Exam 2 ECON

Assume that a war reduces a country's labor force but does not directly affect its capital stock. If the economy was in a steady state before the war and the saving rate does not change after the war, then, over time, capital per worker will ______ and output per worker will ______ as it returns to the steady state. A) decline; increase B) increase; increase C) decline; decrease D) increase; decrease

decline; decrease

A reduction in the saving rate starting from a steady state with more capital than the Golden Rule causes investment to ______ in the transition to the new steady state. A) increase B) decrease C) first increase, then decrease D) first decrease, then increase

decrease

If the national saving rate increases, the: A) economy will grow at a faster rate forever. B) capital-labor ratio will increase forever. C) economy will grow at a faster rate until a new, higher, steady-state capital-labor ratio is reached. D) capital-labor ratio will eventually decline.

economy will grow at a faster rate until a new, higher, steady-state capital-labor ratio is reached

The right of seigniorage is the right to: A) levy taxes on the public. B) borrow money from the public. C) draft citizens into the armed forces. D) print money.

print money

If the demand for real money balances is proportional to real income, velocity will: A) increase as income increases. B) increase as income decreases. C) vary directly with the interest rate. D) remain constant.

remain constant

If the real exchange rate depreciates from 1 Japanese good per U.S. good to 0.5 Japanese good per U.S. good, then U.S. exports-----------and U.S. imports------. A. increase; increase B. decrease; decrease C. increase; decrease D. decrease; increase

increase; decrease

If the government of a small open economy wishes to reduce a trade deficit, which policy action will be successful in achieving this goal? A. increasing taxes B. increasing government spending C. increasing investment tax credits D. imposing protectionist trade policies

increasing taxes

If the real interest rate and real national income are constant, according to the quantity theory and the Fisher effect, a 1 percent increase in money growth will lead to rises in: A. inflation of 1 percent and the nominal interest rate of less than 1 percent. B. inflation of 1 percent and the nominal interest rate of 1 percent. C. inflation of 1 percent and the nominal interest rate of more than 1 percent. D. both inflation and the nominal interest rate of less than 1 percent.

inflation of 1 percent and the nominal interest rate of 1 percent

Unlike the long-run classical model in Chapter 3, the Solow growth model: A) assumes that the factors of production and technology are the sources of the economy's output. B) describes changes in the economy over time. C) is static. D) assumes that the supply of goods determines how much output is produced.

describes changes in the economy over time

Compared to periods of lower rates of inflation, during a hyperinflation all of the following occur except: A) shoeleather costs increase. B) menu costs become larger. C) relative prices do a better job of reflecting true scarcity. D) tax distortions increase.

relative prices do a better job of reflecting true scarcity

If the purchasing-power parity theory is true, then: A) the net exports schedule is very steep. B) all changes in the real exchange rate result from changes in price levels. C) all changes in the nominal exchange rate result from changes in price levels. D) changes in saving or investment influence only the real exchange rate.

all changes in the nominal exchange rate result from changes in price levels

A trade deficit can be financed in all of the following ways except by: A) borrowing from foreigners. B) selling domestic assets to foreigners. C) selling foreign assets owned by domestic residents to foreigners. D) borrowing from domestic lenders.

borrowing from domestic lenders

The inflation tax is paid: A) only by the central bank. B) by all holders of money. C) only by government bond holders. D) equally by every household

by all holders of money

The classical dichotomy: A) cannot hold if money is "neutral." B) is said to hold when the values of real variables can be determined without any reference to nominal variables or the existence of money. C) fully describes the world in which we live, especially in the short run. D) arises because money depends on the nominal interest rate.

is said to hold when the values of real variables can be determined without any reference to nominal variables or the existence of money

A variable rate of inflation is undesirable because: A) debtors and creditors cannot protect themselves by indexing contracts. B) shoeleather costs are greater under variable inflation than under constant inflation. C) menu costs are greater under variable inflation than under constant inflation. D) variable inflation leads to greater uncertainty and risk as compared to constant inflation.

variable inflation leads to greater uncertainty and risk as compared to constant inflation