Deck 21: Parting Thoughts

Question 1

In the short run:

A) inflation has inertia.
B) the classical dichotomy holds.
C) inflation adjusts instantly.
D) inflation is governed only by money.
E) output is always above potential.

Answer 1

inflation has inertia.

Question 2

Different rates of economic growth across countries reflect:

A) differences in saving rates.
B) differences in initial endowments.
C) the principle of transition dynamics.
D) All of these answers are correct.
E) None of these answers is correct.

Answer 2

the principle of transition dynamics.

Question 3

In the long run, the unemployment rate is:

A) zero.
B) determined primarily by cyclical features of the labor market.
C) determined primarily by structural features of the labor market.
D) determined primarily by the business cycle.
E) indeterminate.

Answer 3

determined primarily by structural features of the labor market.

Question 4

Which of the following is NOT one of the questions left unanswered at the end of the text?

A) What are the best institutions in a wide range of settings?
B) Why do countries have different investment rates, technologies, and total factor productivity levels?
C) What is the relationship between money and output in the very long run?
D) How can policymakers lock in the credibility gains in monetary policy and the low inflation that have been achieved?
E) How do we measure potential output, and therefore short-run output, in practice?

Question 5

Which of the following has NOT contributed to higher standards of living in the long run?

A) productivity
B) investment in human capital
C) the stock of technology
D) investment in physical capital
E) None of these answers is correct.

Question 6

Which of the following has NOT contributed to higher standards of living in the long run?

A) the stock of technology
B) investment in physical capital
C) investment in human capital
D) stable monetary policy
E) productivity

Question 7

The accurate calculation of potential output is important because:

A) it is necessary to calculate the size of short-run output fluctuations.
B) we need it to find inflation rates.
C) policymakers can make serious errors about the state of the economy.
D) without it, we cannot determine long-run growth rates.
E) All of these answers are correct.

Question 8

In the short run, tight monetary policy can:

A) spur economic growth.
B) adversely affect net exports.
C) exacerbate inflation.
D) promote net exports.
E) All of these answers are correct.

Question 9

In the late 1990s, it was likely that:

A) the GDP gap was almost zero.
B) actual GDP grew more slowly than it had in the previous 20 years.
C) the GDP gap was larger than it had been in the previous 20 years.
D) potential GDP grew faster than it had in the previous 20 years.
E) None of these answers is correct.

Question 10

In the long run, the classical dichotomy holds that:

A) money is not neutral.
B) there is constant tension between inflation and unemployment.
C) the inflation and unemployment rates are zero.
D) steady-state growth is a constant 2 percent.
E) there is no trade-off between inflation and real GDP.

Question 11

When the government has a deficit, it can:

A) borrow by issuing debt.
B) engage in intertemporal substitution by issuing debt.
C) print money, although it might not want to.
D) All of these answers are correct.
E) None of these answers is correct.

Question 12

Which of the following has NOT contributed to higher standards of living in the long run?

A) productivity
B) investment in physical capital
C) investment in human capital
D) the stock of technology
E) lower interest rates

Question 13

The credibility of the central bank:

A) promotes long-run growth.
B) is irrelevant for controlling inflation.
C) is crucial for controlling inflation and stabilizing output.
D) promotes sensible fiscal policy.
E) implies low interest rates.

Question 14

With economic growth, we should see low income countries like China and India:

A) pollute less.
B) see significant brain drain.
C) contribute to the global stock of knowledge.
D) demand fewer natural resources.
E) begin to close their economies to trade.

Question 15

If we cannot accurately measure potential GDP:

A) we might overestimate the severity of a recession.
B) we may adopt the wrong fiscal or monetary policy.
C) we will never know the true state of the economy.
D) All of these answers are correct.
E) None of these answers is correct.

Question 16

According to the principle of transition dynamics, we should expect China's economy to:

A) grow at a relatively high rate forever.
B) grow relatively slowly now but speed up over time.
C) grow relatively fast now but slow down over time.
D) catch up to the United States in the next 50 years or so.
E) reach its steady state by the year 2100.

Question 17

In the short run:

A) money is not neutral.
B) there is no trade-off between inflation and unemployment.
C) the inflation and unemployment rates are zero.
D) steady-state growth is a constant 2 percent.
E) there is constant tension between inflation and unemployment.

Question 18

Standards of living in the long run have been improved by:

A) investment in physical and human capital.
B) printing more money.
C) higher inflation.
D) lower nominal interest rates.
E) population growth.

Question 19

In the long run, real GDP is determined by:

A) low and stable inflation.
B) real forces in the economy such as investment, productivity, and technology.
C) very low rates of unemployment.
D) low tax rates.
E) low oil prices.

Question 20

As a country devotes more of its resources to education, we can expect:

A) output to stay constant for all time.
B) output to fall in the short run but rise in the long run.
C) output to rise in the short run but fall in the long run.
D) output to rise in the short and long runs.
E) higher rates of inflation.

Question 21

If we cannot accurately measure potential GDP, we might overestimate the severity of a recession.

Question 22

The reason(s) to believe that health spending as a share of GDP will continue to rise over time is/are:

A) the retirement of the baby boomer generation.
B) as people's incomes rise, among the most valuable goods they can purchase are additional life and health.
C) increased life expectancy.
D) All of these answers are correct.
E) None of these answers is correct.

Question 23

In the short run, tight monetary policy can exacerbate inflation.

Question 24

Name at least three contributing factors to standards of living in the long run.

Question 25

What problems are macroeconomists still trying to answer?

Question 26

The policies used by a successful economy should be adopted by aspiring economies.

Question 27

As a country devotes more of its resources to education, we can expect output to stay constant for all time.

Question 28

In the long run, real GDP is determined by very low rates of unemployment.

Question 29

In the long run, the classical dichotomy holds; there is no trade-off between inflation and unemployment.

Question 30

In the long run, the unemployment rate is determined primarily by structural features of the labor market.

Question 31

In the short run, inflation has inertia.

Question 32

Standards of living in the long run have been improved by higher inflation.

Question 33

The Asian and Argentinean crises led China to maintain strict capital controls.

Question 34

The Asian and Argentinean crises have led China to:

A) rely on inflation taxes.
B) allow its currency to float.
C) decrease its domestic investment.
D) maintain strict capital controls.
E) keep interest rates close to zero.

Question 35

In the late 1990s, it is likely that potential GDP grew faster than it had in the previous 20 years.