ECO5POE Practice Final Answers

Topics: Inflation, Foreign exchange market, Supply and demand Pages: 8 (2518 words) Published: April 18, 2015
For each question identify the one best answer, and mark your answer on the computer sheet (do not rewrite your answer in the script book).
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1) When the interest rate falls in the money market, the quantity of money demanded ________ and the quantity of money supplied ________.
A) decreases; increases
B) increases; decreases
C) increases; stays the same
D) stays the same; decreases
2) In short-run macroeconomic equilibrium,
A) real GDP and the price level are determined by short-run aggregate supply and aggregate demand.
B) real GDP equals potential GDP and aggregate demand determines the price level. C) the price level is fixed and short-run aggregate supply determines real GDP. D) real GDP is less than potential GDP.

3) The idea that a government budget deficit decreases investment is called B) the crowding-out effect.
A) the capital investment effect.
C) the Ricardo-Barro effect.
D) government dissaving.
4) As labour increases, there is a
A) shift of the aggregate production function, but no movement along it. B) movement along the aggregate production function and real GDP will increase less with each additional increase in labour.

C) movement along the aggregate production function, but no shift in it. D) movement along the aggregate production function and real GDP will decrease less with each additional increase in labour.

5) Net investment equals
A) the total quantity of plant, equipment and buildings.
B) gross investment/depreciation.
C) gross investment minus depreciation.
D) capital stock minus depreciation.
6) If real GDP decreases, the demand for money curve will shift A) rightward and the interest rate will fall.
B) leftward and the interest rate will rise.
C) leftward and the interest rate will fall.
D) rightward and the interest rate will rise.

7) Factors that influence labour productivity include ________. A) the labour demand curve
B) the inflation rate, the real wage rate, and the exchange rate C) physical capital, the real wage rate, and technology
D) physical capital, human capital, and technology

1

8) The quantity theory of money is the idea that in the long run A) the quantity of money is determined by banks.
B) the quantity of money serves as a good indicator of how well money functions as a store of value.
C) the quantity of money determines real GDP.
D) an increase in the growth rate of the quantity of money leads to an equal increase in the inflation rate.

9) Prime Pharmaceuticals has developed a new asthma medicine, for it has a patent. An inhaler can be produced at a constant marginal cost of $2/inhaler. The demand curve, marginal revenue curve, and marginal cost curve for this new asthma inhaler are in the figure above. With its patent giving it a monopoly for its new inhaler, if it is a single-price monopoly, Prime Pharmaceuticals will produce ________ inhalers and set a price of ________ for each inhaler. C) 8 million; $6

A) 8 million; $2
B) 16 million; $2
D) 10 million; $5
10) A small country is a net foreign borrower if its real interest rate without foreign borrowing is ________ the world real interest rate.
A) lower than
B) not comparable to
C) higher than
D) equal to
11) Which of the following is the most liquid asset?
A) a share of stock
C) money

B) land
D) a government bond

12) Starting at full employment, a business cycle can be described by the following sequence: ________ equilibrium, ________ equilibrium, ________ equilibrium. A) below full-employment; full-employment; below full-employment B) above full-employment; below full-employment; full-employment C) full-employment; below full-employment; above full-employment D) below full-employment; full-employment; above full-employment

2

13) Suppose that the money multiplier is 4. If the monetary base decreases by $2 million, the quantity of money will
A) decrease by $8 million.
B) decrease by $500,000.
C) increase by $8 million.
D) increase by $500,000.
14) A...
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