Question

71.

The natural employment surplus ________ be used to determine the effectiveness of discretionary fiscal policy actions because ________.

cannot; it excludes non-discretionary spending changes

can; it includes non-discretionary spending changes

cannot; it includes non-discretionary spending changes

can; it excludes automatic stabilization expenditures

72.

If an increase in expected inflation equally raises the nominal interest rate, the expected real interest rate ________ and thus investment demand ________.

rises, increases

rises, decreases

is unchanged, is unchanged

falls, increases

falls, decreases

73. The "Fisher Effect" occurs when a one-percentage-point rise in expected inflation ________ interest rate by one percentage point

raises the expected real

lowers the expected real

raises the nominal

lowers the nominal

74. The position of the short-run aggregate supply curve depends on

the price level.

workers' expectations.

aggregate demand.

the actions of the monetary authority.

75. The unemployment rate is the number of

people looking for work divided by the population.

jobless individuals divided by the total labor force.

jobless people looking for work divided by the population.

jobless individuals looking for work divided by those employed and unemployed but actively looking.

76.

An adverse supply shock shifts the production function curve ________ and the labor demand curve ________.

upward, upward

upward, downward

downward, upward

downward, downward

77. In calculating GDP, "transfer payments" are

included because they are re-valuations of existing wealth.

78.

The value of steel sold to an automobile producer is ________ directly included in the GDP because ________.

always; it was produced during the current period

never; to do so is to double count the value of the steel

sometimes; the automobile may not be sold in the current period

sometimes; the steel is sometimes not resold in the current period

79. The purchasing power parity theory predicts that

a nation's exchange rate will decline at a rate equal to the difference between the domestic and the foreign rates of inflation.

a nation's exchange rate will differ from another nation's exchange rate by an amount depending upon the difference between the domestic and foreign rates of inflation.

a nation's exchange rate is determined by the extent of speculation in the foreign-exchange market.

a nation's exchange rate will decline when there is a balance-of-payments deficit.

excluded because no goods or services were produced in exchange for them.

included because they are payments for labor services.

excluded because used goods already counted the year they were produced.

80. ________ occurs when a central bank purchases assets with the intention not of lowering the short-term interest rate, which is already at zero, but with the purpose of increasing bank reserves.

Quantitative easing

Fiscal incrementing

Loan originating

Fiscal easing

Answer 1

71.

D

Discretionary fiscal policy, does not include expenses on automatic stabilizers or transfer payments. So, this policy can be evaluated by the natural employment surplus.

72.

C

Since nominal rates are equally increasing as that of inflation, then real interest rate and investment demand remain to be unchanged.

73.

B

As per the Fischer effect, increase in inflation decreases the real interest rate in the same proportion if nominal rates remain unchanged.

74.

A

It is the price level, that affects the SRAS.

75.

D

Unemployment rate considers those unemployed people who are actively looking for the job along with the employed people in calculation.

76.

D

77.

False

Transfer payments are not included in the GDP calculations.

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