1) Which one of the following newspaper quotations describes a rightward shift of the LAS curve?

A) "The increase in consumer spending is expected to lead to inflation, without any increase in real GDP." B) "The decrease in consumer spending may lead to a recession." C) "The recent tornadoes destroyed many factories in Calgary and Edmonton." D) "Growth has been unusually high the last few years due to more women entering the work force." E) "Recent higher wage settlements are expected to cause higher inflation this year." 2) The long-run aggregate supply curve is vertical because A) a vertical long-run supply curve indicates that an increase in aggregate demand will lead to a larger real GDP, but not a larger nominal GDP. B) potential GDP is independent of the price level. C) potential GDP never changes. D) actual output can never exceed, even temporarily, the output rate implied by the economy's long-run aggregate supply curve. E) a vertical long-run aggregate supply curve indicates the maximum output rate that an economy can ever reach. 3) Long-run aggregate supply will increase for all of the following reasons except A) the introduction of new technology. B) a fall in the money wage rate. C) an increase in the quantity of capital. D) an increase in human capital. E) an increase in the full-employment quantity of labour. 4) Which of the following situations illustrates how fiscal policy can influence aggregate demand? A) The exchange rate value of the Canadian dollar rises. As a result, people living near the US-Canada border increase their imports of goods and net exports decrease. B) The Bank of Canada raises interest rates so people plan to buy less consumer durables. As a result, the aggregate demand curve shifts leftward. C) Investors, anticipating an erosion of financial wealth due to inflation, decide to save more. As a result, aggregate demand decreases. D) The government reduces the goods and services tax. As a result, consumption expenditure increases and aggregate demand increases. E) Both A and C are examples of fiscal policy.

1) _______

2) _______

3) _______

4) _______

5) Which one of the following variables is not held constant along a given aggregate demand curve? A) expectations about inflation B) real income C) the price level D) fiscal policy E) tax rates 6) If the price level rises, then the wealth effect leads to A) a decrease in real wealth, an increase in current consumption expenditure, and an increase in saving. B) a decrease in real wealth, a decrease in current consumption expenditure, and an increase in saving. C) an increase in real wealth, an increase in current consumption expenditure, and a decrease in saving. D) an increase in real wealth, an increase in current consumption expenditure, and an increase in saving. E) a decrease in real wealth, an increase in current consumption expenditure, and a decrease in saving. 7) Which of the following does not change aggregate demand? A) A change in fiscal policy. B) An advance in technology. C) A rise in the exchange rate. D) An increase in expected future income. E) A change in monetary policy. 8) Full employment equilibrium occurs when A) aggregate demand equals short-run aggregate supply. B) all who are willing and able to work, are working. C) real GDP equals potential GDP and the wage level is set so that the GDP deflator equals 100. D) all who are willing and able to work, are working and the wage level is set so that the GDP deflator equals 100. E) real GDP equals potential GDP. 9) When an economy is operating on its long-run aggregate supply curve, A) unemployment will fall to an unusually low rate that is not likely to last into the future. B) inflation must be positive. C) the actual unemployment rate equals the natural unemployment rate. D) real GDP demanded exceeds real GDP supplied. E) the actual inflation rate is greater than the anticipated inflation rate.

5) _______

6) _______

7) _______

8) _______

9) _______

Use the figure below to answer the following questions.

Figure 26.3.2 10) Refer to Figure 26.3.2. As the economy of Mythlo automatically adjusts to long-run equilibrium, the A) AD curve shifts rightward. B) SAS curve shifts rightward. C) LAS curve shifts rightward. D) AD curve shifts leftward. E) SAS curve shifts leftward. 11) If a household's disposable income increases from $12,000 to $22,000 and at the same time its consumption expenditure increases from $4,000 to $9,000, then A) the household is dissaving. B) the marginal propensity to consume over this range is negative. C) the slope of the consumption function is 0.6. D) the marginal propensity to save over this range is negative. E) the slope of the consumption function is 0.5. 12) If the marginal propensity to consume is 0.85, what change in consumption expenditure would you expect if disposable income increases by $200 million? A) $180 million B) $1,800 million C) $18 million D) $20 million E) $170 million 13) The vertical distance between the consumption function and the 45 line measures A) the marginal propensity to save. B) disposable income. C) saving or dissaving. D) the marginal propensity to consume. E) consumption. 10) ______

11) ______

12) ______

13) ______

14) In a recent study, the University of Underfunded argued that it created four times as many jobs as people that it hired directly. This argument illustrates the idea A) of the multiplier. B) of the marginal propensity to consume. C) of government spending. D) of the tax multiplier. E) that universities are wasting taxpayers' dollars. 15) A decrease in the marginal propensity to import ________, everything else remaining the same. A) increases the marginal propensity to consume B) makes the multiplier smaller C) has no effect on the multiplier D) sometimes increases the multiplier and sometimes decreases the multiplier E) makes the multiplier larger 16) The aggregate expenditure curve and the aggregate demand curve are A) linked because if the price level rises, the aggregate expenditure curve shifts downward, and there is a movement down along the aggregate demand curve. B) not related at all. C) linked because if the price level rises, the aggregate expenditure curve shifts downward, and there is a movement up along the aggregate demand curve. D) linked because if the price level rises, the aggregate expenditure curve shifts downward, and the aggregate demand curve shifts leftward. E) the same curve, just with different names. 17) Suppose that investment decreases by $15 billion. If the multiplier is 2.5, the aggregate demand curve A) shifts leftward by a horizontal distance less than $37.5 billion. B) shifts leftward by a horizontal distance greater than $37.5 billion. C) shifts leftward by a horizontal distance of $37.5 billion. D) is not affected. E) shifts upward by a vertical distance of $37.5 billion. 18) An increase in investment shifts the AE curve upward by an amount equal to the ________, and shifts the AD curve rightward by an amount equal to the ________. A) change in investment; change in investment B) change in investment; change in investment times the multiplier C) change in investment times the multiplier; change in investment times the multiplier D) change in investment times the multiplier; change in investment E) change in investment divided by the multiplier; change in investment

14) ______

15) ______

16) ______

17) ______

18) ______

19) At full employment an increase in the quantity of money (ceteris paribus) can create a A) cost-push inflation, but an increase in government expenditure cannot. B) demand-pull inflation, but an increase in government expenditure cannot. C) demand-pull inflation, as can an increase in government expenditure. D) cost-push inflation, as can an increase in government expenditure. E) demand-pull and a cost-push inflation, as can an increase in government expenditure. 20) Suppose the economy is in long-run equilibrium when the price of oil rises. Which one of the following is not a short-run effect of this situation? A) a decrease in consumer spending B) an increase in real GDP above long-run real GDP C) an increase in unemployment D) an increase in the price level E) a decrease in real GDP 21) An increase in the price level due to an increase in the price of oil A) leads to a decrease in the money wage rate. B) creates stagflation in the short-run and will trigger a cost-push inflation. C) increases output above potential GDP. D) creates stagflation in the short-run and may trigger off a cost-push inflation. E) leads to an increase in the money wage rate.

19) ______

20) ______

21) ______

Use the figure below to answer the following question.

Figure 28.1.6 22) Refer to Figure 28.1.6. Starting at point A, the initial effect of a demand-pull inflation is a move to point ________. As a demand-pull inflation spiral proceeds, it follows the path ________. A) C; B, H, G, I B) E; I C) B; E, G, I D) C; E, H, I E) none of the above 23) If the natural unemployment rate falls A) the short-run and long-run Phillips curves both shift rightward. B) the short-run and long-run Phillips curves both shift leftward. C) the long-run Phillips curve shifts leftward and the short-run Phillips curve does not change. D) the short-run Phillips curve shifts rightward. E) the long-run Phillips curve shifts rightward and the short-run Phillips curve does not change. 24) Along the short-run Phillips curve, if the actual unemployment rate falls below the natural unemployment rate, the A) actual inflation rate may be greater than, equal to, or less than the expected inflation rate B) actual inflation rate will be equal to the expected inflation rate. C) actual inflation rate will be greater than the expected inflation rate. D) actual inflation rate will be less than the expected inflation rate. E) expected inflation rate will fall to zero. 22) ______

23) ______

24) ______

Use the figure below to answer the following questions.

Figure 28.2.2 25) Refer to Figure 28.2.2. The figure illustrates an economy's Phillips curves. If the expected inflation rate changes to 3 percent, the A) short run Phillips curve will shift downward and the long run Phillips curve will shift rightward. B) short run Phillips curve will shift downward and the long run Phillips curve will not change. C) short run Phillips curve will shift upward and the long run Phillips curve will not change. D) short run Phillips curve will shift upward and the long run Phillips curve will shift rightward. E) short run Phillips curve will shift upward and the long run Phillips curve will shift leftward. 25) ______

Use the figure below to answer the following questions.

Figure 26.3.2 26) Refer to Figure 26.3.2. Currently in Mythlo A) there is a below full-employment equilibrium. B) potential GDP is greater than equilibrium GDP. C) the actual unemployment rate is less than the natural unemployment rate. D) there is a recessionary gap. E) the actual unemployment rate is equal to the natural unemployment rate. 26) ______

1) 2) 3) 4) 5) 6) 7) 8) 9) 10) 11) 12) 13) 14) 15) 16) 17) 18) 19) 20) 21) 22) 23) 24) 25) 26)

D B B D C B B E C E E E C A E C C B C B D D B C C C