Overall Macro Final

Which of the following transfers are classified as markets?

"Buy-now-pay-later" deals.

The GDP per capita of Greece was $22,494 in 2012 and $21,966 in 2013. Based on these figures, the growth rate of GDP between 2012 and 2013 (to two decimal places) was:

-2.35%

How do banks make money?

-diversification and term structure r long term = E (r short term) + term premium + risk premium

Capital growth is the difference between: A)appreciation and depreciation B)investment and economic growth C)depreciation and economic growth D)investment and depreciation

D)investment and depreciation

Which term can be defined as "An asset that a borrower pledges to a lender as a security for a loan"?

collateral

High investment, rapid productivity growth, rising wages, and low unemployment defined the golden age. Which of the following did not contribute to this virtuous circle?

increasing house prices

pi stand for

inflation

Which term can be defined as "Ease of buying or selling a financial asset at a predictable price"?

liquidity

Which term can be defined as "The risk that an asset cannot be exchanged for cash rapidly enough to prevent a financial loss"?

liquidity risk

i stands for

nominal interest

Which of the following would decrease inequality measured by the Gini coefficient?

the degree of competition faced by firms is increased

When a market is in competitive equilibrium, which of the following properties will hold?

the good is traded at the same price across all buyers and sellers

In an economy where the MPC is 0.7, the proportional tax rate is 0.25 and the marginal propensity to import is 0.2, the multiplier (from the full model including government and net exports) will be:

1.48

Figure 11.6 shows the market for bread in the short run, with 50 bakeries, and in the long run when more bakeries can enter. All bakeries are identical. Which of the following statements is correct?

A and B cannot be long-run equilibria, as the bakeries are making a positive economic rent.

(The Economy Question 17.9, modified) Figure 17.21 is the graph of leverage of banks in the UK and the US between 1960 and 2014.

A leverage ratio of 25 means that a fall of 4% in the asset value would make a bank insolvent.

Consider an aggregate demand (or multiplier) model in which the domestic economy begins again at a full-employment level of output and in goods market equilibrium. An increase in aggregate demand in these circumstances will most likely cause:

A rise in the general level of prices.

This figure shows the demand and supply curves for salt, and the shift in the supply curve due to the implementation of a 30% tax on the price of salt. Which of the following statements are correct?

As a result of the tax, the consumer surplus is reduced by (1/2)(Q1 + Q*)(P1 - P*).

The cots of changing prices are called A) long-run costs B) short-run costs C) menu costs D) printing costs

C) menu costs

Which of the following statements are correct?

Endowments are facts about an individual that may affect his or her income.

Favourable institutional changes are difficult to bring about because:

Institutional changes are politically sensitive since they involve winners and losers.

Consider a scenario where the Bank of England views the UK economy to be overheating and is attempting to slow the economy down using monetary policy. Which of the following statements regarding the effects of an interest rate rise is correct?

It leads to higher demand for GBP, which results in an appreciation of the GBP.

The diagram depicts Marco's choice of consumptions in periods 1 and 2. He has $100 worth of grain in period 1 and no income in period 2. Marco has two choices. In scheme 1, he can sell the grain that he does not consume and lend the money at 10%. In scheme 2, he can invest the grain that he does not consume (e.g. planting as seed) for a return of 50%. Which of the following statements is correct?

Marco cannot do any better with the two feasible frontiers that are shown than consumption choice B.

QS=

S( r, time preference, Y, E(Y) ) also: -r foreign -# of savers

Which of the following statements is correct regarding monetary policy?

When interest rates go down, asset prices go up.

Which term can be defined as "Alternating periods of faster and slower (or even negative) growth rates"?

business cycle

Which of the following are examples of private property?

computers belonging to your college, shares in a company

For banks or households, the value of assets divided by the equity stake in those assets is called the

leverage ratio.

Ex post equation

r actual = i - pi

Which term can be defined as "A tax on a good imported into a country"?

tariff

Leverage ratio

total debt/total equity

Suppose that the bargaining power of workers rises relative to that of employers because government legislation improves the security of employment. In terms of our wage-setting/price-setting labor market model:

The wage-setting curve moves up.

(The Economy Question 9.7) Which of the following statements is correct regarding the effects of a rise in the real wage on the labour supply of a worker?

At high wage levels, the income effect dominates the substitution effect, leading to lower labour supply.

The diagram shows the demand and the supply curves for a textbook. The curves intersect at (Q, P) = (24, 8). Which of the following is correct?

At $8, the market clears.

The figure depicts Matthew's choice of consumption in periods 1 and 2. He has an income of $100 in period 1 and no income in period 2. The interest rate is 20%. Based on the figure, which of the following statements is correct?

At A, Matthew makes no savings.

The following diagram depicts a firm's isoprofit curves and demand curve, given the economy-wide demand. Which of the following statements is correct?

At B, the marginal rate of substitution is (p*-W)/q*.

Which of the following is not an example of private property?

a farmer's land in Soviet Russia

Which term can be defined as "The lag between some outside change in labour market conditions and the movement of the economy to the neighbourhood of the new equilibrium"?

adjustment gap

Which term can be defined as "The total output in an economy, across all sectors and regions"?

aggregate output

Figure 17.16 is a graph of the unemployment rate and consumer price inflation in advanced economies between 1960 and 2013.

Stagflation was caused by the shifting up of the Phillips curve, propelled by higher inflation expectations.

Which term can be defined as "the difference between the real wage that firms wish to offer in order to provide workers with incentives to work, and the real wage that allows firms the markup that maximizes profits given the degree of competition"?

bargaining gap

Which term can be defined as "The stock of money in circulation, which is defined as the sum of bank money and the base money that is in the hands of the non-bank public"?

broad money

Based on the figure shown, by how much does a one percent increase in growth reduce the unemployment rate in Spain?

by 0.3597 percentage points

Which term can be defined as "A policy that is neither progressive or regressive so that it does not alter the distribution of income"?

distributional neutral

Which term can be defined as "a property that occurs when doubling all of the inputs to a production process more than doubles the output"?

economies of scale

Which term can be defined as "The period of high productivity growth, high employment, and stable inflation extending from the end of the Second World War to the early 1970s"?

golden age of capitalism

Which term can be defined as "Financial instruments issued by governments that promise to pay flows of money at specific intervals"?

government bonds

Which term can be defined as "The period of low volatility in aggregate output in advanced economies between the 1980s and the 2008 financial crisis"?

great moderation

Which term can be defined as "Goods held by a firm prior to sale or use, including raw materials, and partially-finished or finished goods intended for sale"?

inventory

Which of the following would not be recorded on a balance sheet?

investment

Which term can be defined as "Expenditure by the government to purchase goods and services"?

investment

Which term can be defined as "the interest rate set by the central bank which applies to banks that borrow base money from the central bank"?

policy rate

Which term can be defined as "Money sent home by international migrant workers to their families or others in the migrants' home country"?

remittances

Which term can be defined as "The value of exports minus the value of imports"?

trade balance

Which term can be defined as "A country's negative trade balance"?

trade deficit

Which term can be defined as "The term for the fact that the nominal interest rate cannot be negative"?

zero lower bound

Which term can be defined as "the fact that the nominal interest rate cannot be negative, thus setting a floor on the nominal interest rate that can be set by the central bank"?

zero lower bound

Suppose that in an economy with no taxation and no external trade, the marginal propensity to consume is 0.7. The size of the multiplier (rounded to 2 decimal places) will be?

3.33

Assume that the level of consumption in an economy is given by the expression 1000 + 0.7Y, when Y = 50,000, consumption will be:

36,000

Which of the following statements about asset prices are correct?

A bubble occurs when beliefs about future prices amplify a price rise. When beliefs dampen price rises, the market equilibrium is stable.

Which of the following will lead to a decrease in the equilibrium markup?

A lower expected long-run corporate tax rate.

Figure 9.16 is the Lorenz curve associated with a particular labour market equilibrium. In a population of 100, there are 10 firms, each with a single owner, 80 employed workers, and 10 unemployed workers. The employed workers receive 60% of the total income as wages. The Gini coefficient is 0.36. In which of the following cases would the Gini coefficient increase, keeping all other factors unchanged?

A rise in the unemployment rate. A rise in the workers' productivity while the real wage is unchanged.

Suppose the nominal GDP of a country is $500 billion. If the velocity of money in the country is 10, then the country's money supply should equal: A) $50 billion B) $5,000 billion C) $510 billion D) $490 billion

A) $50 billion

Which of the following statements about short selling (shorting) is correct?

Shorting is used to benefit from a price fall.

Assume that a bargaining gap remains constant at 1 per cent. The rate of inflation in future years will:

Accelerate by 1 per cent per year.

According to the Great Economists box in Section 1.3 of The Economy, which of the following statements regarding Adam Smith is correct?

Adam Smith claimed that coordination among large number of economic actors (producers, transporters, sellers, consumers), often unknown to each other, might spontaneously arise without any person or institution consciously attempting to create or maintain it.

(The Economy Question 13.4, modified) Which of the following would increase GDP?

An increase in government spending. A decline in imports, holding all other components of GDP constant.

(The Economy Question 9.5) The following diagram depicts the price-setting curve. Based on this information, which of the following statements is correct?

At point C, the real wage is too low and the markup is too high. Therefore the firm is able to increase profit by lowering prices and hiring more workers.

(The Economy Question 10.8) Which of the following statements is correct?

Base money is broad money minus bank money.

The figure shows the demand and supply curves in the salt market. The government now decides to impose a sales tax of 30% on the price of salt, to be paid by the suppliers. Which of the following statements is correct?

Both consumer surplus and producer surplus decrease.

High and volatile rates of inflation (even when expected) will typically: 1. reduce real rates of return. 2. decrease the number of long-term contracts. 3. arbitrarily redistribute wealth. A) 1 and 2 only B) 1, 2, and 3 C) 2 and 3 only D) 1 and 3 only

C) 2 and 3 only

Over the last 60 years the average GDP growth rate in the U.S. has been A) 5.5 percent B) 2.2 percent C) 3.3 percent D) 4.4 percent

C) 3.3 percent

QD=

D( r, E(Y), G-T) also: -#of borrowers

(The Economy Question 11.11, modified) Which of the following are stationary rents?

Employment rent where the wage is set high to induce workers to work hard. Monopoly rent where firms make excess profits due to limited competition.

(The Economy Question 13.3) Which of the following statements is correct regarding measuring GDP?

GDP can be measured either as the total spending on domestically produced goods and services, or the total value added in domestic production, or the sum of all incomes received from domestic production.

Which of the following statements is correct?

GDP per capita is a better (more holistic) measure of living standards than disposable income.

Which term can be defined as "The prolonged recession that followed the global financial crisis of 2008"?

GREAT RECESSION

(The Economy Question 9.1) Which of the following statements is correct?

If all firms set the same price and pay the same nominal wage, then the higher the real wage that they pay, the lower is their markup.

(The Economy Question 14.8, modified) Which of the following statements is correct regarding the multiplier?

If firms anticipate that the government's fiscal policy will be effective, then the multiplier will be higher. 2. Reverse causation can be a problem when estimating the multiplier empirically.

The 'paradox of thrift' refers to the fact that:

If we all save more, aggregate income will fall.

(The Economy Question 17.2, modified) The following figure shows the income share of the top 1% richest households in the US between 1914 and 2013.

Inequality can either rise or fall during recessions. The top 1% richest US households received nearly one-fifth of the total income in 2010.

Which of the following statements regarding inflation and deflation is correct?

Inflation transfers wealth from lenders to borrowers.

In an economy with unutilised resources, the government stimulates aggregate demand by increasing its spending. The effect on output and employment will be greater if:

It's trading partners undertake a similar policy.

The following table shows the nominal GDP (in millions of current US dollars) and the population (in thousands) of the US, China, and Luxembourg in 2015 (source: The World Bank). Based on this information which of the following statements is correct? US: $18,036,648.00 (GDP); 321,418.82 (Population)China: $11,007,720.59 (GDP); 1,371,220.00 (Population)Luxembourg: $57,793.61 (GDP); 569.68 (Population)

Luxembourg's GDP per capita was more than 10 times that of China's.

Which of the following statements about bubbles is correct?

Momentum trading strategies make bubbles more likely to occur.

Which of the following statements is correct?

Money allows purchasing power to be transferred between consumers.

Which term can be defined as "A set of strategies, one for each player in the game, such that each player's strategy is a best response to the strategies chosen by everyone else"?

Nash equilibrium

(The Economy Question 10.1) Which of the following statements are correct?

Net income is the maximum amount that you can consume and leave your wealth unchanged.

In the short run, successive additions to capital produce smaller and smaller increases in output. Which of the following statement(s) could explain why GDP nevertheless continues to rise In the long run?

New capital equipment incorporates the latest technological developments.

Which of the following statements about a competitive equilibrium allocation are correct?

No buyer's or seller's surplus can be increased without reducing someone else's surplus. The total surplus from trade is maximized.

Imagine that you are responsible for policymaking in an economy that is experiencing a deep recession. You and your colleagues announce a number of measures (like those in Roosevelt's 'New Deal') that you tell everyone will boost demand and output. Why does it matter whether the public believes your announcement?

People will feel more confident about the future and increase their spending, which will reinforce the actions of government.

Which term can be defined as "The change in the unemployment rate in percentage points predicted to be associated with a 1% change in the growth rate of GDP"?

Okun's coefficient

Which term can be defined as "The empirical regularity that changes in the rate of growth of GDP are negatively correlated with the rate of unemployment"?

Okun's law

This unit discusses the lessons for economists from each of the three epochs explored. Which of the following is not one of the conclusions drawn in the text?

Risk increases in recessions and falls in booms

Section 17.5 describes innovation and its effects in the US (and some other economies) during the golden age as a 'virtuous circle'. Which of the following did not contribute to that process?

Strong trade unions that were able to seize most of the benefits of increased output for their members.

(The Economy Question 17.8) Figure 17.19 shows the household debt-to-income ratio and the house prices in the US between 1950 and 2014. Based on this information, which of the following statements is correct?

Subprime mortgages partly explain the rise in debt in the US prior to the financial crisis.

Which of the following statements regarding segmented labour markets are correct?

The 'gig economy' is not part of the primary labour market.

(The Economy Question 14.9, modified) Figure 14.16 shows the effects of France's increased government spending and tax cuts in 1982 on the economies of France and Germany.

The German economy benefitted from the spillover effect of higher French imports of German goods. 2. The French budget balance worsened by more than 3% as a result of the fiscal expansion.

(The Economy Question 14.1) Figure 14.2 depicts a consumption function of an economy, where C is the aggregate consumption spending and Y is the current income of the economy.

The MPC is normally less than 1 as some households are able to smooth their consumption.

Figure 11.2 shows the hat market before and after a demand shift. Based on this information, which of the following statements are correct?

The adjustment to the new equilibrium is driven by the rent-seeking behaviour of the buyers and the sellers. While the market adjusts, some buyers may pay more for a hat than others.

(The Economy Question 17.6) Figure 17.15 describes the movements in employment, profits, and wages in the 1950s to 1970s using the labour market model. Which of the following statements is correct regarding this period?

The collapse of postwar accords in the late 1960s/early 70s led to workers demanding higher wages, leading to an upward shift in the wage-setting curve.

(The Economy Question 16.2) The following diagram shows an economy's production function before and after technological progress:

The concavity of the production function indicates a diminishing marginal product of capital.

In the Figure, the market equilibrium output and price of the bread market is shown to be at (Q*, P*) = (5,000, €2). Suppose that the mayor decrees that bakeries must sell as much bread as consumers want, at a price of €1.50. Which of the following statements are correct?

The consumer surplus increases but the producer surplus decreases.

Research done since the Great Depression (which we examine in more depth in Unit 17) provides a number of explanations for the fall in autonomous consumption in the US. Which of the following is not one of the explanations offered in the chapter?

The drop in population due to the 1918 "Spanish" flu epidemic

The country of Eden produces just two output goods: apples and snakeskin handbags. In 2014 the prices of apples and handbags were $10 and $24, respectively. In 2015, the prices increased to $12 and $25. The quantities produced of the two goods were 100 and 20, respectively, in both 2014 and 2015. Based on this information, which of the following is incorrect?

The economy of Eden grew between 2014 and 2015 in real terms.

(The Economy Question 9.6) Figure 9.11 depicts the labour market model. Consider now a reduction in the degree of competition faced by the firms. Which of the following statements is correct regarding the effects of reduced competition?

The equilibrium real wage falls.

The figure shows the equilibrium of the bread market to be 5,000 loaves per day at price €2. A year later, we find that the market equilibrium price has fallen to €1.50. What can we conclude?

The fall in price could have been caused by a shift in either curve.

In the expression for aggregate consumption C = C_0 + C_1Y, C_1 is known as:

The marginal propensity to consume.

(The Economy Question 14.2) The following diagram depicts the change in the aggregate goods market equilibrium when there is a €2 billion increase in investment.

The multiplier is 2.

Figure 17.24 shows some S-shaped price dynamics curves for the housing market. Based on the figure, which of the following statements is true?

The parts of the PDC where the slope is less than 45 degrees represent a negative feedback process. Optimism about housing prices would shift the PDC upwards.

In a severe recession, with falling prices, the economy may need a negative real interest rate in order to give sufficient stimulus to aggregate demand. What particular problem for conventional monetary policy do negative real interest rates pose?

The policy rate needs to be more negative than the rate of deflation but nominal rates cannot go below zero.

(The Economy Question 17.5) Figure 17.14 is a graph of days on strike per 1,000 industrial workers (left-hand axis) and the average wages relative to share prices (right-hand axis) in advanced economies between 1950 and 2002. Based on this information, which of the following statements is correct?

The postwar accord of cooperation between employers and employees broke down in the late 1960s.

(The Economy Question 9.11) Figure 9.20 depicts the effect of union wage-setting. What can we conclude from this figure?

The resulting bargained wage-setting curve will be above the wage-setting curve with no union.

(The Economy Question 16.11, modified) Figure 16.18 is a graph of the share of employment in manufacturing industry in different countries.

The shift of employment out of industry was led by the UK and the US around 1950.

(The Economy Question 13.1) The following is the graph of the natural log of UK real GDP per capita between 1875 and 2014: Based on this information, which of the following statements is correct?

The slope of the best-fit straight line is the average annual growth rate.

The diagram depicts Mary's choice of consumptions in periods 1 and 2. She has no income in period 1 and an income of $100 in period 2. In scenario 1 the interest rate is 78%, while in scenario 2 it falls to 10%. Based on this information, which of the following statements is correct?

The substitution and income effects of the interest rate fall work in the opposite directions for consumption in period 2.

(The Economy Question 14.3) Which of the following statements is correct regarding household wealth?

The total broad wealth equals material wealth plus expected future earnings.

A household's net worth (or equity) is best described as:

The total value of assets minus the total value of its liabilities.

The figure shows the wage-setting curve and the real wage w*. Which of the following statements is correct?

The unemployment rate is 5%.

(The Economy Question 9.10, modified) Figure 9.16 depicts the model of a labour market where there are 90 million workers. The current labour market equilibrium is at A. Now consider the case where the total labour supply is increased to 100 million. Based on this information, which of the following statements are correct regarding the adjustment process in the labour market?

The wage-setting curve shifts downward. Initially, unemployment doubles.

Which of the following is not a result of an increase in demand?

There is an increase in supply

(Question 13.8) Consider a local economy comprising of just two firms, Firm A and Firm B. Currently both firms have low capacity utilization. The following table shows the profits (or losses if negative) when the firms invest or do not invest:

To achieve the Pareto-efficient Nash equilibrium, the firms have to coordinate in some way or develop business confidence.

Which of the following is not true when considering competitive equilibrium?

Total surplus is not maximized

Which of the following statements regarding the labour market are correct?

Wages are the prices in the labour market that determine the level of demand and supply.

(The Economy Question 13.2) The following graph shows the relationship between real GDP growth and change in unemployment for the US between 1961 and 2013.

With real GDP falling by 2.8% in 2009, the predicted rise in the unemployment rate would have been 2.3%.

The figure depicts the model of wage setting by the union. Which of the following statements is correct?

Workers exert higher effort under union bargaining than when the firm selects its profit-maximising wage level.

(The Economy Question 13.4, modified) Which of the following would increase GDP?

an increase in government spending

Which term can be defined as "A measure of the extent to which a firm, industry, or entire economy is producing as much as the stock of its capital goods and current knowledge would allow"?

capacity utilization rate

Which term can be defined as "The equipment, buildings, and other durable inputs used in producing goods and services"?

capitol goods

Which term can be defined as "A description of individuals who are able to borrow only on unfavourable terms"?

credit-constrained

Which term can be defined as "A decrease in the general price level"?

deflation

Which of the following statements is correct?

depreciation is a flow variable

Which term can be defined as "The ratio of the number of employed to the population of working age"?

employment rate

(The Economy Question 9.2) Which of the following statements is correct?

employment rate = employed ÷ population of working age

Which term can be defined as "The number of people seeking work but without jobs, which is determined by the intersection of the wage-setting and price-setting curves"?

equilibrium unemployment

Which term can be defined as "A measure of the market value of the output of the economy in a given period"?

gross domestic product (GDP)

Ex ante equation

i = r equilibrium + E(pi)

Which term can be defined as "An increase in the general price level in the economy"?

inflation

The central bank announces a rise in the official interest rate to reduce the rate of inflation. Looking at the figure shown, ceteris paribus, what is likely to happen to the aggregate investment function (i.e. the entire curve) in these circumstances?

it will remain unchanged

Which term can be defined as "The combination of the real wage and the level of employment determined by the intersection of the wage-setting and the price-setting curves"?

labour market equilibrium

Which term can be defined as "Total output divided by the number of hours or some other measure of labour input"?

labour productivity

Which term can be defined as "A state which holds when a good is traded at the same price across all buyers and sellers"?

law of one price

Which term can be defined as "Central bank actions aimed at influencing economic activity through changing interest rates or the prices of financial assets"?

monetary policy

Which term can be defined as "central bank actions aimed at influencing economic activity through changing interest rates or the prices of financial assets"?

monetary policy

Which term can be defined as "The borrowing and lending tracked by the current account"?

net capitol flows

Which term can be defined as "the interest rate uncorrected for inflation"?

nominal interest rate

We expect the diffusion of new technology to raise both the real wage and the level of employment. But this takes time, during which some people may lose out. These include:

older, less adaptable workers

A country running a current account surplus buys bonds issued by an overseas government. This action is best described as:

portfolio investment

Which term can be defined as "Tending to move in the same direction as aggregate output and employment over the business cycle"?

procyclical

Which term can be defined as "measures taken by a government to limit trade; in particular, to reduce the amount of imports in the economy"?

protectionist policy

Y stands for

real GDP

Shifts in supply and demand are often referred to as

shocks

Which of the following is not a reason we become better at producing things when we each focus on a limited range of activities?

small, limited markets

Which term can be defined as "Expenditure by the government, financed by taxation, which provides protection against various economic risks"?

social insurance

Which term can be defined as "Buying and selling assets in order to profit from an anticipated change in their price"?

speculation

Which term can be defined as "The curve that shows the number of units of output that would be produced at any given price"?

supply curve

Which of the following is not a necessary characteristic of an infant industry?

tariff protection

In Thomas Piketty's 'Economist in action' video, which of the following were NOT among the reasons that Piketty gave for the fall in the incomes of the very rich during the twentieth century?

the Russian Revolution

Which term can be defined as "A market in which employers offer wages to individuals who may agree to work under their direction "?

the labour market

In general, the distribution of the total surplus between consumers and producers depends on

the relative elasticities of demand and supply.

What does UK GDP per capita measure?

the total output of the UK's economy, divided by the country's population

Which term can be defined as "The ratio of the number of the unemployed to the total labour force"?

unemployment rate

Which of the following is not an example of a market?

wartime food rationing

A country's GDP is being measured by expenditure. Various categories of expenditure are recorded as follows: Households' spending on domestic and foreign consumption = $110bn, Firms' spending on capital goods = $15bn, Firms' addition to inventories = $1bn, Government spending on services = $10bn, Government spending on capital goods = $2bn, Government transfers (social security etc) = $10bn, Exports = $12bn, Imports = $10bn. What is the correct estimate of GDP?

$140bn

A household owns a house valued at $190,000, which it has bought with a loan of $180,000. It also has financial savings of $10,000. Which of the following shows its net worth at the outset, the minimum amount the value of the house has to fall in order to put the household into negative equity (on the house), and the minimum amount the value of the house has to fall to make the household insolvent?

$20,000; $10,001; $20,001.

Name the three functions of money

-medium of exchange -unit of account -store of value

The leverage ratio is defined as total assets/equity. Assume that a household's sole asset is a house worth $190,000, which it has bought with a mortgage loan of $180,000. What is the value of the leverage ratio, and what happens to the ratio if the house value falls to $185,000?

19; 37.

The leverage ratio is defined as total assets/equity. Assume that a household's sole asset is a house worth $190,000, which it has bought with a mortgage loan of $180,000. What is the value of the leverage ratio, and what happens to the ratio if the house value falls to $185,000?

19;37

Assume that the central bank has an inflation target of 2% per year but inflation is currently running at 4%. The nominal policy (interest) rate is currently 5%. The central bank needs to create a negative bargaining gap and estimates that the real policy rate required to achieve this is 3%. Consequently it needs to set the nominal policy rate at:

7%

The diagram shows the market demand and supply curves for the bread market. You know that there are 250 identical bakeries operating in the market, but you do not know their cost structure (i.e. their average cost and marginal cost curves). Based on this information, which of the following statements is correct?

A bakery's marginal cost of producing the 21st loaf is €2.

(The Economy Question 17.3) Franklin Roosevelt became the US President in 1933. In the period after he became the president: The federal government deficit increased to 5.6% of GNP in 1934. The short-term nominal interest rate fell from 1.7% in 1933 to 0.75% in 1935. The CPI fell by 5.2% in 1933 and rose by 3.5% in 1934. The US left the gold standard in April 1933. The New Deal was launched in 1933 and included proposals to increase federal government spending in a wide range of programs and reforms to the banking system. Which of the following statements is correct regarding the years immediately after Roosevelt became the US president?

A change in the expectations of consumers of their future earnings, as a result of the New Deal, would have contributed to an expansion in the economy's aggregate demand.

In an imaginary economy, GDP falls from $100bn to $95bn while output per worker rises from $5000 to $5020. In this economy there has been:

A fall in production and an increase in productivity.

(The Economy Question 14.6)Given this equation, which of the following increases the multiplier?

A fall in the marginal propensity to import.

Which of the following statements are correct?

A fall in the mortgage interest rate would shift up the demand curve for new houses. A fall in the oil price would shift down the supply curve for plastics.

(The Economy Question 14.7) Which of the following statements is correct?

A fiscal stimulus can be implemented by raising spending to directly increase demand, or by cutting taxes to increase private sector demand.

(The Economy Question 14.5) Figure 14.10c depicts the aggregate investment function of an economy.

A forecast of a permanent demand increase shifts the investment line outwards.

(The Economy Question 17.12, modified) Which of the following statements are correct regarding fire sales in the housing market?

A household is underwater when the value of the house it owns is less than the value of the mortgage on the house. Fire sales have a negative externality on other owners of similar assets by lowering the value of their assets.

(The Economy Question 17.9, modified) Figure 17.21 is the graph of leverage of banks in the UK and the US between 1960 and 2014. The leverage ratio is defined as the ratio of the banks' total assets to their equity. Which of the following statements are correct?

A leverage ratio of 25 means that a fall of 4% in the asset value would make a bank insolvent. A leverage ratio of 40 means that only 2.5% of the asset is funded by equity.

The figure shows an order book for News Corp shares. Which of the following statements about this order book is correct?

A limit sell order for 100 shares at $16.58 will be unfilled.

Which of the following statements are correct?

A market is in equilibrium if the actions of buyers and sellers have no tendency to change the price or the quantities bought and sold.

Ceteris paribus, in which of the following cases would the wage-setting curve shift up?

A more generous unemployment insurance scheme.

An overseas bank announces that it is introducing a new type of savings account that pays a 3% fixed rate of interest for deposits of a one year duration. This 3% is:

A nominal rate of interest.

As a student representative, one of your roles is to organize a second-hand textbook market between the current and former first-year students. After a survey, you estimate the demand and supply curves to be the ones shown in Figures 8.1 and 8.2. For example, you estimate that pricing the book at $7 would lead to a supply of 20 books and a demand of 26 books. Which of the following statements is correct?

A rumour that the textbook may be required again in Year 2 would change the supply curve, shifting it upwards.

A flatter aggregate consumption function, if plotted on a graph with output on the horizontal axis and aggregate consumption on the vertical axis, would indicate which of the following:

A smaller marginal propensity to consume and a smaller multiplier.

The original Phillips curve shown in the figure suggested that the policymaker could choose:

A stable combination of inflation and unemployment.

Net investment is the principal route through which new technology is incorporated in the production process. In the figure shown, the effect of this addition to capital is represented by:

A steepening (or upward stretching) of the production function.

As the baby boomer generation retires, Social Security payments will have to increase approximately ______ in order to maintain the level of promised benefits A) 40 percent B) 55 percent C) 25 percent D) 10 percent

A) 40 percent

In 2008 taxpayers used approximately ______ of their tax rebate checks to reduce their current debt instead of increasing their spending A) 80 percent B) 10 percent C) 20 percent D) 45 percent

A) 80 percent

When consumers suddenly become more pessimistic about the economy, a negative aggregate demand shock shifts the A) AD curve inward, reducing the real growth rate in the short run B) Solow curve inward, reducing the real growth rate in the short run C) Solow curve outward, reducing the real growth rate in the short run D) AD curve outward, reducing the real growth rate in the short run

A) AD curve inward, reducing the real growth rate in the short run

Which of the following best describes the role of banks in the loanable funds market? A) Banks act as profit seeking institutions, taking the supply of loanable funds from households and distributing them to borrowers B) Banks own the supply of loanable funds and distribute them to borrowers C) banks are the primary demanders of loanable funds and thus have an important role in setting interest rates D) Banks act as a nonprofit middleman whose primary goal is to facilitate trade in the loanable funds market

A) Banks act as profit seeking institutions, taking the supply of loanable funds from households and distributing them to borrowers

U.S. currency is printed by the A) The U.S. Department of the Treasury B) The President's Council for Economic Advisors C) The Federal Reserve D) The Comptroller of the Currency

A) The U.S. Department of the Treasury

A significant, widespread decline in real income and employment is called A) a recession B) a business fluctuation C) a boom D) an aggregate demand fluctuation

A) a recession

While people will always come to expect the actual inflation rate in the long run, the inflation rate is always found where the A) aggregate demand curve intersects the short-run aggregate supply curve B) short-run aggregate supply curve intersects the Solow curve C) Solow curve intersects the aggregate demand curve D) all of the above

A) aggregate demand curve intersects the short-run aggregate supply curve

Which of the following would cause an increase in both the inflation rate and the real growth rate? A) an increase in consumer confidence B) an increase in import growth C) an increase in income taxes D) an increase in interest rates

A) an increase in consumer confidence

Open market operations occur when the Fed A) buys and sells government bonds B) changes the rate of interest paid on reserves C) changes the discount rate on lending to banks D) sets up the term auction facility

A) buys and sells government bonds

During the 2007-2009 recession, which type of unemployment increased the most? A) cyclical unemployment B) frictional unemployment C) search unemployment D) structural unemployment

A) cyclical unemployment

As the baby boomers retire, the United States labor force participation rate will A) decrease B) increase C) remain the same D) fluctuate widely

A) decrease

Paying a higher interest rate on reserves held at the Fed will tend to A) decrease the money supply B) have an ambiguous effect on the money supply C) not change the money supply D) increase the money supply

A) decrease the money supply

Which of the following is NOT a negative shock of the dynamic aggregate demand? A) decreased import growth B) higher taxes C) lower growth of government spending D) a slower money growth rate

A) decreased import growth

Prices are especially sticky in the A) downward direction B) upward direction C) leftward direction D) rightward direction

A) downward direction

The labor force consists of A) employed workers and adults who do not have jobs but who are looking for work. B) adult non-institutionalized civilians C) employed workers D) adults who do not have a job but who are looking for work

A) employed workers and adults who do not have jobs but who are looking for work.

Increases in minimum wage will most likely lead to A) higher unemployment B) lower wages in complement industries C) higher living standards for low-income workers D) increases in worker education programs

A) higher unemployment

The invention of birth control in pill form substantially _____ labor force participation. A) increased female B) decreased male C) increased male D) decreased female

A) increased female

A (permanent) positive shock to the growth rate of the money supply A) increases output at first, but in the long run only increases price B) does not affect price and output at first, but in the long run both output and price increase C) increases both price and output at first, but neither price nor output changes in the long run D) increases price at first, but in the long run only increases output

A) increases output at first, but in the long run only increases price

What are the three main sources of funds for the U.S. federal government A) individual income taxes, corporate income taxes, and social security and medicare taxes B) interest on government bonds, individual income taxes, social security and medicare taxes C) interest on government bonds, corporate income taxes, social security and medicare taxes D) interest on government bonds, individual income taxes, corporate income taxes

A) individual income taxes, corporate income taxes, and social security and medicare taxes

Which of the following is regarded as a policy rule? A) keeping the money supply growth rate consistent with a given inflation rate B) adjusting policy actions to deal with the nature of the economic shocks C) changing the money supply growth with discretion D) making policy on the fly

A) keeping the money supply growth rate consistent with a given inflation rate

Because the United States has a fractional reserve banking system, banks must hold A) less than 100 percent of deposits as reserves B) more than 100 percent of deposits as reserves C) 100 percent of deposits as reserves D) no currency in their vaults

A) less than 100 percent of deposits as reserves

The Great Depression is best understood in the context of A) negative aggregate demand shocks B) negative shocks to the Solow growth curve C) positive shocks to inflation expectations D) positive real shocks

A) negative aggregate demand shocks

The quantity theory states that money is neutral A) only in the long run but not in the short run B) in both the short and long run C) neither in the short run nor in the long run D) only in the short run but not in the long run

A) only in the long run but not in the short run

A real shock is also called a A) productivity shock, which is any shock that increases or decreases the potential growth rate B) supply shock, which is any shock that increases or decreases the aggregate supply C) productivity shock, which is any shock that increases or decreases the level of production D) demand shock, which is any shock that increases or decreases the aggregate demand

A) productivity shock, which is any shock that increases or decreases the potential growth rate

Negative real rates of interest tend to A) reduce economic growth B) exist only in poor countries C) have no impact on economic growth D) increase economic growth

A) reduce economic growth

Frictional unemployment is A) short-term unemployment due to the normal difficulties of matching employers and employees. B) long term employment caused by a mismatch between the skills workers possess and the skills that the market is looking to hire. C) unemployment due to fluctuations in the business cycle D) persistent and long-term unemployment caused by shocks that make it more difficult for workers to find jobs.

A) short-term unemployment due to the normal difficulties of matching employers and employees.

An increase in government spending causes A) the aggregate demand curve to shift to the right B) an upward movement along the aggregate demand curve C) the aggregate demand curve to shift to the left D) a downward movement along the aggregate demand curve

A) the aggregate demand curve to shift to the right

If the growth rate of spending increases from 3 percent to 5 percent, then A) the aggregate demand curve will shift to the right B) the slope of the aggregate demand curve will increase C) the growth rate of real output will rise 2 percent D) the inflation rate will rise 2 percent

A) the aggregate demand curve will shift to the right

Which of the following does NOT contribute to an economy's long-run potential growth rate A) the average rate of inflation B) the level of investment C) the number of workers D) the level of technology

A) the average rate of inflation

The macroeconomic case for government spending is strongest when A) the government faces some immediate emergency B) national infrastructure is significantly depreciated C) the economic performance is sluggish D) private spending is lagging

A) the government faces some immediate emergency

The fisher equation implies that if expected inflation is higher than actual inflation, then A) the real interest rate will be greater than the equilibrium interest rate B) the real interest rate will be equal to the equilibrium interest rate C) both the real interest rate and equilibrium interest rate will become undetermined D) the real interest rate will be less than the equilibrium interest rate.

A) the real interest rate will be greater than the equilibrium interest rate

An increase in money growth leads to increased real GDP growth in A) the short run only B) neither the short run nor the long run C) both the short run and the long run D) the long run only

A) the short run only

Some businesses can't start small, and therefore A) they must borrow or attract venture capitalists to start at all B) non of these businesses ever get off the ground C) they are no different from any other business D) these businesses are always owned by the government

A) they must borrow or attract venture capitalists to start at all

Some businesses can't start small, and therefore A) they must borrow or attract venture capitalists to start at all B) none of these businesses ever get off the ground C) they are no different than any other businesses D) these businesses are always owned by the government

A) they must borrow or attract venture capitalists to start at all

When facing a real shock, a central bank will encounter a dilemma that forces it to choose between A) too low a rate of growth or too high a rate of inflation B) too high a rate of growth or too low a rate of inflation C) too high a rate of growth or too high a rate of inflation D) too low a rate of growth or too low a rate of inflation

A) too low a rate of growth or too high a rate of inflation

When computing the consumer price index, the Bureau of Labor statistics takes into account changes in the A) type of goods and the quality of goods B) type of goods but not the quality of goods purchased by the average consumer C) neither the price nor the quality of the goods D) quality of goods but not the type of goods purchased by the average consumer

A) type of goods and the quality of goods

If the US per capit GDP is $50,000 and grows at 2% per year, what will US per capita GDP be in 70 years? A)$200,000 B)$100,000 C)$800,000 D)$400,000

A)$200,000

As other countries grow wealthier, the incentive to undertake research and development projects A)Increases, since the potential for profits rises B)decreases, since competition drives profits lower C)increases, since there is more government subsidization when countries are wealthier D)decreases, since the marginal returns to R&D fall when more countries are wealthier.

A)Increases, since the potential for profits rises

Which of the following would be included in GDP for the US? A)Toyota, a japanese car company producing cars in the US B)a tire manufacturer making and selling tires to Ford to be used in their new cars C)a US professor taking a year off to teach abroad D)janes car being stone so she is forced to purchase a used car as a replacement

A)Toyota, a japanese car company producing cars in the US

Condition convergence predicts that if two countries have the same steady-state level of output, the poorer country will eventually: A)catch up with the richer country because it will grow faster B)catch up with the richer country because the richer country will not be able to maintain steady-state output C)be unable to catch up with the richer country D)catch up with the richer country because of better ideas

A)catch up with the richer country because it will grow faster

Which of the following is NOT a kind of institution encouraging investment and the efficient organization of the factors of production? A)closed markets B)political stability C)private property rights D)a dependable legal system

A)closed markets

The logic of diminishing returns means that: A)eventually capital and output will cease growing B)eventually output will cease growing even though capital is still growing C)eventually capital will cease growing even though output is still growing D)Capital and output will continually grow but at a diminishing rate

A)eventually capital and output will cease growing

Growth rate of GDP tells us: A)how quickly a country's production is rising or falling over time. B)about the relative wealth of the citizens of a country C)how much the economy produced this year D)how nominal GDP compares to real GDP

A)how quickly a country's production is rising or falling over time.

In a steady state the level of investment: A)is equal to depreciation B)exceeds depreciation C)could be equal to, greater than, or less than depreciation D)is less than depreciation

A)is equal to depreciation

When the size of the market grows, A)more resources are spent in research and development B)fewer resources are spend in research and development C)it doesn't make sense to change investment in R and D since ideas are not rivalrous D)people will be worse off

A)more resources are spent in research and development

Political corruption makes it profitable to be: A)politician or bureaucrat B)philosopher C)entrepreneur D)engineer

A)politician or bureaucrat

In the solow model, holding all else constant, increases in physical capital: A)raise output but does not move the steady state B)lowers output up to the steady state and then raises output afterword. D)raises output after reaching the steady state D)always raise steady state output

A)raise output but does not move the steady state

The factor income approach to calculating GDP states that GDP is equal to: A)wages + rent + interest + profit B) investment + profit C) investment +wages+rent+profit D)consumption +investment+gov spending+net exports

A)wages + rent + interest + profit

(The Economy Question 15.4, modified) The following diagram depicts the model of the labour market

After the initial increase in the workers' bargaining power, the firms adjust the wages and prices, creating inflation. Neither the wage nor the price-setting curve shifts. Workers' bargaining power can increase due to an increase in unemployment benefits, resulting in a rise in the wage-setting curve.

Cuts in public expenditure are unlikely to reduce the government's deficit by the full amount of the cuts because:

Aggregate demand will fall, reducing government revenue.

The figure describes the effect of immigration on unemployment in the labour market. The labour market equilibrium is at A and C before and after the influx of immigration, respectively. Based on this figure, which of the following statements is correct?

All incumbent workers are no worse off in the new equilibrium.

(The Economy Question 14.4) Figure 14.9 depicts possible investment projects for Firms A and B

An expected rise in energy prices leads to a fall in the expected profit rates, resulting in fewer projects being profitable at a given interest rate. This results in reduced investment.

(The Economy Question 14.4) Figure 14.9 depicts possible investment projects for Firms A and B.

An expected rise in energy prices leads to a fall in the expected profit rates, resulting in fewer projects being profitable at a given interest rate. This results in reduced investment.

In an economy with a population of 100, there are 80 farmers and 20 lenders. The farmers use borrowed funds to finance the planting and tending of their crops. The rate of profit for the harvest is 12.5%, while the interest rate charged is 10%. Suppose that only some of the farmers are able to borrow. Ceteris paribus, which of the following changes would increase the Gini coefficient?

An increase in the fraction of the farmers who cannot borrow.

Which of the following is likely to lead to a fall in the level of investment spending?

An official forecast of a downturn in the economy.

(The Economy Question 9.8) Figure 9.12 depicts the labour market when there has been a negative aggregate demand shock. Based on this information, which of the following statements is correct?

At B, the firms are able to make higher profits by lowering the wage.

Figure 10.4 depicts Julia's choice of consumptions in periods 1 and 2. She has no income in period 1 (now) and an income of $100 in period 2 (later). The current interest rate is 10%. Based on this information, which of the following statements is correct?

At E, Julia is on the highest possible indifference curve given her feasible set.

The diagram shows the demand and the supply curves for textbooks. Based on this figure, which of the following statements is correct?

At a price of $12, there is an excess supply of 24 books.

The diagram shows the demand and the supply curves for textbooks. Based on this figure, which of the following statements is correct?

At a price of $6, there is an excess demand of 12 books.

The diagram shows the market demand and supply curves for the bread market. You know that there are 250 identical bakeries operating in the market, but you do not know their cost structure (i.e. their average cost and marginal cost curves). Based on this information, which of the following statements is correct?

At a price of €2.50, each bakery will be willing to sell 26 loaves each.

Which of the following statements about the price-setting curve is correct?

At points below the price-setting curve, the firms are setting prices too high compared to their profit-maximising level.

(The Economy Question 18.2, modified) Figure 18.6 is a graph of an index that represents trade costs. A higher index represents higher trade costs and less globalization. Based on this information, which of the following statements are correct?

Attempts by countries to address their unemployment problems after the 1929 Great Depression seem to have led to a decline in globalization.

The figure depicts Mark's choice of consumption in periods 1 and 2. He has no income in period 1 and an income of £132 in period 2. Based on the figure, which of the following statements is correct?

B = £40.

The figure depicts the labour market when there has been a negative aggregate demand shock. Which of the following statements is correct?

B is not a Nash equilibrium outcome.

Suppose the nominal interest rate is 4 percent and the inflation rate is 5 percent. The real interest rate is: A) 9 percent B) -1 percent C) 1 percent D) 0 percent

B) -1 percent

A zero-coupon bond matures in one year. The price of the bond is $500, and it will pay $1,000 in one year's time. What is the rate of return on the bond? A) 500 percent B) 100 percent C) 20 percent D) 50 percent

B) 100 percent

From 2008 to 2010, U.S. federal government spending increased to about A) 20 percent of GDP B) 25 percent of GDP C) 15 percent of GDP D) 30 percent of GDP

B) 25 percent of GDP

U.S. government spending on Social Security, defense, Medicare, and Medicaid makes up almost A) 33 percent of federal government spending B) 67 percent of federal government spending C) 50 percent of federal government spending D) 25 percent of federal government spending

B) 67 percent of federal government spending

According to the rule of 70, a country with an annual growth of 10% in GDP will double its GDP in __ years: A) 10 B) 7 C)70 D) 1

B) 7

Which of the following is NOT true of the Federal Reserve System? A) It serves as the bankers' bank B) It carries out policies passed by the federal government C) It maintains the bank account of the U.S. Treasury D) It regulates the nation's money supply

B) It carries out policies passed by the federal government

Fiscal policy lags A) are generally the same length as monetary policy lags B) are generally longer than monetary policy lags C) may be shorter or longer than monetary policy lags D) are generally shorter than monetary policy lags

B) are generally longer than monetary policy lags

The Smoot-Hawley Tariff of 1930 delivered a A) boost to the Solow growth rate in the form of new technology B) blow to the Solow growth rate by causing a collapse in world trade C) boost to aggregate demand in the form of higher velocity of money D) blow to aggregate demand in the form of lower money growth

B) blow to the Solow growth rate by causing a collapse in world trade

The real business cycle (RBC) model implies that A) the rate of inflation is closely linked to the real rate of output growth. B) business cycles are driven by real shocks to the economy. C) business cycles are the result of fluctuations in the money supply. D) real output will always fluctuate around the aggregate demand curve

B) business cycles are driven by real shocks to the economy.

Structural unemployment is A) natural unemployment B) caused by long-lasting shocks or changes in permanent features of an economy. C) unemployment correlated with the business cycle D) caused by the ordinary difficulties of matching employee to employer

B) caused by long-lasting shocks or changes in permanent features of an economy.

When the average price for a basket of good bought by a typical U.S. consumer is measured by the A) producer price index B) consumer price index C) exchange rate D) GDP deflator

B) consumer price index

If the Federal Reserve overstimulates the economy by increasing money growth by too much, then inflation will A) bring the economy into a recession B) create arbitrary redistribution of wealth C) make price signals much easier to interpret D) make long-term planning and contracting easier

B) create arbitrary redistribution of wealth

Originally the alternative minimum tax was supposed to A) help low-income households with more than two children B) ensure a minimum tax payment among superrich households C) decrease taxes amongst the middle-class to the minimum level D) alleviate the tax burden for low-income households

B) ensure a minimum tax payment among superrich households

Fiscal policy refers to the change in A) interest rates that affect the credit markets B) government spending or taxes in an attempt to influence the overall economy C) the money supply in an attempt to raise the standard of living D) government regulations that affect the level of market competition

B) government spending or taxes in an attempt to influence the overall economy

In the long run, the quantity theory of money says that changes in the growth rate of the money supply will be approximately equal to the changes in the: A) growth rate of real GDP B) inflation rate C) price level D) velocity of money

B) inflation rate

People will usually borrow more if the interest rate A) moves erratically B) is lower C) is stable D) is higher

B) is lower

Banks do all of the following EXCEPT: A) facilitate the payment system. B) issue government bonds. C) evaluate business ideas. D) spread risk.

B) issue government bonds.

Which of the following is NOT a positive aggregate demand shock A) a faster money growth B) lower growth of government spending C) decreased import growth D) increased wealth

B) lower growth of government spending

Which of the following is NOT a price index used to measure inflation? A) GDP deflator B) manufacturing price index C) producer price index D) consumer price index

B) manufacturing price index

The tax rate paid on an additional dollar of income is called the A) average tax rate B) marginal tax rate C) last tax rate D) total tax rate

B) marginal tax rate

Nobel peace prize winning economist Milton Friedman says, "Inflation is always and everywhere a: A) growing phenomenon B) monetary phenomenon C) velocity phenomenon D) risky phenomenon

B) monetary phenomenon

When economists state that money is neutral, they mean that the A) overall price level has no effect on consumers; only relative prices do B) money supply does not affect real GDP or unemployment C) overall price level has no effect on people's inflation expectations D) money supply doe snot affect inflation or nominal GDP

B) money supply does not affect real GDP or unemployment

As a result of the changing variety and quality of goods that the typical consumer purchases each year, many economists argue that the CPI might A) not be as good a measure of inflation as the GDP deflator is B) overstate inflation C) have to be abandoned in favor of a better measure of inflation D) understate inflation

B) overstate inflation

Social Security is run on a ______ basis A) contract B) pay-as-you-go C) trust fund D) prepaid

B) pay-as-you-go

When inflation functions as a type of tax, which of the following groups of people will be taxed? A) people or businesses with deposits in savings accounts that pay an interest rate higher than the rate of inflation. B) people who hold currency and coins in their wallet, purse or at home C) people or businesses that invest in gold, silver, platinum, or other metals D) people who invest their money in mutual funds

B) people who hold currency and coins in their wallet, purse or at home

The Fed uses each of the following to control the money supply EXCEPT A) paying an interest rate on bank reserves held at the Fed B) prime interest rate lending C) open market operations D) discount rate lending

B) prime interest rate lending

The advocates of discretion for the Fed's role think that the Fed's adjustments on average push the economy in the A) right direction and increase GDP volatility B) right direction and lower GDP volatility C) wrong direction and lower GDP volatility D) wrong direction and increase GDP volatility

B) right direction and lower GDP volatility

The second-largest source of revenue for the U.S. federal government is A) excise taxes, such as taxes on gasoline and alcohol B) social security and medicare taxes C) the individual income tax D) the corporate income tax

B) social security and medicare taxes

Crowding-out is A) a sophisticated IOU that documents who owes how much when payment must be made B) the decrease in private consumption and investment that occurs when government borrows more C) something of value that by agreement becomes the property of the lender if the borrower defaults D) the first time a corporation sells stock to the public in order to raise capital

B) the decrease in private consumption and investment that occurs when government borrows more

Higher leverage ratio means that A) the firm's debts exceed the value of its assets B) the firm is at a greater risk for becoming insolvent C) the firm is better able to securitize its assets D) the firm has a low risk of defaulting on loans.

B) the firm is at a greater risk for becoming insolvent

Businesses will take out additional loans only if A) they have no other way to obtain funds B) the interest rate is less than the expected rate of return on their investment C) the demand for investment is equal to the supply of savings D) the interest rate is less than the cost of borrowing

B) the interest rate is less than the expected rate of return on their investment

The equation Mv=PYr, M stands for A) the multiplier B) the money supply C) inflation D) murder

B) the money supply

If the interest rate in the market for loanable funds is below the market-clearing rate A) individuals will become less impatient B) there will be a shortage of savings and demanders will bid the interest rate up as they compete to borrow C) there will be a surplus of savings and suppliers will bid the interest rate down as they compete to lend D) individuals will become more impatient

B) there will be a shortage of savings and demanders will bid the interest rate up as they compete to borrow

Which of the following is NOT a reason individuals typically choose to save A) to offset fluctuations in income B) to increase investment C) to smooth their consumption over the life cycle D) as a way to transfer income from good times to bad times

B) to increase investment

If a productive new technology arrives, the Solow growth curve will move A) to the left B) to the right C) down D) up

B) to the right

A bank becomes insolvent when the A) value of a bank's loans rises so rapidly and exceeds the value of its deposits B) value of a bank's loans falls so far that the bank can no longer pay back its depositors C) bank's assets are greater than its liabilities D) bank's assets are less than those of other banks

B) value of a bank's loans falls so far that the bank can no longer pay back its depositors

Cyclical unemployment can turn into structural unemployment if A) a recession lasts longer than a year B) workers remain on unemployment benefits for too long C) the government extends the unemployment benefits D) the economy develops stagflation

B) workers remain on unemployment benefits for too long

Given the GDP at the end of both 2004 and 2005, the percentage change is computed as: A) (GDP 2005 - GDP 2004) divided by GDP 2005. Correct Response B)(GDP 2005 - GDP 2004) divided by GDP 2004. C)(GDP 2005 - GDP 2005) divided by GDP 2004. D) (GDP 2004 - GDP 2004) divided by GDP 2004.

B)(GDP 2005 - GDP 2004) divided by GDP 2004.

Which of the following best describes the cross-country evidence on the relationship between a nation's GDP per capita and standard measures of societal well-being? A)There is no relationship between GDP per capita and measure of societal well-being B)GDP per capita is positively related to measures of societal well-being C)GDP per capita is negatively related to measures of societal well-being D)The relationship between GDP per capita and societal well-being applies only to countries with democracy.

B)GDP per capita is positively related to measures of societal well-being

The cost of negative externalities that harm the environment such as pollution costs, A)negatively affect the level of GDP in an economy B)are not included in GDP C)include only the cost of clean up in GDP D)help to underestimate overall GDP

B)are not included in GDP

GDP calculations are performed by: A)us consumer bureau B)bureau of economic analysis C)us military D)international monetary fund

B)bureau of economic analysis

A solow growth model features ______ returns to human capital, ceteris paribus. A)constant B)decreasing C)increasing D)zero

B)decreasing

Political stability ______ economic growth. A)impedes B)fuels C)has an indeterminate effect upon D)has no effect upon

B)fuels

Technological knowledge is the: A)Stock of tools including machines, structures, and equipment B)knowledge about how the world works that is used to produce goods and services C)growth rate of real GDP per capita D)productive knowledge and skills that workers acquire through education, training and experience.

B)knowledge about how the world works that is used to produce goods and services

Which of the following would help a country develop from catch-up growth to cutting edge growth? A)limiting domestic savings B)spillovers from idea production C)abolishing the systems of patents and copyrights D)a well functioning market system

B)spillovers from idea production

The production function can be used to express the relationship between ______ and GDP: A)GDP per capita B)the factors of production C)productivity D)economic growth rate

B)the factors of production

Diminishing returns to capital implies that: A)more capital produces less output B)the marginal product of capital is decreasing C)the production function is downward sloping D)capital is not the most efficient input

B)the marginal product of capital is decreasing

The government has a role in subsidizing research and development when: A)the beneficiaries are below the poverty line B)the spillovers are large C)it can more efficiently allocate resource D)it can increase tax revenue

B)the spillovers are large

Long-run economic growth cannot be due to capital growth alone because economic growth is: A)negative at the steady-state level of capital B)zero at the steady-state level of capital C)positive at the steady-state level of capital D)undefined at the steady-state level of capital

B)zero at the steady-state level of capital

Following the collapse of Lehman Brothers in September 2008, some of its managers blamed the US government for putting pressure on banks to lend to subprime borrowers. What effect do you think this had on the household leverage ratios and on the financial risks faced by subprime borrowers?

Banks felt obliged to accept lower levels of collateral, so households began with smaller housing equity and higher leverage ratios. This made them more vulnerable to a fall in house prices.

Between 1960 and 1990, Argentina's money supply grew at approximately 80 percent. According to the quantity theory of money, inflation rates in Argentina should have been approximately: A) 40 percent B) 160 percent C) 80 percent D) 20 percent

C) 80 percent

The effective reserve ratio is determined primarily by A) The number of bank employees B) How greedy banks wish to be C) How liquid banks with to be D) The size of banks' vaults

C) How liquid banks with to be

The quantity theory of money assumes that real GDP: A) Increases with the quantity of money in the economy B) Decreases with the quantity of money in the economy C) Is relatively stable D) Is difficult to predict

C) Is relatively stable

Graphically, a positive real shock causes a shift of the A) dynamic AD curve to the left B) Solow growth curve to the left C) Solow growth curve to the right D) dynamic AD curve to the right

C) Solow growth curve to the right

The money multiplier (MM) is the A) ratio of reserves to deposits B) ratio of deposits to reserves C) amount of money the money supply expands with each dollar increase in reserves D) overnight lending rate from one major bank to another

C) amount of money the money supply expands with each dollar increase in reserves

Which of the following would cause the AD curve to shift to the right? A) an increase in the short-run aggregate supply curve B) a decrease in consumer confidence C) an increase in consumer wealth D) a decrease in the inflation rate

C) an increase in consumer wealth

Which of the following do economists consider investment? A) acquisition of gold B) purchase of stocks C) construction of a new factory D) purchase of bonds

C) construction of a new factory

When disinflation arises unexpectedly, the real interest rate will _____ the equilibrium rate, which will benefit _______. A) exceed; borrowers and harm lenders B) fall short of; borrowers and harm lenders C) exceed; lenders and harm borrowers D) fall short of; lenders and harm borrowers

C) exceed; lenders and harm borrowers

All of the following are reasons for the financial crisis of 2007-2008 EXCEPT A) excessive securitization of liabilities B) collapse of the shadow banking system C) excessive confidence about the stock market D) increases in the leverage ratios for financial intermediaries

C) excessive confidence about the stock market

Which of the following is a negative AD shock? A) lower taxes B) lower growth rate of output C) increased growth in imports D) higher government budget deficits

C) increased growth in imports

The supply curve for savings indicates that the higher the interest rate, the A) smaller the quantity saved B) larger the saver's income C) larger the quantity saved D) smaller the saver's income

C) larger the quantity saved

The time it takes Congress to propose and pass a plan for fiscal policy is called the A) recognition lag B) effectiveness lag C) legislative lag D) adjustment lag

C) legislative lag

Deflation can cause the economy's aggregate demand curve to shift inward because debt contracts are usually A) not adjusted for changes in the interest rate B) adjusted for changes in the interest rate C) not adjusted for inflation D) adjusted for inflation

C) not adjusted for inflation

Collateral is A) the first time a corporation sells stock to the public in order to raise capital B) a sophisticated IOU that documents who owes how much and when the payment must be made C) something of value that by agreement becomes the property of the lender if the borrower defaults D) the decrease in private consumption and investment that occurs when government borrows more

C) something of value that by agreement becomes the property of the lender if the borrower defaults

Moral hazard occurs when banks and other financial institutions A) hesitate to lend due to concern over excessive risk B) fail to maintain their assets exceeding the liabilities C) take too much risk, hoping that the Fed and regulators will bail them out D) fail and bring down other institutions in the system

C) take too much risk, hoping that the Fed and regulators will bail them out

Social Security and Medicare primarily transfer wealth to A) the poor B) the children C) the elderly D) the unemployed

C) the elderly

The Fed's power to influence aggregate demand is constrained by A) the president and Congress B) the significant amount of U.S. dollars held in foreign reserves C) uncertainty and an inability for everyone to fully understand the complexity of the economy D) contracting fiscal policy

C) uncertainty and an inability for everyone to fully understand the complexity of the economy

Cyclical unemployment is A) natural unemployment B) persistent, long-term unemployment caused by long-lasting shocks or permanent features of an economy that make it more difficult for some workers to find jobs. C) unemployment correlated with the business cycle D) short-term unemployment caused by the ordinary difficulties of matching employee to employer.

C) unemployment correlated with the business cycle

Around the world, about one _______ people have incomes of less than $2 per day. A)million B)trillion C)billion D)thousand

C)billion

According to the solow model, a greater investment rate leads to: A)less capital and more output B)less capital and less output C)more capital and more output D)more capital and less output

C)more capital and more output

Physical capital is the: A)growth rate of real GDP per capita B)productive knowledge and skills that workers acquire through education, training and experience C)stock of tools including machines, structures and equipment. D)knowledge about how the world works that is used to produce goods and services.

C)stock of tools including machines, structures and equipment.

Which of the following can drive long-run economic growth in the solow model? A)physical capital B)real capital C)technological knowledge D)human capital

C)technological knowledge

R&D of new ideas that lead to spillover effects tend to be: A)produced only with the help of patents or other government subsidies B)overprovided in markets C)underprovided in markets D)rivalrous in markets

C)underprovided in markets

Consider a world of just two individuals, Greta and Carlos, who each need both of two goods, apples and wheat, to survive. They differ in how productive they are in growing apples and wheat. If Greta spends 100% of her labour time producing one good, she could produce 2000 apples or 60 tonnes of wheat. If Carlos spends 100% of his labour time producing one good, he could produce 1000 apples or 50 tonnes of wheat. Based on this information, which of the following statements is correct?

Carlos has a comparative disadvantage in producing apples.

(The Economy Question 15.10) Figure 15.21 depicts the Phillips curve and the indifference curves of an economy. This economy has an independent central bank with an inflation target of 2%.

Consider an aggregate demand shock that increases unemployment. Without monetary or fiscal policy to counter the negative bargaining gap, the Phillips curve would shift down.

(The Economy Question 17.4) Figure 17.12 describes the movements in employment, profits and wages in the 1950s to 1960s using the labour market model. Which of the following statements is correct regarding this period?

Continuing technological progress owing to widespread expectations of sustained high profits, together with high wages resulting from the strong bargaining power of trade unions, created a virtuous circle of high investment, rapid productivity growth, rising wages, and low unemployment.

The figure shows a plot of unemployment rate vs. gross unemployment benefit replacement rate, averaged over the period 2001 to 2011. Based on this information, which of the following statements is correct?

Countries that offer generous unemployment insurance schemes can still achieve low rates of unemployment.

The diagram depicts four possible feasible frontiers for Marco, who has $120 worth of grain in period 1 and no income in period 2. In scheme 1, he can store the grain that he does not consume in period 1. This results in a 25% loss of the grain due to pests and rotting. In scheme 2, he can sell the grain that he does not consume and lend the money at a 15% interest rate. In scheme 3, he can invest the remaining grain (e.g. plant it as seed) at a return of 40%. Finally in scheme 4, he can invest the entire amount of grain and borrow against his future income at an interest rate of 20%. Which of the following numbers is correct?

D = $140.

If a lender expects an inflation rate of 5 percent but the inflation rate unexpectedly increases to 7 percent and if the nominal interest rate was 10 percent, what is the real rate of interest earned? A) 2 percent B) 5 percent C) 4 percent D) 3 percent

D) 3 percent

If the down payment for a $250,000 home is $50,000 and the mortgage is $200,000, the leverage ratio is A) 0.25 B) 5 C) 1.25 D) 4

D) 4

If a lender expects an inflation rate of 5 percent and asks for a nominal interest rate of 10 percent, then the lender expects to earn a real interest rate of A) 10 percent B) 2 percent C) 15 percent D) 5 percent

D) 5 percent

____ is a decrease in the average level of prices, where as _______ is a reduction in the inflation rate A) Disinflation; deflation B) Stagflation; disinflation C) Deflation; stagflation D) Deflation; disinflation

D) Deflation; disinflation

Quantitative easing occurs when the A) government raises income and other taxes B) Fed sells long-term securities C) government lowers income and other taxes D) Fed buys long-term securities

D) Fed buys long-term securities

They quantity theory of money assumes that the velocity of money A) decreases with the quantity of money in the economy B) increases with the quantity of money in the economy C) Is difficult to predict D) Is relatively stable

D) Is relatively stable

Which of the following is NOT an example of the need to borrow to finance large investments? A) donald trump applies for a $1 million loan in order to build a new golf course B) Megan takes out a mortgage in order to purchase her first home C) The government issue additional bonds in order to build a new interstate D) Jamie pays for college by working two jobs on the weekends

D) Jamie pays for college by working two jobs on the weekends

Who is part of the labor force? A) a retiree B) a homemaker C) a full-time student D) a person who was laid off and is now looking for work

D) a person who was laid off and is now looking for work

Since people will always come to expect the actual inflation rate in the long run, in the long run the inflation rate is found where the A) aggregate demand curve intersects the short-run aggregate supply curve B) short-run aggregate supply curve intersects the Solow curve C) Solow curve intersects the aggregate demand curve D) all of the above

D) all of the above

If the Fed wishes to lower interest rates, it should A) conduct an open market sale B) raise the discount rate C) do nothing D) conduct an open market purchase

D) conduct an open market purchase

Which measure of the average price level most closely corresponds to a student's daily economic activities? A) GDP deflator B) household price index C) producer price index D) consumer price index

D) consumer price index

In times of financial panic, we expect the velocity of money to A) first increase and then decrease B) increase C) remain relatively constant D) decrease

D) decrease

If you earned $10 an hour in 2005, when the CPI was 100, and earn $11 an hour today, when the CPI is 120, your real wage rate has ______ since 2005. A) increased 20 percent B) increased 10 percent C) remained the same D) decreased 10 percent

D) decreased 10 percent

If the government decides to drastically increase spending (and by extension the budget deficit) during an economic recession, it will increase the ______ loanable funds and ______ equilibrium interest rates. A) demand for; decrease B) supply of; increase C) supply of; decrease D) demand for; increase

D) demand for; increase

An unemployed person is one who A) is not willing to work even though he or she is able to B) stay sat home and is not looking for work C) works for a job that pays less than he or she expected D) does not have a job but is actively looking for one

D) does not have a job but is actively looking for one

A shortage of savings in the loanable funds market will A) increase the demand for loanable funds. B) increase the supply of loanable funds. C) drive market interest rates down. D) drive market interest rates up.

D) drive market interest rates up.

Discouraged workers are workers who have A) not given up looking for work but are not available for work B) not given up looking for work and still would like a job C) given up looking for work and are not available for wokr D) given up looking for work but would still like a job

D) given up looking for work but would still like a job

The Solow growth curve represents the A) relationship between the growth rate of real output and the inflation rate B) relationship between the growth rate of output and the level of investment C) maximum growth rate of an economy given its current inflation rate D) growth rate of an economy given its existing resources

D) growth rate of an economy given its existing resources

Bond prices and bond interest rates move A) together when there is arbitrage B) in the same direction C) together when there is collateral damage D) in opposite directions

D) in opposite directions

Savings is defined as A) income not spent on investment goods B) income not taxed by the government C) the purchase of new capital goods D) income not spent on consumption goods

D) income not spent on consumption goods

Ideal fiscal policy will A) decrease aggregate demand in bad times and pay off the bills in good times B) increase aggregate demand in good times and pay off the bills in bad times C) decrease aggregate demand in good times and pay off the bills in bad times D) increase aggregate demand in bad times and pay off the bills in good times

D) increase aggregate demand in bad times and pay off the bills in good times

Many economists worry about the Federal Reserve overstimulating the economy because such overstimulation will lead to rising A) output growth B) unemployment C) solow growth D) inflation

D) inflation

A person who buys a bond is a A) stockholder B) banker C) borrower D) lender

D) lender

In the life cycle theory of saving, one's consumption path is ____ one's income path A) as volatile as B) identical to C) more volatile than D) less volatile than

D) less volatile than

In the life cycle theory of saving, one's consumption path is _____ one's income path A) identical to B) as volatile as C) more volatile than D) less volatile than

D) less volatile than

Government spending in the United States is A) not likely to fall in the future, given the rising interest payments on the national debt B) likely to fall in the future, given the cyclical nature of business cycles C) likely to fall in the future, given the consciousness of the American people regarding our growing debt D) not likely to fall in the future, given the aging population

D) not likely to fall in the future, given the aging population

Government spending as a percentage of GDP in the United States today is A) about average as compared to other developed countries B) comparable to countries like Germany, the Netherlands, and Italy C) larger than any other developed country in the world D) one of the smallest among developed countries

D) one of the smallest among developed countries

Nearly one-third of the total U.S. national debt is held by A) private citizens B) China C) the Federal Reserve D) other agencies in the federal government

D) other agencies in the federal government

If we want to compare GDP over time, we should always look at: A) GDP growth B) GNP C) nominal GDP D) real GDP

D) real GDP

Suppose that the unemployed are mostly construction workers by profession. Which government spending project will most effectively target unused labor resources? A) investing in research on solar energy B) better funding for medical care for the elderly C) increasing teacher quality D) renovating the nation's highway system

D) renovating the nation's highway system

The unemployment rate measures the A) quality of jobs B) number of discouraged workers C) number of underemployed workers D) share of the labor force that is unemployed

D) share of the labor force that is unemployed

An increase in expected inflation will cause the economy's short-run aggregate supply curve to A) become flatter B) become steeper C) shift outward D) shift inward

D) shift inward

Over the past few decades, the U.S. economy has switched from a primarily manufacturing economy to a service economy. Many individuals working in manufacturing positions lost their jobs, and many new jobs opened up in services. For those who lost jobs in manufacturing, this is an example of A) cyclical unemployment B) industry unemployment C) frictional unemployment D) structural unemployment

D) structural unemployment

The natural unemployment rate is the rate of ______ unemployment plus the rate of ______ unemployment A) frictional structural; cyclical B) cyclical; frictional C) cyclical; structural D) structural; frictional

D) structural; frictional

Velocity of money is A) when people mistake changes in nominal prices for changes in real price B) a price that has been corrected for inflation C) an increase in the average level of prices D) the average number of times a dollar is spent on final goods and services

D) the average number of times a dollar is spent on final goods and services

Which of the following do economists consider investment? A) the purchase of stocks B) the purchase of bonds C) the acquisition of gold D) the construction of a new factory

D) the construction of a new factory

Time preference is A) a sophisticated IOU that documents who owes how much when payment must be made B) the purchase of new capital goods C) income that is not spent on consumption goods D) the desire to have goods and services sooner rather than later (all other things being equal)

D) the desire to have goods and services sooner rather than later (all other things being equal)

The largest source of revenue for the U.S. federal government is A) excise taxes, such as taxes on gasoline and alcohol B) the corporate income tax C) social security and medicare taxes D) the individual income tax

D) the individual income tax

Investment is defined as A) income not taxed by the government B) income not spent on consumption goods C) income not spent on investment goods D) the purchase of new capital goods

D) the purchase of new capital goods

Equilibrium in the market for loanable funds takes place when A) the quantity supplied of savings is greater than the quantity demanded B) the quantity supplied of savings is less than the quantity demanded for borrowing C) the supply of savings is greater than the demand for borrowing D) the quantity supplied of savings is equal to the quantity demanded for borrowing

D) the quantity supplied of savings is equal to the quantity demanded for borrowing

The Solow growth curve is A) downward-sloping B) horizontal C) upward-sloping D) vertical

D) vertical

Which of the following is the factor income approach to GDP? A)Y=wages+profit B)Y=wages+rent+profit C)Y=wages+rent+interest D)Y=wages+rent+interest+profit

D)Y=wages+rent+interest+profit

An increase in the investment rate results in: A)a lower steady state capital stock and a lower steady state output B)a higher steady-state capital stock but a lower steady state output C)a lower steady state capital stock but a higher steady state output D)a higher steady state capital stock and a higher steady state output

D)a higher steady state capital stock and a higher steady state output

Which of the following is an outcome of the Solow growth model? A)when a greater proportion of output goes to investment, more catch up growth will occur B)growth will be faster the further a country is below its steady state level of capital stock C)capital accumulation alone cannot produce longrun economic growth D)all of these answers are correct

D)all of these answers are correct

Condition convergence predicts that if two countries have the same steady-state level of output, the poorer country will eventually: A)catch up with the richer country because the richer country will not be able to maintain steady state output B)be unable to catch up with the richer country C)catch up with the richer country because of better ideas D)catch up with the richer country because it will grow faster

D)catch up with the richer country because it will grow faster

If gamma decreases in the solow model, other things held constant, then capital growth: A)increases B)remains constant C)changes indeterminately D)decreases

D)decreases

GDP is the market value of all A)final and intermediate goods and services produced in a nation B)final and household goods produced within a country in a year C)final goods and services produced by the permanent residents of a nation D)final goods and services produced within a country in a year

D)final goods and services produced within a country in a year

Property rights that are not well defined encourage: A)protection of natural resources B)unequal distribution of wealth C)high rats of economic growth D)free riders

D)free riders

Marginal product of capital is _____ in China relative to marginal product of capital in developed economies. A)Moderate B)zero C)low D)high

D)high

The solow model production function Y=F(A,K,eL), A stands for: A)assets B)attitude C)aggregate demand D)ideas

D)ideas

Increased efficiency in the collection of savings will cause economic growth to: A)decrease B)remain unchanged C)increase permanently D)increase temporarily

D)increase temporarily

If gamma increase in the solow model, other thigns held constant, then capital growth A)changes indeterminately B)decreases C)remains constant D)increases

D)increases

The number of new ideas is a function of all of the following EXCEPT the: A)number of ideas per hour each person has B)number of people C)incentive to innovate D)level of capital invested

D)level of capital invested

The world's poorest country is: A)argentina B)nigeria C)india D)the democratic republic of the congo

D)the democratic republic of the congo

Herbert Hoover was the US President between 1929 and 1933. During this time: (1) President Hoover advocated a balanced budget which remained within the range of -0.6% to +0.8% of GNP in 1929-31, (2) Output was 20% below the full employment level in 1931, (3) The short-term nominal interest rate fell from 5.8% in 1929 to 1.7% in 1933, (4) The CPI decreased from -2.7% in 1930 to -10.3% in 1932 and (5) The US remained on the gold standard while the UK abandoned the regime in 1931. Which of the following statements regarding this period is correct?

Despite the cut in the nominal interest rate, monetary policy was contractionary during this period.

The main weakness of the original Phillips curve is that it ignored:

Expectations.

(The Economy Question 15.9, modified) The following is a table of the British pound (GBP) exchange rate against the dollar (USD) and euro (Source: Bank of England): 24 Nov 201423 Nov 2015USD/GBP1.56981.5131euro/GBP1.26221.4256 In this table, the exchange rates are defined as the number of USD or euro per GBP. Based on this information, which of the following statements are correct?

Exports of British goods were cheaper in the US in November 2015 than a year before. USD appreciated against GBP over the year.

In the current year, your economy is expected to make exports of $100bn and to import $80bn-worth of goods and services. When it comes to measuring GDP (or aggregate demand) the net effect of your external sector is to:

External trade added $20bn to GDP.

In the current year, your economy is expected to make exports of $80bn and to import $100bn-worth of goods and services. When it comes to measuring GDP (or aggregate demand) the net effect of your external sector is to:

External trade reduces GDP by $20bn.

Imagine that at the end of 2014 your monthly income in money terms was £2000 per month while the index of retail prices was 100. At the end of 2015, your monthly income was £2100 while the index of retail prices was 110. During 2015, your real income had:

Fallen by 5 per cent.

An individual's well-being can be partly measured by:

Goods and services that are produced within the household, such as meals and childcare. b) Goods and services that are provided by the government, such as healthcare and education. c) Her disposable income. d) all of the other answers are correct.

Which of the following might help to minimise the costs of adapting to new technology?

Government re-training schemes.

The roaring twenties and the great moderation were similar in that both ended with a stock market crash, but the figure shown indicates that productivity growth fell much more at the beginning of the Great Depression than it did at the beginning of the Great Recession. What could explain this difference?

Governments had learned from the earlier period that to reduce the damage of a recession they needed to operate much looser monetary and fiscal policy.

The following diagram depicts Julia's choice of consumption now and consumption later (next period). She has no income now and an income of $115 later. The current interest rate is 15%. Based on this information, which of the following statements is correct?

If Julia borrows $80 to spend now, she will have $23 to spend later.

(The Economy Question 10.2) Mr Bond has wealth of £500,000. He has a market income of £40,000 per year, on which he is taxed 30%. Mr Bond's wealth includes some equipment, which depreciates by £5,000 every year. Based on this information, which of the following statements is correct?

If Mr Bond decides to spend 60% of his net income on consumption and the rest on investment, then his investment is £9,200.

The diagram depicts a consumption function of an economy, where C is the aggregate consumption spending, Y is the current income of the economy, and c_0 is the fixed (or autonomous) consumption such that c_0 > 0. Assume that households that are not credit-constrained would completely smooth their consumption. Which of the following statements is correct?

If all households were not credit-constrained, and all income changes were perceived to be temporary, then the aggregate consumption line would be horizontal.

If inflation is generally undesirable, why do policymakers choose inflation targets that are greater than zero?

If prices are generally rising, real wages can fall without a reduction in nominal wages.

(The Economy Question 13.6) Figure 13.12 shows the consumption choice of a consumer over two periods. His initial endowment is (y, y), that is, an income y in both periods, which is depicted by point A. If possible, the consumer prefers to consume the same amount in both periods. The interest rate is r. Now assume that there has been a temporary shock such that the income in period 1 is reduced to y′, while the period 2 income is expected to return to y. Assume that a credit-constrained consumer is not able to borrow at all. Based on this information, which of the following statements is correct?

If the consumer is not credit-constrained, then he will consume c′ in both periods such that c′ = y − (c′ − y′)(1 + r) (income minus repayment in period 2).

(The Economy Question 9.4) Figure 9.8 depicts the market's demand curve and the firm's isoprofit curves. Based on this information, which of the following statements is correct?

If the firm finds itself producing at point C, it can increase its profit by selling more units at a lower price.

Question 15.3 Suppose now that the government adopts policies that make it difficult for foreign firms to enter its markets. Assume that the level of employment and the labour supply remain constant. Which of the following statements regarding mechanisms by which inflation is created are correct?

If the firms are able to continue charging the new higher markup, now applied to the new higher wage, the price rises again, lowering the real wage to the price-setting curve. After the price rise, if the workers are able to continue demanding the initial real wage as the minimum level required to motivate them to work, the wage rises again, increasing the real wage to the level on the wage-setting curve.

(The Economy Question 13.7) The following diagram shows the path of income for a household that receives news about an expected rise and fall in future income at the depicted times.

If the household is credit-constrained and has 'weakness of will', then its consumption will match precisely its income path.

(The Economy Question 10.6) Figure 10.10 depicts four possible feasible frontiers for Marco, who has $100 worth of grain in period 1 (now) and no income in period 2 (later). In scheme 1, he can store the grain that he does not consume in period 1. This results in 20% loss of the grain due to pests and rotting. In scheme 2, he can sell the grain that he does not consume and lend the money at 10%. In scheme 3, he can invest the remaining grain (for example by planting it as seed) for a return of 50%. Finally in scheme 4, he can invest the entire amount of grain and borrow against his future income at 10%. Based on this information, which of the following statements is correct?

If the rate of borrowing increases, the feasible frontier for scheme 4 tilts inwards from the point 150 on the vertical axis (becomes steeper).

(The Economy Question 16.9) The following graph plots the real wage growth of different countries against their unemployment rate, averaged over the period 1970-2011.

If you only cared about wage growth, then European countries have outperformed North American countries.

Which of the following statements are correct?

In a competitive goods market the buyers are price-takers, while in a labour market the buyers of employment (the firms) are price-setters. There is no economic rent for either the buyers or the sellers in competitive goods markets. In contrast, in labour markets the sellers receive economic rents.

(The Economy Question 9.3) Figure 9.5 depicts the wage-setting curve and how it is derived using the best response function of the employees and the isocost lines for effort of the employers. Based on this figure:

In a country where the stigma attached to unemployment is high, the wage-setting curve would be lower.

Why does a fixed exchange rate regime (like the gold standard) restrict the conduct of monetary policy?

In a fixed exchange rate regime, the central bank guarantees a fixed price for its domestic currency (or gold) against other currencies. To ensure this, it may have to manipulate the demand for the domestic currency (raising or depressing it) to keep the price stable. The quickest way to do this is through the interest rate, which they cannot use simultaneously to influence aggregate demand.

The diagram shows the market demand and supply curves for the bread market. You know that there are 250 identical bakeries operating in the market, but you do not know their cost structure (i.e. their average cost and marginal cost curves). Based on this information, which of the following statements is correct?

In equilibrium, each bakery supplies 20 loaves each.

Consider a world of just two individuals, Greta and Carlos, who each need both of two goods, apples and wheat, to survive. They differ in how productive they are in growing apples and wheat. If Greta spends 100% of her labour time producing one good, she could produce 2000 apples or 60 tonnes of wheat. If Carlos spends 100% of his labour time producing one good, he could produce 1000 apples or 50 tonnes of wheat. In period 1, Carlos and Greta are not able to trade with each other, and they each consume exactly what they produce. They both choose to use 60% of their time in apple production and the rest producing wheat. In period 2, they can trade at the price of 30 apples for 1 tonne of wheat, and Greta consumes 1250 apples. Based on this information, which of the following statements is correct?

In period 1, Greta produces 1200 apples and 24 tonnes of wheat, while Carlos produces 600 apples and 20 tonnes of wheat.

(The Economy Question 15.6) Figure 15.6 is a scatter plot of the inflation rate and the unemployment rate for the US for each year between 1960 and 2014.

In the 1960s, the Phillips curve suggests a trade-off of a 2% fall in the unemployment rate and a 2-3% rise in the inflation rate.

Figure 19.10 shows the proportion of children in earnings quantile conditional on their father's earnings quantile in the US and Denmark, respectively. Based on this information, which of the following statements is correct?

In the US, 7.4% of those from the poorest 20% of families managed to move up to become part of the richest 20%.

See Figure 15.4d for diagrams of the labour market model, the Phillips curve, and the multiplier model of aggregate demand. The unemployment rates and the bargaining gaps at different states of the economy are shown. Based on this information, which of the following statements is correct?

In the boom shown, the upward shift in the aggregate demand curve reduces the unemployment rate, which in turn creates a bargaining gap of 1%.

In the market for a particular identical good there are initially a large number of each of two types of producers: Type A and Type B. Type A producers use a better production technology than Type B producers, so Type A's average cost curve is lower than Type B's. Both types have upward-sloping marginal cost curves and U-shaped average cost curves. Which of the following statements is correct regarding the short-run and the long-run equilibria of this market?

In the long-run equilibrium, MC = AC for Type A firms, so their economic profits are zero.

Figure 17.26 depicts the US aggregate demand between 2006 Q2 and 2010 Q4. Based on this information, which of the following statements is correct?

In the recession, not only did households stop purchasing new houses and other consumption goods, but also firms stopped investing.

(The Economy Question 16.5) Which of the following statements is correct regarding the model of the labour market?

In the short- and medium-run models the amount of capital is fixed, while in the long-run model the amount of capital can vary.

Which of the following propositions best sums up the core of 'Keynesian' economics?

In the short-run, output depends on the level of aggregate demand.

We have seen that a gap can exist between the price of a good in its country of production and in the country where it is finally purchased. Price gaps can also exist between the same asset in different countries. Why is arbitrage so much more successful now in eliminating these gaps than it was in the early nineteenth century?

Information about price anomalies is much more widely available today and transactions can be carried out instantaneously. In the early nineteenth century, information was scarce and transactions were slow.

Deflation refers to a situation where prices are generally falling. Why is deflation generally undesirable?

It might lead to a cumulative reduction in aggregate demand as firms and households wait for prices to fall further.

Based on the figure shown, which country's unemployment rate shows the least sensitivity to the rate of GDP growth?

Japan

You are given the following data for the five countries. The numbers are in thousands. Of the five countries, which of the following statements is correct?

Japan has the lowest unemployment rate.

The following table shows the nominal GDP (in 2015 US dollars) and the population of Japan in 2013 and 2014 (source: The World Bank). Based on this information, which of the following statements regarding GDP per capita is correct? GDP: $4,919,563,108,372.50 (2013); $4,601,461,206,888.10 (2014)Population: 127,338,621 (2013); 127,131,800 (2014)

Japan's GDP per capita fell by 6.31% between 2013 and 2014.

Question 15.2 The following table shows the nominal interest rate and the annual inflation rate (the GDP deflator) of Japan in the period 1996-2015 (Source: World Bank). 1996-20002001-20052006-20102011-2015Interest rate1.5%1.4%1.3%1.2%Inflation rate-1.9%-0.9%-0.5%1.6% Based on this information, which of the following statements are correct?

Japan's real interest rate turned from being positive to negative during the period. The real interest rate has been falling faster than the nominal interest rate.

(The Economy Question 10.10, modified) The following diagram depicts Julia's choice of consumptions in periods 1 (now) and 2 (later) under different interest rates. She has no income in period 1 but an income in period 2 against which she can borrow. Based on this information, which of the following statements are correct?

Julia will unambiguously increase her consumption in period 1 after an interest rate cut. The graph of interest rate (vertical axis) versus period-1 consumption (horizontal axis) is downward sloping.

The following table shows the nominal GDP (in current millions of US dollars) and the population (in thousands) of the US, China, and Luxembourg in 2015 (source: The World Bank). Based on this information which of the following statements is correct? US: 18,036,648.00 (GDP), 321,418.82 (Population)China: 11,007,720.59 (GDP), 1,371,220.00 (Population)Luxembourg: 57,793.61 (GDP), 569.68 (Population)

Luxembourg's GDP per capita was 12.6 times that of China's.

(The Economy Question 10.5, modified) Figure 10.6 depicts Marco's choice of consumption in periods 1 (now) and 2 (later). He has $100 worth of grain in period 1 and no income in period 2. Marco has two choices. In scheme 1, he can store the grain that he does not consume in period 1. This results in a loss of 20% of the grain due to pests and rotting. In scheme 2, he can sell the grain that he does not consume and lend the money at 10%. Based on this information, which of the following statements is correct?

Marco will always be on a higher indifference curve under scheme 2 than under scheme 1. With scheme 2, if Marco consumes $68 worth of grain in period 1, he can consume $35 worth of grain in period 2.

The diagram depicts Marco's choice of consumptions now and later (next period). He has $100 worth of grain now and no income later. Marco has two choices. In scheme 1, he can store the grain that he does not consume now. This results in a loss of 20% of the grain due to pests and rotting. In scheme 2, he can sell the grain that he does not consume and lend the money at 10%. Based on this information, which of the following statements is correct?

Marco will unambiguously consume more later under scheme 2 than in scheme 1.

The diagram depicts Marco's choice of consumptions in periods 1 and 2. He has $100 worth of grain in period 1 and no income in period 2. Marco decides to consume $65 worth of grain in period 1, sell the remaining grain and lend the money at an interest rate of 10%, which he uses to buy grain for his consumption in period 2 (point A). Which of the following statements regarding his balance sheet is correct?

Marco's liabilities remain at $0 at all times.

Question 15.1 The following table shows the annual inflation rate (the GDP deflator) of Japan, the UK, China and Nauru in the period 2010-2013 (Source, World Bank):

Nauru's price level at the end of 2013 is lower than it was at the start of 2010.

Imagine that the GDP per capita of a country had doubled every 100 years. You are asked to draw both linear and ratio scale graphs that plot GDP on the vertical axis, and the year on the horizontal axis. What will be the shapes of the curves?

On a linear scale graph, an upward-sloping curve with increasing slope (called convex shape); on a ratio scale graph, an upward-sloping straight line.

(The Economy Question 10.11, modified) Which of the following statements are correct regarding the principal-agent problem?

One solution for the principal-agent problem in loans is for the borrower to provide equity. The principal-agent problem leads to credit rationing in the loans market.

Which of the following statements are essential features of a 'goods market equilibrium'?

Output is equal to aggregate demand.

Which term can be defined as "An allocation with the property that there is no alternative technically feasible allocation in which at least one person would be better off, and nobody worse off"?

Pareto efficient

Which of the following statements is correct regarding policies on inequality?

Providing high-quality education to citizens is a way of raising the endowments of less well off people.

The figure shows the demand and supply curves in the salt market. Introduction of a price cap (P') or a price floor (P'') leads to quantity Q' below the Pareto efficient quantity Q*. Ceteris paribus, which of the following would not affect the distribution of gains from trade between consumers and producers?

Quantity traded

The figure depicts indifference curves for consumption today and consumption later for Abraham and Sarah. Which of the following statements is correct?

Sarah is more likely to want to consume all her income now than Abraham.

Compared with autarky (a situation where countries try to be self-sufficient and do not engage in trade), the combination of specialisation and trade is likely to:

Shift the feasible consumption frontier to the right of the feasible production frontier.

Consider two figures showing the long-run growth of real per capita GDP in the UK (in logs). The left shows the period 1875 to roughly 2010 (best fit line y = 0.0156x + 7.7734, R-squared = 0.9445). The right shows the period 1950 to roughly 2014 (best fit line y = 0.0214x + 8.7782, R-squared = 0.9889). Which of the following is correct?

Since 1950, the annual rate of growth of GDP per capita has been more rapid than the average rate of growth over the whole period since 1875.

Which of the following best describes the operation of 'automatic stabilisers'?

Some components of government spending inevitably increase when output falls.

Look again at Figure 1.10, which shows a graph of GDP per capita for West and East Germany, Japan and Spain between 1950 and 1990. Which of the following statements is correct?

Spain was able to grow at a higher growth rate than Germany between 1950 and 1990.

The diagram shows the demand and the supply curves for textbooks. Based on this figure, which of the following statements is correct?

The Nash equilibrium price is $8.

(The Economy Question 17.1) The following figure shows the unemployment rate (left-hand axis) and productivity growth (right-hand axis) in the US between 1914 and 2015.

The US economy's performance in 1979-2008 was less strong than during the other two boom periods, with a higher average unemployment rate and lower average productivity growth.

Which of the following statements is correct? According to Friedrich Hayek:

The advantage of capitalism is that it provides the right information to the right people.

(The Economy Question 13.5, modified) Figure 13.9a plots the growth rate of real GDP, as well as the growth rates of the agricultural, industrial, and service sectors between 1550 and 1700 in Britain.

The agricultural sector largely drove fluctuations in GDP. The growth rate of the industrial sector was more volatile than that of the service sector.

Your monthly real wage is:

The amount you earn each month, divided by the average price of the goods and services that you buy.

The following diagram depicts Julia's choice of consumption in periods 1 (now) and 2 (later) when the interest rate is 78%. She has no income in period 1 and an income of $100 in period 2. She chooses the consumption choice G. Based on this information, which of the following statements regarding Julia's balance sheet is correct?

The asset after consumption but before repaying the loan in period 2 is 62.

Alan Greenspan admitted that his 'model' of the economy contained a 'flaw'. What exactly was that flaw?

The assumption that self-interested economic agents, including firms (and banks especially), would avoid taking excessive risks.

A bakery is one of many that operate in the bread industry. The market demand curve for bread is downward-sloping. The bakery incurs fixed costs and has an upward-sloping marginal cost curve. Which of the following statements is correct?

The bakery faces a flat demand curve.

(The Economy Question 10.9) The following example is a simplified balance sheet of a commercial bank. Based on this information, which of the following statements is correct? AssetsLiabilitiesCash and reserves£2mDeposits£45mFinancial assets£27mSecured borrowing£32mLoans to other banks£10mUnsecured borrowing£20mLoans to households and firms£55m Fixed assets£6m Total assets£100mTotal liabilities£97m

The bank's leverage is 33.3.

Consider the simple multiplier model with no government spending or trade, so that the goods market equilibrium is given by the equation Y = [1/(1 - c_1)] (c_0 + I). Given this equation, which of the following statements is correct?

The boost in the economy's output is the same, regardless of whether the aggregate demand shock comes from an increase in investment or in autonomous consumption c_0.

In Figure 8.9a, the market equilibrium output and price of the bread market is shown to be at (Q*, P*) = (5,000, €2). Suppose that the mayor decrees that bakeries must sell as much bread as consumers want, at a price of €1.50. Which of the following statements are correct?

The consumer surplus increases but the producer surplus decreases. The total surplus is lower than at the market equilibrium.

Look again at Figure 1.11. Which of these conclusions is suggested by the graph?

The contrasting performances of Botswana and Nigeria illustrate that rich natural resources alone do not guarantee higher economic growth, but that higher quality institutions (government, markets and firms) may also be necessary.

Figure 11.1 shows how bargaining power affected prices in Kerala beach markets on 14 January 1997. Based on this information, what can we conclude?

The data demonstrate that buyers have bargaining power when there is excess supply.

Figure 8.14 shows the demand and supply curves for salt, and the shift in the supply curve due to the implementation of a 30% tax on the price of salt. Which of the following statements are correct?

The deadweight loss is given by (1/2)(P1 - P0)(Q* - Q1). As a result of the tax, the consumer surplus is reduced by (1/2)(Q1 + Q*)(P1 - P*).

The diagram shows the market demand and supply curves for the bread market. You know that there are 250 identical bakeries operating in the market, but you do not know their cost structure (i.e. their average cost and marginal cost curves). Based on this information, which of the following statements is correct?

The deadweight loss is minimized at price €2.

Which of the following statements is correct regarding a price-taking firm producing that good?

The firm chooses its output such that the marginal cost equals the price.

The figure shows the hat market before and after a demand shift. Based on the figure, which of the following statements is correct regarding the initial disequilibrium when the demand shifts?

The firms become price-makers and maximise their profits.

The figure depicts a labour market. Now consider an inflow of half a million immigrant workers who are all looking for employment (rather than intending to start up a business). Which of the following statements is correct?

The firms' marginal cost of production is temporarily reduced.

Which of the following statements is correct?

The fundamental value of the shares in a firm is determined by expected future profits and systematic risk.

The figure shows the log of UK real GDP per capita between 1875 and 2010. Which of the following is correct?

The growth of GDP between 1950 and 1965 was above the long-run average.

The following diagram depicts a firm's isoprofit curves and demand curve, given the economy-wide demand. Which of the following statements is correct?

The isoprofit curves would be steeper for lower W.

The following table shows the productivity of labour in producing light, measured in lumen-hours per hour of labour, using different technologies. Based on this information, which of the following statements is correct?

The labour productivity of producing light increased by a factor of 1.5 or more in every decade between 1930 and 1970.

According to the original Phillips curve (Unit 15), higher inflation is associated with lower unemployment. The term 'stagflation' was coined to describe the unusual situation in the 1970s where unemployment and inflation both rose together. Which of the following best summarizes the underlying causes?

The lower growth of productivity meant a slower growth in the real wage and in the upward movement of the price-setting curve. In addition, the succession of oil price shocks caused a rise in prices that firms could only partially pass on. This also ate into profits, reducing further the upward movement of the price-setting curve. It also led people, workers especially, to expect inflation and therefore to build it into wage settlements.

The figure shows a price-taking bakery's marginal and average cost curves, and its isoprofit curves. The market price for bread is P*= €2.35. Which of the following statements is correct?

The marginal cost curve is the firm's supply curve.

The following diagram depicts a firm's demand curve given the economy-wide demand, and its tangent isoprofit curve. The firm faces a linear demand curve. The workers' average product of labour λ equals 1. At B, which of the following statements is correct?

The marginal rate of substitution is -0.1.

Look again at Figure 8.18, which shows the market for Choccos and for all chocolate bars. Based on the two diagrams, which of the following statements is correct?

The market marginal cost (MC) curve is approximately the sum of the MC curves of all the producers of the chocolate bars.

There are two different types of producers of a good in an industry where firms are price-takers. The marginal cost curves of the two types are given below: Type A is more efficient than Type B: for example, as shown, at the output of 20 units, the Type A firms have a marginal cost of $2, as opposed to a marginal cost of $3 for the Type B firms. There are 10 Type A firms and 8 Type B firms in the market. Which of the following statements is correct?

The market will supply 510 units at price $3.

Consider an economy with firms selling differentiated products, where the only input to production is labour. Which of the following statements is correct?

The more inelastic the demand curve faced by the firm, the higher the markup set by the firm.

The diagram depicts Marco's choice of consumptions in periods 1 and 2. He has $100 worth of grain in period 1 and no income in period 2. Marco decides to invest the entire amount of grain, which gives a return of 50%, and borrow against this future income at a 10% interest rate in order to consume $80 in period 1 (point A). Which of the following statements regarding his balance sheet is correct?

The net worth after consumption in period 1 is $20.

Figure 11.21 is a stylized representation of the market for an event at the 2012 London Olympic Games. 40,000 tickets were allocated by lottery, at £100 each. Assume that buyers could resell their tickets in the secondary market. Which of the following statements is correct?

The probability of obtaining a ticket was 4/7.

The diagram depicts four possible feasible frontiers for Marco, who has $100 worth of grain now and no income later. In scheme 1, he can store the grain that he does not consume now. This results in some loss of the grain due to pests and rotting. In scheme 2, he can sell the grain that he does not consume and lend the money. In scheme 3, he can invest the remaining grain (e.g. plant it as seed). Finally in scheme 4, he can invest the entire amount of grain and borrow against his future income. The value at point A equals $80, at point B equals $144, at point C equals $168, and at point D equals $140. Based on this information, which of the following statements is correct?

The rate of return from purely investing grain is 40%.

The price gap reflects the cost of trade between two countries. Assume that the costs of trade are falling over time, ceteris paribus. In these circumstances we would expect to see:

The selling price of the good in the importing country falling and the quantity imported rising.

The figure shows Lorenz curves before and after automation (the solid and dashed line, respectively). Prior to automation there are 90 workers who receive a total of 60% of the economy's income. Of these 90 workers, 60 have skills which are substitutes for those of the new robots, while 30 have skills which are complementary to the robots. There are 5 owners who earn 40% of the economy's income, and 5 workers who are unemployed. The total income of the economy increases by 10% due to automation. Based on this information, which of the following statements is correct?

The share of the income received by each worker with complementary skills increases by 75%.

(The Economy Question 14.10) The following are the labour market and the multiplier diagrams, representing the medium-run supply side and the short-run demand side of the aggregate economy, respectively:

The shifts in the aggregate demand cause short-run cyclical fluctuations in unemployment around the medium-run level shown in the labour market diagram.

14.10 Assume that the economy's production function is given by Y = N, where Y is the output and N is the employment. Based on this information, which of the following statements is correct?

The shifts in the aggregate demand cause short-run cyclical fluctuations in unemployment around the medium-run level shown in the labour market diagram.

The following diagram depicts a firm's demand curve given the economy-wide demand, and its tangent isoprofit curve. The firm faces a linear demand curve. The workers' average product of labour λ equals 1. The firm produces at point B. Now suppose the wage rate W falls to 20. At B, which of the following statements is correct now?

The slope of the demand curve is -0.1.

(The Economy Question 10.3) Figure 10.3a depicts Julia's indifference curves for consumption in periods 1 (now) and 2 (later). Based on this information, which of the following statements is correct?

The slope of the indifference curve is the marginal rate of substitution between the consumption in the two periods.

The figure shows the demand and supply curves in the salt market. The government now decides to impose a specific (fixed) tax of T per kg of salt, to be paid by the suppliers. Which of the following statements is correct?

The supply curve shifts up in a parallel manner.

The figure shows the demand and supply curves in the salt market. The government now decides to impose a sales tax of 30% on the price of salt, to be paid by the suppliers. Which of the following statements is correct?

The tax causes a fall in the quantity traded.

(The Economy Question 16.1) Figure 16.1 is a graph of unemployment rates for 16 OECD countries from 1960 to 2014.

The unemployment rates of different countries were affected very differently by the oil shocks of the 1970s.

In a country's balance of payments accounts, the current account (CA) consists of:

The value of goods and services exported and imported, together with net earnings from overseas assets acquired in the past.

Figure 8.17 shows the effect of a tax intended to reduce the consumption of butter. The before-tax equilibrium is at A = (2.0 kg, 45 kr) and the after-tax equilibrium is at B = (1.6 kg, 54 kr). The tax imposed is 10 kr per kg of butter. Which of the following statements is correct?

The very elastic supply curve implies that the incidence of the tax falls mainly on consumers.

The figure shows the effect of a tax intended to reduce the consumption of butter. The before-tax equilibrium is at A = (2.0 kg, 45 kr) and the after-tax equilibrium is at B = (1.6 kg, 54 kr). The tax imposed is 10 kr per kg of butter. Which of the following statements is correct?

The very elastic supply curve implies that the incidence of the tax falls mainly on consumers.

Figure 11.22 illustrates the rental housing market. Initially, the market clears at €500 with 8,000 tenancies. Then, there is an outward shift in the demand curve, as shown in the diagram. In response, the city authority imposes a rent ceiling of €500 and prohibits subletting. Based on this information, which of the following statements are correct?

There are 4,000 potential tenants who are left unhoused. Excess demand could be eliminated in the long run by building more houses.

The diagram shows the demand and the supply curves for textbooks. Based on this figure, which of the following statements is correct?

There are no sellers willing to give away their textbooks for free.

(The Economy Question 10.12) In an economy with a population of 100, there are 80 farmers and 20 lenders. The farmers use the funds to finance the planting and tending of their crops. The rate of profit for the harvest is 12.5%, while the interest rate charged is 10%. Compare the following two cases: Case A: All farmers are able to borrow. Case B: Only 50 farmers are able to borrow. Based on this information, which of the following statements is correct?

There is a 10% increase in the Gini coefficient in Case B compared to Case A.

In an economy with a population of 100, there are 80 farmers and 20 lenders. The farmers use the funds to finance the planting and tending of their crops. The rate of profit for the harvest is 12.5%, while the interest rate charged is 10%. Compare the following two cases:

There is a 16.7% increase in the Gini coefficient in Case B compared to Case A.

(The Economy Question 19.8) According to our 'Economist in action' video of Arin Dube, which of the following was a finding of his study of the minimum wage increase?

There was a minimal negative effect on employment.

The figure depicts the price-setting curve. Assume that the average product of labour λ is given. Based on this figure, which of the following statements is correct?

To go from A to B, the firm would be raising its price.

There are five students who are looking to buy one second-hand textbook each. Their willingness-to-pay are $50, $60, $80, $120, and $150, respectively. Based on this information, which of the following statements is correct?

To sell three books, the maximum price that can be charged is $80.

The diagram shows the market demand and supply curves for the bread market. You know that there are 250 identical bakeries operating in the market, but you do not know their cost structure (i.e. their average cost and marginal cost curves). Based on this information, which of the following statements is correct?

Total surplus is maximized at the equilibrium.

Sections 16.8 and 16.9 argue that institutional arrangements are an important influence on economic performance. Which of the following is given as an example of favourable institutional change?

UK policy to increase competition in the labour market, 1980-90.

Based on the figure shown, which country's unemployment rate shows the most sensitivity to the rate of GDP growth?

US

Okun's law implies that:

Unemployment goes down in booms and up in recessions.

Which of the following statements regarding labour unions and wage bargaining is correct?

Unions may choose to restrain their use of bargaining power.

Which of the following statements is correct?

Unlike in the competitive goods market, the exercise of power affects outcomes in the labour market.

(The Economy Question 15.7) Figure 15.9 depicts the diagrams of the labour market model and the Phillips curve that incorporates inflation expectations. Based on this information, which of the following statements is correct?

Upward shifts of the Phillips curve represent a rising inflation rate for a given unemployment rate

Figure 19.1 shows the inequality in wealth, earnings, and disposable income in the US, Sweden, and Japan using the Gini coefficient. Based on this information, which of the following statements are correct?

Wealth is much more unequally distributed than earnings in all three countries. Sweden attains its relatively equal disposable income distribution through its system of taxes and transfers.

Which of the following will not lead to higher GDP?

Wealth transfers from the rich to the poor, which lead to higher income equality.

Which of the following statements is correct?

When savers buy bonds they are lending money in the money market.

The diagram depicts Julia's choice of consumption now and consumption later. She has no income now and an income of $100 later (next period). Based on this information, which of the following statements is correct?

When the interest rate is 78%, the maximum that Julia can borrow now is $56 (rounded to the nearest dollar).

The figure shows that central banks reduced interest rates more sharply and kept them lower after the 2008 crisis than they did in the 1930s. But the figure shows nominal interest rates. Bearing in mind that inflation was negative in the early 1930s and approximately zero from 2009, which of the following statements could be true about monetary policy after 1929 and after 2008?

When we consider real interest rates, monetary policy was even tighter in the 1930s compared with 2008 onwards.

The figure depicts the price-setting curve. Assume that the average product of labour λ is given. Based on this figure, ceteris paribus, which of the following statements is correct?

With higher differentiation between products, the average product of labour remains the same but the profit-setting curve falls.

(The Economy Question 18.9, modified) Figure 18.21 is the long-run labour market model for the US as a result of specialization according to its comparative advantage. The US has a comparative advantage in the production of capital-intensive aircraft, while China, its trade partner, has a comparative advantage in the production of labour-intensive consumer electronics. Before trade, the German labour market equilibrium is at A. Which of the following statements are correct?

With lower unemployment, workers demand higher wages for high effort, resulting in a higher price-setting curve.

You are given the following information about the short-term nominal interest rate and the rate of inflation over a period of 8 years labeled Y1 to Y8. In which year was the real rate of interest at its maximum?

Y4

Economics is about:

a) all of the answers are correct b) How we interact with our natural environment c) How we come to acquire the things that make up our livelihood d) How we interact with each other

Which term can be defined as "the property that the inputs a person or country uses to produce a good are less than in some other person or country"?

absolute advantage

Consider an aggregate demand (or multiplier) model in which the domestic economy begins again at a full-employment level of output and in goods market equilibrium. Now suppose a fall in output is caused by a reduction in investment. Which of the following would help restore output to its original level?

an increase in actual wealth

Which of the following are examples of markets?

auction websites such as eBay touts selling tickets outside concert halls sale of illegal arms

Which term can be defined as "the property that the cost of producing an additional unit of a good relative to the cost of producing another good is lower than another person or country's cost to produce the same two goods"?

comparative advantage

Which term can be defined as "A market outcome in which all buyers and sellers are price-takers, and at the prevailing market price, the quantity supplied is equal to the quantity demanded"?

competitive equilibrium

Which term can be defined as "A measure of the general level of prices that consumers have to pay for goods and services, including consumption taxes"?

consumer price index

Which term can be defined as "Expenditure on consumer goods including both short-lived goods and services and long-lived goods, which are called consumer durables"?

consumption

Which term can be defined as "The process by which old technologies and the firms that do not adapt are swept away by the new, because they cannot compete in the market"?

creative destruction

Which term can be defined as "A description of individuals who are unable to borrow on any terms"?

credit-excluded

Which term can be defined as "the effect of an increase in government spending in reducing private spending"?

crowding out

Which term can be defined as "The excess of the value of a country's imports over the combined value of its exports plus its net earnings from assets abroad"?

current account deficit

Which term can be defined as "The excess of the combined value of its exports and net earnings from assets abroad over the value of its imports"?

current account surplus

Which term can be defined as "The curve that gives the quantity consumers will buy at each possible price"?

demand curve

Imagine that the rate of inflation has been 10 per cent per year for a number of years. The central bank then introduces a 'tight' monetary policy and the rate of inflation comes down to 5 per cent per year. This reduction is an example of:

disinflation

Which term can be defined as "The condition where doubling all of the inputs to a production process more than doubles the output"?

economies of scale

Which term can be defined as "A state of a market in which there is no tendency for the quantities bought and sold, or the market price, to change, unless there is some change in the underlying costs, preferences, or other determinants of the behavior of market actors"?

equilibrium (of a market)

Which term can be defined as "A situation in which the quantity of a good demanded is greater than the quantity supplied at the current price"?

excess demand

Which term can be defined as "the number of units of home currency that can be exchanged for one unit of foreign currency"?

exchange rate

Which term can be defined as "the opinion that wage- and price-setters form about the growth rate of the general price level in the next period"?

expected inflation

Which term can be defined as "Goods and services produced in a particular country and sold to households, firms and governments in other countries"?

exports

Which term can be defined as "The mechanism through which firms' and households' ability to borrow increases when the value of the collateral they have pledged to the lender (often a bank) goes up"?

financial accelorator

Which term can be defined as "Policies allowing banks and other financial institutions greater freedom in the types of financial assets they can sell, as well as other practices"?

financial deregulation

Which term can be defined as "The sale of something at a very low price because of the seller's urgent need for money"?

fire sale

Which term can be defined as "Changes in taxes or government spending in order to stabilize the economy"?

fiscal policy

Which term can be defined as "changes in taxes or government spending in order to stabilize the economy"?

fiscal policy

Which term can be defined as "A quantity measured per unit of time"?

flow

Which term can be defined as "A process by which the economies of the world become increasingly integrated by the freer flow across national boundaries of goods, investment, finance, and to a lesser extent, labour"?

globalization

Which of the following variables has not followed the so-called 'hockey-stick' trajectory—that is, little to no growth for most of history followed by a sudden and sharp change to a positive growth rate?

inequality

Which of the following is an example of a predistribution policy aimed at changing the endowments of workers?

inheritance tax

(The Economy Question 19.9) Watch our 'Economist in action' video of James Heckman. According to Heckman, which of the following individual attributes are NOT among the reasons for persistent poverty in a family from generation to generation?

inherited IQ

Watch our 'Economist in action' video of James Heckman. According to Heckman, which of the following individual attributes are NOT among the reasons for persistent poverty in a family from generation to generation?

inherited IQ

Which term can be defined as "Profits in excess of the opportunity cost of capital that an innovator gets by introducing a new technology, organizational form, or marketing strategy"?

innovation rents

Which term can be defined as "A situation in which the value of an entity's assets is less than the value of its liabilities"?

insolvent

Which term can be defined as "The laws and social customs governing the way people interact in society"?

institution

r stands for

interest rate

Which term can be defined as "The processes by which the economic status of the adult sons and daughters comes to resemble the economic status of the parents"?

intergenerational transmission of economic differences

Which term can be defined as "Expenditure on newly produced capital goods and buildings"?

investment

Which term can be defined as "the change in consumption when disposable income changes by one unit"?

marginal propensity to consume

Which term can be defined as "the change in total imports associated with a change in total income"?

marginal propensity to import

Which term can be defined as "The actual amount received in payment for work, in a particular currency"?

nominal wage

The figure shows the demand and supply curves in the salt market, both under competitive equilibrium (quantity Q*) and under a 30% sales tax on the price of salt (quantity Q'), paid by the suppliers. The government now considers different tax rates. Which of the following statements will always be true for a higher tax rate?

quantity traded is lower

Which term can be defined as "Taxes, monetary, and in-kind transfers of the government that result in a distribution of final income that differs from the distribution of market income"?

redistribution policy

Which term can be defined as "A strategy used by firms to meet payment commitments on liabilities using cash flow, although the firm cannot repay the principal in this way"?

speculative finance

Which term can be defined as "A minimum level of pay laid down by law, for workers in general or of some specified type"?

statutory minimum wage

Which term can be defined as "A quantity measured at a point in time"?

stock

Which term can be defined as "A part of the assets of a firm that may be traded"?

stocks

The great moderation masked three changes that would create the environment for the global financial crisis, including all of the options below except for which one?

the power of workers

This unit (Unit 17) suggests that there have been three distinctive periods ('epochs') in capitalist economies since 1914. Which of the following Is not one of those periods?

the second world war

The figures depict the wage-setting curve and how it is derived using the best response function of the employees and the isocost lines for effort of the employers. U_1 and U_2 are unemployment rates. Which of the following statements is correct?

w_5 is the Nash equilibrium wage when the unemployment rate is U_2.

Which term can be defined as "an effect that occurs if an initial increase in wages in the economy is followed by an increase in the price level, which is followed by an increase in wages and so on"?

wage-price spiral

Which term can be defined as "An indicator of how much a person values a good, measured by the maximum amount he or she would pay to acquire a unit of the good"?

willingness to pay

Unemployment is a stock. The size of that stock will increase if:

The rate of job destruction is 2 per cent per year and the rate of job creation is 1 per cent per year.

Suppose that the productivity of labour (λ) is $35,000 per year and the equilibrium mark up (μ) is 0.25. The long-run price-setting curve will be at a real wage of:

$26,250.00

(The Economy Question 18.3) Which of the following statements regarding current accounts is correct, ceteris paribus?

An increase in the official aid payment sent to other countries means a lower current account.

Suppose that industry in the EU is generally more capital-intensive than fruit growing in the EU. As the production and processing of fruit shifts towards the new member state (EE), the likely outcome in the original EU is:

An increase in the overall level of unemployment in the original EU.

Suppose that a country in eastern Europe (EE) has an abundance of cheap labour and a comparative advantage in the production of fruit. This country applies and is admitted to the EU. In the short-run, the likely effect of this will be:

An increase in the wages of fruit workers in EE.

Suppose that country A using a given amount of labour can produce 50 units of corn or 10 units of textiles, while country B using the same amount of labour can produce 60 units of corn or 30 units of textiles. This shows that:

B has a comparative advantage in the production of textiles.

(The Economy Question 19.5) Figure 19.15 shows the feasible frontier of the incomes of the rich and the poor. Which of the following statements is correct?

Between D and F, lower income for the poor leads also to lower income for the rich.

Figure 19.15 shows the feasible frontier of the incomes of the rich and the poor. Which of the following statements is correct?

Between D and F, lower income for the poor leads also to lower income for the rich.

Which term can be defined as "The inverse relationship between the unemployment rate and the job vacancy rate"?

Beveridge curve

During the 1930s, a number of major countries tried to solve their unemployment problems by imposing tariffs on imported goods. Using your knowledge of macroeconomics, which of the following statements best explains why tariffs can directly reduce unemployment?

By reducing the demand for imports.

(The Economy Question 18.6) Figure 18.18 depicts the feasible frontier and the consumption frontier of Carlos and Greta if they specialize and trade. The resulting relative price of wheat is assumed to be 2. Let the resulting consumption be at A and B, respectively, for Greta and Carlos. Then which of the following statements is correct?

Carlos trades 4,000 of his apples for 2,000 tonnes of Greta's wheat.

Looking at the figure shown, if it were the case that countries with strong trade unions also experienced high unemployment rates, we would expect the data points to be:

Clustered around an upward-sloping line.

Many large IT firms find it advantageous to have their headquarters in an area of California knows as 'Silicon Valley'. These advantages are likely to take the form of:

Economies of agglomeration.

Last year, an economy had 1m registered unemployed and a labour force of 20m. Official statistics forecast a level of unemployment of 0.8m by the year's end while the size of the labour force remains unchanged. If this happens then the unemployment rate will have:

Fallen from 5 per cent to 4 per cent.

In the short run, immigration is likely to increase unemployment and lower the real wage at which workers are compelled to work. In the long run, however, the best possible outcome for both workers and firms is that:

Firms become more profitable and may expand investment and employment.

(The Economy Question 16.10) The following is a plot of unemployment rate and trade union density for the period 2000-2012. Trade union density is defined as the fraction of employees who are union members.

Given the trade union density, the relative unemployment outcomes indicate that inclusiveness of trade unions is higher in Norway than in Belgium.

(The Economy Question 18.5) The following diagram shows Carlos' and Greta's feasible production frontiers and their utility-maximizing choices of consumption between wheat and apples under autarky (no trade).

Greta can consume 3,750 apples and 2,500 tonnes of wheat but will choose not to do so.

(The Economy Question 18.5) The following diagram shows Carlos' and Greta's feasible production frontiers and their utility-maximizing choices of consumption between wheat and apples under autarky (no trade). Based on this information, which of the following statements is correct?

Greta can consume 3,750 apples and 2,500 tonnes of wheat but will choose not to do so.

We have discussed the idea that investment in capital equipment is the main route through which new technology becomes incorporated in the production process, with benefits to productivity. Which of the following best describes the way in which investment in human capital can have similar effects?

Higher levels of education and training raise the overall level of productivity by ensuring an increase in supply of those able to perform high productivity tasks.

(The Economy Question 16.4) Figure 16.8 depicts the graphs of the long-run price-setting curve and the markup at which firm entry and exit are both zero.

Higher risk of expropriation of businesses overseas results in a higher price-setting curve.

The figure shows cross-sectional and intergenerational inequality for some countries. Based on this figure, which of the following statements is correct?

In Finland, the probability that the child of a high-income father will also have a high income is comparatively low.

(The Economy Question 18.8) Figure 18.20 is a diagram that describes the effects of trade on the employers and the workers in the US and China. The initial size of each economy is normalized to one. The US has the comparative advantage in the capital-intensive goods, while China has the comparative advantage in the labour-intensive goods. As a result of trade the US's economy is assumed to grow by 30% and that of China by 40%.

In the US, the employers are better off while the workers are worse off as a result of trade.

(The Economy Question 18.4) Figure 18.11 depicts the level of immigration into the US as a percentage of the change in the US population. Based on this information, which of the following statements are correct?

In the decade prior to the First World War, the number of immigrants was higher than the number of births minus the number of deaths.

(The Economy Question 16.7) Figure 16.9b depicts the long-run adjustment process in the labour market after technological progress.

Lower unemployment at E implies a higher wage required to induce workers to exert high effort, resulting in the higher real wage at B.

(The Economy Question 16.8) Does the introduction of a new labour-saving technology result in ...?

Lower wage share of output and higher Gini coefficient in the short run.

We have seen that price gaps for goods and services (and assets) in different locations tend to be quickly minimised today, but this phenomenon does not seem to be true for the price of labour. Which of the following is the main explanation for these facts?

Richer countries have become more resistant to immigration.

The relationship between the unemployment rate and the job vacancy rate (each expressed as a fraction of the labour force) is known as:

The Beveridge curve.

The extent to which the diffusion of new technology results in increased employment depends upon the extent to which the wage-setting curve shifts upwards. Which of the following might encourage this upward shift?

The government introduces more generous unemployment benefits to compensate those losing their jobs.

Figure 19.6 is a scatterplot of occupations for the US economy, with the 2015 mean hourly wages on the vertical axis and the 2014-24 projected job growth on the horizontal axis: Based on this information, which of the following statements is correct?

The high wage occupations with projected job growth are either in human services or occupations in which digital information processing has greatly increased the productivity of high skill workers.

10 years ago, a growing economy enjoyed an increase in GDP of $1,000 per worker per year when net investment increased the capital available to each worker by $5,000. The same level of net investment last year was followed by an increase in GDP of $800. Which of the following describes the situation?

The marginal product of capital is falling.

(The Economy Question 16.3) The graph shows the plot of Beveridge curves for the US and Germany for the period 2001 Q1 to 2015 Q2. Based on this information, which of the statements below is correct?

The matching rate in Germany improved after its Beveridge curve shifted around 2007.

(The Economy Question 18.1) Figure 18.3 depicts the supply curve in the exporting country and the demand curve in the importing country in a market for a traded good. Assume that the good is produced exclusively in the exporting country and consumed exclusively in the importing country. Based on this information, which of the following statements are correct?

The price gap represents the trade costs, such as transportation costs and trade taxes.

Wealth is usually more unequally distributed than earnings, which in turn are more unequally distributed than disposable income. This is mainly because:

Wealth is accumulated savings. Some of this is accumulated by several generations and then passed from parents to children. Earnings are more equally distributed because there is no cumulative effect. Disposable income is more equally distributed still since many governments operate a 'progressive' tax system.

(The Economy Question 18.7, modified) The following diagram shows Alex's and Jose's feasible production frontiers for oranges and melons. Based on this information, which of the following statements are correct?

With trade and specialization, Jose will specialize in the production of oranges while Alex will specialize in the production of melons.

Which of the following statements regarding inequality in the labour market is likely to be true?

Workers in the primary labour market generally experience better working conditions than those in the secondary labour market.

Which term can be defined as "No tendency to move either in the same or opposite direction to aggregate output and employment over the business cycle"?

acyclical

Which term can be defined as "The practice of buying a good at a low price in a market to sell it at a higher price in another"?

arbitrage

Which of the following is NOT an example of inequalities based on accidents of birth that exist within countries?

automation

Which term can be defined as "The condition where the cost of producing an additional unit of some good relative to the cost of producing another good is lower than another person or country's cost to produce the same two goods"?

comparative advantage

Which term can be defined as "The stock of knowledge, skills, behavioural attributes, and personal characteristics that determine the labour productivity or labour earnings of an individual"?

human capitol

Which term indicates that only technology and the economy's institutions are exogenous in a model?

long run

Which term indicates that the capital stock, technology, and institutions are all exogenous in a model, while output, employment, prices, and wages are endogenous?

medium run

Which term can be defined as "Measures taken by a government to limit trade"?

protectionist policy

Which term can be defined as "The condition where a country or some other entity produces a more narrow range of goods and services than it consumes"?

specialization

The widespread introduction of new technology into an economy takes time. The length of time between first appearance and general acceptance is known as:

the diffusion gap

Which term can be defined as "A set of government policies designed to provide improvements in the welfare of citizens by assisting with income smoothing"?

welfare state