1) What is “Philips Curve”?

A- Relation between the increase in nominal payments and the rate of unemployment
B- Show the rate of unemployment
C- Relation between the increase in real payments and the rate of inflation
D- Show the rate of inflation

2) If we are doing tight fiscal policy and easy monetary implementations at the same time, how
do we expect the LM and IS curves to move?
A- LM curve moves to the right, IS curve moves to the right
B- Only LM curve moves
C- LM curve moves to the left, IS curve moves to the right
D- LM curve moves to the right, IS curve moves to the left

3) Refer to Exhibit 4. Suppose the economy is operating in a recession such as point B in Exhibit
4. If policymakers allow the economy to adjust to the long-run natural rate on its own,
A- people will reduce their price expectations and the short-run aggregate supply will shift right.
B- people will raise their price expectations and aggregate demand will shift left.
C- people will raise their price expectations and the short-run aggregate supply will shift left.
D- people will reduce their price expectations and aggregate demand will shift right.

4) When prices rise at an extraordinarily fast rate, it is called a

A- disinflation.
B- deflation.
C- hyperinflation.
D- inflation.

5) The short-run Phillips curve:

A- shifts upward if expected inflation increases.
B- shifts upward if expected inflation decreases.
C- shifts downward if expected inflation increases.
D- is vertical.

6) Which of the following is an example of Monetary Policy?

A- The federal government cuts taxes.
B- The U.S. Treasury Department issues bonds to finance debt.
C- The Federal Reserve buys bonds in the open market.
D- Defense spending is cut to balance the budget.

7) A rise in planned investment spending unrelated to the interest rate causes the equilibrium level
of aggregate output to _____ and shifts the _____ curve to the _____.
A- rise; LM; right
B- rise; IS; right
C- fall; IS; left
D- rise; LM;left

8) In the long run, countries with higher rates of money growth usually have:
A- Smaller budget deficits
B- Lower rates of inflation
C- Faster growth rates of real output
D- Higher rates of inflation

9) After a monetary expansion, which of the following is a complete list of the variables that must
increase?
A- Consumption.
B- Investment.
C- Output.
D- Consumption, output and investment.

10) The LM curve will shift to the left if there is a(n):

A- increase in the money supply.
B- increase in the interest rate.
C- decrease in the money supply.
D- increase in output.

11) An increase in the money supply would cause the IS curve to:
A- shift up and to the right.
B- shift down and to the left.
C- remain unchanged.
D- shift up to the right only if people face borrowing constraints.

12) Which of the following is not a function of money?

A-hedge against inflation
B-medium of exchange
C-unit of account
D-store of value

13) Which of the following curves shows the equilibrium condition in the money market?

A- AS
 B- IS
C- LM
D- BP

14) The effect of a easy monetary policy on production, employment and general price level of the
economy is given correctly in which of the following options?

Production Employment General Price Level

A- Increases Increases Increases
B- Increases Increases Constant
C- Constant Constant Increases
D- Decreases Decreases Increases

15) The long-run effect of an increase in the money supply is to

A- increase the interest rate.
B- decrease the price level.
C- increase the price level.
D- decrease the interest rate.

16) When an increase in government purchases raises incomes, shifts money demand to the right,
raises the interest rate, and lowers investment, we have seen a demonstration of
A- Supply-side economics.
B- None of these answers.
C- The crowding-out effect.
D- The multiplier effect.

17) Which of the following statements is true about a country with a trade deficit?
A- Net exports are negative.
B- Net capital outflow must be positive.
C- Exports exceed imports.
D- Net exports are positive.

18) In the IS-LM model under the usual conditions in a closed economy, an increase in government
spending increases the interest rate and crowds out:
A- prices
B- investment
C- the money supply
D- taxes

19) When we say the U.S. economy has grown on average at 2.1%, we mean
A- the inflation rate.
B- the growth rate of per-capita real GDP.
C- the growth rate of nominal GDP.
D- the growth rate of per-capita nominal GDP.
20) Which of the following would not be a cost of inflation?
A- Higher price levels distort price signals.
B- Higher rates of inflation are associated with higher variability in nominal prices.
C- Unanticipated inflation leads to redistribution of wealth from lenders to borrowers.
D- The loss of value of money in inflation leads to real costs when households engage in efforts to
economize on their cash holdings