Intermediate Macroeconomics

D) all of the above

An increase in the price of oil will tend to cause which of the following? A) an increase in the natural rate of unemployment B) an increase in the price level C) an increase in the interest rate D) all of the above

C) increased dramatically, then decreased dramatically.

From 1970 to the mid-1990s, the relative price of crude petroleum A) steadily increased. B) steadily decreased. C) increased dramatically, then decreased dramatically. D) decreased dramatically, then increased dramatically. E) remained more or less the same. Answer: C

An increase in the unemployment rate will reduce nominal wages by weakening workers' bargaining power increasing the markup of prices over cost reducing unemployment benefits by decreasing the prices of goods none of the above

weakening workers' bargaining power

The price setting equation is represented by the following : P=(1+m)W. When there is perfect competition, we know that m will equal W P 1 W/p none of the above

1

A) expected price level.

1) In the aggregate supply relation, the current price level depends upon A) expected price level. B) monetary policy. C) fiscal policy. D) consumer confidence. E) all of the above

B) an increase in the current price level.

2) Based on the aggregate supply relation, an increase in current output will cause A) a shift of the aggregate supply curve. B) an increase in the current price level. C) a change in the expected price level this year. D) an increase in the expected price level and an upward shift of the AS curve. E) an increase in the markup over labor costs.

The non-institutional civilian population is 250, of which 100 million are employed and 10 million are unemployed Based on the information above, the labor force participation rate is 36% 40% 44% 90.1% 66%

44%

The non-institutional civilian population is 250, of which 100 million are employed and 10 million are unemployed Based on that information above, the unemployment rate is 4% 6.6% 9.1% 10% 11.1%

9.1%

E) none of the above

For this question, assume that the economy is initially operating at the natural level of output. A reduction in taxes will cause A) an increase in the real wage in the medium run. B) a reduction in the real wage in the medium run. C) no change in the nominal wage in the medium run. D) ambiguous effects on the real wage in the medium run. E) none of the above

Accordingly, and all else being equal, raising the minimum wage may result in a higher 'natural' unemployment rate (movement from point A to A')

True

The labor force is defined as the sum of the employed and unemployed the total number employed the total number of working age individuals in the population the sum of the number of employed, unemployed and discouraged individuals

the total number employed

in the wage-setting relation, the nominal wage tends to decrease when the price level increases the unemployment rate decrease unemployment benefits decrease the minimum wage increase all of the above

unemployment benefits decrease

B) P < Pe.

If Y < Yn, we know with certainty that A) P > Pe. B) P < Pe. C) P = Pe. D) u < un.

B) the money market and, subsequently, investment.

In the aggregate demand relation, an increase in the price level causes output to decrease because of its effect on A) government spending. B) the money market and, subsequently, investment. C) the nominal wage. D) firms' markup over labor costs. E) the expected price level.

B) an increase in the aggregate price level (P) will cause an increase in the interest rate and a reduction in output.

The aggregate demand (AD) curve presented in the textbook has its particular shape because of which of the following explanations? A) an increase in the money supply (M) will cause a reduction in the interest rate, an increase in investment, and an increase in output . B) an increase in the aggregate price level (P) will cause an increase in the interest rate and a reduction in output. C) an increase in P will cause a reduction in the real wage, an increase in employment, and an increase in output. D) as P decreases in a closed economy, goods and services become relatively cheaper and individuals respond by increasing the quantity demanded of goods and services.

A reduction in the unemployment rate will tend to cause which of the following? an increase in the separation rate a reduction in the nominal wage a reduction in the duration that one is unemployed none of the above

a reduction in the duration that one is unemployed

Based on our understanding of the labor market model presented in Chapter 6, we know that an increase in the markup will cause an increase in the equilibrium real wage a reduction in the equilibrium real wage a reduction in the natural rate of unemployment both B and C

a reduction in the equilibrium real wage

Based on wage setting behavior, we know that increase in the unemployment rate will cause no change in the real wage a reduction in the real wage an increase in the real wage an upward shift on the WS curve

a reduction in the real wage

E) none of the above

3) Which of the following will cause the aggregate supply curve to shift down? A) an increase in firms' markup over labor costs B) an increase in the expected price level C) an increase in unemployment benefits D) all of the above E) none of the above

B) a downward shift in the LM curve and a reduction in the interest rate.

A reduction in the aggregate price level will cause A) an increase in the interest rate and a leftward shift in the IS curve. B) a downward shift in the LM curve and a reduction in the interest rate. C) a reduction in investment and a reduction in output . D) an ambiguous effect on investment.

C) an increase in investment in the medium run

A reduction in the price of oil will tend to cause which of the following? A) no change in the real wage in the medium run B) an increase in the aggregate price level as output increases C) an increase in investment in the medium run D) no change in the interest rate in the medium ru

B) a upward shift in the LM curve and an increase in the interest rate.

An increase in the aggregate price level will cause A) a reduction in the interest rate and a rightward shift in the IS curve. B) a upward shift in the LM curve and an increase in the interest rate. C) an increase in investment and an increase in output. D) an ambiguous effect on investment.

C) an increase in the unemployment rate

An increase in the price of oil will cause which of the following in the medium run? A) no change in the level of output B) no change in the price level C) an increase in the unemployment rate D) a reduction in the interest rate E) none of the above

E) an increase in the real wage in the medium run.

As product markets become more competitive and the markup decreases, we would expect which of the following to occur? A) no change in the real wage in the medium run. B) an increase in the aggregate price level and an increase in output in the medium run. C) an increase in the interest rate in the medium run. D) no change in output in the medium run. E) an increase in the real wage in the medium run.

employment

Assume the economy is initially operating at the natural level of output. Now suppose a budget is passed that calls for an increase in government spending. This increase in government spending will, in the medium run, have NO effect on which of the following? A) employment B) the interest rate C) the price level D) all of the above E) none of the above

D) all of the above

Assume the economy is initially operating at the natural level of output. Now suppose a budget is passed that calls for an increase in government spending. This increase in government spending will, in the short run, cause an increase in A) the interest rate. B) the price level. C) the nominal wage. D) all of the above E) none of the above

C) an increase in the nominal wage

Assume the economy is initially operating at the natural level of output. Now suppose that individuals decide to reduce their desire to save. We know with certainty that which of the following will occur in the short run as a result of decreased desire to save? A) greater investment B) less investment C) an increase in the nominal wage D) higher output and lower investment E) no change in the economy at all

C) neither the medium run nor the short run

Assume the economy is initially operating at the natural level of output. Suppose that individuals decide to decrease their saving. We know that this decreased desire to save will be "neutral" in A) the short run, but not the medium run. B) the medium run, but not the long run. C) neither the medium run nor the short run. D) both the short run and the medium run. E) none of the above

E) an increase in the money supply

Assume the economy is initially operating at the natural level of output. Which of the following events will NOT change the composition of output (i.e., the percentage of GDP composed of consumption, investment, ... etc.) in the medium run? A) a reduction in government spending B) a cut in taxes C) a reduction in the desire to save D) an increase in consumer confidence E) an increase in the money supply

E) none of the above

Assume the economy is initially operating at the natural level of output. Which of the following events will initially cause a shift of the aggregate supply curve? A) an increase in the money supply B) an increase in government spending C) an increase in consumer confidence D) all of the above E) none of the above

E) none of the above

Based on your understanding of the AS/AD model, which of the following is an INCORRECT statement about the short-run adjustment process for the macroeconomy? A) output in excess of the natural level leads to higher prices. B) a reduction in employment leads to lower prices. C) an increase in demand increases output. D) an increase in output above the natural level leads to higher nominal wages. E) none of the above

As the unemployment rate falls, the proportion of the unemployed finding a job increase the separation rate increases the young and unskilled experience larger- than-average decreases in unemployment Both A and C all of the Above

Both A and C

E) none of the above

For this question, assume that the economy is initially operating at the natural level of output. A fiscal contraction must cause A) an increase in investment in the medium run. B) a reduction in investment in the short run. C) no change in investment in the medium run. D) an increase in investment in the short run. E) none of the above

A) no change in the real wage in the medium run.

For this question, assume that the economy is initially operating at the natural level of output. A monetary expansion will cause A) no change in the real wage in the medium run. B) an increase in investment in the medium run. C) a reduction in the interest rate in the medium run. D) no change in the nominal wage in the medium run.

A) a 5% reduction in the price level in the medium run.

For this question, assume that the economy is initially operating at the natural level of output. A one- time 5% reduction in the nominal money supply will cause A) a 5% reduction in the price level in the medium run. B) a 5% increase in the interest rate (i) in the medium run. C) a 5% reduction in the real money supply in the medium run. D) all of the above

e

For this question, assume that the economy is initially operating at the natural level of output. A reduction in consumer confidence will cause A) an increase in investment in the short run. B) a reduction in the real wage in the medium run. C) an increase in the interest rate in the medium run. D) ambiguous effects on investment in the medium run. E) none of the above

C) no change in the real wage in the medium run.

For this question, assume that the economy is initially operating at the natural level of output. A reduction in consumer confidence will cause A) an increase in the real wage in the medium run. B) a reduction in the real wage in the medium run. C) no change in the real wage in the medium run. D) ambiguous effects on the real wage in the medium run.

C) an increase in investment in the medium run.

For this question, assume that the economy is initially operating at the natural level of output. A simultaneous increase in taxes and increase in the money supply will cause which of the following? A) a reduction in output and a reduction in the aggregate price level in the short run. B) an increase in output and an increase in the nominal wage in the short run. C) an increase in investment in the medium run. D) an increase in the interest rate in the medium run. E) a reduction in the aggregate price level, no change in output, and no change in the interest rate in the medium run.

a reduction in investment in the medium run

For this question, assume that the economy is initially operating at the natural level of output. A simultaneous reduction in taxes and reduction in the money supply will cause which of the following? A) an increase in output and an increase in the aggregate price level in the short run B) a reduction in output and a reduction in the nominal wage in the short run C) a reduction in investment in the medium run D) a reduction in the interest rate in the medium run E) an increase in the aggregate price level, no change in output, and no change in the interest rate in the medium run

no change in the real wage in the medium run.

For this question, assume that the economy is initially operating at the natural level of output. An increase in consumer confidence will cause A) a reduction in the real wage in the medium run. B) an increase in the real wage in the medium run. C) no change in the real wage in the medium run. D) ambiguous effects on the real wage in the medium run.

C) an increase in investment in the medium run

For this question, assume that the economy is initially operating at the natural level of output. An increase in taxes will cause which of the following? A) a reduction in output and no change in the aggregate price level in the short run B) a reduction in employment and no change in the nominal wage in the short run C) an increase in investment in the medium run D) an increase in the aggregate price level, no change in output and no change in the interest rate in the medium run

B) a reduction in output and an increase in the aggregate price level

For this question, assume that the economy is initially operating at the natural level of output. An increase in the price of oil will cause which of the following in the medium run? A) a reduction in the interest rate B) a reduction in output and an increase in the aggregate price level C) a reduction in output and a reduction in the interest rate D) a reduction in unemployment, an increase in the nominal wage and an increase in the aggregate price level E) a reduction in the aggregate price level and no change in output

C) no change in the real wage in the medium run

For this question, assume that the economy is initially operating at the natural level of output. An increase in unemployment benefits will cause A) an increase in the real wage in the medium run. B) a reduction in the real wage in the medium run. C) no change in the real wage in the medium run. D) ambiguous effects on the real wage in the medium run.

A) P > Pe

If u < un, we know with certainty that A) P > Pe. B) P < Pe. C) P = Pe. D) Y < Yn.

C) a reduction in the interest rate.

In the short run, a reduction in the price of oil will cause A) a reduction in output. B) an increase in the price level. C) a reduction in the interest rate. D) all of the above E) none of the above

C) an increase in the interest rate.

In the short run, an increase in the price of oil will cause A) an increase in output B) a reduction in the price level C) an increase in the interest rate. D) all of the above E) none of the above

D) four years

Results obtained from the Taylor model suggest that it takes roughly how long for the effects of money to become neutral? A) one month B) three months C) one year D) four years E) ten years Answer: D

4

Results obtained from the Taylor model suggest that the effects of changes in the nominal money supply are neutral after A) 2 years. B) 4 years. C) 6 years. D) 8 years. Answer: B

C) three quarters

Results obtained from the Taylor model suggest that the output effects of a change in the money supply are greatest after approximately how long? A) one month B) one quarter C) three quarters D) four years E) ten years

C) a decrease in the nominal wage

Suppose a central bank implements a monetary contraction. Which of the following would we expect to occur in the medium run? A) a decline in output B) an increase in the interest rate C) a decrease in the nominal wage D) all of the above E) none of the above

A) a reduction in the nominal wage

Suppose a central bank implements a monetary contraction. Which of the following would we expect to occur in the short run? A) a reduction in the nominal wage B) the AD curve to shift to the right C) the price setting curve to shift down D) the wage setting curve to shift upward E) the wage setting curve to shift downward

C) a decline in the nominal wage

Suppose a central bank implements a monetary expansion. Which of the following would we expect to occur in the medium run?A) an increase in output B) a decrease in the interest rate C) a decline in the nominal wage D) all of the above E) none of the above

A) an increase in the nominal wage

Suppose a central bank implements a monetary expansion. Which of the following would we expect to occur in the short run? A) an increase in the nominal wage B) the AD curve to shift to the left C) the price setting curve to shift up D) the wage setting curve to shift downward E) the wage setting curve to shift upward

A) a reduction in the price level and an increase in output in the medium run

Suppose the minimum wage decreases. Given this event, we would expect which of the following to occur? A) a reduction in the price level and an increase in output in the medium run B) an increase in the aggregate price level as output increases C) an increase in the interest rate in the medium run D) none of the above

D) an increase in taxes.

The aggregate demand curve will shift to the left when which of the following occurs? A) an increase in the money supply. B) an increase in consumer confidence. C) a reduction in the price level. D) an increase in taxes. E) a rise in the price level.

a reduction in taxes

The aggregate demand curve will shift to the right when which of the following occurs? A) a reduction in the money supply B) a reduction in consumer confidence C) a rise in the price level D) a reduction in taxes E) a decrease in the price level

A) housing market

The current crisis and the sharp decrease in output in 2010 had its origins in A) housing market. B) stock market. C) bond market. D) foreign exchange market.

C) changes in the money supply will not affect the price level in the short run

The neutrality of money is consistent with which of the following statements? A) changes in the money supply will not affect employment in the short run. B) changes in the money supply will not affect employment in the medium. C) changes in the money supply will not affect the price level in the short run D) changes in the money supply will not affect the price level in the medium run

D) a reduction in output causes a reduction in employment, an increase in unemployment, a reduction in the nominal wage and a reduction in the price level

The short-run aggregate supply curve (AS) presented in the textbook has its particular shape because of which of the following explanations? A) a reduction in the aggregate price level will cause a reduction in the interest rate and an increase in output. B) an increase in the aggregate price level causes an increase in nominal money demand and an increase in the interest rate. C) a drop in the nominal wage causes an increase in the amount of output that firms are willing to produce. D) a reduction in output causes a reduction in employment, an increase in unemployment, a reduction in the nominal wage and a reduction in the price level

All else being equal, an increase in the minimum wage may trigger higher prices for U.S goods and a loss in international competitiveness, thus creating problems for the U.S economy

True

All else being equal, higher average wages raise production costs for firms and thus prices, requiring workers to demand higher nominal wages, thus causing an upward shift in the wage-setting relation (from WS to WS')

True

All else being equal, raising the minimum wage may increase not only the minimum wage itself, but all other wages above the minimum wage, leading to an increase in the average wage, W

True

To avert the adverse impact on unemployment, the Fed may have to pursue expansionary monetary policies which could be self-defeating

True

C) the output is equal to the natural level of output.

When the current price level is equal to the expected price level, we know that A) the unemployment rate is zero. B) the goods market and financial markets are in equilibrium. C) the output is equal to the natural level of output. D) the money market is in equilibrium. E) none of the above

D) all of the above

When the economy is operating at a point where output is greater than the natural level of output, which of the following occurs? A) the unemployment rate is less than the natural unemployment rate. B) the price level is greater than the expected price level. C) the price level will be higher next period than it is this period. D) all of the above E) none of the above

D) all of the above

When the economy is operating at a point where output is less than the natural level of output, which of the following occurs? A) the unemployment rate is greater than the natural unemployment rate. B) the price level is less than the expected price level. C) the price level will be lower next period than it is this period. D) all of the above E) none of the above

D) a reduction in output

Which of the following events will NOT cause an increase in the aggregate price level? A) an increase in unemployment benefits B) an increase in the markup C) an increase in Pe D) a reduction in output E) none of the above

A) an increase in the unemployment benefits

Which of the following events will cause an increase in the aggregate price level? A) an increase in the unemployment benefits B) a reduction in the markup C) a reduction in Pe D) an increase in the unemployment rate E) none of the above

C) a 10% increase in the nominal money supply

Which of the following events will cause the largest rightward shift (as measured horizontally) of the AD curve? A) a tax increase B) a 15% reduction in the aggregate price level C) a 10% increase in the nominal money supply D) a 15% reduction in the nominal wage E) none of the above

D) all of the above

Which of the following represents a short-run effect of a monetary contraction? A) a reduction in output B) an increase in the interest rate C) a reduction in the price level D) all of the above E) none of the above

D) all of the above

Which of the following represents a short-run effect of a monetary expansion? A) an increase in output B) a reduction in the interest rate C) an increase in the price level D) all of the above E) none of the above

D) all of the above

Which of the following would increase the short-run output effects of a monetary expansion? A) an increase in the marginal propensity to consume B) an increase in the interest rate sensitivity of investment C) the IS curve is very flat D) all of the above E) none of the above

A reduction in unemployment benefits will tend to cause which of the following? an upward shift in the WS curve a downward shift in the WS curve an upward shift in the PS curve a downward shift in the PS curve none of the above

a downward shift in the WS curve

a reduction in the minimum wage will tend to cause which of the following an upward shift in the WS curve a downward shift in the WS curve an upward shift in the PS curve a downward shift in the PS cu rve non of the above

a downward shift in the WS curve

Henry Ford's experiment with efficiency wages resulted in a dramatic drop in productivity a dramatic increase in the turnover rate a reduction in the layoff rate new problems with the work force, like drunkenness and reckless driving no noticeable effects.

a reduction in the layoff rate

The natural level of employment (N) will increase when which of the following occurs? an increase in the markup of prices over cost a reduction in unemployment benefits an increase in the actual unemployment rate all of the above none of the above.

a reduction in unemployment benefits

Based on our understanding of the labor market model presented in Chapter 6,we know that a reduction in the mark up will cause an increase in the equilibrium real wage a reduction in the equilibrium real wage an increase in the natural rate on unemployment a reduction in the natural rate of of unemployment and no change in the real wage

an increase in the equilibrium real wage

Based on wage setting behavior, we know that a reduction in the unemployment rate will cause no change in the real wage a reduction in the real wage an increase in the real wage an upward shift on the WS curve

an increase in the real wage

An increase in unemployment benefits will tend to cause which of the following? a downward shift in the WS curve an upward shift in the PS curve an upward shift in the WS curve a downward shift in the PS curve none of the above

an upward shift in the WS curve

an increase in the minimum wage will tend to cause when of the following an upward shift in the WS curve a downward shift in the WS curve an upward shift in the PS curve a downward shift in the PS curve none of the above

an upward shift in the WS curve

Based on our understanding of the labor market model presented in Chapter 6, we know that an increase in the minimum wage will cause and increase in the equilibrium real wage a reduction in the equilibrium real wage a reduction in the natural rate of unemployment both B and C

and increase in the equilibrium real wage

in the United States, the average length of time people spend unemployed is approximately one month between two and three month between ten and eleven months greater than twelve months

between two and three month

When the unemployment rate is lower, workers are better off because there are fewer suicides employed workers face a lower probability of losing their jobs unemployed workers face a higher probability of finding a job both B and C

both B and C

When the unemployment rate is high, workers are worse off because they are discouraged employed workers face a higher probability of losing their jobs unemployed workers can easily find a job labor participation rate is low

employed workers face a higher probability of losing their jobs

Using the efficiency wage theory argument, an increase in the unemployment rate reduces nominal wages because, it strengthens workers' self-esteem and motivation it strengthens workers' bargaining power employers need not significantly raise the efficiency wage premium reservation wages will be higher workers will be asking for a raise

employers need not significantly raise the efficiency wage premium

Based on price setting behavior, we know that a reduction in the unemployment rate will cause no change in the real wage a reduction in the real wage an increase in the real wage an upward shift on the PS curve

no change in the real wage

Based on price setting behavior, we know that increase in the unemployment rate will cause no change in the real wage a reduction in the real wage an increase in the real wage an upward shift on the WS curve

no change in the real wage

Which of the following variable is most directly determined in the labor market? stock prices nominal wages interest rates all of the above none of the above

nominal wages

The natural rate of unemployment is the rate of unemployment that occurs when the money market is in equilibrium that occurs when the markup of prices over cost is zero where the markup of prices over costs is equal to its historical value that occurs when both the goods and financial markets are in equilibrium none of the above

none of the above

The reservation wage is The wage that an employer must pay workers to reduce turnover to a reasonable level the wage that ensures a laid-off individual will wait for re-hire, rather than find another job. the lowest wage firms are allowed by law to pay workers the wage offer that will end a labor-strike none of the above

none of the above

Which of the following individuals would be considered unemployed? an individual who works only part-time an individual who works full-time in a family business, but is not paid an individual who is not working and is not looking for work all of the above none of the above

none of the above

E) none of the above

nswer this question using the AS/AD model presented in the textbook. Which of the following would cause a reduction in the natural level of output in the medium run? A) a decrease in government spending B) a decrease in the money supply C) an increase in taxes D) both A and C E) none of the above

Efficiency wage theory suggests that workers will be paid less than their reservation wage productivity might drop if the wage rate is too low the government can only set tax rates so high before people will prefer not to work unskilled workers will have a lower turnover rate than skilled workers firms will be more resistant to wage increases as the labor marker tightens.

productivity might drop if the wage rate is too low

A) output is currently below the natural level of output.

t the current level of output, suppose the actual price level is greater than the price level that individuals expect (i.e., Pt > Pet). We know that A) output is currently below the natural level of output. B) the interest rate will tend to rise as the economy adjusts to this situation. C) the nominal wage will tend to decrease as individuals revise their expectations of the price level. D) the AS curve will tend to shift down over time. E) none of the above

With the real wage on the vertical axis and employment (N) on the horizontal axis, we know that the WS curve is upward sloping the WS curve is downward sloping The PS curve is upward sloping the PS curve is downward sloping

the WS curve is upward sloping

The natural level of output is the level of output that occurs when the goods market and financial markets are in equilibrium the economy is operating at the unemployment rate consisten with both the wage-setting and price-setting equations the markup (m) is zero the unemployment rate is zero there are no discouraged workers in the economy

the economy is operating at the unemployment rate consisten with both the wage-setting and price-setting equations

In the wage setting relation W= PeF (u,z), the variable z does not include which of the following variables? the minimum wage unemployment benefits the extent to which firms mark up prices over their marginal cost all of the above none of the above

the extent to which firms mark up prices over their marginal cost

Suppose workers and firms expect the overall price level to increase by 5%. given this information, we would expect that the nominal wage will increase by less than 5% the nominal wage will increase by exactly 5% the nominal wage will increase by more than 5% the real wage will increase by 5% the real wage will increase by less than 5%

the nominal wage will increase by exactly 5%

When the unemployment rate is low, we would expect that the probability of losing a job is high the probability of losing a job is low the probability an unemployed individual will find another job is low the separation rate will increase

the probability of losing a job is low

The labor participation rate is defined as Sum of the employed, unemployed and discouraged workers the ratio of the labor force to the non-institutional civilian population the ratio of the labor force to the civilian population the ratio of all empolyed workers to the non--institutional civilian population

the ratio of the labor force to the non-institutional civilian population

The labor force is defined as the sum of the employed and unemployed the total number employed the total number of working age individuals in the population the sum of the number of employed, unemployed and discouraged individuals

the sum of the employed and unemployed

If efficiency wage theory is valid, we would expect a relatively low premium over the reservation wage when the unemployment rate is low the job requires very little training workers can be easily monitored workers have few other options for employment in the area all of the above

workers can be easily monitored