1. If a person holds one dollar and does not lose it, then as long as the person
ID: 1099876 • Letter: 1
Question
1. If a person holds one dollar and does not lose it, then as long as the person holds that dollar they will
have:
a. the commodity value of the dollar. c. an interest bearing asset.
b. one dollar in currency. d. all of the above.
2. When households reduce their average money balances, they
a. purchase more goods. c. incur more opportunity costs.
b. they earn less interest. d. incur more transaction costs.
3. Real money demand does not change when:
a. nominal GDP changes. c. the price level changes.
b. the interest rate changes. d. all of the above.
6. During a recession,
a. the interest rate and real GDP fall tending
to cause money demand to fall.
c. the interest rate falls tending to cause
money demand to rise, but is at least
partly offset by real GDP falling tending
to cause money demand to fall.
b. the interest rate and real GDP rise tending
to cause money demand to rise.
d. the interest rate rising and real GDP
falling tend to cause money demand to
rise.
7. If for one period the money supply increases, then:
a. real GDP increases. c. real capital per worker increases.
b. the real wage increases. d. none of the above.
8. If the price level last year was 106 and this year is 102, then the inflation rate between last period and
this period was:
a. -3.8% c. 3.8%
b. 4%. d. -3.9%.
9. If the expected inflation rate is 5% and the unexpected inflation rate is 4%, then the actual inflation rate
is:
a. 1%. c. -1%.
b. 9%. d. 1.25%.
10. If the nominal interest rate is 5% and the inflation rate is 3%, then the real rate of return on money is:
a. 2%. c. -3%
b. 3% d. zero.
11. Lump sum transfers for money growth implies:
a. we need to analyze how transfer affects
GDP.
c. we need to analyze how transfers affect
capital.
b. we do not have to analyze how households
adjust their behavior to attract transfers.
d. we need to model how households adjust
their behavior to attract transfers.
12. A decrease in the money growth rate in the market clearing model causes:
a. a decrease in the nominal interest rate. c. a decrease in the price level.
b. an increase in money demand. d. all of the above.
13. Households with rational expectations will
a. make accurate predictions each period. c. make procyclical errors in their
predictions.
b. have no errors in their predictions. d. have errors in their predictions.
14. If the interest rate on a regular Treasury bond is 7% and the interest rate on an indexed bond is 3%,
then the
a. expected inflation rate is 10%. c. expected inflation rate is 5%.
b. real interest rate is 7%. d. real interest rate is 3%..
15. In the market clearing model without government borrowing, the net effect of government on
households is an increase in funds of:
a. transfer payments times taxes. c. taxes less transfer payments.
b. transfer payments plus taxes. d. transfer payments less taxes.
16. In the market clearing model the intertemporal substitution effect from a permanent increase in
government purchases:
a. works through real interest rate changes. c. works through real interest rate and real
wage changes.
b. works through real wage changes. d. does not exist because the real interest rate
and real wage rated do not change.
17. US data since the end of the Korean war shows that permanent changes in government purchases are:
a. acyclical as the model predicts. c. acyclical as opposed to the model that
predicts they will be procyclical.
b. procyclical as the model predicts. d. countercyclical as opposed to the model
that predicts they will be acyclical.
18. With a permanent change in government purchases the model predicts consumption is:
a. acyclical. c. countercylical.
b. procyclical. d. exogenous.
19. A temporary increase in government purchases does not increase the real wage according to the
market clearing model because:
a. laborsupply and labor demand increase
about the same amount.
c. labor demand is downward sloping.
b. labor supply is fixed. d. neither labor demand nor labor supply
shift due to the temporary increase in
government purchases.20. Adding government to the Barro model affects the household budget constraint by
a. adding the present value of real transfers
net of real taxes as a source of funds.
c. adding the present value of real transfers
plus real taxes as a use of funds.
b. adding and subtracting the present value
of real transfers net of real taxes as a
source of funds, for no net effect.
d. subtracting the present value of real
transfers net of real taxes as a use of
funds.
21. A temporary increase in government purchases, unlike a permanent increase,
a. comes mostly at the expense of a loss of
transfer payments.
c. increases the real wage rate in future
years.
b. comes mostly at the expense of a loss in
gross investment.
d. comes mostly at the expense of a lower
real interest rate.
22. A flat-rate tax structure is one:
a. whose marginal rate increases as income
increases.
c. whose average rate equals the marginal
rate.
b. that has graduated rates. d. whose marginal rate decreases as income
increases.
23. If the marginal tax rate on income, w, changes but government purchases don
Suppose that the money-demand function takes the form Md/P = L(Y,i) = Y middot psi(i) That is, for a given nominal interest rate, i, a doubling of real GDP, Y, doubles the real quantity of money demanded, Md/P. Consider the relation across countries between the growth rate of money (currency), |i, and the inflation rate, n, as shown in Figure 11.1. How does the growth rate of real GDP, AY/Y, affect the relationship between n and nl What is the relation between ji and n for a country in which the nominal interest rate, i, has increased? Suppose that the expected real interest rate, rE, is given. What is the relation between n and n for a country in which the expected inflation rate, nE, has increased? The national accounts treat all government purchases of goods and services, G, as part of real GDP. But suppose that the public services derived from government purchases are an input to private production, say: Y = F(kK, L, G) In this case, public services are an intermediate product-a good that enters into a later stage of production. Hence, we ought not to include these services twice in real GDP-once when the government buys them and again when the services contribute to private production. Suppose that businesses initially hire private guards. Subsequently, the government provides free police protection, which substitutes for the private guards. Assume that the private guards and public police are equally efficient and receive the same wage rates. How does the switch from private to public protection affect measured real GDP? How would you change the national accounts to get a more accurate treatment of government purchases of goods and services? Is your proposal practical?Explanation / Answer
1 B 2 A 3 A 6 B 7 B Please consider the time devoted to make this reply by rating this answer as 5star. Thank u in advance. God bless u :)
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