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Starting from an initial long-run equilibrium, under the rational expectations
hypothesis, an anticipated shift to a more expansionary policy will increase:
a. prices but not real output in the short run.
b. real output but not prices in the short run.
c. real output in the long run but not in the short run.
d. real output in both the long run and the short run.
To be valid, an economic model must:
a. include every activity which occurs in the real world.
b. include at least 85 percent of the activity which occurs in the real world.
c. be able to predict events occurring in the real world.
d. exclude any link to the real world.
e. not be based on an abstraction of the real world.
Consumers buy less of a good as its price increases because:
a. production costs have risen.
b. substitute goods are now relatively cheaper.
c. the income of consumers has effectively risen.
d. the higher price will make the good more valuable to each consumer.
A decrease in the price of coffee, other things being equal, causes a(n):
a. leftward shift in the demand curve for coffee.
b. downward movement along the demand curve for coffee.
c. rightward shift in the demand curve for coffee.
d. upward movement along the demand curve for coffee.
Cyclical unemployment is primarily caused by:
a. a large proportion of youthful workers in the labor force.
b. fluctuations in aggregate demand.
c. a lack of training on the part of job seekers.
d. the failure of job seekers to search adequately for the available jobs.
Which of the following statements is true?
a. A less developed country (LDC) is a country with a low GDP per capita, low levels
of capital, and uneducated workers.
b. The vicious circle of poverty exists because GDP must rise before people can save
and invest.
c. LDCs are characterized by rapid population growth and low levels of investment in
human capital.
d. All of these.
Imagine that Odyssey National is a brand new bank, and that its required reserve ratio is
10 percent. If it accepts a $1,000 deposit, then its excess reserve balance will be:
a. $0.
b. $90.
c. $100.
d. $900.
e. $910.
The long-run Phillips curve:
a. is downward sloping.
b. is upward sloping.
c. shows there is no tradeoff between unemployment and inflation.
d. is horizontal at the natural rate of inflation.
The marginal propensity to consume (MPC) is the slope of the:
a. GDP curve.
b. disposable income curve.
c. consumption function.
d. autonomous consumption curve.
The business cycle consists of four phases. At the top we have:
a. recovery, followed by peak, and then recession followed by a recession.
b. recovery, followed by a recession, and then peak followed by recession.
c. peak, then an upturn followed by a recession, and then recession.
d. peak, then a recession followed by recovery, and then recession.
e. peak, then a recession followed by recession, and finally, recovery.
