When we try to measure real GDP and the price level, if we underestimate the growth in real GDP, we will
A) always underestimate the rate of inflation.
B) sometimes underestimate the rate of inflation.
C) always overestimate the rate of inflation.
D) sometimes overestimate the rate of inflation.
Question 2Suppose a country is much richer than the others in the Solow growth model. What happens in the long run?
A) The other countries catch up to the rich one.
B) The rich country grows the fastest.
C) The rich country becomes poorer than the others.
D) Nothing.
Question 3In the very short run ________.
A) the real interest rate will be affected by changes in the nominal rate
B) monetary policy has an immediate effect on inflation
C) the inflation rate is determined by the federal funds rate
D) all of the above
E) none of the above
Question 4In the real business cycle model, unemployment is ________.
A) costless to individual workers
B) the result of higher productivity
C) voluntary
D) the result of higher wages
Question 5The expected real cost of using a unit of capital over a given period of time is known as ________.
A) the real rate of interest
B) the nominal rate of interest
C) depreciation
D) the user cost of capital
Question 6Which of the following statement is untrue?
A) assets equal liabilities plus net worth
B) households and firms are lenders and borrowers in the flow of funds
C) government regulation is the major cause of asymmetric information problems
D) pension funds and insurance companies are financial intermediaries
Question 7In the model for desired saving, autonomous is roughly synonymous with ________.
A) policy-determined
B) endogenous
C) intended
D) inflation-adjusted
E) exogenous
Question 8The U.S. Federal Reserve
A) has complete independence from the U.S. government.
B) acts within the boundaries established by Congress and the president, but has flexibility in meeting the goals of monetary policy.
C) is a government agency run by the Treasury Department and under the strict control of Congress.
D) is run by elected officials but is only subject to oversight by the U.S. president.
Question 9If a particular measure of real GDP consistently underestimates growth in real GDP, then the rate of inflation as measured by the GDP deflator
A) will be biased upward.
B) will be biased downward.
C) will be unbiased.
D) cannot be calculated.
Question 10In the New Keynesian model, if there is a decrease in anticipated future total factor productivity, then
A) there should be no change in monetary or fiscal policy.
B) the central bank's interest rate target should be increased.
C) government spending should fall, and the central bank's interest rate target should rise.
D) government spending should increase.
Question 11The user cost of capital is negatively related to ________.
A) the real rate of interest
B) the depreciation rate
C) the expected rate of change of the real price of capital
D) the tertiary log of the nominal price of capital
Question 12According to real business cycle theory, a likely cause of an increase in employment is ________.
A) an increase in the real wage
B) an increase in aggregate demand
C) a decrease in the real wage
D) a decrease in the real interest rate
Question 13A central bank can control the real interest rate precisely, so long as ________ remains constant.
A) the nominal interest rate
B) monetary policy
C) expected inflation
D) all of the above
E) none of the above
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