Question 1

During a period of persistent inflation,

Accepted Answer

A)  borrowers will systematically gain at the expense of lenders. 
B)  nominal interest rates will rise and eventually reflect the expected rate of inflation. 
C)  once borrowers and lenders fully anticipate the inflation rate, there is no reason to expect that either will systematically gain relative to the other. 
D)  both b and c are correct. 
A)  borrowers will systematically gain at the expense of lenders. 
B)  nominal interest rates will rise and eventually reflect the expected rate of inflation. 
C)  once borrowers and lenders fully anticipate the inflation rate, there is no reason to expect that either will systematically gain relative to the other. 
D)  both b and c are correct.

Question 2

If expected inflation is constant, then when the nominal interest rate falls, the real interest rate

Accepted Answer

A)  falls by more than the change in the nominal interest rate. 
B)  falls by the change in the nominal interest rate. 
C)  rises by the change in the nominal interest rate. 
D)  rises by more than the change in the nominal interest rate. 
A)  falls by more than the change in the nominal interest rate. 
B)  falls by the change in the nominal interest rate. 
C)  rises by the change in the nominal interest rate. 
D)  rises by more than the change in the nominal interest rate.

Question 3

The resource market is important from a macroeconomic perspective because

Accepted Answer

A)  it coordinates the allocation of productive resources and determines the costs of production. 
B)  it determines the interest rates faced by borrowers and lenders. 
C)  inflation rates are set in the resource market by the government. 
D)  resource prices determine the position of the long-run aggregate supply curve. 
A)  it coordinates the allocation of productive resources and determines the costs of production. 
B)  it determines the interest rates faced by borrowers and lenders. 
C)  inflation rates are set in the resource market by the government. 
D)  resource prices determine the position of the long-run aggregate supply curve.

Question 4

When prices in the goods and services market are below the level anticipated,

Accepted Answer

A)  output will temporarily exceed the economy's long-run potential. 
B)  output will temporarily fall short of the economy's long-run potential. 
C)  output will be equal to the economy's long-run potential. 
D)  the actual rate of unemployment will be less than the natural rate of unemployment. 
A)  output will temporarily exceed the economy's long-run potential. 
B)  output will temporarily fall short of the economy's long-run potential. 
C)  output will be equal to the economy's long-run potential. 
D)  the actual rate of unemployment will be less than the natural rate of unemployment.

Question 5

The potential output of an economy is the level of output produced when the

Accepted Answer

A)  real wage equals the nominal wage. 
B)  price level is constant. 
C)  expected real wage equals the inflation rate. 
D)  expected price level equals the unemployment rate. 
E)  expected price level equals the actual price level. 
A)  real wage equals the nominal wage. 
B)  price level is constant. 
C)  expected real wage equals the inflation rate. 
D)  expected price level equals the unemployment rate. 
E)  expected price level equals the actual price level.

Question 6

When an economy operates at its long-run potential output level,

Accepted Answer

A)  aggregate demand will exceed aggregate supply in the goods and services market. 
B)  unemployment will decline to an abnormally low rate that cannot be sustained in the long run. 
C)  the actual rate of unemployment will exceed the natural rate of unemployment. 
D)  the natural and actual rates of unemployment will be equal. 
A)  aggregate demand will exceed aggregate supply in the goods and services market. 
B)  unemployment will decline to an abnormally low rate that cannot be sustained in the long run. 
C)  the actual rate of unemployment will exceed the natural rate of unemployment. 
D)  the natural and actual rates of unemployment will be equal.

Question 7

If a lender expects inflation to be 5 percent, and after a loan is made, actual inflation is 10 percent, which of the following will be true?

Accepted Answer

A)  The lender will receive a lower real interest rate than he expected. 
B)  The loan will be repaid with dollars that are worth more than the lender expected. 
C)  The nominal rate of interest can be expected to fall in the future. 
D)  The lender will gain at the expense of the borrower. 
A)  The lender will receive a lower real interest rate than he expected. 
B)  The loan will be repaid with dollars that are worth more than the lender expected. 
C)  The nominal rate of interest can be expected to fall in the future. 
D)  The lender will gain at the expense of the borrower.

Question 8

Other things constant, a decrease in aggregate demand will

Accepted Answer

A)  lead to a decrease in the demand for resources. 
B)  cause an increase in the general level of prices. 
C)  result in higher nominal wage rates. 
D)  reduce the rate of unemployment. 
A)  lead to a decrease in the demand for resources. 
B)  cause an increase in the general level of prices. 
C)  result in higher nominal wage rates. 
D)  reduce the rate of unemployment.

Question 9

Beginning in the latter part of 1999, the Federal Reserve raised interest rates. What do you predict happened to the prices of bonds already in the market? How can you explain this behavior?

Accepted Answer

The price of bonds already in the market

Question 10

Which of the following is necessarily true when an economy is in long-run equilibrium?

Accepted Answer

A)  Prices will be constant (that is, inflation will be zero). 
B)  The actual output will be less than the full-employment (or potential) output. 
C)  The actual rate of unemployment equals the natural rate of unemployment. 
D)  The output of the economy will be greater than the full-employment output. 
A)  Prices will be constant (that is, inflation will be zero). 
B)  The actual output will be less than the full-employment (or potential) output. 
C)  The actual rate of unemployment equals the natural rate of unemployment. 
D)  The output of the economy will be greater than the full-employment output.

Question 11

When an economy is in long run equilibrium,

Accepted Answer

A)  it will be impossible to sustain the current rate of output in the future. 
B)  the interest rate will decline. 
C)  the foreign exchange value of the dollar will tend to appreciate. 
D)  the actual and natural rates of unemployment will be equal. 
A)  it will be impossible to sustain the current rate of output in the future. 
B)  the interest rate will decline. 
C)  the foreign exchange value of the dollar will tend to appreciate. 
D)  the actual and natural rates of unemployment will be equal.

Question 12

An increase in the real interest rate will

Accepted Answer

A)  lead to an increase in the expected inflation rate. 
B)  increase the real cost of purchasing goods and services in the current period relative to future periods. 
C)  encourage borrowers to demand a larger quantity of funds. 
D)  reduce the quantity of funds supplied to the loanable funds market. 
A)  lead to an increase in the expected inflation rate. 
B)  increase the real cost of purchasing goods and services in the current period relative to future periods. 
C)  encourage borrowers to demand a larger quantity of funds. 
D)  reduce the quantity of funds supplied to the loanable funds market.

Question 13

Figure 9-3   Suppose that U.S. tastes for British goods increase. Then, in Figure 9-3

Accepted Answer

A)  the supply curve shifts from S1 to S2 
B)  the supply curve shifts from S2 to S1 
C)  the demand curve shifts from D2 to D1 
D)  the demand curve shifts from D1 to D2 
E)  both demand and supply shift to the right 
A)  the supply curve shifts from S1 to S2 
B)  the supply curve shifts from S2 to S1 
C)  the demand curve shifts from D2 to D1 
D)  the demand curve shifts from D1 to D2 
E)  both demand and supply shift to the right

Question 14

An unanticipated increase in the level of prices in the goods and services market, which results in a temporary reduction in real wage rates, will

Accepted Answer

A)  decrease the natural rate of unemployment. 
B)  increase the natural rate of unemployment. 
C)  result in an actual rate of unemployment that is less than the natural rate of unemployment. 
D)  result in an actual rate of unemployment that is greater than the natural rate of unemployment. 
A)  decrease the natural rate of unemployment. 
B)  increase the natural rate of unemployment. 
C)  result in an actual rate of unemployment that is less than the natural rate of unemployment. 
D)  result in an actual rate of unemployment that is greater than the natural rate of unemployment.

Question 15

Answer the following questions:
a.What is a bond?
b.If bonds make fixed payments every year, explain how a reduction in market interest rates will increase the price of the bond in the market.

Accepted Answer

a.A bond is an IOU that allows firms or

Question 16

Suppose that you purchase a $5,000 bond that pays 7 percent interest annually and matures in five years. If you expect that the inflation rate during the next five years will be 2 percent annually, what real rate of return do you expect to earn?

Accepted Answer

A)  2 percent 
B)  5 percent 
C)  7 percent 
D)  9 percent 
A)  2 percent 
B)  5 percent 
C)  7 percent 
D)  9 percent

Question 17

An increase in the real interest rate will

Accepted Answer

A)  increase the inflationary premium. 
B)  decrease the inflationary premium. 
C)  increase the price of current consumption relative to future consumption. 
D)  decrease the price of current consumption relative to future consumption. 
A)  increase the inflationary premium. 
B)  decrease the inflationary premium. 
C)  increase the price of current consumption relative to future consumption. 
D)  decrease the price of current consumption relative to future consumption.

Question 18

If equilibrium is present in the foreign exchange market and a nation is experiencing a trade deficit,

Accepted Answer

A)  the nation must be experiencing a net capital inflow. 
B)  the nation must be experiencing a net capital outflow. 
C)  the nation's inflation rate must increase. 
D)  the nation's interest rate must increase. 
A)  the nation must be experiencing a net capital inflow. 
B)  the nation must be experiencing a net capital outflow. 
C)  the nation's inflation rate must increase. 
D)  the nation's interest rate must increase.

Question 19

Figure 9-3   Suppose that British incomes rise relative to incomes in the United States. Then, in Figure 9-3

Accepted Answer

A)  the demand curve will shift from D1 to D2 
B)  the demand curve will shift from D2 to D1 
C)  the supply curve will shift from S1 to S2 
D)  the supply curve will shift from S2 to S1 
E)  neither the demand for nor the supply curve will shift 
A)  the demand curve will shift from D1 to D2 
B)  the demand curve will shift from D2 to D1 
C)  the supply curve will shift from S1 to S2 
D)  the supply curve will shift from S2 to S1 
E)  neither the demand for nor the supply curve will shift

Question 20

Which of the following explains why higher prices in the goods and services market will lead to an upward sloping short-run aggregate supply curve?

Accepted Answer

A)  The higher prices will temporarily improve profit margins because many of the cost components of firms will be fixed in the short run. 
B)  The higher prices will reduce the purchasing power of the fixed quantity of money and, thereby, stimulate additional output. 
C)  The higher prices will expand the economy's resource base and, thereby, stimulate additional output. 
D)  The higher prices will improve technology and, thereby, stimulate additional output. 
A)  The higher prices will temporarily improve profit margins because many of the cost components of firms will be fixed in the short run. 
B)  The higher prices will reduce the purchasing power of the fixed quantity of money and, thereby, stimulate additional output. 
C)  The higher prices will expand the economy's resource base and, thereby, stimulate additional output. 
D)  The higher prices will improve technology and, thereby, stimulate additional output.

During a period of persistent inflation,

If expected inflation is constant, then when the nominal interest rate falls, the real interest rate

The resource market is important from a macroeconomic perspective because

When prices in the goods and services market are below the level anticipated,

The potential output of an economy is the level of output produced when the

When an economy operates at its long-run potential output level,

If a lender expects inflation to be 5 percent, and after a loan is made, actual inflation is 10 percent, which of the following will be true?

Other things constant, a decrease in aggregate demand will

Beginning in the latter part of 1999, the Federal Reserve raised interest rates. What do you predict happened to the prices of bonds already in the market? How can you explain this behavior?

Which of the following is necessarily true when an economy is in long-run equilibrium?

When an economy is in long run equilibrium,

An increase in the real interest rate will

Figure 9-3 Suppose that U.S. tastes for British goods increase. Then, in Figure 9-3

An unanticipated increase in the level of prices in the goods and services market, which results in a temporary reduction in real wage rates, will

Answer the following questions: a.What is a bond? b.If bonds make fixed payments every year, explain how a reduction in market interest rates will increase the price of the bond in the market.

Suppose that you purchase a $5,000 bond that pays 7 percent interest annually and matures in five years. If you expect that the inflation rate during the next five years will be 2 percent annually, what real rate of return do you expect to earn?

An increase in the real interest rate will

If equilibrium is present in the foreign exchange market and a nation is experiencing a trade deficit,

Figure 9-3 Suppose that British incomes rise relative to incomes in the United States. Then, in Figure 9-3

Which of the following explains why higher prices in the goods and services market will lead to an upward sloping short-run aggregate supply curve?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters

Exam 9: An Introduction to Basic Macroeconomic Markets

During a period of persistent inflation,

If expected inflation is constant, then when the nominal interest rate falls, the real interest rate

The resource market is important from a macroeconomic perspective because

When prices in the goods and services market are below the level anticipated,

The potential output of an economy is the level of output produced when the

When an economy operates at its long-run potential output level,

If a lender expects inflation to be 5 percent, and after a loan is made, actual inflation is 10 percent, which of the following will be true?

Other things constant, a decrease in aggregate demand will

Beginning in the latter part of 1999, the Federal Reserve raised interest rates. What do you predict happened to the prices of bonds already in the market? How can you explain this behavior?

Which of the following is necessarily true when an economy is in long-run equilibrium?

When an economy is in long run equilibrium,

An increase in the real interest rate will

Figure 9-3 Suppose that U.S. tastes for British goods increase. Then, in Figure 9-3

An unanticipated increase in the level of prices in the goods and services market, which results in a temporary reduction in real wage rates, will

Answer the following questions: a.What is a bond? b.If bonds make fixed payments every year, explain how a reduction in market interest rates will increase the price of the bond in the market.

Suppose that you purchase a $5,000 bond that pays 7 percent interest annually and matures in five years. If you expect that the inflation rate during the next five years will be 2 percent annually, what real rate of return do you expect to earn?

An increase in the real interest rate will

If equilibrium is present in the foreign exchange market and a nation is experiencing a trade deficit,

Figure 9-3 Suppose that British incomes rise relative to incomes in the United States. Then, in Figure 9-3

Which of the following explains why higher prices in the goods and services market will lead to an upward sloping short-run aggregate supply curve?

The Economic Approach

Some Tools of the Economist

Demand, Supply, and the Market Process

Supply and Demand: Applications and Extensions

Difficult Cases for the Market, and the Role of Government

The Economics of Political Action

Taking the Nations Economic Pulse

Economic Fluctuations, Unemployment, and Inflation

Dynamic Change, Economic Fluctuations, and the Ad--As Model

Fiscal Policy: The Keynesian View and the Historical Development of Macroeconomics

Fiscal Policy: Incentives, and Secondary Effects

Money and the Banking System

Modern Macroeconomics and Monetary Policy

Stabilization Policy, Output, and Employment

Creating an Environment for Growth and Prosperity

Institutions, Policies, and Cross-Country Differences in Income and Growth

Gaining From International Trade

International Finance and the Foreign Exchange Market

Special Topics

Filters