Economics Exam Review Questions

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Score: 0 / 30 (0%) [8 subjective questions not graded]
Final Exam Review Questions

Multiple ChoiceIdentify the letter of the choice that best completes the statement or answers the question. | | 1. | The total sales of all firms in the economy for a year a. | equals GDP for the year. | b. | is larger than GDP for the year. | c. | is smaller than GDP for the year. | d. | equals GNP for the year. | | | ANSWER: | B | | | 2. | The local Chevrolet dealership has an increase in inventory of 25 cars in 2006. In 2007 it sells all 25 cars. Which of the following statements is correct? a. | The full value of the increased inventory will be counted as part of GDP in 2006,
| the long-run Phillips curve, but not the long-run aggregate supply curve. | d. | the long-run aggregate supply curve, but not the long-run Phillips curve. | | | ANSWER: | B | | | 25. | Which of the following explains the time-inconsistency of policy explained by Kydland and Prescott? a. | A contractionary monetary policy will lead to higher unemployment in the short-run but not the long-run. | b. | An expansionary monetary policy will lead to higher unemployment in the short-run but not the long-run. | c. | Expected inflation is higher than otherwise if the public believes that policymakers will be tempted to raise inflation to reduce unemployment. | d. | Expected inflation is lower than otherwise if the public believes that policymakers will be tempted to lower inflation to reduce unemployment. | | | ANSWER: | C | | | 26. | If in response to an adverse aggregate supply shock the Fed increased the money supply, a. | unemployment and inflation would both rise. | b. | unemployment and inflation would both fall. | c. | unemployment would rise and inflation would fall. | d. | unemployment would fall and inflation would rise. | |
| 5 percent of annual output. | c. | 6 percent of annual output. | d. | None of the above is correct. | | | ANSWER: | D | | | 28. | Suppose that the central bank is required to follow a monetary policy rule to stabilize prices. If the economy starts at long-run equilibrium and then aggregate supply shifts right the central bank would have to a. | increase the money supply, which causes output to move closer to its long-run equilibrium. | b. | increase the money supply, which causes output to move farther from long-run equilibrium. | c. | decrease the money supply, which causes output to move closer to its long-run equilibrium. | d. | decrease the money supply, which causes output to move farther from long-run equilibrium. | | | ANSWER: | B | | | 29. | If a country had a rule that required the ratio of debt to GDP to be constant, it would necessarily have to run a surplus if a. | real GDP rose and the inflation rate were positive. | b. | real GDP rose and the inflation rate were negative. | c. | real GDP fell and the inflation rate were positive. | d. | real GDP fell and the inflation rate were negative.