Econ 1.13 05.05

Q. The proposition that the real interest rate is relatively stable is most closely associated with:

• A. the Fisher effect.
• B. money neutrality.
• C. the quantity theory of money.

Q. A “pay-as-you-go” rule, which requires that any tax cut or increase in entitlement spending be offset by an increase in other taxes or reduction in other entitlement spending, is an example of which fiscal policy stance?

• A. Neutral.
• B. Expansionary.
• C. Contractionary.

Q. Based on typical labor utilization patterns across the business cycle, productivity (output per hours worked) is most likely to be highest:

• A. at the peak of a boom.
• B. into a maturing expansion
• C. at the bottom of a recession.

A liquidity trap is most closely associated with:

• A. deflation.
• B. an inelastic demand for money.
• C. a positive nominal central bank policy rate.

Q. Deflation is most likely to be associated with:

• A. a shortage of government revenue.
• B. substantial macroeconomic contraction.
• C. explicit monetary policy to combat inflation.

Q. A decrease in a country’s total imports is most likely caused by:

• A. an increase in the pace of domestic GDP growth.
• B. a cyclical downturn in the economies of primary trading partners.
• C. persistent currency depreciation relative to primary trading partners.

Q. Central banks would typically be most concerned with costs of:

• A. low levels of inflation that are anticipated.
• B. moderate levels of inflation that are anticipated.
• C. moderate levels of inflation that are not anticipated.

Q. What is the most important effect of labor productivity in a cost-push inflation scenario?

• A. Rising productivity indicates a strong economy and a bias towards inflation.
• B. The productivity level determines the economy’s status relative to its “natural rate of unemployment.”
• C. As productivity growth proportionately exceeds wage increases, product price increases are less likely.