Which of the following is (are) true for the period described in the table below

Question

Which of the following is (are) true for the period described in the table below? Year Price Level 1990 100 1991 110 1992 120 1993 130 I. Inflation is increasing. II. The price level is increasing. III. Inflation is decreasing. A. Both II and III. B. Both I and II. C. II and either I or III. D. II only. E. III only.

If real GDP rises and nominal GNP falls, which of the following must be true? A. The price level has decreased. B. Production in the country by foreign firms has grown faster than has production outside of the country by domestic firms. C. Either A or B, but possibly both A and B. D. Both A and B. E. Either A or B, but not both.

If the price level rises by 10%, which of the following must be true? A. All consumers will increase their spending by 10% if they are to buy the same things they used to buy. B. All prices have risen by 10%. C. The prices of each of the goods included in the relevant basket of goods have risen by 10%. D. All real incomes have fallen by 10%. E. None of these must be true.

Over the course of the business cycle, which of the following is most often true? A. When unemployment is high, inflation will be high. B. When unemployment is low, interest rates will be low. C. When the economy is in a trough, unemployment will be low. D. When inflation is low, economic growth rates are high. E. When unemployment is high, economic growth rates are low.

Which of the following must be true in an economy with a government but with no foreign trade? A. Household saving will be equal to investment. B. The sum of consumption and saving will be equal to the sum of income and taxes. C. The sum of household income and business profits must be equal to the sum of consumption, government spending, and investment. D. An increase in the government deficit will force an increase in investment. E. If the government has a balanced budget, household consumption will equal the difference between income and saving.

For an economy operating at full employment, which of the following is true? A. There is no frictional unemployment. B. Expansionary fiscal policy will result only in higher price levels and will have no effect on output. C. The classical model will accurately predict the effects of monetary and fiscal policies, both in the short run and in the long run. D. The calculated unemployment rate is zero. E. The Keynesian model will over-estimate the effect of a change in expenditures on GDP.

Which of the following will lead to the greatest decrease in a country 's net exports? A. An increase in household consumption B. Contractionary fiscal policy C. Inflation in foreign countries with no change in the exchange rate D. A large purchase of foreign currency by the country’s central bank E. A large increase in interest rates in the country

Assume an economy with lump sum taxes and no international trade. If there is full employment and a marginal propensity to consume of 0.8, what will be the effect of an $800 increase in autonomous expenditures? A. An increase of less than $4,000 in real output B. An increase in real output of $4,000 C. An increase in real output of at least $4,000 D. An increase in the price level and in increase in output of approximately $4,000 E. The answer depends critically on whether the economy is in the Keynesian region of the aggregate supply curve, and the answer cannot be predicted without knowing this.

According to the Keynesian model, equal increases in government spending and taxes will result in which of the following? A. Increases in the price level accompanied by increases in output B. Increased imports due to the effects of interest rate changes on exchange rates C. Decreased imports due to the effects of tax changes on exchange rates D. No change in the price level and a decrease in output E. An increase in output and no change in the price level

According to the Keynesian model, under which conditions will an open market operation by the Fed have the greatest effect on national income?

A) When the marginal propensity to save is high

B) When the marginal propensity to consume is high

C) When both the marginal propensity to consume and the marginal propensity to save are high

D) When the economy is at full employment

E) When the investment demand curve is relatively steep

Given the nation has a capital account surplus and a federal budget deficit, which of the following is an effect of an increase in interest rates?

A) Lower structural unemployment

B) An increase in the trade deficit

C) Aggregate demand and aggregate supply will intersect in a steeper section of the aggregate supply curve

D) An outward shift in the production possibilities frontier

E) An inward shift of the consumption possibilities frontier

Which of the following pairs of actions suggest that fiscal policy and monetary policy are working in the same direction?

A) Taxes are lowered, and the discount rate is raised.

B) Government spending increases, and the Fed sells bonds on the open market.

C) Government spending and taxes increase by the same amount, and the required reserve ratio is increased.

D) Taxes are increased, and the Fed buys bonds on the open market.

E) Government spending and taxes decrease by the same amount, and the Fed sells bonds on the open market.

Which of the following is true if cyclical unemployment is high?

A) Velocity is low.

B) Monetary policy has little effect on the price level.

C) The marginal propensity to consume will be particularly high.

D) The country ’s currency has a low value in foreign exchange markets.

E) The Fed could bring the economy back toward full employment by selling bonds on the open market.

For the last several years, the money supply in the fictitious nation of Mauritania has been rising by 10% annually, and inflation has been running at 8%. The central bank is going to cut growth of the money supply back to 3% annually. Which of the following statements regarding the effects of this action is true, ceteris paribus?

A) According to the quantity theory of money, inflation will be 1% in the next year.

B) According to the quantity theory of money, economic growth will slow down.

C) If the assumption of rational expectations holds, output will fall by 10% in the next year.

D) If the assumption of adaptive expectations holds, there will be no effect on output in the following year.

E) None of the above

Explanation / Answer

1.

The correct option is (E).

Consider the table, for every year, it is increasing by 10 in absolute terms but n relative terms it is 10/100 in first period = 10%. In second period it is 10/110 = 9.99% and so on.

2.

The correct option is (B).

GNP = GDP +NFIA if GDP is rising and GNP is falling then certainly NFIA is negative and it is possible only when

3.

The correct option is (C).

The consumer price index is not based on all goods and services but on relevant basket of goods and services.

4.

The correct option is (E).

When unemployment is high, economic growth rates are low.

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