Suppose you have money to lend, but will do so only if you are compensated for the risk of default. ...

Suppose you have money to lend, but will do so only if you are compensated for the risk of default. If you set a high interest rate on your loan, a likely consequence is that ________.
 
  A) safe borrowers will look elsewhere, and only risky borrowers will find your terms attractive
  B) risky borrowers will look elsewhere, so your money is more likely to go to a safe borrower
  C) competition from other lenders will force you to lower your interest rate
  D) you will be prosecuted for predatory lending

Question 2

Convergence means that
 
  A) if poor countries grow fast, then fast growing countries are poor.
  B) all countries grow at the same rate.
  C) all countries tend towards the same per capita income.
  D) the savings rate is positively related to per capita income.

Question 3

Why is it important, for an open economy, that investment not be consistently higher than saving?
 
  What will be an ideal response?

Question 4

Under fiscal stabilization policy in the New Keynesian model, after a positive shock to output,
 
  A) the government increases expenditures and the central bank increases the money supply.
  B) the government increases expenditures and the central bank decreases the money supply.
  C) the government decreases expenditures and the central bank increases the money supply.
  D) the government decreases expenditures and the central bank decreases the money supply.

Question 5

Suppose that a machine costs 10,000 in constant dollars and the real rate of interest is 12 percent.
 
  If the machine is expected to increase in price by 2 percent and the rate of depreciation is 5 percent, then the user cost of capital for that machine over one year is equal to ________. A) 150
  B) 1,500
  C) 10,000
  D) 102,500

Question 6

Activists believe that ________.
 
  A) frictions to the self-correcting mechanism of markets prevent prices and wages from being very flexible
  B) it takes a very long time to reach the long run
  C) Keynes was right with his statement in the long-run, we are all dead
  D) all of the above
  E) none of the above

Question 7

The average unemployment rate was lowest during what period?
 
  A) 1980-1990
  B) 1950-1970
  C) 2000-2010
  D) 1980-2000

Question 8

The demand for bonds is
 
  A) equivalent to the demand for loanable funds.
  B) equivalent to the supply of loanable funds.
  C) represented by an upward-sloping line when the price of bonds is on the vertical axis and the quantity of bonds demanded is on the horizontal axis.
  D) represented by a downward-sloping line when the interest rate is on the vertical axis and the quantity of bonds demanded is on the horizontal axis.

Question 9

Referring to the table above, if consumption in period one is zero, then consumption in period two cannot be greater than ________.
 
  A) 72,800
  B) 70,400
  C) 71,200
  D) 70,800

Question 10

A shock that increases the costs of production is a
 
  A) positive aggregate demand shock.
  B) positive aggregate supply shock.
  C) negative aggregate demand shock.
  D) negative aggregate supply shock.

Question 11

Which of the following expressions is correct?
 
  A) B = + BR
  B) BR = + B
  C) = B + BR
  D) = -BR - B