MACRO (ALL QUIZZES)
Which of the following statements are essential features of a 'goods market equilibrium'? a. Output is equal to aggregate demand. b. The economy is at full employment. c.Investment is stable. d. Output is fixed.
A - why? If output is equal to aggregate demand, this means that firms' output plans have been fulfilled and there is no incentive for those plans to be revised. This is a goods market equilibrium.
Which of the following statements regarding trading strategies is correct? a. Buying and selling assets based on an assessment of their fundamental values is a form of speculation. b. A momentum trader would not buy a share when its price is higher than its fundamental value. c. The fundamental value of a security should reflect its recent price movements. d. Momentum trading is not an example of speculation.
A why? - It is motivated by a belief that prices will soon return to their fundamental values.
Which, if any, of the following statements are true? a. Some investors treat changes in asset prices as a response to new information about the expected stream of revenues from the asset. b. An asset price bubble can occur when the market increases their demand for an asset after its price rises, because they believe the price will rise further. c. A house price bubble can only occur when the supply of housing is fixed.
A & B why b? - This positive feedback process amplifies the original price increase, and fuels the bubble.
Figure 14.16 shows the effects of France's increased government spending and tax cuts in 1982 on the economies of France and Germany. Based on this information, which of the following statements are correct? A) The French budget balance worsened by more than 3% as a result of the fiscal expansion. B) The fiscal expansion successfully resulted in a long-run shift in the French GDP growth rate to above 2%. C) The German economy benefitted from the spillover effect of higher French imports of German goods. D) Fiscal expansionary policy should never be adopted by European economies, as they have high levels of trade with each other.
A & C
Figure 17.21 is the graph of leverage of banks in the UK and the US between 1960 and 2018. The leverage ratio is defined as the ratio of the banks' total assets to their equity. Which of the following statements are correct? A) A leverage ratio of 40 means that only 2.5% of the asset is funded by equity. B) The total asset value of US banks doubled between 1980 and later 1990s. C) A leverage ratio of 25 means that a fall of 4% in the asset value would make a bank insolvent. D) UK banks increased their leverage rapidly in the 2000s in order to make more loans to UK house buyers.
A & C
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? A) USD appreciated against GBP over the year. B) GBP depreciated against euro over the year. C) Exports of British goods were cheaper in the US in November 2015 than a year before. D) Imports from Europe were more expensive in Britain in November 2015 than a year before.
A & C
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? A) Jose has an absolute advantage in the production of both melons and oranges. B) Jose has a comparative advantage in the production of melons. C) With trade and specialization, Jose will specialize in the production of oranges while Alex will specialize in the production of melons. D) The relative price of melons after trade will be 1.75.
A & C
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? A) The parts of the PDC where the slope is less than 45 degrees represent a negative feedback process. B) Points Z and K represent unstable equilibria. C) A positive feedback process means that housing prices are always increasing. D) Optimism about housing prices would shift the PDC upwards.
A & D
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? A) Wealth is much more unequally distributed than earnings in all three countries. B) Sweden is an unambiguously more unequal society than Japan. C) Of the three countries, the US is the most unequal society. D) Sweden attains its relatively equal disposable income distribution through its system of taxes and transfers.
A & D
Suppose there is an increase in workers' bargaining power that causes inflation. Which of the following statements are correct? A) Workers' bargaining power can increase due to an increase in unemployment benefits, resulting in a rise in the wage-setting curve. B) Workers' bargaining power can increase due to an increase in the unemployment level along a given wage-setting curve. C) After the initial increase in the workers' bargaining power, the firms adjust the wages and prices by shifting the wage-setting curve, creating inflation. D) 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.
A & D
Which of the following statements about asset prices are correct? A) A bubble occurs when beliefs about future prices amplify a price rise. B) When positive feedback occurs, the market is quickly restored to equilibrium. C)Negative feedback is when prices give traders the wrong information about the fundamental value. D) When beliefs dampen price rises, the market equilibrium is stable.
A & D
Which of the following statements are correct regarding fire sales in the housing market? A) A household is underwater when the value of the house it owns is less than the value of the mortgage on the house. B) A fire sale occurs when a household cannot repay its mortgage and sells its house. C) Fire sales have a positive externality for prospective buyers who are able to purchase the foreclosed houses cheaply. D) Fire sales have a negative externality on other owners of similar assets by lowering the value of their assets.
A & D
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) 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. B) The value of the US dollar increased as the result of the abandonment of the gold standard and allowed the nominal interest rate to be cut to close to zero. C) The real interest rate rose after 1933. D) Fiscal contraction from the increased government deficit would have contributed to the economy escaping from the Depression.
A) 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.
Consider a town with a single business that employs the entire labour force, whose toxic emissions are a threat to the health of the citizens. Figure 20.15 shows the business' 'shutdown' curve (the combination of wages and environmental quality offered by the firm that would just about keep the firm operating) and the citizens' indifference curves for the quality of environment and their wage income. The citizens' reservation indifference curve is also shown. - Based on this information, which of the following statements is correct? A) All points below the citizens' reservation indifference curve and above the business' 'shutdown' curve are infeasible. B) If the business has all the bargaining power, then point B is chosen. C) If the citizens have all the bargaining power, then they will choose the point with the highest possible wage. D) Point C is the only Pareto-efficient choice.
A) All points below the citizens' reservation indifference curve and above the business' 'shutdown' curve are infeasible.
Which of the following statements are correct? A) Endowments are facts about an individual that may affect his or her income. B) Having or not having a degree does not constitute a difference in endowments if it is a matter of individual choice. C) All individuals have the same reservation option irrespective of their endowments. D) A visa (permission to work for a non-citizen) is not an element of an individual's endowment because it cannot be sold.
A) Endowments are facts about an individual that may affect his or her income.
Which of the following statements is correct regarding measuring GDP? A) 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. B) Information about exports but not imports is necessary to calculate GDP. C) Government production is not included in the GDP. D) The value added of government production is computed using the price that public goods and services are sold at in the market.
A) 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.
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 is correct? A) 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. B) Wars cause permanent declines in the level of migration. C) As with trade in goods and capital flows, there is evidence of a continued trend of 'reglobalization' in migration since the end of the Second World War. D) The trend in the graph suggests that with high migration over the past 150 years the wages in different countries around the world should now be similar.
A) 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.
Which of the following statements is correct regarding the model of the labour market? A) 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. B) Labour-saving technological progress raises unemployment in both the short and long run. C) In the long-run model, firms enter the market when the markup is low. D) In the long-run model, the markup is independent of the number of firms.
A) 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 statements regarding segmented labour markets are correct? A) The 'gig economy' is not part of the primary labour market. B) Workers in the secondary labour market are better paid than those in the primary labour market. C) Trade unions have attempted to reduce hours of work by introducing zero hours contracts. D) Primary labour market jobs are concentrated in agriculture.
A) The 'gig economy' is not part of the primary labour market.
Which of the following statements is correct? A) The fundamental value of the shares in a firm is determined by expected future profits and systematic risk. B) If there is no new information regarding the future profitability or systematic risk of a firm, but its share price keeps rising, the fundamental value must be increasing. C) Buying a share at a price above its fundamental value in the hope that someone else would buy it from you at an even higher price is guaranteed to lose money. All investors always agree on the fundamental values of the shares in a firm.
A) The fundamental value of the shares in a firm is determined by expected future profits and systematic risk.
Which of the following statements is correct regarding monetary policy? A) When interest rates go down, asset prices go up. B) The zero lower bound refers to the central bank's inability to set the real interest rate to below zero. C) Quantitative easing involves the central bank lowering its official interest rate. D) Interest rates cannot be set in a currency union.
A) When interest rates go down, asset prices go up.
According to Heckman, which of the following individual attributes are NOT among the reasons for persistent poverty in a family from generation to generation? A) inherited IQ B) limited schooling C) race D) social behaviour
A) inherited IQ
What is the key variable that changed in the labour model learnt in the previous lecture when it moves from short-run to long-run? a. Number of workers b. Number of firms c. Wages d. Prices
B
Consider an economy with GDP growing at a trend rate of 2% per year (p.a). The population is growing at 1% p.a. A recession occurs in which output falls for two consecutive quarters. Which of the following statements is /are true? a. If output is plotted on a ratio scale and growth returns to the previous trend line, there must be a period after the recession during which the economy grows faster than 2% p.a. b. In a graph with time on the horizontal axis and the log of GDP per capita on the vertical axis, the trend growth rate would be shown by a positively sloped line. c. If output grows at 2% per annum after the recession but does not return to trend, the economy suffers no permanent loss
B & C
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. Which of the following statements can be deduced from the graph? A) The average growth rate of the agricultural sector was higher than that of the service sector for the period shown. B) The growth rate of the industrial sector was more volatile than that of the service sector. C) The agricultural sector largely drove fluctuations in GDP. D) The recession around 1560 was caused by contractions in all three sectors.
B & C
Figure 16.18 is a graph of the share of employment in manufacturing industry in different economies. Based on this information, which of the following statements are correct? A) The share of employment in industry has been falling in all economies shown. B) The shift of employment out of industry was led by the UK and the US around 1950. C) The UK has consistently had a higher share of total employment in industry than the US. D) The Far East economies now all have higher shares in industry than Germany, the UK, or the US.
B & C
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? A) As a result of specialization, at first both worker productivity and the total employment level rise. B) With the rise in productivity, the firms expand employment resulting in a lower unemployment rate. C) With lower unemployment, workers demand higher wages for high effort, resulting in a higher price-setting curve. D) The wage-setting curve rises if workers demand unemployment insurance as a result of globalization. Then the long-run employment level is unambiguously lower than at A.
B & C
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? A) The graph suggests a consistent decline in trade costs since 1870. B) Attempts by countries to address their unemployment problems after the 1929 Great Depression seem to have led to a decline in globalization. C) There does not seem to be any evidence of increased globalization after the Second World War. D) The graph suggests that commodity market integration over the past 150 years was one of interrupted integration.
B & D
The following figure shows the income share of the top 1% richest households in the US between 1914 and 2015. Based on this information, which of the following statements are correct? A) Inequality always rises in boom years. B) Inequality can either rise or fall during recessions. C) The great moderation era was distinct from the other two boom periods in that inequality rose during the period. D) The top 1% richest US households received nearly one-fifth of the total income in 2010.
B & D
Which of the following statements is correct regarding the multiplier? A) Economists tend to agree on their estimates of the multiplier. B) Reverse causation can be a problem when estimating the multiplier empirically. C) If households anticipate that increased government spending will be funded by future tax increases, then the multiplier will be higher. D) If firms anticipate that the government's fiscal policy will be effective, then the multiplier will be higher.
B & D
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). A) Carlos will choose to consume 10,000 apples. B) Greta can consume 3,750 apples and 2,500 tonnes of wheat but will choose not to do so. C) Greta has an absolute advantage in the production of wheat, while Carlos has an absolute advantage in the production of apples. D) Regardless of the shape of the indifference curves (which could be different from those depicted in the diagram), Greta will always choose to consume more of both goods than Carlos.
B) Greta can consume 3,750 apples and 2,500 tonnes of wheat but will choose not to do so.
Assume that the household prefers to smooth out its consumption if it can. Based on this information, which of the following statements is correct? A) If the household is not credit-constrained, then it will consume the same level after t= 1. B) If the household is credit-constrained and has 'weakness of will', then its consumption will match precisely its income path. C) If the household is not credit-constrained but has 'weakness of will', then it will borrow at t = 1 and save at t = 3. D) If the household is credit-constrained but does not have 'weakness of will', then it will borrow at t = 1 and save at t = 3.
B) If the household is credit-constrained and has 'weakness of will', then its consumption will match precisely its income path.
The following graph plots the real wage growth of different countries against their unemployment rate, averaged over the period 1970-2011. Based on this information, which of the following statements is correct? A) If you only cared about unemployment, then Finland is the country with the best performance. B) If you only cared about wage growth, then European countries have outperformed North American countries. C) If you cared about both unemployment and wage growth, then Spain is one of the best-performing countries. D) If you cared about both unemployment and wage growth, then Finland has unambiguously outperformed Norway.
B) If you only cared about wage growth, then European countries have outperformed North American countries.
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? A) The data provides support for the 'American Dream', a term coined in 1931 by James Truslow Adams that refers to 'a dream of social order in which each man and woman shall be able to attain to the fullest stature of which they are innately capable ... regardless of the fortuitous circumstances of birth or position' (in The Epic of America, 1931). B) In the US, 7.4% of those from the poorest 20% of families managed to move up to become part of the richest 20%. C) In Denmark, it is far more difficult for the richest families to preserve their status for the next generation than in the US. D) The figure suggests that there is very little governments can do to reduce intergenerational transmission of economic status.
B) 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? A) There is no inflation when the unemployment rate is zero. B) 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%. C) In the recession shown, the downward shift in the aggregate demand curve increases the unemployment rate, which in turn creates a bargaining gap of 0.5%. D) The resulting Phillips curve shows a positive correlation between the unemployment rate and inflation rate.
B) 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%.
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? A) The fall in residential investment was the sole cause of the financial crisis. B) In the recession, not only did households stop purchasing new houses and other consumption goods, but also firms stopped investing. C) Government consumption and investment have been supporting economic growth throughout the period considered. D) Household consumption in housing and other goods recovered promptly since the end of the crisis.
B) In the recession, not only did households stop purchasing new houses and other consumption goods, but also firms stopped investing.
Does the introduction of a new labour-saving technology result in ...? A) Higher wage share of output and higher Gini coefficient in the short run. B) Lower wage share of output and higher Gini coefficient in the short run. C) Lower wage share of output and lower Gini coefficient in the short run. D) Higher unemployment, lower wage share of output, and higher Gini coefficient in the long run.
B) Lower wage share of output and higher Gini coefficient in the short run.
Which of the following statements is correct regarding policies on inequality? A) Japan has a more equal society compared to the US due to its large equalizing effect of taxes and transfers. B) Providing high-quality education to citizens is a way of raising the endowments of less well off people. C) An increase in the minimum wage increases unemployment, leading to higher inequality unambiguously. D) Non-compete contracts mean that workers can demand higher wages, leading to reduced inequality.
B) Providing high-quality education to citizens is a way of raising the endowments of less well off people.
Refer to Figure 20.5. Based on this information, which of the following statements is correct? A) Bargaining between affected parties is always effective in reducing the inefficiencies caused by externalities. B) The market price of pesticides is unlikely to reflect the full social cost of their use. C) All externalities result in the good producing the external effect being overused. D) Reducing air travel is an unfortunate and inefficient by-product of taxing flights.
B) The market price of pesticides is unlikely to reflect the full social cost of their use.
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? A) The market cleared at £100. B) The probability of obtaining a ticket was 4/7. C) The economic rent earned by those selling in the secondary market was £100. D) The lottery organizers should have chosen a price of £225.
B) The probability of obtaining a ticket was 4/7.
The following is the graph of the natural log of UK real GDP per capita between 1875 and 2020: Based on this information, which of the following statements is correct? A) The graph shows that real GDP per capita in the UK in 1955 was about £8,000. B) The slope of the best-fit straight line is the average annual growth rate. C)The graph shows that the average growth rate was lower in the decades after 1921 than in the decades before 1918. D) The graph of real GDP per capita plotted using a ratio scale would look very different to the graph above.
B) The slope of the best-fit straight line is the average annual growth rate.
Which of the following statements is correct regarding household wealth? A) A household's material wealth is its financial wealth plus the value of its house. B) The total broad wealth equals material wealth plus expected future earnings. C) A household adjusts its precautionary saving in response to changes in its target wealth. D) If the household's target wealth is above its expected wealth, then it will decrease savings and increase consumption.
B) The total broad wealth equals material wealth plus expected future earnings.
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: Based on this information, which of the following statements is correct? Investing is a dominant strategy for both firms. A) The only Nash equilibrium is for both firms to invest. B) Firm A investing and Firm B not investing is a Pareto-inefficient Nash equilibrium. C) To achieve the Pareto-efficient Nash equilibrium, the firms have to coordinate in some way or develop business confidence.
C
The Consumer Price Index (CPI): a. Records the price of all goods produced in the domestic economy, including exports. b. Measures the rate of inflation. c. Measures the general level of prices that consumers pay for goods and services. d. Records the price of all goods and services in the economy.
C
Your current income is about £3,000 per month. When a researcher asks you what level of compensation you would feel adequate in the case of job loss, you estimate this at £5,000 per month. This discrepancy definitely indicates: a. You are greedy. b. You value the loss of status and general sense of wellbeing at £5,000 per month. c. You value the loss of status and general sense of wellbeing at £2,000 per month d. You think you are underpaid.
C - why? £5,000 is what you say you require as compensation for your total loss, which includes your income of £3,000. When we deduct that, the compensation you require for the loss of non-monetary aspects of employment (status, wellbeing etc.) appears to be £2,000.
The following diagram depicts the model of the labour market: 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? A) With reduced competition, firms can now charge a higher markup on their costs, raising the price-setting curve. B) With the labour market not in equilibrium at the lower real wage, the workers now lack the motivation to work at the given unemployment rate. Therefore the wage is increased, described by an upward shift in the wage-setting curve. C) 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. D) 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.
C & D
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). Based on this information, which of the following statements are correct? A) The real interest rate in 1996-2000 was -0.4%. B) Japan's real interest rate has been rising consistently over this period. C) Japan's real interest rate turned from being positive to negative during the period. D) The real interest rate has been falling faster than the nominal interest rate.
C & D
Figure 14.10c depicts the aggregate investment function of an economy. Based on this information, which of the following statements is correct? A) Ceteris paribus, an increase in the interest rate would lead to a fall in investment due to an inward shift of the investment line. B) A rise in corporate tax would shift the investment line outwards. C) A forecast of a permanent demand increase shifts the investment line outwards. D) A steeper line indicates the higher sensitivity of the level of aggregate investment to changes in interest rate.
C) A forecast of a permanent demand increase shifts the investment line outwards.
In Figure 20.20, points A and B are the two technologies available to a firm in its production. Specifically, technology A uses 4 tonnes of coal and 2 m2 of solar panel to produce 100 metres of textiles, while technology B uses 1 tonne of coal and 6 m2 of solar panel for the same output. Initially, the price of 1 tonne of coal is half that of the price of using 1 m2 of solar panel. In its latest budget statement, the government proposes a tax on the use of coal such that the price ratio increases from 1/2 to 2. Based on this information, which of the following statements is correct? A) At the original prices, the firm's isocost line is given by FG. B) At the original prices, the firm chooses technology B as it is on a higher isocost line than A. C) After the implementation of the tax, the slope of the firm's isocost line steepens from −1/2 to −2. D) After the implementation of the tax, the firm chooses technology A as it is on a lower isocost line than B.
C) After the implementation of the tax, the slope of the firm's isocost line steepens from −1/2 to −2.
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? A) As Greta has the absolute advantage in production of both goods, she will produce both apples and wheat. B) Carlos produces 6,000 apples and 2,000 tonnes of wheat, while Greta produces 4,000 apples and 8,000 tonnes of wheat. C) Carlos trades 4,000 of his apples for 2,000 tonnes of Greta's wheat. D) Greta is better off while Carlos is worse off as a result of the trade.
C) Carlos trades 4,000 of his apples for 2,000 tonnes of Greta's wheat.
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%. Based on this information, which of the following statements is correct? A) The central bank will try to achieve zero unemployment while keeping the inflation at 2%. B) The shape of the indifference curves indicates that the central bank is willing to trade higher inflation for lower unemployment at all times. C) 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. D) Consider an aggregate demand shock that increases unemployment. The central bank would raise the interest rate to put downward pressure on inflation, in order to bring it back to the target rate.
C) 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.
Figure 15.6 is a scatter plot of the inflation rate and the unemployment rate for the US for each year between 1960 and 2020. Based on this information, which of the following statements is correct? A) The Phillips curve is stable over the years. B) The Phillips curve shifted higher over the period. C) 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. D) In the most recent period, the US economy has been able to lower its inflation rate with little effect on the unemployment rate.
C) 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 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%. Based on this information, which of the following statements is correct? A) Specialization means that China will produce all the capital-intensive goods. B) The US has the stronger bargaining power in the determination of the relative price after trade. C) In the US, the employers are better off while the workers are worse off as a result of trade. D) In China, the workers are better off while the employers are worse off as a result of trade.
C) In the US, the employers are better off while the workers are worse off as a result of trade.
Figure 16.9b depicts the long-run adjustment process in the labour market after technological progress. Based on this information, which of the following statements is correct? A) The new technology does not cause any increase in unemployment, either in the short run or in the long run. B) At D firms increase investment, and hence employment, due to the large gap between the real wage paid and the workers' wage-setting curve. C) Lower unemployment at E implies a higher wage required to induce workers to exert high effort, resulting in the higher real wage at B. D) The adjustment from equilibrium A to the new equilibrium at B is immediate.
C) Lower unemployment at E implies a higher wage required to induce workers to exert high effort, resulting in the higher real wage at B.
Figure 17.16 is a graph of the unemployment rate and consumer price inflation in advanced economies between 1960 and 2020. Based on this information, which of the following statements is correct? A) As predicted by the Phillips curve, the unemployment rate rises whenever inflation falls and vice versa throughout the period depicted. B) The unemployment rate and the inflation rate were consistently positively correlated during the stagflation period of the 1970s. C) Stagflation was caused by the shifting up of the Phillips curve, propelled by higher inflation expectations. D) The end of stagflation was characterized by falls in both the unemployment rate and the inflation rate.
C) Stagflation was caused by the shifting up of the Phillips curve, propelled by higher inflation expectations.
The relationship between the unemployment rate and the job vacancy rate (each expressed as a fraction of the labour force) is known as: A)The labour demand curve. B)nThe wage-setting curve. C) The Beveridge curve D) The Phillips curve.
C) The Beveridge curve
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. Based on this information, which of the following statements is correct? A) The marginal propensity to consume (MPC) is the proportion of current income spent on consumption, C/Y. B) The MPC is given by the line's intercept on the vertical axis. C) The MPC is normally less than 1 as some households are able to smooth their consumption. D) If the current income of a country is Y = $100 trillion and the MPC = 0.6, then the aggregate consumption spending is C = $60 trillion.
C) The MPC is normally less than 1 as some households are able to smooth their consumption.
The following figure shows the unemployment rate (left-hand axis) and productivity growth (right-hand axis) in the US between 1914 and 2015. Based on this information, which of the following statements is correct? A) The US has been able to achieve increasingly lower unemployment rates in its boom years through this period. B) There was a consistent and significant fall in productivity growth during the Great Depression era. C) 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. D) The unemployment rate reached in the recent financial crisis was the highest since the stagflation years of 1973-79.
C) 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.
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? A) Occupations with the biggest projected growth are those that benefit from innovations that increase automation. B) Occupations with substantial projected job losses are those with the highest wages, which would encourage employers to invest in automation. C) 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. D) There is no particular pattern between the mean average wage and the projected job growth.
C) 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.
The economy's marginal propensity to consume is 0.5. Based on this information, which of the following statements is correct? A) The new goods market equilibrium after the investment increase is E. B) Aggregate demand increases by a total of €2 billion × 0.5 = €1 billion due to the increase in investment. C) The multiplier is 2. D) The distance between C and D is three-quarters the distance between A and B (€1.5 billion).
C) The multiplier is 2.
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? A) Strikes are beneficial to all workers. B) Nearly half of the workers went on strike at the peak of the strike activity between 1975 and 1980. C) The postwar accord of cooperation between employers and employees broke down in the late 1960s. D) The first oil shock of 1973 triggered a sharp rise in average wages.
C) The postwar accord of cooperation between employers and employees broke down in the late 1960s.
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 is correct? A) At quantity 4,000, the price received by the producers is 7.25. B) At quantity 6,000, the price paid by the consumer is 4. C) The price gap represents the trade costs, such as transportation costs and trade taxes. D) Increasing the quantity sold to 6,000 causes the price gap to fall to 2.
C) The price gap represents the trade costs, such as transportation costs and trade taxes.
Which of the following statements regarding fiscal policy is correct? a. Expansionary fiscal policy (e.g. increasing the government deficit or reducing the surplus) always has a stabilising effect on the economy. b. Just as a family worried about mounting debts should cut spending and save more, an economy should adopt austerity measures when its debt level is high to restore its public finances to balance. c. In a recession, the aim of a government fiscal expansion is to over-ride the effects of automatic stabilisers. d. Unemployment benefits and taxes automatically increase government spending and cut taxation in a downturn, while they trim spending and raise taxes in a boom. These are therefore automatic stabilisers.
D
Which of the following statements about bubbles is correct? a. A bubble occurs when the fundamental value of a share rises too quickly. b. A bubble is less likely to occur in a market where people can easily switch from buying to selling. c. Bubbles can only occur in financial markets. d. Momentum trading strategies make bubbles more likely to occur.
D - why? Momentum traders buy or sell according to whether prices are rising or falling, rather than fundamental values, so can contribute to the formation of a bubble.
Which of the following statements is correct? A) The huge variation in productivity across countries and firms is due to differences in management practices. B) A country's openness to foreign direct investment (FDI) is more important for improving productivity than creative destruction. C) The 'creative' part of creative destruction is effective in improving productivity in the short and long run. D) A country's openness to imports can affect its productivity.
D) A country's openness to imports can affect its productivity.
Which of the following statements is correct? A) Maintaining fiscal balance in a recession helps to stabilize the economy. B) Automatic stabilizers refer to the fact that economic shocks are partly offset by households smoothing their consumption in the face of variable income. C) The multiplier on a fiscal stimulus is higher when the economy is functioning at full capacity. D) A fiscal stimulus can be implemented by raising spending to directly increase demand, or by cutting taxes to increase private sector demand.
D) A fiscal stimulus can be implemented by raising spending to directly increase demand, or by cutting taxes to increase private sector demand.
Figure 14.9 depicts possible investment projects for Firms A and B. Based on this information, which of the following statements is correct? A) Both firms only undertake their project 1 when the interest rate is 5%. B) The central bank can ensure that all projects will be undertaken by cutting the interest rate to 1.5%. C) When the demand is expected to permanently increase beyond the capacity of existing plants and equipment, the level of investment increases due to an upward shift in the expected profit rate. D) 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.
D) 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.
'Which of the following statements regarding current accounts is correct, ceteris paribus? A) An increase in the trade surplus would lead to a decrease in a country's current account. B) A country with zero trade balance but historically high foreign direct investment would always have a current account deficit. C) An increase in remittances by a country's nationals abroad would lead to a lower current account. D) An increase in the official aid payment sent to other countries means a lower current account.
D) An increase in the official aid payment sent to other countries means a lower current account.
Which of the following statements is correct regarding valuation of the benefits of abatement? A) An estimation of a nation's GDP currently includes the depletion of the nation's natural resources as a negative adjustment. B) In the hedonic pricing method, the cost of noise pollution near an airport is estimated by a survey of how much the residents are willing to pay to reduce the noise. C) In the contingent valuation method, the pollution due to landfill waste is estimated using the differences in the house prices according to the proximity to a landfill site. D) Asking citizens for their willingness to pay for a 'greener' environment may result in policies that mostly affect the poor being valued less than those that raise the environmental quality experienced by the rich.
D) Asking citizens for their willingness to pay for a 'greener' environment may result in policies that mostly affect the poor being valued less than those that raise the environmental quality experienced by 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? A) E, the point of maximum equality, is Pareto efficient. B) For the inequality-averse citizen shown, any point between R and F on the frontier is preferable to any point inside the frontier. C) If you had a 50-50 chance of being rich or poor, then your expected income is maximized at point B. D) Between D and F, lower income for the poor leads also to lower income for the rich.
D) Between D and F, lower income for the poor leads also to lower income for the rich.
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? A) The rise in the wage-setting curve due to stronger trade unions and higher unemployment benefits led to postwar innovation. This shifted the price-setting curve up. B) A rise in the wage-setting curve depresses profits and reduces investment. This conflict of interest between workers and employers means that low unemployment, high profits, and high investment would not have been sustainable. C) The substantial increase in the bargaining power of trade unions and political movements allied with workers meant that they could demand the highest possible wages, pushing the wage-setting curve to its highest possible level. D) 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.
D) 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 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. Based on this information, which of the following statements is correct? A) High trade union density is a necessary condition for a low unemployment rate. B) Low trade union density results in high unemployment. C) Considering only the Nordic countries (Norway, Denmark, Sweden, and Finland), it can be concluded that high trade union density leads to a low unemployment rate. D) Given the trade union density, the relative unemployment outcomes indicate that inclusiveness of trade unions is higher in Norway than in Belgium.
D) Given the trade union density, the relative unemployment outcomes indicate that inclusiveness of trade unions is higher in Norway than in Belgium.
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. Based on this information, which of the following statements is correct? A) An increase in the degree of competition in the economy will lower the price-setting curve. B) A lower interest rate leads to a lower price-setting curve. C) Lower worker productivity leads to a higher price-setting curve for a given markup μ*. D) Higher risk of expropriation of businesses overseas results in a higher price-setting curve.
D) Higher risk of expropriation of businesses overseas results in a higher price-setting curve.
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? A) If the consumer is credit-constrained, then he will consume less in period 2 than he would have done without the temporary shock. B) If the consumer is not credit-constrained, then he will be able to borrow to consume the same amount as he would have done in both periods without the temporary shock. C) If the consumer is not credit-constrained, then he will borrow y − c′ in period 1 in order to smooth out his consumption in the two periods. D) 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).
D) 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 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): Based on this information, which of the following statements is correct? A) Japan experienced a persistent period of disinflation between 2010 and 2013. B) In the UK the price of goods and services remained stable between 2010 and 2013. C) China has been experiencing deflationary pressure between 2011 and 2013. D) Nauru's price level at the end of 2013 is lower than it was at the start of 2010.
D) Nauru's price level at the end of 2013 is lower than it was at the start of 2010.
Figure 17.19 shows the household debt-to-income ratio and the house prices in the US between 1950 and 2020. Based on this information, which of the following statements is correct? A) The real value of household debt more than doubled from the end of the golden age to the peak on the eve of the financial crisis. B) The causality is from the house price to household debt, that is, higher house prices encourage higher debt, but not the other way round. C) A household debt-to-income ratio of over 100 means that the household is bankrupt. D) Subprime mortgages partly explain the rise in debt in the US prior to the financial crisis.
D) Subprime mortgages partly explain the rise in debt in the US prior to the financial crisis.
The graph shows the plot of Beveridge curves for the US and Germany for the period 2001 Q1 to 2021 Q2. Based on this information, which of the statements below is correct? A) The Beveridge curves depict the negative relationship between the vacancy rate and the employment rate. B) The US labour market was better at matching workers with vacancies during the financial crisis of 2008-9. C) The US Beveridge curve shifted after the financial crisis, improving the matching rate. D) The matching rate in Germany improved after its Beveridge curve shifted around 2007.
D) The matching rate in Germany improved after its Beveridge curve shifted around 2007.
Figure 20.27 is the diagram of the amount abated for the total cost of abatement using different abatement policies. Based on this information, which of the following statements is correct? A) The points between C and D represent the more costly policies being adopted first. B) D should always be the optimal policy choice. C) The optimal policy choice can be a point on the segment CD. D) The optimal policy choice will have the quality of the environment higher than E.
D) The optimal policy choice will have the quality of the environment higher than E.
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? A) The labour market equilibrium occurs at zero inflation and 6% unemployment rate. B) With the fall in the unemployment rate to 3%, the Phillips curve shifts up immediately. C) The bargaining gap returns to zero after the first round of wage- and price-setting. D) Upward shifts of the Phillips curve represent a rising inflation rate for a given unemployment rate.
D) Upward shifts of the Phillips curve represent a rising inflation rate for a given unemployment rate.
The following graph shows the relationship between real GDP growth and change in unemployment for the US between 1961 and 2019. The equation shown is the regression result for the best-fitting line. Based on this information, which of the following statements is correct? A) The unemployment rate remains stable when there is zero real GDP growth. B) Okun's coefficient for the US is 1.0827. C) From the regression result, policy makers can be sure that a 1% increase in real GDP next year will definitely lead to a fall in the unemployment rate of 0.37 percentage points. D) With real GDP falling by 2.8% in 2009, the predicted rise in the unemployment rate would have been 2.11 percentage points.
D) With real GDP falling by 2.8% in 2009, the predicted rise in the unemployment rate would have been 2.11 percentage points.
