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5. Which of the following is included in the 8. Which of the following workers is most likely to investment component of real gross domestic be classified as structurally unemployed? product? (A) A high school teacher who is unemployed (A) A schoolteacher purchases 10,000 shares of during the summer months stock in an automobile company. (B) A recent college graduate who is looking for (B) A family purchases a previously owned her first job home. (C) A teenager who is seeking part-time (C) A French tourist purchases United States employment at a fast-food restaurant dollars. (D) A worker who is unemployed because his (D) A farmer purchases $10,000 worth of skills are obsolete government securities. (E) A person who reenters the job market after (E) An apparel company purchases fifteen new relocating sewing machines. 9. According to the classical macroeconomic 6. The United States Department of Labor defines model, an increase in the money supply will an individual as unemployed if the person result in an increase in which of the following in the long run? (A) does not hold a paying job (B) has been recently fired (A) Employment (C) works part time but needs full-time work (B) Unemployment (D) is without a job but is looking for work (C) Real gross domestic product (E) wants a job but is not searching because he (D) Nominal gross domestic product or she thinks none is available (E) Real wages 7. Assume that a country with an open economy has a fixed exchange-rate system and that its currency is currently overvalued in the foreign exchange market. Which of the following must be true at the official exchange rate? (A) The quantity of the country's currency supplied is less than the quantity demanded. (B) The quantity of the country's currency supplied exceeds the quantity demanded. (C) The demand curve for the country's currency is horizontal. (D) The supply curve for the country's currency is horizontal. (E) The domestic interest rate is equal to the interest rate in the rest of the world. 913. Which of the following would represent an injection into the circular flow of income and AS 3 expenditure? PRICE LEVEL (A) Investment spending AS (B) Income tax C) Tariffs (D) Savings (E) Imports 14. Which of the following would most likely lead REAL OUTPUT to a decrease in aggregate demand? 10. The diagram above shows aggregate supply (A) A decrease in taxes curves AS,, AS2, and AS;. Which of the (B) A decrease in interest rates following statements is true? (C) An increase in household savings (A) AS, reflects wage and price rigidity. (D) An increase in household consumption (B) AS, reflects greater wage and price (E) An increase in business firms' purchases of flexibility than AS2- capital equipment from retained earnings (C) AS, reflects greater wage and price flexibility than AS, and AS3- (D) The shift from AS, to AS, is due to a decrease in nominal wages. PRICE LEVEL (E) The shift from AS, to AS, is due to an increase in oil prices. PL 1 1. An increase in which of the following would PL cause the long-run aggregate supply curve to shift to the right? (A) Corporate income tax rates (B) Aggregate demand (C) Labor productivity (D) The average wage rate 15. The diagram above shows the aggregate (E) The price level demand (AD), short-run aggregate supply (SRAS), and long-run aggregate supply (LRAS) 12. As income level increases from $500 to $1,000, curves for an economy. An increase in which of consumption increases from $700 to $1,100. the following will shift the aggregate demand The marginal propensity to consume is equal to curve from AD to AD'? (A) 1.10 (A) Money supply (B) 0.80 (B) Income tax rates (C) 0.70 (C) Government purchases (D) 0.50 D) Transfer payments (E) 0.10 (E) Net exports 10 PRINCIPLES OF MACROECONOMICS 16. If the Federal Reserve lowers reserve 20. Assume that the reserve requirement is requirements, which of the following is most 25 percent. If banks have excess reserves likely to happen to interest rates and nominal of $10,000, which of the following is the gross domestic product? maximum amount of additional money that Nominal Gross can be created by the banking system through Interest Rates Domestic Product the lending process? (A) Increase Decrease (A) $ 2,500 (B) Increase Increase (B) $ 10,000 C) Decrease Decrease (C) $ 40,000 (D) Decrease Increase (D) $ 50,000 (E) No change No change (E) $250,000 17. If the marginal propensity to consume is 21. An increase in which of the following will most 0.9, what is the maximum amount that the likely reduce the federal government's budget equilibrium gross domestic product could deficit? change if government expenditures increase by $1 billion? (A) Interest rates (B) Income tax rates (A) It could decrease by $9 billion. (B) It could increase by $0.9 billion. (C) Defense spending (C) It could increase by $1 billion. (D) Government transfer payments (D) It could increase by $9 billion. (E) Tax credits for investment spending36. A revenue-neutral replacement of some portion 39. An increase in which of the following will cause of the federal personal income tax with a general an increase in the demand for a certain good? sales tax would most likely result in (A) The price of the good (A) greater overall progressivity in the tax B) The number of sellers of the good structure (B) smaller overall progressivity in the tax C) The price of a complementary good structure (D) The cost of purchasing the good (C) stronger automatic stabilization through (E) The number of buyers of the good the business cycle (D) a larger budget deficit 40. If the exchange rate changes from 1 United (E) a smaller federal budget deficit States dollar = 100 yen to 1 United States dollar = 80 yen, which of the following will 37. A deficit in the United States trade balance can happen? be described as (A) United States goods will become more (A) an excess of the value of imports over the expensive to Japanese consumers. value of exports (B) Japanese goods will become less expensive (B) an excess of the value of exports over the to United States consumers. value of imports (C) United States exports to Japan will increase. (C) a resulting outcome of the depreciation (D) Japanese exports to the United States will of the United States dollar in foreign increase. exchange markets (E) Japanese imports from the United States will (D) an almost complete depletion of the decrease. gold stock (E) an excess of receipts from foreigners over 41. An increase in which of the following is most payments to foreigners likely to cause demand-pull inflation? 38. Which of the following describes a problem that (A) Rental price of capital is common to all economic systems? (B) Fuel costs (A) How to decentralize markets (C) Consumer spending (B) How to become a self-sufficient economy D) Income taxes (C) How to set government production quotas (E) Imports of capital goods D) How to equally distribute income among citizens 42. Assume that last year the consumer price index (E) How to allocate scarce resources to satisfy (CPI) was 150 and a household's nominal unlimited wants income was $30,000. If the CPI this year is 160, to be as well off as last year, the household should have an increase in nominal income of (A) $1,800 (B) $1,875 (C) $2,000 (D) $3,000 (E) $4,800 1455. According to the short-run Phillips curve, which | 58. To raise its long-run rate of economic growth, a of the following will occur when the Federal country should design and implement policies Reserve increases the money supply? that do which of the following? (A) Both the unemployment rate and the (A) Encourage current consumption over saving inflation rate will increase. B) Encourage saving and investment (B) Both the unemployment rate and the (C) Increase the price level and profits inflation rate will decrease (D) Increase government transfer payments (C) The unemployment rate will increase, (E) Limit business activities to protect the and the inflation rate will decrease. environment "D) The unemployment rate will decrease, and the inflation rate will increase. 59. With a constant money supply, an increase in (E) The inflation rate will increase, but the the demand for money will affect interest rates unemployment rate will remain constant. and bond prices in which of the following ways? Interest Rates Bond Prices 56. Which of the following is true if there is a current account deficit in the United States (A) Increase Increase balance-of-payments accounts? (B) Increase Decrease C) Increase Not change (A) There is a corresponding deficit in the (D) Decrease Increase financial account. (E) Not change Increase (B) There is a corresponding surplus in the financial account. (C) There is an offsetting surplus in the 60. According to the quantity theory of money, an government's budget. increase in the money supply results in an increase in which of the following' (D) There is an offsetting increase in net exports. (A) Interest rate (E) The United States dollar appreciates in the (B) Unemployment foreign exchange market. (C) Nominal gross domestic product (D) The government's budget deficit 57. An increase in national saving will cause the real (E) The value of the dollar on the foreign interest rate and investment spending to change exchange market in which of the following ways? Real Interest Rate Investment 61. Which of the following policies will most likely lead to a reduction in the natural rate (A) Increase Increase of unemployment? (B) Increase Decrease (C) Increase Not change (A) Increasing government purchases of goods and services (D) Decrease Increase (B) Providing more job-training programs to (E) Decrease Not change help the less skilled (C) Increasing the duration of unemployment compensation (D) Raising the minimum wage (E) Increasing the money supply69. An increase in national saving will affect the 73. Which of the following groups is most likely to supply of loanable funds and the real interest benefit from unanticipated inflation? rate in which of the following ways? (A) Creditors Supply of Real (B) Fixed income earners Loanable Funds Interest Rate (C) Consumers (A) Increase Increase (D) Debtors (B) Increase Decrease (E) Savers (C) Increase No change (D) Decrease Increase 74. Assume that there are only two countries-Eland (E) Decrease Decrease and Zland-that produce only two goods-X and Y. The table below shows units of each good 70. Which of the following will cause the short-run that each country can produce using one hour of aggregate supply curve to shift to the left? labor. (A) An increase in the price level Good X Good Y (B) A decrease in the price level Eland or Zland or 3 (C) An increase in trade deficits (D) An increase in nominal wages Which of the following statements is correct? (E) An increase in productivity (A) Eland has a comparative advantage in 71. Which of the following policies will most likely producing both goods. stimulate economic growth? (B) Zland has an absolute advantage in producing both goods. (A) A tax credit on investment spending C) Eland's opportunity cost for good Y is (B) Elimination of copyright and patent 5 units of good X. protection laws (D) Zland's opportunity cost for good X is (C) A reduction in funding for education 2 units of good Y. (D) Change of the Social Security retirement (E) Zland should not trade with Eland because age from sixty-five to fifty-eight Eland produces both goods at lower costs. (E) Increased government regulations for research and development 75. If both the demand for and the supply of coffee increase, what will happen to the equilibrium 72. The real interest rate for a consumer loan is price and quantity in the coffee market? 5 percent, and the expected inflation rate is Price 2 percent. What is the nominal interest rate Quantity on the consumer loan? (A) Increase Increase B) Increase Indeterminate (A) 2.5 percent (C) Decrease Decrease (B) 3 percent (D) Decrease Increase (C) 5 percent (E) Indeterminate Increase (D) 7 percent (E) 10 percent 1976. Which of the following would cause a country's 79. If a country's consumer price index was 200 last production possibilities curve to shift outward? year and is 190 this year, which of the following (A) A decrease in the unemployment rate must be true for the country from last year to this year? (B) A technological advance (C) An increase in government transfer (A) The quantity of goods produced has payments decreased. (D) A reallocation of economic resources (B) The average quality of the goods produced (E) A decline in population has increased. (C) The inflation rate has increased by 5 percent. 77. Which of the following is true about economic (D) The price level has decreased by 5 percent. growth? E) The unemployment rate has decreased by 5 percent. (A) It occurs in big countries more often than it does in small countries. (B) It occurs more often in countries with closed 80. The national debt of the United States is the economies than in those with open (A) accumulated government spending, less the economies. interest paid on bonds C) It is positively related to a country's investment in human capital. (B) accumulation of all past government deficits (D) It is negatively related to a country's capital (C) difference between government tax revenues stock. and government spending during a fiscal year (E) It is negatively related to a country's standard of living. (D) money owed to the Federal Reserve for reimbursement of domestic bondholders (E) annual amount borrowed by local, state, and 78. The MI measure of the money supply primarily federal governments to provide public goods consists of which of the following? to all citizens (A) Checking accounts and credit cards (B) Noncheckable savings and credit cards 81. Gross domestic product is defined as which of (C) Currency in circulation and checkable bank the following? deposits (D) Noncheckable savings and (A) The total amount of output produced by small-denomination time deposits an economy in a given time period (E) Savings bonds and savings accounts (B) The total market value of all output produced by an economy in a given time period (C) The total market value of all final goods and services produced by an economy in a given time period (D) The total value of all final goods and services sold in the domestic market in a given time period (E) The total market value of all final goods and services produced by an economy minus the market value of final goods and services exported to other nations in a given time period 2082. If central banks in Asia reduce the supply of 84. Jamal lost his computer programming job when their own currencies on the foreign-exchange it was outsourced to a company abroad. After market relative to the United States dollar, which looking unsuccessfully for several months of the following will occur? for another job, he gave up and is currently attending school. Currently Jamal is classified as (A) Asian currencies will depreciate. (B) The United States dollar will appreciate. (A) structurally unemployed (C) Asian goods will be more expensive for (B) frictionally unemployed United States consumers. (C) cyclically unemployed (D) United States goods will be more expensive (D) underemployed for Asian consumers. (E) not in the labor force (E) United States private investment in Asia will increase. 85. Which of the following will decrease gross domestic product by the greatest amount? 83. Which of the following policy actions could the Federal Reserve use to combat inflation? (A) $20 billion increases in both government spending and taxes (A) Selling government bonds to reduce the (B) $20 billion decreases in both government money supply spending and taxes (B) Buying government bonds to reduce the (C) A $20 billion increase in taxes amount of loanable funds (D) A $20 billion decrease in government (C) Raising taxes to reduce the interest rate spending (D) Cutting the reserve requirement to reduce (E) A $20 billion increase in net exports the amount of excess reserves held by banks (E) Cutting the discount rate to decrease the availability of loans to banks