Question

1. Identify the correct statement.

Aggregate demand alone determines equilibrium price and output.

A	Aggregate supply alone determines equilibrium price and output.

B	Aggregate demand shows the positive relationship between price level and real GDP.

C	Aggregate supply shows the negative relationship between price level and real GDP.

D	Aggregate demand and aggregate supply determine equilibrium price and output.

2. Assume that for a given year, the nominal interest rate is 9 percent while inflation rises to 11 percent indicating a 4 percent higher rate than anticipated. Which group of people is made better off by the inflation?

Those who lend at fixed interest rates

A	Those who receive fixed incomes

B	Those who borrow at fixed interest rates

C	Those who save at variable interest rates

D	Those who borrow at variable interest rates

3. A change in the price level in an economy will be depicted by a movement along the AE curve and not by a leftward or rightward movement of the curve.
A True
B False

4.Foreign aid usually consists of funds loaned at high interest rates.
A. True
B. False

5. According to Gresham's Law:

A. money with relatively high intrinsic value will cause inflation.

B	money with relatively high intrinsic value will be used for transactions.

C	inflation increases the intrinsic value of money.

D	money with relatively low intrinsic value will cause inflation.

money with relatively low intrinsic value will be used for transactions.

6. Identify the correct statement.

Investment is negatively related to the rate of government spending.

A	Investment is positively related to excess capacity.

B	Investment spending is positively related to the cost of capital goods.

C	Investment is positively related to the interest rate.

D	Investment spending in an economy is stimulated by new production technology.

7.

Since the U.S. is organized as a market economy, the government sector does not play any role in economic activity. A. True B. False 8. Foreign aid that flows from one country to another is called multilateral aid. A. True B. False 9.GDP per capita is one way to measure an economy's growth. China and India began to progress when they allowed private ownership, around ____. Since then, there has been steady, strong growth in these economies. A.1980 B.1960 C.1970 D1990 E. 2000 10. A by-product of the acceptance of the Keynesian school was the wide approval and practice of activist government fiscal policy around the world. A. True B. False 11. Critics of the Federal Reserve maintain that, to correct the credibility problem of monetary policy, the Fed should: A. give more power to the Federal Open Market Committee. B. tighten monetary policy. C. merge with the U.S. Treasury and be dissolved as an independent agency. D. be required to maintain a growth rate of the money supply that is fixed by law. E. ignore public opinion and establish more discretionary power over monetary policy. 11. Spending on goods and services by all levels of government in the U.S. combined is smaller than investment spending but larger than consumption. A. True B.False

12. If an increase in the price of good X causes the demand curve for product Y to shift to the right, then X and Y are most likely to be which of the following?

Turkey and chicken

A.	DVD players and DVDs

B.	Shoes and laces

C.	Tennis balls and tennis rackets

D.	Knives and fork

13.According to classical economics:

A. real GDP is determined by aggregate demand, while the equilibrium price level is determined by aggregate supply.

B	both real GDP and price level are determined by aggregate demand.

C	both real GDP and price level are determined by aggregate supply.

D	real GDP is determined by aggregate supply, while the equilibrium price level is determined by aggregate demand.

E	price level cannot be changed as prices and wages are perfectly rigid.

14.Compared to First World countries, developing countries would have _____.

A. lower education levels

B.	a higher rate of private investment

C.	higher productivity rates

D.	a higher life expectancy

E.	lower birthrates

15. A major drawback of the Keynesian approach to macroeconomic equilibrium is the assumption that the supply of goods and services in the economy always adjusts to aggregate expenditures

A. True
B. False

16. A change in the interest rate does not affect the quantity of money supplied. This means that:

A.money supply curve is vertical.

B	the money supply curve is a 45 degree line drawn from the origin.

C	the money supply curve is kinked.

D	the money supply curve is horizontal.

E	the money supply curve is negatively sloped.

17 Hyperinflation in developing countries is typically the result of:

A	high income tax rates.

B	large trade deficits.

C	large government fiscal deficits.

D	an economic recession.

E

low interest rates 18. At potential real GDP: A there is no frictional unemployment. B there is zero unemployment. C cyclical unemployment equals approximately 5 percent. D there is no seasonal unemployment. E unemployment is at its natural rate. 19. If the resources within a nation are not being fully or efficiently utilized, it means: A. that the nation is probably technologically advanced. B the government of that nation should seize ownership of the resources in order to attain the necessary efficiencies. C that the nation is operating at a point outside its production possibilities curve. D that the nation is operating at a point inside its production possibilities curve. E that the nation is operating at a point along its production possibilities curve.

20. Corruption reduces growth most directly because governments invest in projects with low productivity.

A. True
B. Faslse

20. All of the following would cause exports to decline, except:

stricter government regulations on international trade.

a depreciation of the domestic currency.

a decline in foreign income.

a decline in foreign preferences for domestic goods.

foreign import quotas on domestic products.

21. The _____ tend to have a smaller public sector relative to the total economy.

mercantilist economies

market economies

centrally planned economies

socialist economies

autocratic economies

22. According to the expenditures approach, gross domestic product represents the sum of consumption spending, government spending, net exports, and net investment.

True

False 23. A leading indicator: usually declines before a recession starts. does not change with business cycles. changes in either direction before a recession starts. generally changes after real GDP changes. remains unaffected by changes in real GDP. 24 A price index is a measure of the average level of prices in an economy. True False 25. After the year 2000, the FOMC changed some of its operating procedures. In particular, it stopped setting: standardized real GDP targets. explicit numbers for the targeted natural rates of unemployment. explicit interest rates for commercial banks to charge. explicit number of government bonds to be bought and sold. explicit ranges for money growth targets.

Answer 1

Answer 1 - Aggregate demand and aggregate supply determines price level and real output in the economy. Only AD or AS cannot determine price level and real output in the economy. AD is a negatively sloped curve. While AS is a positively sloped curve.

Statement D is correct.

Answer 2 - Nominal interest rate is 9 percent in the current year and inflation is 11 percent. Inflation is 4 percent higher rate than anticipated. A borrower is get benefited from inflation who borrows on fixed interest rate. Inflation decreases the value to money. The amount of money will be able to buy fewer goods and services if inflation is there. Interest rate is a return on money. The borrower gets loan when money has more purchasing power. Thus the borrower is get benefited from inflation.

Option B is correct.

Answer 3 - A change in price level will be depicted by shift in the aggregate expenditure curve (AE). If price falls then AE curve will shift to the right and vice versa.

The given statement is false.  

Answer 4 - Foreign aid usually consists of funds loaned at lower interest rate. Foreign aid comes in form of grant or subsidized loan. It may be in form of technical assistance, good and services which help for economic development.

The given statement is False.

Answer 5 - Gresham's law states that bad money will drive out good money from circulation in the economy. In other words it can be said that money with high intrinsic value will be drive out from circulation. The money with low intrinsic value will remain in circulation. Money with relatively low intrinsic value will be used for transactions.

Option E (Last) is the correct answer.