1. If the economy is
characterized by increasing returns to scale, then a

     a doubling of inputs will lead to a
constant output.
      doubling of inputs will lead to
a more than two-fold increase in output.
      doubling of inputs will lead to
a less than two-fold increase in output.
      doubling of inputs will lead to
a two-fold increase in output.

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Question
2.
2. Suppose that the capital
stock initially is 1000, the depreciation rate is 0.06, and net
growth of the capital stock is 120. This makes investment equal
to

      180
      127.2
      60
      112.8

Question
3.
3. In the Solow growth
model, from an initial steady state with fixed values of A, d, and
n, an increase in the national saving rate causes the standard of
living to

      not change at all in the short
run or the long run.
      grow at a permanently faster
rate.
      rise temporarily, and then fall
back to its initial level.
      grow at a slower rate
temporarily, and then return to the initial growth rate.
      rise and then hold constant at
a new higher level.

Question
4.
4. Private investment is
equal to the net addition to the capital stock ________ the
depreciation of that capital stock. (Points : 2)

      minus
      divided by
      plus
      times

Question
5.
5. “Economists have
generally come to agree that monetary policy is better suited than
fiscal policy for controlling GDP” because (Points : 2)

      fiscal spending and tax changes
affect the economy less than changes in the money supply.
      money is neutral and therefore
changes affect real income but not prices.
      Congress can make decisions
quickly, the Fed more slowly.
      the Fed can make decisions
quickly, Congress and the President more slowly.

Question
6.
6. The largest category of
financial intermediary is the (Points : 2)

      mutual funds.
      savings-and-loans.
      insurance companies.
      commercial banks.

Question
7.
7. Given the quantity theory
of money demand, a doubling of the money supply will lead to a
(Points : 2)

      rise in the level of interest
rates.
      halving of the velocity of
money.
      doubling of the level of
nominal output.
      doubling of the level of real
output.

Question
8.
8. Money market instruments
are ________ term and ________ relative to capital market
instruments. (Points : 2)

      short; less risky
      long; less risky
      long; risky
      short; risky

Question
9.
9. With faster inflation,
money in the form of ________ becomes more desirable. (Points :
2)

      interest-bearing checkable
deposits
      currency
      non-interest-bearing checkable
deposits
      all of these forms are equally
desirable when inflation increases.

Question
10.
10. Question: 1. If the economy ischaracterized by increasing returns to scale, then a   &n...

In the figure above, suppose that the Fed maintains a fixed real
money supply and that commodity demand is also fixed. The range of
shifts in the LM curve, LM1 to LM2 lead to (Points : 2)

      a stable equilibrium output,
B0 to B1
      an unstable equilibrium output,
B0 to B1
      a stable equilibrium output,
C
      an unstable equilibrium output,
C to B1

Question
11.
11. A policymaker would
prefer that the lag in the effect of a policy be (Points : 2)

      long and variable in magnitude
or size
      short and variable in magnitude
or size
      long and fixed in magnitude or
size
      short and fixed in magnitude or
size

Question
12.
12. The central issue in
the stabilization policy debate is (Points : 2)

      the location of the sources of
economic instability in the economy
      the effectiveness of fiscal
policy, but not monetary policy
      the effectiveness of monetary
policy and fiscal policy
      the role of money in the
inflationary process

Question
13.
13. The largest component
of total spending is (Points : 2)

      government spending on public
goods.
      private investment, the capital
consumption allowance.
      public consumption of
non-durable goods.
      private consumption on durable
and non-durable goods.

Question
14.
14. The household saving
rate as measured by the Flow of Funds Accounts does not include
(Points : 2)

      household accumulations in
government pensions.
      capital gains on stocks, bonds,
houses, and other assets.
      net investment in consumer
durables.
      all of the above.

Question
15.
15. Where does the interest
rate fit into the accelerator hypothesis of investment? (Points :
2)

      It helps determine the
depreciation ratio of capital stock to replacement
investment.
      It helps determine the
error-learning parameter, j.
      It helps determine the ratio of
desired capital to expected sales, v.
      Nowhere: the hypothesis says
that investment is independent of the interest rate.

Question
16.
16. Policy activists can
point to the volatility of ________ of private aggregate demand to
score points in arguing for discretionary countercyclical policy.
(Points : 2)

      the investment and net export
segments
      the consumption and net export
segments
      the consumption segment
      none of the segments

Question
17.
17. Lowering the corporate
income tax rate ________ the user cost of capital, which ________
investment. (Points : 2)

      raises, stimulates
      lowers, depresses
      lowers, stimulates
      raises, depresses

Question
18.
18. Keynes felt that the
economic effects of business confidence, for example a loss
confidence shifting the ________ curve to the left, were of
________ importance. (Points : 2)

      IS, minor
      IS, major
      LM, major
      LM, minor

Question
19.
19. An individual buys
shares in a mutual fund, which uses the proceeds to buy corporate
stocks and bonds. This is part of the process by which (Points :
2)

      firms obtain investment goods
that consumers relinquish claims to.
      firms release goods to make
them available to consumers.
      total product becomes unequal
to total expenditures.
      consumers make an “inventory
investment” in goods to be purchased in the future.

Question
20.
20. When an economy is not
in equilibrium (Points : 2)

      planned expenditures exceed
production and income.
      government tax revenues equal
planned government expenditures.
      production and income equal
planned expenditures.
      there is no savings nor
investment.

Question
21.
21. When planned autonomous
spending rises, the planned expenditure line (Points : 2)

      makes a parallel shift
upward.
      pivots downward from the
vertical intercept.
      makes a parallel shift
downward.
      pivots upward from the vertical
intercept.

Question
22.
22. Question: 1. If the economy ischaracterized by increasing returns to scale, then a   &n...

In the figure above, with IS0 shifting to IS1 against the
upward-sloping LM curve, crowding-out is the result that (Points :
2)

      income stays at
YO3
      income rises to Y1
instead of staying at YO3
      income rises to Y1
instead of to Y2
      income rises to Y2
instead of to Y1

Question
23.
23. A recession normally
causes ________ in government net tax revenues, ________ the budget
deficit is an example of ________ automatic stabilization. (Points
: 2)

      an increase, increasing, the
working of
      a decrease, decreasing, the
working of
      an increase, decreasing, a
failure of
      a decrease, increasing, a
failure of
      a decrease, increasing, the
working of

Question
24.
24. When the nominal wage
rate rises by x percent we (Points : 2)

      move downward along the SAS
curve by x percent.
      move upward along the SAS curve
by x percent.
      shift SAS downward by x
percent.
      shift SAS upward by x
percent.

Question
25.
25. A policy response to a
beneficial supply shock which focuses the full impact of the shock
to lower the inflation rate is (Points : 2)

      an aggravating policy.
      a neutral policy.
      an extinguishing policy.
      an accommodating
policy.

Question
26.
26. Over a year, the money
supply in a nation grew by 8 percent, while velocity rose by 2
percent and real GDP rose by 3 percent. This results in an
inflation over the year of ________ percent. (Points : 2)

      13
      9
      3
      7

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