macro

27. If the capital per worker in the economy is 4 units and the capital per effective worker is 2 units, then the efficiency of each worker is equal to: a. 1/2. b. 1. c. 2. d. 4.

c. 2.

21. Centralized union wage bargaining with government intervention in Sweden gives relatively more influence to _____, while firm-level union wage bargaining in the United States gives relatively more influence to _____. a. efficiency wages; sectoral shifts b. sectoral shifts; efficiency wages c. insiders; outsiders d. outsiders; insiders

d. outsiders; insiders

60. Exhibit: Supply Shock Assume that the economy is at point B. With no further shocks or policy moves, the economy in the long run will be at point: a. A. b. B. c. C. d. D

a. A

** 20. In the Keynesian-cross model, actual expenditures equal: a. GDP. b. the money supply. c. the supply of real balances. d. unplanned inventory investment.

a. GDP.

53. A tax cut shifts the _____ curve to the right, and the aggregate demand curve _____. a. IS; shifts to the right b. IS; does not shift c. LM; shifts to the right d. LM; does not shift

a. IS; shifts to the right

49. One of the main hypotheses of the real business cycle theory is that recessions are caused by: a. adverse technology shocks. b. lack of aggregate demand. c. decrease in government deficit. d. labor hoarding by firms.

a. adverse technology shocks.

15. The version of Okun's law studied in Chapter 11 assumes that with no change in unemployment, real gross domestic product (GDP) normally grows by 3 percent over a year. If the unemployment rate rose by 2 percentage points over a year, Okun's law predicts that real GDP would: a. decrease by 1 percent. b. decrease by 2 percent. c. decrease by 3 percent. d. increase by 1 percent.

a. decrease by 1 percent.

41. If a change in government regulations allows banks to start paying interest on checking accounts, this will: a. increase the demand for money. b. decrease the demand for money. c. have no effect on the demand for money. d. increase the demand for currency but decrease the demand for checking accounts

a. increase the demand for money.

48. One explanation for the impact of expected price changes on the level of output is that an increase in expected deflation _____ the nominal interest rate and _____ the real interest rate, so that investment spending declines. a. lowers; raises b. raises; lowers c. raises; raises d. lowers; lowers

a. lowers; raises

56. A change in income in the IS-LM model resulting from a change in the price level is represented by a _____ aggregate demand curve, while a change in income in the IS-LM model for a given price level is represented by a _____ aggregate demand curve. a. movement along the; shift in the b. shift in the; movement along the c. vertical; horizontal d. horizontal; vertical

a. movement along the; shift in the

2. Okun's law is the _____ relationship between real gross domestic product (GDP) and the a. negative; unemployment rate b. negative; inflation rate c. positive; unemployment rate d. positive; inflation rate

a. negative; unemployment rate

19. Monetary neutrality, the irrelevance of the money supply in determining values of _____ variables, is generally thought to be a property of the economy in the long run. a. real b. nominal c. real and nominal d. neither real nor nominal

a. real

5. The generosity of unemployment insurance benefits is measured by the: a. replacement rate and the duration of benefits. b. median wage and the unemployment rate. c. price level and duration of unemployment. d. job-finding rate and the job-separation rate.

a. replacement rate and the duration of benefits.

18. Exhibit: Market for Real Money Balances Based on the graph, if the interest rate is r3, then people will _____ bonds, and the interest rate will _____. a. sell; rise b. sell; fall c. buy; rise d. buy; fall

a. sell; rise

11. The IS curve shifts when any of the following economic variables change EXCEPT: a. the interest rate. b. government spending. c. taxes. d. the marginal propensity to consume.

a. the interest rate.

59. Which of these policies adopted by the government is NOT aimed at reducing the natural rate of unemployment? a. unemployment insurance b. government employment agencies c. public retraining programs d. the Illinois bonus program for unemployment insurance claimants who found jobs quickly

a. unemployment insurance

9. If two economies are identical (with the same population growth rates and rates of technological progress), but one economy has a lower saving rate, then the steady-state level of income per worker in the economy with the lower saving rate: a. will be at a lower level than in the steady state of the high-saving economy. b. will be at a higher level than in the steady state of the high-saving economy. c. will be at the same level as in the steady state of the high-saving economy. d. will grow at a slower rate than in the high-saving economy

a. will be at a lower level than in the steady state of the high-saving economy.

4. In the Solow growth model, where s is the saving rate, y is output per worker, and i is investment per worker, consumption per worker (c) equals: a. sy. b. (1 - s) y. c. (1 + s) y. d. (1 - s) y - i.

b. (1 - s) y.

29. If the per worker production function for an economy is given by y = k1/2, the saving rate is 0.3, and the economy has 25 units of capital per worker, then the total consumption per worker is _____ units and the total investment per worker is _____ units. a. 5; 0 b. 3.5; 1.5 c. 1.5; 3.5 d. 2.5; 2.5

b. 3.5; 1.5

57. The index of leading indicators compiled by the Conference Board includes 10 data series that are used to forecast economic activity about _____ in advance. a. 1 month b. 6 to 9 months c. 1 to 2 years d. 5 to 10 years

b. 6 to 9 months

44. Exhibit: IS-LM to Aggregate Demand Based on the graph, which is the correct ordering of the price levels and money supplies? a. P1> P2 and M1> M2 b. P1 > P2 and M1 < M2 c. P1 < P2 and M1 > M2 d. P1 < P2 and M1 < M2

b. P1 > P2 and M1 < M2

28. The economic downturn brought about by Covid-19 was unique in many ways. Which of these is NOT a unique feature of this downturn? a. The cause of the downturn was a pandemic. b. The unemployment rate increased during the downturn. c. The downturn was severe in terms of both speed and depth. d. The downturn was somewhat a result of intentional actions.

b. The unemployment rate increased during the downturn.

52. According to classical theory, national income depends on _____, while Keynes proposed that _____ determines 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. aggregate supply; aggregate demand

25. According to the quantity equation, if the velocity of money and the supply of money are fixed, and the price level increases, then the quantity of goods and services purchased: a. increases. b. decreases. c. does not change. d. may either increase or decrease.

b. decreases.

34. In the Solow model with technological progress, the steady-state growth rate of output per worker is: a. 0. b. g. c. n. d. n + g.

b. g.

33. An increase in government spending raises income: a. and the interest rate in the short run but leaves both unchanged in the long run. b. in the short run but leaves it unchanged in the long run, while lowering investment. c. in the short run but leaves it unchanged in the long run, while lowering consumption. d. and the interest rate in both the short run and in the long run.

b. in the short run but leaves it unchanged in the long run, while lowering investment.

47. Starting from a steady-state situation, if the saving rate increases, capital per worker will: a. increase and continue to increase unabated. b. increase until the new steady state is reached. c. decrease until the new steady state is reached. d. decrease and continue to decrease unabated.

b. increase until the new steady state is reached.

58. Exhibit: Policy Interaction Based on the graph, starting from equilibrium at interest rate r3, income Y2, IS1, and LM1, if there is an increase in government spending that shifts the IS curve to IS2 and the Federal Reserve does not change the money supply, the new equilibrium combination of interest and income will be: a. r1, Y2. b. r2, Y3. c. r3, Y3. d. r3, Y4

b. r2, Y3.

13. If the Fed reduces the money supply by 5 percent, then the real interest rate will: a. rise in both the short run and the long run. b. rise in the short run but return to its original equilibrium level in the long run. c. rise in the short run but fall below its original equilibrium level in the long run. d. be unaffected in both the short run and the long run.

b. rise in the short run but return to its original equilibrium level in the long run.

26. Total factor productivity may be measured by: a. subtracting the rate of growth of capital input and the rate of growth of labor input from the rate of growth of output. b. subtracting the rate of growth of capital input, multiplied by capital's share of output, plus the rate of growth of labor input, multiplied by labor's share of output, from the rate of growth of output. c. adding the rate of growth of capital input to the rate of growth of labor input. d. adding the rate of growth of capital input, multiplied by capital's share of output, to the rate of growth of labor input, multiplied by labor's share of output.

b. subtracting the rate of growth of capital input, multiplied by capital's share of output, plus the rate of growth of labor input, multiplied by labor's share of output, from the rate of growth of output.

31. The slope of the IS curve depends on: a. the interest sensitivity of investment and the amount of government spending. b. the interest sensitivity of investment and the marginal propensity to consume. c. the interest sensitivity of investment and the tax rates. d. tax rates and government spending

b. the interest sensitivity of investment and the marginal propensity to consume.

23. In response to the great shutdown of 2020, the Congress passed legislation to increase the unemployment benefits in a way that the new benefits a. increased replacement rate to 80 percent. b. increased replacement rate to 100 percent. c. added $600 per week to the benefits of every unemployed worker. d. added $1000 per week to the benefits of every unemployed worker

c. added $600 per week to the benefits of every unemployed worker.

3. According to Michael Kremer, large populations: a. require the capital stock to be spread thinly, thereby reducing living standards. b. place great strains on an economy's productive resources, resulting in perpetual poverty. c. are a prerequisite for technological advances and higher living standards. d. are not a factor in determining living standards.

c. are a prerequisite for technological advances and higher living standards.

36. If two economies are identical (including having the same saving rates, population growth rates, and efficiency of labor), but one economy has a smaller capital stock, then the steady-state level of income per worker in the economy with the smaller capital stock will be: a. at a lower level than in the steady state of the high capital economy. b. at a higher level than in the steady state of the high capital economy. c. at the same level as in the steady state of the high capital economy. d. proportional to the ratio of the capital stocks in the two economies.

c. at the same level as in the steady state of the high capital economy.

51. If real money balances enter the IS-LM model both through the theory of liquidity preference and the Pigou effect, then a fall in the price level will shift: a. only the LM curve. b. only the IS curve. c. both the LM and the IS curves. d. neither the LM nor the IS curve.

c. both the LM and the IS curves.

45. Short-run fluctuations in output and employment are called: a. sectoral shifts. b. the classical dichotomy. c. business cycles. d. productivity slowdowns.

c. business cycles.

24. Both Keynesians and supply-siders believe a tax cut will lead to growth: a. and both agree it works through incentive effects. b. but Keynesians believe it works through incentive effects, whereas supply-siders believe it works through aggregate demand. c. but Keynesians believe it works through aggregate demand, whereas supply-siders believe it works through incentive effects. d. and both agree it works through aggregate demand.

c. but Keynesians believe it works through aggregate demand, whereas supply-siders believe it works through incentive effects.

37. The economic response to the overnight reduction in the French money supply by 20 percent in 1724: a. confirmed the neutrality of money because no real variables were affected by this nominal change. b. confirmed the quantity theory by leading to an immediate 20 percent reduction in the price level. c. confirmed that money is not neutral in the short run because both output and prices dropped. d. contradicted Okun's law because decreases in output were not associated with increases in unemployment.

c. confirmed that money is not neutral in the short run because both output and prices dropped.

46. In the two-sector endogenous growth model, income growth persists because the: a. production function shifts exogenously. b. saving rate exceeds the rate of depreciation. c. creation of knowledge in universities never slows down. d. fraction of the labor force in universities is large.

c. creation of knowledge in universities never slows down.

54. In the IS-LM model when M / P rises, in short-run equilibrium, in the usual case the interest rate _____ and output _____. a. rises; falls b. rises; rises c. falls; rises d. falls; falls

c. falls; rises

42. According to Olivier Blanchard, Europeans are more likely to use increases in real wages resulting from technological progress to increase _____, and Americans are more likely to use these increases in real wages to increase _____. a. hours of work; hours of leisure b. consumption of goods and services; hours of leisure c. hours of leisure; consumption of goods and services d. unemployment insurance benefits; efficiency wages

c. hours of leisure; consumption of goods and services

6. In the IS-LM model, a decrease in output would be the result of a(n): a. decrease in taxes. b. increase in the money supply. c. increase in money demand. d. increase in government purchases.

c. increase in money demand.

12. The Keynesian-cross analysis assumes planned investment: a. is fixed, and so does the IS analysis. b. depends on the interest rate, and so does the IS analysis. c. is fixed, whereas the IS analysis assumes it depends on the interest rate. d. depends on expenditure, and so does the IS analysis.

c. is fixed, whereas the IS analysis assumes it depends on the interest rate.

7. Other things equal, an expected deflation can change demand by: a. lowering the demand for money, thus shifting the LM curve. b. increasing the demand for money, thus shifting the LM curve. c. raising the real interest rate for any given nominal interest rate, thus reducing desired investment. d. lowering the real interest rate for any given nominal interest rate, thus increasing desired investment.

c. raising the real interest rate for any given nominal interest rate, thus reducing desired investment.

10. 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: a. f/(f + s). b. (f + s)/f. c. s/(s + f). d. (s + f)/s.

c. s/(s + f).

32. In the IS-LM model when the Federal Reserve decreases the money supply, the public _____ bonds, and the interest rate _____, leading to a(n) _____ in investment and income. This is called the monetary transmission mechanism. a. buy; rises; increase b. sell; falls; decrease c. sell; rises; decrease d. buy; rises; decrease

c. sell; rises; decrease

30. Along an IS curve all of these are always true EXCEPT: a. planned expenditures equal actual expenditures. b. planned expenditures equal income. c. the demand for real balances equals the supply of real balances. d. there are no unplanned changes in inventories.

c. the demand for real balances equals the supply of real balances.

39. If y = k1/2, there is no population growth or technological progress, 5 percent of capital depreciates each year, and a country saves 20 percent of output each year, then the steady-state level of capital per worker is: a. 2. b. 4 c. 8 d. 16

d. 16

55. The short-run aggregate supply curve is horizontal at: a. a level of output determined by aggregate demand. b. the natural level of output. c. the level of output at which the economy's resources are fully employed. d. a fixed price level.

d. a fixed price level.

35. In a steady state with population growth and technological progress the: a. capital share of income increases. b. labor share of income increases. c. capital share of income, in some cases, increases, and sometimes the labor share increases. d. capital and labor shares of income are constant

d. capital and labor shares of income are constant

22. Assume that a country experiences a reduction in productivity that lowers the marginal product of labor for any given level of labor. In this case, the labor: a. supply curve shifts to the right. b. supply curve shifts to the left. c. demand curve shifts upward and to the right. d. demand curve shifts downward and to the left.

d. demand curve shifts downward and to the left.

43. If the per worker production function for an economy is given by y = k1/2, the saving rate is 0.3, the depreciation rate is 10%, and the economy starts off with 25 units of capital per worker, then the capital per worker will _____ and output per worker will _____ as the economy approaches the steady state. a. rise; rise b. rise; fall c. fall; rise d. fall; fall

d. fall; fall

40. A study by economists on the relationship between firm management and productivity concludes that well-managed firms have all of these features EXCEPT: a. higher sales b. higher profits c. higher stock market value d. higher bankruptcy rates

d. higher bankruptcy rates

50. In the Keynesian-cross model, if taxes are reduced by 100, then planned expenditures _____ for any given level of income. a. increase by 100 b. increase by more than 100 c. decrease by 100 d. increase, but by less than 100

d. increase, but by less than 100

1. By paying efficiency wages, firms contribute to higher unemployment because they: a. increase the wage bill. b. make workers more productive. c. keep the wage below the equilibrium level. d. keep the wage above the equilibrium level

d. keep the wage above the equilibrium level

17. Equilibrium levels of income and interest rates are _____ related in the goods and services market, and equilibrium levels of income and interest rates are _____ related in the market for real money balances. a. positively; positively b. positively; negatively c. negatively; negatively d. negatively; positively

d. negatively; positively

38. In the labor market, the term replacement rate refers to the: a. average amount of time it takes firms to replace workers who quit their job voluntarily. b. fraction of employed individuals who leave or lose their jobs every month. c. fraction of unemployed individuals who find a job every month. d. percentage of previous wages replaced by government benefits in case of unemployment.

d. percentage of previous wages replaced by government benefits in case of unemployment.

16. In the Solow growth model of Chapter 8, the economy ends up with a steady-state level of capital: a. only if it starts from a level of capital below the steady-state level. b. only if it starts from a level of capital above the steady-state level. c. only if it starts from a steady-state level of capital. d. regardless of the starting level of capital.

d. regardless of the starting level of capital.

14. A decline in the ISM new orders index is typically an indicator of a future _____ in economic production, and a narrowing of the interest rate spread between the 10-year Treasury note and 3-month Treasury bill is typically an indicator of a future _____ in economic production. a. increase; slowdown b. increase; increase c. slowdown; increase d. slowdown; slowdown

d. slowdown; slowdown

** 8. In the two-sector endogenous growth model, the steady-state stock of physical capital is determined by _____, and the growth in the stock of knowledge is determined by _____. a. the fraction of labor in universities; the saving rate b. the efficiency of labor; the saving rate c. the production function; the efficiency of labor d. the saving rate; the fraction of labor in universities

d. the saving rate; the fraction of labor in universities