D. None of the above--they are always equal

26 If the Japanese government wants to reduce its trade surplus with the United States, which measure would achieve this? A. Remove the import quotas for U.S. cars. B. Impose export quotas on Japanese cars. C. Enact legislation that would make Japanese companies less competitive. D. None of the above.

4 If net exports are positive, which of the following is false? A. Domestic output exceeds domestic spending. B. Domestic saving exceeds domestic investment. C. Net capital outflow is positive. D. There is a balance of trade deficit. 5 If net capital outflow is positive, then A. S - I is negative. B. private savings exceeds private investment. C. NX is positive. D. public saving exceeds public investment. 11 In the small open economy model of Chapter 5, if a country begins in a position of balanced trade,  what happens when the government increases taxes? A. Net capital outflow becomes negative. B. The interest rate rises. C. Net exports decrease. D. The balance of trade goes into surplus.

14 In the small open economy model of Chapter 5, starting from balanced trade, an increase in the world interest rate from a fiscal expansion abroad leads to which of the following? A. Negative net capital outflow and a trade surplus. B. Positive net capital outflow and a trade surplus. C. Positive net capital outflow and a trade deficit. D. Negative net capital outflow and a trade deficit.

6 In a small open economy, the interest rate is determined by the A. equilibrium of saving and investment. B. interest rate in the rest of the world. C. excess of government spending over government revenue. D. value of net capital outflow.

3. If the IS* curve in the Mundell-Fleming model is expressed by the equation Y = C(Y - T) + I(r*) + G + NX(e) then NX(e) should be interpreted as meaning that A. net exports depend positively on the exchange rate. B. exports depend negatively on the exchange rate. C. imports depend positively on the exchange rate. D. net exports depend negatively on the exchange rate.

7. In a small open economy with a floating exchange rate, a fiscal expansion A. increases income. B. decreases income. C. leaves income unchanged. D. could increase or decrease income, depending on what happens to the exchange rate.

9. In a small open economy with a floating exchange rate, a monetary expansion A. increases income. B. decreases income. C. leaves income unchanged. D. could either decrease or increase income, depending on what happens to the exchange rate.

12. In an open economy with a fixed exchange rate, a fiscal contraction A. increases both the money supply and income. B. increases the money supply and decreases income. C. decreases the money supply and increases income. D. decreases both the money supply and income.

13. In an open economy with a fixed exchange rate, expansionary monetary policy A. increases income. B. decreases income. C. lowers the interest rate. D. is impossible.

7 In a small open economy, which interest rate equals the world interest rate? A. The real interest rate B. The nominal interest rate C.Both the real and the nominal interest rates D. It depends on whether the exchange rate is fixed or floating.

8 If a Canadian investor buys one million dollars worth of stock in an American company, how does this transaction appear in the national income accounts of the United States? A. The balance of trade rises as we export $1 million of stock. B. The balance of trade falls as we import Canadian investment. C. Net capital outflow rises by $1 million. D. Net capital outflow falls by $1 million.

9. If the government increases the amount of unemployment insurance that unemployed workers can collect, the amount of frictional unemployment would be expected to A. fall. B. remain constant. C. rise. D. first rise and then fall.

8. In the quantity equation, V represents the A. total number of transaction during some period of time. B. price of a typical transaction. C. the rate at which each unit of money circulates in the economy. D. quantity of money.

10. If production remains the same and all prices double, then real GDP

A. and nominal GDP are both constant. B. is constant and nominal GDP is reduced by half.

C. is constant and nominal GDP doubles.

D. doubles and nominal GDP is constant.

12. If production remains the same and all prices double relative to the base year, then the GDP deflator is

A. 1/4.

B. 1/2.

C. 1.

D. 2.

24. In a closed economy that is in equilibrium, investment is equal to A. private saving. B. public saving. C. private saving plus public saving. D. disposable income minus consumption.

21. If the real interest rate rises, the quantity of investment demanded A. will fall. B. will not change. C. will rise. D. could rise or fall.

15. In the Cobb-Douglas production function, Y = K ^a L ^1-a , the fraction of income spent in payments to labor is A. a. B. 1 - a. C. dependent on the amount of labor employed. D. dependent on the amount of capital employed.

14. If the money supply is held constant, an increase in the velocity of money would cause the AD curve to A. shift inward. B. shift outward. C. become steeper. D. become flatter.

16. In a closed economy, the supply of goods and services must be equal to A. consumption. B. consumption + investment. C. consumption + investment + government purchases. D. consumption + investment + government purchases - taxes.

13. If the government increases government spending, then the aggregate demand curve will A. shift to the right. B. shift to the left. C. become steeper. D. become flatter.

14. If the central bank decreases the supply of money, then the aggregate demand curve will A. shift to the right. B. shift to the left. C. become steeper. D. become flatter.

7. If the government raises taxes and the central bank maintains a policy of keeping the interest rate constant, then the combined effect of these two policies would cause income to A. fall. B. stay the same. C. rise. D. it cannot be determined from the information given.

8. If the government raises taxes and the central bank increases the money supply, then the combined effect of these two policies would cause income to A. fall. B. stay the same. C. rise. D. it cannot be determined from the information given.

9. If in response to an increase in government spending, the Fed decides to keep interest rates constant, the government purchases multiplier is A. larger than in the case where the Fed keeps the money supply constant. B. smaller than in the case where the Fed keeps the money supply constant. C. the same as in the case where the Fed keeps the money supply constant. D. larger or smaller than in the case where the Fed keeps money supply constant.

18. Many economists favor A. allows the government to use monetary policy as an output stabilizer. B. forces the central bank to restrict the money supply. C. reduces exchange rate uncertainty. D. allows the government to use trade restrictions to control the current account balance.

25. Many economists believe that the rise in European unemployment is caused by A. generous government benefits. B. the decreased influence of union insiders. C. an increase in the number of younger workers who have higher rates of unemployment. D. economic inequality.

21. Most economists believe that the Great Depression is unlikely to be repeated in the future. Which of the following is NOT a legitimate reason to believe this? A. The Fed will not let the money supply fall by a large amount. B. More effort is made today to balance the government budget. C. Widespread bank failures are less likely to occur. D. The income tax provides an automatic stabilizer today.

23. Measured unemployment may be lower than actual unemployment because A. measured unemployment does not include the frictionally unemployed. B. some individuals may want a job but have become discouraged and stopped looking for one. C. some individuals claim to be unemployed when they are not looking very seriously for a job. D. measured unemployment does not include teenage unemployment.

13. Minimum-wage laws are an example of A. collective bargaining. B. wage rigidity. C. the discouraged-worker effect. D. insiders versus outsiders.

18. Most monetarists believe that A. changes in the money supply have no effect on output. B. money supply growth should vary over the business cycle. C. money supply fluctuations cause most large fluctuations inthe economy. D. active monetary policy can help stabilize aggregate demand.

7. M2 does not include A. currency. B. long-term government bonds. C. traveler's checks. D. demand deposits.

15. On the same graph as we draw the downward-sloping aggregate demand curve, we draw an aggregate supply curve that is A. horizontal in the short run and horizontal in the long run. B. horizontal in the short run and vertical in the long run. C. vertical in the short run and horizontal in the long run. D. vertical in the short run and vertical in the long run.

27. Okun's law expresses a relationship between a change in

A. the price level and a change in real GDP.

B. the price level and a change in the unemployment rate.

C. investment and change in the unemployment rate.