B. nominal GDP divided by the GDP deflator.

C. nominal GDP multiplied by the GDP deflator.

D. GDP minus depreciation.

16. Stagflation--a period of rising unemployment coupled with rising inflation--could most easily result from a(n)
A. increase in the money supply.
B. decrease in the money supply.
C. increase in the price of oil.
D. decrease in the price of oil.

20. Suppose the economy is faced with an adverse supply shock. The Fed decides to immediately accommodate the shock. What path of income and prices would be observed in the economy?
A. Y: 100, 90, 100; P: 1, 1, 0.9
B. Y: 100, 90, 90; P: 1, 1.2, 1.2
C. Y: 100, 100, 100; P: 1, 1, 1
D. Y: 100, 100, 100; P: 1, 1.2, 1.2

2. Suppose that the LM curve is vertical. An increase in taxes will
A. increase income and leave the interest rate unchanged.
B. decrease income and leave the interest rate unchanged.
C. increase the interest rate and leave income unchanged.
D. decrease the interest rate and leave income unchanged.

5. Suppose that the government raises taxes. According to the IS-LM model, what does the Fed have to do to keep income constant and what is the subsequent effect on interest rates?
A. The Fed needs to increase the money supply; interest rates remain unchanged.
B. The Fed needs to increase the money supply; interest rates go down.
C. The Fed needs to decrease the money supply; interest rates remain unchanged.
D. The Fed needs to decrease the money supply; interest rates go up.

6. Suppose that the government gets serious about saving the whales and increases spending considerably. What does the Fed have to do to keep interest rates constant, and what happens to the level of income?
A. The Fed needs to decrease the money supply; income remains unchanged.
B. The Fed needs to decrease the money supply; income goes down.
C. The Fed needs to increase the money supply; income remains unchanged.
D. The Fed needs to increase the money supply; income goes up.

11. Suppose that income is temporarily above the natural rate level. In the IS-LM model, long-run equilibrium is achieved when the price level
A. falls and the LM curve shifts outward.
B. rises and the LM curve shifts inward.
C. falls and the IS curve shifts inward.
D. rises and the IS curve shifts outward.

16. Suppose that a money demand shock hits the economy. According to the classical model, the variable that will adjust to move the economy back to equilibrium is
A. income.
B. the interest rates.
C. the money supply.
D. the price level.

24 Suppose that a country experiences inflation while the nominal exchange rate and the price level in its trading partner remain unchanged. What will happen to the country's real exchange rate and to net exports?
A. The real exchange rate will fall; net exports will rise.
B. The real exchange rate will fall; net exports will fall.
C. The real exchange rate will rise; net exports will fall.
D. The real exchange rate will rise; net exports will rise.

3. Suppose that 2 percent of the employed lose their jobs each month (s = 0.02) and 38 percent of the unemployed find a job each month (f = 0.38). Then, the steady-state rate of unemployment is
A. 2 percent.
B. 5 percent.
C. 16 percent.
D. 36 percent.

22 Suppose that a bicycle costs $300 in the United States and 150 pounds in Great Britain. What would the nominal exchange rate have to be for purchasing-power parity to hold?
A. 0.5
B. 1
C. 2
D. 2.5

5. Suppose that a farmer grows wheat and sells it to a baker for $1, the baker makes bread and sells it to a store for $2, and the store sells it to the customer for $3. This transaction increases GDP by

C. $3.

25. Suppose that a factory worker turns 62 years old and retires from her job. Which statistic is not affected?

Date: 2015-12-11; view: 955