ECN 101 - Intermediate Macroeconomics

One policy response to the U.S. economic slowdown of 2001 was to increase money growth. This policy response can be represented in the IS-LM model by shifting the _______ curve to the _________.

LM; right

If currency held by the public equals $100 billion, reserves held by banks equal %50 billion, and bank deposits equal $500 billion, then the monetary base equals:

$150 billion

According to the definition used by the U.S. Bureau of Labor Statistics, people are considered to be unemployed if they:

do not have a job but have looked for work in the past four weeks.

The total income of everyone in the economy is exactly equal to the total:

expenditure on the economy's output of goods and services.

In a small open economy, when foreign governments reduce national saving in their countries, the equilibrium real exchange rate (measured in units of the home currency divided by units of foreign currency):

falls, and home country net exports rise.

The lag between the time that economic stimulus is needed and the time that a tax cut is passed by Congress is an example of a:

fiscal inside lag.

Under a floating system, the exchange rate:

fluctuates in response to changing economic conditions.

When the Fed increases the interest rate paid on reserves, it:

increases the reserve-deposit ratio (rr).

What determines the ratio of the wage to rental rate of capital in the competitive, profit-maximizing economy with constant returns to scale?

the quantity of economic profits earned by firm owners.

Recessions typically, but not always include at least _________ consecutive quarters of declining real GDP.

two

According to the quantity theory of money, ultimate control over the rate of inflation in the United States is exercised by:

The Federal Reserve

Two countries, Highland and Lowland, are described by the Solow growth model. Both countries are identical, except that the rate of labor-augmenting technological progress is higher in Highland than in Lowland. a. In which country is the steady-state growth rate of output per effective worker higher? b. In which country is the steady-state growth rate of total output higher? c. Does the Solow growth model predict that the two economies will converge to the same steady state.

a. Same b. Highland is higher c. No

With the real money supply held constant, the theory of liquidity preference implies that a higher income level will be consistent with:

a higher interest rate.

"Inflation tax" means that:

as the price level rises, the real value of money held by the public decreases.

If the Fed announces that it will raise the money supply in the future but does not change the money supply today.

both the nominal interest rate and the current price level will increase.

Income per person exceeds $25,000 in many countries but it is below $1,000 per person in many other countries. Based on the Solow growth model, suggest at least four possible explanations for this gap in living standards.

- Depreciation rate is too high for lower income country - Savings rate is too low for lower income country - Technoloy growth is too low/level of technology is too low - Population growth rate is too high - Temporarily off the steady state and catching up (-1 for missing)

Explain why a higher savings rate generates both positive and negative impacts on steady-state consumption per worker in the Solow growth model with population growth and technological change.

- Increase in savings rate causes portion of c out of y decreases. - however, consumption increases because steady state y increases too.

Other things equal, an increase in the interest rate leads to:

A decrease in the quantity of investment goods demanded.

The use of borrowed funds to supplement existing funds for purposes of investment is called:

Leverage

An argument in favor of allowing discretionary macroeconomic policy is that:

giving policymakers flexibility will allow them to respond to changing conditions.

In the IS-LM model in a closed economy, an increase in government spending increases the interest rate and crowds out:

investment

According to the model developed in Chapter 3, when government spending increases without change in taxes:

investment decreases.

The money hypothesis suggests that the Great Depression was caused by a:

leftward shift in the LM curve.

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

lower real interest rate.

In a small open economy, if domestic saving exceeds domestic investment, then the extra saving will be used to:

make loans to foreigners.

GNP equals GDP __________ income earned domestically by foreigners __________ income that nationals earn abroad.

minus; plus

The real interest rate is the:

nominal interest rate minus the rate of inflation.

The concept of monetary neutrality in the classical model means that an increase in the money supply growth rate will increase:

nominal interest rates.

Any policy aimed at lowering the natural rate of unemployment must either _________ the rate of job separation or __________ the rate of job finding.

reduce; increase

The short-run Phillips curve:

shifts upwards if expected inflation increases.

In the short run, if the price level is greater than the expected price level, then in the long run the aggregate:

supply curve will shift upward.

An increase in the price of goods bought by firms and the government will show up in:

the GDP deflator but not in the CPI.

In the national income accounts, government purchases are goods and services purchased by:

the federal, state, and local governments.

All of the following are requirements for reducing inflation without causing a recession except:

the government's budget must be balanced.

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

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

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

the nominal interest rate.

When the real wage is above the level that equilibrates supply and demand:

the quantity of labor supplied exceeds the quantity demanded.