As the financial crisis became more severe in 2008, the Federal Reserve undertook a(n) ________ of monetary policy, an effect of which is to ________ inflation.
A) contraction; raise
B) easing; raise
C) contraction; lower
D) easing; lower
E) none of the above
Question 2The government deficit
A) is equal to the government surplus plus taxes minus government spending.
B) is equal to GDP minus GNP.
C) is equal to disposable income plus the current account surplus.
D) is equal to the negative of government saving.
Question 3Shocks to long-run aggregate supply can be a source of business fluctuations ________.
A) only in real business cycle models
B) only in new Keynesian models
C) in both real business cycle and new Keynesian models
D) only if the money supply rises
Question 4In the new Keynesian model, an ________ increase in productivity will impact ________.
A) unanticipated; both aggregate demand and aggregate supply
B) anticipated; both aggregate demand and aggregate supply
C) anticipated; aggregate demand, but not aggregate supply
D) unanticipated; aggregate demand, but not aggregate supply
Question 5Paul Romer argues that a key feature of knowledge is
A) divisibility.
B) private ownership.
C) nonrivalry.
D) durability.
Question 6Investment spending is procyclical. In the short run, are changes in investment affected more by changes in the expected marginal product of capital, or by changes in the user cost of capital?
What will be an ideal response?
Question 7In a two-period model, as long as wealth effects are small, an increase in the world real interest rate
A) increases consumption and increases the current account surplus.
B) increases consumption and decreases the current account surplus.
C) decreases consumption and increases the current account surplus.
D) decreases consumption and decreases the current account surplus.
Question 8Before the financial crisis of 2007, inflation was on the rise. According to the MP curve, this would lead to ________.
A) an increase in the real interest rate
B) an upward shift of the MP curve, if policymakers opted for autonomous tightening
C) a decrease in aggregate output
D) all of the above
E) none of the above
Question 9National saving minus private saving is equal to
A) the government surplus.
B) private disposable income.
C) the current account deficit.
D) interest on the government debt.
Question 10Which of the goals pursued by policymakers in an open economy is desirable because can help reduce the volatility of economic activity?
A) exchange-rate stability
B) monetary policy independence
C) free capital flows
D) appreciation of the domestic currency
Question 11If taxes are reduced, will most people save more or less than before? Does national saving rise or fall? Explain.
What will be an ideal response?
Question 12In a two-period model, holding everything else constant, an increase in future taxes
A) unambiguously increases the current account surplus.
B) unambiguously decreases the current account surplus.
C) has an uncertain effect on the current account surplus.
D) has no effect on the current account surplus, as long as Ricardian equivalence holds.
Question 13Human capital is knowledge in
A) books.
B) people.
C) firms.
D) government.
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