Categorize each of the following scenarios as likely to cause immediate shifts in ad, as, or both.

Use the graph to answer the question that follows.

The graph for a competitive output market shows demand shifting from D to D′ and supply shifting from S to S′. Which pair of events is consistent with these two changes?

A. A decrease in the number of buyers and an increase in the price of a key input, like labor

B. An increase in the price of a substitute good (in consumption) and an increase in the price of a key input, like labor

C. An increase in average income (with a normal good) and technological progress producing the good

D. An increase in both the number of buyers and the number of sellers

E. An increase in the price of a complement good (in consumption) and a decrease in the number of sellers

Which of the following policy initiatives is most likely to increase economic growth?

A. Subsidized training in human capital

B. Central bank selling government bonds

C. Subsidizing consumption

D. Deficit spending to supplement pension payments

E. Lowering the official retirement age from 65 to 60 years

Use the graph to answer the question that follows.

Image transcription text

Price of US. dollars in terms of euros Number of LLS. dollars

Which of the following is a consequence of the shift in the demand curve as shown in the graph?

A. The value of dollars will appreciate against euros.

B. The value of dollars will depreciate against euros.

C. The value of euros and dollars both will depreciate in the foreign exchange market.

D. The value of euros will appreciate against dollars.

E. The exchange rate remains unchanged.

When the central bank sets or determines the money supply, which of the following is true?

A. The money supply is drawn as a vertical line, independent of the nominal rate of interest.

B. The money demand is no longer influenced by the nominal rate of interest.

C. The money demand curve becomes perfectly horizontal at the interest rate set by the central bank.

D. The money supply exceeds the money demand at equilibrium, if banks hold excess reserves.

E. The money supply only determines the interest rate and not the quantity of money.

Assume that it takes 2 hours of labor to produce a unit of good X and 6 hours of labor to produce a unit of good Y. What is the opportunity cost of producing 2 units of good Y?

A. 1/6 unit of good X

B. 2 units of good X

C. 4 units of good X

D. 6 units of good X

E. Zero opportunity cost, if all the labor is currently employed

Which of the following will lead to an increase in a country's aggregate demand?

A. A decrease in the price level

B. An increase in income taxes

C. A decrease in transfer payments

D. An increase in exports

E. A decrease in the depreciation of capital equipment

What happens when a country experiences a positive supply shock in the short run?

A. Output increases, unemployment decreases, and the price level decreases.

B. Output increases, unemployment increases, and the price level increases.

C. Output increases, unemployment increases, and the price level decreases.

D. Output increases, unemployment decreases, and the price level remains constant.

E. Output increases, unemployment remains constant, and the price level increases.

Liza is currently unemployed and stopped her job search six months back. Considering Liza's employment status, which of the following is true about the unemployment rate?

A. Since Liza is not a part of the labor force, the unemployment rate is not affected by her employment status.

B. The unemployment rate is over-estimated.

C. The unemployment rate is under-estimated.

D. The unemployment rate always displays the true position of unemployment in the country.

E. The unemployment rate is not adjusted downward for people who are not looking for job.

Which of the following fiscal policy actions is taken by the government to eliminate inflationary gap in the economy?

A. Decreasing government purchase of goods and services and increasing taxes

B. Decreasing taxes and increasing government purchases of goods and services

C. Increasing government spending and decreasing transfer payments

D. Increasing government spending and taxes

E. Increasing government transfer payments and decreasing taxes

Which of the following statements explains the relation between the real interest rate and the international financial capital flow?

A. The decrease in domestic real interest rate relative to the world interest rates increases the international financial capital inflow in the economy from the rest of the world.

B. The decrease in the financial capital inflow is primarily due to increases in borrowings from the rest of the world.

C. The increase in domestic real interest rate relative to the world interest rates decreases the international financial capital inflow in the economy from the rest of the world.

D. The increase in the domestic real interest rate relative to world interest rates increases the international financial capital inflow in the economy from the rest of the world.

E. There is no relationship between the real interest rate and the capital financial flow in the economy.

What will be the impact of costs associated with environmental pollution while computing the GDP of a country?

A. Decreases nominal GDP and real GDP, as well

B. Decreases real GDP but increases nominal GDP

C. GDP stays unaffected

D. Increases nominal GDP and real GDP, as well

E. Increases real GDP but decreases nominal GDP

The United States and the countries of Europe are trading partners. If the average income of dollar holders increases, what should be the result in the market for the euro, the currency of many European countries?

A. There will be an increase in the supply of euros as Europeans try to sell more goods to the United States.

B. There will be an appreciation of the dollar as U.S. citizens try to spend more dollars.

C. There will be an increase in the demand for euros as U.S. citizens want euros to purchase European goods.

D. There will be a reduced supply of euros as Europeans retain their currency to buy European goods.

E. There will now be a trade deficit, with Europeans buying more U.S. goods than the United States buying European goods.

Assuming money supply to be constant, under which of the following scenarios will the nominal interest in an economy increase?

A. Decrease in national income

B. Increase in average income of consumers

C. Decrease in the aggregate demand in the economy

D. Reduction in circulating cash and increase in demand deposits

E. Decrease in uncertainty of future economic conditions

If the multiplier that affects the GDP of a country in response to a change in its taxes is −3, then what is the country's marginal propensity to save?

A. 0.25

B. 0.40

C. 0.67

D. 0.75

E. 0.80

The table below shows the production of goods in two countries, A and B, for jewelry and cloth.

Image transcription text

Country Jewelry (in units)| Cloth (in units) A 84 21 B 12 120

What type of production advantage A and B have in producing cloth?

A. A has a comparative advantage in producing cloth, but B has no advantage in producing cloth.

B. A has an absolute advantage in producing cloth, but B has no advantage in producing cloth.

C. A has no advantage in producing cloth, but B has an absolute advantage in producing cloth.

D. Both A and B have a comparative advantage in producing cloth.

E. Both A and B have an absolute advantage in producing cloth.

Jane was fired from her job as a waitress at a restaurant due to a recession. How will Jane be categorized when computing the unemployment rate?

A. Jane is a discouraged worker and will be a part of the labor force.

B. Jane is not considered a part of the labor force.

C. Jane is treated as unemployed and will be counted under cyclical unemployment.

D. Jane is treated as unemployed and will be counted under frictional unemployment.

E. Jane is treated as unemployed and will be counted under structural unemployment.

The nominal GDP and real GDP of a country in 2017 were $2 trillion and $2.5 trillion respectively. In the base year, the nominal GDP was $1 trillion. What is the change in the GDP deflator from the base year to 2017?

A. The GDP deflator decreases by 20.

B. The GDP deflator decreases by 25.

C. The GDP deflator increases by 20.

D. The GDP deflator increases by 25.

E. The GDP deflator remains unaffected.

Which of the following is true about the supply of loanable funds and interest rates when the government borrows money to finance its budget deficit?

A. The supply of loanable funds and the interest rate both increase.

B. The supply of loanable funds decreases, and the interest rate increases.

C. The supply of loanable funds decreases, but the interest rate remains unchanged.

D. The supply of loanable funds increases, and the interest rate decreases.

E. The supply of loanable funds remains unchanged, and the interest rate increases.

Suppose Country 'X' is producing an output of 300 units of a certain good at $3 per unit in 2017. With time, the price level rises from $3 per unit to $5 per unit in 2018 while the amount of output produced remains same. Which of the following is true for the given situation?

A. The nominal GDP has decreased from 2017 to 2018.

B. The real GDP has decreased from 2017 to 2018.

C. The nominal GDP remains same for both years.

D. The real GDP has increased from 2017 to 2018.

E. The real GDP remains same for both years.

Which of the following statements about deficits and debt is true?

A. If the government run a fiscal surplus, it will increase its external debt.

B. Interest payments on the national debt can limit other spending options that the government might have.

C. Government represents the sum of all borrowing by banks from the central bank, minus any repayments.

D. When economy-wide interest rates increase, the value of outstanding debt increases.

E. In most developed countries, foreigners are prohibited from owning the country's bonds or debt.