Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Which of the following is a topic studied in Macroeconomics? 1)

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

2) A period of very rapid increase in the overall price level is known as 2)

A) depression. B) stagflation. C) hyperinflation. D) stagnation.

3) A transfer payment is 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."

4) A capital gain is 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 5)
A) dividend of $225. B) a capital gain of $225
C) capital gain of $75. D) dividend of $75.

6) A dividend is 6)
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 7)
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.

8) The largest income component of GDP is 8)

A) corporate profit. B) rental income.
C) proprietors' income. D) compensation of employees.

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Refer to the information provided in Table 6.4 below to answer the questions that follow.

Table 6.4
$Billions
Depreciation 40
Receipts of factor income from the rest of the world 30
Government purchases 100
Imports 50
Payments of factor income to the rest of the world 50
Net private domestic investment 200
Personal income taxes 120
Personal consumption expenditures 600
Dividends 20
Exports 60
Amount of national income not going to households 20

9) Refer to Table 6.4. The value for GDP in billions of dollars is 9)

A) 910. B) 920. C) 950. D) 1,050.

10) Classifying discouraged workers as unemployed would 10)

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.

11) Human capital is 11)

A) the money people have. B) the machines people own.
C) the mental or physical skills people have. D) the property people own.

12) A prolonged and deep recession is a 12)

A) hyperinflation. B) contraction. C) depression. D) slowdown.

13) The MPC is 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 14)

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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 15) Consumption is 15)
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.

Refer to the information provided in Figure 8.1 below to answer the questions that follow.

Figure 8.1

16) Refer to Figure 8.1. This household's consumption function is 16)

A) C = 300 + 0.75Y. B) C = 200 + 0.2Y.
C) C = 1,000 + 0.2Y. D) C = 500 + 0.5Y.

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Refer to the information provided in Figure 8.7 below to answer the questions that follow.

Figure 8.7

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

18) Firms react to unplanned increases in inventories by 18)

A) increasing consumption. B) increasing output.
C) reducing output. D) increasing planned investment.

19) During recessions, government spending usually 19)

A) decrease because unemployment payments increase.
B) increases because unemployment payments increase.
C) decreases because unemployment payments decrease.
D) increases because unemployment payments decrease.

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Refer to the information provided in Figure 8.10 below to answer the questions that follow.

Figure 8.10

20) Refer to Figure 8.10. If MPC increases to 0.8, equilibrium aggregate output 20)
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 the MPC 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 23)

A) loans as liabilities. B) excess reserves as liabilities.
C) deposits as liabilities. D) required reserves as liabilities.

24) A loan made by a bank is considered ________ of that bank. 24)

A) a liability B) an asset C) net worth D) capital

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

26) A decrease in the required reserve ratio 26)

A) will not change the money supply. B) will decrease the discount rate.
C) will increase the money supply. D) will decrease the money supply.

27) If the Fed sells government securities, then there is 27)

A) a decrease in the supply of money. B) a decrease in the discount rate.
C) an increase in the supply of money. D) an increase in the required reserve ratio.

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

29) When you deposit $100 in a bank, the bank 29)

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.

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

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 32)

A) positively related to interest rate. B) negatively related to interest rate.
C) positively related to income. D) negatively related to income.

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

34) When the interest rate rises, bond values 34)

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.

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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 37)
rate?
A) 10% B) 20% C) 5% D) 40%

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 38)
the bond?
A) $600 B) $720 C) $500 D) $120

Refer to the information provided in Figure 11.3 below to answer the questions that follow.

Figure 11.3

39) Refer to Figure 11.3. An increase in the price level, ceteris paribus, will likely 39)
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.

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

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 41) Which of the following pairs of events will definitely lead to a decrease in the equilibrium interest 41)
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

42) An example of a tight monetary policy is 42)

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.

43) The two links between the goods market and the money market are 43)
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.

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

Refer to the information provided in Figure 12.1 below to answer the questions that follow.

Figure 12.1

45) Refer to Figure 12.1. If the interest rate rises from 4% to 8%, planned investment 45)
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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Refer to the information provided in Table 12.1 below to answer the questions that follow.

Table 12.1
A Hypothetical Investment Schedule
Interest Rate (%) Planned Investment ($ Billion)
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. 47)
A) increases; demand B) decreases; supply
C) decreases; demand D) increases; supply

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

49) An intended goal of contractionary fiscal and monetary policy is 49)

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.

Refer to the information provided in Table 12.2 below and the following three assumptions to answer the questions that
follow.

Table 12.2
A Hypothetical Economy
Consumption (C) $600 billion
Planned Investment (I) $300 billion
Government Spending $150 billion

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 50)
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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 51) Aggregate demand decreases when the price level rises because the higher price level 51)
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.

52) The aggregate demand shifts to the left if 52)

A) the Fed decreases the required reserve ratio.
B) the government increases spending.
C) the government decreases taxes.
D) the Fed sells government bonds.

Refer to the information provided in Figure 12.9 below to answer the questions that follow.

Figure 12.9

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

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? 55)
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.

56) If the economy is operating on the relatively vertical segment of the aggregate supply curve, an 56)
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

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 57) All of the following shift the short-run aggregate supply curve EXCEPT 57)
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.

Refer to the information provided in Figure 13.7 below to answer the questions that follow.

Figure 13.7

58) Refer to Figure 13.7. Suppose the equilibrium output is initially $600 billion. An oil embargo 58)
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.

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 61)

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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Refer to the information provided in Figure 13.10 below to answer the questions that follow.

Figure 13.10

62) Refer to Figure 13.10. Assume the economy is at Point A. Higher oil prices shift the aggregate 62)
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
________ than Y2 .
A) greater; greater B) less; greater C) less; less D) greater; less

63) Refer to Figure 13.10. Assume the economy is currently at Point A on aggregate supply curve AS1 . 63)
An increase in inflationary expectations that causes firms to increase their prices
A) moves the economy to Point B on aggregate supply curve AS1.
B) shifts the aggregate supply curve to AS0 .
C) shifts the aggregate supply curve to AS2 .
D) moves the economy to Point C on aggregate supply curve AS1.

64) A sudden increase in the price of oil causes a ________ inflation and ________ output. 64)
A) demand-pull; lower B) cost-push; lower
C) cost-push; higher D) demand-pull; higher

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

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

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

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

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

Refer to the information provided in Figure 14.1 below to answer the questions that follow.

Figure 14.1

70) Refer to Figure 14.1. The demand for labor falls from D to D'. If firms enter into social, or implicit, 70)
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.

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

72) According to the classical economists, those who are not working 72)
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.

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

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 74) What sequence of events results from an increase in aggregate demand? 74)
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.

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 to the information provided in Figure 14.7 below to answer the questions that follow.

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

77) Refer to Figure 14.7. Suppose the economy is at Point A, a sudden increase in the price of oil 77)
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 .

78) If inflationary expectations decrease, the Phillips curve will 78)

A) become upward sloping. B) shift to the right.
C) become vertical. D) shift to the left.

79) The measured unemployment rate can be pushed below the natural rate, but 79)
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.

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

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

82) The implementation lag for fiscal policy is longer than for monetary policy because 82)
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.

83) Time lags that often erode effectiveness of monetary and fiscal policy measures represent 83)
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.

84) A reason why the deficit increases during recessions is 84)

A) higher tax revenues. B) lower tax rates.
C) higher welfare payments. D) both A and C are correct

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

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 89)

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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90) If the deficit response index (DRI) equals -0.5 and the government wants to reduce the deficit by 90)
$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.

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

92) If interest rates rise, then 92)

A) the interest payment on bonds falls. B) the value of bonds rise.
C) the interest payment bonds rises. D) the value of bonds fall.

93) When interest rates rise, 93)

A) bond holders suffer a loss. B) shareholders gain.
C) bond brokers receive a commission. D) bond issuers receive a gain.

94) When a bond matures, the issuer must pay the bondholder 94)
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 95)
A) fall to zero. B) rise. C) be unaffected. D) fall.

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

97) The bondholder is 97)

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.

98) If you buy a $2,000 one year bond with a $100 coupon and the interest rate goes up immediately, 98)
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.

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Refer to the information provided in Figure 17.1 below to answer the questions that follow.

Figure 17.1

99) Refer to Figure 17.1. Economic growth is represented by 99)

A) a shift in the production possibilities frontier from ppf2 to ppf1 .
B) a movement from Point B to Point A.
C) a movement from Point B to Point C.
D) a movement from Point A to Point B along ppf1 .

100) Which of the following is a source of economic growth? 100)

A) more resources B) active economic policies
C) technology D) both A and C

101) If the capital stock remains fixed while the supply of labor increases, it is likely that 101)
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.

102) An increase in the capital stock 102)

A) cannot 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.

103) An increase in capital stock 103)

A) causes economic growth. B) enhances labor productivity.
C) provides valuable services directly. D) all of the above

104) An increase in human capital 104)

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.

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 107)
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

108) Which of the following policies should the government NOT adopt if its goal is to enhance 108)
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

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

110) The relation between growth, as measured in ________, is an inverted U. 110)

A) human capital and physical capital B) saving and investment
C) per capita income and pollution D) income and expenditure

111) As growth progresses and countries become richer, pollution 111)

A) rarely changes. B) levels double.
C) rises exponentially. D) tends to fall.

112) Keynes believed which of the following? 112)

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.

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

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

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115) Monetarists argue that the money supply should 115)
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.

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 117)
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.

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

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

120) According to the Lucas supply function, the economy will produce more output when 120)
A) prices are unexpectedly higher than when prices are at their expected level.
B) prices are exactly equal to the expected level.
C) prices are unexpectedly lower than when prices are at their expected level.
D) wages are below the expected level.

19
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) B
11) C
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
Answer Key
Testname: FINAL EXAM_REVIEW TEST

51) B
52) D
53) D
54) A
55) D
56) D
57) C
58) A
59) D
60) B
61) D
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
Answer Key
Testname: FINAL EXAM_REVIEW TEST

101) D
102) D
103) D
104) A
105) C
106) C
107) A
108) B
109) B
110) C
111) D
112) B
113) B
114) D
115) A
116) C
117) A
118) B
119) B
120) A

22