift in aggregate demand creates an economic contraction. If policymakers can respond with sufficient speed and precision, they can offset the initial shift by shifting

aggregate demand right.

An economic contraction caused by a shift in aggregate demand remedies itself over time as the expected price level

falls, shifting aggregate supply right.

Which of the following shifts aggregate demand to the right? a. The price level rises. b. The price level falls. c. The Fed purchases government bonds on the open market. d. None of the above is correct.

The Fed purchases government bonds on the open market.

Suppose that M is fixed but that P falls. According to the quantity equation which of the following could both by themselves explain the decrease in P?

Y rose, V fell

You bought some shares of stock and, over the next year, the price per share increased by 5 percent, as did the price level. Before taxes, you experienced

a nominal gain, but no real gain, and you paid taxes on the nominal gain.

In response to the sharp decline in stock prices in October 1987, the Federal Reserve...

decreased interest rates to avoided a recession.

Cyclical unemployment is caused by

Neither frictional nor structural unemployment

Critics of stabilization policy argue that... a. there is a lag between the time policy is passed and the time policy has an impact on the economy. b. the impact of policy may last longer than the problem it was designed to offset. c. policy can be a source of, instead of a cure for, economic fluctuations. d. All of the above are correct.

all of the above are correct

The multiplier Effect

amplifies the effects of an increase in government expenditures, while the crowding-out effect diminishes the effects.

Which of the following would raise the price level in both the short and long run?

an increase in government expenditures

If the economy is at point b, a policy to restore full employment would be

an increase in government purchases.

If the economy is at point b, a policy to restore full employment would be

an increase in the money supply.

According to the aggregate demand and aggregate supply model, in the long run an increase in the money supply leads to

an increase in the price level but does not change real GDP.

The Federal Funds rate is the interest rate

banks charge each other for short-term loans.

Which of the following decreases in response to the interest-rate effect from an increase in the price level?

both investment and consumption

Minimum-wage laws, unions, and efficiency wages contribute to

both structural unemployment and the natural rate of unemployment.

Changes in nominal variables are determined mostly by the quantity of money and the monetary system according to

both the classical dichotomy and the quantity theory of money.

Some economists argue that... a. monetary policy should actively be used to stabilize the economy. b. fiscal policy should actively be used to stabilize the economy. c. fiscal policy can be used to shift the AD curve. d. All of the above are correct.

d. All of the above are correct.

To increase the money supply, the Fed could...

decrease the discount rate.

Suppose stock prices rise which shifts AD to the right. To offset the resulting change in output the Federal Reserve could...

decrease the money supply. This decrease would also move the price level closer to its value before the rise in stock prices.

The price level falls. This might be because the Federal Reserve

sold bonds which reduced the money supply.

Suppose that monetary neutrality and the Fisher effect both hold. An increase in the money supply growth rate increases

the inflation rate and the nominal interest rate by the same number of percentage points.

When the money market is drawn with the value of money on the vertical axis, if the Fed sells bonds then

the money supply and the price level decrease.

In recent years, the Fed has chosen to target interest rates rather than the money supply because

the money supply is hard to measure with sufficient precision.

Under the assumptions of the Fisher effect and monetary neutrality, if the money supply growth rate rises, then

the nominal interest rate rises, but the real interest rate does not.

Optimism Imagine that the economy is in long-run equilibrium. Then, perhaps because of improved international relations and increased confidence in policy makers, people become more optimistic about the future and stay this way for some time. Refer to Optimism. How is the new long-run equilibrium different from the original one?

the price level is higher and real GDP is the same.

If the actual price level is 165, but people had been expecting it to be 160, then

the quantity of output supplied rises, but only in the short run.