An increase in the population growth rate

Name ______________________________ group __________________

SECTION 1

Time – 70 minutes

1. Which of the following is most likely to cause an immediate rise in domestic nominal interest rates?

(A) Announcement of a favorable trade balance

(B) News that creates anticipation of increased inflation

(C) A central-bank purchase of government securities

(D) A decrease in bank-reserve requirements

(E) A decrease in demand for new housing

2. If a central bank sells government securities to other banks, the immediate result is

(A) a decrease in the level of short-term interest rates

(B) a decrease in bank reserves

(C) an increase in the national debt

(D) an increase in the amount of currency held by the nonbank public

(E) all of the above

Questions 3-4 relate to a country that is in the midst of a recession brought about by a shortfall of private-sector aggregate demand. The country main­tains a fixed exchange rate, and balances of payments on both current and capital accounts are in deficit.

3. If the country attempted to end the recession by an increase in the level of government spending financed by a sale of government bonds to the public, how would the balance-of-payments deficit be affected?

(A) The overall balance-of-payments deficit would definitely be reduced.

(B) The overall balance-of-payments deficit would not be affected.

(C) The overall balance-of-payments deficit would definitely be increased.

(D) The current-account deficit would become larger and the capital-account deficit would become smaller.

(E) The current-account deficit would become smaller and the capital-account deficit would become larger.

4. If the country attempted to end the recession by increasing the supply of money, how would the balance-of-payments deficit be affected?

(A) It would definitely be reduced.

(B) It would not be affected.

(C) It would definitely be increased.

(D) The current-account deficit would become larger and the capital-account deficit would become smaller.

(E) The current-account deficit would become smaller and the capital-account deficit would become larger.

5. Under a system of fixed exchange rates, which of the following would be most likely to result in an increase in the deficit in a country's balance of payments?

(A) A period of domestic price deflation

(B) An expansionary domestic monetary policy

(C) A recession at home with prosperity abroad

(D) A reduction in the level of government spending

(E) An increase in personal and business income-tax rates

6. If Japan currently is pegging the yen in the foreign-exchange market and has an overall balance-of-payments deficit, which of the following is true?

(A) Japan is selling more commodities, services, and securities to foreigners than for­eigners are selling to Japan.

(B) Japanese official reserves are rising.

(C) The Japanese central bank is buying yen on the foreign-exchange market.

(D) The current dollar price of yen would be higher if Japan were on floating exchange rates.

(E) The demand for yen exceeds the supply of yen on the foreign exchange market.

7. Suppose that real GDP is $20 trillion and the unemployment rate is 5.5%. If, over the next year, potential output grows by 2.5 percent and the unemployment rate increases by 1 percentage point to 6.5%, real GDP will increase to

(A) $20.5 trillion. (B) $20.2 trillion. (C ) $21 trillion. (D) $21.4 trillion. (E) $22 trillion.

8. Which of the following would not increase labor's productivity?

(A) technological progress

more natural resources

an increase in the capital/labor ratio

an increase in the population growth rate

all of the above will increase labor's productivity

9. Which of the following is a stock variable?

(A) capital services

(B) rate of unemployment

(C) saving

(D) depreciation

(E) public deficit

10. If government spending increases, the aggregate supply (AS) curve will

(A) shift in

(B) remain constant

(C) shift out

(D) change slope and become flatter

(E) change slope and become steeper

11. In the long run an increase in government spending will

(A) increase nominal output

(B) change the composition of output

(C) cause full crowding out

(D) raise tax revenues

(E) all of the above

12. Which of the following constitute expansionary fiscal policy, except

(A) an increase in the benefits paid to welfare recipients

(B) a decrease in the capital gains tax

(C) an increase in the number of available tax exemptions

(D) an increase in the inheritance tax

(E) a government defense expenses

13. When we graph AD, all the variables are hold constant, except:

(A) taxes,

(B) government transfers,

(C) government spending,

(D) money supply,

(E) investment.

14. Suppose that an economy initially at full-employment is hit by an adverse supply shock. What will happen to output and the price level in the long run?

(A) Output will fall and the price level will rise.

(B) Output will fall and the price level will not change.

(C) Output will not change and the price level will rise.

(D) Both output and the price level will not change.

(E) Output and the price level will fall.

15. Anticipated inflation transfers wealth from

(A) creditors to debtors

(B) poor to rich

(C) workers to firms

(D) debtors to creditors

(E) none of the above

16. An unemployed person is likely to turn down a job offer if the wage they are offered is below their

(A) replacement ratio

(B) experience rating

(C) reservation wage

(D) sacrifice ratio

(E) previous wage

17. If the mpc = 0.8 and there is a $0.375 tax levied on each dollar of income, a $40 increase in government purchases will cause the budget surplus to

(B) increase by $10

(C) increase by $40

(D) decrease by $10

(E) decrease by $40

(F) decrease by $20

18.Which of the following variables are exogenously determined in the Keynesian Cross model?

(A) income

(B) consumption

(C) output

(D) investment

(E) imports

19. Which of the following variables can shift the AE_P curve?

price level

government spending

money supply

interest rate

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