3. Which of the following would be LEAST LIKELY to be considered a long-run determinant of consumption? (a) an external shock to the financial system; (b) attitudes toward thrift; (c) the availability and cost of credit; (d) asset holdings of households and businesses.
4. Impacts of taxes can be felt in: (a) changes in the propensity to take on risk; (b) alterations of the work-leisure tradeoff; (c) adjustments in the capital-to-labor ratio and investment; (d) all of the above.
5. In order to grow over the long term, societies need to: (a) move directly from agricultural to information-based economies; (b) enact protectionist legislations; (c) delay some current consumption in order to save and invest in capital equipment; (d) increase the size of the natural resources sector.
6. In order to shift a long-term aggregate supply curve to the right: (a) inflation must diminish; (b) the growth rate of productivity must fall; (c) a determinant of aggregate supply, like the quality of the capital stock, must improve; (d) immigration must be cut off.
7. Currency devaluation takes place when: (a) a central bank issues the currency of another nation; (b) a country’s monetary authorities intervene in the currency markets; (c) when a domestic currency supply shrinks relative to the currency supply of another country; (d) valuation in a domestic stock market experience increased volatility.
8. To pay for securities it purchases in the open market, the Fed: (a) creates reserves; (b) has a clearing bank credit the account of the bank at which a primary dealer does business; (c) creates additional liabilities on its balance sheet; (d) all of the above.
9. In the so-called “steady state,” there is a level of capital per worker such that the: (a) rate of saving equals the rate of consumption; (b) the rate of capital depreciation equals the marginal efficiency of capital; (c) the rate of saving equals the rate of investment; (d) the rate of depreciation equals the level of investment.
10. According to Keynes, to increase real GDP during a time of recession, the government should: (a) reduce taxes and increase government spending; (b) reduce taxes and reduce government spending; (c) increase taxes and reduce government spending; (d) decrease the money supply, but increase government spending.
11. In the early stages of an economic boom, a borrower’s risk is likely to be: (a) related to deflation; (b) due to sub-par food in the cafeteria; (c) due mainly to the solvency of the lender; (d) relatively low.
12. According to the permanent income hypothesis, current consumption is a function of: (a) current income; (b) expected income over a three-year time horizon; (c) wealth, including human capital; (d) all of the above.
13. Which of the following is the best definition of an “economic expansion?” (a) growth in current dollar GDP over at least two consecutive quarters; (b) a period of sustained, accelerating gains in employment; (c) growth in real economic activity to a level greater than the peak of the previous business cycle; (d) a system characterized by an elastic monetary system.
14. If the U.S. dollar appreciates against the Japanese yen, we can expect: (a) an increase in the total cost of Japanese exports into the U.S.; (b) less U.S. import inflation; (c) stronger U.S. demand for the goods of, say, South Korea; (d) decreased purchases of Japanese stocks by U.S. investors.
15. Which of the following is most likely to be a “reserve currency?” (a) Canadian dollar; (b) Mexican peso; (c) U.S. dollar; (d) gold.
In the long run consumption that means aggregate demand is influenced by many interesting and important aspects of the economy such as saving, investment, trade and capital flows, interest rates, asset prices, fiscal and monetary policy, and more.
In the long run b) attitudes toward thrift; (c) the availability and cost of credit and (d) asset holdings of households and businesses are more likely to impact the consumption then the (a) an external shock to the financial system. This may have short term impact but may not have long term impact on consumption.
So correct option is (a).
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