Question 1

Suppose households decide to increase consumption.This increase in consumption will cause which of the following to occur?

Accepted Answer

A) the natural real interest rate to rise 
B) the natural real interest rate to fall 
C) ambiguous effects on the natural real interest rate 
D) no effect on the natural real interest rate 
A) the natural real interest rate to rise 
B) the natural real interest rate to fall 
C) ambiguous effects on the natural real interest rate 
D) no effect on the natural real interest rate A

Question 2

Suppose there is an increase in government spending.Such a fiscal policy action will cause

Accepted Answer

A) the natural real interest rate to rise 
B) the natural real interest rate to fall 
C) ambiguous effects on the natural real interest rate 
D) no effect on the natural real interest rate 
A) the natural real interest rate to rise 
B) the natural real interest rate to fall 
C) ambiguous effects on the natural real interest rate 
D) no effect on the natural real interest rate A

Question 3

In the medium run,higher money growth causes

Accepted Answer

A) lower real interest rates and lower nominal interest rates. 
B) lower real interest rates and higher nominal interest rates. 
C) higher real interest rates and higher nominal interest rates. 
D) higher real interest rates and lower nominal interest rates. 
E) none of the above 
A) lower real interest rates and lower nominal interest rates. 
B) lower real interest rates and higher nominal interest rates. 
C) higher real interest rates and higher nominal interest rates. 
D) higher real interest rates and lower nominal interest rates. 
E) none of the above E

Question 4

What are the determinants of the nominal interest rate in the medium run? Based on your answer,to what extent can monetary policy affect the nominal interest rate in the medium run? Briefly explain.And finally,to what extent can fiscal policy affect the nominal interest rate in the medium run? Briefly explain.

Accepted Answer

The nominal real rate is determined by e

Question 5

First,discuss what is meant by the "natural real interest rate." Second,explain what effect each of the following will have on the natural real interest rate: (1)a reduction in government spending; (2)an increase in the nominal money supply.

Accepted Answer

We know that the economy will move to th

Question 6

For this question,assume that the interest rate is equal to 0.Given this information and the information about the payments provided below,rank the following three sequences of payments according to their present value "A" "B" "C"
2005 $190 $200 $210
2006 $200 $200 $200
2007 $210 $200 $190

Accepted Answer

A) A > B > C 
B) A > C > B 
C) C > B > A 
D) B > A > C 
E) none of the above 
A) A > B > C 
B) A > C > B 
C) C > B > A 
D) B > A > C 
E) none of the above

Question 7

For a given nominal interest rate,a reduction in expected inflation will cause

Accepted Answer

A) a reduction in the real interest rate. 
B) an increase in the real interest rate. 
C) an increase in investment. 
D) an increase in money demand. 
A) a reduction in the real interest rate. 
B) an increase in the real interest rate. 
C) an increase in investment. 
D) an increase in money demand.

Question 8

Explain what effect monetary policy will have on the nominal interest rate in the short run and in the medium run.

Accepted Answer

The central bank can affect the nominal

Question 9

With a nominal interest rate of 10% per year,the present discounted value of $200 to be received in two years is

Accepted Answer

A) $82.64. 
B) $90.91. 
C) $165.29. 
D) $181.82. 
E) $220.00. 
A) $82.64. 
B) $90.91. 
C) $165.29. 
D) $181.82. 
E) $220.00.

Question 10

Using the IS-LM model,graphically illustrate and explain what effect a reduction in expected inflation will have on the IS and LM curves in the short run.

Accepted Answer

A reduction in expected inflat

Question 11

For a given nominal interest rate,an increase in expected inflation will cause

Accepted Answer

A) an increase in the real interest rate. 
B) a reduction in the real interest rate. 
C) a reduction in investment. 
D) a reduction in money demand. 
A) an increase in the real interest rate. 
B) a reduction in the real interest rate. 
C) a reduction in investment. 
D) a reduction in money demand.

Question 12

Suppose the nominal interest rate is zero.In this situation,the present discounted value of a finite sequence of future payments is equal to which of the following?

Accepted Answer

A) zero 
B) the sum of the all payments divided by the rate of inflation 
C) the average value of each payment 
D) the sum of all payments 
E) the square of the sum of all payments 
A) zero 
B) the sum of the all payments divided by the rate of inflation 
C) the average value of each payment 
D) the sum of all payments 
E) the square of the sum of all payments

Question 13

With a nominal interest rate of 5% per year,the present discounted value of $100 to be received in 10 years is

Accepted Answer

A) $50.00. 
B) $61.39. 
C) $95.24. 
D) $150.00. 
E) $163.89. 
A) $50.00. 
B) $61.39. 
C) $95.24. 
D) $150.00. 
E) $163.89.

Question 14

Suppose the central bank engages in expansionary monetary policy that results in higher money growth.This higher money growth will cause which of the following in the short run?

Accepted Answer

A) lower real interest rates and lower nominal interest rates 
B) lower real interest rates and higher nominal interest rates 
C) higher real interest rates and higher nominal interest rates 
D) higher real interest rates and lower nominal interest rates 
E) no change in either nominal or real interest rates 
A) lower real interest rates and lower nominal interest rates 
B) lower real interest rates and higher nominal interest rates 
C) higher real interest rates and higher nominal interest rates 
D) higher real interest rates and lower nominal interest rates 
E) no change in either nominal or real interest rates

Question 15

With a nominal interest rate of 5%,the present discounted value of $100 to be received in one year is

Accepted Answer

A) $90.91. 
B) $95.23. 
C) $181.82. 
D) $190.00. 
E) $220.00. 
A) $90.91. 
B) $95.23. 
C) $181.82. 
D) $190.00. 
E) $220.00.

Question 16

Because the nominal interest rate is always positive,the discount factor is always

Accepted Answer

A) negative. 
B) greater than one. 
C) zero. 
D) less than one. 
A) negative. 
B) greater than one. 
C) zero. 
D) less than one.

Question 17

With a constant nominal interest rate equal to i,the present discounted value of $1.00 to be received 4 years from today is equal to

Accepted Answer

A) 1+i. 
B) i4. 
C)  (1+i)4. 
D) 1 / (1+i)4. 
E) 4(1+i). 
A) 1+i. 
B) i4. 
C)  (1+i)4. 
D) 1 / (1+i)4. 
E) 4(1+i).

Question 18

Which of the following best defines the real interest rate (r)?

Accepted Answer

A) the amount of goods we must give up next year in order to consume more goods today 
B) the amount of dollars we must give up next year in order to consume more goods today 
C) the amount of dollars we must give up next year in order to have more dollars today 
D) the amount of dollars we must give up today in order to have more dollars next year 
E) the amount of dollars we must give up today in order to consume more goods today 
A) the amount of goods we must give up next year in order to consume more goods today 
B) the amount of dollars we must give up next year in order to consume more goods today 
C) the amount of dollars we must give up next year in order to have more dollars today 
D) the amount of dollars we must give up today in order to have more dollars next year 
E) the amount of dollars we must give up today in order to consume more goods today

Question 19

Suppose the central bank pursues contractionary monetary policy.Such an action will cause

Accepted Answer

A) the natural real interest rate to rise. 
B) the natural real interest rate to fall. 
C) ambiguous effects on the natural real interest rate. 
D) no effect on the natural real interest rate. 
A) the natural real interest rate to rise. 
B) the natural real interest rate to fall. 
C) ambiguous effects on the natural real interest rate. 
D) no effect on the natural real interest rate.

Question 20

If the nominal interest rate is less than the real interest rate,we know that

Accepted Answer

A) both the nominal or real interest rate must be negative. 
B) the nominal interest rate must be equal to expected inflation. 
C) expected deflation must be occurring. 
D) expected inflation must be positive. 
E) expected inflation must be zero. 
A) both the nominal or real interest rate must be negative. 
B) the nominal interest rate must be equal to expected inflation. 
C) expected deflation must be occurring. 
D) expected inflation must be positive. 
E) expected inflation must be zero.

Exam 14: Expectations: the Basic Tools

Suppose households decide to increase consumption.This increase in consumption will cause which of the following to occur?

Suppose there is an increase in government spending.Such a fiscal policy action will cause

In the medium run,higher money growth causes

First,discuss what is meant by the "natural real interest rate." Second,explain what effect each of the following will have on the natural real interest rate: (1)a reduction in government spending; (2)an increase in the nominal money supply.

For this question,assume that the interest rate is equal to 0.Given this information and the information about the payments provided below,rank the following three sequences of payments according to their present value "A" "B" "C" 2005 $190 $200 $210 2006 $200 $200 $200 2007 $210 $200 $190

For a given nominal interest rate,a reduction in expected inflation will cause

Explain what effect monetary policy will have on the nominal interest rate in the short run and in the medium run.

With a nominal interest rate of 10% per year,the present discounted value of $200 to be received in two years is

Using the IS-LM model,graphically illustrate and explain what effect a reduction in expected inflation will have on the IS and LM curves in the short run.

For a given nominal interest rate,an increase in expected inflation will cause

Suppose the nominal interest rate is zero.In this situation,the present discounted value of a finite sequence of future payments is equal to which of the following?

With a nominal interest rate of 5% per year,the present discounted value of $100 to be received in 10 years is

Suppose the central bank engages in expansionary monetary policy that results in higher money growth.This higher money growth will cause which of the following in the short run?

With a nominal interest rate of 5%,the present discounted value of $100 to be received in one year is

Because the nominal interest rate is always positive,the discount factor is always

With a constant nominal interest rate equal to i,the present discounted value of $1.00 to be received 4 years from today is equal to

Which of the following best defines the real interest rate (r)?

Suppose the central bank pursues contractionary monetary policy.Such an action will cause

If the nominal interest rate is less than the real interest rate,we know that

A Tour of the World

A Tour of the Book

The Goods Market

Financial Markets

Goods and Financial Marketsthe Is-Lm Model

The Labor Market

Putting All Markets Togetherthe As-Ad Model

The Phillips Curve,the Natural Rate of Unemployment,and Inflation

The Crisis

The Facts of Growth

Saving,capital Accumulation,and Output

Technological Progress and Growth

Technological Progress: the Short,the Medium,and the Long Run

Financial Markets and Expectations

Expectations,consumption,and Investment

Expectations,output,and Policy

Openness in Goods and Financial Markets

The Goods Market in an Open Economy

Output,the Interest Rate,and the Exchange Rate

Exchange Rate Regimes

Should Policy Makers Be Restrained

Fiscal Policy: a Summing up

Monetary Policy: a Summing up

Epilogue: the Story of Macroeconomics

an Introduction to National Income and Product Accounts

an Introduction to Econometrics

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