ECON 204 - Final Exam

All of the following would cause inflation EXCEPT: Less competition for firms A decrease in aggregate demand Stronger labor unions An economic boom leading to a lower unemployment rate

A decrease in aggregate demand

In an imaginary economy, GDP falls from $100 billion to $95 billion while output per worker rises from $5000 to $5020. In this economy there has been: An increase in production and a fall in productivity An increase in production and an increase in productivity A fall in production and a fall in productivity A fall in production and an increase in productivity.

A fall in production and an increase in productivity.

All of the following could cause deflation EXCEPT: A deep recession An increase in unemployment rate A upward shift in the price-setting curve A leftward (up) shift in the wage-setting curve

A leftward (up) shift in the wage-setting curve

An overseas bank announces that it is introducing a new type of savings account paying a 3 percent fixed rate of interest for deposits of one year duration. This 3 percent is: A real rate of interest A nominal rate of interest A post-tax rate of interest A long-term rate of interest.

A nominal rate of interest

The Phillips curve models which relationship? As unemployment decreases, inflation increases. As unemployment decreases, inflation decreases. As unemployment increases, inflation increases. As unemployment increases, real wages increase.

As unemployment decreases, inflation increases.

It is often said that independent central banks are more likely to run a successful monetary policy than governments because their commitment to low inflation is more 'credible' than government promises. One reason for this is that: Independent central banks are better at economic forecasting. People who work in central banks have a strong dislike of inflation. Central banks can set interest rates Central banks are less subject to political pressures (e.g. for lower unemployment) than governments.

Central banks are less subject to political pressures (e.g. for lower unemployment) than governments.

Which of the following is a monetary policy a government may use to stabilize the economy in response to an unexpected decline in aggregate demand? Increase taxes Decrease nominal interest rates Increase government expenditures Increase nominal interest rates

Decrease nominal interest rates

Imagine that the rate of inflation has been 10 percent per year for a number of years. The central bank then introduces a 'tight' monetary policy and the rate of inflation comes down to 5 per cent per year. This reduction is an example of: Deflation Falling prices Disinflation Austerity

Disinflation

Which of the following might help to minimize the costs of adapting to new technology? Strict regulation of new start-ups Government re-training schemes A poorly developed financial sector. A shortage of skilled labor

Government re-training schemes

The crisis that marked the end of the golden age is sometimes described as a supply-side phenomenon in contrast to the crisis of the 1930s, which was caused by inadequate demand. Which of the following did NOT contribute to problems on the supply side in the 1970s? The breakdown of the postwar accords, whereby workers and employers accepted their respective shares of productivity. High levels of employment. A reduction in the rate of net investment. A slowing of productivity growth.

High levels of employment.

All of the following were considered to be contributing factors to the Great Depression except: The stock market crash of 1929 The bank crisis Housing price bubble Deflation

Housing price bubble

Which of the following statements is correct regarding the model of the labor market? In the short- and medium-run models the amount of capital is fixed, while in the long-run model the amount of capital can vary. Labor-saving technological progress raises unemployment in both the short and long run. In the long-run model, the markup is independent of the number of firms. In the long-run model, firms enter the market when the markup is low.

In the short- and medium-run models the amount of capital is fixed, while in the long-run model the amount of capital can vary.

Which of the following is a fiscal policy a government may use to stabilize the economy in response to an unexpected decline in aggregate demand? Increase taxes Decrease nominal interest rates Increase government expenditures Increase nominal interest rates

Increase government expenditures

Which of the following was NOT a policy reform used in the US to deal with the stagflation of the 1970s? Restrictive monetary policy Cutting unemployment benefits Reducing union power Increasing government expenditures

Increasing government expenditures

The Beveridge curve will shift downward (toward the origin) if: Vacancies are increasingly concentrated in given sector of the economy Vacancies are increasingly concentrated in a geographical region Information about job vacancies improves. Unemployment benefits become more generous.

Information about job vacancies improves.

Deflation refers to a situation where prices are generally falling. Why is deflation generally undesirable? It might lead to a reduction in aggregate demand as firms and households wait for prices to fall further. It disadvantages creditors It reduces the value of debts It redistributes real income

It might lead to a reduction in aggregate demand as firms and households wait for prices to fall further.

In the short run, successive additions to capital produce smaller and smaller increases in output. In the long run, however, GDP continues to rise. This is because: Workers work harder. Government policy encourages economic growth. Economies benefit from economies of scale. New capital equipment incorporates the latest technological developments.

New capital equipment incorporates the latest technological developments.

Imagine that you are responsible for policymaking in an economy that is experiencing a deep recession. You and your colleagues announce a number of measures (like those in Roosevelt's 'New Deal') that you tell everyone will boost demand and output. Why does it matter whether the public believes your announcement? It does not. If the measures are appropriate, aggregate demand will increase, regardless of what anyone thinks. People will feel more confident about the future and increase their spending, which will reinforce the actions of government. It does not. The government's actions do not impact the macro economy. You are more likely to be re-elected if people believe that you tried to do something.

People will feel more confident about the future and increase their spending, which will reinforce the actions of government.

Which of the following was NOT a problem that arose from the great moderation? Rising real wages Rising inequality Rising debt Rising house prices

Rising real wages

A fall in the world price of commodities (e.g. oil) will: Shift the profit curve down and the Phillips curve up. Create a positive bargaining gap. Shift the profit curve up and the Phillips curve down. Trigger accelerating inflation

Shift the profit curve up and the Phillips curve down.

The relationship between the unemployment rate and the job vacancy rate (each expressed as a fraction of the labour force) is known as: The Phillips curve The labor demand curve The wage curve The Beveridge curve

The Beveridge curve

This unit suggests that there have been three distinctive periods ('epochs') in capitalist economies since 1914. Which of the following Is not one of those periods? The roaring twenties and the Great Depression. The golden age of capitalism. The Second World War. The great moderation.

The Second World War.

The widespread introduction of new technology into an economy takes time. The length of time between first appearance and general acceptance is known as: The innovation lag The time gap The knowledge lag The diffusion gap

The diffusion gap

In a severe recession, with falling prices, the economy may need a negative real interest rate in order to give sufficient stimulus to aggregate demand. What particular problem for conventional monetary policy do negative real interest rates pose? A negative real rate of interest redistributes income from savers to borrowers. A negative real rate of interest may cause an asset price boom. A negative real rate of interest may encourage reckless borrowing. The policy rate needs to be more negative than the rate of deflation but nominal rates cannot go below zero.

The policy rate needs to be more negative than the rate of deflation but nominal rates cannot go below zero.

Which of the following statements is correct regarding monetary policy? The zero lower bound refers to the central bank's inability to set the nominal interest rate to below zero. The zero lower bound refers to the central bank's inability to set the real interest rate to below zero. Quantitative easing involves the central bank lowering its official interest rate. Interest rates cannot be set by a country in a currency union (e.g. the Eurozone).

The zero lower bound refers to the central bank's inability to set the nominal interest rate to below zero.

Which of the following is a distinctive characteristic of 'inclusive unions'? They bargain for the highest possible wage, regardless of the consequences They bargain for the maximum degree of job protection by the government They represent many firms and sectors They aim to push up the wage curve regardless of productivity growth

They represent many firms and sectors

Which of the following best describes the short-run relationship between inflation (π) and unemployment (U), ceteris paribus? U falls; π falls. U is unchanged; π falls. U is unchanged; π rises. U rises; π falls.

U rises; π falls.