Macro summer final
20. During a recession the economy experiences a. falling income and rising unemployment. b. rising income and unemployment. c. falling income and unemployment. d. rising income and falling unemployment.
a
20. Microeconomic substitution is impossible for the economy as a whole because a. real GDP measures the total quantity of goods and services produced by all firms in all markets. b. the prices of some goods and services adjust sluggishly in response to changing economic conditions. c. a lower price level increases real wealth, which stimulates spending by consumers and vice-versa. d. money is a veil.
a
20. The Stock Market Boom of 2015 Imagine that in 2015 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time. Refer to Stock Market Boom 2015. In the short run what happens to the price level and real GDP? a. both the price level and real GDP rise. b. both the price level and real GDP fall. c. the price level falls and real GDP rises. d. the price level rises and real GDP falls.
a
20. Which of the following shifts aggregate demand to the left? a. households decide to save a larger fraction of their income. b. an increase in net exports. c. an increase in the price level. d. Congress passes a new investment tax credit.
a
21. If expected inflation is constant, then when the nominal interest rate increases, the real interest rate a. increases by the change in the nominal interest rate. b. decreases by the change in the nominal interest rate. c. increases by more than the change in the nominal interest rate. d. decreases by more than the change in the nominal interest rate.
a
21. When households decide to hold more money, a. interest rates rise and investment decreases. b. interest rates fall and investment increases. c. interest rates rise and investment increases. d. interest rates fall and investment decreases.
a
22. If the Fed announced a policy to reduce inflation and people found it credible, the short-run Phillips curve would shift a. left and the sacrifice ratio would fall. b. right and the sacrifice ratio would fall. c. right and the sacrifice ratio would rise. d. left and the sacrifice ratio would rise.
a
22. In the late 1960s, economist Edmund Phelps published a paper that a. argued that there was no long-run tradeoff between inflation and unemployment. b. argued that the Phillips curve was stable and that it would not shift. c. disproved Friedman's claim that monetary policy was effective in controlling inflation. d. showed the optimal point on the Phillips curve was at an unemployment rate of 5 percent and an inflation rate of 2 percent.
a
23. In general, the longest lag for a.fiscal policy is the time it takes to change policy, while for monetary policy the longest lag is the time it takes for policy to affect aggregate demand. b.monetary policy is the time it takes to change policy, while for fiscal policy the longest lag is the time it takes for policy to affect aggregate demand. c. both fiscal and monetary policy is the time it takes for policy to affect aggregate demand. d. both fiscal and monetary policy is the time it takes to change policy.
a
23. Which costs of inflation could the government reduce without reducing inflation? a. arbitrary redistributions of wealth b. shoeleather costs c. menu costs d. none of the above is correct.
a
19. An increase in the budget deficit causes domestic interest rates a. and investment to rise. b. to rise and investment to fall. c. and investment to fall. d. to fall and investment to rise.
b
22. A basis for the slope of the short-run Phillips curve is that when unemployment is high there are a. downward pressures on prices and upward pressures on wages. b. downward pressures on prices and wages. c. upward pressures on prices and downward pressures on wages. d. upward pressures on prices and wages.
b
23. "Leaning against the wind" is exemplified by a(n) a. tax increase when there is a recession. b. decrease in the money supply when there is a recession. c. increase in government expenditures when there is a recession. d. All of the above are correct.
c
23. Which of the following is not correct? a. Government debt can continue to rise forever. b. If the government uses funds to pay for investment programs, on net the debt need not burden future generations. c. Social Security does not transfer wealth from younger generations to older generations. d. The average U.S. citizens' share of the government debt represents less than 2 percent of her lifetime income.
c
18. If domestic residents of France purchase 1.2 trillion euros of foreign assets and foreigners purchase 1.5 trillion euros of French assets, then France's net capital outflow is a. -.3 trillion euros, so it must have a trade deficit. b. .3 trillion euros, so it must have a trade deficit. c. .3 trillion euros, so it must have a trade surplus. d. -.3 trillion euros, so it must have a trade surplus.
a
20. The position of the long-run aggregate supply curve a. is determined by resource usage and technology. b. is at the point where the unemployment rate is zero. c. shifts to the right when the money supply increases. d. is at the point where the economy would cease to grow.
a
18. A U.S. firm buys sardines from Morocco and pays for them with U.S. dollars. Other things the same, U.S. net exports a. decrease, and U.S. net capital outflow increases. b. decrease, and U.S. net capital outflow decreases. c. increase, and U.S. net capital outflow increases. d. increase, and U.S. net capital outflow decreases.
b
18. From 1980-1987, U.S. net capital outflow as a percent of GDP became a a. larger positive number. b. larger negative number. c. smaller positive number. d. smaller negative number.
b
19. If a country has a positive net capital outflow, then a.on net other countries are purchasing assets from it. This subtracts from its demand for domestically generated loanable funds. b. on net it is purchasing assets from abroad. This adds to its demand for domestically generated loanable funds. c. on net it is purchasing assets from abroad. This subtracts from its demand for domestically generated loanable funds. d. on net other countries are purchasing assets from it. This adds to its demand for domestically generated loanable funds.
b
19. If a country places tariffs on imported goods, then a. its currency depreciates which increases exports. b. its currency appreciates which reduces exports. c. its currency depreciates which reduces exports. d. its currency appreciates which increases exports.
b
21. A reduction in personal income taxes increases Aggregate Demand through a. an increase in investment spending. b. an increase in personal consumption. c. an increase in private savings. d. an increase in national savings.
b
21. Automatic stabilizers a. increase the problems that lags cause in using fiscal policy as a stabilization tool. b.are changes in taxes or government spending that increase aggregate demand without requiring policy makers to act when the economy goes into recession. c. are changes in taxes or government spending that policy makers quickly agree to when the economy goes into recession. d. All of the above are correct.
b
21. The primary argument against active monetary and fiscal policy is that a.history demonstrates that interest rates respond unpredictably to active policies, leading to unpredictable effects on income. b. these policies affect the economy with a long lag. c. attempts to stabilize the economy do not constitute a proper role for government in a democratic society. d. these policies affect the economy too quickly and with too much impact.
b
22. The very low inflation that the U.S. experienced in 2009 and 2010 a. appears to have reduced expected inflation, and the short-run Phillips curve shifted upward as a result. b.does not appear to have reduced expected inflation, and the short-run Phillips curve remained relatively stable as a result. c. does not appear to have reduced expected inflation, but the short-run Phillips curve shifted dramatically nevertheless. d. appears to have reduced expected inflation, and the short-run Phillips curve shifted downward as a result.
b
23. For the Fed to fully eliminate the costs of inflation, how low does the inflation rate need to be? a. 6 percent b. 0 percent c. 3 percent d. 5 percent
b
18. From 1970 to 1998 the U.S. dollar a. lost value compared to the Italian lira because inflation was lower in the U.S. b. lost value compared to the Italian lira because inflation was higher in the U.S. c. gained value compared to the Italian lira because inflation was lower in the U.S. d. gained value compared to the Italian lira because inflation was higher in the U.S.
c
18. If the exchange rate is .60 British pounds = $1, a bottle of ale that costs 3 pounds costs a. $1.80. b. $4.80. c. $5. d. None of the above is correct.
c
18. If a country had a trade surplus of $50 billion and then its exports rose by $30 billion and its imports rose by $20 billion, its net exports would now be a. $20 billion. b. $0 billion. c. $40 billion. d. $60 billion.
d
18.Which type(s) of economies interact with other economies? a. neither closed nor open economies b. closed economies and open economies c. only closed economies d. only open economies
d
19. A country has national saving of $90 billion, government expenditures of $30 billion, domestic investment of $50 billion, and net capital outflow of $40 billion. What is its demand for loanable funds? (S=I+NCO) a. $60 billion b. $130 billion c. $40 billion d. $90 billion
d
21. In the short run, open-market purchases a. increase real GDP and nominal interest rates, and decrease investment. b. increase investment and nominal interest rates, and decrease real GDP. c. decrease investment, nominal interest rates, and real GDP. d. increase investment and real GDP, and decrease nominal interest rates.
d
21. When there is an increase in government expenditures, which of the following raises investment spending? a. the investment accelerator and crowding out b. neither the investment accelerator or crowding out c. crowding out but not the investment accelerator d. the investment accelerator but not crowding out
d
22. A favorable supply shock will shift short-run aggregate supply a. left, making output fall. b. left, making output rise. c. right, making output fall. d. right, making output rise.
d
22. A policy that raised the natural rate of unemployment would shift a. the short-run Phillips curve right but leave the long-run Phillips curve unchanged. b. neither the long-run Phillips curve nor the short-run Phillips curve right. c. the long-run Phillips curve right but leave the short-run Phillips curve unchanged. d. both the short-run and the long-run Phillips curves to the right.
d
23. Suppose a tax cut affects aggregate demand and aggregate supply. Which of the shifts raise the price level? a. both the shift of aggregate demand and the shift of aggregate supply b. the shift of aggregate supply, but not the shift of aggregate demand c. neither the shift of aggregate demand nor the shift of aggregate supply d. the shift of aggregate demand, but not the shift of aggregate supply
d
23. The Federal Open Market Committee meets about a. every six months. b. every six days. c. every sixteen months. d. every six weeks.
d
18. A U.S. company uses U.K. pounds it already owned to purchase bonds issued by a company in the U.K. Which of these countries has an increase in net capital outflow? a. The U.K. but not the U.S. b. The U.S. and the U.K. c. Neither the U.S. nor the U.K. d. The U.S. but not the U.K.
C
18. If the unit of foreign currency is the peso, in which case is the real exchange rate 1.2? a. the U.S. price is $5, the foreign price 12 pesos, and the exchange rate is 2 pesos per dollar. b. the U.S. price is $3, the foreign price is 18 pesos, and the exchange rate is 5 pesos per dollar. c. the U.S. price is $2, the foreign price is 5 pesos, and the exchange rate is 3 pesos per dollar. d. the U.S. price is $10, the foreign price is 3 pesos, and the exchange rate is 4 pesos per dollar.
c
18. Which of the following does purchasing-power parity imply? a.the foreign price level times the nominal exchange rate (given as amount of foreign currency per dollar) equals the U.S. price level. b. The price of domestic goods relative to foreign goods cannot change. c. The nominal exchange rate is the ratio of foreign prices to U.S. prices. d. All of the above are correct.
c
19. In 2002, the United States placed higher tariffs on imports of steel. According to the open-economy macroeconomic model this policy should have a. reduced imports of steel into the United States and increased U.S. exports of other goods by an equal amount. b. reduced imports into the United States and made the net supply of dollars in the foreign exchange market shift right. c. reduced imports of steel into the United States, but reduced U.S. exports of other goods by an equal amount. d. reduced imports into the United States and made U.S. net exports rise.
c
19. The open-economy macroeconomic model includes a. only the market for loanable funds. b. only the market for foreign-currency exchange. c. both the market for loanable funds and the market for foreign-currency exchange. d. neither the market for loanable funds nor the market for foreign-currency exchange.
c
19. When the U.S. real interest rate falls a. U.S. purchases of foreign assets and foreign purchases of U.S. assets rise b. U.S. purchases of foreign assets and foreign purchases of U.S. assets fall c. U.S. purchases of foreign assets rise and foreign purchases of U.S. assets fall d. U.S. purchases of foreign assets fall and foreign purchases of U.S. assets rise
c
19. Which of the following would cause the real exchange rate of the U.S. dollar to appreciate? a. the U.S. government budget deficit decreases b. capital flight from the U.S. c. the U.S. imposes import quotas d. None of the above is correct.
c
20. Historically, the change in real GDP during recessions has been a. about equally divided between consumption and investment spending. b. sometimes mostly a change in consumption and sometimes mostly a change in investment. c. mostly a change in investment spending. d. mostly a change in consumption spending.
c
20. In the context of aggregate demand and aggregate supply, the wealth effect refers to the idea that, when the price level decreases, the real wealth of households a.increases and as a result households increase their money holdings; in turn, interest rates increase and investment spending decreases. This effect contributes to the downward slope of the aggregate-demand curve. b.decreases and as a result consumption spending increases. This effect contributes to the upward slope of the aggregate-supply curve. c.increases and as a result consumption spending increases. This effect contributes to the downward slope of the aggregate-demand curve. d.decreases and as a result households increase their money holdings; in turn, interest rates increase and investment spending decreases. This effect contributes to the upward slope of the aggregate-supply curve.
c
20. Other things the same, if the price level rises by 2% and people were expecting it to rise by 5%, then some firms have a. lower than desired prices, which depresses their sales. b. lower than desired prices, which increases their sales. c. higher than desired prices, which depresses their sales. d. higher than desired prices, which increases their sales.
c
20. Which of the following shifts aggregate demand right? a. both a decrease in the price level and the implementation of an investment tax credit b. a decrease in the price level but not the implementation of an investment tax credit c. the implementation of an investment tax credit but not a decrease in the price level d. neither a decrease in the price level nor the implementation of an investment tax credit
c
21. In the long run, the level of output a. depends on the money supply. b. depends on the price level. c. is determined by supply-side factors. d. All of the above are correct.
c
21. Shifts in aggregate demand affect the price level in a. the short run but not in the long run. b. the long run but not in the short run. c. both the short and long run. d. neither the short nor long run.
c
22. If a central bank increases the money supply in response to an adverse supply shock, then which of the following quantities moves closer to its pre-shock value as a result? a. neither output nor the price level b. the price level but not output c. output but not the price level d. both the price level and output
c
23. Which of the following is correct? a. Means-tested benefits increase the incentive to save. b. No forms of capital income are taxed twice. c. The tax code cannot be rewritten to provide greater incentive to save. d. There is a correlation between national savings rates and measures of economic well-being.
d
