1) If the production function in a perfectly competitive market is given by 'I" = PKG-\"L\" a. it has decreasing returns to scale. b. the labor's share of income is larger than the capital's share of income. c. the elasticity of output with respect to capital and with respect to labor are equal. d. the elasticity of output with respect to capital is equal to the capital's share of income. 2) The natural rate of unemployment a. is a problem that should be dealt with short run policies. b. has two components: frictional and cyclical unemployment. c. is the amount of unemployment that the economy normally experiences. d. is associated with short-term ups and downs of the business cycle. 3} Suppose that the government passes a law that prohibits mutual funds from holding bonds. The likely result would be a. a shift to the right in the demand curve for bonds. b. a shift to the left in the supply curve for loanable funds. c. an increase in the equilibrium interest rate. d. a decrease in the equilibrium interest rate. 4} The variable that linlts the ma rltet for goods and services and the market for real money balances in the IS-Ll'v'l model is the: a. consumption function. h. interest rate. c. price level. d. nominal money supply 5} According to the Keynesian-cross analysis; if the marginal propensity to consume is 113 and government expenditures G increase by IUD, equilibrium income Y will rise by: a. 5. h . EDD. 43. EU. d _ l. 5} Business cycles are: a regular and predictable. b. irregular but predictable. c. regular but unpredictable. cl. irregular and unpredictable 7) Suppose a one-year free risk discount bond offers to pay CHF 1000 in one year and currently sells for CHF 950. Given this information, we know that the interest rate on the bond is a. 10% b. 90% c. 5.3% d. 9.5% 8) In the IS-LM model suppose that the Central Bank purchases bonds and the government simultaneously cut taxes. We know with certainty that this combination of policies must cause a. a reduction in output b. an increase in output C. an increase in the interest rate d. a reduction in the interest rate 9) A decrease in income a. leads to a leftward shift of the money demand curve b. lowers money demand for any given interest rate C. lowers interest rates ceteris paribus d. all of the above 10) Consider two economies that are identical and can be represented by the IS-LM model, with the exception that one has a higher marginal propensity to consume than the other. If the money supply is increased by the same amount in each economy, the high MPC economy will experience a. A larger increase in output and a smaller decrease in the interest rate. b. A larger increase in output and a larger decrease in the interest rate. C. A smaller increase in output and a smaller decrease in the interest rate. d. A smaller increase in output and a larger decrease in the interest rate. 11) If the Phillips Curve is vertical in the long run, then an increase in the money supply from year to year will the unemployment rate and will_ inflation rate. a. increase; increase b. increase; not change c. not change; increase d. not change; not change 12) If inflationary expectations increase, the Phillips curve will a. shift to the right b. shift to the left C. become vertical d. become upward sloping