1. What is the name of the price at which one currency exchanges for another currency?
A. foreign exchange rate
B. currency exchange rate
C. net export exchange rate
D. money exchange rate
E. value of the dollar
2. Fiscal policy includes all but which of the following?
A. corporate income tax cuts
B. interest rate cuts
C. income tax increases
D. increase in government spending on homeland security
E. increase in unemployment insurance
3. If the government wished to increase aggregate demand through fiscal policy, which set of policies would it pursue?
A. a tax cut combined with spending cuts
B. a tax increase combined with spending cuts
C. spending increases combined with tax cuts
D. any of the above
E. none of the above
4. The aggregate-supply curve can be shifted to the right by all but which of the following?
A. discovery of new oil reserves
B. new technologies
C. a tax increase
D. an increase in immigration
E. investment tax credit
5. If the marginal propensity to consume equals 0.75, a $6,000,000 increase in government purchases will result in what increase to total output, assuming no crowding-out effect exists?
A. $4,500,000
B. $6,000,000
C. $8,000,000
D. $24,000,000
E. $1,500,000
6. Which of the following is an example of an automatic stabilizer?
A. spending on Medicare, a health care program for the elderly
B. spending on research and development
C. unemployment compensation
D. spending on the improvement of public roadways
E. all of the above
7. Which of the following is an example of "supply-side economics"?
A. an investment tax credit
B. a one-time tax rebate to low-income families
C. a new Medicare drug benefit for the elderly
D. an increase in Social Security benefits
E. all of the above
8. Which of the following statements about unemployment and inflation is false?
A. The short-run Phillips curve demonstrates a negative relationship between unemployment and inflation, whereas the long-run Phillips curve is horizontal because the natural rate of unemployment is fixed.
B. The "misery index" is produced by adding the rate of unemployment and the rate of inflation.
C. If people expect inflation to be higher in the future than it is today, the short-run Phillips curve will shift to the right.
D. Means-tested programs tend to favor those with low income while a consumption tax would favor those with high income.
E. A positive supply shock, such as a new technology that reduces manufacturing costs, would shift the entire short-run Phillips curve to the left.
9. If people's expectations are rational and their central bank is credible, an announcement of an imminent reduction in the money supply would result in
A. less inflation but more unemployment.
B. more inflation but less unemployment.
C. less inflation but the same level of unemployment.
D. more inflation but the same level of unemployment.
E. less inflation and less unemployment.
10. 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
11. 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.
12. 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.