SET A.

2. When the price of a good decreases, and an individual's consumption of that good also decreases, it is

most likely that the:

A. income effect and substitution effect are both negative.

B. substitution effect is negative and the income effect is positive.

C. income effect is negative and the substitution effect is positive.

4. Increasing the amount of one productive input while keeping the amounts of other inputs constant

results in diminishing marginal returns:

A. in all cases.

B. when it causes total output to decrease.

C. when the increase in total output becomes smaller.

5. A firm's average revenue is greater than its average variable cost and less than its average total cost.

If this situation is expected to persist, the firm should:

A. shut down in the short run and in the long run.

B. shut down in the short run but operate in the long run.

C. operate in the short run but shut down in the long run.

SET B.

1. When a firm operates under conditions of pure competition, marginal revenue always equals:

A. price.

B. average cost.

C. marginal cost.

3. In a purely competitive market, economic losses indicate that:

A. price is below average total costs.

B. collusion is occurring in the market place.

C. firms need to expand output to reduce costs.

4. A purely competitive firm will tend to expand its output so long as:

A. marginal revenue is positive.

B. marginal revenue is greater than price.

C. market price is greater than marginal cost.

5. A firm is likely to operate in the short run as long as price is at least as great as:

A. marginal cost.

B. average total cost.

C. average variable cost.

SET C.

1. The demand for products from monopolistic competitors is relatively elastic due to:

A. high barriers to entry.

B. the availability of many close substitutes.

C. the availability of many complementary goods.

2. Compared to a perfectly competitive industry, in an industry characterized by monopolistic

competition:

A. both price and quantity are likely to be lower.

B. price is likely to be higher and quantity is likely to be lower.

C. quantity is likely to be higher and price is likely to be lower.

SET D.

1. The least appropriate approach to calculating a country's gross domestic product (GDP) is summing

for a given time period the:

A. value of all purchases and sales that took place within the country.

B. amount spent on final goods and services produced within the country.

C. income generated in producing all final goods and services produced within the country.

3. When GDP is calculated by the sum-of-value-added method, what is the value of a manufactured

product in GDP?

A. The sum of the product's value at each stage of production and distribution.

B. The sum of the increases in the product's value at each stage of production and distribution.

C. The product's retail price less the value added at each stage of production and distribution.

8. If a government budget deficit increases, net exports must:

A. increase, or the excess of private saving over private investment must decrease.

B. decrease, or the excess of private saving over private investment must increase.

C. decrease, or the excess of private saving over private investment must decrease.

SET E.

3. A stronger domestic currency relative to foreign currencies is most likely to result in a:

A. shift in the aggregate supply curve toward lower supply.

B. shift in the aggregate demand curve toward lower demand.

C. movement along the aggregate demand curve towards higher prices.

4. Which of the following factors would be least likely to shift the aggregate demand curve?

A. The price level increases.

B. The federal deficit expands.

C. Expected inflation decreases

SET F.

1. Starting from short-run equilibrium, if aggregate demand is increasing faster than long-run aggregate

supply:

A. the price level is likely to increase.

B. downward pressure on wages should ensue.

C. supply will increase to meet the additional demand.

2. A short-run macroeconomic equilibrium in which output must decrease to restore long-run

equilibrium is most accurately characterized as:

A. stagflation.

B. a recessionary gap.

C. an inflationary gap.

3. Which of the following combinations of changes in aggregate demand and aggregate supply is most

likely to result in decreasing prices? Aggregate demand:

A. decreases while aggregate supply increases.

B. decreases while aggregate supply decreases.

C. increases while aggregate supply decreases.

4. Labor productivity is most likely to increase as a result of a(n):

A. increase in physical capital.

B. decrease in net immigration.

C. increase in the labor force participation rate.

5. Long-term sustainable growth of an economy is least likely to result from growth in:

A. the supply of labor.

B. capital per unit of labor.

C. output per unit of labor.

6. In a production function model of economic output, total factor productivity represents the output

growth that can be accounted for by:

A. capital growth but not labor growth.

B. neither labor growth nor capital growth.

C. the combined effects of labor growth and capital growth.

7. In a developed economy, the primary source of growth in potential GDP is:

A. capital investment.

B. labor supply growth.

C. technology advances.

SET G.

1. In the early part of an economic expansion, inventory-sales ratios are most likely to:

A. increase because sales are unexpectedly low.

B. increase because businesses plan for expansion.

C. decrease because of unexpected increases in sales.

2. The contraction phase of the business cycle is least likely accompanied by decreasing:

A. unemployment.

B. inflation pressure.

C. economic output.

3. According to which business cycle theory should expansionary monetary policy be used to fight a

recession?

A. Keynesian school.

B. Monetarist school.

C. New classical school

SET H.

1. The unemployment rate is defined as the number of unemployed as a percentage of the:

A. labor force.

B. number of employed.

C. working-age population.

2. A country's year-end consumer price index over a 5-year period is as follows:

Year 1 106.5

Year 2 114.2

Year 3 119.9

Year 4 124.8

Year 5 128.1

The behavior of inflation as measured by this index is best described as:

A. deflation.

B. disinflation.

C. hyperinflation.

3. Core inflation is best described as an inflation rate:

A. for producers' raw materials.

B. the central bank views as acceptable.

C. that excludes certain volatile goods prices.

4. Which of the following is least likely to reduce substitution bias in a consumer price index?

A. Use a chained index.

B. Use a Paasche index.

C. Adjust for the bias directly using hedonic pricing.

5. In which of the following inflation scenarios does short-run aggregate supply decrease due to

increasing wage demands?

A. Cost-push inflation.

B. Demand-pull inflation.

C. Both cost-push and demand-pull inflation.

6. An economic indicator that has turning points which tend to occur after the turning points in the

business cycle is classified as a:

A. lagging indicator.

B. leading indicator.

C. trailing indicator.

SET I.

1. Both monetary and fiscal policy are used to:

A. balance the budget.

B. achieve economic targets.

C. redistribute income and wealth.

2. Which of the following statements is least accurate? The existence and use of money:

A. permits individuals to perform economic transactions.

B. requires the central bank to control the supply of currency.

C. increases the efficiency of transactions compared to a barter system.

3. If money neutrality holds, the effect of an increase in the money supply is:

A. higher prices.

B. higher output.

C. lower unemployment.

4. If the money supply is increasing and velocity is decreasing:

A. prices will decrease.

B. real GDP will increase.

C. the impact on prices and real GDP is uncertain.

5. The money supply curve is perfectly inelastic because the money:

A. supply is independent of interest rates.

B. demand schedule is downward-sloping.

C. supply is dependent upon interest rates.

6. The Fisher effect states that the nominal interest rate is equal to the real rate plus:

A. actual inflation.

B. average inflation.

C. expected inflation.

7. A central bank's policy goals least likely include:

A. price stability.

B. minimizing long-term interest rates.

C. maximizing the sustainable growth rate of the economy.

8. A country that targets a stable exchange rate with another country's currency least likely:

A. accepts the inflation rate of the other country.

B. will sell its currency if its foreign exchange value rises.

C. must also match the money supply growth rate of the other country

SET J.

1. A central bank conducts monetary policy primarily by altering the:

A. policy rate.

B. inflation rate.

C. long-term interest rate.

4. Qualities of effective central banks include:

A. credibility and verifiability.

B. comparability and relevance.

C. independence and transparency.

5. If a country's inflation rate is below the central bank's target rate, the central bank is most likely to:

A. sell government securities.

B. increase the reserve requirement.

C. decrease the overnight lending rate.

6. Monetary policy is likely to be least responsive to domestic economic conditions if policymakers

employ:

A. inflation targeting.

B. interest rate targeting.

C. exchange rate targeting.

SET K.

1. Roles and objectives of fiscal policy most likely include:

A. controlling the money supply to limit inflation.

B. adjusting tax rates to influence aggregate demand.

C. using government spending to control interest rates.

3. A government reduces spending by $50 million. The tax rate is 30%, and consumers exhibit a marginal

propensity to consume of 80%. The change in aggregate demand caused by the change in government

spending is closest to:

A. -$66 million.

B. -$114 million.

C. -$250 million.

4. The size of a national debt is most likely to be a concern for policymakers if:

A. Ricardian equivalence holds.

B. a crowding-out effect occurs.

C. debt is used to finance capital growth.

6. A government is concerned about the timing of the impact of fiscal policy changes and is considering

requiring the compilation and reporting of economic statistics weekly, rather than quarterly. The new

reporting frequency is intended to decrease the:

A. action lag.

B. impact lag.

C. recognition lag.

7. Fiscal policy is most likely to be expansionary if tax rates:

A. and government spending both decrease.

B. decrease and government spending increases.

C. increase and government spending decreases.

SET M.

5. The goal of a government that imposes restrictions on foreign capital flows is most likely to:

A. stimulate domestic interest rates.

B. decrease domestic asset price volatility.

C. encourage competition with domestic industries.

SET N.

6. The NZD is trading at USD/NZD 0.3500, and the SEK is trading at NZD/SEK 0.3100. The USD/SEK cross

rate is:

A. 0.1085.

B. 8.8573