macro -- test questions
sell out of a speculative bubble when you hear this phrase
"this time it's different"
indirect effects of gov't spending, representing opportunity costs
"what is unseen"
Which of the following models assumes that nominal wages are perfectly flexible
Classical Labor Market
"Inflation is always and only a monetary phenomenon"
Crude Quantity Theory of Money
This equation, at the heart of the Quantity Theory of Money, is a tautology
Equation of Exchange
"I do NOT believe in bubbles" because markets are efficient
Eugene Fama
T/F International free trade was brought to an abrupt halt by the Japanese bombing of Pearl Harbor in Dec 1941 which brought the US into WWII
False
T/F Other things the same, an increase in the price of oil tends to result in a supply stimulus, or RIGHTWARD shift in Aggregate Supply Curve
False
T/F Real GDP is not adjusted for (does not take into account of) inflation.
False
first person known to have written about the total effects of opportunity cost
Frederic Bastiat
Which of the following periods of economic decline was associated with deflation
Great Depression of 1930s
"cheap money drives out dear money"
Gresham's Law
near-libertarian, with private markets sending signals for economic decisions
Hayak and Austrian school
For whom is the following statement a central theme: "Market systems are inherently unstable and unfair and must. be regulated through central planning by an elite intelligentsia."
J Maynard Keynes (General Theory of Employment, Interest, and Money)
Near-Socialist with gov'ts planning out most aspects of everyday life
Keynes and Keynesian school
"the economy" is a machine that can be fine-tuned using gov't spending
Keynesian policy
Which of the following tend to favor demand-feeding markets that give rise to bubbles
Keynesians
the only gov't policy that is effective is unanticipated (fools people)
Lucas' critique
example of the Broekn-Window Fallacy of Bastiat
No gov't spending is ever really wasted since it puts dollars in circulation and stimulates some sector of the economy
purports to show a trade-off between inflation and unemployment
Phillips curve
If all resources are fully employed, then Say's Law would imply which of the following?
Supply creates its own demand
T/F The crude quantity theory of money assumes that the velocity of money is constant, which is also seldom ever true in the US economy because the velocity of money frequently changes depending on economic conditions.
T/F The crude True
In Keynes' version of the Classical Model, all 3 parts of the Classical Labor Market, the Loanable Funds Model, and the Crude Quantity Theory of Money, are separate and entirely independent of one another.
True
T/F GDP captures only economic activity, so an event like a disaster may lead to a higher GDP but may make most of those in the economy worse off
True
Which of the following statements is true about Keynes' version of the Classical model: The Quantity Theory of Money and Classical Labor market are independent of each other the equilibrium interest rate is where Investment spending equals saving nominal wage is not sticky but rather perfectly flexible all of the above
all of the above
the principle of parsimony requires these of any model
assumptions
In order for the money (demand deposit) multiplier to equal the reciprocal of the reserve requirement ratio what assumptions are necessary:
banks loan out all excess reserves no significant cash leakages no runs on the bank
How can Federal Reserve system increase credit (indirectly increase money supply)
buy gov't securities on open market
functioned as currency in German POW camp article
cigarettes
there is no scope for involuntary unemployment
classical labor market
Which of the following takes into account the prices of retail goods?
consumer price index
new opportunities for profits emerge while old opportunities fall away
creative destruction
trying to solve yesterday's problem, regulators sow the seed of the next bubble
credit crunch
one of the possible causes of a speculative bubble
crop failure
Which of the following occurs directly, ceteris paribus, when the price of oil rises: decrease in demand for plastic decrease in demand for rubber decrease in supply of gas all of the above
decrease in supply of gas
In a situation where information travels so fast in a particular market that no one can take advantage of riskless arbitrage opportunities, the market is said to be?
efficient
prices already fully reflect all publicly available information
efficient markets
Which of the following is the most efficient form of money (among choices given) because it has more valuable as a commodity than the other choices? paper gold electronic bookkeeping entries sticks of wood
electronic bookkeeping entries
For which kind of variable is the value determined inside the model as a result?
endogenous variable
long-term interest rates contain a premium reflecting expected inflation
expectations theory
T/F According to Robert E. Lucas Jr. gov't policy will always work whether it is unanticipated (fools people) or not
false
T/F Other things the same, an increase in the price of oil tends to result in a supply shock, or rightward shift in AS curve
false
Which of the following assumptions did Barro claim is required to obtain the result that gov't debt has no effect on current consumption (or production)?
families act as infinitely lived dynasties because of intergenerational altruism capital markets are perfect path of gov't expenditures are fixed
extremely short-term interest rate at which banks can borrow from FED or other banks
federal funds rate or discount rate
Which of the following is the least efficient form of money (among the choices given) because it has more value as a commodity than the other choices? paper gold credit cards sticks of wood
gold
3 examples of assets where speculative bubbles can occur
gold, stock, beanie babies
"Commanding Heights" of the macroeconomy
heavy industries (coal, steel, and rail)
what typically precedes massive monetization of the debt
high interest rates in which the treasury can find few buyers for its debt
If the special assumptions we studied are all met, then what would be the ultimate effect on the money supply if the Fed bought $100 million of gov't securities on the open market and the reserve requirement ratio were 5%
increase $2 billion
say whether each variable is an injection, leakage or not considered: Investment Spending (I)
injection
say whether each variable is an injection, leakage or not considered: government spending (G)
injection
"I believe in bubbles"
institutionalists
Which of the following believe that the form and structure of institutions, like banks, firms, schools, and organizations, really matter in determining economic behavior
institutionalists
All borrowing is assumed to be done by firm from banks for buying capital goods
investment spending in circular flow
According to the Expectations Hypothesis of interest rates, a downward-sloping US Treasury yield curve implies that
investors expect coming recession
say whether each variable is an injection, leakage or not considered: Saving (S)
leakage
say whether each variable is an injection, leakage or not considered: Taxes
leakage
Banks are perfectly competitive, making no profits in lending
loanable funds model
In equilibrium, lenders paid the same interest rate as borrowers, according to Keynes' version of
loanable funds model
according to the ______ there is a negative relationship between investment spending and the rate of interest
loanable funds model
function or characteristic of money that removes need for double coincidence of wants
medium of exchange
In forty-something Sherry takes a job in Miami that pays slightly more than her current similar job in Little Rock just because the pay is higher, then she is experiencing
money illusion
If the chair of the Federal REserve Board of Governors gives a speech in which he notes that the NYSE is setting new highs and is dangerously overpriced, then he is engaging in...
moral suasion
the Fed Chairman engages in this when he threatens to tighten credit
moral suasion
Which of the following is the total market value, in today's dollars, of all final goods and services produced within the US during a quarter
nominal gross domestic product
How can the Federal Reserve system decrease credit (indirectly decrease money supply)? buy gov't securities on the open market decrease reserve requirement ratio decrease discount rate at which member banks borrow none of the above
none of the above
If the special assumptions we studied are all met, then what would be the ultimate effect on the money supply if the Federal Reserve sells $100 million of government securities on the open market and the reserve requirement ratio were five percent? increase $100 million increase $1 billion increase $500 million none of the above
none of the above
In the Circular Flow Model, which of the following is used to describe the amount of funds that domestic consumers use in order to buy goods from producers in other countries consumption spending investment spending government spending none of the above
none of the above
Which of the following can cause stagflation: an increase in consumer taxes decrease in money supply increase in gov't spending none of the above
none of the above
What defines the velocity of money
number of times the average dollar is spent in a period
the principles of parsimony implies that
other things the same, a simple model is better than a complicated model
If silver and appear If silver and paper both function as money in a particular economy, then according to Gresham's Law
paper will circulate and people will hoard silver
in what market structure does the loanable funds model assume banks operate
perfect competition
In the Circular Flow model, when injections exceed leakages, ceteris paribus,
prices rise, and if, the economy is not already at full employment, output rises too
this is the economy contracting for 2+ quarters
recession
According to former FED chair Paul Volcker, the only way to effectively combat institutionalized inflationary expectations is to
severely contract money supply
3 characteristics of the climax, or peak, of a speculative bubble
speculation moves to secondary assets more people with little connection want to "get rich quick" swindles and frauds
simultaneous appearance of both higher prices and higher unemployment
stagflation
Which property of money makes writing contracts feasible by allowing them to retain their values over time?
standard of deferred payment
which of the following would be likeliest to exhibit the most efficient markets? gold and other precious metals diamonds stocks Arkadelphia real estate
stocks
AS shifts to the left, leading to staglfation
supply shock
gov't reduces business taxes and business regulation
supply-side economics to shift AS to the right
What did Paul Krugman prescribe as the best policy to replace the NASDAQ bubble of 1995 - 2002
traditional Keynesian stimulus policy and Fed short-term interest rate cuts to stimulate AD
T/F Bubbles occur years after initial spark, or cause and may be the result of several causes interacting over several years.
true
T/F Comparative statics consists of comparing equilibria of static models
true
T/F International free trade was brought to an abrupt halt by the assassination of the Austrian Archduke in August, 1914, which began WWI
true
T/F Lucas observed that trying to estimate the parameters of Keynesian models is useless when the economic data that are being used were generated using National Income Accounting, since those data assume a Keynesian world already
true
T/F Most recessions are not officially identified until they are already well under way.
true
T/F Other things the same, a decrease in the price of oil tends to result in a supply stimulus, or rightward shift in the AS curve
true
T/F Other things the same, an increase in the price of oil tends to result in a supply shock, or leftward shift in AS curve
true
T/F Silver, as an asset of inferior quality, might experience contagion effects from a speculative bubble in gold.
true
T/F The Great Depression of the 1930s is one of the very few contractions in US history where prices actually fell.
true
T/F The composition of a price index "market basket" depends on which kinds of goods and services those in the market basket tend to purchase
true
T/F The typical end product of a nation that will not raise enough taxes or has insufficient tax base to service its gov't debt, like 1920s Germany or present-day Venezuela, is monetization of the debt and resulting hyperinflation
true
T/F according to Robert E. lucas, Jr, gov't policy will only work when it is unanticipated (fools people)
true
T/F according to the Horton version of the Minsky model of speculative bubbles, gov't usually comes to the rescue tool ate and sows the seeds of the next bubble
true
function of characteristic of money that makes price quotes possible
unit of account
which property of money makes quoting prices feasible by accounting for them in common currency units
unit of account
who would agree with this statement as a central theme: "markets work, gov't's don't. Free markets do it best. Why fool with anything else?"
von Mises' and Hayek's Austrian School of Economics
3 things that can spark a speculative bubble
war, crop failure, technological innovation
