Which market adjusts the quickest in response to shocks to the economy?

Which market adjusts the quickest in response to shocks to the economy?

a. The labor market
b. The goods market
c. The asset, labor, and goods markets adjust at about the same speed to eliminate a disequilibrium in the macroeconomy.
d. The asset market

Answer: D

An increase in taxes (when Ricardian equivalence doesn't hold) causes the real interest rate to ________ and the price level to ________ in general equilibrium.

An increase in taxes (when Ricardian equivalence doesn't hold) causes the real interest rate to ________ and the price level to ________ in general equilibrium.

a. fall; fall
b. rise; fall
c. fall; rise
d. rise; rise

Answer: A

Vault cash is equal to $2 million, deposits by depository institutions at the central bank are $1 million, the monetary base is $15 million, and bank deposits are $35 million. Currency held by the nonbank public is

Vault cash is equal to $2 million, deposits by depository institutions at the central bank are $1 million, the monetary base is $15 million, and bank deposits are $35 million. Currency held by the nonbank public is

a. $15 million.
b. $12 million.
c. $20 million.
d. $3 million.

Answer: B

Assume that the currency-deposit ratio is 0.2 and the reserve-deposit ratio is 0.1. The Federal Reserve carries out open-market operations, purchasing $1 million worth of bonds from banks. This action will increase the money supply by

Assume that the currency-deposit ratio is 0.2 and the reserve-deposit ratio is 0.1. The Federal Reserve carries out open-market operations, purchasing $1 million worth of bonds from banks. This action will increase the money supply by

a. $3 million.
b. $1 million.
c. $4 million.
d. $2 million.

Answer: C

Over the past year, productivity grew 2%, capital grew 1%, and labor grew 1%. If the elasticities of output with respect to capital and labor are 0.2 and 0.8, respectively, how much did output grow?

Over the past year, productivity grew 2%, capital grew 1%, and labor grew 1%. If the elasticities of output with respect to capital and labor are 0.2 and 0.8, respectively, how much did output grow?

a. 3%
b. 4%
c. 2%
d. 1%

Answer: A

In the Solow model, if f(k) = 2k^0.5, s = 0.1, n = 0.1, and d = 0.05, what is the value of f(k) at equilibrium?

In the Solow model, if f(k) = 2k^0.5, s = 0.1, n = 0.1, and d = 0.05, what is the value of f(k) at equilibrium?

a. 8/3
b. 2
c. 2/3
d. 4/3

Answer: A

GDP differs from GNP because

GDP differs from GNP because

a. GNP = GDP - net factor payments from abroad.
b. GDP = GNP - capital consumption allowances.
c. GNP = GDP - capital consumption allowances.
d. GDP = GNP - net factor payments from abroad.

Answer: D

Which of the following is included in U.S. GDP?

Which of the following is included in U.S. GDP?

a. The purchase of a watch from a Swiss company
b. The sale of a used car
c. The sale of a new car from a manufacturer's inventory
d. A newly constructed house

Answer: D

Which of the following macroeconomic variables is procyclical and coincident with the business cycle?

Which of the following macroeconomic variables is procyclical and coincident with the business cycle?

a. Industrial production
b. Residential investment
c. Nominal interest rates
d. Unemployment

Answer: A

In the short run, an increase in export sales would cause output to ________ and the price level to ________.

In the short run, an increase in export sales would cause output to ________ and the price level to ________.

a. rise; stay constant
b. rise; rise
c. fall; stay constant
d. fall; rise

Answer: A

There's been a real depreciation of the dollar over the past month. In the long run, you would expect the quantity of

There's been a real depreciation of the dollar over the past month. In the long run, you would expect the quantity of

a. American imports to fall and the quantity of American exports to fall.
b. American imports to rise and the quantity of American exports to rise.
c. American imports to rise and the quantity of American exports to fall.
d. American imports to fall and the quantity of American exports to rise.

Answer: D

Currency unions are rare because

Currency unions are rare because

a. they're to no one's advantage.
b. having flexible exchange rates has the same benefits and none of the costs.
c. speculative attacks are likely to occur.
d. countries are reluctant to give up having their own currencies.

Answer: D

Increases in the debt-GDP ratio are primarily caused by

Increases in the debt-GDP ratio are primarily caused by

a. a high government deficit relative to GDP.
b. a high growth rate of GDP.
c. increases in interest rates.
d. increases in government borrowing through bonds.

Answer: A

Consider an economy that has the following monetary data.

Consider an economy that has the following monetary data.

Currency held by the nonbank public = $300
Bank reserves = $50
Monetary base = $350
Deposits = $700
Money supply = $1000

The monetary base and the money supply are expected to grow at a constant rate of 20% per year. Inflation and expected inflation are 20% per year. Suppose that bank reserves and currency pay no interest, all currency is held by the public, and bank deposits pay no interest. What is the cost to the public of the inflation tax?


a. $140
b. $60
c. $200
d. $190

Answer: C

The average cost of the distortion created by taxes

The average cost of the distortion created by taxes

a. increases proportionately with the tax rate.
b. is higher when the tax rate is constant than when it fluctuates.
c. is lower when the tax rate is constant than when it fluctuates.
d. equals the square root of the tax rate.

Answer: C

In goods market equilibrium in an open economy,

In goods market equilibrium in an open economy,

a. the desired amount of national saving must equal the desired amount of domestic investment.
b. the desired amount of national saving must equal the desired amount of domestic investment plus the amount lent abroad.
c. the desired amount of exports must equal the desired amount of imports less the amount lent abroad.
d. the desired amount of exports must equal the desired amount of imports.

Answer: B

An economy is considered a small open economy if it

An economy is considered a small open economy if it

a. has GDP less than 1% of world GDP.
b. has a zero trade balance.
c. is too small to affect the world real interest rate.
d. doesn't trade internationally.

Answer: C

If the price level was 100 in 2009 and 102 in 2010, the inflation rate was

If the price level was 100 in 2009 and 102 in 2010, the inflation rate was

a. 0.2%.
b. 2%.
c. 20%.
d. 102%.

Answer: B

The number of unemployed divided by the labor force equals

The number of unemployed divided by the labor force equals

a. the inflation rate.
b. the labor force participation rate.
c. the misery index.
d. the unemployment rate.

Answer: D

Suppose your company is in equilibrium, with its capital stock at its desired level. A permanent increase in the depreciation rate now has what effect on your desired capital stock?

Suppose your company is in equilibrium, with its capital stock at its desired level. A permanent increase in the depreciation rate now has what effect on your desired capital stock?

a. Raises it, because the user cost of capital is now lower
b. Lowers it, because the future marginal productivity of capital is lower
c. Raises it, because the future marginal productivity of capital is higher
d. Lowers it, because the user cost of capital is now higher

Answer: D