increase nominal output
change the composition of output
cause full crowding out
raise tax revenues
All of the above
12. Which of the following constitute expansionary fiscal policy, except
an increase in the benefits paid to welfare recipients
a decrease in the capital gains tax
an increase in the number of available tax exemptions
an increase in the inheritance tax
a government defense expenses
13. When we graph AD, all the variables are hold constant, except:
taxes,
government transfers,
government spending,
money supply,
investment.
14. Suppose that an economy initially at full-employment is hit by an adverse supply shock. What will happen to output and the price level in the long run?
Output will fall and the price level will rise.
Output will fall and the price level will not change.
Output will not change and the price level will rise.
Both output and the price level will not change.
Output and the price level will fall.
15. Anticipated inflation transfers wealth from
creditors to debtors
poor to rich
workers to firms
debtors to creditors
none of the above
16. An unemployed person is likely to turn down a job offer if the wage they are offered is below their
replacement ratio
experience rating
reservation wage
sacrifice ratio
previous wage
17. If the mpc = 0.8 and there is a $0.375 tax levied on each dollar of income, a $40 increase in government purchases will cause the budget surplus to
increase by $10
increase by $40
decrease by $10
decrease by $40
decrease by $20
18.Which of the following variables are exogenously determined in the Keynesian Cross model?
income
consumption
output
investment
imports
19. Which of the following variables can shift the AEP curve?
price level
government spending
money supply
interest rate
All of the above
20. A lower money supply leads to
higher income
higher prices
higher employment
higher interest rate
none of the above
21. An increase in the mpc will
make the leakages curve steeper
shift the leakages curve outward
make the leakages curve flatter
shift the leakages curve inward
have no effect on the leakages curve
22. When investment is very sensitive to the interest rate
the more effective will be fiscal policy
the more effective will be monetary policy
the more effective will be both fiscal and monetary policy
the less effective will be both fiscal and monetary policy
have no effect on the effectiveness of either fiscal or monetary policy
23. A combination of contractionary fiscal policy and expansionary monetary policy
raises unemployment, lowers investment
raises unemployment, can't predict effect on investment
raises investment, lowers unemployment
raises investment, can't predict effect on unemployment
doesn’t change investment, lowers unemployment
24. An economy is in internal balance when (the)
balance of payments surplus is zero
domestic interest rates = foreign ones
output equals potential output
current account = the capital account
budget is balanced
25. An increase in foreign income will cause a country's
exports to rise
imports to rise
exports to fall
imports to fall
true answers are (a) and (b)
26. Which of the following transactions will increase the US's balance of payments, except
The sale of 2 airplanes to Greece.
The sale of 3,000 shares of General Motors stock to investors abroad.
The purchase of 1,000,000 acres of the Brazilian rainforest by US conservationists.
The sale of Rockefeller Center to Japanese investors.
The purchase of a haircut and a manicure in the US by a German tourist.
27. If an economy has a marginal propensity to consume of 0.9 and there is an income tax (t) of 0.25, and if its imports (Im) and exports (Ex) are given by the functions: Im = + 0.1Y, Ex = the $20 increase in exports will increase output by:
(A) $200 (B) $180 (C) $100 (D) $80 (E) $50
28. Money supply increases if there is an increase in
inflation
public's desire to hold currency instead of deposits
amount of excess reserves that banks hold
income
no true answer
29. Which of the following does not make it difficult for policymakers to stabilize output with fiscal policy?
long inside lag
multiplier uncertainty
short outside lag
long decision lag
budget deficit
30. If the nominal money supply is growing at 6% a year, output is growing at 2% a year, and the money base is fixed at $100 billion, how large will inflation tax revenues be?
(A) $60 billion (B) $20 billion (C) $6 billion (D) $4 billion (E) 0
31. A central bank is most likely to monetize budget deficits if it targets
interest rates
inflation
the money base
exchange rate
it doesn't matter
32. Which of the following is a debit to the U.S. current account?
Purchase of a new U.S-made automobile by an Argentinean citizen
Purchase of a 1940s beach house in NEW Jersey by a citizen of India
Sale of foreign official assets by the Fed to the central bank of Switzerland
Purchase of oil from the Saudi Arabia by a U.S. company
Payments for the use of farm land in the U.S. by a citizen of Tanzania
33.On which of the following are monetarists and supply-side economists most likely to disagree?
Whether increases in labor productivity increase real output
Whether changes in monetary policy affect the international value of the dollar
Whether implementing a monetary rule would be an effective economic policy
Whether the level of investment depends on the interest rate
Whether an expansionary fiscal policy will lead to an increase in interest rates
34. If the value of the United States dollar depreciates in relation to the Japanese yen, which of the following will most likely happen?
A Japanese candy bar that formerly cost 250 yen in Japan will cost less in Japan.
A United States candy bar that formerly cost $250 in the United States will cost less in the United States.
Japanese tourists in the United States will be able to buy the same amount of goods and services for fewer yen.
American tourists in Japan will be able to buy the same amount of goods and services for fewer dollars.
United States importers will be able to obtain more Japanese goods for fewer dollars.
35.Deficit spending by the government may result in crowding out of the net exports because the spending
reduces the funds available for private investment
is usually financed by selling bonds to foreign banks
lowers the interest rate and thus discourages saving
leads to higher employment
increases the international value of the dollar
36.The different ranges of the aggregate supply curve shown in the graph above best reflect which of the following?
Alternative consumer purchasing decisions
Changes in technology
The relative combinations of monetary and fiscal policy
The existence of long-run economic growth
The amount of excess capacity in the economy
37.An increase in the velocity of money in the United States means that
the government is printing more money than previously
firms are spending less on capital goods
foreigners are holding more dollars in Eurodollar accounts
exports have risen relative to imports
national income has risen relative to the money supply
38. A positive GDP gap exists when
nominal GDP is greater than real GDP,
real GDP is greater than potential GDP,
economic activity is lower than its full-employment level
economic activity exceeds its full-employment level
there is no involuntary unemployment
39. Aggregate demand is inversely related to the price level because an increase in the price level
lowers the rate of interest, which results in a higher level of aggregate spending,
has a negative effect upon wealth, which results in increased aggregate spending,
dampens exports and increases imports, which results in a lower level of aggregate spending,
causes government spending to decline, which results in a lower level of aggregate spending,
causes nominal money supply to fall, which results in a lower level of aggregate spending.
40. Which of the following will not result in a shift by an aggregate demand curve?
(A) There is an increase in government spending, ceteris paribus.
(B) There is an increase in gross imports, ceteris paribus.
There is an increase in the rate of interest, ceteris paribus.
There is an increase in the price level.
(E) There is an increase in taxes, ceteris paribus.
41. All the following statements are true, except:
(A) Aggregate demand shifts upward to the right when government reduces income taxes.
(B) A depreciation of the U.S. dollar causes the aggregate demand curve for the United States to shift downward to the left.
(C) Not all economists agree that an increase in aggregate demand will result in an increase in both the price level and real output.
(D) An increase in the cost of raw materials or economic resources, ceteris paribus, results in an increase in the price level and a decrease in real output.
(E) A classical aggregate supply curve shows that output is inelastic to the price level.
42. In the short run, increases in the nominal wage are associated with
movement up a Phillips curve,
an outward shift of the Phillips curve,
a decrease in the rate of unemployment,
increased likelihood of demand-pull inflation.
fall in business confidence
43. The existence of a natural rate of unemployment suggests that
nominal wage increases lag price increases in the long run,
nominal wage increases lead price increases in the long run,
the short-run Phillips curve is steeper than the long-run Phillips curve,
there is no inflation-unemployment trade-off in the long run,
there are money illusions in the long run.
44. According to Malthusian population theory, in the long run output per capita
tends toward the subsistence level,
increases at an increasing rate,
increases at a decreasing rate,
does not change.
grows at arithmetic progression
45. Under a freely-flexible-exchange-rate system, a deficit in a nation's balance of payments is corrected by
a decrease in the domestic currency price of the foreign currency,
an appreciation of domestic currency,
a depreciation of the domestic currency,
a depreciation of the foreign currency,
central bank’s interventions
46. Suppose the full-employment level of output is $680, the equilibrium level of output is $600, the MPC is 0.80, and there is a 0.25 income tax. Full-employment output can be achieved by a
$20 decrease in taxes,
$25 increase in government spending,
$30 decrease in taxes,
$40 increase in government spending
$40 decrease in taxes
47. A recessionary gap exists when
aggregate supply exceeds aggregate demand,
the aggregate spending line intersects the 45° line at an output level to the right of the full-employment level of output,
the aggregate spending line intersects the 45° line at an output level to the left of the fully employment level of output,
the aggregate spending line intersects the aggregate supply curve at a lower price level,
the aggregate spending line intersects the aggregate supply curve at a higher price level
48. The paradox of thrift maintains that a society's desire to save more
lowers the equilibrium level of output and has no effect upon the amount saved,
lowers the equilibrium level of output and the amount saved,
lowers the equilibrium level of output and increases the amount saved,
has no effect upon the equilibrium level of output and increases the amount saved,
increases the equilibrium level of output and the amount saved.
49. Suppose banks hold no excess reserves and reserves total $1200. When the reserve requirement is lowered from 0.12 to 0.10, check-writing deposits
increase from $1000 to $1200,
increase from $10,000 to $12,000,
decrease from $1200 to $1000,
decrease from $ 12,000 to $ 10,000.
increase by $1200
50. If the Ml money supply is $400, velocity is 4, and there is a 10% growth in the money supply and a 25% increase in velocity, nominal GDP should increase from
$1200 to $1600,
$1600 to $1760,
$1600 to $2200,
$1760 to $2200,
$1200 to $1760.
51. Cost-push inflation exists when