B. Italian GNP will fall; U.S. GNP will rise.

C. Italian GDP will fall; U.S. GDP will rise.

D. Italian GNP will fall; U.S. GDP will rise.

5. Suppose that the capital stock is 100, the depreciation rate is 10 percent per year, and output is 25. What must the saving rate be to keep the capital stock constant?
A. 2.5 percent
B. 10 percent
C. 25 percent
D. 40 percent

3. Suppose that the index of leading indicators leads the business cycle by twelve months. If the inside lag of monetary policy is three months, then the maximum outside lag that makes monetary policy effective is
A. three months.
B. six months.
C. nine months.
D. twelve months.

8. Suppose you are president and your advisors
A. the Lucas critique.
B. time inconsistency.
C. discretionary policy.
D. a political business cycle.

10. Suppose that the government has been conducting policy according to the following equation for some time now Money Growth = 3% + (Unemployment Rate - 6%) This kind of policy is called a(n)
A. passive rule policy.
B. passive discretionary policy.
C. active rule policy.
D. active discretionary policy.

12. Suppose that a professor announces that an exam will be given in one particular week. When the date for the exam comes, the professor is tempted not to give the exam, reasoning that the students have already studied and now she can teach an extra day. This is an example of
A. rational expectations.
B. adaptive expectations.
C. discretionary policy.
D. time inconsistency.

14. Suppose that an economy is in steady state and has more capital than it would have in the Golden Rule steady state. A policymaker would want to pursue policies aimed at decreasing
A. consumption.
B. the rate of saving.
C. the depreciation rate.
D. the rate of population growth.

18. Suppose that the production function is Y = AF(K,L). The (unchanging) share of capital in output is 0.5. Suppose that output increases by 4 percent, the labor force increases by 3 percent, and the capital stock increases by 2 percent. What is the Solow residual in this case?
A. 0.5 percent
B. 1.0 percent
C. 1.5 percent
D. 2.0 percent

21. 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 = 0.20, and delta [the depreciation rate] = 0.10. What is the Golden Rule level of capital per capita?
A. 20
B. 25
C. 30
D. 35

2. Suppose that the price level is 1 and output is 100. Then the Fed suddenly increases the money supply by 10 percent. According to the AD/AS model, what would be the most probable paths for output and prices?
A. Y: 100, 105, 100; P: 1, 1, 1.1
B. Y: 100, 100, 100; P: 1, 1.1, 1.1
C. Y: 100, 105, 105; P: 1, 1, 1.1
D. Y: 100, 100, 105; P: 1, 1.1, 1

17. Suppose country A has a higher risk premium than country B. One can then infer that country A
A. is more productive than country B.
B. is more politically stable than country B.
C. is less politically stable than country B.
D. has more borrowers than country B.

11. Suppose the United States were a small open economy under floating exchange rates. If the U.S. government imposes a quota on German cars in an effort to reduce the trade deficit, then
A. the exchange rate goes up and the trade deficit goes down.
B. the exchange rate goes up and the trade deficit remains unchanged.
C. the exchange rate goes down and the trade deficit remains unchanged.
D. both the exchange rate and the trade deficit go down.

6. Suppose that the Mundell-Fleming model is depicted in a Y - e graph. The equilibrium would then occur at the point where the
A. IS* and LM* curves intersect.
B. IS* curve crosses the world interest rate.
C. LM* curve crosses the domestic interest rate.
D. LM* curve crosses the world interest rate.

18. Suppose that the typical consumer buys one apple and one orange every month. In the base year 1986, the price for each was $1. In 1996, the price of apples rises to $2, and the price of oranges remains at $1. Assuming that the CPI for 1986 is equal to 1, the CPI for 1996 would be equal to

A. 1/2.

B. 1.

C. 3/2.

D. 2.

1. The model of aggregate supply and aggregate demand in the short run differs from our long-run model of the economy because, in the short run
A. the interest rate is fixed.
B. output is fixed.
C. prices are fixed.
D. employment is fixed.

3. The model of aggregate supply and aggregate demand that assumes sticky prices
A. does not explain economic fluctuations.
B. shows that output depends on demand as well as supply.
C. shows that monetary and fiscal policy are always destabilizing influences on the economy.
D. shows that monetary policy is neutral.

4. The assumption of sticky prices is NOT valid for the case of the
A. pork-belly market.
B. magazine market.
C. auto-worker labor market.
D. steelworker labor market.

2. The positive relationship between the price level and the amount of output means that the aggregate supply curve is
A. horizontal.
B. upward sloping.
C. vertical.
D. downward sloping.

6. The sticky wage model predicts that
A. employment falls as the real wage falls.
B. employment rises as the real wage falls.
C. employment does not change when the real wage falls.
D. wages remain stable.

11. The Phillips curve represents the trade-off between
A. inflation and expected inflation.
B. output and unemployment.
C. inflation and unemployment.
D. output and interest rates.

12. The modern Phillips curve posits that the inflation rate depends on three forces. On which of the following does it NOT depend?
A. The money supply
B. Expected inflation
C. Cyclical unemployment
D. Supply shocks

14. The inflation that tends to occur when unemployment is below the natural rate is called
A. expected inflation.
B. wage inflation.
C. demand-pull inflation.
D. cost-push inflation.

15. The inflation caused by supply shocks is called
A. expected inflation.
B. wage inflation.
C. demand-pull inflation.
D. cost-push inflation.

17. The approach that assumes that people optimally use all the available information to forecast the future is called
A. the sacrifice ratio.
B. expected inflation.
C. adaptive expectations.
D. rational expectations.

18. The idea that, in the long run, the economy returns to the levels of output and unemployment described by the classical model is called
A. the natural-rate hypothesis.
B. hysteresis.
C. rational expectations.
D. coordination failure.

10. The slowdown in the U.S. economy in 2001 can be explained by
A. negative shocks to the IS curve resulting in a fall in aggregate demand.
B. negative shocks to the LM curve resulting in a fall in aggregate demand.
C. negative shocks to the IS curve resulting in a fall in aggregate supply.
D. negative shocks to the LM curve resulting in a fall in aggregate supply.

4. The IS-LM model predicts that an increase in the price level will
A. increase the interest rate and increase income.
B. increase the interest rate and decrease income.
C. decrease the interest rate and increase income.
D. decrease the interest rate and decrease income.

18. The "spending hypothesis" explaining the Great Depression stipulates that the main cause of the Great Depression was a decline in spending. Which of the following does not support this hypothesis?
A. Investment in housing declined.
B. Widespread bank failures occurred.
C. The government budget deficit rose during 1929-1932.
D. The stock market crash of 1929 reduced real wealth.

19. The Pigou effect stipulates
A. falling prices expand income.
B. falling prices depress income.
C. expanding income leads to a higher price level.
D. falling income leads to a lower price level.

17. The "money hypothesis" explaining the Great Depression stipulates that the Depression was caused by a contractionary shift in the LM curve. Which of the following facts supports this hypothesis?
A. The stock market crash of 1929 reduced real wealth.
B. The interest rate did not rise.
C. The nominal money supply contracted and the price level fell dramatically.
D. Real balances did not fall.

1. The returns to scale in the production function Y = K^0.5 L^0.5are
A. decreasing.
B. constant.
C. increasing.
D. subject to wide fluctuations.

22. The real interest rate is equal to the nominal interest rate minus
A. accounting profit.
B. economic profit.
C. taxes.
D. inflation.

The world interest rate is 5 percent. What are net exports of Transalpinia?
A. 50
B. -50
C. 150
D. -150

14. To obtain the net domestic product (NDP), start with GDP and subtract

A. depreciation.

B. depreciation and indirect business taxes.

C. depreciation, indirect business taxes, and corporate profits.

D. depreciation, indirect business taxes, corporate profits, and social insurance contributions.

15 The price of one currency in terms of another currency, such as 150 yen for $1, is an example of
A. a nominal exchange rate.
B. a real exchange rate.
C. purchasing-power parity.
D. a constant world interest rate.

15. To obtain national income, start with GDP and subtract

A. depreciation.

Date: 2015-12-11; view: 1275