1. Which one of the following statements about stagflation is correct?
A. Stagflation is a simultaneous reduction in real output and the price level.
B. Stagflation is a simultaneous increase in real output and the price level.
C. Stagflation is an increase in inflation accompanied by decreases in real output and employment.
D. Stagflation is a decline in the price level accompanied by increases in real output and employment.

2. An economy's infrastructure refers to its
A. surplus supplies of unskilled labor.
B. financial and banking institutions.
C. public capital goods, such as roads, schools, and power facilities.
D. land and natural resources.

3. The very poorest low-income developing countries typically have relatively
A. low rates of economic growth and relatively high rates of population growth.
B. high rates of both population growth and economic growth.
C. high rates of economic growth and relatively low rates of population growth.
D. low rates of both population growth and economic growth.

4. Which one of the following groups of economists is most likely to favor annually balanced federal budgets?
A. Supply-side economists
B. Rational expectations economists
C. Functional finance economists
D. Mainstream economists

5. Which one of the following is an example of a labor-intensive commodity?
A. Aspirin tablets
B. Gasoline
C. Digital cameras
D. Beer

6. When most consumers and firms reduce spending only because they expect other consumers and firms
to reduce spending, and a recession results,
A. a coordination failure has occurred.
B. an adverse aggregate supply shock has occurred.
C. a self-correction has occurred.
D. a real-business-downturn has occurred.

7. Inflation accompanied by falling real output and employment is known as
A. stagflation.
B. Laffer's law.
C. Okun's law.
D. the Phillips Curve.

8. Monetarists believe the private economy is inherently
A. unstable and the public sector should be large.
B. stable, but that the public sector should be large.
C. stable and that the government sector should be small.
D. unstable and the public sector should be small.

9. Which one of the following statements about the insider-outsider theory is correct?
A. In the insider-outsider theory, insiders are workers who retain employment during recession.
B. In the insider-outsider theory, outsiders are foreigners.
C. In the insider-outsider theory, insiders are managers who have more information about their firms' performance than outsiders.
D. In the insider-outsider theory, insiders are "principals" and outsiders are "agents."

10. A government may be able to reduce the international value of its currency by
A. selling foreign currencies in the foreign exchange market.
B. selling its currency in the foreign exchange market.
C. increasing its domestic interest rates.
D. buying its currency in the foreign exchange market.

11. Which one of the following statements about the velocity of money is correct?
A. The velocity of money is the number of times per year the average dollar is spent on final goods and services.
B. The velocity of money is the price level divided by aggregate supply.
C. The velocity of money is the relationship between the money supply and the price level.
D. The velocity of money is the relationship between asset and transactions demands for money.

12. Which one of the following is an example of direct foreign investment?
A. General Motors building an auto production facility in China
B. The purchase of debt issued by the Panamanian government
C. A U.S. bank granting a loan to a Guatemalan firm
D. A U.S. government foreign aid grant to Bangladesh

13. Which one of the following statements is correct under the theory of supply-side economics?
A. Transfer payments increase incentives to work.
B. Increases in social security taxes and other business taxes shift the aggregate supply curve to the right.
C. The Federal Reserve should adhere to a monetary rule that limits increases in the money supply to a 5 percent annual rate.
D. High marginal tax rates severely discourage work, saving, and investment.

14. A market in which the money of one nation is exchanged for the money of another nation is a
A. foreign exchange market.
B. bond market.
C. resource market.
D. stock market.

15. Which one of the following is typically not a problem for low-income developing countries?
A. Capital flight
B. Poor infrastructure
C. High saving rates
D. "Brain drains"

16. In the U.S. balance of payments, U.S. purchases of assets abroad are a(n)
A. current account item.
B. inpayment.
C. U.S. dollar outflow.
D. U.S. dollar inflow.

17. Suppose the domestic price (no-international-trade price) of copper is $1.20 a pound in the United States while the world price is $1.00 a pound. Assuming no transportation costs, the United States will
A. neither export nor import copper.
B. have a domestic surplus of copper.
C. import copper.
D. export copper.

18. If government uses fiscal policy to restrain cost-push inflation, we can expect
A. tax-rate declines and increases in government spending.
B. the unemployment rate to rise.
C. the aggregate demand curve to shift rightward.
D. the unemployment rate to fall.

19. In terms of aggregate supply, a period in which nominal wages and other resource prices are fully responsive to price-level changes is called the
A. long run.
B. short run.
C. very long run.
D. immediate market period.
End of exam

20. Which one of the following statements about disinflation is correct?
A. Disinflation occurs when a speculative investment "bubble" is bursting.
B. Disinflation occurs when investment plans exceed saving.
C. Disinflation occurs when the inflation rate is declining.
D. Disinflation occurs when the price level is falling.