1. 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.

2.Use the following information to answer this question. If nominal GDP rises from $100 trillion to $120 trillion, while the GDP deflator rises from 2.0 to 2.2, thepercentagechange in real GDP is approximately equal to A) -10%.

B) 10%. C) 20%.D) 9.1%.E) 0%.

3. If C = 2000 + .9YD, what decrease in taxes must occur for equilibrium output to increase by 1000? A) 111 B) 100

C) 1000 D) 500

4. The money demand curve will shift to the left when which of the following occurs? A) a reduction in the interest rate B) an increase in the interest rate C) an open market sale of bonds by the central bank

D) an increase in income

E) none of the above

5. 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

6. Which of the following isnotincluded as a component of the M1 definition of money?A) bonds B) checkable deposits C) coins and bills held by the nonbank public

D) all of the above E) none of the above

7. A firm's value added equals A) its revenue minus all of its costs. B) its revenue minus its wages. C) its revenue minus its wages and profit. D) its revenue minus its cost of intermediate goods.E) none of the above

8. Which of the following isnotanasseton a bank's balance sheet? A) reserves B) loans C) checkable deposits

D) all of the above E) none of the above

9. GDP in current dollars is equivalent to which of the following? A) real GDP B) GDP in terms of goods C) GDP in 2000 dollars

D) GDP in constant dollars

E) none of the above

Explanation: Nominal GDP

10. Suppose the marginal propensity to consume equals .8 (i.e., c1= .8). Given this information, which of the following events will cause the largest increase in output? A) G increases by 200 B) T decreases by 200

C) I increases by 150 D) both A and B

11. Suppose you are provided with the following data for your country for a particular month: 200 million people are working, 20 million are not working but are looking for work, and 40 million are not working and have given up looking for work. The official unemployment rate for that month is

A) 7.7%.

B) 9.1%.

C) 10%. D) 23%. E) 30%.

12. Suppose a one-year discount bond offers to pay $1000 in one year and currently has a 8% interest rate. Given this information, we know that the bond's price must be A) $1008.5 B) $925.9

C) $750 D) $108 E) none of the above

13. Disposable income equals A) income minus saving. B) income minus both saving and taxes. C) consumption minus taxes. D) the sum of consumption and saving.E) none of the above

14. Which of the following generally occurs when a central bank pursues expansionary monetary policy? A) the central bank purchases bonds and the interest rate increases. B) the central bank purchases bonds and the interest rate decreases.

C) the central bank sells bonds and the interest rate increases. D) the central bank sells bonds and the interest rate decreases.

15. Let the consumption function be represented by the following equation: C = c0+ c1YD.For this equation, we assume that c1is

A) negative. B) larger than c0. C) different at different levels of income.

D) equal to one.

E) none of the above

16. Suppose the consumption equation is represented by the following: C = 250 + .75YD.The multiplier in this economy is A) .25. B) .75.

C) 1. D) 4. E) 5.

17. Equilibrium in the goods market requires that A) production equals income. B) production equals demand. C) consumption equals saving.

D) consumption equals income. E) government spending equals taxes minus transfers.

18. Suppose a one-year discount bond offers to pay $100 in one year and currently sells for $95. Given this information, we know that the interest rate on the bond is A) 11.1%. B) 10%.

C) 5.3%.

D) 9.9%.

19. In a goods market model, we know that a reduction in c1(where C = c0+ c1YD) will cause A) the ZZ line to become steeper and a given change in autonomous consumption (c0) to have a

smaller effect on output. B) the ZZ line to become steeper and a given change in autonomous consumption (c0) to have a larger effect on output. C

D) the ZZ line to become flatter and a given change in autonomous consumption (c0) to have a larger effect on output.

20. Which of the following is an asset for both a bank and a central bank? A) currency B) deposits C) bonds

D) all of the above E) none of the above

21. 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.

) the ZZ line to become flatter and a given change in autonomous consumption (c0) to have a

smaller effect on output.

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.

22. When a closed economy is in equilibrium, we know with certainty that

A) I = S + (T - G).

B) I = S. C) I = S + (G - T). D) G = T and S = I.

23. Based on the goods market model and equilibrium in this market, a reduction in investment will cause A) an increase in the multiplier. B) a reduction in the multiplier.

C) a reduction in the marginal propensity to save.

D) a reduction in output.

E) both B and D

Answer 24 and 25 using the information below:

Suppose a country using the United States' system of calculating official unemployment statistics has 100 million people, of whom 50 million are working age. Of these 50 million, 20 million have jobs. Of the remainder: 10 million are actively searching for jobs; 10 million would like jobs but arenotsearching; and 10 million donotwant jobs at all.

24. Refer to the information above. The labor force is A) 20 million. B) 40 million. C) 60 million.

D) 80 million. E) 100 million.

25. For the U.S. economy, which of the following represents the largest component of GDP? A) imports B) investment C) government spending

D) exports

E) none of the above

26. 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) an increase in the demand for reserves. D) none of the above

27. Refer to the information above. The official unemployment rate is A) .1. B) .2. C) .33.

D) .4. E) .66.

28. Prices for which of the following are included in the GDP deflator, but not included in the Consumer Price Index? A) firms' purchases of new equipment B) intermediate goods and services

C) consumption of goods D) consumption of services

29. An open market purchase of bonds by the central bank will cause which of the following when a liquidity trap situation exists? A) The interest rate will decrease. B) The interest rate will not change.

C) Output will increase. D) The money supply, M, will not change. E) none of the above

30. The IS curve represents A) the single level of output where the goods market is in equilibrium. B) the single level of output where financial markets are in equilibrium. C) the combinations of output and the interest rate where the money market is in equilibrium.D) the combinations of output and the interest rate where the goods market is in equilibrium.E) none of the above

31. We would expect which of the following to occur when the central bank pursues contractionary monetary policy? A) an increase in bond prices and an increase in the interest rate (i) B) a reduction in bond prices and an increase in i

C) an increase in bond prices and a reduction in i D) a reduction in bond prices and a reduction in i E) none of the above

32. Suppose the consumption equation is represented by the following: C = 250 + .75YD. Now assumegovernment spending increases by 100 for the above economy. Given the above

information, we know that equilibrium output will increase by A) 200. B) 400. C) 800.

D) 1000. E) none of the above

33. When a liquidity trap situation exists, the most appropriate policy to increase output would be A) a central bank sale of bonds. B) an increase in government spending.

C) a central bank purchase of bonds. D) none of the above

34. Which of the following represents total saving for an economy? A) the sum of private saving and fixed investment B) the sum of private saving and consumption C) the sum of taxes and government spending

D) the excess of taxes over government spending

E) none of the above

35. For this question, assume that individuals donothold currency (i.e., c = 0). The money multiplier is equal to A) 1. B) 1/(1 - c).

C) . D) 1/(1- ).E) 1/

36. Autonomous spending in a closed economy equals which of the following?

A) c0+ I + G - c1T

B) C + I + G C) Z D) c0+ I + G + c1T

37. Suppose there is an increase in autonomous consumption. Specifically, suppose c0increases where C = c0+ c1YD.This increase in autonomous consumption will cause which of the following to increase? A) equilibrium income

B) equilibrium disposable income C) demand D) all of the above E) none of the above

38. Which of the following equals demand in a closed economy? A) C + I + G + X B) C + I + G + X - IM C) C + I + G + IM - X

D) none of the above

39. Which of the following is a component of high-powered money (central bank 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