Q&A Hero

Q: In the Keynesian framework, as long as output is ________ the equilibrium level, unplanned inventory investment will remain ________ and firms will continue to lower production. A. below; negative B. above; negative C. below; positive D. above; positive

Q: In the Keynesian framework, as long as output is ________ the equilibrium level, unplanned inventory investment will remain ________ and firms will continue to raise production. A. below; negative B. above; negative C. below; positive D. above; positive

Q: In the Keynesian framework, as long as output is below the equilibrium level, unplanned inventory investment will remain ________ and firms will continue to ________ production. A. negative; lower B. negative; raise C. positive; lower D. positive; raise

Q: If unplanned investment is negative, firms will ________ production and output will ________. A. cut; rise B. cut; fall C. increase; rise D. increase; fall

Q: If unplanned investment is positive, firms will ________ production and output will ________. A. cut; rise B. cut; fall C. increase; rise D. increase; fall

Q: Aggregate demand in an economy with no government or foreign trade is A. consumer expenditure plus actual investment. B. consumer expenditure plus planned investment. C. consumer expenditure plus inventory investment. D. consumer expenditure plus fixed investment.

Q: Planned investment spending is higher A. when real interest rate is higher. B. during financial frictions. C. when businesses are optimistic. D. all of the above. E. A and C.

Q: Factors that influenced planned investment spending include A. real interest rates. B. financial frictions. C. emotional waves of optimism and pessimism. D. all of the above. E. A and C.

Q: Keynes mentioned two factors that influenced planned investment spending A. interest rates and disposable income. B. interest rates and business expectations about the future. C. disposable income and business expectations about the future. D. interest rates and business expectations about inflation.

Q: A difference between inventory investment and fixed investment is that A. fixed investment is never unplanned. B. fixed investment is never planned. C. inventory investment is never unplanned. D. unplanned inventory investment is always zero.

Q: A fall in inventories is synonymous with ________ investment. A. negative fixed B. positive fixed C. positive inventory D. negative inventory

Q: There are two types of investment: ________ investment–the spending by business firms on equipment and structures, and planned spending on residential houses–and ________ investment–spending by business firms on additional holdings of raw materials, parts, and finished goods. A. planned; gross B. planned; inventory C. fixed; gross D. fixed; inventory

Q: Planned investment spending, a component of aggregate demand, is equal to A. fixed investment plus actual inventory investment. B. fixed investment plus unplanned inventory investment. C. fixed investment. D. fixed investment plus planned inventory investment.

Q: Economists define investment as the purchase of A. a new physical asset such as a new machine or a new house. B. any physical asset, whether new or not, used by business to increase production. C. any physical asset used by business to increase production and the repurchase of common stock. D. business spending on capital and household spending on durable goods.

Q: Everything else held constant, if consumption expenditure falls by 160 when disposable income falls by 200, the mpc is A. 0. B. 0.2. C. 0.4. D. 0.8.

Q: Everything else held constant, if disposable income increases by 200 and consumption expenditure increases by 150, the mpc is A. 0. B. 0.15. C. 0.5. D. 0.75.

Q: Everything else held constant, if consumption expenditure increases by 65 for a 100 increase in disposable income, the mpc is A. 0. B. 0.5. C. 0.65. D. 1.

Q: Everything else held constant, if total consumption increases from $600 to $800 because of an increase of disposable income of $400, then the mpc is equal to A. 0.2. B. 0.4. C. 0.5. D. 0.6.

Q: Assume that disposable income equals $1000 and the mpc equals 0.6. If total consumption equal $800, then autonomous consumption is equal to A. $0. B. $200. C. $800. D. $1000.

Q: Assume that autonomous consumption equals $200 and disposable income equals $1000. If total consumption equal $800, then the mpc equals A. 0.2. B. 0.6. C. 0.8. D. 1.0.

Q: Assume that autonomous consumption equals $200 and that the mpc equals 0.8. If disposable income equals $1000, then total consumption equals A. $80. B. $200. C. $800. D. $1000.

Q: If the consumption function is C = 20 + 0.8YD, then an increase in disposable income by $100 will result in an increase in consumer expenditure by A. $58. B. $64. C. $80. D. $100.

Q: If the consumption function is C = 20 + 0.5YD, then an increase in disposable income by $100 will result in an increase in consumer expenditure by A. $25. B. $70. C. $50. D. $100.

Q: If the consumption function is expressed as C = a + mpc × YD, then "a" represents A. autonomous consumer expenditure. B. the marginal propensity to consume. C. the expenditure multiplier. D. disposable income.

Q: If the consumption function is expressed as C = a + mpc × YD, then "mpc" represents A. autonomous consumer expenditure. B. the marginal propensity to consume. C. the expenditure multiplier. D. disposable income.

Q: The marginal propensity to consume (mpc) can be defined as the fraction of A. a change in income that is spent. B. a change in income that is saved. C. income that is spent. D. income that is saved.

Q: In the Keynesian model of income determination, consumer expenditure includes spending by A. consumers on personal computers. B. businesses on personal computers. C. governments on personal computers. D. foreigners on domestic personal computers.

Q: Keynes reasoned that consumer expenditure is most closely related to A. the level of interest rates. B. the price level. C. disposable income. D. the marginal tax rate.

Q: Under Keynesian analysis, aggregate demand can be written as A. Yad = C + I + G + NX. B. Yad= C + I + G - NX. C. Yad= C - I - G - NX. D. Yad= C + I - G - NX.

Q: In the simple Keynesian model, equilibrium aggregate output is determined by A. aggregate demand. B. aggregate supply. C. the national demand for labor. D. the price level.

Q: Keynes was especially concerned with explaining the ________ level of output and employment during the ________. A. low; 1920s B. low; 1930s C. high; 1920s D. high; 1930s

Q: Keynes was especially concerned with explaining the A. recession of 1920-21. B. low levels of output and employment during the Great Depression. C. strong economic growth of the 1920s. D. high unemployment in Great Britain during the 1920s.

Q: Keynes was especially interested in explaining movements of ________ because he wanted to explain why the Great Depression had occurred and how government policy could be used to increase ________ in a similar economic situation. A. aggregate output; wages B. aggregate output; employment C. wage rates; wages D. wage rates; employment

Q: Keynes's motivation in developing the aggregate output determination model stemmed from his concern with explaining A. the hyperinflations of the 1920s. B. why the Great Depression occurred. C. the high unemployment in Great Britain before World War I. D. the high unemployment in Great Britain after World War II.

Q: His analysis started with the recognition that the total quantity demanded of an economy's output was the sum of four types of spending: consumer expenditure, planned investment spending, government spending, and net exports. A. John Maynard Keynes B. Sir John Hicks C. Milton Friedman D. Paul A. Samuelson

Q: What two key factors trigger speculative attacks leading to currency cries in emerging market countries?

Q: At the time of the South Korean financial crisis, the merchant banks were A. almost virtually unregulated. B. subject to heavy government regulation. C. engaged in long-term lending to the corporate sector. D. restricted to long-term foreign borrowing.

Q: At the time of the South Korean financial crisis, the government allowed many chaebol owned finance companies to convert to merchant banks. Finance companies ________ allowed to borrow abroad and merchant banks ________. A. were not; could borrow abroad B. were not; could not borrow abroad C. were; could borrow abroad D. were; could not borrow abroad

Q: The chaebols encouraged the Korean government to open up Korean financial markets to foreign capital. The Korean government responded by A. allowing unlimited short-term foreign borrowing but maintained quantity restrictions on long-term foreign borrowing by financial institutions. B. allowing unlimited short-term and long-term foreign borrowing by financial institutions. C. maintaining quantity restrictions on short-term foreign borrowing but allowing unlimited long-term foreign borrowing by financial institutions. D. not allowing any foreign borrowing by financial institutions.

Q: Before the South Korean financial crisis, sales by the top five chaebols (family-owned conglomerates) were A. nearly 50% of GDP. B. about 10% of GDP. C. almost 90% of GDP. D. nearly 25% of GDP.

Q: The economic hardship resulting from a financial crises is severe, however, there are also social consequences such as A. increased crime. B. difficulty getting a loan. C. currency devaluations. D. loss of output.

Q: A feature of debt markets in emerging-market countries is that debt contracts are typically A. very short term. B. long term. C. intermediate term. D. perpetual.

Q: Argentina's financial crisis was due to A. poor supervision of the banking system. B. a lending boom prior to the crisis. C. fiscal imbalances. D. lack of expertise in screening and monitoring borrowers at banking institutions.

Q: Factors that led to worsening conditions in Mexico's 1994-1995 financial markets, but did not lead to worsening financial market conditions in East Asia in 1997-1998 include A. rise in interest rates abroad. B. bankers' lack of expertise in screening and monitoring borrowers. C. deterioration of banks' balance sheets because of increasing loan losses. D. stock market decline.

Q: Factors that led to worsening financial market conditions in East Asia in 1997-1998 include A. weak supervision by bank regulators. B. a rise in interest rates abroad. C. unanticipated increases in the price level. D. increased uncertainty from political shocks.

Q: In emerging market countries, many firms have debt denominated in foreign currency like the dollar or yen. A depreciation of the domestic currency A. results in increases in the firm's indebtedness in domestic currency terms, even though the value of their assets remains unchanged. B. results in an increase in the value of the firm's assets. C. means that the firm does not owe as much on their foreign debt. D. strengthens their balance sheet in terms of the domestic currency.

Q: Factors that led to worsening conditions in Mexico's 1994-1995 financial markets include A. failure of the Mexican oil monopoly. B. the ratification of the North American Free Trade Agreement. C. increased uncertainty from political shocks. D. decline in interest rates.

Q: Severe fiscal imbalances can directly trigger a currency crisis since A. investors fear that the government may not be able to pay back the debt and so begin to sell domestic currency. B. the government may stop printing money. C. the government may have to cut back on spending. D. the currency must surely increase in value.

Q: The key factor leading to the financial crises in Mexico and the East Asian countries was A. a deterioration in banks' balance sheets because of increasing loan losses. B. severe fiscal imbalances. C. a sharp increase in the stock market. D. a sharp decline in interest rates.

Q: The two key factors that trigger speculative attacks on emerging market currencies are A. deterioration in bank balance sheets and severe fiscal imbalances. B. deterioration in bank balance sheets and low interest rates abroad. C. low interest rates abroad and severe fiscal imbalances. D. low interest rates abroad and rising asset prices.

Q: A sharp depreciation of the domestic currency after a currency crisis leads to A. higher inflation. B. lower import prices. C. lower interest rates. D. decrease in the value of foreign currency-denominated liabilities.

Q: Factors likely to cause a financial crisis in emerging market countries include A. severe fiscal imbalances. B. decreases in foreign interest rates. C. a foreign exchange crisis. D. too strong oversight of the financial industry.

Q: The mismanagement of financial liberalization in emerging market countries can be understood as a severe A. principal/agent problem. B. asymmetric information problem. C. lemons problem. D. free-rider problem.

Q: All of the following might create problems from financial liberalization in emerging countries EXCEPT A. ineffective screening of borrowers. B. limits on risk-taking. C. lax government supervision of banks. D. lenders failure to monitor borrowers.

Q: In emerging market countries, the deterioration in bank's balance sheets has more ________ effects on lending and economic activity than in advanced countries. A. negative B. positive C. affirming D. advancing

Q: Financial crises generally develop along two basic paths A. mismanagement of financial liberalization/globalization and severe fiscal imbalances. B. stock market declines and severe fiscal imbalances. C. mismanagement of financial liberalization/globalization and stock market declines. D. stock market declines and unanticipated declines in the value of the domestic currency.

Q: A criticism of the monetarist autonomous spending variable is that A. some types of autonomous spending do not affect aggregate demand. B. some types of autonomous spending affect aggregate demand before the spending occurs. Some types of autonomous spending affect aggregate demand when they occur. C. some types of autonomous spending affect aggregate demand only long after they occur. D. Keynesians do not think that autonomous spending affects aggregate demand.

Q: Real business cycle theory states that the most important cause of business cycles is A. shocks to the money supply. B. interest rate shocks. C. Federal Reserve policy decisions. D. shocks to tastes and technology.

Q: The monetarist statistical evidence examines the correlations between both ________ and ________ with ________. A. money; aggregate spending; the unemployment rate B. money; autonomous expenditures; the unemployment rate C. money; consumption spending; aggregate spending D. money; autonomous expenditures; aggregate spending

Q: Real business cycle theorists are critical of monetarist reduced-form evidence because they believe A. money is the most important cause of changes in aggregate demand. B. there is reverse causation from the business cycle to money. C. there is reverse causation from money to the business cycle. D. business cycles do not exist.

Q: In a study published in 1963, Milton Friedman and Anna Schwartz found that in every business cycle they studied over nearly a hundred-year period A. the growth rate of the money supply decreased before output decreased. B. interest rates decreased before output decreased. C. the growth rate of federal government spending decreased before output decreased. D. the growth rate of state and local government spending decreased before output decreased.

Q: As a result of recent empirical research, there has been a convergence of Keynesian and monetarist opinion to the view that A. money is all that matters. B. money does matter. C. money does not matter. D. fiscal policy is all that matters.

Q: In a study published in 1963, Milton Friedman and Anna Schwartz found that in every business cycle they studied over nearly a hundred-year period, the growth rate of the ________ decreased before ________ decreased. A. money supply; interest rates B. money supply; output C. budget deficit; interest rates D. budget deficit; output

Q: Periods of price deflation, such as the Great Depression, are characterized by A. low nominal rates but high real rates of interest. B. low nominal and real interest rates. C. real rates of interest lower than the nominal rate of interest. D. high nominal and real rates of interest.

Q: Movements of ________ interest rates indicate that, contrary to the early Keynesians' beliefs, monetary policy was ________ during the Great Depression. A. nominal; tight B. nominal; easy C. real; tight D. real; easy

Q: During the Great Depression, real interest rates A. rose to unprecedentedly high levels. B. rose only slightly above the long-run trend. C. fell to unprecedentedly low levels. D. fell only slightly below the long-run trend.

Q: When Keynesians argue that "correlation does not necessarily imply causation," they are probably criticizing A. structural-model evidence. B. reduced-form evidence. C. indirect-model evidence. D. black-box evidence.

Q: Monetarists' preference for reduced-form models is based on their belief that A. reverse causation is a problem. B. structural models may understate money's effect on economic activity. C. money supply changes are always endogenous. D. monetary policy affects only investment spending.

Q: By the standard of low-grade bonds, interest rates were ________ and monetary policy was ________ during the Great Depression. A. low; tight B. low; easy C. high; tight D. high; easy

Q: In response to the early Keynesians, monetarists contended that A. monetary policy during the Great Depression was not easy. B. bank failures during the Great Depression were not the cause of the decline in the money supply. C. evidence from the Great Depression demonstrated the ineffectiveness of monetary policy. D. there is a weak link between interest rates and investment spending.

Q: Monetarists contend that the channels of monetary influence in Keynesian structural models are too ________ defined, ________ the importance of monetary policy. A. broadly; exaggerating B. broadly; understating C. narrowly; understating D. narrowly; exaggerating

Q: Early Keynesians concluded that changes in monetary policy had no impact on aggregate output because early empirical studies found no linkage between movements in ________ and ________. A. nominal interest rates; investment spending B. real interest rates; investment spending C. money supply; aggregate output D. investment spending; aggregate output

Q: Predicting the impact of institutional change on the effectiveness of monetary policy is best done with a A. structural model. B. reduced-form model. C. black-box model. D. scientific model.

Q: Early Keynesians felt that ________ policy was ________, so they stressed the importance of ________ policy. A. fiscal; ineffective; monetary B. monetary; ineffective; fiscal C. monetary; potent; monetary D. fiscal; too potent; monetary

Q: Which of the following is NOT an advantage of a correctly specified structural model? A. Structural models may help us to more accurately predict the effect that monetary policy has on economic activity. B. A structural model provides more pieces of evidence about monetary policy's effect on economic activity. C. Structural models may allow economists to more accurately predict the impact institutional changes have on the link between monetary policy and income. D. A structural model imposes no restrictions on the way monetary policy affects the economy.

Q: Monetarists directly study the link between money and economic activity using A. structural models. B. reduced-form models. C. scientific models. D. experimental models.

Q: A model that is composed of many equations that show the channels through which monetary and fiscal policy affect aggregate output and spending is called a A. reduced-form model. B. median-voter model. C. informed median-voter model. D. structural model.

Q: The channels through which monetary policy affects economic activity are called the ________ of monetary policy. A. transmission mechanisms B. flow mechanisms C. distribution mechanisms D. allocational mechanisms

Q: The monetarist-Keynesian debate on the importance of monetary policy is unresolved because monetarists and Keynesians focus on two different types of evidence that generate conflicting conclusions. Monetarists tend to focus on A. structural-model evidence, while Keynesians focus on reduced-form evidence. B. reduced-form evidence, while Keynesians focus on structural-model evidence. C. reduced-form evidence, while Keynesians focus on direct-model evidence. D. structural-model evidence, while Keynesians focus on direct-model evidence.

Q: ________ examines whether one variable has an effect on another by simply looking directly at the relationship between the two variables. A. Reduced-form evidence B. Organizational-model evidence C. Direct-model evidence D. Structural-model evidence