Test Three

Which of the following claims concerning the importance of effects that explain the slope of the U.S. aggregate demand curve is correct? a. The exchange-rate effect is relatively small because exports and imports are a small part of real GDP. b. The interest-rate effect is relatively small because investment spending is not very responsive to interest rate changes. c. The wealth effect is relatively large because money holdings are a significant portion of most households' wealth. d. None of the above is correct.

a. The exchange-rate effect is relatively small because exports and imports are a small part of real GDP.

Which of the following is correct? a. Well designed tax cuts can increase investment which fluctuates more than consumption over the business cycle. b. Well designed tax cuts can increase investment but it fluctuates less than consumption over the business cycle. c. Tax cuts have little effect on investment which fluctuate more than consumption over the business cycle. d. Tax cuts have little effect on investment but it fluctuates less than consumption over the business cycle

a. Well designed tax cuts can increase investment which fluctuates more than consumption over the business cycle.

Which of the following are taxed? a. both corporate profits and dividends paid to stockholders b. corporate profits but not dividends paid to stockholders c. dividends paid to stockholders but not corporate profits d. neither corporate profits nor dividends paid to stock holders

a. both corporate profits and dividends paid to stockholders

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

a. both the short-run Phillips curve and the aggregate demand and aggregate supply model.

Suppose there is a decrease in aggregate demand. If the Fed wants to stabilize output it could a. buy bonds. These purchases also move the price level closer to its original level. b. buy bonds. However these purchases move the price level farther from its original level. c. sell bonds. These sales also move the price level closer to its original level. d. sell bonds. However these sales move the price level farther from its original level.

a. buy bonds. These purchases also move the price level closer to its original level.

The interest-rate effect a. depends on the idea that increases in interest rates decrease the quantity of goods and services demanded. b. depends on the idea that increases in interest rates decrease the quantity of goods and services supplied. c. is responsible for the downward slope of the money-demand curve. d. is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.

a. depends on the idea that increases in interest rates decrease the quantity of goods and services demanded.

In an open economy, national saving equals a. domestic investment plus net capital outflow. b. domestic investment minus net capital outflow. c. domestic investment. d. net capital outflow.

a. domestic investment plus net capital outflow.

In an open economy, national saving equals a. domestic investment plus net capital outflow. b. domestic investment minus net capital outflow. c. domestic investment. d. net capital outflow.

a. domestic investment plus net capital outflow.

During recessions investment a. falls by a larger percentage than GDP. b. falls by about the same percentage as GDP. c. falls by a smaller percentage than GDP. d. falls but the percentage change is sometimes much larger and sometimes much smaller.

a. falls by a larger percentage than GDP.

When aggregate demand shifts right along the short-run aggregate supply curve, unemployment a. falls, so there are upward pressures on wages and prices. b. falls, so there are downward pressures on wages and prices. c. rises, so there are upward pressures on wages and prices. d. rises, so there are downward pressures on wages and prices.

a. falls, so there are upward pressures on wages and prices.

Other things the same, if the interest rate falls, then a. firms will want to borrow more, which increases the quantity of loanable funds demanded. b. firms will want to borrow less, which decreases the quantity of loanable funds demanded. c. firms will want to borrow more, which increase the quantity of loanable funds supplied. d. firms will want to borrow less, which decreases the quantity of loanable funds supplied.

a. firms will want to borrow more, which increases the quantity of loanable funds demanded.

If the long-run Phillips curve shifts to the right, then for any given rate of money growth and inflation the economy has a. higher unemployment and lower output. b. higher unemployment and higher output. c. lower unemployment and lower output. d. lower unemployment and higher output.

a. higher unemployment and lower output.

The Fed lowered interest rates in 2001 and 2002. This implies, other things the same, that the Fed a. increased the money supply because it was concerned about unemployment. b. increased the money supply because it was concerned about inflation. c. decreased the money supply because it was concerned about unemployment. d. decreased the money supply because it was concerned about inflation.

a. increased the money supply because it was concerned about unemployment.

According to the liquidity preference theory, an increase in the overall price level of 10 percent a. increases the equilibrium interest rate, which in turn decreases the quantity of goods and services demanded. b. decreases the equilibrium interest rate, which in turn increases the quantity of goods and services demanded. c. increases the quantity of money supplied by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged. d. decreases the quantity of money demanded by 10 percent, leaving the interest rate and the quantity of goods and services demanded unchanged.

a. increases the equilibrium interest rate, which in turn decreases the quantity of goods and services demanded.

Samuelson and Solow reasoned that when aggregate demand was high, unemployment was a. low, so there was upward pressure on wages and prices. b. low, so there was downward pressure on wages and prices. c. high, so there was upward pressure on wages and prices. d. high, so there was downward pressure on wages and prices.

a. low, so there was upward pressure on wages and prices.

Other things the same, if the U.S. interest rate falls, then U.S. residents will want to purchase a. more foreign assets, which increases the quantity of loanable funds demanded b. fewer foreign assets, which decreases the quantity of loanable funds demanded c. more foreign assets, which increase the quantity of loanable funds supplied. d. fewer foreign assets, which decreases the quantity of loanable funds supplied.

a. more foreign assets, which increases the quantity of loanable funds demanded

Real GDP a. moves in the opposite direction as unemployment. b. increases as production falls. c. falls when households save a smaller fraction of their income. d. All of the above are correct.

a. moves in the opposite direction as unemployment.

Suppose that the central bank unexpectedly increases the growth rate of the money supply. In the short run the effects of this are shown by a. moving to the left along the short-run Phillips curve. b. moving to the right along the short-run Phillips curve. c. shifting the short-run Phillips curve to the right. d. shifting the short-run Phillips curve to the left.

a. moving to the left along the short-run Phillips curve.

If a country has a positive net capital outflow, then a. on net it is purchasing assets from abroad. This adds to its demand for domestically generated loanable funds. b. on net it is purchasing assets from abroad. This subtracts from its demand for domestically generated loanable funds. c. on net other countries are purchasing assets from it. This adds to its demand for domestically generated loanable funds. d. on net other countries are purchasing assets from it. This subtracts from its demand for domestically generated loanable funds.

a. on net it is purchasing assets from abroad. This adds to its demand for domestically generated loanable funds.

Which of the following is not included in aggregate demand? a. purchases of stock and bonds b. purchases of services such as visits to the doctor c. purchases of capital goods such as equipment in a factory d. purchases by foreigners of consumer goods produced in the United States

a. purchases of stock and bonds

An increase in the money supply a. reduces interest rates and shifts aggregate demand to the right. b. reduces interest rates and shifts aggregate supply to the right c. raises interest rates and shifts aggregate demand to the right. d. raises interest rates and shifts aggregate supply to the right.

a. reduces interest rates and shifts aggregate demand to the right.

If inflation expectations rise, the short-run Phillips curve shifts a. right, so that at any unemployment rate inflation is higher in the short run than before. b. left, so that at any unemployment rate inflation is higher in the short run the before. c. right, so that at any unemployment rate inflation is lower in the short run than before. d. left, so that at any unemployment rate inflation is lower in the short run than before.

a. right, so that at any unemployment rate inflation is higher in the short run than before.

There is a a. short-run tradeoff between inflation and unemployment. b. short-run tradeoff between the actual unemployment rate and the natural rate of unemployment. c. long-run tradeoff between inflation and unemployment. d. long-run tradeoff between the actual unemployment rate and the natural rate of unemployment.

a. short-run tradeoff between inflation and unemployment.

If at a given exchange rate foreign citizens want to buy fewer U.S bonds, then the a. supply of dollars in the market for foreign-currency exchange shifts right. b. supply of dollars in the market for foreign-currency exchange shifts left. c. demand for dollars in the market for foreign-currency exchange shifts right. d. demand for dollars in the market for foreign-currency exchange shifts left.

a. supply of dollars in the market for foreign-currency exchange shifts right.

"Leaning against the wind" is exemplified by a a. tax cut when there is a recession. b. decrease in the money supply when there is a recession. c. decrease in government expenditures when there is a recession. d. increasing money supply when there is a boom.

a. tax cut when there is a recession.

Using the liquidity-preference model, when the Federal Reserve increases the money supply, a. the equilibrium interest rate decreases. b. the aggregate-demand curve shifts to the left. c. the quantity of goods and services demanded is unchanged for a given price level. d. the long-run aggregate-supply curve shifts to the right.

a. the equilibrium interest rate decreases.

If the natural rate of unemployment is 6%, but the Fed thinks it is 5% and attempts to use monetary policy to move unemployment from 6% to 5% then in the short run which of the following variables will the Fed's policy raise above their long-run levels? a. the price level and real GDP b. the price level but not real GDP c. real GDP but not the price level d. neither real GDP nor the price level

a. the price level and real GDP

The explanation for the slope of a. the supply of loanable funds curve is based on the logic that a higher real interest rate leads to higher saving. b. the demand for loanable funds curve is based on the logic that a higher interest rate leads to higher saving. c. the supply of loanable funds curve is based on the logic that a higher real interest rate leads to lower saving. d. the demand for loanable funds curve is based on the logic that a higher interest rate leads to lower saving.

a. the supply of loanable funds curve is based on the logic that a higher real interest rate leads to higher saving.

The short-run Phillips curve shows the combinations of a. unemployment and inflation that arise in the short run as aggregate demand shifts the economy along the short-run aggregate supply curve. b. unemployment and inflation that arise in the short run as short-run aggregate supply shifts the economy along the aggregate demand curve. c. real GDP and the price level that arise in the short run as short-run aggregate supply shifts the economy along the aggregate demand curve. d. None of the above is correct.

a. unemployment and inflation that arise in the short run as aggregate demand shifts the economy along the short-run aggregate supply curve.

The saying "Money is a veil." means that a. while nominal variables are the first thing we may observe about an economy, what's important are the real variables and the forces that determine them. b. money is the principal medium of exchange in most economies. c. the primary determinant of short-run economic fluctuations is not real variables, but rather changes in the money supply. d. in the long run money is of no importance to the determination of either real or nominal variables.

a. while nominal variables are the first thing we may observe about an economy, what's important are the real variables and the forces that determine them.

Those who desire that policymakers stabilize the economy would advocate which of the following when aggregate demand is insufficient to ensure full employment a. Decrease the money supply. b. Decrease taxes. c. Decrease government expenditures. d. Do nothing and let markets correct themselves.

b. Decrease taxes.

At the end of 2010, the government had a debt of about $9.4 trillion. If during 2011 real GDP were to rise 3% and inflation was 2%, what is the largest deficit the government could have run without raising the debt-to-GDP ratio? a. about $94 billion b. about $470 billion c. about $540 billion d. None of the above are correct.

b. about $470 billion

In theory the severity of recessions can be diminished with a. an increase in government spending, which the political process cannot delay. b. an increase in government spending, which the length of the political process can delay. c. a decrease in government expenditures, which the political process cannot delay. d. a decrease in government spending, which the length of the political process can delay.

b. an increase in government spending, which the length of the political process can delay.

Which particular interest rate(s) do we attempt to explain using the theory of liquidity preference? a. only the nominal interest rate b. both the nominal interest rate and the real interest rate c. only the interest rate on long-term bonds d. only the interest rate on short-term government bonds

b. both the nominal interest rate and the real interest rate

"Leaning against the wind" is exemplified by a a. tax increase when there is a recession. b. decrease in the money supply when there is an expansion. c. decrease in government expenditures when there is a recession. d. All of the above are correct.

b. decrease in the money supply when there is an expansion.

The Federal Reserve a. does not have an inflation targe; if it did it would likely be 1% or less. b. does not have an inflation target; if it did it would likely be in the range of 2%. c. does have an inflation target; it is 1%. d. does have an inflation target; it is a range from 1-3%.

b. does not have an inflation target; if it did it would likely be in the range of 2%.

Other things the same, as the real interest rate rises a. domestic investment and net capital outflow both rise. b. domestic investment and net capital outflow both fall. c. domestic investment rises and net capital outflow falls. d. domestic investment falls and net capital outflow rises.

b. domestic investment and net capital outflow both fall.

Most economists believe that classical theory describes the world a. in the short run. b. in the long run. c. in both the short run and the long run. d. in neither the short run nor the long run.

b. in the long run.

If the unemployment rate rises, which policies would be appropriate to reduce it? a. increase the money supply, increase taxes b. increase the money supply, cut taxes c. decrease the money supply, increase taxes d. decrease the money supply, cut taxes

b. increase the money supply, cut taxes

In the long run, a. the natural rate of unemployment depends primarily on the level of aggregate demand. b. inflation depends primarily upon the money supply growth rate. c. there is a tradeoff between the inflation rate and the natural rate of unemployment. d. All of the above are correct.

b. inflation depends primarily upon the money supply growth rate.

As aggregate demand shifts right along the aggregate supply curve, a. inflation and unemployment are higher. b. inflation is higher and unemployment is lower. c. unemployment is higher and inflation is lower. d. unemployment and inflation are lower.

b. inflation is higher and unemployment is lower.

Other things the same, a lower real interest rate decreases the quantity of a. loanable funds demanded. b. loanable funds supplied. c. domestic investment. d. net capital outflow.

b. loanable funds supplied.

Other things the same, a lower real interest rate decreases the quantity of a. loanable funds demanded. b. loanable funds supplied. c. domestic investment. d. net capital outflow.

b. loanable funds supplied.

One determinant of the natural rate of unemployment is the a. rate of growth of the money supply. b. minimum wage rate. c. expected inflation rate. d. All of the above are correct.

b. minimum wage rate.

One determinant of the long-run average unemployment rate is the a. market power of unions, while the inflation rate depends primarily upon government spending. b. minimum wage, while the inflation rate depends primarily upon the money supply growth rate. c. rate of growth of the money supply, while the inflation rate depends primarily upon the market power of unions. d. existence of efficiency wages, while the inflation rate depends primarily upon the extent to which firms are competitive.

b. minimum wage, while the inflation rate depends primarily upon the money supply growth rate.

Suppose the central bank pursues an unexpectedly tight monetary policy. In the short-run the effects of this are shown by a. moving to the left along the short-run Phillips curve. b. moving to the right along the short-run Phillips curve. c. shifting the short-run Phillips curve to the right. d. shifting the short-run Phillips curve to the left.

b. moving to the right along the short-run Phillips curve.

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

b. neither the short-run Phillips curve nor the aggregate demand and aggregate supply model.

From 2008-2009 the Federal Reserve created a very large increase in the money supply. According to the short-run Phillips curve this policy should have a. raised inflation and unemployment. b. raised inflation and reduced unemployment. c. reduced inflation and raised unemployment. d. reduced inflation and unemployment.

b. raised inflation and reduced unemployment.

Which of the following is most commonly used to monitor short-run changes in economic activity? a. the inflation rate. b. real GDP. c. interest rates. d. value of the U.S. dollar in the foreign exchange market.

b. real GDP.

The Federal Reserve a. requires little time to change policy and aggregate demand responds quickly. b. requires little time to change policy but aggregate demand responds slowly. c. usually requires a substantial time to change policy but aggregate demand responds quickly d. usually requires a substantial time to change policy and aggregate demand responds slowly.

b. requires little time to change policy but aggregate demand responds slowly.

Other things the same, an increase in the U.S. interest rate causes the quantity of loanable funds supplied to a. rise because net capital outflow and domestic investment rise. b. rise because national saving rises. c. fall because net capital outflow and domestic investment rise. d. fall because national saving falls.

b. rise because national saving rises.

In the long run, a decrease in the money supply growth rate a. shifts the short-run Phillips curve left so inflation returns to its original rate. b. shifts the short-run Phillips curve left so unemployment returns to its natural rate. c. Both A and B are correct. d. None of the above is correct.

b. shifts the short-run Phillips curve left so unemployment returns to its natural rate.

in the long run a reduction in the money supply growth rate affects a. the inflation rate and the natural rate of unemployment. b. the inflation rate but not the natural rate of unemployment. c. neither the inflation rate nor the natural rate of unemployment. d. the natural rate of unemployment, but not the inflation rate.

b. the inflation rate but not the natural rate of unemployment.

If a central bank had to give up its discretion and follow a rule that required it to keep inflation low, a. the short-run Phillips curve would shift up. b. the short-run Phillips curve would shift down. c. the long-run Phillips curve would shift right. d. the long-run Phillips curve would shift left.

b. the short-run Phillips curve would shift down.

On the graph that depicts the theory of liquidity preference, a. the demand-for-money curve is vertical. b. the supply-of-money curve is vertical. c. the interest rate is measured along the horizontal axis. d. the price level is measured along the vertical axis.

b. the supply-of-money curve is vertical.

A.W. Phillips's discovery of a particular relationship between unemployment and inflation for the United Kingdom a. could not be extended to other countries, despite many researchers' attempts to provide that extension. b. was quickly extended to other countries by researchers. c. was extended to only one other country — the United States. d. was harshly criticized by the American economists Paul Samuelson and Robert Solow on the grounds that Phillips's study was fundamentally flawed.

b. was quickly extended to other countries by researchers.

A country has national saving of $100 billion, government expenditures of $30 billion, domestic investment of $80 billion, and net capital outflow of $20 billion. What is its demand for loanable funds? a. $60 billion b. $70 billion c. $100 billion d. $120 billion

c. $100 billion

If aggregate demand shifts because of a wave of optimism about stock prices, those who favor a policy that "leans against the wind" would advocate the a. Federal Reserve increase the money supply or the government increase taxes. b. Federal Reserve increase the money supply or the government decrease taxes. c. Federal Reserve decrease the money supply or the government increase taxes. d. Federal Reserve decrease the money supply or the government decrease taxes.

c. Federal Reserve decrease the money supply or the government increase taxes.

U.S. corporation Wright Air Conditions borrows funds to build a factory in the U.S. and a factory in Mexico. Borrowing for factories in which location(s) is included in the U.S. demand for loanable funds? a. only the U.S. b. only Mexico c. Mexico and the U.S. d. neither Mexico nor the U.S.

c. Mexico and the U.S.

Which of the following would make the equilibrium real interest rate decrease and the equilibrium quantity of loanable funds increase? a. The demand for loanable funds shifts right. b. The demand for loanable funds shifts left c. The supply of loanable funds shifts right. d. The supply of loanable funds shifts left.

c. The supply of loanable funds shifts right.

Studies have shown significant spending changes arise from interest rate changes after a. a few days. b. a few weeks. c. a few months. d. a few years.

c. a few months.

At the end of 2010, the government had a debt of about $9.4 trillion. If during 2011 real GDP were to rise 3.2% and inflation were 1.6%, what is the largest deficit the government could have run without raising the debt-to-GDP ratio? a. about $150.4 billion b. about $188.0 billion c. about $451.2 billion d. about $481.3 billion

c. about $451.2 billion

Fluctuations in employment and output result from changes in a. aggregate demand only. b. aggregate supply only. c. aggregate demand and aggregate supply. d. neither aggregate demand nor aggregate supply.

c. aggregate demand and aggregate supply.

Because the open-economy macroeconomic model focuses on the long run, it is assumed that a. GDP, but not the price level is given. b. the price level, but not GDP is given. c. both the price level and GDP are given. d. the price level and GDP are variables to be determined by the model.

c. both the price level and GDP are given.

A law that requires the money supply to grow by a fixed percentage each year would eliminate a. the time inconsistency problem, but not political business cycles. b. the political business cycle, but not the time inconsistency problem. c. both the time inconsistency problem and political business cycles. d. neither the time inconsistency problem nor political business cycles.

c. both the time inconsistency problem and political business cycles.

If the unemployment rate rises, which policies would both be appropriate to reduce it a. increase taxes, increase government spending b. increase taxes, decrease government spending c. decrease taxes, increase government spending d. decrease taxes, decrease government spending

c. decrease taxes, increase government spending

In recent years, the Federal Reserve has conducted policy by setting a target for the a. size of the money supply. b. growth rate of the money supply. c. federal funds rate. d. discount rate.

c. federal funds rate.

The economy goes into recession. Which of the following lists contains things policymakers could do to try to end the recession? a. increase the money supply, increase taxes, increase government spending b. increase the money supply, increase taxes, decrease government spending c. increase the money supply, decrease taxes, increase government spending d. decrease the money supply, increase taxes, decrease government spending

c. increase the money supply, decrease taxes, increase government spending

The economy goes into recession. Which of the following lists contains things policymakers could do to try to end the recession? a. increase the money supply, increase taxes, increase government spending b. increase the money supply, increase taxes, decrease government spending c. increase the money supply, decrease taxes, increase government spending d. decrease the money supply, increase taxes, decrease government spending

c. increase the money supply, decrease taxes, increase government spending

In the Summer of 2008, consumers indicated that they were less optimistic about the future of the economy. Such a change in sentiment is likely to a. shift aggregate demand to the right. b. increase output. c. increase unemployment. d. increase prices.

c. increase unemployment.

The interest-rate effect a. depends on the idea that increases in interest rates increase the quantity of money demanded. b. depends on the idea that increases in interest rates increase the quantity of money supplied. c. is the most important reason, in the case of the United States, for the downward slope of the aggregate-demand curve. d. is the least important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.

c. is the most important reason, in the case of the United States, for the downward slope of the aggregate-demand curve.

Other things the same, a decrease in the price level makes consumers feel a. less wealthy, so the quantity of goods and services demanded falls. b. less wealthy, so the quantity of goods and services demanded rises. c. more wealthy, so the quantity of goods and services demanded rises. d. more wealthy, so the quantity of goods and services demanded falls.

c. more wealthy, so the quantity of goods and services demanded rises.

Over the past three decades, the United States has a. generally had, or been very near to a trade balance. b. had trade deficits in about as many years as it has trade surpluses. c. persistently had a trade deficit. d. persistently had a trade surplus.

c. persistently had a trade deficit.

Over the past three decades, the United States has a. generally had, or been very near to a trade balance. b. had trade deficits in about as many years as it has trade surpluses. c. persistently had a trade deficit. d. persistently had a trade surplus.

c. persistently had a trade deficit.

Accumulated over a long span of time, the tax rate on interest income a. removes all benefits from saving. b. reduces the benefits from saving by a small amount. c. reduces the benefits from saving by a large amount. d. does nor reduce any of the benefits from saving.

c. reduces the benefits from saving by a large amount.

Accumulated over a long span of time, the tax rate on interest income a. removes all benefits from saving. b. reduces the benefits from saving by a small amount. c. reduces the benefits from saving by a large amount. d. does nor reduce any of the benefits from saving.

c. reduces the benefits from saving by a large amount.

The wealth effect helps explain the slope of the aggregate-demand curve. This effect is a. relatively important in the United States because expenditures on consumer durables is very responsive to changes in wealth. b. relatively important in the United States because consumption spending is a large part of GDP. c. relatively unimportant in the United States because money holdings are a small part of consumer wealth. d. relatively unimportant because it takes a large change in wealth to cause a significant change in interest rates.

c. relatively unimportant in the United States because money holdings are a small part of consumer wealth.

Paul Volcker's inflation reduction efforts a. failed to reduce inflation. b. failed to reduce expected inflation. c. resulted in the highest unemployment rate since the Great Depression. d. None of the above are correct.

c. resulted in the highest unemployment rate since the Great Depression.

According to John Maynard Keynes, a. the demand for money in a country is determined entirely by that nation's central bank. b. the supply of money in a country is determined by the overall wealth of the citizens of that country. c. the interest rate adjusts to balance the supply of, and demand for, money. d. the interest rate adjusts to balance the supply of, and demand for, goods and services.

c. the interest rate adjusts to balance the supply of, and demand for, money.

If efficiency wages became more common, a. both the long-run Phillips curve and the long-run aggregate supply curve would shift right. b. both the long-run Phillips curve and the long-run aggregate supply curve would shift left. c. the long-run Phillips curve would shift right, and the long-run aggregate supply curve would shift left. d. the long-run Phillips curve would shift left, and the long-run aggregate supply curve would shift right.

c. the long-run Phillips curve would shift right, and the long-run aggregate supply curve would shift left.

According to classical macroeconomic theory, changes in the money supply affect a. real GDP and the price level. b. real GDP but not the price level. c. the price level, but not real GDP. d. neither the price level nor real GDP.

c. the price level, but not real GDP.

Double taxation means that both a. wage income and interest income are taxed, which is currently the case in the United States. b. wage income and interest income are taxed, which is not currently the case in the United States. c. the profits of corporations and the dividends shareholders receive are taxed, which is currently the case in the United States. d. the profits of corporations and the dividends shareholders receive are taxed, which is not currently the case in the United States.

c. the profits of corporations and the dividends shareholders receive are taxed, which is currently the case in the United States.

Which of the following is correct concerning the long-run Phillips curve? a. Its position is determined primarily by monetary factors. b. If it shifts right, long-run aggregate supply shifts right. c. It cannot be changed by any government policy. d. Its position depends on the natural rate of unemployment.

d. Its position depends on the natural rate of unemployment.

Which of the following is correct? a. No forms of capital income are taxed twice. b. The tax code cannot be rewritten to provide greater incentive to save. c. Means-tested benefits increase the incentive to save. d. There is a correlation between national savings rates and measures of economic well-being.

d. There is a correlation between national savings rates and measures of economic well-being.

Which of the following is correct? a. No forms of capital income are taxed twice. b. The tax code cannot be rewritten to provide greater incentive to save. c. Means-tested benefits increase the incentive to save. d. There is a correlation between national savings rates and measures of economic well-being.

d. There is a correlation between national savings rates and measures of economic well-being.

Over time continued budget deficits lead to a. a higher capital stock and higher real wages. b. a higher capital stock and lower real wages. c. a lower capital stock and higher real wages. d. a lower capital stock and lower real wages.

d. a lower capital stock and lower real wages.

In 2009 Barack Obama responded to recession a. only by cutting taxes. b. by cutting taxes and reducing government expenditures. c. only by raising government expenditures. d. by cutting taxes and by raising government expenditures.

d. by cutting taxes and by raising government expenditures.

Historical evidence for the U.S. economy indicates that a. recessions have occurred roughly once every six years since the 1960s b. the unemployment rate usually decreases during a recession and increases shortly after the recession ends. c. real GDP usually remains roughly constant during a recession and decreases shortly after the recession ends. d. changes in real GDP over the business cycle are largely attributable to changes in investment over the business cycle.

d. changes in real GDP over the business cycle are largely attributable to changes in investment over the business cycle.

The Fed raised interest rates in 2004 and 2005. This implies, other things the same, that the Fed a. increased the money supply because it was concerned about unemployment. b. increased the money supply because it was concerned about inflation. c. decreased the money supply because it was concerned about unemployment. d. decreased the money supply because it was concerned about inflation.

d. decreased the money supply because it was concerned about inflation.

Samuelson and Solow argued that when unemployment is high, there is a. upward pressures on wages and prices. b. upward pressures on wages and downward pressures on prices. c. upward pressures on prices and downward pressures on wages. d. downward pressures on wages and prices.

d. downward pressures on wages and prices.

In general, the longest lag for a. both fiscal and monetary policy is the time it takes to change policy. b. both fiscal and monetary policy is the time it takes for policy to affect aggregate demand. c. monetary policy is the time it takes to change policy, while for fiscal policy the longest lag is the time it takes for policy to affect aggregate demand. d. fiscal policy is the time it takes to change policy, while for monetary policy the longest lag is the time it takes for policy to affect aggregate demand.

d. fiscal policy is the time it takes to change policy, while for monetary policy the longest lag is the time it takes for policy to affect aggregate demand.

The Federal Reserve will tend to tighten monetary policy when a. interest rates are rising too rapidly. b. it thinks the unemployment rate is too high. c. the growth rate of real GDP is quite sluggish. d. it thinks inflation is too high today, or will become too high in the future.

d. it thinks inflation is too high today, or will become too high in the future.

If there is a surplus of loanable funds, the quantity demanded is a. greater than the quantity supplied and the interest rate will rise. b. greater than the quantity supplied and the interest rate will fall. c. less than the quantity supplied and the interest rate will rise. d. less than the quantity supplied and the interest rate will fall.

d. less than the quantity supplied and the interest rate will fall.

If the minimum wage increased, then at any given rate of inflation a. both output and employment would be higher. b. neither output nor employment would be higher. c. output would be higher and unemployment would be lower. d. output would be lower and unemployment would be higher.

d. output would be lower and unemployment would be higher.

If a central bank decreases the money supply, then a. prices, output, and unemployment rise. b. prices and output rise and unemployment falls. c. prices rise and output and unemployment fall. d. prices and output fall and unemployment rises.

d. prices and output fall and unemployment rises.

Other things the same, a decrease in the interest rate a. reduces domestic investment which reduces the quantity of loanable funds supplied. b. reduces domestic investment which reduces the quantity of loan funds demanded. c. raises domestic investment which raises the quantity of loanable funds supplied. d. raises domestic investment which raises the quantity of loanable funds demanded.

d. raises domestic investment which raises the quantity of loanable funds demanded.

If people in countries that have had persistently high inflation are skeptical about efforts to reduce inflation, the short-run Phillips curve will remain far to the a. left, and the sacrifice ratio will be low. b. left, and the sacrifice ratio will be high. c. right, and the sacrifice ratio will be low. d. right, and the sacrifice ratio will be high.

d. right, and the sacrifice ratio will be high.

U.S. public policy discourages saving because a. other things the same, taxes increase the return from savings. b. means tested programs such as Medicaid provide lower benefits to those who did not save. c. none of parents' bequest to their children is taxed. d. some forms of capital income are taxed twice.

d. some forms of capital income are taxed twice.

U.S. public policy discourages saving because a. other things the same, taxes increase the return from savings. b. means tested programs such as Medicaid provide lower benefits to those who did not save. c. none of parents' bequest to their children is taxed. d. some forms of capital income are taxed twice.

d. some forms of capital income are taxed twice.

Aggregate demand includes a. only the quantity of goods and services households want to buy. b. only the quantity of goods and services households and firms want to buy. c. only the quantity of goods and services households, firms, and the government want to buy. d. the quantity of goods and services households, firms, the government, and customer abroad want to buy.

d. the quantity of goods and services households, firms, the government, and customer abroad want to buy.

If the supply of loanable funds shifts left, then a. the real interest rate and the equilibrium quantity of loanable funds both fall. b. the real interest rate falls and the equilibrium quantity of loanable funds rises. c. the real interest rate and the equilibrium quantity of loanable funds both rise. d. the real interest rate rises and the equilibrium quantity of loanable funds falls.

d. the real interest rate rises and the equilibrium quantity of loanable funds falls.

If the public correctly perceives that the central bank will reduce inflation, then a. the short-run Phillips curve shifts right, and the sacrifice ratio will be higher. b. the short-run Phillips curve shifts right, and the sacrifice ratio will be lower. c. the short-run Phillips curve shifts left, and the sacrifice ratio will be higher. d. the short-run Phillips curve shifts left, and the sacrifice ratio will be lower.

d. the short-run Phillips curve shifts left, and the sacrifice ratio will be lower.

If a government managed to reduce the time inconsistency problem by mandating that the central bank target inflation at a low rate, then a. the long-run Phillips curve would shift right. b. the long-run Phillips curve would shift left. c. the short-run Phillips curve would shift up. d. the short-run Phillips curve would shift down.

d. the short-run Phillips curve would shift down.

As the aggregate demand curve shifts rightward along a given aggregate supply curve, a. unemployment and inflation are higher. b. unemployment and inflation are lower. c. unemployment is higher and inflation is lower. d. unemployment is lower and inflation is higher.

d. unemployment is lower and inflation is higher.