37. Japan imports almost all the oil it uses. Which of the following statements about the effects of an increase in world oil prices is true?

A. It may cause the Japanese economy to experience stagflation.

B. It may cause the Japanese central bank to buy bonds to stabilize the value of the yen.

C. It will cause demand-pull inflation in the Japanese economy.

D. It will increase the value of the Japanese economy.

E. It will increase the value of the Japanese yen.

F. It will increase aggregate demand in the Japanese economy.

38. Stagflation may result from which of the following:

A. Several decreases in the discount rate over the course of a few months.

B. Large bond sales by the central bank

C. A sharp decrease in households' marginal propensity to consume.

D. The expansion of the consumption possibilities frontier due to the opening of international trade.

E. Rapid deterioration of nation infrastructure, such as roads and telephone cable.

39. Which of the following statements about stagflation is correct?

A. It will result in increased nominal GDP.

B. It will result in decreased nominal GDP.

C. It is characterized by high unemployment and low inflation.

D. It implies an upward shift in the Phillips curve.

E. It is a problem easily explained and corrected in the Keynesian model.

40. In early 2000, the U.S. was at full employment. Despite this, a number of presidential candidates were proposing tax cuts and government spending increases. The most likely effect of these actions under such circumstances would be:

A. An increase in the marginal propensity to consume and a resulting increase in the full-employment level of GDP.

B. Higher price levels and little or no change in GDP.

C. Lower interest rates.

D. An increase in the value of the dollar and a resulting increase in exports.

E. A long-run increase in the productive capacity of the U.S.

41. Which of the following is a valid statement about the Keynesian and classical models of the macroeconomy?

A. Fiscal policy will affect output in the Keynesian model, but only the price level in the classical model.

B. The economy adapts quickly to demand shocks under the Keynesian model, but not under the classical model.

C. A sharp decrease in the value of a nation's currency will lead to higher price levels in the Keynesian model, but not in the classical model.

D. Increases in autonomous expenditures will increase aggregate demand in the Keynesian model, but not in the classical model.

E. An increase in the productive capacity of an economy will result in greater output in both the Keynesian and classical models.

42. Suppose the government spends $500M on a project that has absolutely no value to the country. Which statement about this project is correct?

A. If taxes were raised $500M to fund this project, the Keynesian model predicts that this will have no net effect on output in the economy.

B. If the government raised the money for this project by printing $500M in bonds and selling them to the Fed, the effects is exactly the same as if they sold the bonds to households.

C. The project will increase aggregate supply because it will increase the total quantity of goods and services supplied in the economy.

D. If the marginal propensity to save in the economy is equal to 0.25, the Keynesian model predicts that this project will result in a $200M increase in GDP.

E. Under the assumptions of the classical model, the result of this project will be increases in both the price level and equilibrium GDP.

43. A particular economy has consumption of $400M, a government deficit of $100M, taxes of $250M, and income of $800M. Which of the following statements must be true?

A. If investment is zero, there is no foreign trade imbalance.

B. If the trade surplus is $50M, investment will be equal to $100M.

C. If the capital account surplus is $50M, investment will be equal to $100M.

D. If the trade surplus is $100M, there will be investment.

E. None of the above statements is necessarily true.

44 Which piece of information would be least useful in trying to predict the effect of a $700M increase in government spending on equilibrium GDP?

A. Marginal propensity to save.

B. The slope of the aggregate supply curve.

C. Whether taxes are raised to pay for the spending increase.

D. The current level of structural unemployment.

E. Whether the bonds used to finance the spending were sold to households or to the Fed.

45. Which of the statements relating full employment and full capacity is false?

A. At full employment there is no frictional unemployment; at full capacity there is no structural unemployment.

B. The full-employment level of output is less than the full-capacity level of output.

C. At full employment there is no cyclical unemployment; at full capacity there is no frictional unemployment.

D. A government spending increase will result in increased output and price levels at full employment, but only increased price levels at full capacity.

E. In the long run, an economy that starts at full capacity will move to full employment.

46. What would be the effect of a law requiring that government spending equal tax revenues in each year?

A. Fiscal policy would be completely eliminated as a tool to control the macroeconomy.

B Monetary policy would be completely eliminated as a tool to control the marcoeconomy.

C. Fluctuations in GDP would become less severe.

D. The government spending multiplier would be effectively set to 1.0.

E. The marginal propensity to consume would be cut in half.