Econ 410 Final

If the steady-state rate of unemployment equals 0.125 and the fraction of unemployed workers who find jobs each month (the rate of job findings) is 0.56, then the fraction of employed workers who lose their jobs each month (the rate of job separations) must be:

0.08

If the fraction of employed workers who lose their jobs each month (the rate of job separation) is 0.01 and the fraction of the unemployed who find a job each month is 0.09 (the rate of job findings), then the natural rate of unemployment is:

10%

in 1933, GDP fell by ______ and U rate peaked ________.

30%; 25%

According to the quantity theory of money, a 5 percent increase in money growth increases inflation by percent. According to the Fisher equation, a 5 percent increase in the rate of inflation increases the nominal interest rate by _ percent.

5; 5

Services in structural change at 1960 shifted from 57.9% to _____ in 2009

79.0%

"Inflation tax" means that: as the price level rises, taxpayers are pushed into higher tax brackets. as the price level rises, the real value of money held by the public decreases. as taxes increase, the rate of inflation also increases. in a hyperinflation, the chief source of tax revenue is the ability of the government to create money.

as taxes increase, the rate of inflation also increases.

economy's total income is determined largely by ________.

demand

The earned income tax credit:

does not raise labor costs.

the IS curve represents eq in the ______ market, and the LM curve represents the ________ market eq.

goods; money

If all prices are stuck at a predetermined level, then when a short-run aggregate supply curve is drawn with real GDP (Y) along the horizontal axis and the price level (P) along the vertical axis, this curve:

if horizontal

According to the theory of liquidity preference, holding the supply of real money balances constant, an increase in income will __ the demand for real money balances and will ____ the interest rate.

increase; increase

what are some examples of sectorial shifts?

industrial revolution, energy crisis

The interaction of the IS curve and the LM curve together determine:

interest rate and the level of output

An LM curve shows combinations of: taxes and government spending. nominal money balances and price levels. interest rates and income, which bring equilibrium in the market for real money balances. interest rates and income, which bring equilibrium in the market for goods and services.

interest rates and income, which bring equilibrium in the market for real money balances.

A liquidity trap occurs when: banks have too much currency and close their doors to new customers. the central bank mistakenly prints too much money, generating hyperinflation. interest rates fall so low that monetary policy is no longer effective. dams and locks are built to prevent flooding.

interest rates fall so low that monetary policy is no longer effective.

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

investment

In the American Recovery and Investment Act of 2009, 275 bil dollars was spent in doing ________, 224 bil spent in __________, and 288 bil spent in ______.

job creation; extended unemployment benefits; tax cuts

The theory of liquidity preference implies that, other things being equal, an increase in the real money supply will:

lower the interest rate

the fed increases the money supply, which _______ the interest rate.

lowers.

an increase in the income raises _______ ,which increases the _______.

money demand; interest rate

If the short-run aggregate supply curve is horizontal, then the: classical dichotomy is satisfied. money supply cannot affect prices in the short run. money supply cannot affect output in the short run. money supply is irrelevant in the short run.

money supply cannot affect prices in the short run.

What is an example of an LM shock?

more atms or the internet reduce the money demand

Data on unemployment in the United States show that: most spells of unemployment are long. most weeks of unemployment are attributable to the long-term unemployed. members of the labor force over age 55 have the highest unemployment rates. the duration of unemployment falls during recessions.

most weeks of unemployment are attributable to the long-term unemployed.

When insiders have a much greater impact on the wage-bargaining process than do outsiders, the negotiated wage is likely to be _____ the equilibrium wage. much greater than much less than almost equal to about one-half of

much greater than

Stabilization policy refers to policy actions aimed at: reducing the severity of short-run economic fluctuations. equalizing incomes of households in the economy. maintaining constant shares of output going to labor and capital. preventing increases in the poverty rate.

reducing the severity of short-run economic fluctuations.

In a recession, the actual unemployment rate ________ the natural rate, and in a boom, the actual unemployment ________ the natural rate.

rises above; falls below

In the IS-LM model when government spending rises, in short-run equilibrium, in the usual case the interest rate __ and output ____.

rises; rises

If s is the rate of job separation, f is the rate of job finding, and both rates are constant, then the steady state unemployment rate is approximately:

s/(s + f).

Economists call the changes in the composition of demand among industries and regions:

sectoral shifts.

The inconvenience associated with reducing money holdings to avoid the inflation tax is called:

shoeleather costs.

What is an example of an IS shock?

stock market boom or crash

frictional unemployment happens because

workers have different abilities, jobs have different skill requirements, geographic mobility of workers not instantaneous; flow of info abt vacancies and job candidates is imperfect.

by most economic indicators, was the Economic Stimulus package a success?

yes

Obama's plan had middle and low income families have larger _______.

MPC

Which of these would be called a hyperinflation? Price increases averaged 1% percent per day. The inflation rate was 10 percent per year. Real gross domestic product (GDP) grew at a rate of 12 percent over a year. A stock market index rose by 1,000 points over a year.

Price increases averaged 1% percent per day.

people started to question the validity of the classical theory when _______ arrived

The great depression

A favorable supply shock occurs when: environmental protection laws raise costs of production. the Fed increases the money supply. unions push wages up. an oil cartel breaks up and oil prices fall.

an oil cartel breaks up and oil prices fall.

The Index of Leading Economic Indicators is published monthly by the ________, and aims to forecast economic activity _______ months into the future. They are used in planning by _________ and _______, despite not being a perfect indicator.

Conference Board; 6-9 months; businesses; government

________ averages ______ per year over the LR with large fluctuations in the SR.

GDP Growth; 3%

A policy that increases the job-finding rate _____ the natural rate of unemployment.

will decrease

The IS and LM curves together generally determine:

both income and interest rate

In the Keynesian-cross model, fiscal policy has a multiplied effect on income because fiscal policy: increases the amount of money in the economy. changes income, which changes consumption, which further changes income. is government spending and, therefore, more powerful than private spending. changes the interest rate.

changes income, which changes consumption, which further changes income.

_______ and _______ fluctuate with GDP, but ______ tends to be less volatile and ______ tends to be more volatile than GDP.

consumption; investment; consumption; investment

Hyperinflations ultimately are the result of excessive growth rates of the money supply; the underlying motive for the excessive money growth rates is frequently a government's: desire to increase prices throughout the economy. need to generate revenue to pay for spending. responsibility to increase nominal interest rates by increasing expected inflation. inability to buy government securities through open-market operations.

need to generate revenue to pay for spending.

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

nominal interest rates.

If the short-run aggregate supply curve is horizontal and the long-run aggregate supply curve is vertical, then a change in the money supply will change __ in the short run and change ____ in the long run. only prices; only output only output; only prices both prices and output; only prices both prices and output; both prices and output

only output; only prices

To restore EQ in the goods market, _____ must increase

output

In the Keynesian-cross model, the equilibrium level of income is determined by: the factors of production. the money supply. planned spending. liquidity preference.

planned spending.

Wage rigidity: forces labor demand to equal labor supply. is caused by sectoral shifts. prevents labor demand and labor supply from reaching the equilibrium level. increases the rate of job finding.

prevents labor demand and labor supply from reaching the equilibrium level.

a fall in the money supply would _______ r

raise

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

In the long run, according to the quantity theory of money and classical macroeconomic theory, if velocity is constant, then _ determines real gross domestic product (GDP) and ___ determines nominal GDP. the productive capability of the economy; the money supply the money supply; the productive capability of the economy velocity; the money supply the money supply; velocity

the productive capability of the economy; the money supply

When the LM curve is drawn, the quantity that is held fixed is:

the real money supply.

All of these are reasons for frictional unemployment EXCEPT: workers have different preferences and abilities. unemployed workers accept the first job offer that they receive. the flow of information is imperfect. geographic mobility takes time.

unemployed workers accept the first job offer that they receive.

_____ rises during recessions and _____ during expansions

unemployment

An increase in government spending generally shifts the IS curve, drawn with income along the horizontal axis and the interest rate along the vertical axis: downward and to the left. upward and to the right. upward and to the left. downward and to the right.

upward and to the right.

prevents labor demand and labor supply from reaching the equilibrium level.

wage rigidity