True/ False Questions
1. Tightening law enforcement against illegal workers in the US can increase real wages.
2. Contrary to what is often stated by politicians, a reduction in the budget does not necessarily lead to an increase in investment. 3. The company’s total annual sales of $200 to the households were generated through only the cost of $50 wages and $60 raw material. This means that this company’s contribution to the GNP was $140 in added value, $200 in final goods or $140 in household income.
4. “Exogenous” variables of a macroeconomic model would include policy variables such as government defense purchases.
5. If a new federal budget raises government purchases by $100 per person and pays for this with a new per capita tax also equal to $100 per person so that the government deficit is unchanged, and the central bank holds interest rates unchanged, then GDP will also be unchanged. 6. The real output per capita is one of the best measures of the standard of living.
7. Exports can be larger than GDP
8. If taxes are set proportional to income, T = tY, and t > 0, then the multiplier is larger.
9. A fiscal contraction must decrease consumption, output and
10. A monetary expansion coupled with a fiscal expansion causes both output and the interest rate to raise for sure.
11. The introduction of ATMs could have positive effect on the GDP. 12. The Fed can off-set a fiscal expansion by open market transactions.
13. Workers like inflation since it raises their wages.
14. Improvements in health that increase the elderly population, tend to increase the unemployment rate.
15. If the government increases G without altering the supply of money, the amount of money demanded in equilibrium varies since both Y and i change.
16. A monetary contraction cannot affect the public budget since it is not a fiscal policy.
17. As in microeconomics, the AS curve is upward slopping because producers sell more goods when the price is high.
18. As in microeconomics, the AD-curve is downward sloping since consumers buy less goods when they are expensive.
19. Even with the unemployment rate in its natural level, inflation rate can increase due to higher expected inflation.
20. Wage indexation decreases the impact of changes in unemployment rate on the inflation rate.
21. Expansionary fiscal policy has a positive effect on output, consumption and investment in the short run. However, it has no effect in the medium run since all the components of aggregate demand go back to its previous level.
22. Expansionary monetary policy has a positive effect on output, consumption and investment in the short run. However, it has no effect in the medium run since all the components of the aggregate demand go back to itspreviouslevel.
23. Like expansionary monetary policy, expansionary fiscal policy returns output in the medium run to its natural level, and increases prices. Therefore, fiscal policy is also neutral.
24. If investment is completely insensitive to the interest rate (i.e. in the Investment function I = aY – bi, b is equal to zero), then the AD curve
will be vertical.
25. A politician faced with a steeper AS curve is more likely to embark on a given disinflation program than one faced with a flatter AS curve (assume that the steeper slope is due to a higher sensitivity of nominal wages to the unemployment rate).
26. Money cannot be neutral in the short-run – the neutrality of money is
exclusively a medium run phenomenon.
27. Capital accumulation by itself can sustain growth in output per
worker in the long term.
28. Consider a company owned by a foreign businessman but producing in the U.S.. In a given year a company spends $100 on intermediate goods and $200 in wages. It has sales for $800. Hence, its contribution to U.S. GNP is the same as its value added, and it does not contribute value added to the GDP of the country where the businessman resides.
29.If neither consumption nor investment are affected by the interest rate, monetary policy will be most effective in changing output in the short-run.
An oil shock will have no effect on budget deficits if the government does not start tampering with taxes and spending.