Assuming a closed economy with the data in Figure suggest that for each year after
1980
private saving could have been either positive or negative.
private saving was negative.
private saving was positive.
private saving equaled zero.
When stock prices fall significantly, C = Ca + c(Y −T) people may feel less wealthy
and thus decide to consume less of their current flow of disposable income. In our
consumption function, this can be represented by a
fall in (Y −T) .
rise in T .
rise in c.
fall in Ca .
“Crowding-out” occurs in the IS-LM model as rising government spending requires a
_______ in the interest rate in order to _______ the demand for money at the new
equilibrium, thus _______ planned private investment.
rise, keep constant, lowering
rise, raise, lowering
rise, lower, raising
fall, keep constant, raising
A vertical IS curve comes from the assumption that changes in the interest rate do not
affect
money demand.
autonomous planned spending.
the money supply.
the LM curve.
Under the assumption of perfect capital mobility, a nation
can control its interest rate through either fiscal or monetary policy.
can control its interest rate only through fiscal policy.
can control its interest rate only through monetary policy.
cannot control its interest rate through either fiscal or monetary policy.
If autonomous spending does not respond to changes in the interest rate, the resulting
_______ IS curve implies that an economy _______ self-correct.
vertical, can fail to
vertical, will instantly
horizontal, can fail to
horizontal, will instantly
The existence of staggered overlapping wage contracts makes the assumption of
backward-looking expectations _______ reasonable since wages and prices tend to
adjust _______ to changes in nominal GDP.
less, gradually
less, quickly
more, gradually
more, quickly
Which of the following will cause slower growth in labor productivity?
decreased growth in physical capital
decreased growth in human capital such as education and training
decreased growth in government-financed infrastructure such as highways and
airports
A and C
all of the above
Under the European Monetary System, a country’s export prices
decreased if the inflation rate in that country increased
could be controlled by loosening domestic monetary policy.
became more competitive as long as that country accelerated its domestic inflation
and kept its foreign exchange rate with the Euro stable.
none of the above.
When Okun’s “misery index” is used to judge macroeconomic conditions, inflation is
being considered
not to be a macroeconomic problem at all.
just as serious a macroeconomic problem as unemployment.
a less serious macroeconomic problem than unemployment.
a more serious macroeconomic problem than unemployment.
An economy’s real GDP per person doubles every 18 years when it maintains a growth
rate of _______ per year.
5.6 percent
4.0 percent
0.25 percent
0.9 percent
The most surprising outcome of the Solow growth model is that
a higher rate of national saving does not lead to a permanently higher rate of
output growth.
the population growth rate has no effect on the standard of living.
the capital-labor ratio has no effect on the output-labor ratio.
a higher rate of depreciation lowers the capital-labor ratio, but not the output-labor
ratio.
A country saves too little if
its rate of time preference is greater than the national rate of return on investment
its rate of time preference is less than the national rate of return on investment
its rate of investment is less than the real interest rate
its rate of investment is less than the nominal interest rate
The Baumol model of money demand strengthens the possibility that the LM curve is
upward-sloping.
horizontal.
vertical.
downward-sloping.
“Monetarism” advocates a monetary policy
that fixes a constant short-term interest rate.
at the full discretion of setting the interest rates.
at the full discretion of setting the money growth rates.
that fixes the growth rate of money.
The permanent-income hypothesis and life-cycle hypothesis theories ______ the
case for activism, while the procyclical behavior of consumer spending for durable
goods ______ the case for activism.
do not support; supports
supports; supports
supports; does not support
do not support; does not support
By the accelerator hypothesis, if a firm’s actual sales jump in one period to a higher
maintained level, that firm’s replacement investment
also jumps in one period to a higher maintained level.
gradually drifts upward to a higher maintained level.
jumps upward and then falls back to zero.
jumps upward and then falls back part of the way.
Which of the following statements best describes the rational expectations hypothesis?
individuals will not enter into long-term agreements unless they are certain about
the payments they will receive.
it is likely that individuals will consistently make errors.
individuals will make random errors, independent of previous errors.
it is reasonable to expect individuals to consistently underestimate the level of
inflation.
The work of Robert Lucas and Thomas Sargent _______ the existence of a
downward-sloping Phillips curve in the _______ .
first proposed, short run
first proposed, short and long runs
cast further doubt on, long but not short run
cast further doubt on, short and long runs
Which of the following is NOT the cause of an adverse productivity shock to the labor
market?
a decrease in the labor force
a decline in the quantity of non-labor factors of production
a drop in multifactor productivity
none of the above
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