Explain the difference between macroeconomic variables that are in terms of levels and growth rates. Which important macroeconomic variables are which? Which one is the unemployment rate? What will be an ideal response? ANSWER Variables such as GDP and the price level are in terms of levels. Inflation and GDP growth are in terms […]
Why is there no long-run trade-off between unemployment and inflation? What will be an ideal response? ANSWER Because when the labor market is so tight as to cause wages and prices to rise, the resulting inflation intensifies the pressure on wages and prices (by reducing the real wage and increasing expected inflation). Since the […]
Fiscal policy involves the manipulation of ________. A) U.S. interest rates B) wages and prices C) federal government spending and tax revenues D) the supply of money ANSWER C
An increase in taxes has the following impact on the budget constraint A) a parallel move down. B) a parallel move up. C) a tilting to the left. D) a tilting to the right. ANSWER A
What are the two key features of perfectly competitive markets in the Classical Model? What will be an ideal response? ANSWER 1 . Perfectly flexible prices and wages 2 . Perfect information on the part of all market participants about market prices
If the consumption function is given by C = 100 + .6(Y-T) and planned investment is 150, government spending is 50, and T is 100, then equilibrium income is a. 600 b. 750 c. 400 d. 350 ANSWER A
Which of the following is not a property of assets? A) risk B) inflation. C) liquidity D) maturity ANSWER B
The key objective of purchases by the Federal Reserve of over $1 trillion worth of debt issued by private firms was ________. A) to avoid the bankruptcy of the issuing firms B) to manage expectations C) to prevent such firms from being acquired by foreign companies D) to stimulate spending by firms and households […]
Pay-as-you-go social security A) can never improve economic welfare for everyone. B) can improve welfare for everyone if the population growth rate is large enough. C) is always inefficient. D) is not used by any countries in the world. ANSWER B
Both the trade and budget balance were in roughly zero until the 1980s when the budget deficit increased dramatically and the U.S. trade deficit increased dramatically. However, during the late 1990s the budget deficit shrank—in fact, moving to surplus—at the same time that the U.S. trade deficit increased significantly. Since 2000, the budget deficit has […]
