1. All other things equal, GDP will rise if

C. Durable goods consumption rises.

2. According to John Taylor's (and Alan Greenspan's?) monetary rule, the nominal federal funds rate should increase if inflation is C. above 2 percent and GDP is above its natural rate

3.Automatic stabilizers largely eliminate D. the inside lag.

4. All of the following can definitely be considered an automatic stabilizer, EXCEPT a(n) B. investment tax credit

6. A fall in the index of leading indicators is supposed to predict that A. a downturn in the business cycle is likely in the near future

7. A monetary policy that SPECIFIES IN ADVANCE different levels of monetary growth corresponding to different economic conditions is called a(n) C. active monetary rule.

8. A political business cycle is said to exist when B. politicians manipulate the economy for electoral gain.

9. According to the Mundell-Fleming model, an appreciation of the exchange rate would B. increase import demand and decrease export demand.

10. According to the Mundell-Fleming model, in a small country with a floating exchange rate, a tax cut will cause the exchange rate to A. rise.

11. All of the following represent supply/price shocks EXCEPT C. the introduction of a debit card, increasing the velocity of money. 12. All of the following are possible explanations for the worldwide slowdown in economic growth during the 70's and 80's EXCEPT D. scarcity of non-petroleum raw materials.

13. Advocates of the Y=AK model interpret capital as C. including knowledge.

14. A permanent change in the growth rate of total output can arise from a change in the A. rate of technological progress.

15. At the Golden Rule level of capital accumulation, the marginal product of

B. depreciation rate. 16. A war has wrecked the economy of Baloneya: both the capital stock and the work force have been reduced by 50 percent. If the economy's production function has constant returns to scale, how will the postwar level of output per worker compare to the prewar level? C. It will be the same.

17. An economy starts off in a steady state with less capital than at the Golden Rule level. Now the saving rate changes to the level that will achieve the Golden Rule. What is the path of consumption during the transition to the Golden Rule steady state? A. It is lower, then higher than in the initial steady state. 18. An economy is in a steady state with capital higher than the Golden Rule level. Now the saving rate falls to a level that will achieve the Golden Rule capital stock in the long run. What will happen to the level of consumption between the initial and new steady states? C. It will rise instantly and then will fall gradually.

19. A teenager is not able to find a job because the legal minimum wage is higher than the wage that firms are willing to offer.This situation is an example of B. structural unemployment.

20. An increase in aggregate demand, such as that due to an increase in government purchases increases D. output in the short run and prices in the long run.

21. According to the data B. the real wage is somewhat procyclical.

22. All three models of aggregate supply presented in Chapter 13 share the feature that, if the price level is above the expected price level, then D. output will be above its natural rate.

23 Assume that the nominal exchange rate for the euro is .75 euros per dollar. Suppose that a Volkswagen Golf costs 10,000 euros in Germany, while it costs $12,000 in the United States. What is the real exchange rate? B. 0.9   

24. According to the classical dichotomy, which of these magnitudes is affected by monetary policy? A. The price level

25. An example of a person who is counted as unemployed is a

C. senator who resigns her job to run for president.

26. Approximately what percentage of national income consists of compensation of employees?

C. 70 percent

27. A competitive firm hires labor until the marginal product of labor equals the A. real wage. 28. A competitive firm rents capital until the marginal product of capital equals the B. rental price of capital.

29. According to the simple macroeconomic model presented in Chapter 3, which of the following will not be caused by an increase in government spending? B. Decrease in consumption

30. A leftward shift of the savings curve cannot be caused by a(n) D. increase in the real interest rate.

31. All other things equal, if the price of foreign-made cars rises, then the GDP deflator

C. will remain the same and the CPI will rise.

32. According to the quantity equation, if M increases by 3 percent and V increases by 2 percent, then D. nominal income increases by approximately 5 percent. 33. An increase in the expected rate of inflation will B. lower demand for real balances because the nominal interest rate will rise.

34. According to the IS-LM model, an increase in government purchases causes a(n) C. increase in income and an increase in the interest rate.

35. According to the IS-LM model, if the central bank increases the money supply, then the interest rate B. falls and income rises.

36. According to the quantity equation, which of the following might happen if the money supply increases? A. Velocity is constant, prices are constant, and total output increases.

37. Because of the relationship between prices and the real money supply, the aggregate demand curve is D. downward sloping.

38. Consider the following aggregate supply equation:

Y = Y + a*(P - P^e) Based on this equation, the slope of the AS curve is D. 1/a.

39. Choose the pair of words that best complete this sentence: If government purchases increase, national saving will ________ and the equilibrium real exchange rate will _______. B. fall; rise

40. Choose the pair of words that best completes this sentence: In a large open economy monetary policy is ____ potent and fiscal policy is ____ potent than in a closed economy. D. more; less

41. Consider the following data on inflation and unemployment

Year	Inflation	Unemployment
1	10%	5%
2	8%	6%
3	4%	9%

The part of the business cycle characterizing this economy from year 1 to year 3 is a A. recession. 42. Consider an economy where the money supply is growing at 7 percent per year and velocity is constant. Which of the following statements about real GDP growth and the inflation rate could be true? A. Real GDP is growing at 2 percent and inflation is 5 percent. 43. Consider the following table

Consumption of foreign goods and services	100
Consumption of domestic goods and services	900
Investment of foreign goods and services	20
Investment of domestic goods and services	180
Government purchases of foreign goods and services	0
Government purchases of domestic goods and services	500
Exports	100

Based on the data, what are total imports? B. 120

44Considerthefollowingtable

Consumption of foreign goods and services	100
Consumption of domestic goods and services	900
Investment of foreign goods and services	20
Investment of domestic goods and services	180
Government purchases of foreign goods and services	0
Government purchases of domestic goods and services	500
Exports	100

Based on the data, what are total imports? B. 120

45. Consider an economy where the only goods traded are coconuts and pineapples. Last year, 100 coconuts were sold at $1 apiece, and 200 pineapples were sold at $2.50 apiece. If the money supply was $100, what was velocity? C. 6 46. Considerthefollowingtable:

	ConsumptionGoods	NonconsumptionGoods
Year	ProductionPrice	ProductionPrice
1995	20/$0.50	10/$1.00
2000	10/$1.00	10/$0.50

If 1995 is the base year, the CPI in 2000 is

1. 2.

47. Choose the pair of words that best completes this sentence: Investment depends on the ________ interest rate because higher inflation will ________ the value of the dollars with which the firm will repay the loan. C. real, decrease

48. Consider the following table: APPLES/ ORANGES

Year	Production/Price	Production/Price
1995	20/ $0.50	10/$1.00
2000	10/ $1.00	10/$0.50

If 1995 is the base year, what is the GDP deflator for 2000?

1. 1

49. Consider the following production table:

	Labor	Capital	Output
(i)	1,000	1,000	10,000
(ii)	2,002	2,000	20,010

Assuming that the production function displays constant returns to scale, what is the marginal product of labor when labor and capital are both equal to 1,000? B. 5

50. Considerthefollowingtable

Year	InflationRate	NominalInterestRate
1	5%	10%
2	10%	5%

By how much has the real interest rate changed between year 1 and year 2? B. It has decreased 5 percent.

51. Consider the following production table:

Labor	Capital	Output
1	2	3
2	2	6
3	2	8

By how much does the marginal product of labor decrease as labor input increases from 1 to 2 and from 2 to 3? B. 1

52. Consider the following table

Domestic inflation:	5%
Foreign inflation:	6%
Change in nominal exchange rate:	3%

Based on the data, what is the change in the real exchange rate? A. 2 percent

9 Consider the following data on the Transalpinian economy

Y = 1,000

C =  700

G =  150

I =  250 - 10r*

53. Consider the following data on the Transalpinian economy

Y = 1,000

C  =  650

G =  200

I  =  250 - 20r*

The world interest rate is 7.5 percent. How does the world interest rate have to change to make net exports zero? D. It has to fall by 2.5  percent.

54. Choose the pair of words that best completes this sentence: The nominal interest rate is the sum of the ex ante real interest rate and the _________ inflation rate, and real money balances are a function of the ___________ interest rate. A. expected; nominal

55. Compared to long-term unemployment, short-term unemployment is more likely to be A. frictional unemployment.

56. Discouraged workers who want jobs, but have stopped looking for jobs are C. no longer in the labor force.

57. Debt-deflation leads to lower income because B. falling prices redistribute income from debtors to creditors, which leads to a decline in the APC.

58. Economists usually advocate targeting nominal rather than real variables because: B. it is difficult to determine the exact level of real variables

59. Efficiency wage theories claim that firms may pay high real wages in order to B. make workers more productive. 60. Efficiency wages do not lead to C. lower firm profits.

61. Economic profit is the same as accounting profit minus B. the return to capital.

62. Exogenous increases in the supply of loanable funds shift the D. IS curve inward.

63. Euler's theorem implies that if a production function exhibits constant returns to scale A. economic profit is zero.

64. Frictional unemployment occurs because D. it takes time to match firms and workers.

65. Faced with an adverse supply shock, if the central bank wants to stabilize output, it should B. increase the money supply.

66. For a fixed money supply, a higher level of real balances implies B. a lower price level.

Government purchases of foreign goods and services	0
Government purchases of domestic goods and services	500
Exports	100

Based on the data, what are net exports? A. -20 67. Government revenue raised through the printing of money is called B. seignorage.

68. General Motors increases the price of a model car produced exclusively for export to Europe. Which U.S. price index is affected?

B. The GDP deflator

69. GDP is

B. a flow.

70. GDP measures

D. all of the above.

71. Hysteresis is the effect of history on D. the natural rate of unemployment.

72. Hyperinflation usually starts when C. governments are forced to print money to finance their spending.

73. In the basic endogenous growth model, the production function exhibits B. constant returns.

74. In the basic endogenous growth model, usually called the Y=AK model, as long as the savings rate times the constant A is greater the rate of depreciation, income will grow D. forever.

75. In the Solow model, savings leads to _______ growth, but in the Y=AK model, savings can lead to _______ growth. B. temporary; persistent

76. In the two sector model presented in Section 8-4, where the sectors consist of manufacturing firms and research universities, A. only firms use capital as inputs.

77. In the two sector model, the proportion of labor devoted to research universities determines the D. steady-state growth rate of income.

78. In most endogenous growth theories, externalities from firms' research play a crucial role. Economists

agree that research B. can exhibit externalities of ambiguous value.

79. If a firm with a constant returns to scale production function pays all factors their marginal products, then B. economic profit is zero and accounting profit is positive.

80. If an individual is to hold lower money balances on average, she must make more frequent trips to the bank to withdraw money. This inconvenience of reducing money holding is called B. a shoeleather cost.

81. In the Solow model with technological progress, an increase in the rate of technological change will C. leave the investment curve unchanged.

82. In a Solow model with population growth and technological progress, the steady state level of consumption is maximized when the steady state marginal product of capital equals the rate of depreciation plus A. the rate of population growth plus the rate of technological change.

83. In the Solow growth model with population growth (n) and technological progress (g), the steady-state growth rate of output per efficiency unit is A. 0.

84. In the Solow growth model with population growth (n) and technological progress (g), the steady-state growth rate of output per worker is C. g.

85. In the Solow growth model with population growth (n) and technological Progress (g), the steady-state growth rate of total output is D. n + g.

86. If two economies are identical except for their rates of population growth, then the economy with the higher rate of population growth will have D. lower steady-state output per worker. 87. If two economies are identical except for their rates of population growth, then if both economies are in steady state, the economy with the higher rate of population growth will have a B. higher rate of growth of total output.

88. If the population growth rate decreases in an economy described by the Solow growth model, the line representing population growth and depreciation will B. shift downward. 89. In the Solow growth model with population growth, the Golden Rule steady state is achieved when the marginal product of capital equals C. the population growth rate plus the rate of depreciation.

90. If a production function has two inputs and exhibits constant returns to scale, then doubling both inputs will cause the output to C. double. 91. In a closed economy, with total output and taxes fixed, if government spending rises D. investment falls. 92 In a closed economy with total income fixed, a reduction in taxes will cause consumption A. to rise and investment to fall.

93. In the sticky-wage model, output deviates from the natural rate through C. unexpected changes in the price level.

94. In the sticky-wage model, employment is assumed to be determined by the C. demand for labor.

95. In the imperfect-information model, it is assumed that firms B. can observe the price of their output but cannot observe the overall price level.

96. In the sticky-price model, if the fraction of firms in the economy that set prices in advance rises, then it would be expected that the aggregate supply curve D. becomes flatter.

97. If expected inflation rises, the Phillips curve A. shifts upward. 98. In the country of Stabilia, the monetary authorities particularly dislike inflation. The current inflation of 5 percent is considered rampant. If the sacrifice ratio in Stabilia is five, the percentage of a year's GDP that has to be forgone to bring inflation down to 1 percent is C. 20 percent.

99. In a closed economy with output fixed, an increase in government spending matched by an equal increase in taxes will B. increase the interest rate.

100. In a closed economy with fixed output, an increase in government spending without any change in taxes will lead to a(n) D. increase in the real interest rate and no change in private saving. 101. In the simple macroeconomic model of Chapter 3, a decrease in taxes will shift the C. savings curve to the left.

102. If the Fed reduces the supply of money, the D. AD curve shifts inward.

103. In the short run, if prices are fixed, the aggregate supply curve is C. horizontal.

104. In the full model of the economy presented in chapter 3, the variable that adjusts to equilibrate the supply and demand for goods and services is D. the real interest rate.

105. If the nominal exchange rate is $1 equals 150 Japanese yen, and a Big Mac costs $2 in the U.S. and 300 yen in Japan, then the real exchange rate of U.S. Big Macs for Japanese Big Macs is A. 1. 106. If investment becomes less sensitive to the interest rate, then the C. IS curve becomes steeper.

107. If the marginal propensity to consume is large, then the D. IS curve is relatively flat.

108. In the early 1980's the Federal Reserve, under Paul Volcker, began a period of tight money aimed at reducing inflation. Under this policy, nominal interest rates were: B. higher in the short run and lower in the long run.

109. In the quantity theory interpretation of the LM curve, the LM curve slopes up because B. velocity depends on the interest rate.

110. If the central bank increased the supply of real money balances, then the LM curve would D. shift outward.

111. If money demand became more sensitive to the level of income, the LM curve would A. become steeper.

112. In the Keynesian cross model of Chapter 10, if the interest rate is constant and the MPC is 0.7, then the government purchases multiplier is D. 3.3.

113. In the Keynesian cross model of Chapter 10, if the interest rate is constant, the MPC is 0.6, and taxes are increased by $100, by how much does income change? B. It decreases by $150.

114. In "The General Theory of Employment, Interest, and Money," John Maynard Keynes proposed that the Great Depression was caused by B. low aggregate demand. 115 If a country's real exchange rate falls (depreciates), then A. net exports rise.

116In the model of Chapter 5, if the government prevented the import of foreign cars, then, in the resulting equilibrium, net exports would B. remain constant because saving and investment would not change. 117. If the capital stock is above the steady-state level, then investment A. is smaller than depreciation.

118. If an economy is initially in a steady state and it experiences an increase in its saving rate, then the steady-state capital stock will C. rise.

119. In the Solow model, the depreciation rate represents the D. fraction of the capital stock that wears out each year.

120 If the United States has an inflation rate of 10 percent, Great Britain has an inflation rate of 12 percent, and the United States dollar has a nominal appreciation against the British pound of 3 percent, then the real appreciation of the United States dollar against the British pound is A. 1 percent..

121. If the supplies of capital and labor are fixed and technology is unchanging, then real output is A. fixed. 122. If a production function has the property of diminishing marginal product, then doubling D. one of the inputs will reduce its marginal product.

123. If the rate of unemployment is neither rising nor falling, then the number of people finding jobs must equal the number of people B. losing or leaving jobs. 124. If the rate of job finding rises, the natural rate of unemployment will C. decrease.

125. In which case is total expenditure in an economy not equal to total income?