15. If two nations who are each capable of producing consumer and capital goods agree to trade based on comparative advantage, then

a. the two nations will become more independent of each other. b. employment will increase in one nation and decrease in the other. c. one nation will increase its efficiency while the other does not. d. the citizens of both nations will have a better standard of living. e. both nations will be less efficient in production of consumer and capital goods.

16. Increased government spending to aid struggling African nations with feeding their population would be counted in the

a. surplus account. b. financial account. c. current account. d. deficit account. e. checking account.

17. Which of the following would cause the supply of pesos to decrease, ceteris paribus?

a. Ford opens automobile assembly plant in Mexico b. Interest rates increase in the United States c. Mexican GDP increases d. Tourism in Mexico decreases due to an outbreak of the flu e. Interest rates increase in Mexico

18. If the Federal Reserve conducts tight money policy to contract the money supply, then

a. nominal interest rates will decrease and investment will increase. b. nominal interest rates will decrease and investment will decrease. c. nominal interest rates will decrease and price level will decrease. d. nominal interest rates will increase and price level will increase. e. nominal interest rates will increase and investment will decrease.

19. How will an expansionary monetary policy most likely change aggregate demand, output, and price level?

Aggregate Demand / Output / Price Level

a. Increase / Increase / Decrease b. Increase / Increase / Increase c. Decrease / Decrease / Decrease d. Decrease / Increase / Decrease e. Decrease / Increase / Increase

20. An open market sale by the Federal Reserve will increase

a. business taxes. b. bank loans. c. interest rates. d. investment spending. e. the money supply.

21. Which of the following is true concerning automatic stabilizers and fiscal policy?

I. Automatic stabilizers reduce the public debt due to Congressional action. II. Automatic stabilizers require no new Congressional action. III. Automatic stabilizers reduce the inflation rate after Congressional action.

a. I only. b. II only. c. III only. d. I and II only. e. II and III only.

22. If, while maintaining a balanced budget, Congress decreases spending and taxes by $100 each, then

a. aggregate demand will shift right. b. aggregate demand will shift left. c. aggregate demand will remain the same. d. aggregate supply will shift right. e. aggregate supply will shift left

23. Assume that there is a recessionary gap in Shadowland. The government of Shadowland might eliminate the gap by doing all of the following except

a. an increase in government spending. b. a decrease in personal taxes. c. an increase in reserve requirement. d. an decrease in discount rate. e. an open market purchase.

24. A leftward shift of short-run aggregate supply will result in

a. lower unemployment. b. lower inflation. c. higher inflation. d. stagflation. e. a smaller recession.

25. If personal income taxes are increased, we can expect that

a. the short-run Phillips curve will shift left. b. the short-run Phillips curve will shift right. c. there will be a movement to the right along the short-run Phillips curve. d. there will be a movement to the left along the short-run Phillips curve. e. the long-run Phillips curve will shift right.

26. If the marginal propensity to consume decreases, then

a. the marginal propensity to save will decrease by the same percentage. b. the spending multiplier will decrease. c. the money multiplier will decrease. d. the rate of savings will decrease. e. the spending multiplier will increase.

27. Crowding out occurs when deficit spending

a. increases interest rates. b. decreases interest rates. c. increases consumer spending. d. decreases consumer spending. e. increases investment spending.

28. According to Classical economists,

a. the economy is stable in the long run causing unemployment to increase during time of recession. b. the economy is stable in the long run and macroeconomic equilibrium can occur at less than full employment. c. the economy is stable in the long run and self correcting to full employment.

d. the economy is unstable in the long run causing unemployment to increase during time of recession. e. the economy is unstable in the long run and self correcting to full employment.

29. Which of the following best explains why the aggregate demand curve is down sloping?

a. Purchasing power increases as wealth decreases. b. Low interest rates make American goods appear cheaper which increases net exports and the quantity of real output purchased. c. Rising interest rates cause investment to increase. d. As price levels increase, consumer spending increases. e. As price levels decrease, demand for imports increases.

PL LRAS AS1 PL LRAS AS1 PL AS2 AD2 AD1 AD1 AD1 AD2 RGDP = Y RGDP = Y RGDP = Y W X PLI PL A51 AD1 AD1 AD2 Y RGDP = Y RGDP = Y Z