1. If the sacrifice ratio was 4.5, what would be the reduction in output required to reduce inflation from 6 percent to 4 percent?

A. 2 percent

B. 4.5 percent

C. 9 percent

D. 18 percent

E. 27 percent

2. Which of the following statements about inflation is false?

A. Disinflation is defined as a reduction in the rate of inflation.

B. Policymakers can exploit a trade-off between inflation and unemployment in the short run but not in the long run.

C. Unemployment rates below the natural rate of unemployment are difficult to achieve in the short run, but easy to achieve in the long run.

D. The sacrifice ratio is the number of percentage points annual output falls for each percentage point reduction in inflation.

E. In the long run, the inflation rate depends primarily on the money supply growth rate.

3. Which of the following statements about economic policy changes is false?

A. Stabilization policy suffers from time lags between the recognition of the problem and the actual effects of the policy.

B. An argument cited against stabilization policy is that too often the stabilizing "fix" does more harm than good.

C. Arguments in favor of committing the central bank to a policy of zero inflation include the notion that inflation results in arbitrary redistributions of wealth.

D. Double taxation means that both the profits of corporations and the dividends shareholders receive are taxed, which is currently the case in the United States.

E. Proponents of tax-law changes to encourage saving would argue that corporate tax rates should be increased.

4. The costs of government budget deficits include

A. higher interest rates.

B. elimination of public savings.

C. a decrease in private investment.

D. redistribution of future wealth.

E. all of the above.