1. Chronic involuntary unemployment is a problem in capitalism and it is thought to be rooted in a. The lack of both autonomous and induced consumption b. Insufficient labor supply due to the unequal distribution of income c. Mistaken capitalist labor policy that focuses on self interest d. Wages are sticky and don't adjust, so the labor market can't clear

2. Fiscal policy that is built into the law and requires no specific action by Congress is called a. Procyclical, non-discretionary fiscal policy b. Automatic stabilizers, also known as non-discretionary policy c. Procyclical, discretionary policy d. Automatic stabilizers, also known as discretionary policy

3. Which one of the following policies, in theory, would be best in closing an inflationary gap? a. A fall in government spending and a small rise in taxes b. A rise in government spending accompanied by an equal rise in taxes c. A rise in government spending alone d. A small fall in government spending accompanied by a large cut in taxes

4. A rise in interest rates, when the derivative Ap/r is very small in value, results in a graph where the Ap line is a. Very steep while the IS curve would be very flat b. Very flat, as is the IS curve c. Very steep, as is the IS curve d. Very flat while the IS curve would be very steep

5. The major determinants of the slope of the IS curve are a. L/r and the spending, or fiscal, multiplier b. Ap/r and the spending, or fiscal, multiplier c. L/r and the money supply multiplier d. Ap/r and the money supply multiplier

6. The graph of the money supply function is vertical because a. The level of the money supply is strongly and inversely related to the interest rate b. The level of the money supply is strongly and positively related to the interest rate c. The level of the money supply is a flow variable d. The level of the money supply is a stock variable

7. The parameter "k" in the equation L = ky + hr, is related to a. The precautionary and transactions motives for money demand b. The speculative and transactions motives for money demand c. The precautionary and speculative motives for money demand d. The transaction motive for money demand only

8. Assume that the parameter h in the money demand function falls dramatically in numerical size, say, from 800 billion to 200 billion. We may assume, all else constant, that a. The money demand function will become flatter b. The money demand will become much steeper c. The money demand function will shift to the right as the intercept rises d. The money demand function will shift to the left as the intercept falls

9. A rise in money supply will, all else held constant, a. Raise the equilibrium rate of interest b. Raise the market rate of interest but lower the demand for money c. Lower the equilibrium rate of interest d. Lower the equilibrium rate of interest and shift the money demand to the right

10. In the Keynesian Range of the LM curve we will find that a. The economy is in a severe recession with very low interest rates b. The economy is near full employment c. The economy is near full employment and interest rates are low and stable d. The economy is in severe recession and the LM curve is very steep

11. In the IS-LM model a rise in the money supply, all else constant, will result in a. A shift in the IS curve to the right, moving along the LM curve b. A shift in the IS curve to the right and a shift in LM up c. A shift in the LM curve up, moving along the IS curve d. A shift in the LM curve down, moving along the IS curve

12. In the IS-LM model, an expansionary fiscal policy will have the largest possible the orifical multiplier when we find a. The money demand function very insensitive to changes in the interest rate, thus L is steep b. The policy is focused solely on a change in taxes c. The LM curve is very steep d. The money demand function is very sensitive to changes in the interest rates, thus L is flat

13. The amount of crowding out we find in an expansionary fiscal policy is very large when we find a. The economy in the Keynesian range of the LM curve b. The economy is near full employment c. The economy is in a severe recession d. The size of the speculative demand for money derivative is very large

14. Which of the following statements is true regarding the ability of the Federal Reserve to manipulate the level of real GDP? a. The Fed is always able to stimulate a weak economy but may have trouble slowing down a strong, booming economy b. The Fed is always able to stimulate a weak economy c. The Fed is better at slowing down a booming economy than it is at stimulating a weak economy d. The Fed has never been able to slow down a booming economy

15. The fiscal policy that will give us the largest multiplier in a bad recession will occur when the dollars used to finance the policy a. Come from idle balances b. Come from taxes that are timely, targeted and temporary c. Are spent on fostering a rise in exports and weakening the dollar d. Come from corporations rather than from households

16. Which of the following would be the best description of a recessionary gap in the simple expenditure model? a. The area under the Ep line between full employment and actual Ye b. The area under the 45-degree line between full employment and actual Ye c. The horizontal distance between Ye and Yn d. The vertical distance between Ap and Ye