1) Which of the following statements is true about investment?
a) Planned investment must always equal actual investment because of changes in inventories.
b) Planned investment is undertaken in command economies; actual investment occurs in market economies.
c) Actual investment includes unplanned changes in inventories.
d) Unplanned changes in inventories always result in saving equalling investment.

2) GDP is not a perfect measure of material well-being because it ignores:
a) Goods produced in Australia but shipped overseas
b) Production of goods and services by the government
c) Consumer spending on services
d) Negative externalities

3) Which of the following would shift the consumption function upward?
a) An increase in disposable income
b) An increase in the interest rate
c) Expectations of lower future prices
d) An increase in net wealth

4) The aggregate supply curve indicates:
a) The quantity of aggregate output that producers are willing and able to supply at each possible price level
b) The total quantity of a particular good that all producers are willing to supply at each possible price level
c) The total quantity of a particular good that all producers are willing to supply at the equilibrium price level
d) The quantity of aggregate output that producers are willing and able to supply at the equilibrium price level

5) Which of the following will shift the aggregate demand schedule to the left?
a) An increase in the money supply
b) An increase in government spending
c) An increase in exports
d) None of the above

7) If the economy is experiencing an expansionary gap, which of the following will occur in the long run?
a) Workers will negotiate nominal wage increases that will shift the SRAS curve to the right.
b) Workers will negotiate nominal wage increases that will shift the SRAS curve to the left
c) Employers will negotiate lower nominal wages (relative to prices) that will shift the SRAS curve to the right.
d) Employers will negotiate lower nominal wages (relative to prices) that will shift the SRAS curve to the left.

8) In combating stagflation, a government-induced:
a) Increase in aggregate demand would help reduce inflation but lower economic growth
b) Decrease in aggregate demand would help reduce economic growth but aggravate inflation
c) Increase in aggregate demand would help increase economic growth but aggravate inflation
d) Decrease in aggregate demand would help increase economic growth but reduce inflation

9) The economy is at potential output, and aggregate demand falls. Which type of unemployment is most likely to increase?
a) Cyclical unemployment
b) Frictional unemployment
c) Structural unemployment
d) Casual unemployment

10) If the price level falls by 3 per cent and the nominal wage rises by 4 per cent, the real wage:
a) Falls by 1 per cent
b) Falls by 7 per cent
c) Rises by 1 per cent
d) Rises by 7 per cent

11) Assume an MPC of 0.8, and that the government increases spending by $10 billion and at the same time increases net taxes by $10 billion. The effect on the output will be:
a) $8 billion
b) $10 billion
c) $18 billion
d) $40 billion

12) Reasons for why nominal wages do not fall when unemployment is high do not include:
a) Efficiency wage arguments
b) Sticky wages for final goods
c) Minimum wage laws
d) Union power

13) If aggregate demand intersects short-run aggregate supply above the economy's potential output level, which of the following sets of policies would unquestionably move the economy back towards full employment?
a) Increase government purchases, increase taxes, and decrease transfer payments
b) Decrease government purchases, increase taxes, and decrease transfer payments
c) increase government purchases, decrease taxes, and increase transfer payments
d) decrease government purchases, decrease taxes, and increase transfer payments

14) When a federal budget deficit causes crowding out:
a) Real GDP does not increase by as much as the government purchases of goods and services multiplier would predict, because investment and consumption decline
b) Interest rates fall, reducing the burden of the debt
c) Interest rates fall, bringing the current deficit back down
d) interest rates fall, so that decreases in investment and government purchases of goods and services exactly offset the expansionary effect of the deficitECON102 Special, Summer 2011 5

15) If the Reserve Bank expected a net outflow of exchange settlement funds from the market, then it would:
a) Buy enough securities to keep the cash rate constant
b) Sell enough securities to keep the cash rate constant
c) Buy enough securities to force the cash rate upward
d) Do nothing if it wanted the cash rate to remain constant

16) A disadvantage of having an annually balanced budget is that government spending would have to:
a) increase in recessions and decrease during expansions
b) Decrease during a recession to offset the increase in tax revenues
c) Rise during a recession to match the increase in tax revenues
d) Decrease in a recession to match the decrease in tax revenues

17) As a result of an expansionary monetary policy:
a) Both aggregate expenditure and aggregate demand decrease
b) Aggregate expenditure increases and aggregate demand decreases
c) Both aggregate expenditure and aggregate demand increase
d) Aggregate expenditure decreases and aggregate demand increases

18) According to those who favour a passive approach to policy, how can an economy that is below its potential output level attain equilibrium at potential output?
a) The SRAS curve will shift to the left
b) The SRAS curve will shift to the right
c) Government spending should be increased
d) Government spending should be decreased

19) If the Australian dollar depreciates in the foreign exchange market:
a) Australian goods will become more expensive for foreign buyers and foreign goods will be cheaper for Australians.
b) Australian goods will become more expensive for foreign buyers and foreign goods will be more expensive for Australians.
c) Australian goods will become less expensive for foreign buyers and foreign goods will be more expensive for Australians.
d) Australian goods will become cheaper for foreign buyers and foreign goods will be cheaper for Australians.ECON102 Special, Summer 2011 6

20) According to the purchasing power parity theory, in the long run:
a) Exchange rates between any two currencies should be equal all over the world
b) Inflation rates should equalise around the world
c) Interest rates should equalise around the world
d) The exchange rate between two currencies should reflect differences in price levels between those two countries

21) If economic growth is faster than population growth, then GDP per capita will ____ and GDP overall will ____.
a) Rise, rise
b) Rise, fall
c) Fall, rise
d) Fall, fall

22) To calculate the GDP price index we divide:
a) Real GDP by the price index
b) Real GDP by nominal GDP
c) Nominal GDP by the price index
d) Nominal GDP by real GDP

23) Demand-pull inflation is characterised by
a) Movement of aggregate supply (AS) up and to the left
b) Movement of aggregate demand (AD) down and to the left
c) Movement of AS down and to the right
d) Movement of AD up and to the right

24) Other things being equal, the law of diminishing marginal returns states that as the quantity of capital per worker increases, other things being constant, output per worker eventually:
a) Increases at a constant rate
b) Increases at a decreasing rate
c) Increases at an increasing rate
d) Decreases

25) The long-run Phillips curve:
a) Represents the fact that inflation is consistent with many unemployment rates
b) Has a negative slope because the short-run Phillips curve shifts up and to the left
c) Shows that expected inflation can never equal actual inflation
d) Represents the fact that inflation will not influence unemployment in the long run