Question 1

The equilibrium effects of a temporary increase in total factor productivity include

Accepted Answer

A)   an increase in the real wage and an increase in the real interest rate.
B)   an increase in the real wage and a decrease in the real interest rate.
C)   a decrease in the real wage and an increase in the real interest rate.
D)   a decrease in the real wage and a decrease in the real interest rate.
E)   only a decrease in the real interest rate.

Question 2

Investment tends to be more variable over the business cycle than

Accepted Answer

A)   savings.
B)   government spending.
C)   real interest rates.
D)   aggregate output.
E)   consumer income.

Question 3

The 1990-1992 recession in Canada is an example of a recession where

Accepted Answer

A)   a large spike in interest rate spreads indicates no role of shocks to credit market risk.
B)   a large spike in interest rate spreads indicates an important role for shocks to credit market risk.
C)   there is no spike in interest rate spreads indicating no role of shocks to credit market risk.
D)   a decrease in interest rate spreads indicates an important role for shocks to credit market risk.
E)   there is no spike in interest rate spreads indicating an important role for shocks to credit market risk.

Question 4

Next period's capital is equal to current-period investment

Accepted Answer

A)   plus the amount of current capital left over after depreciation.
B)   minus the amount of current capital left over after depreciation.
C)   plus the amount of current period depreciation.
D)   minus the amount of current period depreciation.
E)   plus the amount of current capital left over.

Question 5

An increase in lifetime wealth

Accepted Answer

A)   shifts the current labour supply curve to the left.
B)   shifts the current labour supply curve to the right.
C)   reduces the real wage.
D)   increases labour supply.
E)   reduces savings.

Question 6

Investment will be more variable if

Accepted Answer

A)   there is variablility in z'' that shifts the investment schedule over time.
B)   there is variablility in z'' that causes movements along the investment schedule over time.
C)   there is variablility in r that shifts the investment schedule over time.
D)   the real interest rate remains below the return on stocks.
E)   stock prices remain sufficiently volitile.

Question 7

Any increase in the present value of taxes for the consumer implies

Accepted Answer

A)   an increase in lifetime wealth and an increase in current labour supply.
B)   an increase in lifetime wealth and a decrease in current labour supply.
C)   a decrease in lifetime wealth and an increase in current labour supply.
D)   a decrease in lifetime wealth and a decrease in current labour supply.
E)   a decrease in lifetime wealth and a decrease in current consumption demand.

Question 8

In the real intertemporal model,an increase in credit market risk implies

Accepted Answer

A)   output demand shifts left and output supply shifts right, increasing the real interest rate.
B)   output demand shifts right and output supply shifts left, the real interest rate is constant.
C)   output demand shifts left and output supply shifts left, decreasing the real interest rate.
D)   output demand shifts left and output supply is constant, increasing the real interest rate.
E)   output demand shifts left and output supply shifts right, decreasing the real interest rate.

Question 9

An increase in G or G' shifts the output supply curve to the right because

Accepted Answer

A)   lifetime wealth increases, a positive income effect that shifts labour supply to the right.
B)   lifetime wealth decreases, a negative income effect that shifts labour supply to the left.
C)   lifetime wealth decreases, a negative income effect that shifts labour supply to the right.
D)   the increase in the real interest rate shifts output supply.
E)   the decrease in the real interest rate shifts output supply.

Question 10

The equilibrium effects of a prospective future increase in total factor productivity include

Accepted Answer

A)   an increase in the real wage and an increase in the real interest rate.
B)   an increase in the real wage and a decrease in the real interest rate.
C)   a decrease in the real wage and an increase in the real interest rate.
D)   a decrease in the real wage and a decrease in the real interest rate.
E)   a decrease in the real wage only.

Question 11

An individual stock price

Accepted Answer

A)   determines investment spending.
B)   mimics the information contained in the stock market index.
C)   determines the future performance of the firm.
D)   incorporates all news about the firm's future prospects.
E)   is inversely related to the interest rate.

Question 12

An increase in government spending

Accepted Answer

A)   increases taxes and reduces the marginal propensity to consume.
B)   increases taxes and reduces lifetime wealth of consumers.
C)   reduces taxes and reduces lifetime wealth of consumers..
D)   increases taxes and increases the marginal propensity to consume.
E)   does not affect the present value of taxes, thus does not affect the lifetime wealth of consumers.

Question 13

The total government expenditure multiplier

Accepted Answer

A)   is the ratio of total increase in real output to the increase in government spending.
B)   is the total increase in the demand for goods.
C)   equals 
D)   is the ratio of total increase in demand for goods to the increase in government spending.
E)   equals the MPC.

Question 14

When drawn against the real interest rate,the output supply curve is upward sloping because labour supply is

Accepted Answer

A)   increasing the real interest rate and labour demand is independent of the real interest rate.
B)   decreasing the real interest rate and labour demand is independent of the real interest rate.
C)   independent of the real interest rate and labour demand is increasing the real interest rate.
D)   independent of the real interest rate and labour demand is decreasing the real interest rate.
E)   increasing as the wage rate rises.

Question 15

In response to a temporary increase in government spending,the representative consumer consumes

Accepted Answer

A)   more and takes more leisure.
B)   more and takes less leisure.
C)   less and takes more leisure.
D)   less and takes less leisure.
E)   the same amount as leisure.

Question 16

An increase in lifetime wealth is likely to

Accepted Answer

A)   increase current labour supply and increase current consumption demand.
B)   increase current labour supply and decrease current consumption demand.
C)   decrease current labour supply and increase current leisure.
D)   decrease current labour supply and decrease current consumption demand.
E)   decrease current labour supply and decrease current leisure.

Question 17

The intertemporal substitution of leisure effect is used to justify the assumption that current labour supply increases when the

Accepted Answer

A)   current real wage increases.
B)   current real wage decreases.
C)   real interest rate increases.
D)   real interest rate decreases.
E)   current real wage and real investment rate decreases.

Question 18

Investment will be more variable if the real interest rate is

Accepted Answer

A)   more variable and future total factor productivity is more variable.
B)   more variable and future total factor productivity is less variable.
C)   less variable and future total factor productivity is more variable.
D)   less variable and future total factor productivity is less variable.
E)   is constant with total factor productivity.

Question 19

When drawn against the real interest rate,the output demand curve unambiguously shifts to the right if either or both of the following occur.

Accepted Answer

A)   an increase in current taxes and an increase in future taxes
B)   an increase in current taxes and a decrease in future taxes
C)   a decrease in current taxes and an increase in future taxes
D)   a decrease in current taxes and a decrease in future taxes
E)   an increase in current taxes and a reduction in interest rates.

Question 20

According to research by Robert Barro,the total governement expenditure multiplier is

Accepted Answer

A)   1.6
B)   4
C)   0
D)   1
E)   0.8

Exam 11: A Real Intertemporal Model with Investment

An increase in lifetime wealth

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Investment tends to be more variable over the business cycle than

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An individual stock price

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An increase in lifetime wealth is likely to

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An increase in government spending

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An increase in G or G' shifts the output supply curve to the right because

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In the real intertemporal model,an increase in credit market risk implies

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Investment will be more variable if the real interest rate is

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Any increase in the present value of taxes for the consumer implies

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The equilibrium effects of a temporary increase in total factor productivity include

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The 1990-1992 recession in Canada is an example of a recession where

Correct AnswerverifiedShow Answer

According to research by Robert Barro,the total governement expenditure multiplier is

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The total government expenditure multiplier

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Investment will be more variable if

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The equilibrium effects of a prospective future increase in total factor productivity include

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When drawn against the real interest rate,the output demand curve unambiguously shifts to the right if either or both of the following occur.

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In response to a temporary increase in government spending,the representative consumer consumes

Correct AnswerverifiedShow Answer

The intertemporal substitution of leisure effect is used to justify the assumption that current labour supply increases when the

Correct AnswerverifiedShow Answer

When drawn against the real interest rate,the output supply curve is upward sloping because labour supply is

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Next period's capital is equal to current-period investment

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