Questions:
Question 1
Which of the following will cause a reduction in aggregate output?
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a reduction in N
a reduction in K
a worsening in technology
all of the above
Question 2
If Kt+1/N = Kt/N, we know that:
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saving per worker equals depreciation per worker in period t.
saving per worker is less than depreciation per worker in period t.
saving per worker is greater than depreciation per worker in period t.
the saving rate fell in period t.
Question 3
For this question, assume that expected inflation this year is equal to past year's inflation. Also assume that the unemployment rate has been equal to the natural rate of unemployment for some time. Given this information, we know that:
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the rate of inflation should be zero.
the rate of inflation should neither increase nor decrease.
the rate of inflation should steadily increase.
the rate of inflation should steadily decrease.
the natural rate of unemployment should steadily decrease.
Question 4
The capital-labour ratio will increase when which of the following conditions is satisfied?
Question
Investment per worker equals saving per worker.
Investment per worker exceeds saving per worker.
Investment per worker exceeds depreciation per worker.
Saving per worker equals depreciation per worker.
Output per worker exceeds capital per worker.
Question 5
Suppose there are two countries that are identical in every way with the following exception: Country A has a lower depreciation rate than country B. Given this information, we know with certainty that:
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the steady state growth rate will be the same in the two countries.
the steady state growth rate will be higher in A than in B.
Capital per worker, K/N,/> will be higher in B.
Output per worker, Y/N, will be higher in B.
Question 6
The following equation can be used to represent how individuals form expectations of inflation:
πte = θπt-1.
From 1970 on, the value of θ in the above
became gradually larger and approached 1.
became gradually smaller and approached zero.
remained constant at zero.
remained constant at negative one.
none of the above
Question 7
Which of the following will NOT cause an increase in the natural rate of unemployment?
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an increase in the markup, μ
an increase in unemployment benefits (included in z)
an increase in the expected inflation rate
a reduction in the response of wages to unemployment, α
none of the above
Question 8
Which of the following will likely cause an increase in output per worker?
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an increase in education expenditures
an increase in the saving rate
an increase in on-the-job training
all of the above
Question 9
Assume the following dynamic AD relation when the central bank controls the interest rate:
g yt = 3% - (π t - π T ) .
In the medium run, a reduction in the inflation target from 9% to 4% will cause the unemployment rate to:
decrease by 5%.
decrease by 4%.
increase by 5%.
increase by 4%.
remain unchanged.
Question 10
If output per capita grows by a constant 6% per year, then the standard of living would grow by about ________ over 3 years.
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12%
14%
18%
19%
22%
Question 11
Suppose there is a permanent increase in a country's saving rate. This increase in the saving rate will cause:
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a permanently higher level of capital per worker.
a permanently higher level of output per capita.
a permanently faster growth rate of output.
both of the first two Questions above
none of the above.
Question 12
Constant returns to scale suggests that if N and K both increase by 6%:
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output (Y) will increase by more than 3%.
Y will increase by exactly 3% . it should be 6%
Y will increase by less than 3%.
the capital-labour ratio (K/N) will decrease.
Question 13
A permanent reduction in the saving rate will:
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increase the growth of output per worker only temporarily.
increase the steady state growth of output per worker.
decrease the growth of output per worker only temporarily.
decrease the steady state growth of output per worker.
increase or decrease the steady state growth of output per worker, depending on the level of saving to begin with.
Question 14
The "Lucas critique" is that:
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policy changes affect expectations, which in turn affect the impact of the policy.
increasing unemployment to reduce inflation is more costly to society than economists traditionally think.
in the medium run, output always returns to its natural level.
macro data based on government surveys is inaccurate.
policy changes can affect the economy only when they are expected.
Question 15
Assume that expected inflation is based on the following: πte = θπt-1 , θ =1, we know that:
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a reduction in the unemployment rate will have no effect on inflation.
low rates of unemployment will cause steadily increasing rates of inflation.
the actual unemployment rate will not deviate from the natural rate of unemployment.
the Phillips curve illustrates the relationship between the level of inflation rate and the level of the unemployment rate.
none of the above
Question 16
If the Phillips curve equation is
πt - πt-1 = -(ut - un), which of the following will increase the inflation rate by 6 percentage points?
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a 6 percentage point reduction in unemployment for one year
a 3 percentage point reduction in unemployment for 2 years
a 1 percentage point reduction in unemployment for 6 years
all of the above
none of the above
Question 17
If the saving rate is 1 (i.e., s = 1), we know that:
Question
Capital per worker, K/N = 0.
Output per worker, Y/N = depreciation per worker.
Consumption per worker, C/N, will be at its highest level.
Output per worker, Y/N = 0.
Question 18
Which of the following events will cause an increase in output per capita (Y/N)?
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an increase in K
an increase in K/N
a reduction in K
all of the above
both of the first two anwers above
Question 19
Assume the Phillips curve is represented by the following:
πt -πt-1 = -α(ut - un). If α equals 4, the sacrifice ratio is equal to:
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0.25
0.5
4
-4
Question 20
In New Zealand, the rate of saving is greater than in Australia Given this information, we know, other things equal, that in the long run New Zealand's:
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growth rate will be greater than the Australian growth rate.
output per worker will be greater than Australian output per worker.
capital per worker will be no different than the Australian capital per worker.
all of the above
none of the above
Part 2
Question 1
Suppose that over the past decade, the Australian inflation is greater than that in Japan. Further assume that during this same period, the Australian dollar appreciates relative to the Japanese yen. Given this information:
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the real exchange rate remains unchanged.
the real exchange rate must decrease.
the real exchange rate must increase.
the real exchange rate can increase or remain the same, but not decrease.
the real exchange rate can decrease or remain the same, but not increase.
Question 2
A change in which of the following variables will have NO direct effect on domestic demand?
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domestic income
government spending
taxes
the interest rate (r)
none of the above
Question 3
In an open economy under flexible exchange rates, a reduction in the interest rate will cause an increase in which of the following?
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investment
exports
net exports
all of the above
none of the above
Question 4
A real appreciation can initially cause an increase in output when which of the following holds?
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the Marshall-Lerner condition
the J-Curve effect
Net exports are initially zero.
Net exports are initially negative.
Net exports are initially positive.
Question 5
In an open economy under flexible exchange rates where the central bank responds to inflationary pressure, a tax cut will cause an increase in which of the following?
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net exports
the exchange rate, E
exports
all of the above
none of the above
Question 6
Assume that the uncovered interest parity condition holds. Also assume that the U.S. interest rate is greater than the U.K. interest rate. Given this information, we know that investors expect:
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the pound to depreciate.
the pound to appreciate.
the dollar-pound exchange rate to remain fixed.
the U.S. interest rate to fall.
none of the above
Question 7
When the Australian dollar appreciates, we know that, other things equal:
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the dollar is less expensive to foreigners.
foreign goods are less expensive to Australians.
foreign currency is more expensive to Australians.
Australian goods are less expensive to foreigners.
none of the above
Question 8
Suppose two countries are engaged in a fixed exchange rate regime. Also assume that financial market participants believe this policy is credible. Given this information, we know that:
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the exchange rate of foreign for domestic currency, E = 1.
E > 1.
domestic and foreign interest rates are equal, i = i*.
individuals will only hold domestic bonds.
Question 9
Suppose policy makers want to increase output (Y) and increase net exports (NX). Which of the following policies would most likely achieve this?
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an increase in government spending
a real depreciation
an increase in government spending and an increase in the real exchange rate
an increase in the real exchange rate
Question 10
Suppose policy makers want to increase output (Y) and keep net exports (NX) constant. Which of the following policies would most likely achieve this?
Question
an increase in government spending
a real depreciation
an increase in government spending and a decrease in the real exchange rate
an increase in the real exchange rate
Question 11
If the price level in Japan is 3.0, the price level in Australia is 6.0, and it costs 50 Yen to buy one Australian dollar, then the real exchange rate between Australia and Japan (the price of domestic goods in terms of Japanese goods) is ________.
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0.005
0.05
0.5
50
100
Question 12
In an open economy under flexible exchange rates, expansionary monetary policy will always cause:
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a rise in output.
a drop in the interest rate.
a fall in the exchange rate, E.
all of the above
both a. and b.
Question 13
A nominal appreciation of the Mexican peso against the Australian dollar indicates that:
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the exchange rate of pesos per dollar, E, has increased.
E has decreased.
the peso price of the U.K. pound has increased.
the number of units of foreign currency that one can obtain with one peso has decreased.
Question 14
As the economy moves up and to the left along the IS curve, which of the following will occur when exchange rates are flexible?
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investment spending decreases.
consumption decreases.
the domestic currency appreciates.
all of the above
none of the above
Question 15
An increase in which of the following variables is likely to have NO direct effect on domestic demand?
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domestic income
the real exchange rate
taxes
the interest rate (r)
none of the above
Question 16
For an open economy, which of the following expressions represents private saving (S)?
investment plus tax revenues less government expenditure plus net exports, I + T - G + NX
I + T - G - NX
I + G + NX
G - T + NX - I
none of the above
Question 17
Suppose policy makers want to increase net exports (NX) and keep output (Y) constant. Which of the following policies would most likely achieve this?
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an increase in government spending
a real depreciation
an increase in government spending and a decrease in the real exchange rate
a decrease in the real exchange rate and a tax increase
Question 18
Suppose two countries make a credible commitment to fix their bilateral exchange rate. In such a situation, we know that:
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the uncovered interest parity condition no longer holds.
the real exchange rate must be constant as well.
each country can freely allow its interest rate to diverge from that of the other country.
the interest rate in the two countries must be equal.
neither country will run a trade deficit.
Question 19
Suppose a country switches from a flexible to a fixed exchange rate. Which of the following will occur as a result of this change?
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Monetary policy will become a more effective tool for changing output.
Fiscal policy will become a less effective tool for changing output.
Both fiscal and monetary policy will become more effective in changing GDP.
Both fiscal and monetary policy will become completely ineffective in changing GDP.
none of the above
Question 20
Assume that the price levels in two countries are constant. In this situation, we know that:
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neither the real nor the nominal exchange rate can change.
the real exchange rate can change, while the nominal exchange rate is constant.
the nominal exchange rate can change, while the real exchange rate is constant.
the real and nominal exchange rate must move together, changing by the same percentage.
the nominal exchange rate will fluctuate more widely than the real exchange rate.