Question 1(Multiple Choice Worth 2 points) (05.05 MC) Which of the following statements explains the effects of crowding out in an economy over the long run? 0 Public investment will increase, and that will increase potential output in the long run. 0 Households will tend to save more money, and that will reduce the supply of loanable funds in the long run. O Aggregate demand will increase, and that will increase economic growth in the long run. 0 Capital accumulation will increase, and that will increase aggregate supply in the long run. 0 The stock of physical capital will be reduced, and that will reduce economic growth in the long run. Question 2(Multiple Choice Worth 2 points) (05.05 MC) The economy depicted in this data table is closed, with no international trade of any kind. Government spending $40 billion Government transfer payments $20 billion Tax revenues $40 billion Private savings $60 billion Business capital investments $60 billion Based on the data above, which of the following must be true? O The economy is in a recession. 0 The economy has an inationary gap. 0 The government is operating with a budget surplus. O The government is borrowing in the loanable funds market. 0 Public spending is exceeding private spending. Question 3(Multiple Choice Worth 2 points) (05.07 MC) What would be the long-run consequence of the government introducing a deregulation policy? 0 A decrease in the short-run aggregate supply 0 A decrease in the long-run aggregate supply 0 An increase in interest rates 0 An increase in tax rates 0 An increase in the long-run aggregate supply Question 4(Multiple Choice Worth 2 points) (05.03 MC) Assume that the money supply in an economy is $250 billion, the price level is 1.25, and the average dollar is spent four times in a year. Based on this data, which of the following must be true? 0 The nominal GDP is $78 billion. 0 The real GDP is $80 billion. 0 The nominal GDP is $313 billion. 0 The nominal GDP is $800 billion. 0 The real GDP is $800 billion. [C] [C] Question 5(Multiple Choice Worth 2 points) (05.03 MC) Assume that the money supply in an economy operating at its full-employment level increases by 4%. Which of the following statements is true in the long run? 0 The real GDP in the economy will increase by 4%. O The price level in the economy will decrease by 4%. O The real GDP in the economy will remain the same. 0 The price level in the economy will remain the same. 0 The nominal GDP in the economy will increase by 0%. Question 6(Multiple Choice Worth 2 points) (05.02 MC) Use the graph to answer the question that follows. Inflation rate LRPC X O Y N SRPC Q P Unemployment rate Which point on the graph shows an inflationary gap in the economy? O Point L O Point M O Point N O Point O O Point PQuestion 7(Multiple Choice Worth 2 points) (05.06 LC) Ceteris paribus, which of the following is true about the aggregate production function? 0 It captures a direct relationship between aggregate employment and aggregate output. 0 It captures a direct relationship only between capital and output produced. 0 The function will change with change in ination rate. 0 The function will not change with the advent of newer technology. 0 The function remains unchanged if more workers join the labor force, however keeping the unemployment constant. Question 8(Multiple Choice Worth 2 points) (05.07 MC) The new budget of country B increases the funds allocated to building roads, railways, bridges, and schools. What will be the consequence of such a policy? 0 It will lead to economic deceleration, due to the diversion of funds to wasteful sectors. 0 It will lead to economic stagnation because there are no funds left for production. 0 It will lead to economic growth, due to infrastructure improvements. 0 It will lead to economic contraction, due to a decrease in spending powert Q It will lead to economic deation because construction work would halt production activities. [[2] in: Question 9(Multiple Choice Worth 2 points) (05.01 LC) A combination of a contractionary fiscal policy and a contractionary monetary policy will 0 decrease; increase O maintain; decrease 0 increase; decrease 0 increase; maintain 0 decrease; decrease Question 10(Multiple Choice Worth 2 points) (05.06 MC) Which of the following is analogous to an outward shift in the production possibilities cun/e (PPC)? 0 An increase in short-run aggregate supply O An increase in the aggregate demand 0 An increase in long-run aggregate supply 0 An increase in the supply of loanable funds 0 An increase in the cost of production output and unemployment in an economy. [E2] [:1 Use the graph to answer the question that follows. Real Interest Rate Quantity of Funds Which of the following actions could lead to the change shown in the graph? O Government funds a deficit 0 Government has a surplus 0 Reduction in government spending 0 Increase in the money supply 0 Reduction in the public debt Question 12(Multiple Choice Worth 2 points) (05.06 LC) Which of the following is considered a significant cause of economic growth? O Increases in household consumption O Increases in government spending O A decrease in the price level O An increase in the money supply O An increase in labor productivity Question 13(Multiple Choice Worth 2 points) (05.02 MC) Which of the following changes will be seen because of a negative supply shock in the economy? The short-run Phillips curve (SRPC) will shift to the left, inflation will increase, and unemployment will decrease. The short-run Phillips curve (SRPC) will shift to the right, and inflation and unemployment will increase. The long-run Phillips curve (LRPC) will shift to the left, inflation will increase, and unemployment will remain the same. The short-run Phillips curve (SRPC) will shift to the right, and both inflation and unemployment will decrease. The long-run Phillips curve (LRPC) will shift to the left, inflation will decrease, and unemployment will remain the same.Question 14(Ivlultiple Choice Worth 2 points) (05.01 HC) Use the graph to answer the question that follows. LRAS Price SRAS level AD1 AD2 Real GDP Which of the following policy actions would lead to the shift shown in the graph? 0 Increasing taxes; open market selling of bonds 0 Decreasing taxes; open market purchasing of bonds 0 Increasing government spending; decreasing interest rate Q Decreasing taxes; lowering reserve requirement rate 0 Increasing government spending; open market purchasing of bonds Question 15(Multiple Choice Worth 2 points) (05.06 MC} Use the graph to answer the question that follows. Capital Goods Consumer Goods The economy experiencing the production possibilities curve change shown in the graph must 0 have an increasing price level 0 have its long-run Phillips curve shifting right 0 have its long-run aggregate supply curve shifting right 0 have cyclical unemployment 0 have an unemployment rate of zero Question 16(Multiple Choice Worth 2 points) [C] (0502 MC) According to the Phillips curve model, if the actual ination rate exceeds the expected ination rate, which of the following statements is true? 0 There is no frictional unemployment. 0 There is no structural unemployment. O The equilibrium real output is greater than the potential real output. 0 The economy is operating in its long-run equilibrium 0 There is a recessionary gap in the economy's output. Question 17(Multiple Choice Worth 2 points) [C] (0504 MC) The sum of government purchases and transfer payments for a given year is $1.2 trillion, while total government revenue was $1 trillion. If in the following year, the government spent more and took in less revenue, which of the following would be true? 0 The deficit would decrease, and the national debt would stay the same. 0 The deficit would decrease, and the national debt would increase. 0 The deficit would increase, and the national debt would decrease. O The deficit would stay the same, while the national debt would increase. 0 The deficit and the national debt would both increase. Question 18(Multiple Choice Worth 2 points) (05.07 MC) The government of country B has relaxed immigration policies. Which of the following is likely to be a consequence of this policy? 0 There would be an increase in the labor force and an increase in the long-run aggregate supply. 0 There would be a decrease in the labor force and a decrease in the long-run aggregate supply. Q There would be an increase in the labor force and a decrease in the long-run aggregate supply. 0 There would be a decrease in the labor force and a decrease in the short-run aggregate supply. 0 There would be an increase in the labor force and a decrease in the short-run aggregate supply. Question 19(Multiple Choice Worth 2 points) (05.06 MC) Use the table to answer the question that follows: Year 1999 2000 Population (in million} 2.5 3 Real GDP per capita $40 $45 Which is the correct percentage growth in real GDP from 1999 to 2000? O 25% O 30% O 35% O 39% O 40% Question 20(Multiple Choice Worth 2 points) (05.01 MC) How will decreasing government spending and open market sales help reduce ination in an economy? 0 This will help increase interest rates and decrease shortage in aggregate demand and output in the economy. 0 This will help decrease aggregate demand and output in the economy and lower the price level. 0 This will help decrease interest rates and increase aggregate demand and output in the economy. 0 This will help decrease interest rates, decrease aggregate demand, and increase output in the economy. 0 This will help increase interest rates, increase aggregate demand, and decrease output in the economy. Question 21 (Multiple Choice Worth 2 points) (05.03 MC) lfthe central bank increases the money supply by 2% for an economy operating at a constant level of full employment, according to the quantity theory of money, 0 the real GDP will increase in the long run by 2% O the price level will increase by 2% O the unemployment rate will decrease by 2% O the velocity of money will increase by 2% O the long-run aggregate supply curve (LRAS) will shift right Question 22(Multiple Choice Worth 2 points) (05.04 LC) Which of the following statements is true regarding the national debt? The national debt is the total revenue earned by the government at the end of every financial year. The terms budget deficit and national debt are synonymous with each other. O Interest owed on funds borrowed by the government is the only element of the national debt. The national debt decreases with every budget deficit that the government runs. The government's future spending ability is affected by an increase in national debt. Question 23(Multiple Choice Worth 2 points) (05.04 LC) Which of the following will lead to an increase in the national debt? O Increase in the government budget deficit O Decrease in the aggregate demand of the economy Increase in output above the full employment level O Decrease in the transfer payments given to citizens O Increase in the tax revenue collected from householdsQuestion 24(Multiple Choice Worth 2 points) (05.02 MC) A major technological innovation that increases structural unemployment for an extended period would correspond to what on the Phillips curve? O Movement along the short-run Phillips curve (SRPC) to the right O Movement along the short-run Phillips curve (SRPC) to the left O A shift of the long-run Phillips curve (LRPC) to the right only O A shift of both the short-run Phillips curve (SRPC) and the long-run Phillips curve (LRPC) to the right O A shift of both the short-run Phillips curve (SRPC) and the long-run Phillips curve (LRPC) to the left