Principles of Macroeconomics

Full Name (in print form)____________________________ Date______________________

Final Exam A, Fall 2015: Sino-France class for 2015; In-class closed-materials test; One point for
each question; 120 points totally within 120 minutes allowed.

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 1. Economics deals primarily with the concept of

a. scarcity.
b. money.
c. poverty.
d. banking.
____ 2. The adage, "There is no such thing as a free lunch," is used to illustrate the principle that
a. goods are scarce.
b. people face tradeoffs.
c. income must be earned.
d. households face many decisions.
____ 3. Guns and butter are used to represent the classic societal tradeoff between spending on
a. durable and nondurable goods.
b. imports and exports.
c. national defense and consumer goods.
d. law enforcement and agriculture.
____ 4. A likely effect of government policies that redistribute income and wealth from the wealthy to the poor is that
those policies
a. enhance equality.
b. reduce efficiency.
c. reduce the reward for working hard.
d. All of the above are correct.
____ 5. When you calculate your true costs of going to college, what portion of your room-and-board expenses should
be included?
a. Your full room-and-board expenses should always be included.
b. None of your room-and-board expenses should ever be included.
c. You should include only the amount by which your room-and-board expenses exceed the
income you earn while attending college.
d. You should include only the amount by which your room-and-board expenses exceed the
expenses for rent and food if you were not in college.
____ 6. Suppose your management professor has been offered a corporate job with a 30 percent pay increase. He has
decided to take the job. For him, the marginal
a. cost of leaving was greater than the marginal benefit.
b. benefit of leaving was greater than the marginal cost.
c. benefit of teaching was greater than the marginal cost.
d. All of the above are correct.
____ 7. According to Adam Smith, the success of decentralized market economies is primarily due to
a. the basic benevolence of society.
b. society's legal system.
c. individuals' pursuit of self-interest.
d. partnerships that are forged between business and government.
____ 8. For markets to work well, there must be
a. market power.
b. a central planner.
c. property rights.
d. abundant, not scarce, resources.
____ 9. Market failure can be caused by
a. low consumer demand.
b. equilibrium prices.
c. externalities and market power.
d. high prices and foreign competition.
____ 10. To promote good economic outcomes, policymakers should strive to enact policies that
a. enhance productivity.
b. enhance individuals' market power.
c. result in a rapidly-growing quantity of money.
d. All of the above are correct.

Figure 2-1

____ 11. Refer to Figure 2-1. Which arrow represents the flow of goods and services?
a. A
b. B
c. C
d. D
____ 12. Refer to Figure 2-1. Which arrow represents the flow of spending by households?
a. A
b. B
c. C
d. D
____ 13. Refer to Figure 2-1. Which arrow represents the flow of land, labor, and capital?
a. A
b. B
c. C
d. D
____ 14. Refer to Figure 2-1. Which arrow represents the flow of income payments?
a. A
b. B
c. C
d. D
____ 15. Refer to Figure 2-1. Julio buys a new pair of shoes at a shoe store. To which of the arrows does this
transaction directly contribute?
a. A only
b. A and B
c. C only
d. C and D
____ 16. Refer to Figure 2-1. Enid completes her first week of employment working as a hairdresser at a salon. On
Friday of that week, she receives her first paycheck. To which of the arrows does this transaction directly
contribute?
a. B only
b. A and B
c. C only
d. C and D

Table 3-3

Assume that Zimbabwe and Portugal can switch between producing toothbrushes and producing hairbrushes
at a constant rate.
Machine Minutes
Needed to Make 1
Toothbrush Hairbrush
Zimbabwe 3 10
Portugal 5 6

____ 17. Refer to Table 3-3. Assume that Zimbabwe and Portugal each has 180 machine minutes available. If each
country divides its time equally between the production of toothbrushes and hairbrushes, then total production
is
a. 24 toothbrushes and 12 hairbrushes.
b. 48 toothbrushes and 24 hairbrushes.
c. 96 toothbrushes and 48 hairbrushes.
d. 720 toothbrushes and 1440 hairbrushes.
____ 18. Refer to Table 3-3. Which of the following combinations of toothbrushes and hairbrushes could Portugal
produce in 30 minutes?
a. 1 toothbrush and 4 hairbrushes
b. 4 toothbrushes and 2 hairbrushes
c. 5 toothbrushes and 6 hairbrushes
d. 6 toothbrushes and 5 hairbrushes
____ 19. Refer to Table 3-3. Which of the following combinations of toothbrushes and hairbrushes could Zimbabwe
not produce in 120 minutes?
a. 5 toothbrushes and 11 hairbrushes
b. 10 toothbrushes and 9 hairbrushes
c. 20 toothbrushes and 6 hairbrushes
d. 30 toothbrushes and 3 hairbrushes
____ 20. Refer to Table 3-3. Zimbabwe’s opportunity cost of one hairbrush is
a. 3/10 toothbrush and Portugal’s opportunity cost of one hairbrush is 5/6 toothbrush.
b. 3/10 toothbrush and Portugal’s opportunity cost of one hairbrush is 6/5 toothbrushes.
c. 10/3 toothbrushes and Portugal’s opportunity cost of one hairbrush is 5/6 toothbrush.
d. 10/3 toothbrushes and Portugal’s opportunity cost of one hairbrush is 6/5 toothbrushes.
____ 21. Refer to Table 3-3. Suppose Zimbabwe decides to increase its production of toothbrushes by 10. What is
the opportunity cost of this decision?
a. 0.3 hairbrush
b. 3 hairbrushes
c. 30 hairbrushes
d. 100 hairbrushes
____ 22. Refer to Table 3-3. Zimbabwe has an absolute advantage in the production of
a. toothbrushes and a comparative advantage in the production of toothbrushes.
b. toothbrushes and a comparative advantage in the production of hairbrushes.
c. hairbrushes and a comparative advantage in the production of toothbrushes.
d. hairbrushes and a comparative advantage in the production of hairbrushes.
____ 23. Refer to Table 3-3. Portugal has an absolute advantage in the production of
a. toothbrushes and a comparative advantage in the production of toothbrushes.
b. toothbrushes and a comparative advantage in the production of hairbrushes.
c. hairbrushes and a comparative advantage in the production of toothbrushes.
d. hairbrushes and a comparative advantage in the production of hairbrushes.
____ 24. Refer to Table 3-3. Assume that Zimbabwe and Portugal each has 60 machine minutes available.
Originally, each country divided its time equally between the production of toothbrushes and hairbrushes.
Now, each country spends all its time producing the good in which it has a comparative advantage. As a
result, the total output increased by
a. 4 toothbrushes and 2 hairbrushes.
b. 10 toothbrushes and 5 hairbrushes.
c. 16 toothbrushes and 8 hairbrushes.
d. 20 toothbrushes and 10 hairbrushes.

Table 3-5

Assume that England and Spain can switch between producing cheese and producing bread at a constant rate.

Labor Hours Needed Number of Units

to Make 1 Unit of Produced in 40 Hours
Cheese Bread Cheese Bread
England 1 4 40 10
Spain 4 8 10 5
____ 25. Refer to Table 3-5. Assume that England and Spain each has 40 labor hours available. If each country
divides its time equally between the production of cheese and bread, then total production is
a. 20 units of cheese and 5 units of bread.
b. 25 units of cheese and 7.5 units of bread.
c. 40 units of cheese and 10 units of bread.
d. 50 units of cheese and 15 units of bread.
____ 26. Refer to Table 3-5. Which of the following combinations of cheese and bread could Spain produce in 40
hours?
a. 2.25 units of cheese and 4 units of bread.
b. 5.5 units of cheese and 3 units of bread.
c. 7 units of cheese and 1.5 units of bread.
d. 10 units of cheese and 5 units of bread.
____ 27. Refer to Table 3-5. Which of the following combinations of cheese and bread could England not produce in
40 hours?
a. 5 units of cheese and 9 units of bread.
b. 10 units of cheese and 7.5 units of bread.
c. 20 units of cheese and 5 units of bread.
d. 30 units of cheese and 2.5 units of bread.
____ 28. Refer to Table 3-5. The opportunity cost of 1 unit of cheese for England is
a. 1/4 unit of bread.
b. 1 hour of labor.
c. 4 units of bread.
d. 4 hours of labor.
____ 29. Refer to Table 3-5. The opportunity cost of 1 unit of bread for Spain is
a. 1/2 unit of cheese.
b. 1/2 hour of labor.
c. 2 units of cheese.
d. 8 hours of labor.
____ 30. Refer to Table 3-5. England has an absolute advantage in the production of
a. cheese and Spain has an absolute advantage in the production of bread.
b. bread and Spain has an absolute advantage in the production of cheese.
c. both goods and Spain has an absolute advantage in the production of neither good.
d. neither good and Spain has an absolute advantage in the production of both goods.
____ 31. Refer to Table 3-5. England has a comparative advantage in the production of
a. cheese and Spain has a comparative advantage in the production of bread.
b. bread and Spain has a comparative advantage in the production of cheese.
c. both goods and Spain has a comparative advantage in the production of neither good.
d. neither good and Spain has a comparative advantage in the production of both goods.
____ 32. Refer to Table 3-5. England should specialize in the production of
a. cheese and Spain should specialize in the production of bread.
b. bread and Spain should specialize in the production of cheese.
c. both goods and Spain should specialize in the production of neither good.
d. neither good and Spain should specialize in the production of both goods.
____ 33. Refer to Table 3-5. England should export
a. cheese and import bread.
b. bread and import cheese.
c. both goods and import neither good.
d. neither good and import both goods.

Figure 4-14

Panel (a) Panel (b)

price price

S S

Pe' Pe

Pe Pe'

D D' D' D

Qe Qe' quantity Qe' Qe quantity

Panel (c) Panel (d)

price price

S S' S' S

Pe Pe'

Pe' Pe

D D

Qe Qe' quantity Qe' Qe quantity

____ 34. Refer to Figure 4-14. Panel (a) shows which of the following?
a. an increase in demand and an increase in quantity supplied
b. an increase in demand and an increase in supply
c. an increase in quantity demanded and an increase in quantity supplied
d. an increase in quantity demanded and an increase in supply
____ 35. Refer to Figure 4-14. Panel (b) shows which of the following?
a. a decrease in demand and a decrease in quantity supplied
b. a decrease in demand and a decrease in supply
c. a decrease in quantity demanded and a decrease in quantity supplied
d. a decrease in quantity demanded and a decrease in supply
____ 36. Refer to Figure 4-14. Panel (c) shows which of the following?
a. an increase in demand and an increase in quantity supplied
b. an increase in demand and an increase in supply
c. an increase in quantity demanded and an increase in quantity supplied
d. an increase in quantity demanded and an increase in supply
____ 37. Refer to Figure 4-14. Panel (d) shows which of the following?
a. a decrease in demand and a decrease in quantity supplied
b. a decrease in demand and a decrease in supply
c. a decrease in quantity demanded and a decrease in quantity supplied
d. a decrease in quantity demanded and a decrease in supply
____ 38. Refer to Figure 4-14. Which of the four panels illustrates a decrease in quantity demanded?
a. Panel (a)
b. Panel (b)
c. Panel (c)
d. Panel (d)
____ 39. Refer to Figure 4-14. Which of the four panels illustrates an increase in quantity demanded?
a. Panel (a)
b. Panel (b)
c. Panel (c)
d. Panel (d)
____ 40. Refer to Figure 4-14. Which of the four panels illustrates a decrease in quantity supplied?
a. Panel (a)
b. Panel (b)
c. Panel (c)
d. Panel (d)
____ 41. Refer to Figure 4-14. Which of the four panels illustrates an increase in quantity supplied?
a. Panel (a)
b. Panel (b)
c. Panel (c)
d. Panel (d)
____ 42. Refer to Figure 4-14. Which of the four panels represents the market for pizza delivery in a college town as
we go from summer to the beginning of the fall semester?
a. Panel (a)
b. Panel (b)
c. Panel (c)
d. Panel (d)
____ 43. Refer to Figure 4-14. Which of the four panels represents the market for winter coats as we progress from
winter to spring?
a. Panel (a)
b. Panel (b)
c. Panel (c)
d. Panel (d)
____ 44. Refer to Figure 4-14. Which of the four panels represents the market for cars as a result of the adoption of
new technology on assembly lines?
a. Panel (a)
b. Panel (b)
c. Panel (c)
d. Panel (d)
____ 45. Refer to Figure 4-14. Which of the four panels represents the market for peanut butter after a major
hurricane hits the peanut-growing south?
a. Panel (a)
b. Panel (b)
c. Panel (c)
d. Panel (d)
____ 46. GDP adds together many different kinds of products into a single measure of the value of economic activity
by using prices determined by
a. banks.
b. economists.
c. the government.
d. markets.
____ 47. James owns two houses. He rents one house to the Johnson family for $10,000 per year. He lives in the
other house. If he were to rent the house in which he lives, he could earn $12,000 per year in rent by doing
so. How much do the housing services provided by the two houses contribute to GDP?
a. $0
b. $10,000
c. $12,000
d. $22,000
____ 48. Over the last few decades, Americans have chosen to cook less at home and eat more at restaurants. This
change in behavior, by itself, has
a. reduced measured GDP.
b. not affected measured GDP.
c. increased measured GDP only to the extent that the value of the restaurant meals exceeded
the value of meals previously cooked at home.
d. increased measured GDP by the full value of the restaurant meals.
____ 49. A professional gambler moves from a state where gambling is illegal to a state where gambling is legal.
Most of his income was, and continues to be, from gambling. His move
a. necessarily raises GDP.
b. necessarily decreases GDP.
c. doesn't change GDP because gambling is never included in GDP.
d. doesn't change GDP because in either case his income is included.
____ 50. Greg, a U.S. citizen, works only in Canada. The value of the output he produces is
a. included in both U.S. GDP and U.S. GNP.
b. included in U.S. GDP, but it is not included in U.S. GNP.
c. included in U.S. GNP, but it is not included in U.S. GDP.
d. included in neither U.S. GDP nor U.S. GNP.
____ 51. Consumption consists of spending by households on goods and services, with the exception of
a. purchase of intangible services.
b. purchases of durable goods.
c. purchases of new houses.
d. spending on education.

Table 23-4

The table below contains data for the country of Dachsland, which produces only pretzels and books. The
base year is 2005.

Year Price Quantity Price Quantity of

of of of Books
Pretzels Pretzels Books
2005 $4.00 90 $1.50 150
2006 $4.00 100 $2.00 180
2007 $5.00 120 $2.50 200
2008 $6.00 150 $3.50 200

____ 52. Refer to Table 23-4. In 2006, Dachsland’s

a. nominal GDP was $585, real GDP was $660, and the GDP deflator was 88.6.
b. nominal GDP was $585, real GDP was $670, and the GDP deflator was 87.3.
c. nominal GDP was $760, real GDP was $660, and the GDP deflator was 115.2.
d. nominal GDP was $760, real GDP was $670, and the GDP deflator was 113.4.
____ 53. Refer to Table 23-4. Dachsland’s inflation rate from 2006 to 2007 was
a. 16.4%.
b. 24.3%.
c. 41.0%.
d. 44.7%.
____ 54. GDP is not a perfect measure of well-being; for example,
a. GDP excludes the value of volunteer work.
b. GDP does not address the distribution of income.
c. GDP does not address environmental quality.
d. All of the above are correct.

Table 24-1

The table below pertains to Pieway, an economy in which the typical consumer’s basket consists of 10
bushels of peaches and 15 bushels of pecans.

Year Price of Price of

Peaches Pecans
2005 $11 per bushel $6 per bushel
2006 $9 per bushel $10 per bushel
____ 55. Refer to Table 24-1. The cost of the basket in 2006 was
a. $200.
b. $210.
c. $240.
d. $245.
____ 56. Refer to Table 24-1. If 2006 is the base year, then the CPI for 2005 was
a. 83.3.
b. 100.
c. 120.
d. 200.
____ 57. Refer to Table 24-1. If 2006 is the base year, then the inflation rate in 2006 was
a. 16.7 percent.
b. 20 percent.
c. 40 percent.
d. 44.1 percent.
____ 58. Which of the following would be human capital and physical capital, respectively?
a. for an accounting firm, the accountants’ knowledge of tax laws and the number of hours
worked by those accountants
b. for a grocery store, grocery carts and cash registers.
c. for a restaurant, the chefs’ knowledge about preparing food and equipment in the kitchen
d. for a library, the building and the reference librarians’ knowledge of the Internet

Figure 25-1. On the horizontal axis, K/L represents capital (K) per worker (L). On the vertical axis, Y/L
represents output (Y) per worker (L).

Y/L

K/L

____ 59. Refer to Figure 25-1. The curve becomes flatter as the amount of capital per worker increases because of
a. increasing returns to capital.
b. increasing returns to labor.
c. diminishing returns to capital.
d. diminishing returns to labor.
____ 60. Refer to Figure 25-1. The shape of the curve is consistent with which of the following statements about the
economy to which the curve applies?
a. In the long run, a higher saving rate leads to a higher level of productivity.
b. In the long run, a higher saving rate leads to a higher level of income.
c. In the long run, a higher saving rate leads to neither a higher growth rate of productivity
nor a higher growth rate of income.
d. All of the above are correct.
____ 61. Refer to Figure 25-1. The shape of the curve is consistent with which of the following statements about the
economy to which the curve applies?
a. In the long run, a higher saving rate leads to a higher growth rate of productivity.
b. In the long run, a higher saving rate leads to a higher growth rate of income.
c. Returns to capital become increasingly smaller as the amount of capital per worker
increases.
d. All of the above are correct.

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds
curves.

S
2

C
S1

B
F
D2
A

D1

____ 62. Refer to Figure 26-3. What, specifically, does the label on the vertical axis, i, represent?
a. the nominal interest rate
b. the real interest rate
c. the inflation rate
d. the dividend yield
____ 63. Refer to Figure 26-3. A shift of the supply curve from S1 to S2 is called
a. an increase in the supply of loanable funds.
b. an increase in the quantity of loanable funds supplied.
c. a decrease in the supply of loanable funds.
d. a decrease in the quantity of loanable funds supplied.
____ 64. Refer to Figure 26-3. A shift of the demand curve from D1 to D2 is called
a. an increase in the demand for loanable funds, and that increase would originate from
people who had some extra income they wanted to lend.
b. an increase in the demand for loanable funds, and that increase would originate from
households and firms who wish to borrow to make investments.
c. a decrease in the demand for loanable funds, and that decrease would originate from
people who had some extra income they wanted to lend.
d. a decrease in the demand for loanable funds, and that decrease would originate from
households and firms who wish to borrow to make investments.
____ 65. Refer to Figure 26-3. Which of the following movements shows the effects of the government going from
a budget deficit to a budget surplus?
a. a movement from Point A to Point B
b. a movement from Point B to Point A
c. a movement from Point A to Point F
d. a movement from Point C to Point B
____ 66. Refer to Figure 26-3. Which of the following movements shows the effects of a new law that makes more
people than before eligible for Individual Retirement Accounts?
a. a movement from Point A to Point B
b. a movement from Point B to Point F
c. a movement from Point C to Point F
d. a movement from Point C to Point B
____ 67. Refer to Figure 26-3. Which of the following movements would be consistent with the government budget
going from deficit to surplus and the simultaneous enactment of an investment tax credit?
a. a movement from Point A to Point C
b. a movement from Point B to Point A
c. a movement from Point B to Point F
d. a movement from Point C to Point B
____ 68. Using the rule of 70, about how much would $100 be worth after 50 years if the interest rate were 7 percent?
a. $400
b. $800
c. $1,600
d. $3,200

Figure 28-1
 wage
10
S
9

3
D
2

10 20 30 40 50 60 70 80 90 hundreds
of workers

____ 69. Refer to Figure 28-1. At the equilibrium wage, how many workers are unemployed?
a. 0
b. 4000
c. 5000
d. 8000
____ 70. Refer to Figure 28-1. If the government imposes a minimum wage of $4, then how many workers will be
unemployed?
a. 0
b. 3000
c. 4000
d. 7000
____ 71. Refer to Figure 28-1. If the government imposes a minimum wage of $4, then unemployment will increase
by
a. 0 workers.
b. 2000 workers.
c. 4000 workers.
d. 5000 workers.
____ 72. Refer to Figure 28-1. If the government imposes a minimum wage of $8, then unemployment will increase
by
a. 0 workers.
b. 2000 workers.
c. 4000 workers.
d. 7000 workers.
____ 73. Refer to Figure 28-1. If the government imposes a minimum wage of $8, then employment will decrease by
a. 0 workers.
b. 2000 workers.
c. 3000 workers.
d. 4000 workers.

____ 74. Which of the following is a function of money?

a. a unit of account
 b. a store of value
c. medium of exchange
d. All of the above are correct.
____ 75. If an economy used gold as money, its money would be
a. commodity money, but not fiat money.
b. fiat money, but not commodity money.
c. both fiat and commodity money.
d. functioning as a store of value and as a unit of account, but not as a medium of exchange.
____ 76. Which of the following is included in M2 but not in M1?
a. currency
b. demand deposits
c. savings deposits
d. All of the above are included in both M1 and M2.

Table 29-6.

Bank of Springfield

Assets Liabilities
Reserves $19,200 Deposits $240,000
Loans 228,000

____ 77. Refer to Table 29-6. If the Bank of Springfield has lent out all the money it can given its level of deposits,
then what is the reserve requirement?
a. 5.00 percent
b. 8.00 percent
c. 8.42 percent
d. 95.00 percent
____ 78. Refer to Table 29-6. Assuming the Bank of Springfield and all other banks have the same reserve ratio, then
what is the value of the money multiplier?
a. 5.0
b. 7.5
c. 10.00
d. 12.5
____ 79. Refer to Table 29-6. If the Fed requires a reserve ratio of 6 percent, then what quantity of excess reserves
does the Bank of Springfield now hold?
a. $1,200
b. $2,400
c. $2,880
d. $4,800

____ 80. Refer to Table 29-6. Assume the Fed’s reserve requirement is 6 percent and that the Bank of Springfield
makes new loans so as to make its new reserve ratio 6 percent. From then on, no bank holds any excess
reserves. Assume also that people hold only deposits and no currency. Then by what amount does the
economy’s money supply increase?
 a. $50,200
b. $72,000
c. $80,000
d. $106,000

Figure 30-2. On the graph, MS represents the money supply and MD represents money demand. The usual
quantities are measured along the axes.

1.125
MS
1

0.875

0.75

0.625

0.5

0.375
MD2
0.25 MD1
0.125

5,000

____ 81. Refer to Figure 30-2. What quantity is measured along the horizontal axis?
a. the price level
b. the real interest rate
c. the value of money
d. the quantity of money
____ 82. Refer to Figure 30-2. If the relevant money-demand curve is the one labeled MD1, then the equilibrium
value of money is
a. 0.5 and the equilibrium price level is 2.
b. 2 and the equilibrium price level is 0.5.
c. 0.5 and the equilibrium price level cannot be determined from the graph.
d. 2 and the equilibrium price level cannot be determined from the graph.
____ 83. Refer to Figure 30-2. If the relevant money-demand curve is the one labeled MD1, then
a. when the money market is in equilibrium, one dollar purchases one-half of a basket of
goods and services.
b. when the money market is in equilibrium, one unit of goods and services sells for 2
dollars.
c. there is an excess demand for money if the value of money in terms of goods and services
is 0.375.
d. All of the above are correct.
____ 84. Refer to Figure 30-2. Which of the following events could explain a shift of the money-demand curve from
MD1 to MD2?
a. an increase in the value of money
 b. a decrease in the price level
c. an open-market purchase of bonds by the Federal Reserve
d. None of the above is correct.
____ 85. Refer to Figure 30-2. Suppose the relevant money-demand curve is the one labeled MD1; also suppose the
velocity of money is 3. If the money market is in equilibrium, then the economy’s real GDP amounts to
a. 5,000.
b. 7,500.
c. 10,000.
d. 15,000.
____ 86. Refer to Figure 30-2. Suppose the relevant money-demand curve is the one labeled MD1; also suppose the
economy’s real GDP is 30,000 for the year. If the money market is in equilibrium, then how many times per
year is the typical dollar bill used to pay for a newly produced good or service?
a. 4
b. 6
c. 8
d. 12
____ 87. Refer to Figure 30-2. At the end of 2007 the relevant money-demand curve was the one labeled MD 2. At
the end of 2008 the relevant money-demand curve was the one labeled MD1. Assuming the economy is
always in equilibrium, what was the economy’s approximate inflation rate for 2008?
a. -43 percent
b. -57 percent
c. 57 percent
d. 75 percent
____ 88. According to the classical dichotomy, when the money supply doubles which of the following doubles?
a. the price level and nominal GDP
b. the price level and real GDP
c. only real GDP
d. only the price level

Use the (hypothetical) information in the following table to answer the following questions.

Table 31-2
Currency per U.S. Price Country Price
Country Currency U.S. Dollar Index Index
Bolivia boloviano 8.00 200 1600
Japan yen 125.00 200 50,000
Morocco dinar 10.00 200 2,000
Norwegian kroner 6.5 200 1,500
Thailand baht 40.00 200 7,000

____ 89. Refer to Table 31-2. For which country(ies) in the table does purchasing-power parity hold?
a. Bolivia and Japan
b. Bolivia and Morocco
c. Japan and Morocco
 d. Norway and Thailand
____ 90. Refer to Table 31-2. Which currency(ies) is(are) less valuable than predicted by the doctrine of purchasing-
power parity?
a. boloviano and dinar
b. yen and kroner
c. baht and kroner
d. baht
____ 91. Refer to Table 31-2. Which currency(ies) is(are) more valuable than predicted by the doctrine of purchasing-
power parity?
a. boloviano and dinar
b. yen, kroner, and baht
c. yen and kroner
d. baht
____ 92. Refer to Table 31-2. In real terms, U.S. goods are more expensive than goods in which country(ies)?
a. Bolovia and Morocco
b. Japan, Norway, and Thailand
c. Japan and Norway
d. Thailand
____ 93. Refer to Table 31-2. In real terms, U.S. goods are less expensive than goods in which country(ies)?
a. Bolivia and Morocco
b. Japan, Norway, and Thailand
c. Japan and Norway
d. Thailand

Figure 32-5

____ 94. Refer to Figure 32-5. The initial effect of an increase in the budget deficit in the loanable funds market is
illustrated as a move from
a. a to b.
b. a to c.
c. c to b.
 d. c to d.
____ 95. Refer to Figure 32-5. In the market for foreign-currency exchange, the effects of an increase in the budget
surplus is illustrated as a move from g to
a. e.
b. f.
c. h.
d. i.
____ 96. Refer to Figure 32-5. Starting from r2 and E3, an increase in the budget deficit can be illustrated as a move to
a. r1 and E4.
b. r1 and E2.
c. r3 and E4.
d. r3 and E2.
____ 97. Refer to Figure 32-5. Starting from r2 and E3, an increase in the budget surplus can be illustrated as a move
to
a. r3 and E4.
b. r3 and E2.
c. r1 and E4.
d. r1 and E2.

Figure 33-2.

AS1
LRAS

AS2

P1 A
P2 B

AD

Y1 Y2 Y

____ 98. Refer to Figure 33-2. The appearance of the long-run aggregate-supply (LRAS) curve
a. is inconsistent with the concept of monetary neutrality.
b. is consistent with the idea that point A represents a long-run equilibrium but not a short-
run equilibrium when the relevant short-run aggregate-supply curve is AS1.
c. indicates that Y1 is the natural rate of output.
d. All of the above are correct.
____ 99. Refer to Figure 33-2. The shift of the short-run aggregate-supply curve from AS1 to AS2
a. could be caused by an outbreak of war in the Middle East.
b. could be caused by a decrease in the expected price level.
c. causes the economy to experience an increase in the unemployment rate.
d. causes the economy to experience stagflation.
____ 100. Refer to Figure 33-2. Point B represents
a. a short-run equilibrium and a long-run equilibrium.
b. a short-run equilibrium but not a long-run equilibrium.
c. a long-run equilibrium but not a short-run equilibrium.
d. neither a short-run equilibrium nor a long-run equilibrium.
____ 101. Refer to Figure 33-2. Starting from point B and assuming that aggregate demand is held constant, in the
long run the economy is likely to experience
a. a falling price level and a falling level of output.
b. a falling price level and a rising level of output.
c. a rising price level and a falling level of output.
d. a rising price level and a rising level of output.

Pessimism
Suppose the economy is in long-run equilibrium. Then because of corporate scandal, international tensions,
and loss of confidence in policymakers, people become pessimistic regarding the future and retain that level
of pessimism for some time.

____ 102. Refer to Pessimism. Which curve shifts and in which direction?
a. aggregate demand shifts right
b. aggregate demand shifts left
c. aggregate supply shifts right.
d. aggregate supply shifts left.
____ 103. Refer to Pessimism. In the short run what happens to the price level and real GDP?
a. Both the price level and real GDP rise.
b. Both the price level and real GDP fall.
c. The price level rises and real GDP falls.
d. The price level falls and real GDP rises.
____ 104. Refer to Pessimism. What happens to the expected price level and what’s the result for wage bargaining?
a. The expected price level rises. Bargains are struck for higher wages.
b. The expected price level rises. Bargains are struck for lower wages.
c. The expected price level falls. Bargains are struck for higher wages.
d. The expected price level falls. Bargains are struck for lower wages.

____ 105. Refer to Pessimism. In the long run, the change in price expectations created by pessimism shifts
a. long-run aggregate supply right.
b. long-run aggregate supply left.
c. short-run aggregate supply right.
d. short-run aggregate supply left.
____ 106. Refer to Pessimism. How is the new long-run equilibrium different from the original one?
 a. both price and real GDP are higher.
b. both price and real GDP are lower.
c. the price level is the same and GDP is lower.
d. the price level is lower and real GDP is the same.
____ 107. Fiscal policy affects the economy
a. only in the short run.
b. only in the long run.
c. in both the short and long run.
d. in neither the short nor the long run.
____ 108. Which of the following is not a reason the aggregate-demand curve slopes downward? As the price level
increases,
a. firms may believe the relative price of their output has risen.
b. real wealth declines.
c. the interest rate increases.
d. the exchange rate increases.

Figure 34-2. On the left-hand graph, MS represents the supply of money and MD represents the demand for
money; on the right-hand graph, AD represents aggregate demand. The usual quantities are measured along
the axes of both graphs.
.
MS

r2 P2
P1
r1 MD
2
AD
MD
1

Y2 Y1

____ 109. Refer to Figure 34-2. What is measured along the horizontal axis of the left-hand graph?
a. nominal output
b. real output
c. the opportunity cost of holding money
d. the quantity of money
____ 110. Refer to Figure 34-2. What does Y represent on the horizontal axis of the right-hand graph?
a. the quantity of money
b. the rate of inflation
c. real output
d. nominal output
____ 111. Refer to Figure 34-2. Which of the following quantities is held constant as we move from one point to
another on either graph?
a. the nominal interest rate
b. the quantity of money demanded
c. investment
d. the expected rate of inflation
____ 112. Refer to Figure 34-2. If the graphs apply to an economy such as the U.S. economy, then the slope of the
AD curve is primarily attributable to the
a. wealth effect.
b. interest-rate effect.
c. exchange-rate effect.
d. Fisher effect.
____ 113. Refer to Figure 34-2. A decrease in Y from Y1 to Y2 is explained as follows:
a. The Federal Reserve increases the money supply, causing the money-demand curve to
shift from MD1 to MD2; this shift of MD causes r to increase from r1 to r2; and this
increase in r causes Y to decrease from Y1 to Y2.
b. An increase in P from P1 to P2 causes the money-demand curve to shift from MD1 to MD2;
this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to
decrease from Y1 to Y2.
c. A decrease in P from P2 to P1 causes the money-demand curve to shift from MD1 to MD2;
this shift of MD causes r to increase from r1 to r2; and this increase in r causes Y to
decrease from Y1 to Y2.
d. An increase in the price level causes the money-demand curve to shift from MD 2 to MD1;
this shift of MD causes r to decrease from r2 to r1; and this decrease in r causes Y to
decrease from Y1 to Y2.
____ 114. Refer to Figure 34-2. As we move from one point to another along the money-demand curve MD1,
a. the price level is held fixed at P1.
b. the interest rate is held fixed at r1.
c. the money supply is changing so as to keep the money market in equilibrium.
d. the expected inflation rate is changing so as to keep the real interest rate constant.
____ 115. Refer to Figure 34-2. If the money-supply curve MS on the left-hand graph were to shift to the right, this
would
a. represent an action taken by the Federal Reserve.
b. shift the AD curve to the left.
c. create, until the interest rate adjusted, an excess demand for money at the interest rate that
equilibrated the money market before the shift.
d. All of the above are correct.

____ 116. Refer to Figure 34-2. Assume the money market is always in equilibrium. Under the assumptions of the
model,
a. the real interest rate is higher at Y2 than it is at Y1.
b. the quantity of money is the same at Y1 as it is at Y2.
c. the price level is higher at r2 than it is at r1.
d. All of the above are correct.
____ 117. Refer to Figure 34-2. Assume the money market is always in equilibrium. Under the assumptions of the
model,
a. the quantity of goods and services demanded is higher at P2 than it is at P1.
b. the quantity of money is higher at Y1 than it is at Y2.
c. an increase in r from r1 to r2 is associated with a decrease in Y from Y1 to Y2.
d. All of the above are correct.
____ 118. Refer to Figure 34-2. Assume the money market is always in equilibrium, and suppose r1 = 0.08; r2 = 0.12;
Y1 = 13,000; Y2 = 10,000; P1 = 1.0; and P2 = 1.2. Which of the following statements is correct?
a. When r = r2, nominal output is higher than it is when r = r1.
b. When r = r2, real output is higher than it is when r = r1.
c. When r = r2, the expected rate of inflation is higher than it is when r = r1.
d. If the velocity of money is 4 when r = r2, then the quantity of money is $3,000.
____ 119. Refer to Figure 34-2. Assume the money market is always in equilibrium, and suppose r1 = 0.08; r2 = 0.12;
Y1 = 13,000; Y2 = 10,000; P1 = 1.0; and P2 = 1.2. Which of the following statements is correct? When P =
P2,
a. investment is lower than it is when P = P1.
b. nominal output is higher than it is when P = P1.
c. the expected rate of inflation is higher than it is when P = P1.
d. the velocity of money is higher than it is when P = P1.
____ 120. An increase in government purchases is likely to
a. decrease interest rates.
b. result in a net decrease in aggregate demand.
c. crowd out investment spending by business firms.
d. decrease money demand.