No change Decrease

Name __________________________ group __________________

SECTION 1

Time – 70 minutes

A significant increase in the cost of health insurance provided by employers is most likely to cause the price and employment levels to change in the short run in which of the following ways?

Price LevelEmployment level

Decrease Decrease

Decrease Increase

Increase Decrease

Increase Increase

Increase Not change

All of the following statements about gross investment are accurate EXCEPT:

It includes the net change in inventory.

It includes the cost of constructing new homes and flats.

It affects economic growth.

It includes purchases of common stock

All the statements are true.

According to supply-side economists, if the federal government adopts a tax reform package that leaves the amount of total tax revenues unchanged but lowers the marginal tax rate for most taxpayers, the most likely long-run effect of such a policy will be to

decrease aggregate demand

decrease the supply of money

increase the real rate of interest

increase the price level

Increase the supply of labor

Which of the following best describes typical consumer behavior?

As household income increases, the average propensity to save decreases.

As household income increases, the average propensity to consume increases.

As household income increases, the marginal propensity to consume increases

As household income decreases, the average propensity to save decreases.

As household income decreases, the average propensity to consume decreases

A reduction in inflation can best be achieved by which of the following combinations of fiscal and monetary policy?

Fiscal PolicyMonetary Policy

Increase taxes Sell government bonds

Decrease taxes Buy government bonds

Decrease taxes Lower marginal requirements

Decrease government spending Lower discount rate

Increase government spending Raise discount rate

Which of the following describes how changes in exports and imports influence the effectiveness of fiscal policy?

A stimulative fiscal policy is weakened by an increase in imports and a decrease in exports.

A restrictive fiscal policy is weakened by an increase in imports and a decrease in exports.

Changes in imports and exports do not effect fiscal policy.

Only changes in exports affect fiscal policy.

Only changes in imports affect fiscal policy.

A consumer price index (CPI) value of 90 means that prices are

90 times higher than they were in the base year

9 times higher than they were in the base year

Percent lower than they were in the base year

10 percent lower than they were in the previous year

90 percent lower than they were in the previous year

If unemployed workers become discouraged and give up trying to find work, the number of workers employed and the unemployment rate would change in which of the following ways?

Number ofUnemployment

Workers EmployedRate

Decrease Decrease

Decrease Increase

Decrease No change

No change Decrease

No change Increase

Although the aggregate demand curve and the demand curve for an individual product are downward sloping, the reason for downward slops are different. Which of the following best explains this difference?

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