D. Real gdp and a change in the unemployment rate.

162. One purpose of money is to transfer purchasing power from the present into the future. This function of money is called A. store of value.

163. One purpose of money is to provide the terms in which prices are quoted and debts are recorded. This function of money is called D. unit of account.

164. One effect of an unexpected rise in inflation is that wealth is redistributed from B. lenders to borrowers.

165. One possible benefit from inflation is: C. if nominal wages are fixed, inflation decreases real wages.

166. One explanation for the stickiness of magazine newsstand prices is D. customers would be annoyed if the price of their favorite magazine changed every month.

167. One purpose of money is to be the item we use to buy and sell things. This function of money is called C. medium of exchange.

168. Of all of the following that could be used as money, which would be most likely

C. Gum wrappers

169. Private saving is equal to B. income - consumption - taxes.

170. Real GDP equals

B. nominal GDP divided by the GDP deflator.

171. Stagflation--a period of rising unemployment coupled with rising inflation--could most easily result from a(n) C. increase in the price of oil.

172. Suppose the economy is faced with an adverse supply shock. The Fed decides to immediately accommodate the shock. What path of income and prices would be observed in the economy? D. Y: 100, 100, 100; P: 1, 1.2, 1.2

173. Suppose that the LM curve is vertical. An increase in taxes will D. decrease the interest rate and leave income unchanged.

174. Suppose that the government raises taxes. According to the IS-LM model, what does the Fed have to do to keep income constant and what is the subsequent effect on interest rates? B. The Fed needs to increase the money supply; interest rates go down.

175. Suppose that the government gets serious about saving the whales and increases spending considerably. What does the Fed have to do to keep interest rates constant, and what happens to the level of income? D. The Fed needs to increase the money supply; income goes up.

176. Suppose that income is temporarily above the natural rate level. In the IS-LM model, long-run equilibrium is achieved when the price level B. rises and the LM curve shifts inward.

178. Suppose that a money demand shock hits the economy. According to the classical model, the variable that will adjust to move the economy back to equilibrium is D. the price level.

179 Suppose that a country experiences inflation while the nominal exchange rate and the price level in its trading partner remain unchanged.  What will happen to the country's real exchange rate and to net exports? C. The real exchange rate will rise; net exports will fall.

180. Suppose that 2 percent of the employed lose their jobs each month (s = 0.02) and 38 percent of the unemployed find a job each month (f = 0.38). Then, the steady-state rate of unemployment is B. 5 percent.

181 Suppose that a bicycle costs $300 in the United States and 150 pounds in Great Britain.  What would the nominal exchange rate have to be for purchasing-power parity to hold? A. 0.5

182. Suppose that a farmer grows wheat and sells it to a baker for $1, the baker makes bread and sells it to a store for $2, and the store sells it to the customer for $3. This transaction increases GDP by

C. $3.

183. Suppose that a factory worker turns 62 years old and retires from her job. Which statistic is not affected?

A. Number of unemployed

184. The government is running a budget deficit if A. government spending is greater than tax revenue.

185. The AS/AD model with sticky prices predicts that, in the long run, a reduction of the money supply results in B. lower prices and no change in output.

186. The occurrence of falling output combined with rising prices is called D. stagflation.

187. The LRAS curve of the classical model is A. vertical.

188. The quantity equation MV = PY implies that the AD curve is D. downward sloping. 189. The effect of a change in aggregate demand on income and prices depends crucially on A. the time horizon.

190. The supply of loanable funds, or "national saving," is equal to C. income - consumption - government spending.

191. The quantity theory of money states that if the money supply doubles and output is constant, prices will C. double..

192. The relationship between interest rates and the level of income that arises in the market for goods and services is called the B. IS curve.

193. The investment function and the IS curve slope D. downward because higher interest rates induce less investment.

194. The slope of the IS curve depends on A. the sensitivity of investment to the interest rate.

195. The IS curve is drawn for a given A. fiscal policy.

196. The LM curve is drawn for a given C. money supply.

197. The quantity of real money balances demanded depends on the A. nominal interest rate.

198. The quantity of real money balances demanded depends on B. real income. 199. The relationship between the interest rate and the level of income that arises in the market for money balances is called the A. LM curve.

200. The theory of liquidity preference assumes that the supply of real money balances, plotted against the interest rate, is D. vertical.

201. The theory of liquidity preference postulates that the demand for real money balances, plotted against the interest rate, is B. downward sloping.

202. The difference between the nominal interest rate and the real interest rate is A. inflation. 203. The Fisher equation states that a 1 percent rise in the rate of inflation causes a B. nominal interest rate. 204. The expected rate of inflation does not influence the D. current price level. 205. The cost of holding money is determined by the D. nominal interest rate.

206. The expected future money supply does not have an effect on C. the current nominal money supply.

207. The inside lag is the A. time between a shock to the economy and the policy action responding to that shock. 208. The outside lag is the B. time between a policy action and its influence on the economy.

209. The Lucas critique is based on D. the fact that people's expectations are rational.

210. The monetary-policy rule that monetarists advocate is B. a steady rate of growth of the money supply.

211. Taylor's rule for the federal funds rate implies that the central bank is concerned with C. both GDP gap and inflation.

212. The exante real interest rate differs from the ex post real interest rate only when D. actual inflation differs from expected inflation.

213. Structural unemployment results when D. the real wage is above its market-clearing level.

214. Suppose that the price level has risen but the government has not collected any seignorage. Which of the following might have happened? A. V rose, M and Y were constant 215. Suppose that there is a positive shock to investment demand: that is, at every interest rate, the desired amount of investment rises. In a closed economy with the national saving fixed, the real interest rate will C. rise.

216. Suppose that the size of the labor force is 100 million and that the unemployment rate is 5 percent. Which of the following actions would reduce the unemployment rate the most?

B. 2 million unemployed people leave the labor force.

217. Suppose that output per worker is 10, the production function is y = sqrt(k) [that is, output per worker is equal to the square root of capital per worker] and the total capital stock is 1,000. How large is the labor force? B. 10

218. Suppose that the production function is y = sqrt(k) [that is, output per worker is equal to the square root of capital per worker], s = 0.40, and delta [the depreciation rate] = 0.10. What is the steady-state level of capital? D. 16

219 Suppose that the production function is y = sqrt(k) [that is, output per worker is equal to the square root of capital per worker], s = 0.40, and delta [the depreciation rate] = 0.10. What level saving will lead to the highest possible level of output in the steady state? D. 100 percent

220. Suppose that a major natural disaster destroys a large part of a country's capital stock but miraculously does not cause anybody bodily harm. What will happen to the real wage rate? C. It will fall. 221. Suppose that a consumer has a marginal propensity to consume of 0.7. If this consumer earns an extra $2, her consumption spending would be expected to increase by C. $1.40.

222. Suppose that a consumer has a marginal propensity to consume of 0.8. If this consumer receives and extra $2 of disposable income, her saving would be expected to increase by A. $0.40.

223. Suppose that Jones builds a new house, then she sells it to Smith, and then Smith sells it to Williams. The total net investment from these transactions is B. 1 house.

224. Suppose that 130 people are unemployed for part of a given year; 120 are unemployed for 1 month, 10 are unemployed throughout the year; what percentage of total months of unemployment is attributable to the long-term unemployed? D. 50 percent

225. Suppose that a Canadian citizen crosses the border each day to work in the United States. Her income from this job would be counted in

C. U.S. GDP and Canadian GNP.

226. Suppose that an Italian working in the United States renounces his Italian citizenship and is granted U.S. citizenship. Which of the following will happen?

B. Italian GNP will fall; U.S. GNP will rise.

227. Suppose that the capital stock is 100, the depreciation rate is 10 percent per year, and output is 25. What must the saving rate be to keep the capital stock constant? D. 40 percent

228. Suppose that the index of leading indicators leads the business cycle by twelve months. If the inside lag of monetary policy is three months, then the maximum outside lag that makes monetary policy effective is C. nine months.

229. Suppose you are president and your advisors A. the Lucas critique.

230. Suppose that the government has been conducting policy according to the following equation for some time now Money Growth = 3% + (Unemployment Rate - 6%) This kind of policy is called a(n) C. active rule policy

231. Suppose that a professor announces that an exam will be given in one particular week. When the date for the exam comes, the professor is tempted not to give the exam, reasoning that the students have already studied and now she can teach an extra day. This is an example of D. time inconsistency 232. Suppose that an economy is in steady state and has more capital than it would have in the Golden Rule steady state. A policymaker would want to pursue policies aimed at decreasing B. the rate of saving. 233. Suppose that the production function is Y = AF(K,L). The (unchanging) share of capital in output is 0.5. Suppose that output increases by 4 percent, the labor force increases by 3 percent, and the capital stock increases by 2 percent. What is the Solow residual in this case? C. 1.5 percent

234. Suppose that the production function is y = sqrt(k) [that is, output per worker is equal to the square root of capital per worker], s = 0.20, and delta [the depreciation rate] = 0.10. What is the Golden Rule level of capital per capita? B. 25Конецформы

235. Suppose that the price level is 1 and output is 100. Then the Fed suddenly increases the money supply by 10 percent. According to the AD/AS model, what would be the most probable paths for output and prices? A. Y: 100, 105, 100; P: 1, 1, 1.1 236. Suppose country A has a higher risk premium than country B. One can then infer that country A C. is less politically stable than country B.

237. Suppose the United States were a small open economy under floating exchange rates. If the U.S. government imposes a quota on German cars in an effort to reduce the trade deficit, then B. the exchange rate goes up and the trade deficit remains unchanged.

238. Suppose that the Mundell-Fleming model is depicted in a Y - e graph. The equilibrium would then occur at the point where the A. IS* and LM* curves intersect.

239. Suppose that the typical consumer buys one apple and one orange every month. In the base year 1986, the price for each was $1. In 1996, the price of apples rises to $2, and the price of oranges remains at $1. Assuming that the CPI for 1986 is equal to 1, the CPI for 1996 would be equal to

C. 3/2.

240. The model of aggregate supply and aggregate demand in the short run differs from our long-run model of the economy because, in the short run C. prices are fixed.

241. The model of aggregate supply and aggregate demand that assumes sticky prices B. shows that output depends on demand as well as supply.

242. The assumption of sticky prices is NOT valid for the case of the A. pork-belly market.

243. The positive relationship between the price level and the amount of output means that the aggregate supply curve is B. upward sloping.

244. The sticky wage model predicts that B. employment rises as the real wage falls.

245. The Phillips curve represents the trade-off between C. inflation and unemployment.

246. The modern Phillips curve posits that the inflation rate depends on three forces. On which of the following does it NOT depend? A. The money supply

247. The inflation that tends to occur when unemployment is below the natural rate is called C. demand-pull inflation.

248. The inflation caused by supply shocks is called D. cost-push inflation.

249. The approach that assumes that people optimally use all the available information to forecast the future is called D. rational expectations.

250. The idea that, in the long run, the economy returns to the levels of output and unemployment described by the classical model is called A. the natural-rate hypothesis.

251. The slowdown in the U.S. economy in 2001 can be explained by A. negative shocks to the IS curve resulting in a fall in aggregate demand..

252. The IS-LM model predicts that an increase in the price level will B. increase the interest rate and decrease income.

253. The "spending hypothesis" explaining the Great Depression stipulates that the main cause of the Great Depression was a decline in spending. Which of the following does not support this hypothesis? C. The government budget deficit rose during 1929-1932.

254. The Pigou effect stipulates A. falling prices expand income.

255. The "money hypothesis" explaining the Great Depression stipulates that the Depression was caused by a contractionary shift in the LM curve. Which of the following facts supports this hypothesis? C. The nominal money supply contracted and the price level fell dramatically.

256 The returns to scale in the production function Y = K^0.5 L^0.5 are B. constant. 257. The real interest rate is equal to the nominal interest rate minus D. inflation.

258 The world interest rate is 5 percent. What are net exports of Transalpinia? B. -50 259. To obtain the net domestic product (NDP), start with GDP and subtract

1. depreciation.

260 The price of one currency in terms of another currency, such as 150 yen for $1, is an example of A. a nominal exchange rate.

261. To obtain national income, start with GDP and subtract