1 Reduction in the levels of structural unemployment has the effect of A) Reducing the level of frictional unemployment (since if structural unemployment falls,frictional unemployment must rise to...

A) Reducing the level of frictional unemployment (since if structural unemployment falls,
frictional unemployment must rise to keep the natural rate unchanged)
B) Reducing the level of aggregate demand
C) Reducing the long-run aggregate supply but increasing short-run aggregate supply
D) Increasing the long-run aggregate supply 2 Monetary policy refers to the idea that aggregate demand is changed by changes in a
b
c
d the money supply and interest rates
government spending and taxes
trade policy
All of the above are correct Use the table below to answer the following question nos 3 and 4:
year
2015
2016 3 price of corn
per unit
$20
$35 Suppose that the basket of goods in the Consumer Price Index (CPI) consisted of 3 units of
pork and 2 units of corn What is the consumer price index for 2016 if the base year is
2015?
a
b
c
d 4 price of
pork per
unit
$20
$15 85
100
115
175 What is the inflation rate for 2016 (from 2015)?
a
b
c
d zero since the price of one good went up, while the other fell
75 percent
negative 15 percent (or deflation)
15 percent 2 5
The rate of interest the Federal Reserve charges commercial banks for overnight loans of
reserves is the
A) discount rate
B) prime rate
C) federal funds rate
D) real rate
Table 6-A
Year
2012
2016 Guns
Produced
80
90 Price of Guns
$5
$6 Butter
Produced
40
60 Price of
Butter
$4
$10 Consider the following data for a country that produces only two products: guns and butter
6 Refer to Table 6-A Real GDP in 2016 using 2012 as the base year equals A) $1,140
B) $880
C) $690
D) $560
7 If the Federal Reserve (“Fed”) engages in contractionary monetary policy then: A
the Fed is seeking to decrease the money supply and lower interest rates to lower
inflation
B
the Fed is concerned about high unemployment rates
C
the Fed is seeking to decrease the money supply and raise interest rates to lower inflation
D
the Fed is seeking to increase the money supply and lower interest rates to contract the
unemployment rate
8 The crowding out effect in the loanable funds market refers to: A
non-hiring of some workers due to lack of adequate jobs for them
B
a decrease in private investment expenditure due to an increase in expenditure by the
government financed by government debt (or borrowing)
C
a fall in the government investment due to an increase in private investment expenditure
D
an increase in private investment expenditure due to improvement in profitability of
investment in the economy 3 9 Frictional unemployment is the result of
a
b
c
d a persistent or long term mismatch between the skills and characteristics of
workers and the requirements of the jobs
the job searching and matching process that occurs in a dynamic economy
declines in the natural rate of unemployment
the unexplained unemployment that occurs in an economy For Questions 10-11
10
In the Wall Street Journal article entitled “Fed Puts Together Plan to Unwind Securities
Portfolio” it was reported that the Fed’s bond holdings increased from $900 billion in 2009 to
$45 Trillion in 2016 The purpose of the Fed’s decision to increase its bond holdings from 2009
to 2016 was to
a to decrease the reserves in the banking system thus engaging in so called “contractionary
monetary policy” needed to contract the level of inflation
b engage in contractionary fiscal policy
c contract the money supply to counteract the high rates of unemployment currently
existing in the United States
d increase the reserves in the banking system to increase bank lending and aggregate
demand
Figure 11- A (For Question 11) 11
Refer to Figure11-A above Assume that the economy has moved from A in 2009 to B in
2016 as a result of the Fed’s monetary policy If the Fed seeks to reduce the rate of inflation in 4 2017 or 2018, its strategy to reduce or sell (a significant portion of its bond holdings):
A) is inconsistent with the Fed’s mandate to keep the Federal Funds Rate at zero percent
B) will actually increase the US banking reserves and (thus) potential inflation and should not
be followed
C) will reduce the US banking reserves and is consistent with seeking to move the US
economy back to its potential GDP and lower rates of inflation
D) will reduce the US banking reserves and result in lower rates of inflation but is, in fact,
inconsistent with seeking to move the US economy back to its potential GDP because the Fed’s
selling of its bonds will increase the level of aggregate demand
12
Which of the following will shift the Short Run Aggregate Supply curve (SRAS) to the
right?
A
B
C
D a decrease in future expectation of profits by firms
a decline in the quality of technology used by the firms in the economy
a rise in cost of inputs for the firms in the short run
an increase in the total stock of capital used by firms in the economy 13
Fracking is a technology that enables oil/gas extraction that would be too costly or not
possible prior to this positive technology change that lowers production costs After this
technology change the new equilibrium in the market for oil/gas will result in:
A
B
C
D a lower quantity and a higher price a higher quantity and lower price
a lower quantity and a lower price
a higher quantity and higher price 14
Suppose in 2012 a nation reported a Nominal GDP of $500 Billion and in 2013 reported a
Nominal GDP of $550 Billion The GDP Deflator in 2012 was 100 and in 2013 increased to 105
Real GDP in 2012 was:
A
B
C
D $550 Billion
$500 Billion
$490 Billion
$524 Billion 15 Which of the following would generally be considered an automatic stabilizer?
A) legislation increasing the minimum wage
B) decreasing unemployment insurance payments due to decreased joblessness during an
economic expansion
C) efforts by the Federal Reserve to depreciate the US dollar
D) rising military expenditures because of increasing world tensions
E) legislation increasing funding for job retraining passed during a recession 5 16 According to the quantity theory of money, if the real growth rate of US economy is 35%
per year, and if the velocity of money does not change, then for the Fed to meet its target rate of
inflation equal to 2% per year, then the money supply in the US should increase at a rate equal
to
A) 35 percent (per year)
B) 2 percent (per year)
C) 55 percent (per year)
D) unknown since we do not know the risk of default for US securities 17 Which of the following is not a function of money?
a
b
c
d to act as a medium of exchange
to act as a unit of account
to act as a store of value
to provide a double coincidence of wants 18 Suppose the economy is producing at its potential GDP and firms become more pessimistic
about the future profitability of new investment Which of the following will happen in the short
run?
A) Real GDP will rise
B) The CPI rises
C) Structural unemployment rises
D) The aggregate demand curve will shift to the right
E) The aggregate demand curve will shift to the left 6 Figure 19-A 19-A Refer to Figure 19-A In the graph above, the shift from AD1 to AD2 represents the total
change in aggregate demand caused by an increase in government spending If government
purchases increased by $50 billion, and assuming a multiplier greater than 1 and also short run
crowding out effects, then the distance from point A to point B ________ $50 billion
A) would be equal to
B) would be greater than
C) would be less than
D) may be greater than or less than 20 Assume that the CPI values for 2014 and 2015 were 2173 and 2229, respectively What
was the inflation rate between these two years?
A) 56%
B) 26%
C) 26%
D) none; as the difference between the CPI values is less than ten (10) percent which is typically
less than the money supply growth thus, under the quantity theory of money, there can be no
inflation 7 21 The substitution bias in the consumer price index refers to the idea that consumers ________
the quantity of products they buy in response to price, and the CPI does not reflect this and thus
________ the cost of the market basket
A) change; overestimates
B) change; underestimates
C) do not change; overestimates
D) do not change; underestimates 22 If the United States legislated that all employers could only terminate an employee for “just
cause” (and thus eliminating the doctrine of “employment at will”) we would expect (over time),
all things being held the same, that:
a frictional unemployment would absolutely stay the same because companies will want to
hire workers quickly but workers want to quit their jobs just as quickly
b structural unemployment would fall because workers will work harder consistent with
the efficiency wage hypotheses
c cyclical unemployment would fall
d The natural rate of unemployment will rise 23
In the Wall Street Journal last month, it was reported that the unemployment rate
increased from 46% to 47% in March 2017 in the United States This unambiguously shows
that the US economy “slowed down” this Spring and the number of employed Americans has
fallen
a
b True
False 24 Karl Marx’s analysis of the relationship between the forces (or means) of production and
relations of production best highlights the role of:
a Economic development without “general gluts” b
c
d Markets
Institutional change
Feudalism 8 25 Last week it was reported that the US economy grew at 7% (annualized), the slowest rate in
over three (3) years, as “Americans sharply cut back spending on big-ticket items like cars,
causing overall consumer purchases to grow at the slowest pace since late 2009” All things
being held the same, if US consumers continue to cut back their overall spending we would
expect
A)
B)
C)
D) aggregate demand to rise
the short run aggregate supply to increase (shift to the right)
the Fed to be less aggressive in raising its bench mark interest rates
the rate of US real GDP growth to increase as Americans save more causing the supply of
loanable funds to decrease 26 If the number employed is 130 million, the working-age population is 225 million, and the
number unemployed is 15 million, then the unemployment rate is
A) 103%
B) 667%
C) 103%
D) 366%
E) can not be determined because we do not know what the labor participation rate is 27) Fiscal and monetary policies are generally considered effective policy tools to reduce a
country’s natural rate of unemployment:
a
b True
False 28) Increases in labor productivity (which drive a nation’s standard of living) driven by the
division of labor and specialization was articulated by:
a
b
c
d
e Karl Marx
Robert Malthus
John M Keynes
Adam Smith
Joseph Schumpeter 9 29) The Federal Reserve’s least used tool of monetary policy is A)
B)
C)
D) open market operations
discount rate policy
reserve requirement policy
None of the above since the Federal Reserve uses all three tools in a coordinated equal
fashion 30) Keynesians (including John M Keynes) and Monetarists (the most prominent being
Milton Friedman) agreed that economic instability is largely caused by instability in the
level of investment (that is, investment changes significantly) caused by changes in the
money supply
a
b True
False 31) In the United States, from 2012 to 2016, real GDP increased by 47% to $182 Trillion,
unemployment fell beneath the natural rate of unemployment and the CPI index went from 118
to 123 Then:
A)
B)
C)
D)
E) 32) The aggregate demand curve must have shifted leftward, moving down along the long
run aggregate supply curve
The short-run aggregate supply curve must have shifted leftward, moving up along the
aggregate demand curve
The short-run aggregate supply curve shifts rightward, moving down along the aggregate
demand curve
The aggregate demand curve must have shifted leftward, moving down along a short-run
aggregate supply curve
The aggregate demand curve must have shifted rightward, moving up along a short-run
aggregate supply curve
According to Joseph Schumpeter, economic growth is achieved through: A) increases in the division of labor and specialization
B) centralizing economic production
C) waves of innovation and a process termed "creative destruction"
D) removing the entrepreneur from the production function and focusing solely on management
expertise to drive technological change 10 Figure 33-A 33 Refer to Figure 33-A In the figure above, suppose the economy in Year 1 is at point A and
expected in Year 2 to be at point B Which of the following policies could the Federal Reserve
use to move the economy to point C?
A) increase public expenditures on public works
B) decrease the prime rate
C) sell US securities (bonds)
D) decrease the targeted federal funds rate
34 Refer to Figure 33-A In the figure above, suppose the economy in Year 1 is at point A and
expected in Year 2 to be at point B Which of the following policies could the Federal
Government use to move the economy to point C?
A) increase corporate income taxes
B) increase the required-reserve ratio
C) sell US securities (bonds)
D) reduce government expenditures which will increase the supply of loanable funds causing a
“crowding in” effect
E) decrease income taxes
35 Refer to Figure 33-A Assume that monetary and fiscal policies successfully move the US
economy from point B to point C As a result, we would most likely expect
A) a decline in the inflation rate
B) a decline in the natural rate of unemployment
C) a decline in the government multiplier
D) a decline in the cyclical rate of unemployment 11 36 Which of the following is not counted in M1?
A) checking account balances
B) savings account balances
C) coins in circulation
D) currency in circulation
37 If the effective or nominal rate of interest is 8 percent for a bond issued by United States
(that is, the rate of interest charged to the United States Government when it borrows
money), and the inflation rate is 3 percent, then:
a
b
c
d
e the real rate of interest is 11 percent
the real rate of interest is 3 percent
the real rate of interest is –5 percent
the real rate of interest is 5 percent
there is insufficient information to determine the real rate of interest 38 Suppose that the number of buyers in a market increases, while the wages that companies (in
this market) pay to their employees increase by 20% What would we expect to happen in the
market?
a The equilibrium price would increase, but the impact on the amount sold in the market
would be ambiguous
b The equilibrium price would decrease, but the impact on the amount sold in the market
would be ambiguous
c Equilibrium quantity would decrease, but the impact on equilibrium price would be
ambiguous
d Both equilibrium price and equilibrium quantity would increase
39 Which of the following determines the long-run level of real GDP?
a
b
c
d
e the expectation of higher inflation
changes in labor productivity
extent and scope of markets and private property rights
b and c
all of the above 12 Table for Question 40:


Hours needed to make one unit
of: Amount produced in 2400 hours: Cars Airplanes Cars Airplanes Japan 200 80 30 75 US 25 75 24 8 40 According to the table shown, the United States and Japan could benefit by the United
States specializing in
a airplanes and Japan specializing in airplanes
b cars and Japan specializing in airplanes
c airplanes and Japan specializing in cars
d neither good and Japan specializing in cars 41 As a nation’s inflation rate increases (from let’s say 2% to 4%), we would expect
a
b
c
d
e 42
is a rise in the nation’s long term GDP
a fall in the nation’s natural rate of unemployment
a rise in nominal interest rates consistent with the Joe Girardi Effect
a rise in nominal interest rates consistent with the Fisher Effect
a decrease in nominal interest rates consistent with the Fisher Effect
According to the Keynes and/or the Keynesian view of the macro economy, the economy a
b
c
d 43 inherently stable consistent with Hayek’s view
not always stable; however, the economy quickly returns to full employment
inherently unstable; however, government intervention would only worsen the situation
inherently unstable, and the government has the ability to intervene in a way that will
increase economic stability
Decreases in a nation’s level of aggregate demand and aggregate supply can be caused by a
b
c
d Expansionary fiscal policy
A depreciation of the nation’s currency relative to other currencies
Contractionary monetary policy
Tax reform increasing personal and corporate income tax rates 13 44 Suppose the economy is in long-run equilibrium If there is a sharp increase in the price of
a critically important resource that is used in an economy such as oil yet, at the same time,
consumers become increasingly confident about their employment prospects, then we
would expect that in the short-run,
a real GDP will rise and the price level might rise, fall, or stay the same
b real GDP will fall and the price level might rise, fall, or stay the same
c the price level will rise, and real GDP might rise, fall, or stay the same
d the price level will fall, and real GDP might rise, fall, or stay the same

45
In the US, open market operations refer to the buying and selling of ________ by the
________ to control the money supply
a
b
c
d Treasury securities (bonds); Treasury Department
stocks and physical assets such as real estate; Federal Reserve
Treasury securities (bonds); Private Investment Banks
Treasury securities (bonds); Federal Reserve 46 Which of the following statements about the Federal Reserve is incorrect?
a The Board of Governors is located in Washington, DC
b The Federal Open Market Committee makes monetary policy
c The members of the Board of Governors are appointed by the President for 14 year
terms
d There are 18 Federal Reserve Regional Banks but only 12 Regional bank presidents vote
and ‘sit” on the Federal Open Market Committee 14 Figure 47-A 47-A Refer to Figure 47-A The law of diminishing returns, as reflected in the above per
worker production function, is shown in the figure above by the movement from
A) E to B
B) B to C
C) C to D
D) all of the above
E) answers “B” and “C” 48-A Refer to Figure 47-A Assume that a wealthy nation’s output per worker is best reflected
as or in point C on production function 1 and a less wealthy nation’s output is best reflected as or
in point A on production function 1 An increase of $10,000 of capital per worker in both
nation’s will have
A) A greater impact on the wealthier nation’s output per worker (or labor productivity) and
standard of living (relative to the less wealthy nation)
B) A greater impact on the less wealthy nation’s output per worker (or labor productivity)
and standard of living (relative to the wealthier nation)
C) The same economic impact on labor productivity in both nations
D) Result in an increase in output per worker from B to E in both nations

49 When a country’s unemployment rate is equal to its natural rate of unemployment the
country is experiencing?
a cyclical unemployment only
b structural unemployment only
c frictional and cyclical unemployment only
d frictional and structural unemployment only
e no unemployment because the country will be producing along its long run aggregate
supply or potential GDP
15 50
A few years ago the Wall Street Journal reported that “”US productivity grew at the
fastest clip in more than a year during the second quarter, signaling steady growth in the
economy and a gauge of inflationary pressure dropped…” Increases in productivity may cause
a drop in “inflationary pressure” because
A Given any level of aggregate demand, the long run and short run aggregate supply is
increasing
B Given any level of long run and short run aggregate supply, the long run aggregate
demand is increasing
C While the long run aggregate supply is always equal to the level of aggregate demand, the
short run aggregate supply will be decreasing causing prices to fall
D Increases in productivity increase a nation’s income which means that most individuals
are less worried about inflation
Extra credit question: 51 Baseball is the greatest sport ever invented
A True (sorry no other answers… with our utmost apologies to soccer, football,
lacrosse etc fans… but let’s be honest, that is why you are in college to learn these
very, very valuable insights) AGAIN HAVE A WONDERFUL SUMMER BREAK!!!! 16