Exam Name___________________________________

1) Inmacroeconomics,thetermnationalincomerefersto A) allsalesofbothcurrentproductionandusedgoods. B) thevalueoftheincomegeneratedbytheproductionoftotaloutput. C) onlythosesalesofcurrentlyproducedgoodssoldtoothernations. D) totalcurrentspendingbyallhouseholds. E) thevalueofanationstotalwealth. 2) Considerasmalleconomywith3individualswhereeachindividualproduces$1000worthoffinalgoodsand services.Thenationalincomeforthiseconomyis A) morethan$3000ifsomeoftheincomeisinvested. B) lessthan$3000iftherearetaxesinthiseconomy. C) morethan$3000iftheindividualsareearningprofits. D) $3000. E) lessthan$3000ifsomeoftheincomeissaved. Thetablebelowprovidesmacroeconomicdataforahypotheticaleconomy.Dollaramountsareallinconstant -dollarterms. ActualOutput (billionsof$) 402 408 415 420 422 420 425 PotentialOutput (billionsof$) 404 411 415 418 420 423 425 UnemploymentRate ($oflabourforce) 7.1 7.2 6.3 5.9 6.0 7.0 6.3

Year 2002 2003 2004 2005 2006 2007 2008 TABLE19-1

3) RefertoTable19-1.Inwhichyearswasthiseconomyexperiencingarecessionarygap? A) 2006,2007,2008 B) 2005,2006 C) 2004,2008 D) 2002,2003,2004 E) 2002,2003,2007 4) SupposethecityofCalgaryhasapopulationof1million,alabourforceof575000,andemploymentequalto 545000.Wecanconcludethatforlegalandvariousotherreasons________peopleareexcludedfromthe labourforce. A) 395000 B) 420000 C) 425000 D) 445000 E) 450000

5) Workerswithmarketableskillssometimesquitajobandbecomeunemployed,withtheexpectationofsoon findingabetterjob.Thistypeofunemploymentiscalled A) frictionalunemployment. B) structuralunemployment. C) overly-optimisticunemployment. D) cyclicalunemployment. E) historicalunemployment. 6) Ifthecyclicalunemploymentrateisnegative,thenthe A) economyisoperatingatlessthanfullemployment. B) economyisoperatingbeyondfullemployment. C) frictionalunemploymentrateisnegative. D) frictionalunemploymentrateisgreaterthanthestructuralunemploymentrate. E) real-wageunemploymentrateisnegative. 7) ConsiderasmalleconomywithrealGDPof$1billionandthetotalnumberofhoursworkedequalto5million. Whichofthefollowingisthebestmeasureoflabourproductivityinthiseconomy? A) realGDPperemployedworker= $200 B) realGDPperhourworked=$20 C) realGDPperemployedworker= $20 D) realGDPperhourworked=$200 E) indeterminablefromtheinformationprovided. 8) Supposeanemployeranditsemployeesenterintoawagecontractspecifyingawageincreaseof2percent.But supposethatthepricelevelrisesby3percentoverthecourseofthecontract.Inthiscase, A) theemployeespurchasingpowerwillfall. B) theemployerwillexperienceagreaterfallinpurchasingpowerthanwouldhaveoccurrediftheprice levelhadheldsteady. C) bothemployerandemployeeswillexperiencealossofpurchasingpower. D) theemployeespurchasingpowerwillrise. E) bothemployerandemployeeswillbenefitfromincreasedpurchasingpower. 9) Thegroupthattendstobemosthurtbyunexpectedinflationis A) employers. B) individualswithunindexedpensions. C) banks. D) fixed-incomeearners. E) bothBandDarecorrect. 10) Supposethatapriceindexforacertainbasketofgoodsandserviceshasavalueof150in2009andavalueof 156in2010.Thisindexsuggeststhatthecostofthemarketbasketofgoodsandservices A) wasapproximatelythesamein2010and2009. B) wassixpercentlowerin2010thanin2009. C) wassixpercenthigherin2010thanin2009. D) was156percenthigherin2010thanin2009. E) wasfourpercenthigherin2010thanin2009. 11) If0.75U.S.dollarscanbeexchangedforoneCanadiandollar,wesaythattheCanadian -U.S.exchangerateis A) 1.25. B) 0.75. C) 1.33. D) 1.0. E) 75.

12) Totalvalueaddedinaneconomyisequaltothevalueof A) allfinalgoodsproduced. B) allfinalandintermediategoodsproduced. C) thesumofthevalueofprimary,intermediateandfinalgoods. D) allprofitsofallfirmsintheeconomy. E) allinputsandoutputsintheeconomy. 13) SupposeaCanadianfirmimports$5000worthoffrisbeesfromChinaandsellsthemfor$10000.Theeffecton GDPwouldbe A) todecreasethevalueofGDPby$15000. B) toincreasethevalueofGDPby$10000. C) toincreasethevalueofGDPby$15000. D) toincreasethevalueofGDPby$5000. E) noeffectonGDPsincethefrisbeeswereproducedoutsideofCanada. 14) InLumberville,thelumberjackcutstreesandsellsthemtothelocalmillfor$500.Thelocalmillprocessesthese treesintowoodplanksandsellsthemtothecarpenterfor$800.Finally,thecarpenterusesthesewoodplanks tomaketableswhichhesellsfor$1400toLumbervillesresidents.Ifwealloweddoublecounting,thetotal valueofLumbervillesoutputwouldbecalculatedas________.Butifwecorrectlycomputethetotalvalue added,thevalueofthetotaloutputinLumbervillewouldbe________. A) $2200;$4200 B) $1400;$1400 C) $2700;$1400 D) $4200;$2700 E) $2200;$2700 15) GDPfromtheexpendituresideisequaltothesumof A) Ca +Ia +netexports. B) Ca +Ia +Ga . C) Ca +Ia +Ga -netexports. D) Ca +Ia +Ga +(Xa -IMa ). E) Ca +Ia +Ga +(IM a -Xa ). 16) Whichofthefollowingstatementsregardinginvestmentiscorrect? A) Depreciationreferstofundsusedtoincreasetheexistingstockofcapital. B) Thecapitalstockincludesinvestmentinstocksandbonds. C) Theaccumulationofinventoriesdoesnotcountascurrentinvestment. D) Rentalpaymentsareincludedasinvestmentexpenditures. E) Housingconstructionisclassifiedasinvestmentexpenditureratherthanconsumptionexpenditure. 17) Supposethatin2008,ABCCorporationproduced$6millionworthofnaturalgaspipesbutwasabletosell only$5millionworth.Istheremaining$1millionofunsoldpipespartofGDPfor2008? A) No,sincetheyareaddedtoexistinginventories. B) Yes,sincetheyarepartoftheeconomysoutputin2008. C) Yes,sincechangesininventoriesarepartofconsumptionexpenditures. D) No,sincetheyarepartoftheeconomysoutputonlywhensold. E) No,sincechangesininventoriesarepartofactualinvestment. 18) WhencalculatingGDPfromtheexpenditureside,howdonetexportsentertheequation? A) Theymayormaynotbeincludeddependingonwhethertheyareforfinalorintermediategoods. B) Theyareincludedonlyifitisapositivenumber. C) Theyareincludedasaseparatecategory. D) TheyareincludedbutaspartofC,I,orG. E) TheyareNOTincludedbecausetheydonotrepresentanexpenditurebyCanadians. 3

19) Ifafirmsdepreciationexceedsitsgrossinvestment,thenits A) capitalstockwillbeshrinking. B) capitalstockwillbegrowing. C) depreciationcannotexceedgrossinvestment. D) grossinvestmentwillbenegative. E) netinvestmentwillbepositive. 20) TheprincipledifferencebetweenGDPandGNPisthatGNPmeasures________,whileGDPmeasures ________. A) thetotalamountofincomereceivedbyCanadianresidents;thevalueoftotaloutputproducedinCanada. B) totalincomegeneratedbyCanadians,bothdomesticandabroad;totalincomegeneratedbyCanadians, domesticonly. C) wagesandsalaries,plusworld-wideinvestmentincomereceivedbyCanadianresidents;thevalueof totaloutputproducedinCanada. D) thevalueoftotaloutputproducedbyCanada;wagesandsalariesreceivedbyCanadianresidents. E) totalfactorincomesintheeconomy;totalexpenditureintheeconomy. 21) RealGDPisequivalentto A) themoneyvalueofallgoodsandservicesproducedinaneconomyperyearplusimports. B) thenominalvalueofGNPmultipliedbytheGDPdeflator. C) themarketvalueofallgoodsandservicesproducedinaneconomyperyear. D) personaldisposableincomeplusdepreciation. E) thevalueofallgoodsandservicesproducedinaneconomyperyearadjustedforpricechanges. 22) IfnominalGDPinsomeyearis$3800andtheGDPdeflatorforthesameyearis152,thentherealGDPforthat yearis A) $3500. B) $5776. C) $3800. D) $2500. E) $2280. 23) StatisticsCanadaexcludesfromGDPthevalueofgoodsandservicesexchangedunderthecounterbecause A) satisfactorymethodsfortheirmeasurementhavenotbeendeveloped. B) thesegoodsareallintermediategoods. C) theirproductionhaszeroopportunitycost. D) StatisticsCanadaisresponsibleformakinganethicaldecisionaboutwhichactivitiestoexcludefrom nationalincomemeasures. E) thesegoodsdonotcontributetowell-being. 24) Withrespecttoconsumption,investment,governmentpurchasesandnetexports,thenational -incomeand productaccountsmeasure A) bothactualanddesiredexpenditures,sinceactualexpendituremustequaldesiredexpenditureineach category. B) theflowofsavingatanyincome. C) desiredexpendituresineachofthecategories. D) neitheractualnordesiredexpenditures. E) actualexpendituresineachofthecategories. 25) Inasimplemacromodel,anincreaseinhouseholdswealthisgenerallyassumedto A) causeanupwardshiftintheaggregateconsumptionfunction. B) causenochangeindesiredconsumptionbecauseconsumptionisafunctionofdisposableincomeonly. C) causeadownwardshiftintheaggregateconsumptionfunction. D) affectonlydesiredsaving,notdesiredconsumption. E) causenochangeindesiredconsumptionbecausetheincreaseisalwaysexpected. 4

26) Theaggregateconsumptionfunctionisbasedontheassumptionthatasrealdisposableincomerises,aggregate desiredconsumption A) remainsconstantanddesiredsavingwillrise. B) anddesiredsavingwillbothrise. C) willriseanddesiredsavingwillfall. D) willfallanddesiredsavingwillrise. E) remainsconstantanddesiredsavingwillfall.

FIGURE21-2 27) RefertoFigure21-2.Ifdisposableincomeis$3000,desiredconsumptionexpenditureisequalto A) $500. B) $2000. C) $1500. D) $0. E) $1000. 28) RefertoFigure21-2.TheAPCwillbeequaltoone(1.0)whendisposableincomeis A) $0. B) $1000. C) $3000. D) $2000. E) notenoughinformationtodetermine. 29) RefertoFigure21-2.Whichofthefollowingisthecorrectequationfortheconsumptionfunctiondepictedin thefigure? A) C=500+(0.5)YD B) C=(0.5)YD C) C=2000+(2/3)YD D) C=500+(2/3)YD E) C=1000+(2/3)YD

30) RefertoFigure21-2.Theslopeoftheconsumptionfunctioninthefigureisequalto A) theaveragepropensitytoconsume. B) theslopeofthe45-degreeline. C) themarginalpropensitytosave. D) theaveragepropensitytosave. E) themarginalpropensitytoconsume. 31) Onagraphofaconsumptionfunction,whatisthesignificanceofthe45 -degreeline? A) Itconnectsallpointswheredesiredconsumptionequalsdesiredexpenditure. B) Itshowstheslopeoftheaverageconsumptionfunction,againstwhichwemeasureotherconsumption functions. C) Desiredconsumptioniszeroatallpointsalongthe45-degreeline. D) Itconnectsallpointswheredesiredconsumptionequalsdesiredsaving. E) Itconnectsallpointswheredesiredconsumptionequalsactualdisposableincome.

DisposableIncome 0 30 70 130 TABLE21-2

DesiredConsumption 10 34 66 114

32) RefertoTable21-2.Themarginalpropensitytosaveisequalto A) 0.6. B) 0.8. C) 0.2.

D) 0.67.

E) 0.4.

33) Aggregatedesiredconsumptiondividedbyaggregatedisposableincomeiscalledthe A) averagepropensitytosave. B) averagepropensitytospend. C) averagepropensitytoconsume. D) totalpropensitytosave. E) marginalpropensitytosave. 34) Inasimplemodeloftheeconomy,withoutgovernmentortaxes,ashockthatcausesanupwardshiftofthe aggregateconsumptionfunctionalsocauses________shiftofthesavingfunction. A) aless-than-equalupward B) no C) anequaldownward D) anequalupward E) aless-than-equaldownward

FIGURE21-3 35) RefertoFigure21-3.IfnationalincomeisY1 andtheaggregateexpenditurefunctionisAE1 ,thendesired aggregateexpenditure A) exceedsincomeandincomewillrise. B) exceedsincomeandincomewillfall. C) islessthanincomeandincomewillfall. D) isequaltoincomeandincomewillnotchange. E) islessthanincomeandincomewillrise. 36) Considerthesimplestmacromodelwithdemand-determinedoutput,where AE=C+I.Supposethatactualnationalincomeis$900billionanddesiredconsumptionplusdesired investmentis$920billion.Wecanexpectthat A) firmswilldecreaseautonomousinvestmentby$20billionuntilequilibriumnationalincomeisreachedat $900billion. B) firmswillincreaseautonomousinvestmentby$20billionuntilequilibriumnationalincomeisreachedat $920billion. C) firmswillseeanincreaseininventories,andtheywillrespondbydecreasingoutput,therebydecreasing actualnationalincome. D) actualnationalincomewilldecreaseuntilequilibriumnationalincomeisreachedat$900billion. E) firmswillseeadecreaseininventories,andtheywillrespondbyincreasingoutput,therebyincreasing actualnationalincome.

Considerthefollowinginformationdescribingaclosedeconomywithnogovernmentandwhereaggregateoutputisdemanddetermined: 1. 2. 3. 4. theequilibriumconditionisY=C+I themarginalpropensitytosave=0.25 theautonomouspartofCis$30 investmentisautonomousandis$40

TABLE21-3 37) RefertoTable21-3.Theequilibriumlevelofnationalincomewillbe A) $70. B) $93. C) $120.

D) $160.

E) $280.

38) RefertoTable21-3.Attheequilibriumlevelofnationalincome,desiredconsumptionexpenditurewillbe A) $30. B) $70. C) $110. D) $240. E) $280. 39) Considerasimplemacromodelwithaconstantpricelevelanddemand-determinedoutput.Supposethelevel ofactualnationalincomeislessthandesiredaggregateexpenditure.Inthiscase, A) therewillbenochangeinnationalincomebecauseonlyactualexpenditureisrelevant. B) nationalincomewillfall,becausedesiredexpendituresarelessthanactualexpenditures. C) inventorieswillbuildup,causingnationalincometorise. D) shortagesofgoodsandreductionsininventorieswillcauseproducerstoincreaseoutputandnational incometorise. E) nationalincomemayincreaseordecrease,dependingontherelativesizesoftheaveragepropensityto consumeandtheaveragepropensitytosave. 40) Thesimplemultiplier,whichappliestoshort-runsituationsinwhichthepricelevelisconstant,describes changesin A) savingcausedbychangesininvestment. B) investmentinducedbychangesinequilibriumincome. C) theequilibriumlevelofnationalincomecausedbychangesinautonomousexpenditure. D) employmentinducedbychangesinequilibriumincome. E) therateofinterestcausedbyincreaseddemandforcredit. 41) Considerasimplemacromodelwithdemand-determinedoutput.Insuchamodel,thesmallerthemarginal propensitytospend,the A) smallerthesimplemultiplier. B) smallertheMPS. C) largerisinvestment. D) largerthesimplemultiplier. E) largertheMPC.

Considerthefollowinginformationdescribingaclosedeconomywithnogovernment.Aggregateoutputisdemanddeterminedandthe pricelevelisconstant. 1. 2. 3. Y=C+I C=100+0.6Y I=200

TABLE21-5 42) RefertoTable21-5.Thiseconomysequilibriumlevelofnationalincomeis A) 500. B) 600. C) 750. D) 1000. 43) Inasimplemacromodel,itisgenerallyassumedthatacountrysexports A) andimportsareinduced. B) areautonomouswhereasimportsareinduced. C) arealwaysequaltoinvestment. D) andimportsareautonomous. E) areinducedwhereasimportsareautonomous. 44) Thenetexport(NX)functioncrossesthehorizontalaxisatalevelofnationalincomewherethe A) Xcurvereachesthehorizontalaxis. B) IMcurvereachesthehorizontalaxis. C) XandIMcurvesareattheirfarthestdistanceapart. D) XandIMcurvesintersect. E) Xcurvereachesitsmaximum. 45) Anincreaseinforeignincome,otherthingsbeingequal,isassumedtocausethenetexport(NX)functionto A) pivotdownward. B) remainstationary. C) pivotupward. D) shiftparalleldownward. E) shiftparallelupward. Thetablebelowshowsnationalincomeandimports.Thelevelofexportsisfixedat$300.Allfigures(intableandquestions)arein millionsofdollars. Income(Y) 2000 3000 4000 5000 TABLE22-1 46) RefertoTable22-1.Whatarethecorrectvaluesforthelevelofnetexports(a,b,c,andd)ateachlevelof nationalincome? A) a=-$150,b=-$50,c=$50,d=$150 B) a=$150,b=$250,c=$350,d=$450 C) a=$300,b=$300,c=$300,d=$300 D) a=$150,b=$50,c=-$50,d=-$150 E) notenoughdatatodetermine. 9 Imports(IM) 150 250 350 450 NetExports(NX) a b c d

E) 1500.

47) TheAEfunctionforanopeneconomywithgovernmentcanbewrittenas A) AE=C+I+S+(X+IM). B) AE=C+I+G+(X-IM). C) AE=C+I+G-(X-IM). D) AE=C+I-G-(X+IM). E) AE=C+I-G+(X-IM). 48) Considerthesimplestmacromodelwithaconstantpricelevelanddemand -determinedoutput.Theequations ofthemodelare:C=60+0.43Y,I=150,G=260,T=0,X=90,IM=0.06Y.Themarginalpropensitytospend onnationalincome,z,is________. A) 0.06 B) 0.37 C) 0.43 D) 0.49 E) 0.63

FIGURE22-3 49) RefertoFigure22-3.TherotationfromAE0 toAE1 couldbecausedby A) highergovernmentpurchases. B) abalancedbudget. C) lowergovernmentpurchases. D) alowernettaxrate. E) ahighernettaxrate. 50) Considerasimplemacromodelwithaconstantpricelevelanddemand-determinedoutput.Theequationsof themodelare:C=150+0.84Y,I=400,G=700,T=0,X=130,IM=0.08Y.Desiredconsumptionexpenditureat equilibriumnationalincomeis________. A) 1675.44 B) 4060.04 C) 4830.00 D) 4980.00 E) 6815.40

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51) Considerthefollowingnewsheadline:MinisterofDefenceannounces$2billionpurchaseoffighteraircraft. Assumingthataggregateoutputisdemand-determined,andthattheaircraftarepurchaseddomestically,what willbetheeffectofthisaction,allotherthingsequal,ontheAEfunctionandequilibriumnationalincome? A) theAEfunctionwillshiftdownparalleltoitselfandequilibriumnationalincomewillfall. B) theAEfunctionwillshiftupparalleltoitselfandequilibriumnationalincomewillrise. C) theAEfunctionwillrotateupward(becomesteeper)andequilibriumnationalincomewillrise. D) therewillbenochangeintheAEfunctionorinequilibriumnationalincome. E) theAEfunctionwillrotatedownward(becomeflatter)andnationalincomewillfall. 52) Adecreaseinthevalueofthesimplemultipliercanbecausedby A) anincreaseinthemarginalpropensitytospend. B) adecreaseinthenettaxrate. C) adecreaseinthemarginalpropensitytoimport. D) anincreaseinthemarginalpropensitytoconsume. E) anincreaseinthemarginalpropensitytosave. 53) Supposeaggregateoutputisdemanddetermined.Ifthemarginalpropensitytospendis0.5,andthe MPC is 0.7,a$1billionreductioningovernmentpurchaseswillcauseequilibriumnationalincometo________by ________. A) increase;$2.00billion B) decrease;$1.50billion C) decrease;$2.00billion D) increase;$3.33billion E) decrease;$3.33billion 54) Considerasimplemacromodelwithgovernmentandforeigntradeandwherethepricelevelistakenasgiven. Thesimplemultiplierisequalto A) 1/(1-MPS-t). B) 1/MPC. C) 1/(1-(MPS(1-t)-m)). D) 1/(1-(MPC(1-t)-m)). E) 1/(1-MPC).

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FIGURE22-4 55) RefertoFigure22-4.Diagram1illustratesaneconomythatisexperiencinga(n)________gap.Thegoalof stabilizationpolicywouldbeto________nationalincomeuntilitisequalto________. A) recessionary;increase;potentialGDP. B) inflationary;reduce;potentialGDP. C) inflationary;increase;potentialGDP. D) recessionary;increase;actualnationalincome. E) inflationary;reduce;actualnationalincome. 56) Otherthingsbeingequal,ariseinthedomesticpricelevel A) lowerstherealvalueofallassetsdenominatedinmoneyunits. B) makesdomesticgoodsmoreattractivetoforeigners. C) makesforeigngoodslessattractivetodomesticresidents. D) causesadecreaseinrealsaving. E) raisestherealburdenofrepayingafixedmoneyvaluedebt. 57) Otherthingsbeingequal,ariseinthepricelevelwillimply________inwealthforthebondholderbut ________inthewealthoftheissuerofthebond. A) anincrease;anincrease B) adecline;anincrease C) adecline;nochange D) anincrease;adecline E) adecline;adecline

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58) WhichofthefollowingwouldlikelycauseanupwardparallelshiftintheAE curveandarightwardshiftinthe ADcurve? A) anincreaseinthebusinessconfidenceoffirms B) areductioningovernmentpurchases C) anincreaseintheMPC D) anincreaseinthepricelevel E) adecreaseinthepricelevel

FIGURE23-1 59) RefertoFigure23-1.Assumetheeconomyisinitiallyinequilibriumwithdesiredaggregateexpenditureequal torealGDPatpointV.ThepricelevelisP0 .Thecorrespondingpointontheaggregatedemandcurveispoint A) B. B) C. C) D. D) E. E) A.

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60) RefertoFigure23-1.Assumetheeconomyisinitiallyinequilibriumwithdesiredaggregateexpenditureequal torealGDPatpointV.ThepricelevelisP0 .Otherthingsbeingequal,exogenouschangesinthepricelevel willcause A) shiftsoftheAEcurveandmovementalongtheaggregatedemandcurve AD0 . B) nochangeineithertheAEcurveortheADcurve. C) movementalongtheaggregateexpenditurecurveAE0 andmovementalongtheaggregatedemand curveAD0 . D) shiftsoftheAEcurveandshiftsoftheADcurve. E) movementalongtheaggregateexpenditurecurveAE0 andshiftsoftheADcurve. 61) Considerasimplemacromodelwithagivenpricelevelanddemand -determinedoutput.Anexogenous changeinthepricelevelcausesa A) movementalongAEbutdoesnotaffecttheAD curve. B) movementalongtheAEcurveandashiftintheAD curve. C) shiftintheAEcurveandamovementalongtheAD curve. D) movementalongboththeAEandAD curves. E) shiftinboththeAEandADcurves. 62) Onereasonwhytheaggregatedemand(AD)curveslopesdownwardisthat A) increasesinthepricelevelcauseconsumerstosubstituteforeigngoodsfordomesticgoods. B) whenthepricelevelfallsconsumersincreasetheirsavingrate. C) aggregateexpenditureincreasesasthepricelevelrises. D) whenthepricelevelfallsfirmsmustcompetemorewhenoutputincreases. E) increasedproductionresultsinlowerproductioncosts. 63) Aggregatesupplyreferstothe A) totaloutputfirmswishtoproduceateachpricelevel. B) decisionsoffirmstodecreaseinputsinordertoproduceoutputs. C) effectsofincreasesininputpricesonoutput. D) economyspotentialoutputateachpossiblelabourforce. E) supplyoflabourinputsintheeconomy. 64) Intheshortrun,theaggregatesupplycurvehasapositiveslopebecause,asthepricelevelrises,producerscan A) becompensatedfortheextracostsincurredtoproducemoreoutput. B) experiencerisingfactorprices. C) accumulateinventories. D) producethesameoutput,butathigherprices. E) producelessinresponsetofallingprofits. 65) AmovementalongtheeconomysAScurvecouldbecausedbyachangein A) technology. B) labourproductivity. C) thewagerate. D) thecostofcapital. E) thepricelevel,causedinturnbyanADshock.

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66) TheeconomysAScurvewillshiftupwardintheshortrunifthereis A) adecreaseinthecostofcapital. B) anincreaseinthepricelevel. C) anincreaseinlabourproductivity. D) animprovementintechnology. E) anincreaseinthewagerate. 67) ConsiderthebasicAD/ASmodel.Iftheirunitcostsriseasoutputincreases,price-takingfirmswillbeprepared toproduce________onlyif________. A) more;pricesincrease B) more;theeconomyisinequilibrium C) more;pricesdecrease D) less;pricesincrease E) theircurrentoutput;pricesincrease 68) IftheeconomysAScurveisupwardsloping,anegativeshocktoaggregatedemandwillresultin A) adecreaseinbothrealGDPandprices. B) adecreaseinpricesbutnochangeinrealGDP. C) anincreaseinpricesandnochangeinrealGDP. D) anincreaseinrealGDPandnochangeinprices. E) anincreaseinbothrealGDPandprices.

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FIGURE23-5 69) RefertoFigure23-5.WhichofthefollowingstatementsbestdescribesthesupplysideofEconomyA? A) Firmsareproducingwellbelowtheircapacityandarewillingtoproducemoreoutputwithnoincreasein price. B) Firmsareproducingwellbelowtheircapacityandarewillingtoproducemoreonlyifpricesrise. C) Unitcostsarerising,butfirmscanproducemoreoutputbyemployingstandbycapacityandovertime labour,forexample,withnoincreaseinthepricelevel. D) Unitcostsarerisingrapidlyasfirmsareproducingbeyondtheircapacity.Firmswillproducemoreonly ifpricesincrease. E) Unitcostsarerising,butfirmsareabletoproducemoreoutputbecausethereisexcesscapacityinthe economy. 70) RefertoFigure23-5.WhichofthefollowingstatementsbestdescribesthesupplysideofEconomyB? A) Firmsareproducingwellbelowtheircapacityandarewillingtoproducemoreoutputwithnoincreasein price. B) Firmsareproducingwellbelowtheircapacityandarewillingtoproducemoreonlyifpricesrise. C) Unitcostsarerisingrapidly,butfirmscanproducemoreoutputbyemployingstandbycapacityand overtimelabour,forexample,withnoincreaseinthepricelevel. D) Firmsarenotabletoproducemoreoutputbecausethereisnoexcesscapacityintheeconomy. E) Unitcostsarerisingrapidlyasfirmsareproducingbeyondtheircapacity.Firmswillproducemoreonly ifpricesincrease. 71) Supposefirmsarecurrentlyproducingoutputatalevelbeyondtheirnormalcapacity.Inthissituation,theAS curvewillberelatively________andapositiveADshockwillresultin________. A) flat;averysmallincreaseinpricesbutalargeincreaseinrealGDP. B) flat;anequalincreaseinthepricelevelandinrealGDP. C) steep;adecreaseinthepricelevelandaverysmalldecreaseinrealGDP. D) steep;anincreaseinthepricelevelwithasmallincreaseinrealGDP. E) flat;averysmalldecreaseinthepricelevelandadecreaseinrealGDP.

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72) InthebasicAD/ASmodel,theeffectofanaggregatedemandshockisdividedbetweenachangeinoutputand achangeinthepricelevel.Howtheeffectisdivideddependsonthe A) amountofinflationintheeconomy. B) positionoftheAEcurve. C) slopeoftheADcurve. D) slopeoftheAScurve. E) sizeofthesimplemultiplier. 73) AggregatesupplyshockscausethepricelevelandrealGDPtochangein A) oppositedirectionswithpricechangingbylessthanoutput. B) oppositedirectionsbutbythesameamount. C) thesamedirectionwithpricechangingbymorethanoutput. D) thesamedirectionandbythesameamount. E) oppositedirectionsbutnotnecessarilybythesameamount.

FIGURE23-4 74) RefertoFigure23-4.Supposethatanincreaseingovernmentpurchasesby50causestheADcurvetoshiftto theright,asshown.Thesimplemultiplieris________andthemultiplieris________. A) 2.8;1.2 B) 4;2.8 C) 4;1.2 D) 4;3.2 E) 6;1.2

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AnswerKey Testname:PRACTICEMTFALL10

1) B Topic: 19.1b.nationaloutput/nationalincome 2) D Topic: 19.1b.nationaloutput/nationalincome 3) E Topic: 19.1c.potentialoutputandoutputgaps 4) C Topic: 19.1d.employment,unemploymentandthelabourforce 5) A Topic: 19.1e.frictional,structuralandcyclicalunemployment 6) B Topic: 19.1e.frictional,structuralandcyclicalunemployment 7) D Topic: 19.1f.productivity 8) A Topic: 19.1g.inflationandthepricelevel 9) E Topic: 19.1g.inflationandthepricelevel 10) E Topic: 19.1g.inflationandthepricelevel 11) C Topic: 19.1i.theexchangerateanddepreciation/appreciation 12) A Topic: 20.1.nationaloutputandvalueadded 13) D Topic: 20.1.nationaloutputandvalueadded 14) C Topic: 20.1.nationaloutputandvalueadded 15) D Topic: 20.2a.GDPfromtheexpenditureside 16) E Topic: 20.2a.GDPfromtheexpenditureside 17) B Topic: 20.2a.GDPfromtheexpenditureside 18) C Topic: 20.2a.GDPfromtheexpenditureside 19) A Topic: 20.2a.GDPfromtheexpenditureside 20) A Topic: 20.3a.GDPandGNP 21) E Topic: 20.3b.real/nominalGDPandtheGDPdeflator 22) D Topic: 20.3b.real/nominalGDPandtheGDPdeflator 18

AnswerKey Testname:PRACTICEMTFALL10

23) A Topic: 20.3c.omissionsfromGDP 24) E Topic: 21.1a.desiredvs.actualexpenditures 25) A Topic: 21.1b.theconsumptionfunction 26) B Topic: 21.1b.theconsumptionfunction 27) B Topic: 21.1b.theconsumptionfunction 28) B Topic: 21.1b.theconsumptionfunction 29) A Topic: 21.1b.theconsumptionfunction 30) E Topic: 21.1b.theconsumptionfunction 31) E Topic: 21.1b.theconsumptionfunction 32) C Topic: 21.1c.averageandmarginalpropensitiestoconsume 33) C Topic: 21.1c.averageandmarginalpropensitiestoconsume 34) C Topic: 21.1d.thesavingfunction 35) A Topic: 21.1f.theaggregateexpenditurefunction(AE) 36) E Topic: 21.2.equilibriumnationalincome 37) E Topic: 21.2.equilibriumnationalincome 38) D Topic: 21.2.equilibriumnationalincome 39) D Topic: 21.2.equilibriumnationalincome 40) C Topic: 21.3b.thesimplemultiplier 41) A Topic: 21.3b.thesimplemultiplier 42) C Topic: 21.3b.thesimplemultiplier 43) B Topic: 22.2.netexportfunction 44) D Topic: 22.2.netexportfunction 19

AnswerKey Testname:PRACTICEMTFALL10

45) E Topic: 22.2.netexportfunction 46) D Topic: 22.2.netexportfunction 47) B Topic: 22.3a.theAEfunction 48) B Topic: 22.3a.theAEfunction 49) D Topic: 22.3a.theAEfunction 50) D Topic: 22.3b.equilibriumnationalincome 51) B Topic: 22.4a.changesinequilibriumnationalincome 52) E Topic: 22.4b.thesimplemultiplierwithtaxes(t)andimports(m) 53) C Topic: 22.4b.thesimplemultiplierwithtaxes(t)andimports(m) 54) D Topic: 22.4b.thesimplemultiplierwithtaxes(t)andimports(m) 55) B Topic: 22.4c.fiscalpolicy 56) A Topic: 23.1a.effectsofanexogenouschangeinthepricelevel 57) B Topic: 23.1a.effectsofanexogenouschangeinthepricelevel 58) A Topic: 23.1b.relationshipbetweenAEandADcurves 59) A Topic: 23.1b.relationshipbetweenAEandADcurves 60) A Topic: 23.1b.relationshipbetweenAEandADcurves 61) C Topic: 23.1c.slopeandshiftsoftheADcurve 62) A Topic: 23.1c.slopeandshiftsoftheADcurve 63) A Topic: 23.2.slopeandshiftsoftheAScurve 64) A Topic: 23.2.slopeandshiftsoftheAScurve 65) E Topic: 23.2.slopeandshiftsoftheAScurve 66) E Topic: 23.2.slopeandshiftsoftheAScurve 20

AnswerKey Testname:PRACTICEMTFALL10

67) A Topic: 23.2.slopeandshiftsoftheAScurve 68) A Topic: 23.3a.macroeconomicequilibrium 69) D Topic: 23.3a.macroeconomicequilibrium 70) A Topic: 23.3a.macroeconomicequilibrium 71) D Topic: 23.3b.ADshocksandASshocks 72) D Topic: 23.3b.ADshocksandASshocks 73) E Topic: 23.3b.ADshocksandASshocks 74) C Topic: 23.3c.themultiplierwhenthepricelevelvaries

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