1) Which of the following is not considered to be a component of investment when calculating GDP?

a) New residential construction

b) Construction of new factories

c) Net increases in inventory

d) Purchases of corporate shares

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) If the government decreases transfer payments:

a) We move upwards along an existing consumption function

b) We move downwards along an existing consumption function

c) The consumption function shifts upwards

d) The consumption function shifts downward

4) If price levels in Australia fell relative to price levels in other countries, what would happen in Australia?

a) Consumption and net exports would decline

b) Consumption and net exports would increase

c) Consumption would increase and net exports would decline

d) Consumption would decrease and net exports would increase

5) Which of the following will shift the aggregate demand schedule to the right?

a) A decrease in the money supply

b) A decrease in government spending

c) A decrease in exports

d) None of the aboveECON102, Semester 2, 2010 3

6) In the figure below, if the economy is currently operating at point A, then:

a) The AE line will shift down to point E

b) Planned output is greater than planned spending

c) There will be unintended inventory decreases

d) The AE line will get steeper as people increase their consumption

7) which of the following is not held constant along a given aggregate supply curve?

a) The supply of resources

b) The price level

c) The payment to resources in nominal terms

d) The level of technology

8) Which of the following is one of the problems with stagflation?

a) Demand-management policies can shift the aggregate supply curve further to the left

b) Demand-management policies can reduce inflation but cause a further decline in real GDP

c) Demand-management policies can increase real GDP but cause inflation to decline

d) Demand-management policies can help neither inflation nor real GDPECON102, Semester 2, 2010 4

9) The economy is at potential output, and aggregate demand falls. Which type of unemployment is most likely to increase?

a) Frictional unemployment

b) Cyclical unemployment

c) Structural unemployment

d) Casual unemployment

10) If your nominal wage increases by 3 per cent and the price level remains constant, then:

a) Your real wage rises by 3 per cent

b) The purchasing power of your wage decreases by 3 per cent

c) Your real wage remains the same

d) Your real wage falls by 3 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) If aggregate output is falling:

a) Automatic stabilisers will tend to increase the size of the budget surplus

b) Automatic stabilisers will tend to increase the size of the budget deficit

c) Automatic stabilisers will tend to decrease the size of the budget deficit

d) Transfer payments will decrease as fewer people become eligible for public assistance

13) If aggregate demand intersects short-run aggregate supply below 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) Increase government purchases, increase taxes, and increase transfer paymentsECON102, Semester 2, 2010 5

14) If the Reserve Bank expected a net inflow of exchange settlement funds into 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

15) An increase in net taxes:

a) Raises aggregate expenditure by raising disposable income, thereby increasing consumption

b) Raises aggregate expenditure by raising disposable income, thereby decreasing consumption

c) Lowers aggregate expenditure by lowering disposable income, thereby decreasing consumption

d) Lowers aggregate expenditure by lowering disposable income, thereby increasing consumption

16) When net income and net transfers are added to the net exports of goods and services, the result is called the:

a) Merchandise trade balance

b) Balance of payments

c) Balance on capital account

d) Balance on current account

17) The quantity theory of money states that:

a) Since velocity is reasonably stable, we can predict the effects of an increase in the money supply on nominal income

b) Since velocity is not stable, changes in the money supply have unpredictable impacts on income

c) Since velocity is reasonably stable, we can predict the effects of an increase in the money supply on employment

d) since velocity is reasonably stable, we can predict the effects of an increase in the money supply on interest ratesECON102, Semester 2, 2010 6

18) According to those who favour an active approach to policy, how can an economy that is babove 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) The crowding out of private investment is associated with:

a) A reduction in profitable investment opportunities due to a recession

b) Increased competition from foreign investors in Australian markets

c) Higher interest rates resulting from a declining rate of saving

d) Higher interest rates resulting from increased borrowing by the federal government

20) If real interest rates in the USA fell relative to those in Australia, what would the immediate impact be on the exchange rate for Australian dollars?

a) There would be an increase in the demand for Australian dollars and a decrease in the supply of Australian dollars, leading to an appreciation of the currency

b) There would be an increase in the demand for Australian dollars and a decrease in the supply of Australian dollars, leading to a depreciation of the currency

c) There would be an decrease in the demand for Australian dollars and an increase in the supply of Australian dollars, leading to a depreciation of the currency

d) There would be an decrease in the demand for Australian dollars and an increase in the supply of Australian dollars, leading to an appreciation of the currency

21) Sustained economic growth brings the benefit that:

a) It helps improve the social conditions available to the population

b) It helps improve the material well-being of the population

c) It allows for the consumption of more goods and services without making anyone worse off

d) all of the above

22) In order to convert nominal GDP to real GDP, we must divide:

a) Real GDP by the price index

b) Nominal GDP by the price index

c) The price index by nominal GDP

d) Nominal GDP by real GDPECON102, Semester 2, 2010 7

23) Cost-push 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) If the time required for an economy to self-correct is shorter than the active policy lags:

a) Active policy should be strengthened

b) Active policy will likely be destabilising

c) The passive policy case is weakened

d) Active policy will work better than passive policy

25) The long-run Phillips curve suggests policymakers choose between alternative:

a) Interest rates

b) Unemployment rates

c) Inflation rates

d) Growth rates