Multiple choice Questions. (Weight 5 points each) Choose the best answer.
1) The unemployment rate is the number of
2) The value of steel sold to an automobile producer is __________ directly included in the GDP because __________.
3) In the simplest Keynesian model of the determination of income, interest rates are assumed
4) An increase in the money supply will raise equilibrium GDP if the
5) The aggregate demand curve may be derived from the IS-LM analysis by shifting
6) Suppose that members of Congress and the President believe that the natural rate of unemployment is 2% but in fact it is 6%, and employing fiscal policy they increase AD each time unemployment rises above 2%. The underestimation of the natural rate combined with adaptive expectations will
7) Unanticipated inflation will hurt __________ and help __________.
8) Once monetary policy is dedicated to controlling the level of nominal GDP, then fiscal policy
9) A major side-effect of a stimulative fiscal policy is that it will
10) The conditions for joining the “Euro” single-currency block led a number of European countries to __________ and consequently reduce their debt-GDP ratios.
11) The national debt must eventually be paid off to
12) Over a decade or longer, a government budget deficit
13) As an individual, you cannot participate in the financial markets to issue new stock or sell new bonds because
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14) The quantity equation makes the demand for money depend on
15) The quantity theory of money assumed
16) Keynes’s “speculative motive” for holding money
17) If the level of interest rates increases, then the current value and price of a bond paying a fixed interest payment will
18) The central issue in the stabilization policy debate is
19) The increase of the real money supply by 10% by the Federal Reserve when the unemployment rate rises by 1% is an example of
20) Non-activists believe that the IS curve is
21) In the early 1970s monetary growth was relatively stable yet unemployment and prices were quite unstable. This suggests that
22) A policymaker would prefer that the lag in the effect of a policy be
or size.
23) Which of the following statements best describes the rational expectations hypothesis?
24) Business cycles will occur if either of the two theories below characterizes the behavior of the economy
25) If it is less costly for business firms to adjust the labor demanded as the price level changes than it is for households to adjust Ns, then in the short-run
26) Switzerland has experienced the lowest rate of price increases in the post World War II period. Consequently, Lucas would predict
27) According to the classical model, real wages should
28) The structural deficit is
29) The natural employment surplus __________ be used to determine the effectiveness of discretionary fiscal policy actions because __________.
30) The cyclical deficit is
31) The 2001 recession was caused principally by
32) A government budget deficit is financed by a combination of
33) The ballooning of the U.S. foreign debt to 500 billion dollars by 1988 implied that
34) If the Federal Reserve intervenes in the foreign-exchange markets and buys foreign currencies
PROBLEM 1 (Weight 40 points)
Derive the LM curve by one of the standard methods shown either in the Gordon Macroeconomics text or in the Soule IMS reference. Be sure to label all axis and curves on your graphs.
Explain in writing to what market your derivation brings equilibrium and how it accomplishes this.
PROBLEM 2 (Weight 40 points)
Derive the IS curve by one of the standard methods shown in either the Gordon Macroeconomics text or in the Soule IMS reference. Be sure to label all axis and curves on your graphs.
Explain in writing to what market your derivation brings equilibrium and how it accomplishes this.
PROBLEM 3 (Weight 50 points)
What are the principal differences between flexible and fixed exchange systems?
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