5. Which is a fiscal policy action aimed at reducing unemployment?

(B) Decreasing income taxes

6. Increases in human capital can be achieved by which of the following?

(C) Improving the quality of job-training programs

1. Based on the PPCs, which statement is true?

(E) Factory Y has an absolute advantage in producing skateboards

1. According to the business cycle diagram, actual unemployment equals the natural rate when the economy is:

(E) On the potential line

2. A fiscal policy action to reduce inflationary pressure would be to increase which of the following?

(E) Income tax rates

3. Nominal GDP of China in 2010 measures the total value of:

(D) Final goods and services produced within the borders of China

4. If the government reduces spending and raises income taxes, the most likely short-run result is an increase in:

(B) Unemployment

5. Which statement about inflation and interest rates is true?

(B) If there is no actual or expected inflation, the nominal and real interest rates are equal

1. Economic growth is shown by a rightward shift in the:

(C) PPC Curve

2. During a period of stagnation, a nation is most likely experiencing:

(D) a decrease in short-run aggregate supply

3. If businesses become optimistic about investments in an economy, which of the following will happen in the loanable funds market in the short run?

(D) the real interest rate will increase

4. If investment demand becomes less responsive to changes in interest rates, which of the following is true?

(B) an expansionary fiscal policy will result in more crowding out

5. Which of the following measures the opportunity cost of holding currency?

(C) the forgone interest on alternative assets

6. A contractionary monetary policy combined with an expansionary fiscal policy will:

(D) an increase in the interest rate and a decrease in investment

7. Ms. Smith withdraws $1,000 from her safe and deposits it in a bank. If the bank holds no excess reserves and the reserve requirement is 10 percent, how will this deposit increase the bank’s required reserves and the bank’s loans?

Required Reserves: (B) $100

Loans: (D) $1,000

8. A country can have an increased surplus in its balance of trade as a result of:

(B) declining imports and rising exports

9. Country X has a budget deficit. Which of the following changes in government budget outlays and tax revenues will result in a decrease in Country X’s government budget deficit?

(D) government outlays rise by $400 million and tax revenues rise by $600 million

1. The table shows the quantity of motorcycles and automobiles produced by two countries that use the same amount of resources. Which of the following is true?

(E) Country Y has an absolute and comparative advantage in motorcycles

2. Which of the following is an example of how the consumer price index (CPI) exhibits bias in its estimates of changes in the cost of living?

(D) product improvements are not fully reflected in the CPI

3. Fred Jones withdraws $1,000 in cash from his savings account. What immediate effect does this transaction have on the monetary aggregate measures of M1 and M2?

M1: (A) Increases

M2: (C) No change

4. Which of the following is true about inflationary expectations?

(D) product improvements are not fully reflected in the CPI

5. Which of the following transactions is included in the financial account of Country X’s balance of payments accounts?

(E) residents of Country X buy foreign government bonds

6. Assume a country’s government increases taxes and its central bank increases its administered interest rates. The actions will result in an increase in which of the following in the short run?

(E) residents of Country X buy foreign government bonds

7. When there is excess demand in the loanable funds market, which of the following will occur?

(C) Real interest rates will increase.

1. If the marginal propensity to save is 0.25, a $15 billion increase in government spending will lead to an increase in national income by a maximum of:

(A) $60 billion

2. Assume the banking system has limited reserves and the economy is currently in long-run equilibrium. An increase in the money supply will affect unemployment in the short run and in the long run in which of the following ways?

D) short run - rises above natural rate

long run - falls back to natural rate

3. The term "value added" for a firm is best defined as which of the following?

(C) The firm’s sales minus its costs of inputs purchased from other firms

4. An increase in a country’s current account surplus will result in which of the following in the short run?

(E) an increase in the country's national debt

5. Using 2010 as the base year, the gross domestic product (GDP) deflator in 2011 was 97. Which of the following must be true?

(D) the purchasing power of the dollar decreased by 3 percent