Question 1

If borrowers and lenders expect a higher rate of inflation,

Accepted Answer

A)  nominal interest rates should decrease.
B)  nominal interest rates should remain constant.
C)  nominal interest rates should increase.
D)  real interest rates should increase.

Question 2

If the population increase in India is smaller than the increase in Indian real GDP, then GDP per capita will

Accepted Answer

A)  decrease.
B)  increase.
C)  remain constant.
D)  increase more slowly than real GDP.

Question 3

Structural unemployment may be particularly severe for

Accepted Answer

A)  younger workers
B)  college graduates.
C)  older workers.
D)  workers with "high tech" skills.

Question 4

As capital goods depreciate, potential output falls.

Accepted Answer

A) True 
 B)False

Question 5

Economic growth is most likely to solve the problems of

Accepted Answer

A)  environmental pollution.
B)  world poverty.
C)  emotional stress.
D)  social alienation.

Question 6

During inflationary periods,

Accepted Answer

A)  the real value of money rises.
B)  the real value of money remains constant.
C)  the real value of money falls.
D)  the purchasing power of money rises.

Question 7

The public often overestimates the negative effects of inflation due to a focus on nominal rates of interest.

Accepted Answer

A) True 
 B)False

Question 8

If the capital stock decreases, then the economy will produce ____ output with the ____ amount of labor.

Accepted Answer

A)  same, same
B)  less, same
C)  more, same
D)  more, decreased

Question 9

Potential GDP would decrease if

Accepted Answer

A)  technical progress improves.
B)  capital stock increases.
C)  the number of hours worked increases.
D)  Congress passes a 32-hour work week.

Question 10

Older Americans living on a pension and therefore on a fixed income tend to be made

Accepted Answer

A)  better off when prices rise.
B)  better off when inflation rates rise.
C)  worse off when prices rise.
D)  worse off when prices fall.

Question 11

If you as a lender want an increase in purchasing power of 4 percent from making a loan and you set the nominal interest rate at 9 percent, then your

Accepted Answer

A)  real rate of interest is 13 percent.
B)  expected rate of inflation is 5 percent.
C)  expected rate of inflation is 13 percent.
D)  real rate of interest is 36 percent.

Question 12

If prices rise, then persons living on fixed incomes will

Accepted Answer

A)  see their real incomes rising.
B)  see the purchasing power of their dollars go further.
C)  need to spend more to maintain their standard of living.
D)  see the value of their savings accounts increase.

Question 13

Mandatory controls on economic activity would

Accepted Answer

A)  limit economic growth possibilities.
B)  prevent the economy from achieving potential GDP.
C)  reduce the amount of poverty.
D)  increase potential GDP.

Question 14

Economists generally assume that faster economic growth is negative for society.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following scenarios best illustrates the concept of cyclical unemployment?

Accepted Answer

A)  Grace loses her job because of new automated machinery.
B)  Sean quits his job to look for work that is more fun.
C)  Ellen quits looking for work because she doesn't think she can find a suitable job.
D)  Marian loses her job because of a recession.

Question 16

If inflation is expected by both borrowers and lenders, then we would expect

Accepted Answer

A)  real rates to be higher than nominal rates of interest.
B)  real rates to be equal to nominal rates of interest.
C)  real rates to be lower than nominal rates of interest.
D)  nominal rates of interest to be less than the expected inflation rate.

Question 17

Unemployment insurance cannot eliminate the national costs of lost output due to unemployed labor.

Accepted Answer

A) True 
 B)False

Question 18

When the expected inflation rate equals the actual inflation rate, the real interest rate was accurately estimated.

Accepted Answer

A) True 
 B)False

Question 19

Rachel agrees to lend Phoebe $100 for six months and charges her interest of 2 percent.At the end of the six-month period, prices have risen by 4 percent.

Accepted Answer

A)  Purchasing power has been redistributed to Rachel.
B)  No purchasing power has been redistributed.
C)  Purchasing power has been redistributed to Phoebe.
D)  Both Rachel and Phoebe received extra purchasing power.

Question 20

Over long periods of time, the growth rates of actual and potential GDP have been

Accepted Answer

A)  diverging.
B)  similar.
C)  declining together.
D)  usually far apart.

Exam 22: The Goals of Macroeconomic Policy

If inflation is expected by both borrowers and lenders, then we would expect

Correct AnswerverifiedShow Answer

During inflationary periods,

Correct AnswerverifiedShow Answer

If borrowers and lenders expect a higher rate of inflation,

Correct AnswerverifiedShow Answer

Structural unemployment may be particularly severe for

Correct AnswerverifiedShow Answer

If the population increase in India is smaller than the increase in Indian real GDP, then GDP per capita will

Correct AnswerverifiedShow Answer

If prices rise, then persons living on fixed incomes will

Correct AnswerverifiedShow Answer

Mandatory controls on economic activity would

Correct AnswerverifiedShow Answer

Which of the following scenarios best illustrates the concept of cyclical unemployment?

Correct AnswerverifiedShow Answer

Rachel agrees to lend Phoebe $100 for six months and charges her interest of 2 percent.At the end of the six-month period, prices have risen by 4 percent.

Correct AnswerverifiedShow Answer

Potential GDP would decrease if

Correct AnswerverifiedShow Answer

Over long periods of time, the growth rates of actual and potential GDP have been

Correct AnswerverifiedShow Answer

Economists generally assume that faster economic growth is negative for society.

Correct AnswerverifiedShow Answer

Unemployment insurance cannot eliminate the national costs of lost output due to unemployed labor.

Correct AnswerverifiedShow Answer

As capital goods depreciate, potential output falls.

Correct AnswerverifiedShow Answer

The public often overestimates the negative effects of inflation due to a focus on nominal rates of interest.

Correct AnswerverifiedShow Answer

Economic growth is most likely to solve the problems of

Correct AnswerverifiedShow Answer

If the capital stock decreases, then the economy will produce ____ output with the ____ amount of labor.

Correct AnswerverifiedShow Answer

Older Americans living on a pension and therefore on a fixed income tend to be made

Correct AnswerverifiedShow Answer

When the expected inflation rate equals the actual inflation rate, the real interest rate was accurately estimated.

Correct AnswerverifiedShow Answer

If you as a lender want an increase in purchasing power of 4 percent from making a loan and you set the nominal interest rate at 9 percent, then your

Correct AnswerverifiedShow Answer

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If the capital stock decreases, then the economy will produce output with the amount of labor.

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