Question

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.

17.   When looking at the equation of exchange, we note that P times Q increased by 6%. Accordingly, M times V: (a) likely experienced an increase of 6% split between money supply growth and velocity; (b) decreased by 6%; (c) remained the same; (d) led to a decrease in nominal GDP.

35.   Growing wealth disparity, especially in developed market economies, likely reflects: (a) massive inflows of liquidity into both equities and fixed-income assets; (b) increases in tax rates on low- and moderate-income taxpayers; (c) reductions in the interest rate on excess reserves paid by the Fed; (d) shrinking spreads on the bond yields between AAA-rated and high-yield securities.

36.   Investment is characterized by all of the following, except: (a) uncertainty about the stream of returns over time; (b) decisions from an array of possible alterative actions; (c) financing exclusively from retained earnings; (d) an upward sloping supply curve for capital assets.

37.   Which statement about the rate of return to education is true? (a) all racial cohorts tend to see similar rates of return to education; (b) after a bachelor’s degree, additional education tends to have negligible rates of return; (c) education level does not at all determine the level of a worker’s lifetime earnings; (d) advanced post-graduate degrees typically result in delayed acceleration of earnings, but higher peak and lifetime levels.

38.   Investment tends to go forward whenever: (a) expected profits exceed 8% a year; (b) the unemployment rate drops below its natural rate; (c) the marginal efficiency of capital exceeds long-term interest rates; (d) there is strength in the foreign exchange value of the U.S. dollar.

50.   Which body is responsible for formulating U.S. monetary policy? (a) the Federal Reserve Bank of New York; (b) the Federal Open Market Committee; (c) the Secretary of the Treasury; (d) the International Monetary Fund.

Answer 1

1> (a) an external shock to the financial system

The effect of the external shock will be temporary, in the long run the financial system will be normal again, thus it is least likely to affect consumption in the long run.

2> (a) likely experienced an increase of 6% split between money supply growth and velocity;

Since we have MV=PY, the LHS and RHS will increase by the same percentage.

3>  (d) shrinking spreads on the bond yields between AAA-rated and high-yield securities.

Since richer or wealthy people can gamble on high-risk investment more easily, this is likely that the risk premium will fall as a result.

4> (c) financing exclusively from retained earnings;

Investment can also be done by borrowing, thus it is not necessary that the investment will come from retained earning.