1. You know that a chocolate bar costs 60 cents today. You also know the CPI for 1962 and the CPI for today. Which of the following would you use to compute the price of the candy bar in 1962 prices?

a. 60 cents (1962 CPI - today's CPI)

b. 60 cents (today's CPI - 1962 CPI)

c. 60 cents (today's CPI/1962 CPI)

d. 60 cents (1962 CPI/today's CPI)

2. Which statement is consistent with the theory of aggregate supply?

a.An increase in the expected price level shifts the short-run aggregate-supply curve to the left, and an increase in the actual price level shifts the short-run aggregate supply to the left.

b.An increase in the expected price level shifts the short-run aggregate-supply curve to the left, and an increase in the actual price level does not shift the short-run aggregate supply.

c.An increase in the expected price level shifts the short-run aggregate-supply curve to the right, and an increase in the actual price level does not shift the short-run aggregate supply.

d.An increase in the expected price level shifts the short-run aggregate-supply curve to the right, and an increase in the actual price level shifts the short-run aggregate supply to the right.

3. Which statement is consistent with the long-run theories studied?

a.In the long run, output is determined by the amount of capital, labour, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level adjusts to balance the supply and demand for money.

b.In the long run, output is determined by the amount of capital, labour, and technology; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level is stuck.

c.In the long run, output responds to the aggregate demand for goods and services; the interest rate adjusts to balance the supply and demand for loanable funds; and the price level adjusts to balance the supply and demand for money.

d.In the long run, output responds to the aggregate demand and supply of goods and services; the interest rate adjusts to balance the supply and demand for money; and the price level adjusts to balance the supply and demand for loanable funds.

4. Which statement describes the interest-rate effect?

a.A higher price level leads to higher money demand, higher money demand leads to higher interest rates, and a higher interest rate increases the quantity of goods and services demanded.

b.A lower price level leads to lower money demand, lower money demand leads to higher interest rates, and a lower interest rate reduces the quantity of goods and services demanded.

c.A lower price level leads to lower money demand, lower money demand leads to lower interest rates, and a lower interest rate increases the quantity of goods and services demanded.

d.A higher price level leads to higher money demand, higher money demand leads to lower interest rates, and a higher interest rate reduces the quantity of goods and services demanded.

5. Which statement best describes the impact of open-market purchases by the Bank of Canada?

a.The money supply and the value of money increase.

b.The money supply decreases, which makes the value of money increase.

c.The money supply increases, which makes the value of money decrease.

d.The money supply and the value of money decrease.

6. Which statement best describes the effects of a fall in the price level?

a.Dollars become less valuable, and interest rates rise.

b.Dollars become less valuable, and interest rates fall.

c.Dollars become more valuable, and interest rates fall.

d.Dollars become more valuable, and interest rates rise.

7. Which statement best characterizes the long-run aggregate-supply curve?

a. It demonstrates the importance of money in the economy.

b. It is horizontal.

c. It shows that money does not influence real GDP in the long run.

d. It shows a positive relationship between price level and output.

8. Which of the following shifts the short-run, but not the long-run, aggregate supply right?

a. a decrease in the price level

b. a decrease in the savings rate

c. a decrease in the expected price level

d. a decrease in the natural rate of unemployment

9. Which of the following shifts money demand to the right?

a. an increase in the price level and a decrease in the interest rate

b. an increase in the price level and the interest rate

c. a decrease in the interest rate but not a change in the price level

d. an increase in the price level but not a change in the interest rate

10. When taxes increase, consumption decreases. How is this situation represented in the aggregate demand and aggregate supply model?

a. by a movement to the right along a given aggregate-demand curve

b. by shifting aggregate supply to the left

c. by a movement to the left along a given aggregate-demand curve

d. by shifting aggregate demand to the left