B. Depreciation and indirect business taxes.

C. depreciation, indirect business taxes, and corporate profits.

D. depreciation, indirect business taxes, corporate profits, and social insurance contributions.

4. The unemployment rate is 10 percent. The rate of job separation is 5 percent. How high does the rate of job finding have to be to keep the unemployment rate constant? A. 10 percent B. 45 percent C. 50 percent D. 90 percent

11. The unemployment resulting from wage rigidity and job rationing is called A. the natural rate of unemployment. B. the discouraged-worker effect. C. structural unemployment. D. insiders versus outsiders. 16. The unemployment caused by unions and by the threat of unionization is an instance of A. structural unemployment. B. the discouraged-worker effect. C. efficiency wages. D. conflict between insiders and outsiders.

6. The unemployment caused by the time that it takes to match workers and jobs is called A. frictional unemployment. B. the discouraged-worker effect. C. structural unemployment. D. wage rigidity.

21 The law of one price applied to the international marketplace is called A. arbitrage. B. nominal exchange rates. C. real exchange rates. D. purchasing-power parity.

1. The Solow growth model assumes that the production function exhibits A. decreasing returns to scale. B. constant returns to scale. C. increasing returns to scale. D. increasing marginal product.

12. The Golden Rule level of capital accumulation is defined as the level of the capital stock that achieves a steady state with the A. highest rate of savings. B. highest level of income. C. highest level of consumption. D. lowest level of depreciation.

7. The steady state level of income A. the rate of saving. B. the current level of income in the country. C. the efficiency with which the economy employs the factors of production. D. the population growth rate.

17. The marginal product of capital (MPK) is 1/3; the marginal product of labor (MPL) is 3. Capital is increased by 30; the labor force is increased by 10. How much does output increase? A. 10 B. 30 C. 33 D. 40

4. The change in the capital stock is equal to A. investment. B. investment - depreciation. C. investment - inflation. D. investment - depreciation - inflation.

1. The key difference between the IS-LM model and the Mundell-Fleming Model is that the A. Mundell-Fleming model does not take the price level as fixed. B. Mundell-Fleming model assumes a small open economy. C. Mundell-Fleming model stresses the interaction between markets different from those in the IS-LM model. D. Mundell-Fleming model is not used to evaluate monetary and fiscal policy effects.

4. The Mundell-Fleming model predicts that, in Y - e space, an appreciation of the exchange rate will cause the IS* curve to A. shift to the left. B. shift to the right. C. become steeper. D. remain unchanged.

5. The Mundell-Fleming model predicts that, in Y - e space, an appreciation of the exchange rate will cause the LM* curve to A. shift to the left. B. shift to the right. C. become steeper. D. remain unchanged.

17. The consumer price index (CPI)

A. measures the price of a fixed basket of goods and services.

B. measures the price of a basket of goods and services that constantly changes as the composition of consumer spending changes.

C. measures the amount of money that it takes to produce a fixed level of utility.

D. is one of the many statistics in the National Income Accounts.

17. Unions may cause unemployment if A. outsiders push wages down. B. insiders force real wages higher than the market-clearing level. C. outsiders are subject to minimum-wage legislation. D. insiders are fired and outsiders are hired.

10. Under a system of floating exchange rates, a monetary contraction by the central bank would cause the exchange rate to A. rise. B. rise in the same proportion as inflation. C. remain constant. D. fall.

14. Under a system of fixed exchange rates, an import restriction on foreign goods would cause net exports and the level of income to A. rise. B. rise in the same proportion as inflation. C. remain constant. D. fall.

15. Under a system of fixed exchange rates A. only monetary policy can affect income. B. only fiscal policy can affect income. C. both monetary and fiscal policy can affect income. D. neither monetary nor fiscal policy can affect income.

16. Under a system of floating exchange rates A. only monetary policy can affect income. B. only fiscal policy can affect income. C. both monetary and fiscal policy can affect income. D. neither monetary nor fiscal policy can affect income.

8. Using the framework of the Solow growth model, the U.S. level of capital is presently A. above the Golden Rule level. B. more or less at the Golden Rule level. C. below the Golden Rule level. D. below the level needed to replace depreciated capital.

5. Unemployment insurance A. frictional unemployment. B. seasonal unemployment. C. teenage unemployment. D. cyclical unemployment.

9. Which of the following statements describes the difference between nominal and real GDP?

A. Real GDP includes only goods; nominal GDP includes goods and services.

B. Real GDP is measured using constant base-year prices; nominal GDP is measured using current prices.

C. Real GDP is equal to nominal GDP less the depreciation of the capital stock.

D. Real GDP is equal to nominal GDP multiplied by the CPI.

6. Which of the following is not included in GDP?

C. The value of automobile services enjoyed by car owners

1.Which of the following is a flow variable?

C. Your monthly consumption of hamburgers

2. Which of the following is not a stock variable?

D. Inventory investment

20. Which of the following statements about the CPI and the GDP deflator is true?

A. The CPI measures the price level; the GDP deflator measures the production of an economy.

B. The CPI refers to a base year; the GDP deflator always refers to the current year.

C. The weights given to prices are not the same.

D. The GDP deflator takes the price of imported goods into account; the CPI does not.

23. Which of the following events will cause the unemployment rate to increase?

A. An increase in population, with no change in the size of the labor force

B. A proportionally equal increase in the labor force and the number of unemployed workers

C. An increase in the labor force with no change in the number of employed workers

D. An increase in the number of employed workers with no change in the number of unemployed workers

9. Which of the following is not a decision made by a competitive firm? A. The number of employees to hire B. How much to invest in machines C. What price to ask for its product D. How much to produce

14. Which of the following is not a characteristic of the Cobb-Douglas production function? A. Capital and labor receive equal fractions of income. B. Economic profit is zero. C. Factor payments are a constant fraction of income. D. Constant returns to scale.

19. Which of the following operations is not considered investment? A. A family builds a house in which it plans to live. B. A car dealer stores some of this year's models for next year. C. An individual purchases several pieces of antique furniture. D. A firm buys a computer for word processing.

1. Which of the following is not a function of money? A. It is a means of production. B. It is a unit of account. C. It is a store of value. D. It is a medium of exchange.

6. Which of the following is a type of open-market operation? A. The government sells Treasury bills to the public. B. The government prints money and uses it to buy army C. The Fed sells Treasury bills to the public. D. The Fed buys foreign currency in the exchange market.

13. Which component of the quantity equation is assumed constant by the quantity theory of money? A. The money supply B. The velocity of money C.The level of income D. The price level

18. Which of the following statements is false? A. If inflation is higher than the real interest rate, then the nominal interest rate must be negative. B. If inflation is higher than the nominal interest rate, then the real interest rate must be negative. C. If the nominal interest rate is higher than the real interest rate, then inflation must be positive. D. If the nominal interest rate is higher than inflation, then the real interest rate must be positive. 12 Which of the following characterizes the U.S. economy since 2001? A. Government budget deficit and negative net capital outflow B. Government budget deficit and positive net capital outflow C. Government budget surplus and negative net capital outflow D. Government budget surplus and positive net capital outflow

13 Which of the following did not contribute to an increase in government saving in the 1990's? A.   Tax increases under presidents Bush and Clinton. B.   Congressional restraint in increasing government spending. C.   A shrinking trade deficit. D.   Rapid productivity growth

23. When the government raises revenue by printing money, it imposes an "inflation tax" because the A. real value of money holdings falls. B. interest rate falls. C. difference between nominal and real interest rates becomes smaller. D. nominal value of money holdings falls.

25 Which of the following causes a decrease in the real exchange rate? A. An exogenous increase in foreign demand for domestic goods B. An exogenous decrease in investment C. An increase in government purchases D. A decrease in taxes

30. Which of the following is not a social cost of inflation? A. The money that people hold loses value due to the inflation tax. B. People hold smaller real balances and so have to make more frequent trips to the bank. C. Firms have to spend money to change prices more frequently. D. Inflation leads to greater variability in the relative prices charged by firms.

8. Which of the following policies would reduce the amount of frictional unemployment? A. A reduction in corporate taxes B. An increase in unemployment insurance C. An increase in the minimum wage D. Public retraining programs

10. When the real wage is above the level that equilibrates supply and demand, then the quantity of labor supplied A. depends on the nominal wage. B. is smaller than the quantity of labor demanded. C. is equal to the quantity of labor demanded. D. is greater than the quantity of labor demanded.

15. Which of the following is not a cause for real wage rigidity? A. Minimum-wage laws B. Unemployment insurance C. Union power D. Efficiency wages 20. Which of the following statements about unemployment is true? A. Most spells of unemployment are long. B. Most unemployment is accounted for by the long-term unemployed. C. The long-term unemployed make up only a small fraction of the unemployed. D. Most people who become unemployed remain unemployed for a long time.

3. When the nominal wage is stuck, a higher price level will cause the real wage to A. fall. B. stay the same. C. rise. D. rise and then fall.

2. Which of the following is not assumed by the Solow growth model? A. Constant returns to scale in production B. Output depends only on capital, labor, and technology C. Diminishing marginal products of labor and capital D. Output is constant

2. Which of the following is NOT exogenous in the IS-LM model? A. The interest rate B. Taxes C. The price level D. Government expenditure

16. Which of the following is an example of discretionary policy? A. A balanced-budget amendment B. A law specifying that the money supply grow at 3% every year C. A law specifying that the money supply grow at 3% + (unemployment rate - 6%) every year D. A capital gains tax cut during a recession

17. Which of the following patterns of economic activity is most likely to occur when there is a political business cycle? A. High output growth after an election B. High inflation after an election C. High unemployment before an election D. High output growth before an election

13. Which of the following would have the strongest A. History of consistent low-inflation policies B. Law prescribing a low-inflation policy C. Constitutional amendment dictating a low-inflation policy D. Change in administration