Homework

Your Results: Chapter 11 The correct answer for each question is indicated by a . 1 CORRECT In the U.S., expansionary monetary policy is most often conducted in the following way: A) the Treasury Department issues new bonds to finance an increase in the budget deficit B) the Fed asks banks to increase their lending activity C) the Fed buys bonds from banks or government security dealers in exchange for money D) the Fed sells bonds to the government 2 INCORRECT The economy is said to be in a liquidity trap, if A) money demand is completely interest elastic B) money demand is completely interest inelastic C) investment is completely interest inelastic D) a government spending increase is totally crowded out by a decrease in private investment 3 CORRECT In the classical case, A) the transmission mechanism does not work B) fiscal policy is most effective in changing the level of output C) an increase in public spending will be completely crowded out by a decrease in private spending D) a tax cut will increase consumption without affecting investment 4 CORRECT One side effect of expansionary fiscal policy is that A) in order to be effective, it always has to be accommodated by monetary policy B) higher interest rates significantly decrease consumption C) higher interest rates cause a change in the composition of GDP D) it decreases private saving and therefore investment 5 INCORRECT If the central bank decides to peg interest rates, A) open market sales have to be undertaken after every fiscal expansion B) the central bank has to adjust money supply every time the IS-curve shifts C) fiscal policy changes will not affect the level of consumption or investment D) all of the above 6 INCORRECT The term crowding out refers to the fact that A) the level of consumption is reduced when the income tax rate is increased B) the level of investment is reduced after the removal of an investment subsidy C) fiscal policy changes affect the composition of GDP by changing interest rates D) fiscal policy is totally ineffective in the liquidity trap 7 INCORRECT Fiscal policy is at its strongest and monetary policy is at its weakest when A) we are in the liquidity trap B) we are in the classical case C) investment is very sensitive to interest rate changes D) money demand is completely interest inelastic 8 INCORRECT If the government stimulates the economy via an investment subsidy, A) the level of investment and output will increase, but consumption will remain unaffected B) part of the increase in investment will be offset by an increase in interest rates C) an increase in the interest rate can be avoided D) the central bank's help is still needed since, for the subsidy to work, interest rates can't rise 9 CORRECT Assume we combine restrictive fiscal policy with expansionary monetary policy. Which is most likely to occur? A) output and interest rates will both go up B) output will stay roughly the same but interest rates will go down C) investment and consumption will both decrease D) investment and the budget surplus will both decrease 10 CORRECT If the central bank refuses to accommodate a large increase in government spending, the most likely outcome will be A) a surplus in the current account of the balance of payments due to changing interest rates B) a decrease in the level of consumption due to changing interest rates C) a change in the composition of GDP D) all of the above Your Results: Chapter 10 The correct answer for each question is indicated by a . 1 CORRECT In its conduct of monetary policy, the Fed focuses on setting interest rate targets since changes in the interest rate affect economic activity mostly through A) the cost of borrowing and thus the level of spending on investment and durable consumption B) the value of government bonds and thus people's wealth C) the return on private saving and thus people's financial investments D) the demand for money and thus peoples' spending behavior 2 INCORRECT The goods market and the money market are linked together by A) monetary policy B) fiscal policy C) interest rates D) the labor market 3 CORRECT The equation: i = (1/b)Ao – (b/α)Y best describes A) the IS-curve B) the LM-curve C) the AD-curve D) none of the above 4 INCORRECT Which of these policy measures will make the IS-curve steeper and shift it to the left? A) a decrease in money supply B) a decrease in government transfer payments C) a decrease in lump sum taxes D) a decrease in the income tax rate 5 INCORRECT Any position that is to the left of (and above) the LM-curve indicates that there is A) excess demand for goods and services B) excess supply of goods and services C) excess demand for money D) excess supply of money 6 CORRECT The LM-curve becomes flatter if A) money demand becomes less sensitive to changes in the interest rate B) money demand becomes less sensitive to changes in income C) money demand becomes more sensitive to changes in income D) the monetary policy multiplier becomes larger 7 CORRECT In an IS-LM framework, an increase in autonomous saving will result in A) a decrease in income but an increase in the interest rate B) a decrease in both income and the interest rate C) an increase in both income and the interest rate D) an increase in income but a decrease interest rates 8 CORRECT In an IS-LM framework, expansionary monetary policy will A) increase both income and the interest rate B) increase saving and decrease consumption C) increase both consumption and investment D) increase the size of the budget deficit 9 INCORRECT A movement along the AD-curve from left to right is equivalent to A) a shift of the IS-curve to the right due to a decrease in interest rates B) a shift of the LM-curve to the right due to an increase in real money balances C) a shift of the LM-curve to the right due to an increase in nominal money supply D) a movement along the LM-curve from left to right due to lower real money balances 10 INCORRECT The AD-curve will shift to the right if A) government transfer payments are increased B) real money balances increase due to a decrease in the price level C) autonomous saving increases D) the central bank restricts nominal money supply Your Results: Chapter 9 The correct answer for each question is indicated by a . 1 INCORRECT In the Keynesian model of income determination, the adjustment that leads the economy to the equilibrium level of output is based on A) unintended inventory changes B) continuous government intervention C) changes in households' saving behavior D) inflows or outflows of funds from or to foreign countries 2 CORRECT The equation for aggregate consumption used in this chapter is C = Co + cY. From this equation we know that the marginal propensity to consume A) is always positive and greater than one B) is always positive but less than one C) shows the proportion of total income that is spent on consumption D) changes with changes in income 3 INCORRECT Assume a model with no government and no foreign sector. If the consumption function is defined as C = 800 + (0.8)Y, and the income level is Y = 2,000, then the level of total saving is A) – 800 B) – 400 C) 0 D) 400 4 INCORRECT Assume a model with no government and no foreign sector. If we have a savings function that is defined as S = - 200 + (0.1)Y and autonomous investment decreases by 50, by how much will consumption change? A) -100 B) -250 C) -450 D) -500 5 CORRECT Assume a model without income taxation and no foreign sector. If government purchases are increased by $25 billion financed by a lump sum tax increase of $25 billion, then A) national income will increase by $25 billion but the budget deficit is unaffected B) national income will increase $50 billion but the budget deficit is unaffected C) neither national income nor the budget deficit will be affected D) we cannot say for sure what will happen to national income or the budget deficit 6 CORRECT The size of the expenditure multiplier increases with an increase in A) government transfer payments B) the marginal propensity to save C) marginal propensity to consume D) the income tax rate 7 CORRECT Assume the savings function is S = - 200 + (1/4)YD and the marginal tax rate is t = 20%. If the level of government spending increases by 100, by how much will the level of equilibrium income change? A) 250 B) 300 C) 400 D) 850 8 INCORRECT Assume a model of the expenditure sector with income taxes. If the level of autonomous investment decreases (due to negative business expectations), which of the following will be true? A) the actual budget surplus will not be affected B) the actual budget surplus will increase C) the structural budget surplus will decrease D) the cyclical component of the budget surplus will decrease 9 INCORRECT Assume the consumption function is C = 600 + (3/4)YD and the income tax rate is t = 20%. What will be the effect on the actual budget surplus of an increase in autonomous investment by 200? A) an increase by 150 B) an increase by 100 C) an increase by 40 D) the budget surplus will not be affected at all 10 INCORRECT Assume the consumption function is C = 200 + (0.8)YD and the income tax rate is t = 0.25. What will be the effect of an increase in government transfers by ΔTR = 100 on the full-employment budget surplus? A) an increase by 60 B) an increase by 75 C) an decrease by 100 D) the full-employment budget surplus will not be affected at all   Your Results: Chapter 8 The correct answer for each question is indicated by a . 1 CORRECT Currently the U.S. Fed tries to influence economic activity A) only in the long run by shifting aggregate supply B) mostly in the short run by shifting aggregate demand C) by establishing a clear inflation target at all times D) by following a strict monetary growth rule 2 INCORRECT A central bank can stimulate economic activity A) by strictly enforcing a specified inflation target B) by massively selling government bonds C) by shifting aggregate supply to the right through monetary expansion D) only temporarily and at the cost of a higher price level in the future 3 CORRECT The Fed's most likely response to an increase in the inflation rate is to A) wait and see what happens next B) lower interest rates in an effort to stimulate aggregate supply C) increase short-term interest rates by selling Treasury bills D) buy government bonds from banks to decrease their reserves 4 INCORRECT When making a policy change, the U.S. Fed generally announces a target for the interest rate that banks charge each other for loans, A) which is called the federal funds rate B) which is called the discount rate C) but then often surprises financial markets by actually setting a different target D) since a change in the interest rate is the most effective way to shift aggregate supply 5 INCORRECT According to the Taylor rule, a central bank should always set interest rates A) in response to changes in the inflation rate B) in response to changes in the output gap C) in response to changes in both the output gap and the inflation rate D) at 2% in real terms 6 CORRECT The Fed can most effectively achieve a federal funds rate target by A) maintaining a specified target for monetary growth B) lowering the discount rate whenever the output gap decreases C) buying or selling Treasury bills D) withholding information about the desired target rate from financial markets 7 INCORRECT If a central bank wants to slow down economic activity it should A) raise interest rates to reduce investment spending and shift aggregate supply to the left B) buy Treasury bills from banks to affect bank reserves and therefore interest rates C) conduct open market sales to lower spending on durable consumption and investment D) be aware that the long run effect may be a permanent decrease in the level of potential GDP 8 CORRECT Which of the following equations most accurately describes the Taylor rule? A) πt = mt – yt + vt B) πt = mt + yt – vt C) mt = 0.04 + 2(ut – 0.055) D) it = 2 + πt + 0.5(πt – π*t) + 0.5[100(Yt –Y*t)/Y*t] 9 CORRECT The Taylor rule A) is an activist monetary policy rule B) suggests that the monetary growth rate should be decreased by 1% for every 1.5% increase in inflation C) suggests that real interest rates should be increased by 0.5% for every 1% increase in inflation D) all of the above 10 INCORRECT According to the Taylor rule, if the current inflation rate is 4.2%, output is 1.2% below the full-employment level, and the central bank's announced inflation target is 3%, at what level should the central bank set the nominal interest rate? A) 3% B) 4.2% C) 5.4% D) 6.2%   Your Results: Chapter 7 The correct answer for each question is indicated by a . 1 CORRECT The sacrifice ratio is defined as A) the inflation rate divided by the unemployment rate B) the percentage decrease in unemployment for each one-percent increase in the inflation rate C) the percentage increase in the unemployment rate for every one-percent reduction in GDP D) the percentage decrease in GDP for every a one-percent decrease in the inflation rate 2 CORRECT The fact that an increase in the unemployment rate by one percent will lead to a roughly two-percent loss in output is referred to as A) the sacrifice ratio B) the replacement ratio C) Okun's law D) the misery index 3 CORRECT Which of these people is officially counted as unemployed? A) a secretary who took six months off on a maternity leave B) an aspiring actress who works part-time as a waitress but would prefer to act full-time C) a maid who got fired from her old job three months ago but will start a new job in a week D) a student who joined the baby sitters' pool but averages only about four customers a week 4 CORRECT The Bureau of Labor Statistics defines a person as employed if, during a reference week, that person A) worked 15 or more hours as an unpaid worker in a business operated by a family member B) was out of work but was actively looking for work in the previous four weeks C) was waiting to be recalled to a job from which she was laid off a short time ago D) none of the above 5 CORRECT Assume adult males have a 50% share of the work force and their unemployment rate is 5.0%; adult females' share is 40% and their unemployment rate is 6.0%; teenagers' share of the work force is 10% and their unemployment rate is 10.0%. What is the overall unemployment rate? A) 5.2% B) 5.6% C) 5.9% D) 6.1% 6 CORRECT Which of the following statements is FALSE? A) the natural rate of unemployment varies over time B) the average duration of unemployment has not changed much over time C) improving job mobility of workers and making information about new jobs more available will help to reduce the natural unemployment rate D) reducing unemployment benefits will help to reduce the duration of unemployment 7 CORRECT The term unemployment hysteresis refers to the fact that A) the natural rate of unemployment cannot be reduced through conventional demand management policies B) laid-off workers reduce their consumption, causing unemployment to increase in other sectors C) firms are more likely to lay off workers if they know that these workers can get unemployment benefits D) long periods of high unemployment may actually increase the natural rate of unemployment 8 CORRECT If inflation this year is lower than expected, then A) lenders will gain at the expense of borrowers B) borrowers will gain at the expense of lenders C) the government will gain if it does not have an indexed tax system D) wealth will be transferred from the poor to the rich 9 CORRECT If wages were fully indexed, then A) nominal wages would be periodically increased proportionally to the increase in prices over a given time period B) there would never be an increase in inflation after a supply shock C) the government would gain since inflation taxes away what workers may have gained from nominal wages increases D) the economy would more easily adjust to full employment after a supply shock 10 CORRECT The misery index A) combines the sacrifice ratio with Okun's law B) is strongly related to voting behavior and thus supports the political business cycle theory C) is constructed by adding the inflation rate and the unemployment rate D) can be calculated by adding the sacrifice ratio and the replacement rate   Your Results: Chapter 6 The correct answer for each question is indicated by a . 1 CORRECT The original Phillips curve implied A) a policy tradeoff between the output level and the price level B) a policy tradeoff between the unemployment level and the inflation level C) a 2 percent drop in the unemployment rate for a 1 percent increase in output D) a 1 percent increase in the unemployment rate for a 2 percent decrease in output 2 INCORRECT The inflation-expectations-augmented Phillips curve implies that A) a decrease in expected inflation will shift the Phillips curve to the right B) unemployment is below its natural rate if actual inflation is below expected inflation C) unemployment is at its natural rate when expected inflation is equal to actual inflation D) stagflation occurs when the Phillips curve shifts to the left 3 INCORRECT According to the inflation-expectations-augmented Phillips curve, stagflation is a situation when A) the actual inflation rate is high and is below the expected inflation rate B) the actual inflation rate is high and is above the expected inflation rate C) the actual inflation rate is high but unemployment is below its natural rate D) the actual inflation rate has had a chance to adjust to the expected inflation rate 4 INCORRECT The natural rate of unemployment is generally assumed to be A) very close to zero percent since everyone who wants to work is already working B) the rate of unemployment at which the actual inflation rate is zero C) the rate of unemployment at which the expected inflation rate is zero D) the rate of unemployment at which the expected inflation rate is equal to the actual inflation rate 5 CORRECT The coordination approach to the Phillips curve focuses on the fact that A) fiscal and monetary policies often are uncoordinated B) firms are reluctant to change wages and prices because they aren't sure what their competitors will do C) workers are well informed about changes in their nominal wages but not about changes in their real wages D) anticipated changes in monetary policy have no significant effect on the unemployment rate 6 CORRECT The efficiency wage theory suggests that A) wages always immediately adjust to the market-clearing level B) unanticipated changes in monetary policy have no effect on wages or unemployment C) paying workers a higher wage rate may increase labor productivity D) wages can be adjusted easily following a price change to maintain full employment 7 CORRECT Which of the following equations best describes Okun's law? A) (Y - Y*) = 0.5(u - u*) B) (Y - Y*)/ Y* = - 2(u - u*) C) (Y* - Y) = 2(u - u*) D) (Y* - Y)/Y = - 0.5(u - u*) 8 INCORRECT In an AD-AS model with an upward sloping AS-curve, an increase in the output level combined with a price decrease and a lower interest rate is most likely the result of A) expansionary fiscal policy combined with restrictive monetary policy B) an adverse supply shock followed by expansionary monetary policy C) a favorable supply shock D) a decrease in money supply 9 CORRECT Which of the following is the most likely result of an unanticipated increase in money supply? A) higher prices and output in the medium run but no change in output in the long run B) higher prices and lower real money balances in both the medium and the long run C) higher prices and employment in the medium run, but no change in output and prices in the long run D) higher prices and output in the medium and long runs 10 CORRECT If the government employs restrictive monetary policy in response to an adverse supply shock, A) the inflation rate and the natural rate of unemployment will both decrease B) the rate of unemployment will increase sharply C) unemployment will remain at its natural level D) the shift in the AS-curve can be reversed almost immediately   Your Results: Chapter 5 The correct answer for each question is indicated by a . 1 CORRECT If we compare a market supply curve with the aggregate supply curve discussed in this chapter we realize that A) the AS-curve is vertical in the long run and horizontal in the very short run B) the AS-curve is vertical in the very short run and horizontal in the long run C) the AS-curve can never be upward sloping D) a market supply curve is more elastic in the short run and less elastic in the long run 2 CORRECT The Keynesian AS-curve implies that A) the economy is always at the full-employment level of output B) the AS-curve is completely vertical C) wages and prices are completely flexible D) a change in spending will affect the level of GDP but not the price level 3 CORRECT In the Keynesian AS-curve case, if the government cuts welfare payments, then A) the price level will decrease, but the economy will remain at the full-employment level of output B) the level of output will decrease but the price level will remain the same C) the levels of output and prices will decrease D) unemployment will increase, since wages and prices are completely flexible 4 INCORRECT The slope of the AS-curve becomes steeper A) as wages and prices become more flexible B) as wages become more rigid C) as the economy moves further away from full employment D) as the government implements expansionary fiscal policy 5 INCORRECT If the unemployment rate is assumed to be at its natural rate, then A) inflation cannot exist B) the unemployment rate is zero C) the unemployment rate is positive but at a level that exists when GDP is at its potential level D) all unemployment is cyclical in nature 6 CORRECT In the medium run, an increase in oil prices will A) increase the price level but reduce the level of output B) lead to a decrease in aggregate demand C) lead to an increase in aggregate demand D) not affect the level of real output 7 CORRECT The income velocity of money can be calculated in the following way: A) V = M/Y B) V = Y/M C) V = M/(PY) D) V = (PY)/M 8 CORRECT In an AD-AS diagram, an increase in nominal money supply is represented by A) a shift of the AS-curve to the right B) a shift of the AD-curve to the right C) movement along the AD-curve from right to left D) movement along the AD-curve from left to right 9 CORRECT Supply-side economics A) only affects the AS-curve significantly, even in the short run, and therefore is bound to lead to a decrease in prices and unemployment B) is mostly "voodoo economics" that is sold by politicians as a simple way to fix the economy but has no real economic impact C) entails tax cuts, other ways to achieve technological advances, and reductions of government regulation D) is designed to shift the AS-curve to the right, but in actuality will only shift the AD-curve to the right 10 CORRECT As potential GDP grows over time A) the level of output is essentially determined by shifts in the vertical AS-curve B) the price level remains constant C) the AD-curve shifts to the right due to a change in the average price level D) the level of actual output can only change if the AD-curve shifts accordingly   Your Results: Chapter 2 The correct answer for each question is indicated by a . 1 CORRECT What is the difference between GDP and GNP? A) GNP does not account for depreciation (capital consumption allowances) B) GNP includes payments to domestically owned factors of production abroad C) GNP includes indirect taxes but GDP does not D) GNP does not include government transfer payments but GDP does 2 CORRECT Assume a German tourist buys a Mexican beer in a pub in Houston, Texas. How will the U.S. GDP be affected? A) U.S. GDP will be unaffected, since a foreigner buys a foreign product. B) U.S. GDP will decrease since the beer has to be imported from Mexico C) U.S. GDP will increase by the value added at the Houston pub D) U.S. GDP will increase, but only by the sales tax assessed on the beer 3 CORRECT Which of the following is not included in private domestic investment (I) as defined in our text? A) the construction of a new residential home B) the increase in the number of new cars in the inventory of a car dealer C) the buying of new equipment for an existing factory D) investment in IBM stocks by financial investors 4 CORRECT Real GDP per capita is defined as A) nominal GDP per capita minus depreciation B) real GDP minus capital consumption allowances C) real GDP divided by the population D) the fraction of real GDP devoted to capital investment 5 INCORRECT Depreciation is A) the difference between private domestic saving and private domestic investment B) the difference between real and nominal GDP C) the difference between GNP and GDP D) another word for capital consumption allowances 6 INCORRECT If national income is Y = 9,300, disposable income is YD = 7,500, consumption is C = 6,600, net exports is NX = -180, and the budget surplus is BS = 230, what is the level of private domestic investment (I)? A) 850 B) 900 C) 950 D) 1,310 7 INCORRECT If nominal GDP is $10,406 billion and the GDP-deflator is 110, then real GDP is about A) $11,450 billion B) $10,516 billion C) $10,296 billion D) $9,460 billion 8 INCORRECT The GDP-deflator and the CPI differ from each other since A) the GDP-deflator does not include services but the CPI does B) the GDP-deflator includes imported goods but the CPI doesn't C) the CPI measures a fixed market basket but the GDP-deflator doesn't D) the CPI includes more goods than the GDP-deflator does 9 CORRECT Assume you desire a real rate of return of 4% on an investment and you expect the annual average inflation rate to be 3.2%. What should the nominal interest rate be on this investment? A) 0.8% B) 3.0% C) 4.0% D) 7.2% 10 INCORRECT Assume the British pound is worth $1.56 in U.S. dollars and the Hong Kong dollar is worth $0.13 in U.S. dollars. What does this imply? A) everything in Hong Kong is 12 times cheaper than in Great Britain B) everything in Hong Kong is 12 times more expensive than in Great Britain C) you can get 12 Hong Kong dollars for one British pound D) none of the above     Your Results: Chapter 1

The correct answer for each question is indicated by a .

1 CORRECT			Which of the following is NOT an issue in macroeconomics?
			A)	issues relating to the balance of payment
			B)	the determination of prices in the agricultural sector
			C)	the relationship between inflation and unemployment
			D)	the possible effect of budget deficit increases on the level of investment
2 CORRECT			In the very long run
			A)	the position of the AD-curve depends on the productive capacity of the economy
			B)	the position of the AS-curve depends on the degree of consumer confidence
			C)	the position of the AS-curve essentially determines the level of output
			D)	the position of the AD-curve is affected by changes in efficiency improvements
3 CORRECT			The position of the long-run AS-curve is determined by
			A)	the full-employment level of output
			B)	consumer confidence
			C)	fiscal policy
			D)	monetary policy
4 CORRECT			In the very short run
			A)	the position of the AD-curve determines the level of output
			B)	the position of the AD-curve cannot be changed by fiscal or monetary policy
			C)	a change in monetary policy will affect both the price level and the level of output
			D)	a change in fiscal policy will not change the level of output
5 CORRECT			In the very short run
			A)	the level of prices can change quite rapidly, but the level of output is fixed
			B)	the level of prices is unaffected by the level of output
			C)	the level of prices and the level of output change with a shift in aggregate demand
			D)	the level of prices and the level of output are both fixed
6 CORRECT			In the medium run, restrictive fiscal policy will cause
			A)	a decrease in the level of output but no change in the level of prices
			B)	a decrease in the level of prices but no change in the level of output
			C)	a decrease in both the level of prices and the level of output
			D)	a decrease in real GDP with no change in nominal GDP
7 INCORRECT			In the medium run, monetary policy can be used to
			A)	shift the AD-curve, but this will only result in a price change, not in a change in real GDP
			B)	affect nominal GDP, but this will not have any effect on real GDP
			C)	lower the price level while increasing the level of real GDP
			D)	lower the price level but only at the cost of also lowering the level of real GDP
8 INCORRECT			Periods of very high inflation rates
			A)	can only occur in a situation when the AS-curve is vertical
			B)	most often are caused by sharp increases in aggregate demand
			C)	can only occur if the output gap is large
			D)	most often occur when actual GDP is less than potential GDP
9 CORRECT			The size of the output gap is determined by
			A)	nominal GDP minus real GDP
			B)	potential GDP minus actual GDP
			C)	nominal GDP adjusted for inflation
			D)	actual output minus the output that could be produced if the capital stock remained constant
10 INCORRECT			If we assume that the AD-curve remains constant over time, we can expect that
			A)	the level of GDP will not change over time
			B)	the price level will not change over time
			C)	the price level will steadily decline over time
			D)	the level of both output and prices will vary greatly as the long run AS-curve shifts unpredictably