Download Practice MCQs: If a shift in the AD curve has no impact on the price

Practice MCQs:
1. If a shift in the AD curve has no impact on the price level, then
a.
b.
c.
d.
e.
the unemployment rate must be extremely low
the AD curve must be vertical
the AS curve must be horizontal
the AS curve must be vertical
both a. and d
Answer: C
2. If an increase in the AD curve causes prices to increase slightly but output to
increase significantly, then
a.
b.
c.
d.
e.
the AS curve must be very flat
the AD curve must be very steep
both AD and AS curves must be very steep
we must be looking at the long run AD-AS model
we must be looking at the short run AD-AS model
Answer: A
3. As the economy enters into boom, we can generally expect that
a.
b.
c.
d.
e.
inflation will decrease with little change in the unemployment rate
unemployment will increase and inflation will decrease
nominal GDP will increase but only because of an increase in the price level
inflation will increase and the unemployment rate will decrease
output will increase with little change in unemployment and inflation
Answer: D
4. Depreciation is
a.
b.
c.
d.
e.
the difference between gross investment and net investment
the difference between GDP and NDP
the difference between GNP and NNP
another word for capital consumption allowances
none of the above
Answer: E
5. If the government increases taxes, which of the following is LEAST likely to
occur?
a.
b.
c.
d.
e.
a decrease in private savings
a decrease in consumption
an increase in investment
a decrease in net exports
a decrease in national income
Answer: D
6. Assume you want a real rate of return of 3% on a financial investment and you
expect annual average inflation rate to be 4.5%. What would be the listed nominal
interest rate on this financial security?
a.
b.
c.
d.
e.
3%
4.5%
6%
7.5%
it cannot be determined from this information
Answer: D
7. Which of the following policies does NOT affect the long term growth rate of a
nation?
a.
b.
c.
d.
e.
investment tax credits and R&D subsidies
an expansionary fiscal/expansionary policy mix
increased funding for primary education
incentives to increase saving
both b and c
Answer: B
8. The Keynesian AS curve differs from the AS curve of the classical economists,
since Keynes
a.
b.
c.
d.
e.
thought that nominal wages were flexible even when there was unemployment
thought that labor markets worked smoothly to always establish full employment
described the AS curve as completely vertical
thought that nominal wages were rigid even when there was unemployment
assumed that firms tried to exploit the work force by paying them substandard
wages
Answer: D
9. The upward sloping AS curve will shift to the left if
a. labor force productivity increases
b.
c.
d.
e.
actual output is lower than the full-employment level
the mark up over labor cost falls
actual output is higher than the full-employment level
the level of potential output increases
Answer: D [Inflationary Output Gap]
10. The execution lag is defined as the length of time it takes
a.
b.
c.
d.
e.
to recognize whether a disturbance has occurred
to come up with the appropriate policy response to a disturbance
to account for the recognition, decision, and the action lags all together
for a policy to affect the economy after its implementation
to convince bureaucrats inside the government that decision needs to be taken
Answer: D
11. In a model with no government or foreign sector, if saving is defined as S = -200
+ 0.1Y and Ig = 20, what is the equilibrium level of consumption?
a.
b.
c.
d.
e.
3800
3600
1800
2000
1000
Answer: A
12. Which of the following id TRUE as we move along the IS-curve?
a. a lower interest rate is compatible with a higher equilibrium real income level
b. a higher equilibrium level of real income is compatible with a higher interest rate
c. a lower equilibrium level of real income is compatible with a higher transactions
demand for money
d. a higher interest rate is compatible with a higher level of saving
e. higher interest rates are compatible with higher bond prices
Answer: A
13. Which of the following would cause a shift in the LM curve to the right?
a.
b.
c.
d.
e.
an increase in interest rates
an increase in autonomous saving
an increase in money supply
a decrease in money supply
a decrease in taxes
Answer: C
14. In an IS-LM model, which is likely to occur
a. an expansionary fiscal policy will not be crowded out if the Fed undertakes open
market sales at the same time
b. expansionary monetary policy will affect investment by affecting interest rates
c. increased government spending will not affect national income unless it is
financed by an increase in money supply
d. tax cuts will increase the slope of the IS curve and thus increase income
e. none of the above
Answer: B
15. A country’s balance of payments surplus is equal to
a.
b.
c.
d.
e.
the decrease in the country’s official exchange reserves
net capital outflow minus the current account deficit
the current account surplus plus private net capital flow
exports minus imports
imports minus exports
Answer: B
Don’t forget your calculators!
Please do prepare chapters 7, 9 and 10 from pre-mid course and chapter 36 from Lipsey
thoroughly. Also, prepare chapter 37 and 39 (policies under fixed and flexible exchange
rates). There will be 60 MCQs and you will have exactly 60 minutes to do them. The
subjective portion will be 90 minutes long.
All the best!!