If during the past decade the average rate of monetary growth has been 5% and the average inflation rate has been 5%, everything else held constant, when the Federal Reserve announces that the new rate of monetary growth will be 10%, the adaptive expectation forecast of the inflation rate is A) 5%. B) between 5 […]
Date: September 10th, 2020
Which of the followings is NOT true about the word “autonomous” that economists use? A) Changes in autonomous components are associated with movements along a curve. B) Changes in autonomous components are associated with shifts of a curve. C) The autonomous component of a variable is exogenous. D) The autonomous component of a variable is […]
Date: September 10th, 2020
What is the relationship between unemployment and the price level in the short run? What will be an ideal response? ANSWER In the short run, there is a trade-off between the unemployment rate and the inflation rate. As the economy moves closer to full employment, there will be upward pressure on both wages and […]
Date: September 10th, 2020
The major criticism of the view that expectations are formed adaptively is that A) this view ignores that people use more information than just past data to form their expectations. B) it is easier to model adaptive expectations than it is to model rational expectations. C) adaptive expectations models have no predictive power. D) people […]
Date: September 10th, 2020
Distinguish between implicit and explicit costs and give examples of each. In addition, explain how explicit and implicit costs affect the distinction between economic profit and accounting profit. What explains the distinction between the two measures of profit? ANSWER Explicit costs are those that a firm pays out of pocket, i.e., for which monetary […]
Date: September 10th, 2020
Another name for a consol is a ________ because it is a bond with no maturity date. The owner receives fixed coupon payments forever. A) perpetuity B) discount bond C) municipality D) high-yield bond ANSWER A
Date: September 10th, 2020
In the short-run along the horizontal portion of the aggregate supply curve, an increase in the budget deficit and an expansionary monetary policy would: A) increase the price level only. B) increase both the price level and real income. C) increase real income only. D) none of the above. ANSWER C
Date: September 10th, 2020
Economies of scale enable financial institutions to A) reduce transactions costs. B) avoid the asymmetric information problem. C) avoid adverse selection problems. D) reduce moral hazard. ANSWER A
Date: September 10th, 2020
If a banker expects interest rates to fall in the future, her best strategy for the present is A) to increase the duration of the bank’s liabilities. B) to buy short-term bonds. C) to sell long-term certificates of deposit. D) to increase the duration of the bank’s assets. ANSWER D
Date: September 10th, 2020
Everything else held constant, the vertical section of the supply curve of reserves is shortened when the A) discount rate increases. B) discount rate decreases. C) federal funds rate rises. D) federal funds rate falls. ANSWER B
Date: September 10th, 2020
