In the simplest Keynesian model of the determination of income, interest rates are
assumed
to be endogenous and to influence desired spending.
to be endogenous and not to influence desired spending.
to be exogenous and to influence desired spending.
to be exogenous and not to influence spending.
Net exports______ the autonomous expenditure multiplier.
reduce
increase
A or B
have no effect on.
With normally-sloped IS and LM curves, an increase in government expenditure
______ consumption expenditure since autonomous consumption ______ while
induced consumption ______.
can raise or lower, falls, rises
can raise or lower, rises, falls
must decrease, falls, also falls
must decrease, rises, falls
must increase, rises, also rises
For a given level of equilibrium GDP, a tight-money/easy-fiscal policy mix compared
with easy-money/tight-fiscal policy mix implies a
lower interest rate.
lower level of investment.
higher level of taxation.
lower level of government expenditures.
If the productivity of labor were suddenly to increase, we would expect to observe
a shore-run rise in output and fall in prices.
an increase in the natural level of real GDP.
an increase in the natural level of real GDP.
All of the above are correct.
The Pigou effect might be ineffective in correcting a recession if
prices are falling.
people expect the implied deflation to continue.
there is a liquidity trap.
the government does not expand the money supply.
Given an adverse supply shock, an “extinguishing policy response” will
maintain the inflation rate and the output ratio.
lower the inflation rate and the output ratio.
raise the inflation rate and the output ratio.
maintain the inflation rate but lower the output ratio.
“Overshooting” refers to a temporary period in the adjustment loop during which
the percentage deviation of real GDP from natural real GDP exceeds the growth
rate of nominal GDP.
nominal GDP growth exceeds its permanent value.
inflation exceeds the growth rate of nominal GDP.
we move from one long-run equilibrium to another.
“Given the long run implication of Solow’s growth model with respect to the rate of
savings, the low savings rate in the U.S. is not a problem.” This statement overlooks
that over time it appears that
savings rates and per capita growth rates are inversely related.
total factor productivity and the growth rate of capital per person are inversely
related.
total factor productivity and the difference between the growth rates of capital per
capita and population are not related.
total factor productivity and the growth rate of capital per person are positively
related.
The introduction of human capital to the Solow neoclassical growth model reduces the
significance of the contribution of ______ to increases in per capita income.
K
L
K and L
None of the above.
The key prediction of the Solow model adapted to include technological change _____
been born out, i.e., with a few exceptions convergence ____ a reality.
has not, is not
has not, is
has, is not
has, is
A central tenet of the position against policy activism is that
consumption spending is highly unstable.
instability in private consumption will always be offset by variations in other
elements of private spending.
aggregate policies have little effect on consumption.
consumption spending is highly stable.
In the U.S. it is clear that if a dollar were diverted from present consumption to present
investment, the return on that investment would be ____ to reward the deferral of
consumption, meaning that overall economic welfare would rise with ______ in
national saving.
insufficient, an increase.
insufficient, a decrease.
more than sufficient, an increase.
more than sufficient, a decrease.
Policy activists can point to the volatility of ____ of private aggregate demand to score
points in arguing for discretionary countercyclical policy.
the consumption segment.
the consumption and net export segments.
the investment and net export segments.
none of the segments.
According to the theory of rational expectations, the “fooling” of workers in
Friedman’s model
is not rational, since workers should learn to immediately link unexpected wage
changes to wrongly-forecast price levels.
is rational, since workers are always on their labor supply curve.
is rational, since sudden unforeseeable changes is aggregate demand can and do
occur.
is not rational, since workers are often thrown off of their labor supply curve.
When RBC (real business cycles) economists compare the correlations in their models
to the data, what are they looking at?
The degree to which variables lead output over the business cycle.
The degree to which different economic variables move together.
The amount of random variation in economic variables.
The strength of procyclicality of different variables.
Which of following macroeconomic variables is procyclical and lags the business
cycle?
Business fixed investment
Employment
Stock prices
Nominal interest rates
A large country imposes capital controls that prohibit foreign borrowing and lending by
domestic residents. The country is currently running a capital and financial account
deficit. The imposition of the capital controls will cause
net exports to increase.
desired national saving to fall
real world interest rates to fall.
real domestic interest rates to rise.
If the income elasticity of money demand is 3/4 and the interest elasticity of money
demand is − 1/4, by what percent does money demand rise if income rises 10% and the
nominal interest rate rises from 4% to 5%?
7.50%
1.25%
5.00%
6.25%
If an American construction company built a road in Kuwait, this activity would be
excluded from U.S. GNP.
fully included in U.S. GDP.
included in U.S. GNP only for that portion that was attributable to American capital
and labor.
included in U.S. GDP but not U.S. GNP.
How much is output per day?
In terms of lost output, what is the cost of the distortion introduced by this tax?
What happens to the exchange rate (one foreign currency in terms of domestic
currencies) and net exports in each of the following cases?
The foreign real interest rate falls. (5%)
What happens to the exchange rate (one foreign currency in terms of domestic
currencies) and net exports in each of the following cases?
Foreign demand for domestic goods rises.
What happens to the exchange rate (one foreign currency in terms of domestic
currencies) and net exports in each of the following cases?
Domestic output rises.
What is the price level?
Suppose there is an unanticipated increase in the nominal money supply to 800.
What is the short-run equilibrium level of output, the unemployment rate, and the
price level?
When price expectations adjust fully, what is the price level?
A firm has current and future marginal productivity of capital given by MPK = 10,000
− 2K + N, and marginal productivity of labor given by MPN = 50 − 2N + K. The price
of capital is $5,000, the real interest rate is 10%, and capital depreciates at a 15% rate.
The real wage rate is $15.
Calculate the user cost of capital.
A firm has current and future marginal productivity of capital given by MPK = 10,000
− 2K + N, and marginal productivity of labor given by MPN = 50 − 2N + K. The price
of capital is $5,000, the real interest rate is 10%, and capital depreciates at a 15% rate.
The real wage rate is $15.
Find the firm’s optimal amount of employment and the size of the capital stock.
A firm has current and future marginal productivity of capital given by MPK = 10,000
− 2K + N, and marginal productivity of labor given by MPN = 50 − 2N + K. The price
of capital is $5,000, the real interest rate is 10%, and capital depreciates at a 15% rate.
The real wage rate is $15.
Find the firm’s optimal amount of employment and the size of the capital stock.
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