In a two-period model, holding everything else constant, an increase in current-period income 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. ANSWER A
Refer to Figure 12.6. Under a fixed exchange rate system, if the central bank can increase the output gap with expansionary policy and still maintain the fixed exchange rate, this would best be represented by a movement from ________ in Panel (a) and a movement from ________ in Panel (b). A) point A to point […]
In the endogenous growth model, an increase in a worker’s level of human capital A) increases the amount of additional human capital she can produce, but does not increase the amount of output she can produce. B) increases the amount of additional output she can produce, but does not increase the amount of human capital […]
The new Keynesian model has ________ in common with the real business cycle model. A) wage and price stickiness B) a theory of aggregate demand C) procyclical inflation D) a microeconomic foundation ANSWER D
How might a real business cycle theorist explain the “Volcker recession” of the early 1980s? What will be an ideal response? ANSWER Volcker took office in October 1979 in the midst of high inflation and unemployment. Clearly, the long-run aggregate supply curve had shifted to the left. High and unpredictable inflation was undermining incentives […]
A movement along the MP curve ________. A) implies an automatic adjustment of the interest rate B) implies an autonomous adjustment to the interest rate C) implies an autonomous adjustment of aggregate demand D) all of the above E) none of the above ANSWER A
Consider the two graphs above. Suppose that allowable deductions from taxable business income are increased. This would ________ the desired level of the capital stock, as depicted in graph ________. A) increase; B B) increase; A C) decrease; B D) decrease; A ANSWER A
Autonomous tightening of monetary policy involves ________. A) raising interest rates and shifting the MP curve to the right B) lowering interest rates and shifting the MP curve to the left C) raising interest rates and shifting the MP curve to the left D) lowering interest rates and shifting the MP curve to the right […]
Commercial banks limit the adverse selection problem through ________. A) monitoring B) restrictive covenants C) screening D) moral hazard ANSWER C
If exchange rates are floating, a contractionary monetary policy in the United States will cause the dollar to ________ relative to other currencies and cause net capital outflows to ________. A) appreciate; increase B) appreciate; decrease C) depreciate; increase D) depreciate; decrease ANSWER B
