PART A - MULTIPLE CHOICE QUESTIONS 1. Real GDP is nominal GDP adjusted for: A) double counting. B) changes in prices. C) population. D) imports. 2. What do a rubbernecking traffic jam and the paradox of thrift have in common? A) In both cases, individual behavior has large negative consequences for the whole of society. B) In both cases, seemingly bad behavior ends up harming everyone. C) In both cases, seemingly careless behavior leads to good times for all. D) In both cases, government intervention can only make matters worse. 3. Every year more and more purchases are made with credit cards on the Internet. Given this trend, all else equal, we would expect: A) the money demand curve to shift outward. B) the money demand curve to shift inward. C) a downward movement along a fixed money demand curve. D) an upward movement along a fixed money demand curve. 4. The course packet and the class lecture contrasted. historical growth in real GDP per capita in the US compared to Argentina to_ A) slower; Argentina does not have such severely cold winter weather B) faster; Argentina has a tropical climate with poor soil and tropical diseases C) slower; Argentina encouraged land ownership by new immigrants but the US "robber barons" owned all the land in the US D) faster; the US encouraged land ownership by new immigrants but in Argentina Spanish colonists had large land holdings 5. Sam, who is 55 years old and has been a steelworker for 30 years, is unemployed because the steel plant in his town closed and moved to Mexico. Sam is experiencing: A) cyclical unemployment. B) permanent unemployment. C) frictional unemployment. D) structural unemployment. 6. Planned investment spending is: A) actual investment in a period. B) investment spending minus depreciation in a period. C) investment spending that businesses plan to undertake during a period. D) always equal to saving. 7. The marginal propensity to consume is: A) increasing if the marginal propensity to save is increasing. B) the proportion of total disposable income that the average family consumes. C) the change in consumer spending divided by the change in aggregate disposable income. D) the change in consumer spending minus the change in aggregate disposable income. 8. As a result of a decrease in the value of the dollar in relation to other currencies, American imports decrease and exports increase. Consequently, there is a(n): A) increase in short-run aggregate supply. B) decrease in the quantity of aggregate output supplied in the short run. C) increase in aggregate demand D) decrease in the quantity of aggregate output demanded. 9. The money demand curve is: A) downward-sloping because the opportunity cost of holding money is inversely related to the interest rate. B) downward-sloping because the opportunity cost of holding money rises as the interest rate rises C) downward-sloping because the opportunity cost of holding money rises as the interest rate falls. D) upward-sloping because the opportunity cost of holding money rises with the interest rate. 10. If technology advances, then: A) more output can be obtained from the same inputs. B) more inputs are needed to produce the same output. C) less output can be obtained from the same inputs. D) less output can be produced even with more inputs. 11. A course packet reading discussed in class attributed the slower adoption of smart cards10. If technology advances, then: A) more output can be obtained from the same inputs. B) more inputs are needed to produce the same output. C) less output can be obtained from the same inputs. D) less output can be produced even with more inputs. 11. A course packet reading discussed in class attributed the slower adoption of smart cards for transactions in the US compared to rapid adoption in Europe to: A) Telephone calls were much more expensive in Europe in the 1980s B) Telephone calls were much less expensive in Europe in the 1980s C) Europeans have adopted new inventions of the electronic age faster than Americans D) Europeans have adopted new inventions of the electronic age slower than Americans 12. Long-run economic growth has been mostly dependent on: A) rising productivity. B) a low unemployment rate. C) an increase in the population which eventually leads to an increase in the labor population. D) countries following the rule of 70. 13. Rising inventories usually indicate: A) an economy that grows unexpectedly. B) an economy that slows unexpectedly. C) an unexpected spurt in sales. D) an inflationary cycle. 14. Banks create money when they: A) make loans. B) take deposits. C) hold excess reserves. D) pay withdrawals to depositors. 15. An example of the frictionally unemployed is a(n): A) autoworker who is temporarily laid off because of a decline in sales. B) geologist who is permanently laid off from an oil company due to a new technological adv C) worker at a fast-food restaurant who quits work and attends college. D) real estate agent who leaves a job in Texas and searches for a similar, higher- paying job in California. Use the following to answer question 16: Figure: Loanable Funds Interest rate 6% $100 Quantity of loanable funds (billions of dollars) 16. (Figure: Loanable Funds) The accompanying graph shows the market for loanable funds in equilibrium. Which of the following might produce a new equilibrium interest rate of 8% and a new equilibrium quantity of loanable funds of $150 billion? A) Consumers increase consumption as a fraction of disposable income. B) Businesses become more optimistic about the return on investment spending. C) The federal government has a budget surplus rather than a budget deficit. D) There is an increase in capital inflows from other nations. 17. An example of a government transfer is a(n):17. An example of a government transfer is a(n): A) expenditure on an interstate highway. B) bequest from a deceased relative. C) Social Security payment. D) salary for a member of the armed forces. 18. An important source of changes of income inequality over the past decade is: A) The stock market crash of 2008-09 B) Loss of jobs by corporate executives indicted for their role in the financial crisis C) Loss of jobs by middle-income clerical workers and unionized manufacturing workers D) Reduction in the unemployment rate from 10% in late 2009 to 7% in November 2013. 19. The wealth effect is reflected in: A) increases in interest rate to savers. B) the upward slope in aggregate supply. C) the upward slope in aggregate demand. D) the downward slope in aggregate demand. 20. An increase in the demand for money would result from: A) a decrease in nominal GDP. B) a decrease in real GDP. C) a decrease in the price level. D) an increase in the price level. Use the following to answer questions 21-22: Scenario: Aggregate Consumption Equation Suppose that the aggregate consumption function is given by the equation: C = 200 + 0.8YD, where C represents consumption and YD represents disposable income. 21. (Scenario: Aggregate Consumption Equation) If disposable income is $500, aggregate consumption is: A) $0. B) $200. C) $400. D) $600. 22. (Scenario: Aggregate Consumption Equation) If disposable income is $500, autonomous consumption is: A) $0 B) $200. C) $400 D) $600. 23. During the four years between late 2009 and late 2013, the unemployment rate in the US fell from 10.0 to 7.0 percent, despite the fact that real GDP only grew by 2 percent per year during that 4 year period. What were the reasons cited in lecture for this paradox? A) falling labor-force participation rate, slower productivity growth B) rising labor-force participation rate, slower productivity growth C) falling labor-force participation rate, faster productivity growth D) rising labor-force participation rate, faster productivity growth 24. When an economy's overall production grows faster than its population, it is referred to as: A) long-run growth per capita. B) an increase in nominal GDP. C) deflation. D) the paradox of thrift. 25. Deviations from the natural rate of unemployment are known as: A) frictional unemployment. B) structural unemployment. C) random unemployment. D) cyclical unemployment. 26. Anticipated inflation affects: A) borrowers only. B) lenders only. C) all aspects of the economy. D) only business firms involved in investment spending. 27. A fact reported in a course packet reading suggested that 90 percent of new mortgages go to borrowers with high credit scores. The lecture interpreted this as suggesting A) A low impact of interest rates on consumption B) A low impact of interest rates on investment C) A decline in the wealth effect on consumption D) A decline in the wealth effect on investment 28. When countries replaced gold and silver coins with paper money exchangeate for certain amounts of precious metals, the monetary system evolved from: A) using commodity money to using fiat money. B) using commodity-backed money to using fiat m