CHAPTER 5: AS –AD MODEL

1. Which of the following would not cause a shift of aggregate demand (AD) curve?
a. The government cuts taxes.
b. The Fed chooses a more expansionary monetary policy.
c. Technological progress improves productivity.
d. Consumers increase autonomous spending.
2. Suppose the U.S. Congress passes a stimulus package with tax rebates for all qualifying
U.S. households. Assume everything else remains unchanged. How would the impact be
illustrated with the AS-AD model?
a. AD shifts right.
b. AD shifts left.
c. SRAS shifts right
d. SRAS shifts left
3. Suppose we observe an increase in inflation and a decrease in output. Which of the
following could be the cause?
a. Good weather has produced a bumper harvest.
b. An increase in consumer confidence has boosted consumption spending
c. The price of a key input, oil, has increased.
d. None of the above
4. If the Fed pursues contractionary monetary policy, what is the effect in the short run?
a. AD shifts left.
b. AD shifts right
c. SRAS shifts right
d. SRAS shifts left
5. A decrease in net exports, other things equal, shifts the aggregate_____curve to the
_____.
a. demand; right
b. demand; left
c. supply; left
d. supply; right
6. The aggregate demand curve shifts to the right when
a. the money supply increases.
b. net exports increase.
c. taxes are increased.
d.both (a) and (b)
7. Which of the following does not cause the aggregate demand curve to shift to the left?
a. A decrease in net exports
b. A decrease in government spending
c. A decrease in taxes
d. A decrease in the money supply
8. The long-run aggregate supply curve is
a. a horizontal line at the current level of output
b. a vertical line at the current level of output.
c. a vertical line at the natural level of output.
d. None of the above
9. A period of rising prices and rising unemployment indicates that the economy has
experienced
a. a leftward shift of the short-run aggregate demand curve.
b. a rightward shift of the short-run aggregate demand curve.
c. a leftward shift of the short-run aggregate supply curve.
d. a rightward shift of the short-run aggregate supply curve.
10. An adverse or negative supply shock causes the aggregate _____ curve to shift to the
_____.
a. demand; right
b. demand; left
c. supply; left
d. supply; right
11. Which of the following shifts the short-run aggregate supply curve to the right?
a. An increase in government spending
b. A successful wage push by workers
c. Expectations of a higher aggregate price level
d. A technological improvement that increases worker productivity
12. A _____ supply shock shifts the short-run aggregate supply curve to the left, while a
_____ supply shock shifts the short-run aggregate supply curve to the right.
a. negative; negative
b. negative; positive
c. positive; negative
d. positive; positive
13. OPEC oil price increases or citrus fruit crop freezes are referred to as _____ _____
shocks and cause the aggregate _____ curve to shift ______.
a. negative demand; demand; left
b. negative demand; demand; right
c. negative supply; supply; left
d. positive supply; supply; left
14. If negative supply shocks are accommodated by increasing the money supply, output
will return to the natural level, but
a. the price level will return to its pre-shock level.
b. the price level will increase in the long run.
c. the price level will decline in the long run.
d. None of the above
15. A situation of rising prices of goods and services and falling output is known as
a. stagflation.
b. hyperinflation.
c. deflation.
d. None of the above
16. An increase in capital stock would lead to a ________ shift of the ________ curve, and
thus cause output to ________ and price level to ________ in the short run
a. rightward; SRAS; increase; decrease
b. leftward; SRAS; decrease; increase
c. leftward; AD; remain the same; increase
d. rightward; AD; increase; increase
17. Assume that the economy is initially in long-run equilibrium. Assuming the
Government increases spending, in the short run
a. The price level falls, output remains unchanged
b. The price level falls, output increases
c. The price level falls, output decreases
d. None of the above
18. Assume that an economy is initially in long-run equilibrium. Suppose the Government
increases taxes on personal income. If policymakers let the economy adjust itself, in the
long run, compared to the initial equilibrium,
a. The price level falls, output decreases
b. The price level falls, output equals natural level of output
c. The price level falls, output decreases
d. None of the above
19. Assume that Vietnam's economy is initially in long-run equilibrium. If Vietnam's
trading partners grow strongly and buy more Vietnamese goods, in the short run
a. The price level falls, output remains unchanged
b. The price level falls, output decreases
c. The price level increases, output decreases
d. None of the above
20. If the stock market crashes,
a. aggregate demand increases, which the Fed could offset by increasing the money supply.
b. aggregate demand increases, which the Fed could offset by decreasing the money supply.
c. aggregate demand decreases, which the Fed could offset by increasing the money supply.
d. aggregate demand decreases, which the Fed could offset by decreasing the money supply
 CHAPTER 6: UNEMPLOYMENT AND INFLATION

1. Workers who are unemployed because they lack the skills needed by employers are
called
a. frictionally unemployed.
b. cyclically unemployed.
c. seasonally unemployed.
d. structurally unemployed.
2. Which of the following would be included as a member of the labor force?
a. A full time college student
b. A retired banker volunteering at the local library
c. A parent who chooses to stay at home with their preschool age children
d. None of the above
3. The labor-force participation rate is defined as
a. (Employed ÷ Adult Population) × 100%.
b. (Employed ÷ Labor Force) × 100%.
c. (Labor Force ÷ Adult Population) × 100%.
d. (Adult Population ÷ Labor Force) × 100%
4. Which of the following could start a cost - push inflation?
a. an increase in government expenditure
b. a decrease in the quantity of money
c. an increase in imports
d. None of the above
5. The unemployment rate in an economy is 6%. The total population of the economy is
290 million, and the size of the labour force is 150 million. The number of unemployed
workers in this economy is
a. 24 million
b. 6 million
c. 12 million
d. 9 million
6. If the Consumer Price Index was 170 in 2018 and 180 in 2019, then the rate of inflation
in 2018 is approximately
a. 6.3 percent
b. 5.5 percent
c. 7.2 percent
d. None of the above
7. The money supply in Freedonia is 100 billion Freedonian Marks. Nominal GDP is 800
billion Freedonian Marks and real GDP is 200 billion Freedonian Marks. What are the
price level and velocity in Freedonia?
a. Velocity is 2 and the price level is 1.
b. Velocity is 4 and the price level is 8.
c. Velocity is 8 and the price level is 4.
d. There is insufficient information to answer the question
8. Inflation can be started by
a. a decrease in aggregate supply or a decrease in aggregate demand.
b. an increase in aggregate supply or a decrease in aggregate demand.
c. a decrease in aggregate supply or an increase in aggregate demand.
d. an increase in aggregate supply or an increase in aggregate demand
9. Which of the following could start a demand-pull inflation?
a. an increase in government expenditure
b. a decrease in the quantity of money
c. an increase in imports
d. an increase in prices of raw materials
10. Natural rate of unemployment is considered as being equal to the level that combines all
of the following except
a. frictional unemployment.
b. cyclical unemployment.
c. classical unemployment.
d. structural unemployment
 CHAPTER 7, 8, 9

1. If a production function exhibits constant returns to scale,

a. doubling all of the inputs more than doubles output due to the catch-up effect.
b. doubling all of the inputs has absolutely no impact on output because output is constant.
c. doubling all of the inputs less than doubles output due to diminishing returns.
d. doubling all of the inputs doubles output
2. According to the Solow model, persistently rising living standards can only be explained
by
a. population growth.
b. consumption.
c. saving and investment.
d. technological progress
3. In 2002, Freedonia had a population of 2,700 and real GDP of about 11,610,000. In 2001
it had a population of 2,500 and real GDP of about 10,000,000. What was the approximate
growth rate of real GDP per person in Freedonia between 2001 and 2002?
a. 7.5 percent
b. 12.5 percent
c. 20.5 percent
d. 35.5 percent
4. In the Solow growth model, capital exhibits ______ returns
a. constant
b. increasing
c. diminishing
d. None of the above
5. The slope of the supply of loanable funds curve represents the
a. positive relation between the real interest rate and investment.
b. positive relation between the real interest rate and saving.
c. negative relation between the real interest rate and investment.
d. negative relation between the real interest rate and saving
6. In a closed economy, private saving is
a. the amount of income that households have left after paying for their taxes and
consumption.
b. the amount of income that businesses have left after paying for the factors of production.
c. the amount of tax revenue that the government has left after paying for its spending.
d. always equal to investment
7. If GDP = €1,000, consumption = €600, taxes = €100, and government purchases = €200,
how much is saving and investment?
a. saving = €300, investment = €300
b. saving = €200, investment = €100
c. saving = €100, investment = €200
d. saving = €200, investment = €200

8. Investment is
a. the purchase of goods and services.
b. the purchase of capital equipment and structures.
c. when we place our saving in the bank.
d. the purchase of stocks and bonds

9. There is a __________ relationship between the amount of loanable funds demanded and
the rate of interest.
a. positive
b. direct
c. negative
d. both positive and negative.
10. An increase in the budget surplus
a. shifts the supply of loanable funds to the left and increases the real interest rate.
b. shifts the supply of loanable funds to the right and reduces the real interest rate.
c. shifts the demand for loanable funds to the right and increases the real interest rate.
d. shifts the demand for loanable funds to the left and reduces the real interest rate
11. If the government reduces taxes on the return to saving
a. the real interest rate should fall.
b. the real interest rate should rise.
c. the impact on the real interest rate is indeterminate.
d. the real interest rate should not change.
12. If the exchange rate is 1 USD = 125 JPY, a bottle of rice wine that costs 2,500 JPY costs
a. 20 USD.
b. 25 USD.
c. 22 USD.
d. None of the above
13. On day 1, it cost 0.7354 USD to buy one Canadian dollar. How many Canadian dollars
would 1 USD buy?
a. 1.36
b. 1.27
c. 1.11
d. 0.84
14. On the next day (see Question 13) it cost 0.845 USD to buy one Canadian dollar. From
this information and assume that other things hold constant, we can conclude that
a. The U.S. dollar got stronger and U.S. exports will rise
b. The U.S. dollar got weaker and U.S. exports will rise
c. The U.S. dollar got stronger and U.S. exports will fall
d. The U.S. dollar got weaker and U.S. exports will fall
15. Suppose the nominal exchange rate between the Japanese yen and the UK pound is 140
yen per pound. Further, suppose that a kilogram of rice costs £ 2.5 in the UK and 250 yen
in Japan. What is the real exchange rate between Japan and the UK?
a. 2.5 kilograms of Japanese rice per kilogram of UK rice
b. 1.2 kilograms of Japanese rice per kilogram of UK rice
c. none of these answers
d. 1.9 kilograms of Japanese rice per kilogram of UK rice