In a Cobb-Douglas economy, assume that real wages (W/P) grow at an average rate of 3% per year. Which of the following variables should also have an average growth rate of 3% per year? A.) Average labor productivity (Y/L). B.) The marginal product of labor (MPL). C.) Both (Y/L) and MPL will grow at 3% per year. D.) Neither (Y/L) nor MPL will grow at 3% per year.
According to the theory of “the race between education and technology,” what factor is largely responsible for the increase in the real wages of college graduates (relative to the real wages of non-college workers) in recent decades? A.) A speeding-up of growth in firms’ demand for highly educated workers. B.) A slowing-down of the growth of college attainment rates in the population. C.) The growing ability of robots and/or computer programs to perform tasks that had previously been performed by less-educated workers. D.) The loss of manufacturing jobs to China and other developing countries. E.) All of the above.
Assume that autonomous consumption (a) increases. Which of the following is also likely to increase as a result of the higher (a)? A.) National saving (S). B.) Private saving. C.) Output (Y). D.) All of the above. E.) None of the above.
Assume that animal spirits (also known as autonomous investment and denoted as phi) has increased. Which of the following is also likely to increase as a result of the higher φ? A.) The real interest rate (r). B.) Investment (I). C.) Output (Y). D.) A.) and B.) E.) A.), B.) and C.)
Assume that both government purchases (G) and taxes (T) have increased by the same amount. In response, we would expect the real interest rate (r) to , the level of investment (I) to , and the level of national saving (S) to . A.) rise; rise; rise. B.) rise; fall; fall. C.) stay the same; stay the same; stay the same. D.) fall; rise; rise. E.) None of the above, or we aren’t given enough information to answer the question.
Assume that equilibrium output (Y) is 10,000. Consumption (C) is given by the equation C = 600 + 0.6(Y–T). Both taxes (T) and government purchases (G) are equal to 1,000. In this economy, public saving is equal to and national saving (S) is equal to . A.) 0; 1,000. B.) 1,000; 4,000. C.) 0; 3,000. D.) 3,000; 3,000. E.) None of the above, or we aren’t given enough information to answer the question. 3
Continuing the previous question, with (Y) = 10,000, (C) = 600 + 0.6(Y–T), and (T) = (G) = 1,000. Assume that the investment schedule is I = 5,000–100r, where (r) is the real interest rate in percent. That is, if (r) were 5 percent, investment (I) would equal 5,000–100*(5.0). What is the equilibrium real interest rate (r) in this economy? A.) 2 percent. B.) 10 percent. C.) 20 percent. D.) 25 percent. E.) None of the above, or we aren’t given enough information to answer the question. Chapter 4: The Monetary System
Which of the monetary quantities below is the largest? A.) Currency in the hands of the public (C). B.) M1. C.) M2. D.) Either C, M1, or M2 could be larger than the other two quantities in any particular time period.
The First National Bank of Portland, Maine has a balance sheet with the following items: deposits (D) = 1,000, reserves (R) = 100, securities = 400, debt = 500; and loans = 2,000. What is the value of capital at this bank? A.) –1,000 B.) +500 C.) +1,000 D.) +1,500 E.) None of the above, or we aren’t given enough information to answer the question.
The size of the monetary base (B) is determined by the decisions of A.) Banks. B.) The Federal Reserve. C.) Households. D.) A.) and B.) E.) A.), B.) and C.)
Which of the following directly reduces the money multiplier? A.) The Fed buying bonds in an open market operation. B.) The Fed selling bonds in an open market operation. C.) The public reducing the amount of currency it holds in relation to its holdings of bank deposits. D.) Banks raising the fraction of reserves that they hold in relation to their deposits. E.) C.) and D.)
The Fed’s Quantitative Easing policy during the recovery from the Great Recession of 2007–2009 dramatically raised . In addition, the QE policy caused a large increase in the size of the balance sheet(s) of . A.) The money supply; the Federal Reserve. B.) The money supply and the monetary base; the Federal Reserve. C.) The money supply; the Federal Reserve and commercial banks. D.) The monetary base; the Federal Reserve. E.) The monetary base; the Federal Reserve and commercial banks. 4 Chapter 5: Inflation
In Country A, the rate of money growth (mu) is 3%, the rate of growth of real output (g) is 1%, and the real interest rate (r) is 2%. In Country B, these values are (mu) = 6%, (g) = 5%, and (r) = 4%. The levels of output (Y) in the two countries are the same, as are the money demand functions, which depend on the opportunity cost of holding money. Which country has the higher rate of inflation (pi)? A.) Country A. B.) Country B. C.) Country A and Country B have the same rate of inflation (pi). D.) We don’t have enough information to answer this question.
Continuing the previous question: Country A has (mu) = 3%, (g) = 1%, (r) = 2%. Country B has (mu) = 6%, (g) = 5%, and (r) = 4%. The level of output (Y) and money demand functions in the two countries are the same. Which country has the higher level of velocity (V)? A.) Country A. B.) Country B. C.) Country A and Country B have the same rate of inflation (pi). D.) We don’t have enough information to answer this question.
Consider a money demand function that takes the form (M/P) d = Y/(4i), where (M) is nominal money balances, (P) is the price level, (Y) is real GDP, and (i) is the nominal interest rate. What is the velocity of money (V)? A.) (i), that is, velocity (V) equals the nominal interest rate (i). B.) 4. C.) 1 / (4i). D.) 4i. E.) None of the above or we don’t have enough information to answer the question.
Assume that the Fed credibly announces that it will raise the growth rate of the money supply (mu) in the future, but does not change the level of nominal money balances (M) when the announcement is made. Which of the following variables will increase at the time of the announcement? A.) Velocity (V). B.) The nominal interest rate (i). C.) The real interest rate (r). D.) A.) and B.) E.) A), B.) and C.)
Seignorage revenue in the United States A.) Is zero, because the U.S. government can finance itself through taxation and borrowing. B.) Is very small in relation to the overall spending of the U.S. government. C.) Depends in part of the difference between the interest rate that the Fed receives on its assets and the interest rate that the Fed pays on the reserve balance accounts held by member banks at the Fed. D.) B.) and C.) E.) None of the above. Chapter 6: The Open Economy
Assume that a U.S. corporation has sold a product in Japan and then deposits the proceeds from the sale in a bank account that it owns in a Japanese bank. Taken together, these actions cause U.S. net exports (NX) to and the U.S. net capital outflows (CF) to . A.) Rise; rise. B.) Rise; fall. C.) Rise, stay the same. D.) Fall; rise. E.) Fall; fall. 5
Which of the following will reduce net exports (NX) in a small open economy (SOE) with perfect capital mobility? A.) An increase in autonomous consumption (a). B.) An increase in animal spirits for investment (φ). C.) An increase in taxes (T). D.) A.) and B.) E.) A.), B.), and C).
If 5 (five) Swiss francs trade for $1, the U.S. price level equals $1 for each good, and the Swiss price level equals 2 (two) francs for the same good, then the real exchange rate (epsilon) between Swiss goods and U.S. goods is Swiss good(s) per U.S. good. A.) 0.4. B.) 2.5. C.) 5. D.) 10. E.) None of the above, or we aren’t given enough information to answer the question.
Which of the following will increase net exports (NX) in a small open economy (SOE) with perfect capital mobility? A.) An exogenous INCREASE in the demand for the SOE’s exports on the part of foreign consumers. B.) An exogenous INCREASE in the SOE’s demand for foreign goods. C.) An INCREASE in protective tariffs imposed by the SOE on imports from other countries. D.) A.) and C.) E.) Neither A), B.), nor C.)
Which of the following will increase the real exchange rate (epsilon) in a small open economy (SOE) with perfect capital mobility? A.) An exogenous INCREASE in the demand for the SOE’s exports on the part of foreign consumers. B.) An exogenous DECREASE in the SOE’s demand for foreign goods. C.) An INCREASE in protective tariffs imposed by the SOE on imports from other countries. D.) A.) and C.). E.) A), B.), and C.)
Assume that investors around the world lose faith in the United States as a safe place to invest their savings, so the U.S. net capital outflow exogenously changes. Using our model of the large open economy (LOE), which of the following will decline if this type of exogenous shift in investor sentiment occurs? A.) The U.S. real interest rate (r). B.) U.S. investment (I). C.) The U.S. trade balance (NX). D.) A.) and C.) E.) A.), B.) and C.) Chapter 7: Unemployment and the Labor Market
Define the U-to-E flow as the number of “bodies” flowing from unemployment (U) to employment (E) from one month to the next. Defined in this way, the U-to-E flow is generally than the similarly defined flow from nonparticipation (N) to employment (E), and the U-to-E flow tends to in recessions. A.) Larger; rise. B.) Larger; fall. C.) Smaller; rise. D.) Smaller; fall. 6
Your friend has studied the Beveridge Curve that we graphed in class, and based on the shifts of that curve, she tries to convince you that either job-matching efficiency or the degree of mismatch changed sharply and quickly around 2010. What is one argument you could make to dispute her claim that recent changes in job-matching efficiency and mismatch were concentrated in a short time period? A.) Vacancies typically fall in recessions, and 2010 was a recessionary year. B.) The Beveridge Curve is not well-suited to study job-matching and mismatch among persons who were previously out of the labor force (N). C.) Both of the above. D.) None of the above.
An important 1992 paper by Blanchard and Katz argued that A.) Migration across state lines was a powerful adjustment mechanism for regional economic shocks in the United States. B.) States like Michigan, where population grows slowly, tend to be hurt worse by U.S. recessions relative to states like California, where long-run population growth rates are higher. C.) Both of the above. D.) None of the above.