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Economics

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1.In a recession, real GDP falls and:

Group of answer choices

unemployment is unaffected

unemployment may rise or fall

unemployment rises

unemployment falls

 

 

2.Most economists believe that classical economic theory is a good description of the world:

Group of answer choices

in the long run, but not in the short run

in the short run, but not in the long run

in the nineteenth century, but not in the twentieth century

in the short run and in the long run

 

3.When the price level falls:

Group of answer choices

households don’t change their holdings of money

households try to reduce their holdings of money

households try to increase their holdings of money

none of the options

 

4.The aggregate-supply curve is vertical in the long run because:

Group of answer choices

of the classical dichotomy and money neutrality

aggregate demand is downward-sloping

overall output goes down when prices go up

overall output goes up when prices go up

 

5.In the long run, the level of output is:

Group of answer choices

determined by the quantity of goods and services demanded

none of the options

determined by the quantity and productivity of resources

determined by the level of interest rates

 

6.If the interest rate increases through monetary policy, the:

Group of answer choices

aggregate demand curve shifts to the left

aggregate supply curve shifts to the right

aggregate demand curve shifts to the right

aggregate supply curve shifts to the left

 

 

7.If there is a major increase in economic activity, an appropriate policy for government would be to:

Group of answer choices

all of the options

increase the budget surplus

encourage individuals to save more

tighten up fiscal policy

 

 

8.The equation by Friedman and Phelps of a relationship between the unemployment rate and its natural rate can be summarised as:

Group of answer choices

Unemployment rate = Natural rate of unemployment /(Actual inflation – Expected inflation)

Unemployment rate = Natural rate of unemployment – a(Actual inflation – Expected inflation)

Unemployment rate = Natural rate of unemployment – Actual inflation

Unemployment rate = Natural rate of unemployment – Expected inflation

 

 

9.The Phillips curve is:

Group of answer choices

a negative association between the inflation rate and the unemployment rate

a positive association between the inflation rate and the unemployment rate

a negative association between the interest rate and the unemployment rate

a positive association between the growth rate and the unemployment rate

 

 

10.Faced with an adverse supply shock, the economy experiences an aggregate-supply curve shift to the:

Group of answer choices

left, and this shift is associated with a shift in the short-run Phillips curve to the right

right, and this shift is associated with a shift in the short-run Phillips curve to the left

right, and this shift is associated with a shift in the short-run Phillips curve to the right

left, and this shift is associated with a shift in the short-run Phillips curve to the left

 

 

11.According to the theory of rational expectations, people:

Group of answer choices

always forecast inflation correctly

optimally use all information they have when forecasting future inflation rates

none of the options

use only past inflation rates when following expectations of future inflation rates

 

 

12.Automatic stabilisers:

Group of answer choices

all of the options

reduce the problems that lags cause in using fiscal policy as a stabilisation tool

are changes in fiscal policy that restrain aggregate demand automatically when the economy is growing too fast

are changes in fiscal policy that stimulate aggregate demand automatically when the economy goes into a recession

 

13.Suppose we observe that an increase in government spending of $10 billion raises the total aggregate demand by $40 billion. If there is no crowding-out effect, what would be the marginal propensity to consume?

Group of answer choices

0.75

0.25

4

0.4

 

 

14.If the long-run Phillips curve shifts to the right, the economy will have _____ for any given rate of money growth and inflation.

Group of answer choices

lower unemployment and higher output

higher unemployment and lower output

higher unemployment and higher output

lower unemployment and lower output

 

 

15.A group of economists offer the theory that the economy will reduce inflation without the cost of _____ if people are rational.

Group of answer choices

low unemployment and high output

low unemployment and low output

high unemployment and high output

high unemployment and low output