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80 Cards in this Set
- Front
- Back
Variables that a model tries to explain are called ___ where as variables that a model takes as given are called ____
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endogenous, exogenous
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How does the distinction between flexible and sticky prices impact the study of macroeconomics?
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Flexible prices are typically assumed in the study of the long run, while sticky prices are assumed in the study of the short run
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In the relationship expressed in the funtional form, Y = G(K,L)
Y stands for real GDP, K stands for the amount of capital in the economy, L stands for the amount of labor in the economy. In this case G: |
is the function telling how the variable in the parenthesis determine real GDP
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Real GDP is measured in ____ dollar and ____ time
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constant, per unit of
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The GDP deflator is equal to:
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the ratio of nominal GDP to real GDP
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The CPI is determined by computing
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the price of a fixed basket of goods and services, relative to the price of the same basket in a base year
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If an increase of an equal percentage in all factors of production results in an increase in output of the same percentage, then a production function has the property called:
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constant returns to scale
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The real wage is the return to labor measured in:
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units of output
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The marginal product of capital is:
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additional output produced when one additional unit of capital is added
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If output is described by the production funtion Y=AK0.2L0.8, then the production function has
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constant returns to scale
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A consumption function shows the relationship between consumption and
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disposable income
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If the consumption function is given by C=150 + 0.85Y and Y increases by 1 unit, C increases by:
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0.85
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The real interest rate is the:
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nominal interest rate minus the rate of inflation
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People use money as a store of value when they:
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hold money to transfer purchasing power into the future
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To make a trade in a barter economy requires
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A double coincidence of wants
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A country that is on a gold standard primarily uses
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commodity money
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In the united states, monetary policy is controlled by the
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Federal Reserve
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If there are 100 transactions in a year and the average value of each transaction is $10, then if there is $200 of money in the economy, transactions velocity is
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5
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When the demand for money parameter k is large, the velocity of money is ___ and money changing hands _____
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large, frequently
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Inflation tax means that:
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as the price level rises, the real value of money held by the public decreases
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The ex ante real interest rate is equal to the nominal interest rate:
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plus the expected inflation rate
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The ex post real interest rate will be greater than the ex ante real interest rate when the:
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actual rate of inflation is less than the expected rate of inflation
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The costs of reprinting catalogs and price lists because of inflation are called:
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menu costs
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Compared to periods of lower rates of inflation, during a hyperinflation all of the following occur except
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relative prices do a better job of reflecting true scarcity
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An example of a real variable is the
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quantity of goods produced in a year
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An open economy is one in which
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there is trade in goods and services with the rest of the world
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In a small, open economy, if net exports are negative, then:
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domestic spending is greater than output
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In a small open economy, if exports equal $15 billion and imports equal $8 billion, then there is a trade ___ and ___ net capital flow
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surplus, positive
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Starting from a small open economy with balanced trade, if large foreign countries increase their domestic government purchases, this policy will tend to increase:
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exports by the small open economy
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According to purchasing power parity, if the dollar price of oil is higher in New Yrok than in London, arbitrageurs will ___ oil in New York and ___ oil in London to drive ____ the price of oil in NY (buy/sell, buy/sell, up/down)
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sell, buy, down
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The natural rate of unemployment is
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the average rate of unemployment around which the economy fluctuates
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In the model of the steady-state, unemployment rate with a fixed labor force, the rate of job finding equals the percentage of the ___ who find a jobs each month, while the rate of job separation equals the percentage of the ___ who lose their job each month
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unemployed, employed
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Frictional unemployment is unemployment caused by:
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the time is takes workers to search for a job
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The unemployment resulting from wage rigidity and job rationing is called ____ unemployment
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structural
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One efficiency-wage theory implies that firms pay high wages because:
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the more a firm pays its workers, the greater their incentive to stay with the firm
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Unions contribute to structural unemployment when collective bargaining results in wages:
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above the equilibrium level
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Short-run fluctuations in output and employment are called
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business cycles
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When the federal reserve increases the money supply, at a given price level the amount of output demanded is ___ and the aggregate demand curve shifts __
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greater, outward
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If a short-run equilibrium occurs at a level of output above the natural rate, then in the transition to the long run, prices will ___ and output will ___
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increase, decrease
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Stabilization policy:
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aims at keeping output and employment at their natural rate
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For the purposes of the Keynesian cross, planned expenditure consists of:
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Planned investment, government spending, and consumption expenditures
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The equilibrium condition in the Keynesdian-cross analysis in a closed economy is:
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actual expenditure equals planned expenditure
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An explanation for the slop of the IS curve is that as the interest rate increases, the quantity of investment ___, and this shifts the expenditure function ______
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decreases, downward
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An increase in government spending generally shifts the IS curve, drawn with income along the horizontal axis and the interest rate along the vertical axis: (upward/downward and to the left/right)
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upward and to the right
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The theory of liquidity preference implies that, other things being equal, an increase in the real money supply will:
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lower the interest rate
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An explanation for the slope of the LM curve is that as:
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income rises, money demand rises, and a higher interest rate is required
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In the IS-LM model, a decrease in government purchases leads to a(n) ____ in planned expenditures, a(n) in total income, a(n) ____ in money demand, and a(n) ______ in the equilibrium interest rate (increase/decrease)
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decrease, decrease, decrease, decrease
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The monetary transmission mechanism in the IS-LM model is a process whereby an increase in the money supply increases the demand for goods and services:
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by lowering the interest rate so that investment spending increases
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According to the IS-LM model, if congress raises taxes but the Fed wants to hold income constant, then the Fed must ____ the money supply
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increase
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The US recession of 2001 can be explained in part by a declining stock market and terrorist attack. Both of these shocks can be represented in the IS-LM model by shifting the ___ curve to the ___
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IS, left
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One policy response to the US economic slowdown of 2001 was to increase money growth. This policy response can be represented in the IS-LM model by shifting the _____ curve to the ____
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LM; right
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Analysis of the short and long runs indicates that the ____ assumptions are most appropriate in _________ (classical/keynesian, SR/LR)
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Keynesian, the short run whereas the classical assumptions are most appropriate in the long run
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The money hypothesis suggests that the Great Depression was caused by a:
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leftward shift in the LM curve
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All of the following events are consistent with the spending hypothesis as contributing to the Great Depression except:
a. the decline in investment spending on housing because of a decline in immigration in the 1930s b. the decline in consumption spending caused by the stock market crash of 1929 c. fiscal policy to reduce the budget deficit by raising taxes in 1932 d. the 25 percent reduction in money supply between 1929 and 1933 |
d. the 25 percent reduction in the money supply between 1929 and 1933
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According to the sticky-price model
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some firms announce their prices in advance, and some firms set their prices in accord with observed prices and output
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According to the sticky-price model, deviations of output from the natural level are ____ deviations of the price level from the expected price level
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positively associated with
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The imperfect-information model bases the difference in the short-run and long-run aggregate supply curve on:
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temporary misperceptions about prices
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According to the imperfect-information model, when the price level falls but the producer did not expect it to fall, the producer
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decreases production
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The Phillips curve shows a ____ relationship between inflation and unemployment, and the short run aggregate supply curve shows a _____ relationship between the price level and output
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negative, positive
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If the short-run aggregate supply curve is steep, the Phillips curve will be:
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steep
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One policy response to the US economic slowdown of 2001 was to increase money growth. This policy response can be represented in the IS-LM model by shifting the _____ curve to the ____
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LM; right
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Analysis of the short and long runs indicates that the ____ assumptions are most appropriate in _________ (classical/keynesian, SR/LR)
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Keynesian, the short run whereas the classical assumptions are most appropriate in the long run
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The money hypothesis suggests that the Great Depression was caused by a:
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leftward shift in the LM curve
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All of the following events are consistent with the spending hypothesis as contributing to the Great Depression except:
a. the decline in investment spending on housing because of a decline in immigration in the 1930s b. the decline in consumption spending caused by the stock market crash of 1929 c. fiscal policy to reduce the budget deficit by raising taxes in 1932 d. the 25 percent reduction in money supply between 1929 and 1933 |
d. the 25 percent reduction in the money supply between 1929 and 1933
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According to the sticky-price model
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some firms announce their prices in advance, and some firms set their prices in accord with observed prices and output
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According to the sticky-price model, deviations of output from the natural level are ____ deviations of the price level from the expected price level
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positively associated with
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The imperfect-information model bases the difference in the short-run and long-run aggregate supply curve on:
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temporary misperceptions about prices
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According to the imperfect-information model, when the price level falls but the producer did not expect it to fall, the producer
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decreases production
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The Phillips curve shows a ____ relationship between inflation and unemployment, and the short run aggregate supply curve shows a _____ relationship between the price level and output
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negative, positive
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If the short-run aggregate supply curve is steep, the Phillips curve will be:
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steep
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the Phillips curve expresses a short-run link
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between nominal and real variables
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In the case of demand-pull inflation, other things being equal
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the inflation rises but the unemployment rate falls
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The phillips curve analysis described in Ch 13 implies that there is a negative tradeoff between inflation and unemployment in:
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in the short run only
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If the hypothesis of hysteresis is correct and output is lost even after a period of disinflation, the sacrifice ratio for an economy will
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increase
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Along a short run aggregate supply curve, output is related to unexpected movements in the ___. Along a Phillips curve, unemployment is related to unexpected movements in the _
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price level, inflation rate
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In the dynamic model, the supply shock variable (curvey v with a little t) is a variable appearing in which of the following equations of the model
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Phillips curve
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Expectations of inflation based on recently observed inflation is called the assumption of _____ expectations
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adaptive
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According to the monetary policy rule, the central bank sets the nominal interest rate so the real interst rate increases when inflation ______ its target, or output _____ its natural level
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rises above, rises above
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The natural rate of interest is the real interest rate:
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at which the demand for goods and services equals the natural level of output
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In the dynamic model of aggregate demand and aggregate supply, one period in time is connected to the next period through
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Inflation expectations
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