1. When most consumers and firms reduce spending only because they expect other

1. When most consumers and firms reduce spending only because
they expect other consumers and firms to reduce spending, and a
recession results, A. a real-business-downturn has occurred. B. a
self-correction has occurred. C. a coordination failure has
occurred. D. an adverse aggregate supply shock has occurred. 2. A
government may be able to reduce the international value of its
currency by A. selling foreign currencies in the foreign exchange
market. B. selling its currency in the foreign exchange market. C.
buying its currency in the foreign exchange market. D. increasing
its domestic interest rates. 3. In terms of aggregate supply, a
period in which nominal wages and other resource prices are fully
responsive to price-level changes is called the A. short run. B.
long run. C. immediate market period. D. very long run. 4.
Monetarists believe the private economy is inherently A. stable and
that the government sector should be small. B. unstable and the
public sector should be small. C. unstable and the public sector
should be large. D. stable, but that the public sector should be
large. 5. The “brain drain” problem in the developing countries
refers to the fact the best-educated workers A. often emigrate to
industrialized countries. B. are reluctant to become entrepreneurs.
C. are reluctant to work in the public sector. D. are concentrated
in rural areas where their skills are underutilized. 6. Which one
of the following statements about capital flight is correct? A.
Capital flight refers to the high international mobility of
speculative funds caused by variations in exchange rates. B.
Capital flight refers to the tendency of large corporations of
industrially advanced countries to build new plants in the
developing countries because labor is cheaper. C. Capital flight
refers to developing countries’ citizens accumulating or investing
their savings in the industrially advanced countries. D. Capital
flight refers to the tendency of developing countries to overinvest
in commercial aircraft. 7. If a nation’s goods exports are $55
billion, while its goods imports are $50 billion, we can conclude
with certainty that this nation has a A. balance of payments
surplus. B. positive balance on current account. C. balance of
trade (goods) surplus. D. positive balance on goods and services.
8. A major difficulty with the argument that trade barriers are
necessary because foreign workers are paid low wages is that A.
wage rates and labor productivity are directly related. B. there’s
no discernible relationship between wage rates and labor
productivity. C. wage rates and labor productivity are inversely
related. D. labor costs and product prices are not related. 9. The
equation of exchange suggests that, if the supply and velocity of
money remain unchanged, an increase in the physical volume of goods
and services produced will cause A. a decline in the price level.
B. the unemployment rate to rise. C. an automatic budget deficit.
D. the Federal Reserve Banks to sell securities in the open market.
10. The Laffer Curve is a central concept in A. welfare economics.
B. monetarism. C. supply-side economics. D. Keynesianism. 11. If
government uses its stabilization policies to maintain full
employment under conditions of cost-push inflation, A. stagflation
is likely to occur. B. an inflationary spiral is likely to occur.
C. the Phillips Curve is likely to shift inward. D. a deflationary
spiral is likely to occur. 12. Rational expectations theory is
based on the assumption that A. both product and resource markets
are very competitive. B. both product and resource markets are
monopolistic. C. wages and prices are flexible upward, but
inflexible downward. D. product markets are competitive, but
resource markets are monopolistic. 13. In terms of aggregate
supply, a period in which nominal wages and other resource prices
are unresponsive to price-level changes is called the A. long run.
B. short run. C. very long run. D. immediate market period. 14.
Which one of the following statements about the velocity of money
is correct? A. The velocity of money is the number of times per
year the average dollar is spent on final goods and services. B.
The velocity of money is the price level divided by aggregate
supply. C. The velocity of money is the relationship between the
money supply and the price level. D. The velocity of money is the
relationship between asset and transactions demands for money. 15.
Which one of the following statements about disinflation is
correct? A. Disinflation occurs when investment plans exceed
saving. B. Disinflation occurs when the price level is falling. C.
Disinflation occurs when the inflation rate is declining. D.
Disinflation occurs when a speculative investment “bubble” is
bursting. 16. In the U.S. balance of payments, U.S. purchases of
assets abroad are a(n) A. U.S. dollar outflow. B. current account
item. C. U.S. dollar inflow. D. inpayment. 17. The international
agency that lends money to developing countries for economic
development projects is the A. World Trade Organization (WTO). B.
World Credit Union. C. World Bank. D. International Monetary Fund
(IMF). 18. Which one of the following is typically not a problem
for low-income developing countries? A. Capital flight B. High
saving rates C. “Brain drains” D. Poor infrastructure End of exam
19. The very poorest low-income developing countries typically have
relatively A. low rates of both population growth and economic
growth. B. high rates of economic growth and relatively low rates
of population growth. C. high rates of both population growth and
economic growth. D. low rates of economic growth and relatively
high rates of population growth. 20. Inflation accompanied by
falling real output and employment is known as A. Okun’s law. B.
Laffer’s law. C. the Phillips Curve. D. stagflation

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