ECON 3123 Final

According to the quantity theory a 5 percent increase in money growth increases inflation by ____ percent. According to the Fisher equation a 5 percent increase in the rate of inflation increases the nominal interest rate by _____.

5;5

If the real return on government bonds is 3 percent and the expected rate of inflation is 4 percent, then the cost of holding money is ______ percent.

7

According the theory of Ricardian equivalence, if consumers are forward-looking, they will view a tax cut combined with no plans to reduce government spending as _____, so their consumption will ______.

a rescheduling of taxes into the future; remain unchanged.

If consumption depends positively on the level of real balances, and real balances depend negatively on the nominal interest rate in a neoclassical model, then:

a rise in money growth leads to a fall in consumption and a rise in investment.

Economic profit is zero if:

all factors are paid their marginal products and there are constant returns to scale.

The marginal propensity to consume is the:

amount consumed out of an additional dollar of income

If bread is produced by using a constant returns to scale production function, then if the:

amounts of equipment and workers are both doubled, twice as much bread will be produced.

An increase in the trade surplus of a small open economy could be the result of:

an increase in the world interest rate.

In Irving Fishers two-period model, if the consumer is initially a saver and the interest rate and first-period consumption increase, then we can conclude that the income effect:

was greater than the substitution effect.

If the real exchange rate between the United States and Japan remains unchanged, and the inflation rate in the United States is 6 percent and the inflation rate in Japan is 3 percent, the:

yen will appreciate by 3 percent against the dollar.

The quantity theory of money assumes that:

velocity is constant.

In the classical model with fixed income, if the demand for goods and services is greater than the supply, the interest rate will:

Increase

What is the best example of a sticky price?

the price of a soda in a vending machine

In a small open economy, if the introduction of automatic-teller machines reduces the demand for money, then net exports:

and the real exchange rate remain unchanged.

Assume that the government has a balanced budget when the economy is at full employment. If the economy then enters a recession, with no change in tax or spending laws, then the budget of the government is most likely to:

be in deficit.

If the demand for money depends on the nominal interest rate, then via the quantity theory and the Fisher equation, the price level depends on:

both the current and expected future money supply.

In Irving fishers two-period model, if the consumer is initially borrowing in period one and the real interest rate rises, first- period consumption will:

certainly fall.

The Fisher two-period model shows that current consumption depends on:

current income, future income, and the interest rate.

Use the model developed in Chapter 3 and assume that consumption does not depend on the interest rate. In this case, when the government lowers taxes on business investment, thus increasing desired investment, but does not change government spending or change any taxes that affect disposable income, then the quantity of investment:

decreases and the interest rate rises

Holding other factors constant, the ratio of government debt to GDP can decrease as a result of any of the following changes except:

decreases in tax revenues.

Recessions are periods when real GDP:

decreases mildly.

In a large but open economy, when a fiscal expansion takes place, the interest rate goes up and some investment is crowded out; the expansion also causes a trade:

deficit and a rise in the real exchange rate.

The U.S. dollar exchange rate (units of foreign currency per U.S. dollar) for currencies of countries with high inflation rates relative to the United States has tended to a ____, and the U.S. dollar exchange rate (units of foreign currency per U.S. dollar) for currencies of countries with low inflation rates relative to the United States has tended to _____.

depreciate; appreciate

Compared to the size of government debt as a percentage of GDP in other major industrial countries, the federal government of the United States:

has accumulated somewhat greater than average debt.

A rate of inflation that exceeds 50 percent per month is typically referred to as a(n):

hyperinflation.

The assumption of flexible prices is a more plausible assumption when applied to price changes that occur:

in the long run.

According to the traditional view of government debt (as in the IS-LM model), if taxes are cut without cutting government spending, then in the short run interest rates will _____ and investment will ______.

increase; decrease

One item that is considered part of the federal debt is:

treasury bills.

In a simple model of the supply and demand for pizza, when the price of cheese increases, the price of pizza ______ and the quantity purchased ______.

increases; decreases

If the government of a small open economy wishes to reduce a trade deficit, which policy action will be successful in achieving this goal?

increasing taxes

The factor that makes national saving equal investment, in equilibrium is:

interest rate

A normal good is a good that:

is desired in larger quantities by a consumer when his or her income rises.

In John Maynard Keynes model, the most important determinant of current consumption is current income. In Irving Fishers model, the most important determinant of current consumption is:

lifetime resources.

In the classical model with fixed income, a reduction in the government budget deficit will lead to a:

lower real interest rate

Macroeconomics is based on microeconomics for all of the following reasons except:

macroeconomic decision makers, when they make their choices, are required to maximize utility functions.

The keynesian consumption function exhibits all of the following except that:

only unexpected policy changes influence consumption.

The hyperinflation experienced by interwar Germany illustrates how fiscal policy can be connected to monetary policy when government expenditures are financed by:

printing large quantities of money.

Financing a budget deficit by _____ leads to inflation, and inflation _____ the real value of government debt.

printing money; decreases

The total income of everyone in the economy adjusted for the level of base year prices is called:

real GDP

If the demand for real money balances is proportional to real income, velocity will:

remain constant.

According to the permanent-income hypothesis, if consumers receive a one-time income bonus, then they will:

save most of it in the current year.

Assume that nobody cares about the economic well-being of future generations. Then the Ricardian equivalence view of the effect of debt-financed tax cuts is:

still partially valid because most of the tax payers will live and pay taxes for a substantial number of years after the tax cut.

In a small open economy, if the world real interest rate is above the rate at which national saving equals domestic investment, then there will be a trade _____ and _____ net capital outflow.

surplus; positive

In a small open economy, starting from a position of balanced trade, if the government increases the income tax, this produces a tendency toward a trade _____ and _____ net capital outflow.

surplus; positive

If the nominal interest increases, then:

the demand for money decreases

In the classical model, according to the quantity theory and the Fisher equation, an increase in money growth increases:

the nominal interest rate.