Econ Midterms

In the IS-LM model, which will follow a decrease in government purchases

The IS curve shifts to the left

In the sticky-price mode, what determines any difference between potential output and actual output

The difference between the price level and the expected price level

How do competitive, profit-maximizing firms determine the optimal level of a factor

The firm demands each factor of production until that factor's marginal product equals its real factor price

What does the annual percentage change in the GDP deflator tell us

The inflation rate

Which of these statements is NOT true about the steady state of the basic Solow model

The marginal product of capital always is equal to the depreciation rate

For macroeconomists, what distinguishes the short run and the long run?

Whether prices are sticky or flexible

The national income accounts identity for an open economy is:

Y = C + I + G + NX

Other things equal, an increase in the interest rate leads to

a decrease in the quantity of investment goods demanded

Which statement is true according to the solow growth model

a higher saving rate results in temporarily faster growth

According to the classical theory of money, reducing inflation will not make workers richer because firms will increase product prices ____ each year and give workers ____ raises

less; smaller

Macroeconomic Models

make different assumptions to explain different aspects of the macroeconomy.

The real exchange rate is determined by the equality of

net capital inflow and the demand for net exports

The opportunity cost of holding money is the:

nominal interest rate

if purchasing power parity holds, then changes in domestic saving will ___ the real exchange rate

not change

Before the Financial Crisis of 2007-09, the Fed primarily used ____ to conduct monetary policy. After, the Fed primarily ___

open market operations, interest on reserve balances and the discount rate

The rate of inflation is the

percentage change in the overall level of prices

An assumption of _______ is more plausible for studying the short-run behavior of the economy, while an assumption of ______ is more plausible for studying the long-run, equilibrium behavior of the economy.

sticky prices, flexible prices

How do economist define the real interest rate

the difference between the nominal interest rate and the rate of inflation

The inflation rate is a measure of how fast

the general level of prices in the economy is rising

When the unemployment rate is at a steady state

the number of people finding jobs equals the number of people losing jobs.

The IS-LM model is best equipped to help economists analyze

the short run

How do the long-run predictions of the Solow growth model compare to the endogenous growth model we studied in class

the solow model predicts an eventual steady-state equilibrium, and the endogenous growth model allows for continued growth

According to the Kremian model, large populations improve living standards because

there are more people who can make discoveries and contribute to innovation

To end a hyperinflation, a government trying to reduce its reliance on seigniorage would

raise taxes and cut spending rates

Which of these statements is NOT true about the steady state in the solow model with population and technological progress

total capital stock and total output grow at the rate of population growth

All of these are reasons for frictional unemployment EXCEPT

unemployed workers accept the first job offer that they receive

An example of increasing returns to scale is when capital and labor inputs:

Both increase 5 percent and output increases 10 percent

Which statement is true when the economy starts with less capital than the golden rule level

Current generations must sacrifice to maximize future consumption

______ cause(s) the capital stock to rise, while ______ cause(s) the capital stock to fall.

Investment; depreciation

An economy's factors of production and its production function determine the economy's:

Output of goods and services

If people have rational expectations, what is needed for policymakers to lower inflation without causing a recession

Policymakers must be credible and give people enough time to adjust their expectations before setting prices

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

Sectoral Shifts

Why do the short-run and long-run aggregate supply curves have different slopes

Sticky prices

What must be true if domestic saving is $100 and domestic investment is $110

The net capital inflow is $10

Which variable is constant in the IS-LM model

The price level

Which variable adjusts to bring the market for goods and services into equilibrium

The real interest rate

Which is NOT a result of protectionist trade policies in a small open economy

The trade balance becomes more positive

What is a fundamental lesson of the phillips curve

There is no tradeoff between unemployment and inflation in the long run

From a macroeconomic theory perspective what is unusual about the covid-19 recession

There was a shift in the economy's potential output

Two equivalent ways to view gross domestic product are as the

Total income of everyone in the economy or the total expenditure on the economy's output of goods and services

If nominal wages cannot be cut, then the only way to reduce real wages is by:

adjustments via inflation

If the demand for money depends on the nominal interest rate, then via the quantity theory and the Fisher equation, the price level depends on:

both the current and expected future money supply

To increase the monetary base, the Fed can:

conduct open-market purchases

The golden rule level of capital maximizes

consumption

In a small open economy, if exports equal $5 billion and imports equal $7 billion, then there is a trade ___ and ___ net capital inflow

deficit; negative

Endogenous Variables are:

determined within the model

The earned income tax credit

does not raise labor costs

In the solow model if the economy starts with more capital per worker than the steady state level of capital per worker, then the capital per worker will ____ and the output per worker will ____ as the economy approaches the steady state

fall; fall

Which of these hypothesis is consistent with fewer hours worked per year in Europe than in the United States

higher tax rates in Europe than in the United States

A typical trend during a recession is that:

incomes fall

If government purchases increase by (delta) G output will

increase by more than (delta) G

Assume that a rancher sells McDonald's a quarter-pound of meat for $1 and that McDonald's sells you a hamburger made from that meat for $2. In this case, gross domestic product (GDP) increases by:

$2

If the monetary base equals $400 billion and the money multiplier equals 2, then the money supply

$800 billion

When comparing economic performance in different years, economists:

Adjust for changes in prices

Which would NOT change total factor productivity

An increase in capital, labor or both

In the model developed in the chapter, what would follow an unexpected increase in inventories

An increase in the unemployment rate

What is TRUE if the net marginal return to capital (MPK - depreciation) is above the economy's average growth rate (growth in labor force (n) + growth rate of technology augmentation (g))

An opportunity exists to increase future consumption per capita

Which interest rates does the fed target when conducting monetary policy operations

Federal funds rate

What enables money creation in addition to that directly created by the central bank

Fractional-reserve banking

Which is a valid description of the aggregate demand curve

It tells us the possible combinations of the price level and output for a given money supply

What do economists call a situation in which an increase in the money supply is not followed by a drop in the interest rate

Liquidity Trap

Endogenous growth theory rejects the assumption of exogenous

Technological Changes

According to the Solow model, persistently rising living standards can only be explained by:

Technological progress

An increase in the price of goods bought by firms and the government will show up in:

The GDP deflator but not in the consumer price index