problem 1: An unanticipated demand-pulled inflation would normally lead to all the following problems EXCEPT:

a) A change in real wages that will create distortion in the labor market.
b) Adjustment to the production process by firms to try to minimize cost.
c) Too much lending and borrowing (above the optimal level).
d) Rising menu costs.
e) Rising unemployment.

problem 2: If in 1998 the Nominal GDP was $8.32 trillion and the GDP deflator was 1.30 and in 1999 the Nominal GDP was $9.52 trillion and the GDP deflator was 1.40, what was the percent change in Real GDP between 1998 and 1999?

a) 6.25%
b) 7.70%
c) 12.50%
d) 14.42%
e) 18.32%

problem 3: If real GDP is well above potential GDP in the short-run what will happen in the long run if the government does not intervene? [Please create a graph with Aggregate Demand, Short-run Aggregate Supply, and Long-run Aggregate Supply in order to answer this problem]

a) Nominal wages will eventually rise causing the SAS curve to shift to the left.
b) Potential GDP will begin to rise because firms will be motivated to produce more.
c) Real interest rates will fall causing further increases in AD.
d) Unemployment will quickly rise causing the AD to shift back towards the LAS.
e) Nothing will ever happen unless the government intervenes.

problem 4: If the unemployment rate in the economy is 4.0%, as it was in the later 1990s, this implies that:

a) Employment must be below full employment.
b) Structural unemployment must be positive.
c) The economy is operating above its long term potential.
d) The economy must be in a recession.
e) The economy is experience a deflation.

problem 5: Suppose that Consumption = $160 billion, Net Investment = $40 b, Depreciation = $30 b, Government Spending = $50 b, Net Exports = $20 b and Imports = $50 b. What does exports equal as a percent of Gross Domestic Product?

a) 16.67%
b) 18.42%
c) 21.88%
d) 23.33%
e) 25.93%

problem 6: Suppose that the total population in Workaholia is 320 million and 100 million people are ineligible to work. Furthermore, the number of unemployed is 10 million people and the unemployment rate 8.33%. What is the Labor Force Participation Rate in Workaholia?

a) 37.5%
b) 48.0%
c) 54.5%
d) 62.0%
e) 68.5%

problem 7: What would happen to the price level and real GDP if new, large reserves of petroleum and natural gas were found off the coast of Florida? [Begin by drawing the AD and SAS curves on a graph]

a) The price level and real GDP will both increase
b) The price level and real GDP will both decrease
c) The price level will increase but real GDP will decrease
d) The price level will decrease but real GDP will increase
e) The price level would increase but real GDP would remain constant

problem 8: Which of the following will increase employment and lower the price level? [Please use an Aggregate Demand and Aggregate Supply graph to answer this problem]

a) An improvement in the world economy
b) An increase in the price of fossil fuels like petroleum and natural gas
c) An increase in minimum wage
d) A sharp rise in interest rates
e) A fall in the cost of raw materials like cement and metals

problem 9: Which of the followings tends to occur during recessions?

a) Cyclical unemployment tends to fall
b) The stock markets tends to surge (experience a rapid rise in prices)
c) Interest rates tend to fall
d) Gross Domestic Product rises
e) Consumer Confidence tends to rise

problem 10: Which of these recent events is most likely to slow down inflation in the U.S.?

a) The housing market boom of 1998-2006 raising household wealth
b) The depreciation of the dollar compared to the Europe and British Pound between 2003 and 2009
c) The rise in the cost of fossil fuels between 1999 and 2008
d) The substantial reduction in Military spending during President Clinton's administration
e) The steep rise in government spending as part of President Obama's stimulus plan

problem 11: Which of these would be typically counted as a positive contribution to GDP in 2007?
 
a) A car produced by Ford in Canada in 2007 and sold in the United States
b) An antique clock that was purchased in 2007 by an avid art collector
c) A computer that Gateway Inc. produced in 2006 but sold in 2007
d) Money that is paid to the neighbor's kid for cutting the lawn
e) Paint purchased by a family to paint their house on their own

problem 12: Which one of these problems would a moderate, demand-pulled inflation typically lead to?

a) A fall in real wages
b) A rise in unemployment
c) A fall in corporate profit
d) Falling stock prices
e) All of these problems will typically be caused by a moderate demand-pulled inflation

problem 13: What would happen to the price level and real GDP if the Fed (Central Bank for the U.S.) raised interest rates from 4.0% to 6.0%? [Begin by drawing the AD and SAS curves on a graph]

a) The price level and real GDP will both increase
b) The price level and real GDP will both decrease
c) The price level will increase but real GDP will decrease
d) The price level will decrease but real GDP will increase
e) Real GDP would increase but the price level would remain constant

problem 14: Suppose that in Imaginia: Population = 240 million, Eligible Population = 140m, Labor Force Participation Rate = 70%, Number of Unemployed = 7 million and the Natural Rate of Unemployment = 5%. How much cyclical unemployment is there in Workolia?

a) 2.14%
b) 2.75%
c) 3.48%
d) 5.52%
e) 7.14%