1.

The aggregate quantity of goods demanded decreases if

Select one:
a. real wealth falls.
b. the interest rate rises.
c. the dollar appreciates

d. All of the above are correct

2. A decrease in the price level

Select one:
a. causes real wealth to rise, people to lend more, interest rates to rise, and the dollar to
appreciate.
b. causes real wealth to rise, people to lend more, interest rates to fall, and the dollar to
depreciate
c. causes real wealth to fall, people to lend less, interest rates to fall, and the dollar to
depreciate.

d. causes real wealth to fall, people to lend less, interest rates to rise, and the dollar to
depreciate
3. When the dollar depreciates, each dollar

Select one:
a. buys more foreign currency, and so buys more foreign goods.
b. buys more foreign currency, and so buys fewer foreign goods
c. buys less foreign currency, and so buys more foreign goods

d. buys less foreign currency, and so buys fewer foreign goods

4. Suppose a stock market boom makes people feel wealthier. The increase in wealth would
cause people to

Select one:
a. increase consumption, which shifts the aggregate demand curve right.
b. increase consumption, which shifts the aggregate demand curve left.
c. decrease consumption, which shifts the aggregate demand curve right.

d. decrease consumption, which shifts the aggregate demand curve left.

5. When taxes increase, consumption decreases

Select one:
a. as shown by a movement to the left along the aggregate demand curve.
b. shifting aggregate demand to the left
c. shifting aggregate supply the left

d. which does none of the above.

6. Aggregate demand shifts right when the government

Select one:
a. increases taxes.
b. increases military expenditures
c. increases the money supply

d. Both b and c are correct.

7. If the dollar appreciates perhaps because of speculation or government policy then U.S.

Select one:
a. net exports increase and aggregate demand shifts right.
b. net exports increase and aggregate demand shifts left.
c. net exports decrease and aggregate demand shifts right.

d. net exports decrease and aggregate demand shifts left

8. Which of the following does not determine the long-run level of real GDP?

Select one:
a. the price level
b. supplies of labor
c. available natural resources

d. available technology
9. The misperceptions theory of the short-run aggregate supply curve says that if the price level
increases more than people expect, firms believe that the relative price of what they produce
has

Select one:
a. increased, so they increase production
b. increased, so they decrease production
c. decreased, so they increase production

d. decreased, so they decrease production

10. The sticky wage theory of the short-run aggregate supply curve says that when prices fall
unexpectedly, the real wage
Select one:
a. rises, so employment rises
b. rises, so employment falls
c. falls, so employment rises

d. falls, so employment falls

11. The sticky price theory of the short-run aggregate supply curve says that when prices fall
unexpectedly, some firms will have

Select one:
a. higher than desired prices which increases their sales
b. higher than desired prices which depresses their sales.
c. lower than desired prices which increases their sales.

d. lower than desired prices which depresses their sales.

12. Which of the following shifts short-run aggregate supply left?

Select one:
a. an increase in the price level
b. an increase in the expected price level
c. an increase in the capital stock

d. All of the above are correct.

13. If the economy starts at A and there is a fall in

aggregate demand, the economy moves

Select one:
a. back to A in the long run
b. to B in the long run.
c. to C in the long run

d. to D in the long run.

14. If a change in aggregate demand shifts the economy

from A to D, the government might use fiscal policy to move
the economy 

Select one:
a. back to A.
b. to B
c. to C.

d. to D

15. Suppose a shift in aggregate demand creates an economic contraction. If policymakers can
respond with sufficient speed and precision, they can offset the initial shift by

Select one:
a. shifting aggregate demand right
b. shifting aggregate demand left.
c. shifting aggregate supply right

d. shifting aggregate supply lef

16. Which of the following are goals of monetary policy?

Select one:
a. maximizing the value of the dollar relative to other currencies, economic growth, and high
employment
b. price stability, maximizing the value of the dollar relative to other currencies, and high
employment
c. price stability, economic growth, and high employment

d. price stability, economic growth, and maximizing the value of the dollar relative to other
currencies
17. Monetary policy refers to the actions the Central Bank takes to manage

Select one:
a. the money supply and income tax rates to pursue its economic objectives
b. the money supply and interest rates to pursue its economic objectives.
c. income tax rates and interest rates to pursue its economic objectives

d. government spending and income tax rates to pursue its economic objectives
18. Liquidity preference theory is most relevant to the

Select one:
a. short run and supposes that the price level adjusts to bring money supply and money
demand into balance
b. short run and supposes that the interest rate adjusts to bring money supply and money
demand into balance
 c. long run and supposes that the price level adjusts to bring money supply and money demand
into balance

d. long run and supposes that the interest rate adjusts to bring money supply and money
demand into balance
19. The supply of money is determined by

Select one:
a. the price level.
b. the Central Bank
c. the value of money

d. the demand for money

20. The supply of money increases when

Select one:
a. the value of money increases
b. the interest rate increases
c. the Central Bank makes open-market purchases

d. None of the above is correct

21. Refer to Figure 1. In the figure above, the movement from point A to point B in the money
market would be caused by 

Select one:

a. . an increase in the price level

b. a decrease in real GDP
c. an open market sale of Treasury
securities by the Central Bank

d. . an increase in the required reserve

ratio by the Central Bank
22. The Central Bank can increase the
federal funds rate by

Select one:
a. selling Treasury bills, which
increases bank reserves
b. buying Treasury bills, which increases bank reserves
c. selling Treasury bills, which decreases bank reserves
d. buying Treasury bills, which decreases bank reserves.
23. The money demand curve has a negative slope because

Select one:
a. lower interest rates cause households and firms to switch from money to financial assets
b. lower interest rates cause households and firms to switch from financial assets to money
c. lower interest rates cause households and firms to switch from money to stocks

d. lower interest rates cause households and firms to switch from money to bonds.
24. An increase in real GDP

Select one:
a. increases the buying and selling of goods and increases the demand for money as a medium
of exchange
b. . increases the buying and selling of goods and decreases the demand for money as a
medium of exchange.
c. decreases the buying and selling of goods and increases the demand for money as a
medium of exchange.

d. . decreases the buying and selling of goods and decreases the demand for money as a
medium of exchange
25. The money demand curve would shift right if

Select one:
a. real GDP decreased
b. the price level increased
c. the interest rate increased

d. . the Central Bank sold Treasury securities

26. According to liquidity preference theory, if the quantity of money supplied is greater than the
quantity demanded the interest rate will

Select one:
a. increase and the quantity of money demanded will decrease
b. increase and the quantity of money demanded will increase
c. decrease and the quantity of money demanded will decrease

d. decrease and the quantity of money demanded will increase

27. According to liquidity preference theory, an increase in the price level shifts the

Select one:
a. money demand curve right so the interest rate increases.
b. money demand curve right so the interest rate decreases
c. money demand curve left so the interest rate decreases

d. money demand curve left so the interest rate increases.

28. Which of the following properly describes the interest rate effect?

Select one:
a. A higher price level leads to higher money demand, higher money demand leads to higher
interest rates, a higher interest rate increases the quantity of goods and services demanded
b. A higher price level leads to higher money demand, higher money demand leads to lower
interest rates, a higher interest rate reduces the quantity of goods and services demanded
c. A lower price level leads to lower money demand, lower money demand leads to lower
interest rates, a lower interest rate reduces the quantity of goods and services demanded

d. A lower price level leads to lower money demand, lower money demand leads to lower
interest rates, a lower interest rate increases the quantity of goods and services demanded.
29. . If the stock market booms

Select one:
a. household spending increases. To offset the effects of this on the price level and real GDP,
the Fed would increase the money supply.
b. household spending increases. To offset the effects of this on the price level and real GDP,
the Fed would decrease the money supply
c. household spending decreases. To offset the effects of this on the price level and real GDP,
the Fed would increase the money supply

d. household spending decreases. To offset the effects of this on the price level and real GDP,
the Fed would decrease the money supply
30. Fiscal policy refers to the idea that aggregate demand is changed by changes in

Select one:
a. the money supply
b. government spending and taxes
c. trade policy

d. All of the above are correct

31. If the MPC = .85, then the government purchases multiplier is about

Select one:
a. 1.18.
b. 3.33.
c. 6.67.

d. 8.5.
32. Which of the following correctly explains the crowding-out effect?

Select one:
a. An increase in government expenditures decreases the interest rate and so increases
investment spending
b. An increase in government expenditures increases the interest rate and so reduces
investment spending
c. A decrease in government expenditures increases the interest rate and so increases
investment spending

d. A decrease in government expenditures decreases the interest rate and so reduces

investment spending.
33. Assume the multiplier is 5 and that the total crowding-out effect is $20 billion. An increase in
government purchases of $10 billion when the multiplier is 5 will shift the aggregate demand
curve

Select one:
a. right $150 billion
b. right $70 billion.
c. right $30 billion

d. Non of the above is correct

34. Refer to Figure 2. In the figure above suppose the economy is initially at point A. The
movement of the economy to point B as shown in the graph illustrates the effect of which of the
following policy actions by the Central Bank? 

(No picture)

Select one:
a. A decrease in income taxes
b. An increase in the required reserve ratio
c. An open market purchase of Treasury bills

d. An open market sale of Treasury bills

35. Aggregate demand shifts to the left and policymakers want to stabilize output. What can they
do?

Select one:
a. repeal an investment tax credit or increase the money supply
b. repeal an investment tax credit or decrease the money supply
c. institute an investment tax credit or increase the money supply

d. institute an investment tax credit or decrease the money supply

36. Critics of stabilization policy argue that

Select one:
a. there is a lag between the time policy is passed and the time policy has an impact on the
economy
b. the impact of policy may last longer than the problem it was designed to offset
c. policy can be a source of, instead of a cure for, economic fluctuations

d. All of the above are correct

37. According to the short-run Phillips curve, the unemployment rate and the inflation rate are

Select one:
a. unrelated.
b. positively related
c. negatively related.
d. unaffected by monetary policy

38.  If policymakers expand aggregate demand, inflation

Select one:
a. falls, but unemployment rises
b. and unemployment fall
c. and unemployment rise

d. rises, but unemployment falls.

39. Refer to Figure-3. What should the Federal Reserve do if it wants to move from point A to
point B in the short-run Phillips curve
depicted in the figure above?

Select one:
a. buy treasury bills
b. sell treasury bills
c. lower the discount rate
d. increase the money supply
40. In the long run, the Phillips curve is a ________ at ________.

Select one:
a. . horizontal line; 0% inflation
b. negatively sloped line; the intersection of aggregate demand and short-run aggregate supply
c. vertical line; the natural rate of unemployment

d. . vertical line; the expected rate of inflation

41. If actual inflation is less than expected inflation, actual real wages will be _________
expected real wages and unemployment will _______.

Select one:
a. . greater than; rise
b. greater than; fall
c. less than; rise

d. less than; fall

42. Suppose that the money supply increases. In the short run, this increases prices according
to

Select one:
a. both the short-run Phillips curve and the aggregate demand and aggregate supply model
b. neither the short-run Phillips curve nor the aggregate demand and aggregate supply model.
c. the short-run Phillips curve, but not the aggregate demand and aggregate supply model

d. the aggregate demand and aggregate supply model but not the short-run Phillips curve
43. The government of Libertina considers two policies. Policy A would shift AD right by 200
units while policy B would shift AD right by 100 units. According to the short-run Phillips curve
policy A will lead

Select one:
a. to a lower unemployment rate and a lower inflation rate than policy B
b. to a lower unemployment rate and a higher inflation rate than policy B
c. to a higher unemployment rate and lower inflation rate than policy B.

d. to a higher unemployment rate and higher inflation rate than policy B.

44. Refer to Figure 4. Suppose the economy is at point C in the figure above. Which of the
following is true?

(no picture)
Select one:
a. The short-run Phillips curve will shift to the right
b. The short-run Phillips curve will shift to the left
c. The economy will move from C to A.

d. Workers and firms expect inflation to be 1%.

45. An increase in expected inflation shifts the

Select one:
a. short-run Phillips curve right
b. short-run Phillips curve left
c. long-run Phillips curve right

d. long-run Phillips curve left.

46. Where does the short-run Phillips curve intersect the long-run Phillips curve?

Select one:
a. at the point where the rate of inflation and the unemployment rate are equal
b. at the natural rate of inflation
c. at the point where actual inflation is equal to expected inflation

d. There is no intersection between the short- and long-run Phillips curves.

47. What impact does monetary policy have on the long-run Phillips curve?

Select one:
a. Monetary policy can only shift the long-run Phillips curve to the left
b. Monetary policy shifts the long-run Phillips curve to the right or left, depending on whether
monetary policy is expansionary or contractionary
c. Monetary policy can only shift the long-run Phillips curve to the right

d. Monetary policy has no impact on the long-run Phillips curve

48. Which of the following is correct if there is an adverse supply shock?

Select one:
a. The short-run aggregate supply curve and the short-run Phillips curve both shift right
b. The short-run aggregate supply curve and the short-run Phillips curve both shift left.
c. The short-run aggregate supply curve shifts right and the short-run Phillips curve shifts left

d. The short-run aggregate supply curve shifts left and the short-run Phillips curve shifts right.
49. Contractionary monetary policy would

Select one:
a. cause disinflation and make the short-run Phillips curve shift right
b. cause disinflation and make the short-run Phillips curve shift left
c. not cause disinflation, but make the short-run Phillips curve shift right

d. not cause disinflation, but make the short-run Phillips curve shift left
50. If a central bank reduced inflation by 2 percentage points and that made output fall by 3
percentage points for 2 years and the unemployment rate rises from 3 percent to 5 percent for 2
years, the sacrifice ratio is

Select one:
a. 1
b. 2
c. 3

d. None of the above is correct

51. If the sacrifice ratio is 2, reducing the inflation rate from 10 percent to 6 percent would
require sacrificing

Select one:
a. 2 percent of annual output
b. 6 percent of annual output
c. 8 percent of annual output

d. 12 percent of annual output

52. A country is likely to have a lower sacrifice ratio if

Select one:
a. contracts are shorter, and the Central Bank is credible
b. contracts are shorter, and the Central Bank has a poor reputation.
c. contracts are longer, and the Central Bank is credible

d. contracts are longer, and the Central Bank has a poor reputation
53. If the Fed announced a policy to reduce inflation and people found it credible, the short-run
Phillips curve would shift

Select one:
a. right and the sacrifice ratio would fall
b. right and the sacrifice ratio would rise
c. left and the sacrifice ratio would fall

d. left and the sacrifice ratio would rise

54. Proponents of rational expectations argued that the sacrifice ratio

Select one:
a. could be high because it was rational for people not to immediately change their expectations
b. could be high because people might adjust their expectations quickly if they found anti-
inflation policy credible.
c. could be low because it was rational for people not to immediately change their expectations

d. could be low because people might adjust their expectations quickly if they found anti-
inflation policy credible
55. Over the long run the Volcker disinflation

Select one:
a. shifted the short-run and long-run Phillips curves left.
b. shifted the short-run, but not the long-run Phillips curve left.
c. shifted the long-run, but not the short-run Phillips curve left

d. None of the above is correct