Final Exam

Exam Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best com pletes the statement or answer s the q uestion.

1) WhichofthefollowingisatopicstudiedinMacroeconomics? A) the functioning of individual industries B) the decision- making behavior of individual business firms C) aggregate behavior of households and industries D) the behavior of individual households

1)

2) Aperiodofveryrapidincreaseintheoverallpricelevelisknownas A) depression.

B) stagflation.

C) hyperinflation.

2)

D) stagnation.

transfer A payment is 3) 3) A) a cash payment made by the government to people who do not supply goods, services or labor in exchange for the payment. B) a cash payment for transferring a good from one person to another. C) a bonus to get a worker to accept a transfer. D) an in kind payment for working "off the books." capital is gain A 4) 4) A) the difference between an individual's economic income and money income. B) a financial instrument that gives the holder a share in the ownership of a firm and therefore the right to share in the profits of the firm. C) the portion of a corporation's profits that the firm pays out each period to its shareholders. D) an increase in the value of an asset over the price initially paid for it.

5) If Tomas purchases a share of stock for $150 and one year later sells it for $225, he will realize a A) dividend of $225. B) a capital gain of $225 C) capital gain of $75. D) dividend of $75.

5)

dividend is 6) 6) A A) the portion of a corporation's profits that the firm pays out each period to its shareholders. B) an increase in the value of an asset over the purchase price initially paid for it. C) the difference between the interest rate a bank pays on deposits and the interest rate it charges for loans. D) a promissory note issued by corporations when they borrow money.

7) Depreciation is A) the decrease in the overall price level. B) the additional capital stock in a year. C) the amount of decline in business inventories. D) the amount of used up machinery in a year.

7)

8)

8) The largest income component of GDP is A) corporate profit. C) proprietors' income.

B) rental income. D) compensation of employees.

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Refer t o t he informati on provi ded i n Table 6.4 below t o answ er t he questions that follow.

Table 6.4 Depreciation Receipts of factor income from the rest of the world Government purchases Imports Payments of factor income to the rest of the world Net private domestic investment Personal income taxes Personal consumption expenditures Dividends

$Billions 40 30 100 50 50 200 120 600 20

Exports Amount of national income not going to households

9) RefertoTable6.4.ThevalueforGDPinbillionsofdollarsis A) 910. B) 920.

60 20 9)

C) 950.

D) 1,050.

10) Classifying discouraged workers as unemployed would A) have an indeterminate impact on the unemployment rate. B) increase the unemployment rate. C) not change the unemployment rate. D) decrease the unemployment rate.

10)

11) Human capital is A) the money people have. C) the mental or physical skills people have.

11) B) the machines people own. D) the property people own.

12) A prolonged and deep recession is a A) hyperinflation. B) contraction.

C) depression.

13)

12)

The MPCis

D) slowdown. 13)

A) consumption divided by income. B) the change in consumption divided by the change in saving. C) the change in saving divided by the change in income. D) the change in consumption divided by the change in income. 14) Uncertainty about the future is likely to A) decrease current spending. B) either increase or decrease current spending. C) have no impact on current spending. D) increase current spending.

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14)

15) Consumption is A) positively related to household income and wealth and households' expectations about the future, but negatively related to interest rates. B) positively related to household income and wealth, interest rates, and households' expectations about the future. C) negatively related to household income and wealth, interest rates, and households' expectations about the future. D) determined only by income.

15)

Refer t o the informati on provided i n Figure 8.1 below t o answer t he questions that follow.

Figure 8.1

16) Refer to Figure 8.1. This household's consumption function is A) C = 300 + 0.75 Y. B) C = 200 + 0.2 Y. C) C = 1,000 + 0.2 Y. D) C = 500 + 0.5 Y.

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16)

Refer t o the informati on provided i n Figure 8.7 below t o answer t he questions that follow.

Figure 8.7

17) Refer to Figure 8.7. In Azora, planned investment does not vary with income. Azora's planned investment function is represented by A) Panel A. B) Panel B. C) Panel C. D) Panel D.

17)

react to unplanned increases in inventories by B) increasing output. 18) Firms A) increasing consumption. C) reducing output. D) increasing planned investment.

18)

19) During recessions, government spending usually A) decrease because unemployment payments increase. B) increases because unemployment payments increase. C) decreases because unemployment payments decrease. D) increases because unemployment payments decrease.

19)

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Refer t o the information provided in Figure 8.10 below to answer the questions t hat follow.

Figure 8.10

20)

20) Refer to Figure 8.10. IfMPC increases to 0.8, equilibrium aggregate output A) remains at $200 million. B) increases to $400 million. C) increases to $250 million. D) cannot be determined from the given information.

21) The President of Vulcan hires you as an economic consultant. He is concerned that the output level 21) in Vulcan is too high and that this will cause prices to rise. He feels that it is necessary to reduce output by $10 billion. He tells you that theMPC in Vulcan is 0.6. Which of the following would be the best advice to give to the Vulcan president? A) reduce government purchases by $4 billion B) increase taxes by $10 billion C) increase taxes by $2.5 billion D) reduce government purchases by $10 billion 22) You are hired by the Bureau of Economic Analogies (BEA) as an economic consultant. The 22) Chairperson of the BEA tells you that he believes the current unemployment rate is too low. The unemployment rate can be increased if aggregate output decreases. He wants to know what policy to pursue to decrease aggregate output by $100 billion. The best estimate he has for the MPC is .9. Which of the following policies should you recommend? A) Decrease government spending by $10 billion. B) Cut taxes by $60 billion and to increase government spending by $60 billion. C) Decrease government spending by $100 billion. D) Increase taxes by $100 billion. 23) A commercial bank lists A) loans as liabilities. C) deposits as liabilities.

23) B) excess reserves as liabilities. D) required reserves as liabilities.

24) A loan made by a bank is considered ________ of that bank. A) a liability B) an asset C) net worth

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24) D) capital

25) The multiple by which total deposits can increase for every dollar increase in reserves is the A) deposit insurance limit. B) required reserve ratio. C) bank's line of credit. D) money multiplier.

25)

26) A decrease in the required reserve ratio A) will not change the money supply. C) will increase the money supply.

26) B) will decrease the discount rate. D) will decrease the money supply.

27) If the Fed sells government securities, then there is A) a decrease in the supply of money. C) an increase in the supply of money.

B) a decrease in the discount rate. D) an increase in the required reserve ratio.

-

27)

-

instrument for controlling weekto week changes in - the money supply is 28) The A)best the discount rate. B) open market operations. C) the required reserve ratio. D) moral suasion.

28)

29) When you deposit $100 in a bank, the bank A) pays you an interest rate and the deposit is an asset to the bank. B) pays you an interest rate and the deposit is a liability to the bank. C) pays you an interest rate and the deposit is a liability to you. D) charges you an interest rate and the deposit is a liability to you.

29)

30) The price of bonds and the interest rate are A) negatively related. B) sometimes positively related and other times negatively related, depending on the bond payments. C) positively related. D) not related.

30)

31) Ernesto bought a 10% bond a year ago for $15,000. The market interest rate has increased to 20%. 31) Ernesto wants to sell the bond. To be able to sell the bond Ernesto must charge a price of no more than A) $7,500. B) $13,500. C) $3,750. D) $12,000. 32) The speculative demand for money is A) positively related to interest rate. C) positively related to income.

32) B) negatively related to interest rate. D) negatively related to income.

33) As the interest rate falls, people hold ________ money instead of bonds because the opportunity cost of holding money has ________. A) less; risen B) more; risen C) less; fallen D) more; fallen

33)

34) When the interest rate rises, bond values A) are unchanged because the interest rate paid on a bond is fixed. B) will either increase or decrease depending on the type of bond. C) rise. D) fall.

34)

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35) If the interest rate is higher than normal, people are more likely to hold 35) A) bonds instead of money because the opportunity cost of money is high. B) money instead of bonds because the brokerage fees and other costs of buying bonds are high when the interest rate is low. C) money instead of bonds because there is a speculative motive for holding a larger amount of money. D) bonds instead of money because as the interest rate starts to rise, the value of the bonds will increase. 36) The ________ motive shifts the money demand curve, and the ________ motive causes movements 36) along the same money demand curve. A) speculative; transaction B) precautionary; transaction C) transaction; speculative D) transaction; precautionary 37) If a bond is to pay off one year from now for $220 and is purchased for $200, what is the interest rate? A) 10% B) 20% C) 5% D) 40%

37)

38) If a bond is to pay off one year from now for $600 and the interest rate is 20%, what is the price of the bond? A) $600 B) $720 C) $500 D) $120

38)


Figure 11.3

39) Refer to Figure 11.3. An increase in the price level, ceteris paribus, will likely A) decrease the equilibrium interest rate without changing equilibrium money holdings. B) increase the equilibrium interest rate without changing equilibrium money holdings. C) keep the equilibrium interest constant and increase equilibrium money holdings. D) increase both the equilibrium interest rate and equilibrium money holdings.

39)

40) Refer to Figure 11.3. A decrease in the money supply and an increase in the GDP will, for sure, A) increase the equilibrium interest rate. B) decrease equilibrium money holdings. C) increase equilibrium money holdings. D) decrease the equilibrium interest rate.

40)

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41) Which of the following pairs of events will definitely lead to a decrease in the equilibrium interest rate? A) the purchase of government securities by the Federal Reserve and a increase in the level of aggregate output B) an increase in the discount rate and an increase in the price level C) the sale of government securities by the Federal Reserve and a decrease in the price level D) a decrease in the required reserve ratio and a decrease in the level of aggregate output

41)

42) An example of a tight monetary policy is A) a decrease in the federal funds rate. B) the Fed selling government securities in the open market. C) a decrease in the discount rate. D) a decrease in the reserve requirement.

42)

43) The two links between the goods market and the money market are A) income and the interest rate. B) the interest rate and the unemployment rate. C) income and the inflation rate. D) the inflation rate and the unemployment rate.

43)

44) If planned investment is perfectly responsive to changes in the interest rate, the planned investment schedule A) has a positive slope. B) is vertical. C) has a negative slope. D) is horizontal.

44)


Figure 12.1

45) Refer to Figure 12.1. If the interest rate rises from 4% to 8%, planned investment A) decreases, causing both aggregate expenditure and aggregate output to rise. B) decreases, causing both aggregate expenditure and aggregate output to fall. C) increases, causing both aggregate expenditure and aggregate output to rise. D) increases, causing aggregate expenditure to fall.

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45)

Refer t o t he informati on provi ded i n Table 12.1 below to answ er t he questions that follow.

Table 12.1 A Hypothetical Investment S chedule Interest Rate (%) Planned Investment ($ Billio n) 3 400 6 360 9 320 12 280 15 240 18 200

46) Refer to Table 12.1. Suppose the expenditure multiplier is 3. An increase in the interest rate from

46)

6% to 9%, ceteris paribus, would A) increase aggregate expenditure by $120 billion. B) decrease equilibrium output by $120 billion. C) increase planned expenditure by $120 billion. D) decrease planned investment by $120 billion.

47) When income ________, the money ________ curve shifts to the right. A) increases; demand B) decreases; supply C) decreases; demand D) increases; supply

47)

48) Monetary policy affects the goods market through its effect on A) the interest rate and planned investment. B) income and money demand. C) income and planned investment. D) the interest rate and money demand.

48)

49) An intended goal of contractionary fiscal and monetary policy is A) an increase in the price level. B) a decrease in the level of aggregate output. C) an increase in interest rates. D) a decrease in the unemployment rate.

49)

Refer t o the information provided in Table 12.2 below and the following three assumpti ons to answ er t he questi ons that follow.

Table 12.2 A Hypothetical Economy Consumption (C) $600billion Planned Investment (I) $300billion Government Spending $150 b illion Assume the following for the long run: 1. For every 1% increase (decrease) in interest rate, planned investment decreases (increases) by $5 billion. 2. For every $10 billion increase (decrease) in government spending, interest rate increases (decreases) by 1%. 3. The MPC = 0.8

50) Refer to Table 12.2. Taking the crowding- out effect into consideration, if government spending increases by $30 billion, equilibrium output A) decreases by $150 billion. B) increases by $225 billion. C) increases by $75 billion. D) increases by $150 billion.

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50)

51) Aggregate demand decreases when the price level rises because the higher price level A) means that the prices of some goods fall relative to the prices of other goods. B) causes the demand for money to increase, causing interest rates to rise. C) means that people can afford to buy more goods. D) causes the interest rate to fall.

51)

52) The aggregate demand shifts to the left if A) the Fed decreases the required reserve ratio. B) the government increases spending. C) the government decreases taxes. D) the Fed sells government bonds.

52)


Figure 12.9

53) Refer to Figure 12.9. An expansionary fiscal policy shifts the ________ curve to the ________. A) IS; left B) LM; right C) LM; left D) IS; right

53)

54) It is very important to distinguish between the short run and the long run when we are discussing 54) A) the aggregate supply. B) the aggregate expenditures. C) changes in the price level. D) the aggregate demand. 55) When the aggregate supply curve is vertical, which of the following is NOT true? A) The economy is producing the maximum sustainable level of output. B) The economy is at capacity. C) Any increase in the price level will not cause an increase in aggregate output. D) The economy is expanding quickly.

55)

56) If the economy is operating on the relatively vertical segment of the aggregate supply curve, an increase in aggregate demand causes a ________ change in the price level and a ________ change in output. A) big; big B) small; small C) small; big D) big; small

56)

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57) All of the following shift the short- run aggregate supply curve EXCEPT A) a change in wages as a result of a labor strike. B) a change in the price of raw material. C) a change in the price level. D) a change in the price of oil.

57)


Figure 13.7

58) Refer to Figure 13.7. Suppose the equilibrium output is initially $600 billion. An oil embargo would probably A) decrease the equilibrium output and increase the price level. B) decrease both the equilibrium output and the price level. C) increase both the equilibrium output and the price level. D) increase the equilibrium output and decrease the price level.

58)

59) To increase the price level the government could adopt policies that

59)

A) increase aggregate supply and aggregate demand. B) increase aggregate supply and decrease aggregate demand. C) decrease aggregate supply and aggregate demand. D) decrease aggregate supply and increase aggregate demand. 60) If a decrease in the U.S. money supply resulted in a very large change in the price level and a very 60) small change in aggregate output, A) then the U.S. aggregate demand curve must be very steep. B) then the U.S. economy must have been on the very steep part of its short - run aggregate supply curve. C) then in the U.S. economy investment demand must not be sensitive to the interest rate. D) then the U.S. economy must have been on the very flat part of its short - run aggregate supply curve. 61) Economic policies are effective at changing output when A) the economy is producing at its potential output. B) the aggregate supply curve is vertical. C) the unemployment rate is at the natural rate. D) the economy is not producing at capacity.

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61)

Refer t o t he i nformati on provi ded i n Figure 13.10 below to answer t he questions that follow.

Figure 13.10

62) Refer to Figure 13.10. Assume the economy is at PointA. Higher oil prices shift the aggregate supply curve to AS2 . If the government decides to counter the effects of higher oil prices by increasing government spending, then the price level will be ________ than P2 and output will be ________ thanY2 . A) greater; greater B) less; greater C) less; less D) greater; less

62)

63) Refer to Figure 13.10. Assume the economy is currently at Point A on aggregate supply curveAS1 . An increase in inflationary expectations that causes firms to increase their prices A) moves the economy to PointB on aggregate supply curveAS1. B) shifts the aggregate supply curve to AS0 . C) shifts the aggregate supply curve to AS2 . D) moves the economy to PointC on aggregate supply curveAS1.

63)

64) A sudden increase in the price of oil causes a ________ inflation and ________ output.

64)

A) demand- pull; lower C) cost- push; higher

B) cost- push; lower D) demand- pull; higher

65) Many economists believe that sustained inflation is accommodated by a(n) A) contractionary fiscal policy. B) contractionary monetary policy. C) expansionary monetary policy. D) expansionary fiscal policy.

65)

66) The type of unemployment that is due to changes in the structure of the economy is A) cyclical unemployment. B) adjustable unemployment. C) frictional unemployment. D) structural unemployment.

66)

67) The type of unemployment that arises during recessions is known as A) the natural rate of unemployment. B) structural unemployment. C) cyclical unemployment. D) frictional unemployment.

67)

68) If you hear a person saying "I lost my job because I was replaced by a machine," you should conclude that this person is ________ unemployed. A) structurally B) seasonally C) frictionally D) cyclically

68)

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69) According to Classical economists, the only types of unemployment that exist in an economy are A) seasonal and cyclical. B) frictional and seasonal. C) structural and frictional unemployment. D) cyclical and frictional.

69)


Figure 14.1

70) Refer to Figure 14.1. The demand for labor falls fromD to D'. If firms enter into social, or implicit, contracts with workers not to cut wages, then the wage rate will remain at $10 and A) employment will fall to 200 million. B) employment will fall to 150 million. C) labor supply will decrease to restore the market to equilibrium. D) employment will remain at 300 million.

70)

71) According to the Classical theory, an expansionary monetary policy ________ the price level and ________ output in the long run. A) increases; doesn't change B) decreases; increases C) increases; increases D) doesn't change; doesn't change

71)

72) According to the classical economists, those who are not working A) have given up looking for a job, but would accept a job at the current wage if one were offered to them. B) have chosen not to work at the market wage. C) are unable to find a job at the current wage rate. D) are too productive to be hired at the current wage.

72)

73) When a firm pays higher wages for its workers to improve workers' productivity, the firm pays A) efficiency wages. B) flexible wages. C) minimum wages. D) sticky wages.

73)

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74) What sequence of events results from an increase in aggregate demand? A) The price level rises, inventories decline, firms respond by increasing output and employment. B) The price level rises, inventories increase, firms respond by increasing output and employment. C) The price level falls, inventories increase, firms respond by reducing output and employment. D) The price level falls, inventories decline, firms respond by increasing output and employment.

74)

75) If the aggregate supply is vertical, an (a) ________ in the price level ________ unemployment rate. 75) A) decrease; decreases B) increase; increases C) decrease; increases D) increase; doesn't change Refer t o the information provided in Figure 14.7 below to answer the questions t hat follow.

Figure 14.7 76) Refer to Figure 14.7. Suppose the economy is at PointC. What can possibly move the economy to Point D? A) a rightward shift in the AS curve B) a leftward shift in theAS curve C) a leftward shift in theAD curve D) a rightward shift in the AD curve

76)

77) Refer to Figure 14.7. Suppose the economy is at PointA, a sudden increase in the price of oil without any change in the aggregate demand shifts the short - run Phillips curve (SRPC) from A) SRPC1 to SRPC2 . B) SRPC2 to SRPC1 . C) SRPC1 to SRPC3 . D) SRPC3 to SRPC1 .

77)

78) If inflationary expectations decrease, the Phillips curve will A) become upward sloping. B) shift to the right. C) become vertical. D) shift to the left.

78)

79) The measured unemployment rate can be pushed below the natural rate, but A) only in the short run and only if the price level is constant. B) only in the long run and only if the price level is constant. C) only in the short run and not without inflation. D) only in the long run and not without inflation.

79)

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80) The time it takes the FED or Congress to change economic policy is A) an implementation lag. B) a response lag. C) a recognition lag. D) none of the above

80)

81) The time it takes for a new economic policy to affect behavior in the economy is A) an implementation lag. B) a recognition lag. C) a response lag. D) none of the above

81)

82) The implementation lag for fiscal policy is longer than for monetary policy because A) it takes longer for the FED to act than Congress. B) monetary policy changes more quickly affect behavior than than fiscal policy changes. C) fiscal policy changes more quickly affect behavior than monetary policy changes. D) it takes longer for Congress to act than the FED.

82)

83) Time lags that often erode effectiveness of monetary and fiscal policy measures represent A) the change in export and import prices. B) the change in exchange rates. C) delays in the response of the economy to stabilization policy. D) the foreign response to price changes.

83)

84) A reason why the deficit increases during recessions is A) higher tax revenues. B) lower tax rates. C) higher welfare payments. D) both A and C are correct

84)

85) The deficit response index (DRI) measures the amount by which the deficit changes with a A) change in taxes. B) one- dollar change in GDP. C) change in foreign investment. D) change in spending.

85)

86) If the deficit response index (DRI) is- .15, it means that a $1 billion increase in GDP will decrease

86)

the deficit by A) $.15 billion.

B) $.67 billion.

C) $1.5 billion.

D) $6.7 billion.

87) A Constitutional amendment requiring that the federal government budget be balanced annually 87) would have A) overall neutral impact upon the economy. B) an automatic destabilizing impact upon the economy. C) an automatic stabilizing impact upon the economy. D) overall positive impact upon the economy during any stage of a business cycle. 88) The adverse impact of a negative aggregate demand shock is reduced when the government does 88) not target the deficit because A) the economy is always producing potential output. B) negative aggregate demand shocks do not affect the deficit. C) not targeting the deficit causes positive aggregate demand shocks. D) targeting the deficit causes further negative aggregate demand shocks. 89) Stagflation is an economic condition characterized by A) low inflation and low unemployment. B) high inflation and high unemployment. C) high inflation and low unemployment. D) low inflation and high unemployment.

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89)

90) If the deficit response index (DRI) equals- 0.5 and the government wants to reduce the deficit by $100 million, GDP needs to A) decreases by $50 million. B) increase by $200 million. C) increase by $150 million. D) increase by $500 million.

90)

91) The economic impact of automatic stabilizers during inflationary periods is to A) have no impact on inflation. B) accelerate inflationary pressures. C) increase exports. D) moderate inflationary pressures.

91)

92) If interest rates rise, then A) the interest payment on bonds falls. C) the interest payment bonds rises.

92) B) the value of bonds rise. D) the value of bonds fall.

93) When interest rates rise, A) bond holders suffer a loss. C) bond brokers receive a commission.

B) shareholders gain. D) bond issuers receive a gain.

93)

94) When a bond matures, the issuer must pay the bondholder A) the face value plus the last coupon payment. B) the face value. C) the last dividend. D) the last coupon payment. 95) If the interest rate falls, you would expect the price of any stock to A) fall to zero. B) rise. C) be unaffected.

94)

95) D) fall.

96) You would expect the price of a share of stock to rise if A) the price level was declining. B) the expected dividend of the stock rose. C) the economy went into recession. D) interest rates rise.

96)

97) The bondholder is A) the institution that brokers the sale of the bond from the lender to the borrower. B) the institution that insures bonds. C) the person who loaned the money to the bond issuer. D) the person who borrowed the money.

97)

98) If you buy a $2,000 one year bond with a $100 coupon and the interest rate goes up immediately, then you would expect to A) receive a capital gain. B) receive a capital flow. C) suffer a capital outflow. D) suffer a capital loss.

98)

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Figure 17.1

99) Refer to Figure 17.1. Economic growth is represented by A) a shift in the production possibilities frontier fromppf2 to ppf1 . B) a movement from PointB to Point A. C) a movement from PointB to Point C. D) a movement from PointA to Point B along ppf1 .

99)

100) Which of the following is a source of economic growth? A) more resources B) active economic policies C) technology D) both A and C

100)

101) If the capital stock remains fixed while the supply of labor increases, it is likely that A) the productivity of labor will not change. B) the productivity of labor will rise. C) output per capita will rise. D) the productivity of labor will fall.

101)

increase the capital stock 102) AnA) cannot in increase output, even if it is accompanied by an increase in the labor force. B) can increase output, but only if it is accompanied by an increase in the labor force. C) provides valuable services directly, but not indirectly. D) can increase output, even if it is not accompanied by an increase in the labor force.

102)

103) An increase in capital stock A) causes economic growth. C) provides valuable services directly.

103) B) enhances labor productivity. D) all of the above

104) An increase in human capital A) increases the productivity of labor. B) increases the capital- labor ratio. C) increases the productivity of labor only if there is a corresponding technological change. D) decreases the productivity of labor.

104)

105) Increased environmental regulation is likely to

105)

A) have no effect on either productivity or output. B) increase measured productivity and increase output. C) decrease measured productivity and decrease output. D) increase measured productivity, but decrease output.

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106) Which of the following was NOT one of the likely causes of the productivity problem in the 1970s? 106) A) low saving rates B) reduced research and development spending C) a reduction in government regulation D) a slowdown in investment spending 107) Which of the following policies has NOT been suggested as a means of increasing the rate of economic growth in the United States? A) lowering the savings rate B) reducing government regulation C) increasing research and development spending D) enactment of an industrial policy

107)

108) Which of the following policies should the government NOT adopt if its goal is to enhance economic growth? A) improve the quality of education B) impose more regulation on producers C) enact policies to encourage research and development D) enact policies to increase the saving rate

108)

109) Government involvement in the allocation of capital across manufacturing sectors is A) regulatory policy. B) industrial policy. C) supply management. D) balanced growth policy.

109)

110) The relation between growth, as measured in ________, is an inverted U. A) human capital and physical capital B) saving and investment C) per capita income and pollution D) income and expenditure

110)

111) As growth progresses and countries become richer, pollution

111)

changes. A) C) rarely rises exponentially.

double. B) levels D) tends to fall.

112) Keynes believed which of the following? A) The government has a role to play in fighting inflation, but not in fighting unemployment. B) The government has a role to play in fighting inflation and unemployment. C) The government does not have a role to play in fighting inflation or unemployment. D) The government has a role to play in fighting unemployment, but not in fighting inflation.

112)

113) If the stock of money is $250 billion, velocity is 5, and the price level is 10, what is real output? A) $5 billion B) $125 billion C) $500 billion D) $12,500 billion

113)

114) A monetarist would advocate ________ money supply during recessions and ________ money supply during periods of high inflation. A) decreasing; increasing B) increasing; increasing C) increasing; decreasing D) none of the above

114)

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115) Monetarists argue that the money supply should A) grow at a rate equal to the average growth of real output. B) grow at a rate slower than the average growth of real output. C) be held constant over the business cycle. D) grow at a rate greater than the average growth of real output.

115)

116) Empirically, new classical economists criticized macroeconomic theories in terms of their inability 116) in explaining A) hyperinflation. B) the high inflation of the 1980s. C) the stagflation of the 1970s. D) the Great Depression. 117) If firms have rational expectations and if they set prices and wages on this basis, then prices and wages A) will, on average, be set at market- clearing levels. B) will always be at market- clearing levels. C) will never be set at market- clearing levels. D) will always be above market- clearing levels.

117)

118) According to the rational expectations hypothesis, the occurrence of unemployment is due to A) a deficient level of aggregate demand. B) unpredictable shocks. C) imperfect information. D) downwardly rigid wages.

118)

119) According to the Lucas supply function, if the expected price level is larger than the actual price level A) nominal output increases. B) real output decreases. C) nominal output decreases. D) real output increases.

119)

120) According to the Lucas supply function, the economy will produce more output when A) prices are unexpectedly higher than when prices are at their expected level.

120)

are unexpectedly exactly equal to the expected level. B) prices C) prices are lower than when prices are at their expected level. D) wages are below the expected level.

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Answer Key Testname: FINAL EXAM_REVIEW TEST

1) C 2) C 3) A 4) D 5) C 6) A 7) D 8) D 9) C 10) C 11) B 12) C 13) D 14) A 15) A 16) D 17) B 18) C 19) B 20) C 21) A 22) A 23) C 24) B 25) D 26) C 27) A 28) B 29) B 30) A 31) A 32) B 33) D 34) D 35) A 36) C 37) A 38) C 39) B 40) A 41) D 42) B 43) A 44) D 45) B 46) B 47) A 48) A 49) B 50) C 20


51) B 52) D 53) D 54) A 55) D 56) D 57) C 58) A 59) D 60) D 61) B 62) A 63) C 64) B 65) C 66) D 67) C 68) A 69) C 70) B 71) A 72) B 73) A 74) A 75) D 76) B 77) A 78) D 79) C 80) A 81) C 82) D 83) C 84) C 85) B 86) A 87) B 88) D 89) B 90) B 91) D 92) D 93) A 94) A 95) B 96) B 97) C 98) D 99) C 100) D 21


101) 102) 103) 104) 105) 106) 107) 108) 109)

D D D A C C A B B

110) 111) 112) 113) 114) 115) 116) 117) 118) 119) 120)

C D B B D A C A B B A

22

Final Exam

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