A. Number of unemployed

184. The government is running a budget deficit if
A. government spending is greater than tax revenue.

185. The AS/AD model with sticky prices predicts that, in the long run, a reduction of the money supply results in
B. lower prices and no change in output.

186. The occurrence of falling output combined with rising prices is called
D. stagflation.

187. The LRAS curve of the classical model is
A. vertical.

188. The quantity equation MV = PY implies that the AD curve is
D. downward sloping.

189. The effect of a change in aggregate demand on income and prices depends crucially on
A. the time horizon.

190. The supply of loanable funds, or "national saving," is equal to
C. income - consumption - government spending.

191. The quantity theory of money states that if the money supply doubles and output is constant, prices will
C. double..

192. The relationship between interest rates and the level of income that arises in the market for goods and services is called the
B. IS curve.

193. The investment function and the IS curve slope
D. downward because higher interest rates induce less investment.

194. The slope of the IS curve depends on
A. the sensitivity of investment to the interest rate.

195. The IS curve is drawn for a given
A. fiscal policy.

196. The LM curve is drawn for a given
C. money supply.

197. The quantity of real money balances demanded depends on the
A. nominal interest rate.

198. The quantity of real money balances demanded depends on
B. real income.

199. The relationship between the interest rate and the level of income that arises in the market for money balances is called the
A. LM curve.

200. The theory of liquidity preference assumes that the supply of real money balances, plotted against the interest rate, is
D. vertical.

201. The theory of liquidity preference postulates that the demand for real money balances, plotted against the interest rate, is
B. downward sloping.

202. The difference between the nominal interest rate and the real interest rate is
A. inflation.

203. The Fisher equation states that a 1 percent rise in the rate of inflation causes a
B. nominal interest rate.

204. The expected rate of inflation does not influence the
D. current price level.

205. The cost of holding money is determined by the
D. nominal interest rate.

206. The expected future money supply does not have an effect on
C. the current nominal money supply.

207. The inside lag is the
A. time between a shock to the economy and the policy action responding to that shock.

208. The outside lag is the
B. time between a policy action and its influence on the economy.

209. The Lucas critique is based on
D. the fact that people's expectations are rational.

210. The monetary-policy rule that monetarists advocate is
B. a steady rate of growth of the money supply.

211. Taylor's rule for the federal funds rate implies that the central bank is concerned with
C. both GDP gap and inflation.

212. The exante real interest rate differs from the ex post real interest rate only when
D. actual inflation differs from expected inflation.

213. Structural unemployment results when
D. the real wage is above its market-clearing level.

214. Suppose that the price level has risen but the government has not collected any seignorage. Which of the following might have happened?
A. V rose, M and Y were constant

215. Suppose that there is a positive shock to investment demand: that is, at every interest rate, the desired amount of investment rises. In a closed economy with the national saving fixed, the real interest rate will
C. rise.

216. Suppose that the size of the labor force is 100 million and that the unemployment rate is 5 percent. Which of the following actions would reduce the unemployment rate the most?

B. 2 million unemployed people leave the labor force.

217. Suppose that output per worker is 10, the production function is y = sqrt(k) [that is, output per worker is equal to the square root of capital per worker] and the total capital stock is 1,000. How large is the labor force?
B. 10

218. Suppose that the production function is y = sqrt(k) [that is, output per worker is equal to the square root of capital per worker], s = 0.40, and delta [the depreciation rate] = 0.10. What is the steady-state level of capital?
D. 16

219 Suppose that the production function is y = sqrt(k) [that is, output per worker is equal to the square root of capital per worker], s = 0.40, and delta [the depreciation rate] = 0.10. What level saving will lead to the highest possible level of output in the steady state?
D. 100 percent

220. Suppose that a major natural disaster destroys a large part of a country's capital stock but miraculously does not cause anybody bodily harm. What will happen to the real wage rate?
C. It will fall.

221. Suppose that a consumer has a marginal propensity to consume of 0.7. If this consumer earns an extra $2, her consumption spending would be expected to increase by
C. $1.40.

222. Suppose that a consumer has a marginal propensity to consume of 0.8. If this consumer receives and extra $2 of disposable income, her saving would be expected to increase by
A. $0.40.

223. Suppose that Jones builds a new house, then she sells it to Smith, and then Smith sells it to Williams. The total net investment from these transactions is
B. 1 house.

224. Suppose that 130 people are unemployed for part of a given year; 120 are unemployed for 1 month, 10 are unemployed throughout the year; what percentage of total months of unemployment is attributable to the long-term unemployed?
D. 50 percent

225. Suppose that a Canadian citizen crosses the border each day to work in the United States. Her income from this job would be counted in

Date: 2015-12-11; view: 955