ECO 302 Week 9 Quiz - Strayer

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Chapter 14 and 15

TRUE/FALSE

1. When a country has a deficit, its debt is growing.

2. A pay as you go social security system raises the capital stock.

3. If government budget is in deficit, then real government saving is in surplus.

4. If the government runs a deficit, households will feel wealthier.

5. A budget deficit caused by changing labor income taxes changes the labor and production.

6. The debt-to-GDP ratio typically rises during a recession.

7. The major peaks in the ratio of public debt to GDP in the U.S. reflect expenditures on Social Security.

8. Real national saving equals net investment.

9. Real government saving is positive when the real public debt increases.

10. If government expediture exceeds government revenue, then the government has a budget surplus.

MULTIPLE CHOICE

1. The governments sources of funds include:a. taxes. c. borrowing.b. printing money. d. all of the above.

2. The governments sources of funds include:a. taxes. c. paying interest on past bonds.b. government purchases. d. all of the above.

3. The governments sources of funds include:a. transfer payments. c. paying interest on the government debt.b. printing money. d. all of the above.

4. The governments sources of funds include:a. government purchases. c. borrowing.b. transfer payments. d. all of the above.

5. The governments uses of funds include:a. government purchases. c. paying interest on the past government debt.b. transfer payments. d. all of the above.

6. The governments uses of funds include:a. government purchases. c. printing money.b. borrowing. d. all of the above.

7. The governments uses of funds include:a. printing money. c. taxes.b. transfer payments. d. all of the above.

8. The governments uses of funds include:a. borrowing. c. paying interest on the past government debt.b. printing money. d. all of the above.

9. A balanced government budget is one where:a. government purchases equal taxes. c. the governments real savings is zero.b. government debt is zero. d. all of the above.

10. Total bond holding of all households is Bgt because:a. the quantity of all private bonds held by the public is zero. c. the public views government bonds as less risky than private bonds.b. the quantity of all government bonds held by the public is zero. d. the public views private bonds as less risky than government bonds.

11. Total bond holding of all households is equal toa. the quantity of all private bonds. c. the quantity of all private bonds plus all government bonds.b. the quantity of all government bonds.d. the quantity of all private bonds minus all government bonds.

12. If money and the price level are constant, then the government’s real budget deficit is:a. (Bgt - Bgt-1)/P. c. (Bt + Bgt)/P.b. Bgt/P. d. none of the above.

13. If money and the price level are constant, then the government’s real budget debt is:

a. (Bgt - Bgt-1)/P. c. (Bt + Bgt)/P.b. Bgt/P. d. none of the above.

14. If the government reduces taxes by $1 this year without raising taxes or printing more money, thena. future tax liabilities will rise by $1 plus the interest, R, that must be paid on the borrowing.c. future tax liabilities will fall by $1 plus the interest, R, that must be paid on the borrowing.b. future tax liabilities will rise by $1 less the interest, R, that must be paid on the borrowing. d. future tax liabilities will fall by $1 less the interest, R, that must be paid on the borrowing.

15. Ricardian equivalence implies that a government budget deficit:a. increases current consumption. c. reduces national saving.b. increases future tax liabilities. d. all of the above.

16. Ricardian equivalence holds:a. only for year to year changes in the governments budget. c. only with a government deficit not a surplus.b. no matter how long until the bonds are to be paid off. d. only with a government surplus not a deficit.

17. A strategic budget deficit is designed to:a. increase GDP. c. constrain the behavior of future governments. b. increase economic activity. d. all of the above.

18. The standard view of the budget deficit is that it:a. reduces the GDP in the long run. c. reduces the capital stock in the long run.b. reduces investment. d. all of the above.

19. The standard view of the budget deficit is that it:

a. reduces the GDP in the long run. c. increases the capital stock in the long run.b. increases investment. d. all of the above.

20. The standard view of the budget deficit is that it:a. increases the GDP in the long run. c. increases the capital stock in the long run.b. reduces investment. d. all of the above.

21. The standard view of the budget deficit is that it:a. increases the GDP in the long run. c. reduces the capital stock in the long run.b. increases investment. d. all of the above.

22. The standard view of the budget deficit is that a deficit:a. does not affect the economy in the long run. c. does not affect the economy in the short run.b. and the public debt are a burden on the economy. d. encourages economic growth.

23. Households may feel wealthier due to a tax cut, if:a. they are very concerned about future generations. c. they are using an infinite planning horizon. b. they expect the bonds created by the deficit to be paid off after their lifetime.

d. they plan to leave a bequest to their heirs.

24. Households may feel wealthier due to a tax cut, if:a. they are not able to borrow as much against future earnings as they wish. c.

they care a lot about future generations.b. they are not able to lend present earnings as much as they wish. d.

they plan to leave a bequest to their heirs.

25. If households ignore effects on future generations, a pay as you go social security system:a. reduces current national savings. c. reduces the future capital stock.b. reduces investment. d. all of the above.

26. If households ignore effects on future generations, a pay as you go social security system:a. reduces current national savings. c. raises the future capital stock.b. raises investment. d. all of the above.

27. If households ignore effects on future generations, a pay as you go social security system:a. raises current national savings. c. raises the future capital stock.b. reduces investment. d. all of the above.

28. If households ignore effects on future generations, a pay as you go social security system:a. raises current national savings. c. reduces the future capital stock.b. raises investment. d. all of the above.

29. If households ignore effects on future generations when a pay as you go social security system starts, the then elderly:a. have a positive income effect on their consumption. c. receive low returns on any taxes paid into the system.b. receive benefits that in present value is less the present value of their contributions. d. all of the above.

30. If households ignore effects on future generations, when a pay as you go social security system starts, the then elderly:a. have a negative income effect on their consumption.c. receive low returns on any taxes paid into the system.b. receive benefits that in present value is greater than the present value of their contributions to the system. d. all of the above.

31. If households ignore effects on future generations, a pay as you go social security system:a. increases consumption. c. reduces national saving.b. reduces the capital stock in the long run. d. all of the above.

32. If households ignore effects on future generations, a pay as you go social security system:a. increases consumption. c. increases national saving.b. increases the capital stock in the long run. d. all of the above.

33. If households ignore effects on future generations, a pay as you go social security system:a. decreases consumption. c. raises national saving.b. reduces the capital stock in the long run. d. all of the above.

34. If households ignore effects on future generations, a pay as you go social security system:a. decreases consumption. c. reduces national saving.b. increases the capital stock in the long run. d. all of the above.

35. If households ignore effects on future generations, a pay as you go social security system:a. reduces investment. c. reduces private saving.b. reduces GDP in the long run. d. all of the above.

36. If households ignore effects on future generations, a pay as you go social security system:a. reduces investment. c. increases private saving.b. increases GDP in the long run. d. all of the above.

37. If households ignore effects on future generations, a pay as you go social security system:a. raises investment. c. raises private saving.b. reduces GDP in the long run. d. all of the above.

38. If households ignore effects on future generations, a pay as you go social security system:a. raises investment. c. reduces private saving.b. increases GDP in the long run. d. all of the above.

39. A pay as you go social security system only increase consumption and reduces investment, if:a. households leave bequests. c. if the planning horizon is overlapping generations. b. if households neglect the adverse affects on their descendants. d.

households increase their savings.

40. If currently alive households take full account of the negative affects of a pay as you go social security system on their descendants, then the:a. effects are magnified. c. effects are exponential. b. effects are nil. d. effects are unchanged.

41. Open market operations amount to:a. printing more money and raising taxes and lowering taxes and raising the public debt. c. printing more money and raising taxes and lowering taxes and raising the public debt.b. printing less money and reducing taxes and raising taxes and reducing the public debt. d. printing more money and reducing taxes and raising taxes and reducing the public debt.

42. By varying its budget deficit, a government can:a. change the timing of taxes. c. avoid accumulation of government debt. b. avoid having to raise taxes to pay for a deficit. d. all of the above.

43. If the time path of government purchases does not change and the government cuts lump sum taxes, then:a. real GDP does not change. c. real gross investment does not change. b. real consumption does not change. d. all of the above.

44. If the time path of government purchases does not change and the government cuts lump sum taxes, then:a. real GDP does not change. c. real gross investment falls. b. real consumption increases. d. all of the above.

45. If the time path of government purchases does not change and the government cuts lump sum taxes, then:a. real GDP does rise. c. real gross investment rises. b. real consumption does not change. d. all of the above.

46. If the time path of government purchases does not change and the government cuts lump sum taxes, then:a. real GDP falls. c. real gross investment does not change. b. real consumption falls. d. all of the above.

47. If the time path of government purchases does not change and the government cuts lump sum taxes, then:a. the interest rate does not change. c. the future capital stock does not change. b. the real wage rate does not change. d. all of the above.

48. If the time path of government purchases does not change and the government cuts lump sum taxes, then:a. the interest rate rises. c. the future capital stock does not change. b. the real wage rate falls. d. all of the above.

49. If the time path of government purchases does not change and the government cuts lump sum taxes, then:a. the interest rate does not change. c. the future capital stock falls.b. the real wage rate rises. d. all of the above.

50. If the time path of government purchases does not change and the government cuts current labor income taxes, then:a. labor supply is shifted to the future. c. present GDP is reduced.b. labor supply is shifted to the present. d. future GDP is increased.

51. If the time path of government purchases does not change and the government cuts current assets income taxes, then:a. households save more and consume less in the present. c. households save less and consume more in the present.b. households save and consume less in the present. d. households save and consume more in the present.

52. The major peaks in the ratio of public debt to GDP in the U.S. reflecta. financing of wartime expenditures. c. major economic expansions.b. financing of Social Security. d. major increases in technology.

53. In a business cycle recession, the debt-to-GDP ratio typicallya. falls. c. does not change.b. rises. d. either (a) or (c).

54. In a business cycle recession, the debt-to-GDP ratio typicallya. falls because of an increase in debt. c. rises because of an increase in debt.b. falls because of an increase in GDP. d. rises because of an increase in GDP.

55. In a business cycle recession, the debt-to-GDP ratio typicallya. falls because of an increase in debt. c. rises because of a decrease in debt.b. falls because of an increase in GDP. d. rises because of a decrease in GDP.

56. In a business cycle expansion, the debt-to-GDP ratio typicallya. falls because of an increase in GDP. c. rises because of an increase in debt.b. falls because of a decrease in GDP. d. rises because of a decrease in debt.

57. Assuming that the nominal quantity of money is constant and there is no inflation, if the real public debt decreases, the government budget showsa. an increase in the real deficit. c. a decrease in private bonds.b. an increase in real saving. d. a decrease in printing money.

58. Assuming that the nominal quantity of money is constant and there is no inflation, if the real public debt increases, the government’sa. rate of money printing is greater than 50%. c. real saving is less than zerob. real saving equals zero. d. rate of money printing is greater than zero.

59. A government budget surplusa. is the same as the government’s real saving. c. means that government saving is positive.b. means that government revenue exceeds its expenditure. d. all of the above.

60. Real national saving equalsa. the change in the capital stock. c. both (a) and (b).b. net investment. d. net depreciation.

61. Real national saving isa. the difference between government and household saving. c. both (a) and (b).b. the sum of government and household saving. d. net depreciation.

62. An open-market operation in which the Federal Reserve purchases bonds willa. increase the money supply and increase the price level. c. decrease the money supply and decrease real GDP.b. decrease the money supply and increase the price level. d. decrease the money supply and increase real GDP.

63. An open-market operation in which the Federal Reserve sells bonds willa. increase the money supply and increase the price level. c. decrease the money supply and decrease the price level.b. decrease the money supply and increase real GDP. d. decrease the money supply and increase the price level.

64. An open-market operation in which the Federal Reserve purchases bonds willa. decrease the money supply and increase real GDP. c. decrease the money supply and decrease real GDP.b. increase the money supply but not change real GDP. d. increase the money supply and increase real GDP.

65. An open-market operation in which the Federal Reserve sells bonds willa. decrease the money supply and increase real GDP. c. decrease the money supply and decrease real GDP.b. increase the money supply and increase real GDP. d. increase the money supply but not change real GDP.

SHORT ANSWER

1. What is the government budget constraint when government borrowing is allowed?

2. What are public, private and national saving and what is the implication of real national saving?

3. What are the effects of the government lowering taxes by $1 for one period in the market clearing model with no transfer payments, the money stock fixed, no inflation and with a given time path of government purchases?

4. What is the Ricardian equivalence theorem?

5. Why might a budget deficit make households feel wealthier after a tax cut?

6. In the equillibrium business cycle model, what is the impact of an open market operation purchase by the Federal Reserve?

Chapter 15

TRUE/FALSE

1. If households misperceive prices, they may change real decisions in response to changes in the money supply in the long run.

2. If the actual price level is above the expected price level, then workers’ actual real wage will be below their expected real wage.

3. The real effect of a given monetary shock is larger the more stable the underlying monetary environment.

4. Money can only effect real variables in the short run, if people expect the increase in the money supply.

5. If monetary authorities follow a monetary rule, then monetary policy is more effective in affecting real variables like real GDP.

6. In the price-misperceptions model, market prices adjust to clear markets only very slowly.

7. In the price-misperceptions model, an increase in the price level increases the equilibrium labor input and capital services in the short- and long-run.

8. Discretionary monetary policy is more likely than a policy rule to promote a reputation for the central bank of promoting low inflation.

9. A formal provision in the law to target inflation requires secrecy about the central bank’s activities.

10. Discretionary monetary policy suffers from an incentive for the central bank to sometimes renege on its commitment to low inflation.

MULTIPLE CHOICE

1. We would expect households to have the most complete information about:a. their own wage rate. c. products purchased occasionally like a automobile.b. the wage rate available on other jobs.d. all of the above.

2. We would expect households to have the most complete information about:

a. the wage rate available on other jobs. c. products purchased occasionally like a automobile.b. products they purchase frequently. d. all of the above.

3. We would expect households to have incomplete information about:a. their own wage rate. c. products purchased occasionally like a automobile.b. products they purchase frequently. d. all of the above.

4. We would expect households to have incomplete information about:a. their own wage rate. c. wage rates available on other jobs.b. products they purchase frequently. d. all of the above.

5. The workers’ perceived real wage rate is:a. their nominal wage rate divided by the actual price level. c. their nominal wage rate divided by the expected price level.b. the actual price level divided by their nominal wage rate. d. the expected price level divided by their nominal wage rate.

6. If the nominal wage is $10 per hour and the expected price level is 2 and the actual price level is 4, then:a. the expected real wage rate is greater than the actual real wage rate. c.

the expected real wage rate is greater than the actual nominal wage rate.b. the expected real wage rate is less than the actual real wage rate. d. the actual real wage rate is greater than the actual nominal wage rate.

7. If the nominal wage is $10 per hour and the expected price level is 2 and the actual price level is 4, then expected real wage rate is:a. $10. c. $2.50.b. $5. d. none of the above.

8. If the nominal wage is $10 per hour and the expected price level is 2 and the actual price level is 4, then actual real wage rate is:a. $10. c. $2.50.b. $5. d. none of the above.

9. If the nominal wage is $10 per hour and the expected price level is 2 and the actual price level is 4, then actual nominal wage rate is:a. $10. c. $2.50.b. $5. d. none of the above.

10. If the nominal wage is $10 per hour and the expected price level is 5 and the actual price level is 4, then:a. the expected real wage rate is greater than the actual real wage rate. c.

the expected real wage rate is greater than the actual nominal wage rate.b. the expected real wage rate is less than the actual real wage rate. d. the actual real wage rate is greater than the actual nominal wage rate.

11. If the nominal wage is $10 per hour and the expected price level is 2 and the actual price level is 4, then actual real wage rate is:a. $10. c. $2.b. $2.50. d. none of the above.

12. If the nominal wage is $10 per hour and the expected price level is 5 and the actual price level is 4, then expected real wage rate is:a. $10. c. $2.b. $2.50. d. none of the above.

13. If the nominal wage is $10 per hour and the expected price level is 5 and the actual price level is 4, then actual nominal wage rate is:a. $10. c. $2.b. $2.50. d. none of the above.

14. If the nominal wage rises from $10 per hour in period one to $15 per hour in period 2 as the expected price level rises from 1 to 3 while the actual price level rises from 4 to 5, then from period 1 to period 2:a. the nominal wage is rising. c. the actual real wage is falling.b. the expected real wage is rising. d. all of the above.

15. If the nominal wage rises from $10 per hour in period 1 to $15 per hour in period 2 as the expected price level rises from 1 to 3 while the actual price level rises from 4 to 5, then from period 1 to period 2:a. the nominal wage is falling. c. the actual real wage is falling.b. the expected real wage is falling. d. all of the above.

16. If the nominal wage rises from $10 per hour in period one to $15 per hour in period 2 as the expected price level rises from 1 to 3 while the actual price level rises from 4 to 5, then from period 1 to period 2:a. the nominal wage is rising. c. the actual real wage is rising.b. the expected real wage is falling. d. all of the above.

17. If the nominal wage rises from $10 per hour in period one to $15 per hour in period 2 as the expected price level rises from 1 to 3 while the actual price level rises from 4 to 5, then from period 1 to period 2:a. the nominal wage is falling. c. the actual real wage is rising.b. the expected real wage is rising. d. all of the above.

18. In the current period a perceived increase in the real wage, will cause households to:a. work more. c. consume less leisure.b. consume more goods. d. all of the above.

19. In the current period a perceived increase in the real wage, will cause households to:a. work more. c. consume more leisure.b. consume fewer goods.d. all of the above.

20. In the current period a perceived increase in the real wage, will cause households to:a. work less. c. consume more leisure.b. consume more goods. d. all of the above.

21. In the current period a perceived increase in the real wage, will cause households to:a. work less. c. consume less leisure.b. consume fewer goods.d. all of the above.

22. If the perceive real wage goes up, workers will supply more labor: a. unless the actual real wage remains the same or falls. c. in the short run.b. in the long run. d. all of the above.

23. If the perceive real wage goes up, real GDP increases: a. unless the actual real wage remains the same or falls. c. in the short run.b. in the long run. d. all of the above.

24. While price misperceptions can cause an increase labor supply and GDP in the short-run, in the long run:a. money is neutral. c. labor supply returns to its initial position.b. money does not affect real GDP. d. all of the above.

25. While price misperceptions can cause an increase in labor supply and GDP in the short-run, in the long run:a. money is no longer neutral in the model. c. labor supply returns to its initial position.b. money negatively impacts real GDP. d. all of the above.

26. While price misperceptions can cause an increase in labor supply and GDP in the short-run, in the long run:a. money is neutral. c. labor supply ultimately declines.b. money negatively affects real GDP. d. all of the above.

27. While price misperceptions can cause an increase in labor supply and GDP in the short-run, in the long run:a. money is no longer neutral in the model. c. labor supply falls by more than its initial increase.b. money does not affect real GDP. d. all of the above.

28. An increase in the money supply:a. can affect real variables temporarily in the short run. c. can affect nominal variables in the long run.b. can not affect real variables in the long run. d. all of the above.

29. An increase in the money supply:a. can affect real variables temporarily in the short run. c. can affect real variables in the long run.b. can not affect nominal variables in the short run. d. all of the above.

30. An increase in the money supply:a. can not affect real variables temporarily in the short run. c. can not affect nominal variables in the long run.b. can not affect real variables in the long run. d. all of the above.

31. An increase in the money supply:a. can not affect real variables temporarily in the short run. c. can affect nominal variables in the long run.b. can affect real variables in the long run. d. all of the above.

32. An increase in the money supply and inflation can only affect real variables only:a. if households perceive it is happening. c. in the long run.b. if households do not perceive all of the inflation. d. if households expect it.

33. In the short run if households’ perceived money growth and inflation equals the actual money growth and inflation, then a. money affects real variables like labor supply. c. the model is still neutral even in the short run.b. money affects real variables like GDP. d. all of the above.

34. Monetary policy authorities can only affect the real economy, if:a. their actions are anticipated by the public. c. their actions are fully communicated to the public. b. their actions are consistent and predictable. d. their actions systematically fool the public.

35. A monetary shock of a given size has a larger real effect:a. the more it is anticipated by the public. c. the more fully it is explained and communicated to the public. b. the more stable the underlying monetary environment. d. all of the above.

36. Price misperception during a positive technology shock would cause:a. output or GDP to rise by less than it would without price misperception. c.

the expected price level to fall less than the actual price level falls.b. labor supply to rise by less than it would without price misperception. d.

all of the above.

37. Price misperception during a positive technology shock would cause:a. output or GDP to rise by less than it would without price misperception. c.

the expected price level to fall more than the actual price level falls.b. labor supply to fall by more than it would without price misperception. d.

all of the above.

38. Price misperception during a positive technology shock would cause:a. output or GDP to fall by more than it would without price misperception. c.

the expected price level to fall more than the actual price level falls.b. labor supply to rise by less than it would without price misperception. d.

all of the above.

39. Price misperception during a positive technology shock would cause:a. output or GDP to fall by more than it would without price misperception. c.

the expected price level to fall less than the actual price level falls.b. labor supply to fall by more than it would without price misperception. d.

all of the above.

40. Discretionary monetary policy is when the monetary authority:a. does not commit to future monetary actions. c. never produces a monetary surprise to households. b. commits to future monetary actions. d. always behaves in a predictable way.

41. A monetary policy rule is when the monetary authority:a. does not commit to future monetary actions. c. often produces a monetary surprise to households. b. commits to future monetary actions. d. always behaves in unpredictable ways.

42. The price misperception model predicts: a. the price level will be procyclical while in US data the price level is countercyclical. c. the real wage is countercyclical while in US data the real wage is procyclical.b. the nominal quantity of money is procyclical and in US data money is weakly procyclical. d. all of the above.

43. The price misperception model predicts: a. the price level will be procyclical while in US data the price level is countercyclical. c. the real wage is procyclical and in US data the real wage is procyclical.b. the nominal quantity of money is countercyclical while in US data money is weakly procyclical. d. all of the above.

44. The price misperception model predicts: a. the price level will be countercyclical while in US data the price level is countercyclical. c. the real wage is procyclical and in US data the real wage is procyclical.b. the nominal quantity of money is procyclical and in US data money is weakly procyclical. d. all of the above.

45. The price misperception model predicts: a. the price level will be countercyclical and in US data the price level is countercyclical. c. the real wage is countercyclical while in US data the real wage is procyclical.b. the nominal quantity of money is countercyclical while in US data money is weakly procyclical. d. all of the above.

46. Real variables can only be affected by:a. unperceived changes in the price level. c. expected changes in the price level.b. perceived changes in the price level. d. actual changes in the price level.

47. Monetary policy can affect real variables in the short run if monetary policy:a. surprises households. c. is unpredictable.b. is random. d. all of the above.

48. Monetary policy can affect real variables in the short run if monetary policy:a. surprises households. c. is predictable.b. is consistent. d. all of the above.

49. Monetary policy can affect real variables in the short run if monetary policy:a. is fully explained to households. c. is predictable.b. is random. d. all of the above.

50. Monetary policy can affect real variables in the short run if monetary policy:a. is fully communicated to households.c. is unpredictable.b. is consistent. d. all of the above.

51. In the price-misperceptions model, market prices of goods, wage rates, and rental pricesa. adjust rapidly to clear markets. c. give households complete information.b. adjust slowly to clear markets. d. give households perfect information.

52. The price-misperceptions model differs from the equilibrium business cycle model in that householdsa. no longer serve as providers of capital services. c. find that market-clearing prices move to equilbrium slowly.b. sometimes misinterpret changes in nominal prices as changes in real prices.

d. typically face disequilibrium because prices fail to clear markets.

53. Empirical evidence suggests that money is not always neutral, which is consistent witha. an equilibrium business-cycle model.c. a price-misperceptions model.b. a real business-cycle model. d. a wage-imperfections model.

54. In the price-misperceptions model, employers have

a. inaccurate information about wages and accurate information about the price of the output. c. accurate information about wages and the price of the output.b. inaccurate information about wages and the price of the output. d.

accurate information about wages and inaccurate information about the price of the output.

55. In the price-misperceptions model, workers havea. inaccurate information about wages and accurate information about the price level. c. accurate information about wages and the price level.b. accurate information about wages and inaccurate information about the price level. d. inaccurate information about wages and the price level.

56. In the price-misperceptions model, a rise in the real wage rate makes the demand curve for labor, in the short run, toa. become steeper than in an equilibrium business-cycle model. c.

depend about expectations about prices, not the actual price used in an equilibrium business-cycle model.b. become less steep than in an equilibrium business-cycle model. d.

remain the same as in an equilibrium business-cycle model.

57. In the price-misperceptions model, a rise in the nominal wage rate makes the supply curve of labor, in the short run,a. shift to the right compared to an equilibrium business-cycle model. c.

shift to the left compared to an equilibrium business-cycle model.b. become less steep than in an equilibrium business-cycle model. d.

remain the same as in an equilibrium business-cycle model.

58. In the price-misperceptions model, an increase in the price level in the short run,a. lowers the quantity of labor supplied at a given real wage. c. leaves the quantity of labor supplied unchanged.b. lowers the quantity of labor supplied at a given nominal wage. d.

increases the quantity of labor supplied at a given real wage.

59. In the price-misperceptions model, an increase in the price level will, in the long run,a. lower the quantity of labor supplied at a given real wage. c. leave the quantity of labor supplied unchanged.b. lower the quantity of labor supplied at a given nominal wage. d.

increase the quantity of labor supplied at a given real wage.

60. In the price-misperceptions model, an increase in the price level will, in the short run,a. increase the equilibrium quantity of labor input and real GDP. c.

leave the equilibrium quantity of labor input and real GDP unchanged.b. lower the equilbirum quantity of labor input and increase real GDP. d.

lower the equilibrium quantity of labor input and real GDP.

61. In the price-misperceptions model, an increase in the price level in the short-runa. decreases the equilibrium quantity of labor input and capital services. c.

leaves the equilibrium quantity of labor input and capital services unchanged.b. increases the equilibrium quantity of labor input and capital services. d.

increases the equilibrium quantity of labor input and decreases the equilibrium quantity of capital services.

62. In the price-misperceptions model, an increase in the price level in the long-runa. decreases the equilibrium quantity of labor input and capital services. c.

increases the equilibrium quantity of labor input and decreases the equilibrium quantity of capital services.b. increases the equilibrium quantity of labor input and capital services. d.

leaves the equilibrium quantity of labor input and capital services unchanged.

63. The Lucas hypothesis on monetary shocks says that the real effect of a given size monetary shock isa. larger, the more stable the underlying monetary environment. c.

larger, the less stable the underlying monetary environment.b. smaller, the more stable the underlying monetary environment. d.

independent of the stability of the underlying moentary environment.

64. Empirical evidence shows that, for countries such as the U.S., a monetary shock hasa. little or no relation to real GDP. c. little or no relation to nominal GDP.b. a significant positive relation to real GDP. d. a signficant negative relation to real GDP.

65. In the price-misperception model, money isa. endogenous, just as it is in the equilibrium business-cycle model. c.

exogenous, but it is endogenous in the equilibrium business-cycle model.b. exogenous, just as it is in the equilibrium business-cycle model. d.

endogenous, but it is exogenous in the equilibrium business-cycle model.

66. Friedman and Schwartz’s Monetary History concludes that the procyclical pattern for moneya. does not exist in historical data for the U.S. from 1867 to 1960. c.

cannot be explained entirely by endogenous money.b. can only be explained during the times the U.S. used a commodity money. d.

can be explained entirely by exogenous money.

67. One reason for preferring a rule for monetary policy is that a rulea. allows for additional discretionary policy. c. ensures that the economy would have a negative rate of inflation.b. ensures that the economy would have a positive rate of inflation. d.

improves the credibility of the monetary authority.

68. Which of the following is likely to promote low and stable inflation?a. inflation targeting c. a large benefit from temporarily reneging on a stated policyb. discretionary monetary policyd. none of the above

SHORT ANSWER

1. On what types of prices do households have the best information and on what types of products may they have incomplete information?

2. What are the short run effects of a real wage misperception in the market clearing model?

3. Why even with the possibility of real wage misperceptions is the market clearing model still neutral in the long run?

4. Under what conditions do monetary policy changes have the larger real effects on an economy?

5. What is the difference between discretionary monetary policy and monetary policy under a policy rule?

6. Why might a monetary-policy rule be more likely than discretionary policy to promote low inflation?