MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Transcription

1 Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The real business cycle model begins with the assumption that. A) wages and prices are completely flexible. B) wages and prices are sticky. C) the velocity of money is a constant. D) nominal variables are superior to real variables in describing economic activity. 1) 2) Which of the following people none of whom has any financial or housing wealth is most likely to be spending all of their current income? A) a high income person expecting continued high income throughout life B) a high income person expecting to retire soon, and live for a long time afterward C) a low income person expecting a dramatic rise in income in the future D) a low income person expecting continued low income throughout life E) a high income person expecting a dramatic drop in income in the future 2) 3) The short-run Phillips curve shows A) the expected inflation rate. B) potential GDP. C) a tradeoff between real GDP and unemployment. D) a tradeoff between the unemployment rate and the inflation rate. E) the natural unemployment rate. 3) 4) The argument that econometric policy evaluation is likely to be misleading if policymakers assume stable economic relationships is known as A) public choice theory. B) the Lucas critique. C) the monetarist revolution. D) new Keynesian theory. 4) 5) Everything else held constant, a change in workersʹ expectations about inflation will cause to change. A) the production function B) short-run aggregate supply C) long-run aggregate supply D) aggregate demand 5) 6) For consumers with a binding borrowing constraint, a decrease in the real interest rate. A) decreases consumption now, and in the future B) increases consumption now, and in the future C) has no impact on consumption D) decreases consumption now, and increases future consumption 6) 7) In the long-run ISLM model and with everything else held constant, as long as the level of output the natural rate level, the price level will continue to, shifting the LM curve to the, until finally output is back at the natural rate level. A) remains below; fall; left B) remains below; rise; right C) exceeds; rise; right D) exceeds; rise; left 7) 1

2 8) According to the permanent income hypothesis, the impact of. A) a change in permanent income on consumption is larger than the impact resulting from a change in future income. B) a change in transitory income on consumption is greater than the impact resulting from a change in permanent income. C) a change in transitory income is felt primarily through changes in the total tax revenue paid to the federal government. D) a change in permanent income on consumption is greater than the impact resulting from a change in transitory income. 8) 9) Real business cycle theorists take the comovement of aggregate output and Solow residuals as strong confirmation that economic fluctuations are caused by. A) changes in the rate of inflation. B) changes in aggregate demand. C) productivity shocks. D) changes in the money supply. 9) 10) Rational expectations assumes that individuals A) have perfect foresight. B) can accurately predict the future. C) form their predictions of macroeconomic variables randomly. D) make predictions based on the past behavior of the economy. E) none of the above 10) 11) A rightward shift in the intertemporal budget line would be caused by. A) a decrease in future income and an increase in wealth. B) a decrease in future income and wealth. C) an increase in future income and a decrease in wealth. D) an increase in future income and wealth. 11) 12) Critics of real business cycle theory doubt the plausibility of. A) adaptive expectations. B) intertemporal substitution C) a trade-off between work and leisure D) negative productivity shocks. 12) 2

3 13) In the figure above, the natural unemployment rate is A) 4 percent. B) 6 percent. C) 8 percent. D) 2 percent. E) 0 percent. 13) 14) In the figure above, the expected inflation rate is A) 8 percent. B) 0 percent. C) 4 percent. D) 6 percent. E) 2 percent. 14) 15) Everything else held constant, an autonomous tightening of monetary policy will cause A) the quantity of aggregate demand to decrease. B) aggregate demand to increase. C) the quantity of aggregate demand to increase. D) aggregate demand to decrease. 15) 16) Labor hoarding occurs when A) firms keep good workers so other firms canʹt hire them. B) the unemployment rate exceeds the natural rate of unemployment. C) because of hiring and firing costs, firms retain workers in a recession that they would otherwise lay off. D) involuntary unemployment exceeds voluntary unemployment. 16) 17) Assume the economy is initially operating at the natural level of output. Now suppose a budget is passed that calls for an increase in government spending. This increase in government spending will, in the short run, cause an increase in A) the price level. B) the interest rate. C) the nominal wage. D) all of the above E) none of the above 17) 3

4 18) The New Keynesian model, is Keynesian in that. A) changes in the money supply are taken to be the single most important influence on business movements. B) it assumes wages and prices are sticky. C) the velocity of money is a constant. D) expectations are assumed to be rational. 18) 19) The long-run aggregate supply curve shifts to the right when there is A) an increase in the total amount of capital in the economy. B) an increase in the available technology. C) a decrease in the natural rate of unemployment.. D) A and B. E) A, B, and C. 19) 20) New information ought not to influence economic decision-making if. A) monetary and/or fiscal policy changes B) monetary policy changes. C) consumers rely on rational expectations. D) that information has already been anticipated. 20) 21) In late 2007 and early 2008, the U.S. Federal Reserve pursued expansionary monetary policy. Which of the following will occur as a result of this monetary policy action? A) the IS curve shifts leftward as the interest rate increases. B) the LM curve shifts down. C) the IS curve shifts rightward as the interest rate falls. D) the LM curve shifts up. E) none of the above 21) 22) An increase in real interest rate will current consumption and future consumption. A) increase; decrease B) have an unclear effect on; decrease C) decrease; have an unclear effect on D) decrease; increase 22) 23) Moving along the short-run Phillips curve, a unemployment rate can only be achieved by paying the cost of. A) lower; a lower inflation rate B) lower; a lower price level C) lower; a higher expected inflation rate D) lower; a higher inflation rate E) higher; a higher inflation rate 23) 24) In the new Keynesian model, the effects on output of an anticipated aggregate demand shock are. A) the same as would develop if that event was unanticipated. B) independent of whether or not that event is anticipated or unanticipated. C) greater than if that event was unanticipated. D) less than if that event was unanticipated. 24) 4

5 25) Moving along the short-run AS curve, when the price level increases, the A) nominal wage rate falls, and there is an increase in the quantity of real GDP supplied. B) nominal wage rate rises, and there is a decrease in the quantity of real GDP supplied. C) real wage rate rises, and there is a decrease in the quantity of real GDP supplied. D) real wage rate falls, and there is an increase in the quantity of real GDP supplied. E) real wage rate rises, and there is an increase in the quantity of real GDP supplied. 25) 26) Human wealth is A) the discounted present value of all financial assets. B) the sum of financial and housing wealth. C) total wealth minus housing wealth. D) financial wealth minus housing wealth. E) the present discounted value of expected future after-tax labor income. 26) 27) Moving upward along the aggregate supply curve, is equivalent to A) shifting the short-run Phillips curve leftward. B) shifting the short-run Phillips curve upward. C) shifting the short-run Phillips curve rightward. D) moving downward along the short-run Phillips curve. E) moving upward along the short-run Phillips curve. 27) 28) The long-run Phillips curve shows the relationship between A) the inflation rate and the natural unemployment rate. B) real GDP and the natural unemployment rate. C) the nominal interest rate and real interest rate. D) real GDP and potential GDP. E) the inflation rate and the unemployment rate. 28) 29) A decrease in the real interest rate acts as for lenders and as for borrowers. A) an increase in wealth; a decrease in wealth B) a decrease in wealth; a decrease in wealth C) an increase in wealth; an increase in wealth D) a decrease in wealth; an increase in wealth 29) 30) A price may be sticky because A) of the monetary illusion. B) of total factor productivity shocks. C) of monetary policy. D) of menu costs. 30) 31) If a person completely smooths consumption over his lifetime, then consumption is best represented by which of the following? A) lifetime wealth / the number of years the person expects to live B) lifetime wealth / the number of years the person expects to work C) current income X the number of years the person expects to live D) current income X the number of years the person expects to work 31) 5

6 32) In the new Keynesian model, expected inflation is a function of. A) expected future output gaps and markup shocks B) expected growth of the money supply C) unanticipated aggregate demand shocks D) current and past inflation 32) 33) You have just read that the Federal Reserve has increased the money supply to avoid a recession. For a given price level, you would expect the LM curve to A) shift down and to the right as the real money supply falls. B) shift down and to the right as the real money supply rises. C) shift up and to the left as the real money supply falls. D) shift up and to the left as the real money supply rises. 33) 34) The theory that real shocks to the economy are the primary cause of business cycles is A) Hamiltonian theory. B) real business cycle theory. C) monetarism. D) Keynesian theory. 34) 35) The New Keynesian transmission mechanism for monetary policy is characterized by A) the government buying goods with fresh money. B) helicopter drops of money. C) banks using money injections for business loans. D) money having an impact on the real interest rate. 35) 6

7 Answer Key Testname: UNTITLED1 1) A 2) C 3) D 4) B 5) B 6) C 7) D 8) D 9) C 10) E 11) D 12) D 13) B 14) C 15) D 16) C 17) D 18) B 19) E 20) D 21) B 22) D 23) D 24) D 25) D 26) E 27) E 28) A 29) D 30) D 31) A 32) A 33) B 34) B 35) D 7