9. According to the quantity equation, if M increases by 3 percent and V increases by 2 percent, then A. real income increases by approximately 5 percent. B. the price level increases by approximately 5 percent. C. the nominal interest rate increases by approximately 5 percent. D. nominal income increases by approximately 5 percent.
25. An increase in the expected rate of inflation will A. lower the demand for real balances because the real interest rate will rise. B. lower demand for real balances because the nominal interest rate will rise. C. increase the demand for real balances because the real interest rate will fall. D. increase the demand for real balances because the nominal interest rate will rise.
1. According to the IS-LM model, an increase in government purchases causes a(n) A. increase in income and a decrease in the interest rate. B. decrease in income and a decrease in the interest rate. C. increase in income and an increase in the interest rate. D. decrease in income and an increase in the interest rate.
3. According to the IS-LM model, if the central bank increases the money supply, then the interest rate A. falls and income falls. B. falls and income rises. C. rises and income falls. D. rises and income rises.
10. According to the quantity equation, which of the following might happen if the money supply increases? A. Velocity is constant, prices are constant, and total output increases. B. Velocity increases, prices are constant, and total output is constant. C. Velocity is constant, prices fall, and total output is constant. D. Velocity rises, prices fall, and total output is constant.
12. Because of the relationship between prices and the real money supply, the aggregate demand curve is A. vertical. B. upward sloping. C. horizontal. D. downward sloping.
1. Consider the following aggregate supply equation:
Y = Y + a*(P - Pe) Based on this equation, the slope of the AS curve is A. a. B. Y. C. -a. D. 1/a.
18 Choose the pair of words that best complete this sentence: If government purchases increase, national saving will ________ and the equilibrium real exchange rate will _______. A. fall; fall B. fall; rise C. rise; rise D. rise; fall
19. Choose the pair of words that best completes this sentence: In a large open economy monetary policy is ____ potent and fiscal policy is ____ potent than in a closed economy. A. less; more B. less; less C. more; more D. more; less
19. Consider the following data on inflation and unemployment
Year
Inflation
Unemployment
10%
5%
8%
6%
4%
9%
The part of the business cycle characterizing this economy from year 1 to year 3 is a A. recession. B. boom. C. stagflation. D. repression.
11. Consider an economy where the money supply is growing at 7 percent per year and velocity is constant. Which of the following statements about real GDP growth and the inflation rate could be true? A. Real GDP is growing at 2 percent and inflation is 5 percent. B. Real GDP is growing at 7 percent and inflation is 7 percent. C. Real GDP is growing at 2 percent and inflation is 9 percent. D. Real GDP is growing at 9 percent and inflation is 2 percent.
Considerthefollowingtable
Consumption of foreign goods and services
Consumption of domestic goods and services
Investment of foreign goods and services
Investment of domestic goods and services
Government purchases of foreign goods and services
Government purchases of domestic goods and services
Exports
Based on the data, what are total imports? A. 0 B. 120 C. 1,000 D. 1,580
3 Consider the following table
Consumption of foreign goods and services
Consumption of domestic goods and services
Investment of foreign goods and services
Investment of domestic goods and services
12. Consider an economy where the only goods traded are coconuts and pineapples. Last year, 100 coconuts were sold at $1 apiece, and 200 pineapples were sold at $2.50 apiece. If the money supply was $100, what was velocity? A. 30 B. 15 C. 6 D. 5
19. Considerthefollowingtable:
ConsumptionGoods
NonconsumptionGoods
Year
ProductionPrice
ProductionPrice
20/$0.50
10/$1.00
10/$1.00
10/$0.50
If 1995 is the base year, the CPI in 2000 is
A. 0.
B. 1/2.
C. 1.
D. 2.
23. Choose the pair of words that best completes this sentence: Investment depends on the ________ interest rate because higher inflation will ________ the value of the dollars with which the firm will repay the loan. A. real, increase B. nominal, increase C. real, decrease D. nominal, decrease
13. Consider the following table: APPLES/ ORANGES
Year
Production/Price
Production/Price
20/ $0.50
10/$1.00
10/ $1.00
10/$0.50
If 1995 is the base year, what is the GDP deflator for 2000?
A. 0
B. between 0 and 1
C. 1
D. greater than 1
5. Consider the following production table:
Labor
Capital
Output
(i)
1,000
1,000
10,000
(ii)
2,002
2,000
20,010
Assuming that the production function displays constant returns to scale, what is the marginal product of labor when labor and capital are both equal to 1,000? A. 1 B. 5 C. 10 D. 20
19. Considerthefollowingtable
Year
InflationRate
NominalInterestRate
5%
10%
10%
5%
By how much has the real interest rate changed between year 1 and year 2? A. It has increased 5 percent. B. It has decreased 5 percent. C. It has increased 10 percent. D. It has decreased 10 percent.
6. Consider the following production table:
Labor
Capital
Output
By how much does the marginal product of labor decrease as labor input increases from 1 to 2 and from 2 to 3? A. 0 B. 1 C. 2 D. 3
27 Considerthefollowingtable
Domesticinflation:
5%
Foreigninflation:
6%
Change in nominal exchange rate:
3%
Based on the data, what is the change in the real exchange rate? A. 2 percent B. 3 percent C. 5 percent D. 8 percent
9 Consider the following data on the Transalpinian economy
Y = 1,000
C = 700
G = 150
I = 250 - 10r*
10 Consider the following data on the Transalpinian economy
Y = 1,000
C = 650
G = 200
I = 250 - 20r*
The world interest rate is 7.5 percent. How does the world interest rate have to change to make net exports zero? A. It has to rise by 5 percent. B. It has to rise by 2.5 percent. C. It has to remain constant. D. It has to fall by 2.5 percent.
27. Choose the pair of words that best completes this sentence: The nominal interest rate is the sum of the ex ante real interest rate and the _________ inflation rate, and real money balances are a function of the ___________ interest rate. A. expected; nominal B. actual; nominal C. actual; real D. expected; real
21. Compared to long-term unemployment, short-term unemployment is more likely to be A. frictional unemployment. B. structural unemployment. C. a result of minimum-wage laws. D. a result of union activity.
24. Discouraged workers who want jobs, but have stopped looking for jobs are A. frictionally unemployed. B. unemployed due to structural unemployment. C. no longer in the labor force. D. helped by minimum-wage legislation.
20. Debt-deflation leads to lower income because A. falling prices redistribute income from creditors to debtors, which leads to a decline in the APC. B. falling prices redistribute income from debtors to creditors, which leads to a decline in the APC. C. a rise in the saving rate leads to a lower amount of real debt in the economy, depressing consumption and therefore income. D. a fall in the saving rate leads to higher interest rates and lower income.
15. Economists usually advocate targeting nominal rather than real variables because: A. nominal variables have larger effects on the economy. B. it is difficult to determine the exact level of real variables. C. real variables vary more than nominal ones. D. policy instruments do not affect real variables.
18. Efficiency wage theories claim that firms may pay high real wages in order to A. avoid the threat of unionization. B. make workers more productive. C. discourage unskilled workers from applying. D. reduce the level of frictional unemployment.
19. Efficiency wages do not lead to A. structural unemployment. B. wages above their equilibrium level. C. lower firm profits. D. increased worker productivity.
12. Economic profit is the same as accounting profit minus A. the return to labor. B. the return to capital. C. depreciation. D. corporate taxes.
9. Exogenous increases in the supply of loanable funds shift the A. LM curve outward. B. LM curve inward. C. IS curve outward. D. IS curve inward.
7. Euler's theorem implies that if a production function exhibits constant returns to scale A. economic profit is zero. B. accounting profit is zero. C. the marginal product of labor equals the real wage. D. the marginal product of capital equals the real interest rate.
7. Frictional unemployment occurs because A. the minimum wage is too high. B. unions exert pressure in the labor market. C. rigidities exist in the wage-setting process. D. it takes time to match firms and workers.
17. Faced with an adverse supply shock, if the central bank wants to stabilize output, it should A. decrease the money supply. B. increase the money supply. C. decrease government spending. D. increase government spending.
7. For a fixed money supply, a higher level of real balances implies A. a higher price level. B. a lower price level. C. higher velocity of money. D. lower velocity of money.
Government purchases of foreign goods and services
Government purchases of domestic goods and services
Exports
Based on the data, what are net exports? A. -20 B. 0 C. 120 D. 1,580
21. Government revenue raised through the printing of money is called A. hyperinflation. B. seignorage. C. income taxes. D. sales taxes.
22. General Motors increases the price of a model car produced exclusively for export to Europe. Which U.S. price index is affected?
