| A. output would rise |
| B. output would fall |
| C. price level would necessarily fall |
| D. price level would necessarily rise |
21) Expansionary fiscal policy is so named because it | A. involves an expansion of the nation's money supply | | B. can only be attained by expanding government consumption | | C. is aimed at achieving greater price stability | | D. can motivate an expansion of real GDP | | |
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22) Suppose the price level is fixed, the MPC is .5, and the GDP gap is a negative $100 billion. To achieve full-employment output (exactly), government should | | A. increase government expenditures by $100 billion | | B. increase government expenditures by $50 billion | | C. reduce taxes by $50 billion | | D. reduce taxes by $200 billion | | |
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23) GDP understates the value of output produced by an economy because it | A. includes transactions that do not take place in organized markets, such as home cooked meals | | B. includes environmental degradation caused by increased output production | | C. excludes value added from the underground economy, such as tips taken under the table | | D. excludes the value of the wages and benefits of government employee | |
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24) Other things equal, a decrease in the real interest rate will | A. shift the investment demand curve to the right | | B. shift the investment demand curve to the left | | C. move the economy upward along its existing investment demand curve | | D. move the economy downward along its existing investment demand curve | |
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25) Other things equal, a decrease in corporate income taxes will | A. decrease the market price of real capital goods | | B. have no effect on the location of the investment demand curve | | C. shift the investment demand curve to the right | | D. shift the investment demand curve to the left | |
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26) Inflation in U.S. prices will cause | A. an increase in the demand for U.S. dollars and an appreciation in the exchange rate | | B. an increase in the supply of U.S. dollars and a depreciation in the exchange rate | | C. a decrease in the demand for U.S. dollars and a depreciation in the exchange rate | | D. a decrease in the supply of U.S. dollars and an appreciation in the exchange rate | |
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27) The quantity theory of money states that | A. the money supply divided by the velocity of money equals the price level divided by real output | | B. the money supply times the velocity of money equals the price level times real output | | C. the money supply times the price level equals real output divided by the velocity of money | | D. the money supply times the price level equals real output times the velocity of money | |
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28) Suppose that U.S. prices rise 4% over the next year while prices in Mexico rise 6%. According to the purchasing power parity theory of exchange rates, what should happen to the exchange rate between the dollar and the peso?
| A. The dollar should depreciate. | | B. The peso should appreciate. | | C. The peso should depreciate. | | D. The dollar will be revalued. | |
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29) A rise in the domestic interest rate leads to capital | A. outflows and exchange rate appreciation | | B. outflows and exchange rate depreciation | | C. inflows and exchange rate depreciation | | D. inflows and exchange rate appreciation | |
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30) A firm under monopolistic competition will earn | A. a positive economic profit as it has some monopoly power | | B. zero economic profit as it sets P = MC | | C. zero economic profit as its P = ATC | | D. a positive economic profit as it sets MC = MR |
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11 years ago
economics_561.docx
