Macro Exam#2 Study (quiz 4)
In the Keynesian-cross model with a given MPC; the government-expenditure multiplier is ____ the tax multiplier a. larger than b. equals c. smaller than d. inverse of
A
In the Keynesian-cross model; actual expenditures equal; a. GDP b. money supply c. the supply of real balances d. unplanned inventory investment
A
Okun's law is the ____ relationship between real GDP & the ____ a. negative; unemployment rate b. negative; inflation rate c. positive; unemployment rate d. positive; inflation rate
A
Starting from long-run equilibrium, if a drought pushes up food prices throughout the economy, the Fed could move the economy more rapidly back to full employment output by: a. increasing the money supply, but @ the cost of permanently higher prices b. increasing the money supply, but @ the cost of permanently lower prices c. increasing money supply, which would restore original price level d. decreasing money supply, which would restore original price level
A
The IS curve plots the relationship between the interest rate & ____ that arises in the market for _____ a. National income; G&S b. price level; G&S c. National Income; $ d. price level; $
A
The natural rate of unemployment is: a. average rate of unemployment around which the economy fluctuates b. about 10% of the labor force c. a rate that never changes d. the transition of individuals between employment & unemployment
A
The theory of liquidity preference implies that other things being equal, an increase in the real money supply will: a. lower the interest rate b. raise the interest rate c. no effect on the interest rate
A
The theory of liquidity preference implies that: a. as interest rate rises, demand for real balances will fall b. as interest rate rises, demand for real balances will rise c. the interest rate will have no effect on the demand for real balances d. as interest rate rises, income will rise
A
Unemployment caused by the time it takes workers to search for a job is called ___ unemployment a. frictional b. structural c. efficiency d. insider
A
According to classical theory, national income depends on ____. while Keynes proposed that ___ determined the level of national income a. aggregate demand; aggregate supply b. aggregate supply; aggregate demand c. monetary policy; fiscal policy d. fiscal policy; monetary policy
B
All of the following are reasons for friction unemployment except: a. workers have different preferences & abilities b. unemployed workers accept the first job offer that they receive c. the flow of information is imperfect d. geographic mobility takes time
B
Assume that the economy begins in the long-run equilibrium. Then the Fed reduces the money supply. In the short run _____, whereas in the long run, prices ____ & output returns to its original level. a. output decreases and prices are unchanged; rise b. output decreases and prices are unchanged; fall c. output and prices both decrease; rise d. output and prices both decrease; fall
B
Based on the Keynesian model, one reason to support spending increase over tax cuts as measures to increase output is that: a. government spending increase the MPC more than tax cuts b. government spending multiplier is larger than the tax multiplier c. government spending increase don't lead to unplanned changes in inventory,tax cuts do.
B
If the interest rate is above equilibrium value, the: a. demand for real balances exceeds supply b. supply for real balances exceeds demand c. market for real balances clears d. demand for real balances increases
B
If the short-run aggregate supply curve is horizontal & if each member of the general public chooses to hold a larger fraction of his/her income as cash balances, then: a. output & employment will increase in short run b. output & employment will decrease in short run c. prices will increase in the short run d. prices will decrease in the short run
B
If the short-run aggregate supply curve is horizontal, then a change in the money supply will change ____ in the short run & change in the long run a. only prices; only output b. only output; only prices c. both prices & output; only prices d. both prices & output; both prices & output
B
In a steady state: a. no hiring or firings are occurring b. # of people finding jobs equals the # of people losing jobs c. # of people finding jobs exceeds the # of people losing jobs d. # of people losing jobs exceeds the # of people finding jobs
B
In the aggregate demand--aggregate supply model, short-run equilibrium occurs at the combination of output & prices where: a. aggregate demand = long-run aggregate supply b. aggregate demand = short-run aggregate supply c. aggregate demand = short-run & long-run aggregate supply d. short-run aggregate supply = long-run aggregate supply
B
In the short run, an adverse supply shock causes: a. both prices & output to rise b. prices to rise & output to fall c. prices to fall & output to rise d. both prices & output to fall
B
Most economists believe that prices are a. flexible in short run but many sticky in long run b. flexible in long run buy many sticky in short run c. sticky in both short & long runs d. flexible in both short & long runs
B
The dilemma facing the Federal Reserve in the event that an unfavorable supply shock moves the economy away from the natural rate of output is that monetary policy can either return output to the natural rate, but with a ____ price level, or allow the price level to return to its original level, but with a ___ level of output in the short run a. higher ; higher b. higher; lower c. lower; lower d. lower ; higher
B
The macro-economic problem that affects individuals most directly & severely is: a. inflation b. unemployment c. low savings d. low investment
B
The short run refers to a period: a. of several days b. during which prices are sticky & unemployment may occur c. during which capital & labor are fully employed d. during which there are no fluctuations
B
When firms experience unplanned inventory accumulation, they typically: a. build new plants b. lay off workers & reduce production c. hire more workers & increase production d. call for more government spending
B
When the Federal Reserve increases the money supply, at a given price level the amount of output demanded is ____ & the aggregate demand curve shifts ____. a. greater; inward b. greater; outward c. lower; inward d. lower; outward
B
With planned expenditure & the equilibrium condition, Y=PE drawn on a graph w/ income along the horizontal axis, if income exceeds expenditure, then income is to the ____ of equilibrium income & there's unplanned inventory ____ a. right ; decumulation b. right ; accumulation c. left ; decumulation d. left ; accumulation
B
A difference between the economic long run & the short run is that: a. the classical dichotomy holds in the sort run but not in the long run b. monetary & fiscal policy affect output only in the long run c. demand can affect output & employment in the short run, whereas supply is the ruling force in long run d. prices & wages are sticky in long run only
C
A short-run aggregate supply curve shows fixed _____; and a long-run aggregate supply curve shows fixed ____ a. output; output b. prices; prices c. prices; output d. output; prices
C
According to the Keynesian-cross analysis, if MPC stands for marginal propensity to consume, then a rise in taxes will: a. decrease equilibrium income by (change in)T b. decrease equilibrium income by (change in) T/(1-MPC) c. decrease equilibrium income by (change in T)(MPC)/(1-MPC) d. not affect equilibrium at all
C
All of the following are causes of structural unemployment except: a. minimum-wage laws b. the monopoly power of unions c. unemployment insurance d. efficiency wages
C
An LM curve shows combinations of: a. taxes & government spending b. nominal money balances & price levels c. interest rates & income, which bring equilibrium in the market for real $ balances d. interest rates & income, which bring equilibrium in the market for G & S
C
Any policy aimed at lowering the natural rate of unemployment must either ___ the rate of job separation or ___ the rate of job finding a. reduce; reduce b. increase; increase c. reduce; increase d. increase; reduce
C
In the Keynesian-cross model, actual expenditures differ from planned expenditures by the amount of: a. liquidity preference b. government-purchases multiplier c. unplanned inventory investment d. real money balances
C
In the long run, the level of output's determined by the: a. interaction of supply & demand b. money supply & levels of government spending & taxation c. amounts of capital & labor & available technology d. preferences of the public
C
Short-run fluctuations in output & unemployment are called a. sectoral shifts b. the classical dichotomy c. business cycles d. productivity slowdowns
C
Stagflation occurs when prices ____ & output ____ a. falls;falls b. falls;increases c. rise;falls d. rise; increases
C
The IS & LM curves together generally determine: a. income only b. interest rate only c. both income and interest rate d. income, interest rate, & price level
C
The Keynesian cross shows: a. determination of equilibrium income & the interest rate in the short-run b. determination of equilibrium income & the interest rate in the long-run c. equality of planned expenditure & income in the short-run d. equality of planned expenditure & income in the long-run
C
The Keynesian-cross analysis assumes planned investment: a. is fixed & so does the IS analysis b. depends on interest rate & so does the IS analysis c. is fixed, where as the IS analysis assumes it depends on the interest rate d. depends on expenditure & so does IS analysis
C
The aggregate demand curve tells us possible: a. combinations of M & Y for given value of P b. combinations of M & P for a given value of Y c. combinations of P & Y for a given value of M d. results if the Federal Reserve reduces the money supply
C
The government-purchases multiplier indicates how much ____changes in response to a 1 unit change in government purchases a. the budget deficit b. consumption c. income d. real balances
C
The interest rate determines ____ in the goods market and money ____ in the money market a. government spending; demand b. government spending ; supply c. investment spending; demand d. investment spending; supply
C
The natural level of output is: a. affected by aggregate demand b. the level of output @ which the unemployment rate is zero c. the level of output @ which the unemployment rate is at its natural level d. permanent & unchangeable
C
The tax multiplier indicates how much _____ change(s) in response to a 1 unit change in taxes a. the budget deficit b. consumption c. income d. real balances
C
Wage Rigidity: a. forces labor demand to equal labor supply b. is caused by sectoral shifts c. prevents labor demand & labor supply from reaching the equilibrium level d. increases the rate of job finding
C
With the real money supply held constant, the theory of liquidity preference implies that a higher income level will be consistent with: a. no change in the interest rate b. a lower interest rate c. a higher interest rate
C
A 5% reduction in the money supply will, according to most economists, reduces prices 5%: a. in both the short & long runs b. in neither the short nor long run c. in the short run but lead to unemployment in the long run d. in the long run but lead to unemployment in the short run
D
A favorable supply shock occurs when: a. environmental protection law increases costs of production b. the fed increases money supply c. unions push wages up d. an oil cartel breaks up and oil prices fall
D
According to the theory of liquidity preference, the supply of real money balances: a. decreases as interest rate increases b. increases as interest rate decreases c. increases as income decreases d. is fixed
D
Along an aggregate demand curve, which of the following are held constant? a. real output & prices b. nominal output & velocity c. the money supply & real output d. the money supply & velocity
D
Efficiency-wage theories suggest that a firm may pay workers more than the market-clearing wage for all of the following reasons except to: a. reduce labor turnover b. improve the quality of the firm's labor force c. increase worker effort d. reduce the firm's wage bill
D
For the purposes of the Keynesian cross, planned expenditure consists of: a. planned investment b. planned government spending c. planned investment & government spending d. planned investment/inventory?, government spending, & consumption expenditures
D
If a short-run equilibrium occurs at a level of output below the natural rate, then in the transition to the long run, prices will ___ and output will ____ a. increase; increase b. decrease; decrease c. increase; decrease d. decrease; increase
D
If the long-run aggregate supply curve is vertical, then changes in aggregate demand affect: a. neither prices nor level of output b. both prices and level out output c. level of output but not prices d. prices but not level of output
D
If the steady-state rate of unemployment equals .10 & the fraction of employed workers who lose their job each month (rate of job separation) is .02, then the fraction of unemployed workers who find jobs each month (the rate of job findings) must be: a. .02 b. .08 c. .10 d. .18
D
In the model of the steady-state unemployment rate with a fixed labor force, the rate of job finding equals the percentage of the ____ who find a job each month, while the rate of job separation equals the percentage of the ____ who lose their job each month.
D
Looking at the aggregate demand curve alone, one can tell ____ that will prevail in the economy a. the quantity of output & price level b. the quantity of output c. the price level d. neither quantity of output nor the price level
D
Starting from long-run equilibrium, if the velocity of money increases & no action is taken by the government: a. prices will rise in both the short & long run b. output will rise in both the short & long run c. prices will rise in short run & output will rise in long run d. output will rise in short run & prices will rise in long run
D
The unemployment insurance system may be desirable because unemployment insurance: a. raises the natural rate of unemployment b. reduces the rate of job finding c. increases workers' uncertainty about their incomes d. induces workers to reject unattractive job offers
D
The unemployment resulting when real wages are held above equilibrium is called ___ unemployment, while the unemployment that occurs as workers search for a job that best suits their skills is called ___ unemployment. a. efficiency; inefficiency b. efficiency; structural c. frictional; efficiency d. structural; frictional
D
