1) Economists have suggested that the relatively higher unemployment in Europe has been caused by which of the following?

A) relatively high unemployment benefits

B) relatively high level of worker protection

C) inadequate macroeconomic policies

D) increased labor costs

E) all of the above

2) The most recent financial crisis started in

A) stock market.

B) bond market.

C) foreign exchange market.

D) housing market.

3) In 2015, the unemployment in the U.S. was

A) 5%.

B) 11%.

C) 5.4%.

D) 4.6%.

4) At what point could the Euro be used as currency?

A) January 1, 1998

B) January 1, 1999

C) January 1, 2000

D) January 1, 2002

5) Most economists believe that the source of European high unemployment in the past two decades is

A) labor market institutions.

B) tight monetary policy.

C) tight fiscal policy.

D) financial crisis.

6) Which of the following explains the relatively high growth rate of output in China since 1980?

A) accumulation of capital

B) technological progress

C) a transition from central planning to a market economy

D) all of the above

7) During the mid-1980s, we observed a significant reduction in oil prices. In the United States, we would expect that this reduction in oil prices would cause

A) a larger reduction in the CPI compared to the GDP deflator.

B) an equal reduction in the CPI and GDP deflator.

C) a larger reduction in the GDP deflator compared to the CPI.

D) no change in the CPI and a reduction in the GDP deflator.

8) For this question, assume that 1980 is the base year. Given macroeconomic conditions in the United States over the past three decades, we know that

A) nominal GDP is always smaller than real GDP since 1980.

B) real GDP and nominal GDP would be equal for the entire period.

C) real GDP is larger than nominal GDP from 2002 to 2008.

D) real GDP and nominal GDP were equal in 1980.

E) none of the above

9) Suppose nominal GDP increased in a given year. Based on this information, we know with certainty that

A) real output has increased.

B) the price level (GDP deflator) has increased.

C) real output and the price level (GDP deflator) have both increased.

D) either real output or the price level (GDP deflator) have increased.

E) real output has increased and the price level has decreased.

10) Macroeconomists are concerned about changes in the unemployment rate because changes in the unemployment rate provide information about

A) the state of the economy.

B) the welfare of those who are unemployed.

C) none of the above

D) both A and B

11)In a given year, suppose a company spends $100 million on intermediate goods and $200 million on wages, with no other expenses. Also assume that its total sales are $800 million. The value added by this company equals

A) $200 million.

B) $300 million.

C) $500 million.

D) $700 million.

E) $800 million.

12) In the United States, someone is classified as unemployed if he or she

A) does not have a job.

B) does not have a job, or else has a job but is looking for a different one while continuing to work.

C) does not have a job, has recently looked for work, and is collecting unemployment insurance.

D) does not have a job, and is collecting unemployment insurance.

E) none of the above

13) An individual is said to be a discouraged worker if he or she

A) is working, but prefers not to work.

B) is working part time, but would prefer a full time job.

C) is working in jobs she/he is not suited for.

D) wants to work, and is actively searching for a job.

E) wants to work, but has given up searching for a job.

14) The Okun's law shows the relationship between

A) inflation and unemployment rate.

B) output growth and unemployment.

C) inflation and output growth.

D) output growth and money supply.

15) The Phillips curve describes the relationship between

A) output growth and unemployment.

B) inflation and output growth.

C) output growth and money supply.

D) inflation and unemployment .

16) Changes in GDP in the short run are caused primarily by

A) demand factors.

B) supply factors.

C) technology.

D) capital accumulation.

E) all of the above

17) An increase in the marginal propensity to save from .1 to .2 will cause

A) an increase in the multiplier and a given change in autonomous consumption (c0) to have a smaller effect on output.

B) an increase in the multiplier and a given change in autonomous consumption (c0) to have a larger effect on output.

C) a reduction in the multiplier and a given change in autonomous consumption (c0) to have a smaller effect on output.

D) a reduction in the multiplier and a given change in autonomous consumption (c0) to have a larger effect on output.

18) Inventory investment refers to

A) the difference between production and sales in a given year.

B) fixed investment.

C) nonresidential investment.

D) the purchase by firms of new machines.

19) Based on our understanding of the paradox of saving, we know that a reductionin the desire to save will cause

A) an increase in equilibrium GDP.

B) a reduction in GDP.

C) an increase in the desire to invest.

D) no change in equilibrium GDP.

E) a permanent reduction in the level of saving.

20) Which of the following events will cause a reduction in equilibrium output?

A) an increase in the marginal propensity to save

B) an increase in taxes

C) a reduction in the marginal propensity to consume

D) all of the above

E) none of the above

21) An economy is in equilibrium when which of the following conditions is satisfied?

A) consumption equals saving

B) output equals consumption

C) total saving equals zero

D) total saving equals investment

E) all of the above

22) Which of the following is included in G?

A) medicare

B) social security payments

C) interest payments on the government debt

D) government purchases

E) all of the above

23) Which of the following is correct?

A) Governments can not achieve the level of output they want.

B) Changing government spending or taxes is easy.

C) Investment will remain constant.

D) Expectations do not matter for government to change spending or taxes.

24) Based on our understanding of consumption and saving, we know that the marginal propensity to consume and the marginal propensity to save must

A) be equal to each other.

B) sum to exactly one.

C) sum to less than one.

D) sum to more than one.

E) be equal to the multiplier.

25) Which of the following occurs when disposable income is zero?

A) consumption must be zero

B) saving must be zero

C) saving must be positive

D) consumption is negative

E) none of the above

26) The marginal propensity to consume represents

A) the level of consumption that occurs if disposable income is zero.

B) the ratio of total consumption to disposable income.

C) total income minus total taxes.

D) the change in output caused by a one-unit change in autonomous demand.

E) the change in consumption caused by a one-unit change in disposable income.

27) Suppose a liquidity trap situation exists. Which of the following is most likely to occur if taxes are cut?

A) no change in output and no change in the interest rate

B) an increase in output and an increase in the interest rate

C) an increase in output and little change in the interest rate

D) an increase in output and a reduction in the interest rate

E) none of the above

28) An increase in the interest rate will cause

A) a reduction in the supply of central bank money.

B) a reduction in the demand for currency.

C) a reduction in the demand for reserves.

D) all of the above

E) both B and C

29) An increase in income will cause

A) a reduction in the supply of central bank money.

B) a reduction in the demand for currency.

C) a reduction in the demand for reserves.

D) none of the above

E) both B and C

30) We would expect which of the following to occur when the central bank conducts an open market purchase of bonds?

A) a reduction in the monetary base (H)

B) a reduction in the money multiplier

C) an increase in the money multiplier

D) an increase in the money supply

31) The FDIC currently insures each bank account up to what level?

A) $10,000

B) $50,000

C) $250,000

D) $150,000

32) Which of the following events will cause the interest rate to increase?

A) an open market sale of bonds

B) an increase in the reserve deposit ratio (i.e., )

C) an increase in income

D) all of the above

33) Which of the following is a component of high powered money?

A) bonds held by banks, loans, and bank reserves

B) currency in circulation plus bank reserves

C) currency in circulation plus checkable deposits

D) bonds held by banks plus checkable deposits

E) the sum of currency in circulation, bank reserves, and checkable deposits

34) Which of the following will occur when the central bank pursues expansionary monetary policy?

A) a leftward shift in the money demand curve and a leftward shift in the money supply curve

B) a rightward shift in the money demand curve and a leftward shift in the money supply curve.

C) a leftward shift in the money demand curve and a rightward shift in the money supply curve.

D) a rightward shift in the money demand curve and a rightward shift in the money supply curve.

E) none of the above

35) Assume that investment does notdepend on the interest rate. A reduction in the money supply will cause which of the following for this economy?

A) no change in the interest rate

B) no change in output

C) a reduction in investment

D) an increase in investment

36) For this question, assume that investment spending depends only on output and no longer depends on the interest rate. Given this information, an increase in the money supply

A) will cause investment to decrease.

B) will cause investment to increase.

C) will cause a reduction in the interest rate.

D) will have no effect on output or the interest rate.

E) will cause an increase in output and have no effect on the interest rate.

37) The IS curve will shift to the left when which of the following occurs?

A) a reduction in the money supply

B) a reduction in government spending

C) an increase in the interest rate

D) all of the above

E) none of the above.

38) Suppose there is a simultaneous fiscal expansion and monetary expansion. We know with certainty that

A) output will increase.

B) output will decrease.

C) the interest rate will increase.

D) the interest rate will decrease.

E) both output and the interest rate will increase.

39) Suppose there is a simultaneous fiscal expansion and monetary contraction. We know with certainty that

A) output will increase.

B) output will decrease.

C) the interest rate will increase.

D) the interest rate will decrease.

E) both output and the interest rate will increase.

40) Empirically it takes nearly ________ years for monetary policy to have its full effect on output.

A) 2

B) 1

C) 3

D) 4

Match column A with column B. Write only the letter at the space provided in column A.

A B

______1. Taxation a) The process and means facilitates buying and selling transactions

______2. Import b) are organizations or intermediaries like banks,insurance and investment companies

______3.Quota c) reservoir of future purchasing powers

______4. Monetary Authority d) easy to recognize

______5. Tax e) easy to carry

______6. Financial market f) are physical or electronic forums that facilitate the flow of funds among investors, businesses, and governments

______7. Tariff g) includes the financial system, institutions, markets and individuals that make the economy operate efficiently.

______8. Store of value h) capable of being stamped with proper design & durable to maintain its form

______9. Medium of exchange i) is an instrument to acquire capital

______10) Export j) capable of being subdivides into smaller denominations

k) is the study of how individuals, institutions, governments and businesses acquire, spend and manage money and other financial assets.