If the world real interest rate were to fall below the rate at which domestic saving and investment would be equal ________.
A) saving would be greater than investment so the economy would be running a trade deficit
B) investment would be greater than saving so the economy would be running a trade deficit
C) investment would be greater than saving so the economy would be running a trade surplus
D) saving would be greater than investment so the economy would be running a trade surplus
E) none of the above
Question 2When current account deficits are used to finance investment spending, such deficits may be self-correcting because
A) they promote more responsible government policies.
B) the resulting increase in the capital stock over time shifts the output supply curve to the right.
C) the resulting increase in the capital stock over time shifts the output demand curve to the right.
D) the resulting increase in national indebtedness increases labor demand.
Question 3If you invest in an emerging market fund, your money is probably going to a commercial bank, rather than directly to nonfinancial businesses. Why? Why is that probably a good thing?
What will be an ideal response?
Question 4If the monetary policy curve is correct, then policy makers care only about inflation and not at all about aggregate output and unemployment. Comment.
What will be an ideal response?
Question 5Business cycle persistence refers to the property that
A) real GDP is rarely exactly at trend.
B) booms and recessions last a long time.
C) when real GDP is above trend, it tends to stay above trend, and when it is below trend, it tends to stay below trend.
D) business cycles are persistently hard to predict.
Question 6One explanation for the sharp decline in inventory investment during the 2007-2009 financial crisis was ________.
A) financing constraints
B) the rise in the level of income
C) the volatility of interest rates
D) the increase in total spending and therefore costs
Question 7In an economy open to international trade where the interest rate at which saving and investment would be equal is ________ the world real interest rate ________.
A) above; a trade surplus ensues
B) below; a trade deficit ensues
C) above; there is a net capital outflow
D) below; there is a net capital inflow
E) none of the above
Question 8In the new Keynesian model, the ultimate effect on inflation of an anticipated aggregate demand shock is ________.
A) less than if that event was unanticipated
B) greater than if that event was unanticipated
C) the same as would develop if that event had never occurred
D) independent of whether or not that event is anticipated or unanticipated
Question 9In the endogenous growth model presented in the text, suppose that u represents the fraction of time spent working (as opposed to accumulating human capital) and b represents the efficiency of human capital accumulation.
The growth rate of human capital equals A) u(1 - b) - 1.
B) 1 + b(1 - u).
C) (1 + b)(1 - u).
D) b(1 - u) - 1.
Question 10Suppose the economy is just recovering from a recession and all signs now point to robust growth. How might this transition from recovery to expansion be reflected in the monetary policy curve?
What will be an ideal response?
Question 11In a two-period model with production, an anticipated future increase in domestic total factor productivity
A) increases domestic output and increases the current account surplus.
B) increases domestic output and decreases the current account surplus.
C) has no effect on domestic output and increases the current account surplus.
D) has no effect on domestic output and decreases the current account surplus.
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