All questions involve a "ceteris paribus" scenario.

11. If the U.S. economy is operating in Region 1 of the AS function and income falls in Europe, then A. Unemployment will not change, and the price level will increase in the U.S. B. Unemployment will increase, and the price level will decrease in the U.S. C. Unemployment will not change, and the price level will decrease in the U.S. D. Both Output and the price level will decrease in the U.S. E. None of the above

12. Which of the following policies will be effective in combatting stagflation? A. A decrease in G combined with higher personal income taxes. B. An increase in G combined with higher personal income taxes. C. An increase in G combined with lower personal income taxes. D. A decrease in G combined with lower personal income taxes. E. None of the above

Please assume that the economy is operating in Region 2 for questions 13 - 18.

13. If corporate income taxes are lowered A. Unemployment will increase, and the price level will increase. B. Unemployment will increase, and the price level will decrease. C. Unemployment will decrease, and the price level will not change. D. Both Output and the price level will increase. E. Both Output and the price level will decrease.

14. Which of the following is true? A. A $100 billion decrease in Household income taxes will cause a larger increase in output than a $100 billion increase in G. B. A $100 billion decrease in Household income taxes will cause a larger increase in the Price Level than a $100 billion increase in G. C. A $100 billion decrease in G will cause a greater increase in UE than a $100 billion increase in Household income taxes. D. All of the above E. None of the above

15. If the Fed sells $100 billion dollars of Treasuries directly to financial institutions, then A. Unemployment will increase, and the price level will increase in the U.S. B. Unemployment will increase, and the price level will decrease in the U.S. C. Unemployment will decrease, and the price level will not change in the U.S. D. Both Output and the price level will increase in the U.S.

16. If OPEC substantially reduces its supply of oil to the crude oil market, then A. Output will increase, and the price level will increase in the U.S. B. Unemployment will increase, and the price level will decrease in the U.S. C. Unemployment will decrease, and the price level will not change in the U.S. D. Both Unemployment and the price level will increase in the U.S. E. Both Unemployment and the price level will decrease in the U.S.

17. If the Federal Government reduces its spending on the highway infrastructure, then A. Unemployment will increase, and the price level will increase. B. Output will increase, and the price level will decrease. C. Unemployment will decrease, and the price level will not change. D. Both Output and the price level will decrease. E. None of the above.

18. If the value of the Euro falls relative to the dollar, then A. Unemployment will increase, and the price level will increase in the U.S. B. Unemployment will increase, and the price level will decrease in the U.S. C. Unemployment will decrease, and the price level will not change in the U.S. D. Both Output and the price level will increase in the U.S. E. Both unemployment and the price level will decrease in the U.S.

19. A decrease in interest rates will decrease unemployment and increase the price level if the economy is operating in A. Region 3 of the AS function. B. Both Region 1 & Region 2 of the AS function. C. Neither Region 1 nor Region 3 of the AS function D. Any Region of the AS function. E. None of the above

20. It appears that recent Federal Reserve policy (Quantitative Tightening) has resulted in a lessening of inflationary pressure with no adverse impact on unemployment. This suggests that the economy is currently operating in A. Region 3 of the AS function. B. Both Region 1 & Region 3 of the AS function. C. Neither Region 1 nor Region 3 of the AS function D. Any Region of the AS function. E. None of the above .