Macroeconomics-习题集2

习题集二
PART A
QUESTION 1
An increase in the marginal propensity to consume from 0.5 to 0.7 will cause:
a)the ZZ line to become steeper and a given change in government spending (G) to
have a smaller effect on output.
b)the ZZ line to become steeper and a given change in government spending (G) to
have a larger effect on output.
c)the ZZ line to become flatter and a given change in government spending (G) to
have a smaller effect on output.
d)the ZZ line to become flatter and a given change in government spending (G) to
have a larger effect on output.
QUESTION 2
Base on the model of the ―goods market‖, we know that an equal and simultaneous reduction in G and T will cause:
a)an increase in output
b)no change in output
c) a reduction in output
d)an increase in investment
QUESTION 3
Using the information below, answer the following question
C =1000+.8YD
I = 800
G = 2000
T = 1000
The equilibrium level of GDP for the above economy equals:
a)6000
b)8000
c)10000
d)15000
QUESTION 4
Suppose the central bank wishes to conduct expansionary monetary policy. Given this, we would expect which of the following to occur?
a) A central bank purchase of bonds and an increase in the interest rate.
b) A central bank purchase of bonds and a reduction in the interest rate.
c) A central bank sale of bonds and increase in the interest rate.
d) A central bank sale of bonds and reduction in the interest rate.
QUESTION 5
An increase in income will tend to cause:
a)an increase in bond prices and an increase in the interest rate
b) a reduction in bond prices and an increase in the interest rate.
c)an increase in bond prices and a reduction in the interest rate
d) a reduction in bond prices and an increase in the interest rate
Note: Y↑→ M d↑→ i↑→ bond price↓
QUESTION 6
Which of the following occurs as the economy moves rightward (downward) along the IS curve?
a) A reduction in the interest rate causes investment spending to increase.
b) A reduction in the interest rate causes money demand to increase.
c) A reduction in the interest rate causes an increase in the money supply.
d)An increase in government spending causes an increase in demand for goods. QUESTION 7
Suppose the economy is operating on the LM curve but not on the IS curve. Given this information, we know that:
a)the goods market is in equilibrium and the money market is not in equilibrium.
b)The money market and bond markets are in equilibrium and the goods market is
not in equilibrium.
c)The money market and goods market and goods market are in equilibrium and the
bond market is not in equilibrium.
d)The money, bond and goods markets are all in equilibrium.
QUESTION 8
Suppose investment spending depends only on the interest rate. Given this information. A reduction in government spending:
a)will cause investment to decrease
b)will cause investment to increase
c)may cause investment to increase
d)will have no effect on output
QUESTION 9
Suppose these is a simultaneous tax cut and open market purchase of bonds. Which of the following must occur as a result of this?
a)Output increase
b)Output decrease
c)The interest rate increase
d)The interest rate decrease
QUESTION 10
An increase in the aggregate price level. P. will most likely have which of the
following effects?
a) A rightward shift in the IS curve.
b) A leftward shift in the IS curve.
c)An upward shift in the LM curve.
d) A downward shift in the LM curve.
QUESTION 11
Efficiency wage theory suggests that:
a)workers will be paid more than their reservation wage
b)productivity might drop if the wage rate is too high.
c)The government can only set tax rates tax rates so high before people will prefer
not to work
d)Unskilled workers will have a lower turnover rate than skilled workers QUESTION 12
In a graph with the real wage on the vertical axis, and the level of employment on the horizontal axis, the price-setting equation will appear as :
a) a vertical line
b) a horizontal line
c)an upward- sloping line
d) a downward –sloping line
QUESTION 13
In the aggregate supply relation, an increase in current output causes:
a) a shift of the aggregate supply curve
b)an increase in the current price level
c) a change in the expected price level this year
d)an increase in the labour force.
QUESTION 14
In the aggregate demand relation, a reduction in the price level cause output to increase because of its effect on:
a)government spending
b)the interest rate
c)the nominal wage
d)firm‘s markup over labour costs
QUESTION 15
Which of the following represents the medium-run effect of an increase in the target price level?
a) a decline in output
b)an increase in the interest rate
c) a decrease in the price level
d)none of the above
Note: an increase in the target price level is an expansionary monetary policy. No effect in the medium run.
QUESTION 16
―Money is neutral ‖ means that either an expansionary or a contractionary monetary policy:
a) will change output in the medium run
b) will not change output in the short run
c) will not change output in the medium run
d) will not change the price level in the short run QUESTION 17
The following equation can be used to represent how individuals expectations of inflation: πe t =θπ1-t . From 1970 on, the value of θ in the above equation:
a) became gradually larger and approached 1.
b) Became gradually smaller and approached zero.
c) Remained constant at zero.
d) Remained constant negative one
Note: please see page 190 of the text book.
QUESTION 18
Use the following Phillips curve equation to answer the following question t t t z αμμππ-+=--)(1
A permanent reduction in the unemployment rate causes:
a)
an increase in the markup over labor costs b)
a decrease in the markup over labor costs c) an increase in the inflation rate over time d) a decrease in the inflation rate over time QUESTION 19
The ―Lucas critique ‖ is that:
a) policy changes affect expectations, which in turn affect the impact of the policy b) increasing unemployment to reduce inflation is more costly to society than economists traditionally think
c) in the medium run, output always returns to its natural level
d) ‗credibility ‘ is not an issue for macroeconomic policy QUESTION 20
Okun‘s law illustrates the relationship between which of the following?
a)the inflation rate and the unemployment rate
b)the inflation rate and the change in the unemployment rate
c)the money growth rate and the change in output growth rate
d)the growth rate of output and the change in the unemployment rate
QUESTION 21
If the nominal interest rate in year is 9%, and the expected inflation rate for year is 3%, then the real interest rate in year t is approximately:
a)2%
b)3%
c)6%
d)9%
QUESTION 22
When the IS curve is drawn with the nominal interest rate on the vertical axis, an increase in the expected inflation rate will cause:
a)the IS curve to shift rightward
b)the IS curve to shift leftward
c)the IS curve to become steeper
d)the IS curve to become flatter
QUESTION 23
Assume that the yield curve is downward- sloping. This suggests that financial market participants expect short-term interest rates to:
a)increase in the future
b)decrease in the future
c)be unstable in the future
d)not change in the future
QUESTION 24
Assume that the one-year interest rate is on the vertical axis of the IS-LM model and that the yield curve is initially upward sloping. If financial market participants now expect a monetary contraction in one year, we know with certainty that:
a)the yield curve will become steeper
b)the yield curve will become flatter
c)the yield curve will become horizontal
d)the yield curve will become downward sloping
QUESTION 25
The ―life cycle‖ and ―permanent income‖ theories of consumption share which of the following features?
a)Consumption spending depends on income, rather than wealth
b)Consumption spending should fluctuate widely from year to year
c)Consumers look ahead to the future in making current spending decisions
d)All of the above
QUESTION 26
Suppose there is an increase in the capital stock. This increase in the capital stock must cause other things equal:
a)an increase in profit per unit of capital
b) a decrease in profit per unit of capital
c)no change in profit per unit of capital
d)ambiguous effects on profit per unit of capital
QUESTION 27
Which of the following will cause aggregate private spending to decrease?
a)an increase in expected future real interest rates
b) a decrease in government spending
c) a reduction in future taxes
d)all of the above
QUESTION 28
Assume that the uncovered interest parity condition holds. Also assume that the U.S. interest rate is greater than the U.K. interest rate. Given this information, we know that investors expect:
a)the UK pound to depreciate
b)the UK pound to appreciate
c)the dollar-pound exchange rate to remain fixed
d)the U.S. interest rate to fall
Note: i t≈ i t* - (E e t+1 - E t) /E t (interest parity relation)
Therefore, if i > i*, then E e t+1 < E t ( domestic currency are expected to depreciate.) if i < i*, then E e t+1 > E t( domestic currency are expected to appreciate.)
QUESTION 29
Assume that the domestic economy is an open economy. Which of the following will make the government spending multiplier larger?
a) A smaller marginal propensity to import
b) A larger value for foreign output
c) A smaller marginal propensity to consume
d)All of the above
QUESTION 30
Assume that the Marshall-Lerner condition holds. Which of the following would
occur as a result of a real depreciation?
a)An improvement of the trade balance
b) A reduction in the quantity of imports
c)An increase in domestic output
d)All of above
QUESTION 31
The evidence suggests that in high- income countries, a depreciation of the currency:
a)immediately improves the trade balance
b)eventually improves the trade balance
c)first improves but then worsens the trade balance
d)has no effect on the trade balance
QUESTION 32
When the interest parity condition holds, we know that the domestic interest rate must be equal to:
a)the foreign interest rate
b)the expected rate of depreciation of the domestic currency
c)the expected rate of appreciation of the domestic currency
d)the foreign interest rate minus the expected rate of appreciation of the domestic
currency
Note: i t≈ i t* - (E e t+1 - E t) /E t (interest parity relation)
QUESTION 33
In an open economy under flexible exchange rates, a tax cut will cause which of the following?
a)An appreciation of the domestic currency
b)An increase in the exchange rate, E.
c)An increase in net exports
d)All of the above
QUESTION 34
Suppose a country implements simultaneously a fiscal expansion and monetary contraction. In a flexible exchange rate regime, we know with certainty that:
a)the exchange rate and output would both increase
b)the exchange rate would increase and output would decrease
c)the exchange rate would increase
d)the exchange rate would decrease and output would increase
Note: please draw IS-LM modle and the interest parity relation.
QUESTION 35
Suppose individuals suddenly expect deflation. This expected deflation will cause which of the following?
a)The IS curve shifts rightward
b)The IS curve shifts leftward
c)The LM curve shifts upward
d)The LM curve shifts downward and the IS curve shifts rightward QUESTION 36
Use the IS-LM model to answer this question. Suppose the economy is operating under the effects of a liquidity trap. Now suppose there is an open market purchase of bonds by the central bank. Based on this information, which of the following must occur?
a)The interest rate will decrease
b)Output will increase
c)The interest rate will not change
d)The money supply, M, will not change
QUESTION 37
Seignorage is defined as:
a)the increase in the nominal money supply
b)real revenues from money creation
c)the increase in income tax revenues that occurs during a hyperinflation
d)the decrease in income tax revenues that occurs during a hyperinflation QUESTION 38
In the medium run, a reduction in money growth will cause real money balances to change because of changes in:
a)the real interest rate
b)the nominal interest rate
c)real output
d)all of the above
QUESTION 39
Time inconsistency refers to:
a)the increasing inaccuracy of econometric models as the time horizon becomes
longer
b)the tendency for the rise in output to be greater in the early years of a new
c)frequent changes in political parties—and therefore policies—that occur in a
democracy
d)the tendency to deviate from a pre-announced optimal policy once other players
have committed themselves to a course of action
QUESTION 40
Which of the following is an implication of rational expectations theory?
a)deviations of output from the natural rate are likely to be serious and long-lived
b)The economy is like a complex machine that needs to be optimally controlled with
the proper policy
c)Macro-econometric models based on past behavior will not be very useful in
formulating policy
d)Wages and prices are set almost entirely at random, so it is pointless to try to
model their behavior.
PART B
QUESTION 41
Use Okun‘s law to explain why increased unemployment is often associated with disinflation policy.
Answer: To answer this question, students need to explain Okun‘s law, disinflation or disinflation policy first. The intrinsic answer is behind the equation 9.3 at page 195 of the Textbook. The answer guide also exists at the lecture notes of module3(cont.).
The basic idea is that low output growth is typically associated with an increase in the unemployment rate. Higher unemployment leads to lower inflation rate or decrease in the inflation rate (disinflation) because of less purchasing power of people.
QUESTION 42
Briefly discuss the importance of rational expectations for macroeconomic policy.
QUESTION 43
Define the following terms:
Natural rate of unemployment
Term structure of interest rates
Current account balance
Ricadian equivalence : (p675-676) the proposition that neither government deficits nor government debt has an effect on economic activity.
PART C
QUESTION 44
Despite a rise of 70% in the real price of oil over the last two years, ―Central banks‖strong reputations for fighting inflation have stopped the transformation of higher oil prices into wage price spirals‖
(a)Use an appropriate macroeconomic to explain how, in an open economy, a
country‘s central bank could use monetary policy to achieve such success in the domestic economy.
(b)Outline the effects of such monetary policy on price expectations in the central
bank‘s domestic economy.
Answer:
(a)Here students should understand why a rise of 70% in the real price of oil over the last two years has eventually no effect or a minimum effect on overall inflation rate. Overall inflation rate was within the reserve bank‘s target rate, 2-3%, during this time. That is why, transformation of higher oil prices did not occur into wage price spirals. Now the question is: what type of monetary policy was taken for this success (to keep lower inflation rate).
An expansionary monetary policy, such as lowering the interest rate by the central bank, helped to achieve this success. A decrease in interest rate leads to increase in overall output. An increase of output, other things being equal, helped to keep the overall inflation rate within the bank‘s target level though the oil price was higher. (Note: students can use the fig. 14.5 of page 333 and fig.
17.4 of page 394, or they can use AD-AS model to show lower price because of higher output). In the figure 17.4, expectation also plays a role to have a greater impact on output of the expansionary monetary policy. [This effect can be considered as short run effect].
(b)This is the secondary effect of expansionary monetary policy. Because of lower interest rate if output is greater than the natural level, and lower interest rate continues, eventually unemployment will be below the natural rate. From the Phillips curve relation, we know that as long as unemployment is below the natural rate, inflation increases (page 335 of the TEXT). So ul timately one can expect higher prices in the central bank‘s domestic economy. [Remember, in the medium run output will go back to the natural level, unemployment will go back to the natural rate of unemployment, and higher inflation will occur].
QUESTION 45
In its recent report, The Economic Implications of an Ageing Australia, the Australian Productivity Commission found that:
(1)―Ageing will reduce economic growth at the same time that it intensifies demands
for public services, such as health, aged care and the age pension. With present
policy settings, age-related spending will exceed the growth of tax revenue. This will open a fiscal gap equal to around 61/2 per cent of GDP by 2044-45‖, and that (2)―…in the absence of other policy actions to reduce fiscal pressures, taxation levels
would need to rise by 21% by 2044-45, or the debt burden of ageing would be twice the size of Australia‘s GDP‖.
Use an appropriate macroeconomic model to explain the short and medium-run economic effects on an economy of a change in taxation policy to accommodate the ageing problem.
Note: You do not need any knowledge of the Australian economy to answer this question. The analysis could apply to any economy with an ageing population problem.
Answer: Please see module 3(c ont.) about the effect of tax↑(contractionary fiscal policy). You should draw AS-AD and IS-LM curves to show the short and medium-run economic effects of tax↑ (contractionary fiscal policy).
- 11 -。