Question 1

Suppose households decide to reduce consumption.This reduction 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

Question 2

Suppose output is growing at 4% and the nominal money stock is growing at 0%.Also assume that the economy has reached its medium run equilibrium.Given this information,we know with certainty that

Accepted Answer

A) inflation is less than 4%. 
B) inflation is greater than 4%. 
C) inflation is equal to 4%. 
D) the real interest rate is equal to the nominal interest rate. 
E) deflation occurs. 
A) inflation is less than 4%. 
B) inflation is greater than 4%. 
C) inflation is equal to 4%. 
D) the real interest rate is equal to the nominal interest rate. 
E) deflation occurs.

Question 3

Let: (1)Pt be the price of one unit of a market basket of goods it be the one-year nominal interest rate.Suppose an individual borrows the equivalent of one unit of a composite commodity today.Given this information,which of the following expressions represents (i.e.,is equal to)the real interest rate (rt)?

Accepted Answer

A)  (1 + it) (Pet+1) / (Pt) 
B)  (1 + πet+1) / (1 + it) 
C) {(1 + πet+1) / (1 + it)} - 1 
D) {(1 + it) (Pt) / (Pet+1)} - 1 
E) none of the above 
A)  (1 + it) (Pet+1) / (Pt) 
B)  (1 + πet+1) / (1 + it) 
C) {(1 + πet+1) / (1 + it)} - 1 
D) {(1 + it) (Pt) / (Pet+1)} - 1 
E) none of the above

Question 4

The present discounted value of a future payment becomes larger when

Accepted Answer

A) the nominal interest rate increases. 
B) the payment is made later. 
C) the payment itself increases. 
D) all of the above 
E) none of the above 
A) the nominal interest rate increases. 
B) the payment is made later. 
C) the payment itself increases. 
D) all of the above 
E) none of the above

Question 5

Explain whether it is possible for the nominal interest rate to decrease while the real interest rate simultaneously increases.

Accepted Answer

The nominal interest rate is determined

Question 6

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

Accepted Answer

An increase in expected inflat

Question 7

Explain what the Fisher effect / Fisher hypothesis represents.

Accepted Answer

The Fisher effect represents t

Question 8

Explain whether it is possible for the nominal interest rate to increase while the real interest rate simultaneously decreases.

Accepted Answer

The nominal interest rate is determined

Question 9

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

Accepted Answer

A) $90.91. 
B) $165.29. 
C) $181.82. 
D) $190.00. 
E) $220.00. 
A) $90.91. 
B) $165.29. 
C) $181.82. 
D) $190.00. 
E) $220.00.

Question 10

In the medium run,which of the following expressions will represent the nominal interest rate?

Accepted Answer

A) rn - πe 
B) rn 
C) rn - gm 
D) gY + gm 
E) none of the above 
A) rn - πe 
B) rn 
C) rn - gm 
D) gY + gm 
E) none of the above

Question 11

For this question,assume that the interest rate is greater than 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) C > A > B 
E) B > A > C 
A) A > B > C 
B) A > C > B 
C) C > B > A 
D) C > A > B 
E) B > A > C

Question 12

If the nominal interest rate is 20% per year,how much money can an individual borrow today if she wants to repay $100 in one year?

Accepted Answer

A) $80.00 
B) $83.33 
C) $120.00 
D) $78.00 
E) $121.00 
A) $80.00 
B) $83.33 
C) $120.00 
D) $78.00 
E) $121.00

Question 13

Suppose the economy is initially operating at the natural level of output.Now,suppose the central bank reduces the rate of nominal money growth by 2%.Given this information,we would expect that

Accepted Answer

A) the nominal interest rate will fall by less than 2% in the medium run. 
B) the nominal interest rate will fall by exactly 2% in the medium run. 
C) the nominal interest rate will increase by exactly 2% in the medium run. 
D) the nominal interest rate will not change in the medium. 
E) none of the above 
A) the nominal interest rate will fall by less than 2% in the medium run. 
B) the nominal interest rate will fall by exactly 2% in the medium run. 
C) the nominal interest rate will increase by exactly 2% in the medium run. 
D) the nominal interest rate will not change in the medium. 
E) none of the above

Question 14

A consol bond promises to pay $1000 each year,forever,starting next year.If the nominal interest rate is 5%,the present discounted value of this consol is

Accepted Answer

A) $900.00. 
B) $995.00. 
C) $2,500.00. 
D) $20,000.00. 
E) $25,000.00. 
A) $900.00. 
B) $995.00. 
C) $2,500.00. 
D) $20,000.00. 
E) $25,000.00.

Question 15

Data on real and nominal interest rates of one-year U.S.T-Bills show that,over the past twenty years,

Accepted Answer

A) the nominal rate has always been less than the real rate. 
B) whenever the nominal rate rises,the real rate falls,and vice versa. 
C) the nominal rate has varied,but the real rate has not. 
D) the real rate has varied,but the nominal rate has not. 
E) the real rate has always been less than the nominal rate. 
A) the nominal rate has always been less than the real rate. 
B) whenever the nominal rate rises,the real rate falls,and vice versa. 
C) the nominal rate has varied,but the real rate has not. 
D) the real rate has varied,but the nominal rate has not. 
E) the real rate has always been less than the nominal rate.

Exam 14: Expectations: the Basic Tools

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

Suppose output is growing at 4% and the nominal money stock is growing at 0%.Also assume that the economy has reached its medium run equilibrium.Given this information,we know with certainty that

The present discounted value of a future payment becomes larger when

Explain whether it is possible for the nominal interest rate to decrease while the real interest rate simultaneously increases.

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

Explain what the Fisher effect / Fisher hypothesis represents.

Explain whether it is possible for the nominal interest rate to increase while the real interest rate simultaneously decreases.

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

In the medium run,which of the following expressions will represent the nominal interest rate?

For this question,assume that the interest rate is greater than 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

If the nominal interest rate is 20% per year,how much money can an individual borrow today if she wants to repay $100 in one year?

Suppose the economy is initially operating at the natural level of output.Now,suppose the central bank reduces the rate of nominal money growth by 2%.Given this information,we would expect that

A consol bond promises to pay $1000 each year,forever,starting next year.If the nominal interest rate is 5%,the present discounted value of this consol is

Data on real and nominal interest rates of one-year U.S.T-Bills show that,over the past twenty years,

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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