University of California, Santa Barbara - ECON 2

Final Exam

1)For a closed economy, which of the following expressions of national saving is correct? a. national saving = (Y-C-T)+(G-T)

 

	national saving =(Y-C-I)+(G-I) national saving = Y-C-NX national saving = Y-C-G
____	2. Which of the following statements is/are true about the classical quantity theory of money? a. The classical economists assumed that V would steadily rise when real interest rates rise. b. All of the above The equation of exchange is MV = PQ The classical economists concluded that increases in the money supply cause increases in real GDP and nothing else
____	3. In the context of the aggregate-demand curve, the interest-rate effect refers to the idea that, when the price level increases, households increase their holdings of money; in turn, interest rates increase, which reduces spending on investment goods. households increase their holdings of money; in turn, interest rates decrease, which reduces spending on investment goods. the real value of money decreases; in turn, the real value of the dollar increases in foreign exchange markets, which decreases net exports. the real value of money decreases; in turn, interest rates increase, which decreases net exports.
____	4. Menu costs help explain sticky-price theory. misperceptions theory. sticky-wage theory. All of the above are correct.
____	5. The long run aggregate supply curve is: upward-sloping because of sticky-wage theory vertical because supply is limited by the availability of inputs like natural resources and labor upward-sloping because of the exchange-rate effect downward-sloping because of the wealth effect
____	6. If per capita output increases by 5 percent and output grows by 5 percent, then population must be:

1. decreasing by 5 percent.
2. increasing at a rate of 10 percent.  
3. increasing at a rate of 5 percent
4. constant.  

 

	7.            In the early 1900s, Henry Ford introduced a high-wage policy, and this policy produced many of the effects predicted by efficiency-wage theory. low-wage policy, and this policy produced none of the effects predicted by efficiency-wage theory. high-wage policy, and this policy produced none of the effects predicted by efficiency-wage theory. low-wage policy, and this policy produced many of the effects predicted by efficiency-wage theory.
____	8. Business cycles are similar, but they can have many causes. each unique and they can have many causes. similar, and they all have a single cause. each unique, but all have a single cause
____	9.  If the price of a good has risen over time, it has become more scarce only if the price adjusted for inflation has risen it must have become more scarce it has become less scarce only if the price adjusted for inflation has risen it must have become less scarce
____ 10.  For a closed economy, GDP is $12 trillion, consumption is $7 trillion, taxes net of transfers are $3 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving? a. $2 trillion and $3 trillion, respectively $5 trillion and $3 trillion, respectively $2 trillion and $1 trillion, respectively $5 trillion and $1 trillion, respectively    ____ 11. Suppose Country A has real GDP of $10 trillion and an annual growth rate of 2%, and Country B has real GDP of $2 trillion and an annual growth rate of 8%. After 30 years, what will be the real GDP of each country? Assume the growth rates remain unchanged. Country A: $40.62 trillion; Country B: $18.11 trillion Country A: $100.63 trillion; Country B: $40.62 trillion Country A: $18.11 trillion; Country B: $20.13 trillion Country A: $16 trillion; Country B: $8 trillion    ____ 12. Toyota of Santa Barbara imported 200 Corolla vehicles in 2014, each worth $20,000. In 2014, only 150 of

them were sold to customers. How did these transactions contribute to 2014 US GDP? a. increased US GDP by $3,000,000

2. no effects on US GDP
3. decreased US GDP by $4,000,000
4. increased US GDP by $4,000,000

 

13.    Tara has just finished school, but she is going to roam around the country awhile before she starts looking for work. As a result, the unemployment rate

1. increases, and the labor-force participation rate is unaffected.  
2. increases, and the labor-force participation rate increases.
3. is unaffected, and the labor-force participation rate is unaffected.
4. increases, and the labor-force participation rate decreases.

  

____ 14. 

If the economy is initially at long-run equilibrium and aggregate demand declines, then in the long run the price level

1. and output are lower than in the original long-run equilibrium
2. and output are higher than in the original long-run equilibrium
3. is the same and output is lower than in the original long-run equilibrium
4. is lower and output is the same as the original long-run equilibrium

  

____ 15. One way that the government can increase aggregate demand is by

1. reducing income taxes
2. reducing government
3. reducing the economy's supply of labor
4. increasing taxes

  

____ 16.  

The future value of a deposit in a savings account will be larger

1. the higher the interest rate is
2. the larger the initial deposit is
3. the longer a person waits to withdraw the funds
4. All of the above are correct

  

____ 17. Sam deposits money into an account with a nominal interest rate of 4 percent.  He expects inflation to be 1.5 percent.  His tax rate is 20 percent.  Sam’s after-tax real rate of interest

1. will be 1.7 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent.  
2. will be 2 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent.  
3. will be 1.7 percent if inflation turns out to be 1.5 percent; it will be lower if inflation turns out to be lower than 1.5 percent.  
4. will be 2 percent if inflation turns out to be 1.5 percent; it will be higher if inflation turns out to be lower than 1.5 percent.  

  

____ 18. During recessions employment typically

1. rises substantially. As the recession ends, employment declines rapidly.
2. falls substantially. As the recession ends, employment rises gradually.
3. falls substantially. As the recession ends, employment rises rapidly.
4. rises substantially. As the recession ends, employment declines gradually.

 

19.          Since the end of World War II, the U.S. has almost always had rising prices and an upward trend in real GDP.

To explain this

1. it is only necessary that aggregate demand shifts right over time.
2. both aggregate demand and long-run aggregate supply must be shifting right and aggregate demand must be shifting farther.
3. it is only necessary that long-run aggregate supply shifts right over time.
4. None of the above cases would produce rising prices and growing real GDP over time.

  

____ 20. The quantity theory of money

1. argues that inflation is caused by too little money in the economy.
2. can explain both moderate inflation and hyperinflation.
3. is a fairly recent addition to economic theory.
4. All of the above are correct.

  

____ 21. When the money market is drawn with the value of money on the vertical axis, if the price level is above the equilibrium level, there is an

1. excess demand for money, so the price level will fall.
2. excess demand for money, so the price level will rise.
3. excess supply of money, so the price level will fall.
4. excess supply of money, so the price level will rise.

  

____ 22.  

Suppose the interest rate is 10 percent. Which of the following payments has the largest present value?

1. You receive $75.13 today
2. You receive $82.64 one year from today
3. You receive $90.91 two years from today
4. All of these payments have the same present value to the nearest cent

  

____ 23. The reserve requirement is 20%, and banks hold no excess reserves. If the Fed buys $10 million of bonds, what happens to the money supply and to total reserves?

1. money supply decreases by $50 million, reserves increase by $2 million
2. money supply decreases by $10 million, reserves decrease by $2 million
3. money supply increases by $50 million, reserves increase by $10 million
4. money supply increases by $50 million, reserves decrease by $10 million

  

____ 24. Which of the following is correct?

1. There is no consensus among economists about whether unions are good or bad for the economy.
2. There is consensus among economists that unions are bad for the economy.
3. There is consensus among economists that unions are good for the economy.
4. There is consensus among economists that, on net, unions have almost no impact on macroeconomic variables.

 

	25.          If aggregate demand shifts right then in the short run firms will increase production. In the long run increased price expectations shift the short-run aggregate supply curve to the right. firms will decrease production. In the long run increased price expectations shift the short-run aggregate supply curve to the left. firms will increase production. In the long run increased price expectations shift the short-run aggregate supply curve to the left. firms will decrease production. In the long run increased price expectations shift the short-run aggregate supply curve to the right.
____	26. Economists agree that high inflation is costly, but they disagree about the costs of moderate inflation. neither high inflation nor moderate inflation is very costly. moderate inflation is as costly as high inflation. both high and moderate inflation are quite costly.
____	27. When opening a print shop you need to buy printers, computers, furniture, and similar items. Economists call these expenditures business consumption expenditures. capital investment. personal saving. investment in human capital.
____	28. Three people go to the bank to cash in their accounts. Amy had her money in an account for 25 years at 4 percent interest. Bill had his money in an account for 20 years at 5 percent interest. Celia had her money in an account for 5 years at 20 percent interest. If each of them originally deposited $500 in their accounts, which of them gets the most money when they cash in their accounts? a. Amy Celia Bill They each get the same amount.
____	29.  In which case would people desire to borrow the most? the nominal interest rate is 6% and the inflation rate is 3% the nominal interest rate is 5% and the inflation rate is 1% the nominal interest rate is 7% and the inflation rate is 5% the nominal interest rate is 8% and the inflation rate is 7%
____	30. Which of the following shifts short-run aggregate supply left? an increase in the actual price level an increase in the expected price level an increase in the capital stock None of the above is correct.
____	31. Suppose the Fed buys back bonds for $100 million dollars. The reserve ratio is 5%. How does this open

market operation change the money supply and the total reserve in the economy, respectively?  a. the money supply increases by $2 billion; the total reserve increases by $5 million.

2. the money supply decreases by $2 billion; the total reserve decreases by $100 million.
3. the money supply increases by $2 billion; the total reserve increases by $100 million.
4. the money supply decreases by $2 billion; the total reserve decreases by $5 million.

 

 

____	32. James offers you $1,000 today or $X in 7 years. If the interest rate is 4.5 percent, then you would prefer to take the $1,000 today if and only if a. X < 1,045.00. X < 1,266.67. X < 1,360.86. X < 1,188.89.
____	33. Christine decided to increase the number of stocks in her portfolio. In doing so, she could reduce: neither the market risk nor the firm-specific risk of her portfolio the firm-specific risk, but not the market risk of her portfolio both the firm-specific risk and the market risk of her portfolio the market risk, but not the firm-specific risk of her portfolio
____	34. The discount rate is the interest rate that the Fed charges Congress for loans. the Fed charges banks for loans. banks charge the Fed for loans. banks charge one another for loans.
____	35. Economic variables whose values are measured in goods are called a. real variables. nominal variables. classical variables. dichotomous variables.
____	36. Which of the following would tend to decrease the Federal funds rate a decrease in the excess reserves of the banking system.   a decrease in the reserve requirement.                                               an open market sale of government securities.                                               an increase in the discount rate.
____	37. Economic variables we are most interested in are nominal variables, but we usually observe real variables. nominal variables, which we usually observe. real variables, which we usually observe. real variables, but we usually observe nominal variables.
____	38. Suppose that Tom owns a house in 2015 that he bought in 2000. Which of the following gives the best reasoning of whether the house should be counted in 2015 GDP or not?  a. No. Since he is not renting the house, it will not be included. Yes. A rental value for his house should be included in the investment component of 2015 GDP.   No. If we counted it in 2015, we would be double-counting. Yes. A rental value for his house should be included in the consumption component of 2015 GDP.

 

____ 39. Sally purchased a log-splitter five years ago. This year, she purchases some new parts, gasoline, oil, and spends 2 hours repairing the log-splitter. Which of the following is included in this year’s GDP? a. the amount she paid to buy new parts, gasoline, oil, and the market value of the 2 hours spent to repair the log-splitter.

2. the amount she paid to buy new parts, gasoline, and oil.
3. the amount she paid to buy the new parts
4. the amount she paid to buy new parts and gasoline

  

____ 40. Which of the following would increase output in the short run?

1. government spending increases
2. an increase in stock prices that makes people feel wealthier
3. firms chose to purchase more investment goods
4. All of the above are correct.

  

____ 41. The income-expenditure identity is best paraphrased as

1. on average, consumers cannot save.
2. all spending generates income.
3. all profits are used for investment spending.
4. on average, the government can spend no more than what it collects in income taxes.

  

____ 42. Consider two items that might be included in GDP: (1) the estimated rental value of owner-occupied housing and (2) purchases of newly-constructed homes. How are these two items accounted for when GDP is calculated?

1. Only item (2) is included in GDP, and it is included in the investment component.
2. Item (1) is included in the consumption component of GDP, while item (2) is included in the investment component of GDP.
3. Both item (1) and item (2) are included in the consumption component of GDP.
4. Item (1) is included in the investment component of GDP, while item (2) is included in the consumption component of GDP.

  

____ 43. Suppose the banking system currently has $300 billion in reserves, the reserve requirement is 5 percent, and excess reserves are $30 billion. What is the level of loans? a. $6,000 billion

2. $5,400 billion
3. $5,100 billion
4. $270 billion

  

____ 44. Rosie is risk averse and has $1,000 with which to make a financial investment.  She has three options.  Option A is a risk-free government bond that pays 5 percent interest each year for two years.  Option B is a low-risk stock that analysts expect to be worth about $1,102.50 in two years.  Option C is a high-risk stock that is expected to be worth about $1,200 in four years. a. option A.

2. option B.
3. option C.
4. either option A or option B because Rosie is indifferent between those two options and they are superior to option C.

 

 

____ 45. The country of Meditor, a small country with a closed economy, uses the merit as its currency. Recent national income statistics showed that it had GDP of $600 million merits, no government transfer payments, taxes of $150 million merits, a budget surplus of $40 million merits, and investment of $100 million merits. What were its consumption and government expenditures on goods and services? a. $310 million merits and $190 million merits

2. $350 million merits and $190 million merits
3. $390 million merits and $110 million merits
4. $460 million merits and $150 million merits

  

____ 46. Deflating a nominal quantity is the process of dividing a _______ quantity by a ______ in order to express the quantity in ______ terms.

1. nominal; nominal quantity; percentage
2. nominal; price index; real
3. nominal; real quantity; nominal
4. real; price index; real

  

____ 47. Suppose the government increases spending on infrastructure.  This will __________ output in the short run and ___________ the price level in the long run. a. increase; increase

2. decrease; increase
3. decrease; decrease
4. increase; decrease

  

____ 48. The Bank of GoletaBeach has $5 million in excess reserves. Also the bank has $300 million in deposits and

$255 million dollars in loans. Given this information you find that the reserve requirement for Bank of GoletaBeach must be a. 40/255

2. 40/300
3. 50/255
4. 50/300

 

 

Figure 28-1

 

 

D

S

of workers

10

20

30

40

50

60

70

80

90

hundreds

1

2

3

4

5

6

7

8

9

10

wage

 

 

 

____	49. Refer to Figure 28-1.  If the government imposes a minimum wage of $4, then employment will decrease by a. 3000 workers. 4000 workers. 2000 workers. 0 workers.
____	50. If real GDP grows faster than nominal GDP, it is a sign that there is no inflation. there is inflation, but little. inflation is negative. there is hyperinflation.
____	51. If the Fed wanted to increase the money supply, it could increase the reserve requirement sell bonds on the open market decrease the level of government spending decrease the discount rate
____	52. Consider two cars manufactured by Chevrolet in 2014. During 2014, Chevrolet sells one of the two cars to Sean for $24,000. Later in the same year, Sean sells the car to Kati for $19,000. The second automobile, with a market value of $30,000, is unsold at the end of 2014 and it remains in Chevrolet’s inventory. The transactions just described contribute how much to GDP for 2014? a. $43,000 $24,000 $54,000 $73,000
____	53. A decrease in the money supply might indicate that the Fed had sold bonds in an attempt to reduce the federal funds rate. purchased bonds in an attempt to increase the federal funds rate. purchased bonds in an attempt to reduce the federal funds rate. sold bonds in an attempt to increase the federal funds rate.
____	54. If P denotes the price of goods and services measured in terms of money, then an increase in the value of money is associated with a decrease in P. 1/P represents the value of money measured in terms of goods and services. P can be regarded as the “overall price level.” All of the above are correct.
____	55.  An economic expansion caused by a shift in aggregate demand causes prices to fall in the short run, and fall even more in the long run rise in the short run, and fall back to their original level in the long run fall in the short run, and rise back to their original level in the long run rise in the short run, and rise even more in the long run
____	56. Which of the following shifts aggregate demand to the right?

1. an investment tax credit but not a decrease in income tax rates
2. a decrease in income tax rates but not an investment tax credit
3. both an investment tax credit and a decrease in income tax rates
4. neither an investment tax credit nor a decrease in income tax rates

 

 

____ 57. Gross domestic product measures

1. expenditures but not income.
2. income but not expenditures.
3. income and expenditures.
4. neither income nor expenditures.

  

____ 58. 

An unexpected increase in the price level that temporarily lowers real wages and induces more employment and output in an economy, occurs in

1. sticky-wage theory
2. misperceptions theory
3. stagflation
4. nominal-supply theory

  

____ 59. A nation's standard of living is best measured by its:

1. real GDP
2. nominal GDP per person
3. productivity 
4. real GDP per person

  

____ 60. When taxes decrease, consumption

1. decreases, so aggregate demand shifts left
2. decreases, so aggregate supply shifts left
3. increases, so aggregate demand shifts right
4. increases, so aggregate supply shifts right

  

____ 61. The unemployment rate is 5%.  The adult population is 100 million.  The labor force participation rate is 70%.  What is the number of unemployed workers? a. 3.5 million

2. 5 million
3. 7.5 million
4. 10 million

  

____ 62. Economists have developed models of risk aversion using the concept of

1. utility and the associated assumption of diminishing marginal utility
2. income and the associated assumption of increasing marginal wealth
3. income and the associated assumption of diminishing marginal wealth
4. utility and the associated assumption of increasing marginal utility

  

____ 63. Which of the following is not an example of human capital?

1. A public library
2. Knowing how to read.
3. Skills acquired through work experience.
4. Skills acquired through formal education.

  

____ 64. If you put $250 into an account with a 4 percent interest rate, how many years would you have to wait to have $432.92? a. 10

2. 14
3. 20
4. 17

 

 

____	65. Sirius has just finished high school and started looking for his first job, but has not yet found one. Other things the same, the unemployment rate and the labor-force participation rate are both unaffected. is unaffected, and the labor-force participation rate increases. and the labor-force participation rate both increase. increases, and the labor-force participation rate is unaffecte
____	66. Last year real GDP in the imaginary nation of Populia was 907.5 billion and the population was 3.3 million. The year before real GDP was 750 billion and the population was 3 million. What was the growth rate of real GDP per person during the year? a. 14 percent 10 percent 21 percent 17 percent
____	67. Which of the following statement is NOT true when the Federal Reserve reduce the reserve ratio? a. Money demand curve does not shift.  Nominal output is increased.  Money multiplier is increased.  Money supply is decrease
____	68. Given a required reserve ratio of 5 percent for all banks and assuming individuals hold no cash, total bank reserves of $400 billion could support maximum deposits of:  $800 billion.                                                                         $4000 billion.                                                                      $400 billion.                                                                       d. $8000 billion.
____	69. When looking at a graph of nominal and real interest rates you notice that nominal rates always lie above real rates.  From this you conclude there were serious episodes of deflation in the time frame represented on the graph. GDP was always increasing for the time frame represented on the graph. consumer prices were always rising in the time frame represented on the graph. the economy never experienced a recession in the time frame represented on the graph.
____	70. Suppose you put $500 into a bank account today. Interest is paid annually and the annual interest rate is 8 percent.  The future value of the $500 after 2 years is  a. $583.20. $470.00.  $428.67. $580.00.
____	71. Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the

economy causes the CPI to overestimate the cost of living. This is so because a. new goods and services cost more than existing goods and services.

2. new goods and services cost less than existing goods and services.
3. new goods and services are always of higher quality than existing goods and services.
4. when a new good is introduced, it gives consumers greater choice, thus reducing the amount they must spend to maintain their standard of living.

 

72.            Nominal GDP measures

1. the dollar value of the economy's output of final goods and services.
2. the total income received from producing final goods and services measured in constant dollars.
3. the total quantity of final goods and services produced.
4. None of the above is correct.

  

____ 73. If people start to hold more currency relative to deposits, the money supply will

1. fall.  The Fed can counteract the change in the money supply by selling bonds.

 

2. fall.  The Fed can counteract the change in the money supply by buying bonds.
3. rise.  The Fed can counteract the change in the money supply by selling bonds.
4. rise.  The Fed can counteract the change in the money supply by buying bonds.

  

____ 74. Suppose a basket of goods and services has been selected to calculate the consumer price index. In 2005, the basket of goods cost $108.00; in 2006, it cost $135.00; and in 2007, it cost $168.75. Which of the following statements is correct?

1. Using 2005 as the base year, the economy’s inflation rate was higher in 2007 than it was in 2006.
2. If 2007 is the base year, then the CPI is 33.75 in 2006.
3. If the CPI is 156.25 in 2007, then 2005 is the base year.
4. Using 2005 as the base year, the economy’s inflation rate for 2006 was 27 percent.

  

____ 75. 

The sticky-wage theory of the short-run aggregate supply curve says that when the price level is lower than expected,

1. relative to prices wages are lower and employment rises
2. relative to prices wages are higher and employment rise
3. relative to prices wages are higher and employment falls
4. relative to prices wages are lower and employment falls

  

____ 76. According to the aggregate production function, an economy that decreases its savings will grow:

1. faster since consumption and aggregate demand will be higher.
2. slower since investment and capital accumulation will be reduced.
3. slower because consumption and aggregate demand will be lower.
4. faster since investment and capital accumulation will be higher.

  

____ 77. If an economy is at the natural rate of unemployment, it has: 

1. no frictional unemployment
2. no frictional or structural unemployment
3. no structural unemployment
4. no cyclical unemployment

  

____ 78. The government decides to reduce taxes on interest income.  This would

1. decrease the supply of loanable funds and lead to a higher equilibrium interest rate.
2. decrease the demand of loanable funds and lead to a lower equilibrium interest rate.
3. increase the demand of loanable funds and lead to a higher equilibrium interest rate.
4. increase the supply of loanable funds and lead to a lower equilibrium interest rate.

 

	79.          If Congress instituted an investment tax credit, the interest rate would fall and saving would fall. fall and saving would rise. rise and saving would rise. rise and saving would fall.
____	80. A bank has a 10 percent reserve requirement, $36,000 in loans, and has loaned out all it can given the reserve requirement. It has $40,000 in deposits. It has $3,600 in deposits. It has $39,600 in deposits. It has $32,400 in deposits.
____	81. Which of the following events will lead to a positive shift in money demand? a. an increase in the reserve ratio a negative growth forecast for GDP an increase in the level of aggregate output a decrease in the price level
____	82. According to the classical model, which of the following would double if the quantity of money doubled? a. neither prices nor nominal income prices but not nominal income nominal income but not prices both prices and nominal income
____	83. The two most important American business cycle events of the twentieth century were World War II and the Great Depression government budget deficits and World War II the productivity slowdown and the Great Depression the Great Depression and stagflation
____	84. If the nominal interest rate is 6 percent and the rate of inflation is 10 percent, then the real interest rate is a. 4 percent. -4 percent. 16 percent. -16 percent.
____	85. Money is more efficient than barter. allows greater specialization. makes trades easier. All of the above are correct.
____	86. Today, bank runs are not a major problem for the U.S. banking system because

1. bank runs are now illegal.
2. banks now hold 100 percent of their deposits in reserve.
3. the federal government now guarantees the safety of deposits at most banks.
4. banks are now all government-operate

 

87.            Wages in excess of their equilibrium level help explain

1. structural unemployment.
2. frictional unemployment.
3. cyclical unemployment.
4. both frictional and structural unemployment.

  

____ 88. If the CPI was 100 in the first quarter of 2015, and 120 in the second quarter of 2015. Then which of the following interpretations is correct:

1. The inflation rate for the second quarter was 20 percent.
2. The cost of the CPI basket of goods and services increased by 20 percent in the second quarter.
3. Prices for the typical consumer increased by 20 percent in the second quarter. d. All of the above are correct.

  

____ 89. The rate at which the Fed lends money to banks is

1. the federal funds rate.
2. the discount rate.
3. fixed at 4%.
4. the prime rate.

  

____ 90. If there is a flood that decreases the availability of raw materials

1. aggregate supply shifts right.
2. prices fall in the short run.
3. output falls in the short run.
4. None of the above is correct.

  

____ 91. Which of the following is not counted in GDP?

1. The services provided by a maid.
2. The change in Social Security payments received by individuals
3. The commissions earned by a salesman.  
4. The inventories held by firms.

  

____ 92. Which of these is NOT included in the calculation of private savings?

1. Consumption
2. Net Exports
3. Output
4. Taxes

  

____ 93. If real GDP is 15,000 and the money supply is 3,000, what is the velocity of money? a. 15

2. 45
3. 5
4. There’s not enough information to answer.

  

____ 94. Suppose that some country had an adult population of about 46 million, a labor-force participation rate of 75 percent, and an unemployment rate of 8 percent. How many people were unemployed? a. 2.54 million

2. 8 million
3. 2.76 million
4. 3.68 million

 

	95.          According to the misperceptions theory of aggregate supply, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, then the firm would believe that the relative price of what it produce had increased, so it would increase production decreased, so it would increase production increased, so it would decrease production decreased, so it would decrease production
____	96. The catch-up effect refers to the idea that                                                                    a. saving will always "catch-up" with investment spending if investment spending is low, increased saving will help investment to "catch-up." it is easier for a country to grow fast if it starts out relatively poor.                   rich countries aid relatively poor countries so as to help them "catch up."
____	97. When the money supply decreases interest rates rise and so aggregate demand shifts left. interest rates fall and so aggregate demand shifts left. interest rates rise and so aggregate demand shifts right. interest rates fall and so aggregate demand shifts right.
____	98. Assume the CPI was 100 in 2013 and 108 in 2014. If the nominal interest rate on the loan was 12 percent, then the real interest rate was 2% 22% 4% 10%
____	99. A furniture maker used to buy its wood, but has now bought the lumber company.  How does this impact GDP? It reduces it. It does not change it. We cannot tell. It increases it.
____ 100. The theory of money neutrality states that in the long run,

1. changes in the money supply will affect both nominal and real variables
2. changes in the money supply will not affect nominal variables
3. changes in the money supply will not lead to price adjustments
4. changes in the money supply will not affect real variables