Which of the following is correct?

Nominal GDP equals

real GDP in the base year.
The deviation of unemployment from its natural rate is
called: cyclical unemployment.
Structural unemployment would NOT be caused by: a
minimum wage set below the equilibrium wage.
Which of the following will NOT increase the
productivity of labor? an increase in the size of the
labor force

years from now. The interest rate is 15 percent. Rank

these three options from highest present value to
lowest present value. Option 2; Option 3; Option 1
Response In order to solve this problem, you need
Feedback to calculate the present value for each
:
option using the following equation:
PV(Y)=$Y/(1+r)^N.
Option 1: $900 immediately, so PV =
$900.

The book cites which factor for slow growth in Latin

America countries? excessive government intervention
in the economy

Option 2: $1200 in 1
year: PV($1200)=$1200/(1+.15) which
equals $1043.48.

Which of the following will NOT increase the

productivity of labor? an increase in the size of the
labor force
Crowding out is a phenomenon: where an increase in
the government's budget deficit causes overall
investment spending to fall.
The present value of a future payment decreases if the:
period between the present and the future increases.
A creditor of a corporation holds- bonds sold by the
corporation. If the corporation experiences financial
difficulties bond holders are paid before stock holders.

Option 3: $2000 in 5
years: PV($2000)=$2000/(1+.15)^5
which equals $994.35.

You have a choice among three options. Option 1:

receive $900 immediately. Option 2: receive $1,200
one year from now. Option 3: receive $2,000 five

In which of the following cases would it necessarily be

true that government saving and national saving are
equal for a closed economy? After paying their taxes
and paying for their consumption, households have
nothing left.
If the economy experiences a decrease in consumer
spending it was most likely caused by: an expected
increase in personal income taxes in the future.
If real GDP (output produced) is less than aggregate
expenditure, then inventories will: fall, and firms will
increase their future production.

The aggregate supply curve shows the relationship

between the: aggregate price level and the quantity of
aggregate output supplied.

1200 = Multiplier * 600, so the multiplier equals 2

What is the long-run effect of producing beyond

potential GDP in the short run? Nominal wages will rise.
In the United States during the 1970s, oil prices
increased dramatically and caused: SRAS to shift left.

The MPC is the fraction of additional income a

household consumes rather than saves. When a
persons income increases by $1,000 and they decide
to spend $750, or 75% of the increase, the MPC is
equal to 0.75. To find the multiplier, you plug the MPC
into the equation: the multiplier = 1/(1-MPC) = 1/(10.75) = 4.
Which of the following is an expansionary fiscal policy?
an increase in unemployment benefits
Expansionary fiscal policy increases aggregate demand
Automatic stabilizers: are changes in taxes or
government spending that increase aggregate demand
without requiring policy makers to act when the
economy goes into recession.
A central bank trying to depress the value of its
currency on the foreign exchange market will follow a
policy of: buying foreign assets.
U.S. exports as a percentage of GDP have more than
doubled since 1950. The U.S. currently has a trade
deficit.

A recessionary gap will be eliminated because there is

_______ pressure on wages, causing the _______ .
downward; short-run aggregate supply curve to shift
rightward
Due to the multiplier effect, the total effect of an
increase in any component of GDP is given by Total
effect = Multiplier * Initial Increase
Even if products are exported, the money paid for
those goods go to domestic producers and that income
is multiplied.
If exports increase by $600 million and U.S. GDP
eventually increases by between 1.2 billion and $1.8
billion, then the equations are:

1800 = Multiplier * 600, so the multiplier equals 3.

The equation for the real exchange rate is

E = (nominal exchange rate * Domestic Price Level)/

(Foreign Price Level).
Recall the percentage change approximation rule:
if W = X*Y/W, then %W %X +Y %W.
Using the rule, we can find that:
Therefore, the multiplier must be between 2 and 3.
A floating exchange rate is: set by the market forces of
supply and demand.
A decrease in U.S. interest rates leads to a depreciation
of the dollar that leads to greater net exports.
When the value of 1 goes up from $1.25 to $1.50, the
value of $1 goes down from 1/1.25 = 0.8 to 1/1.50 =
0.67.

Political instability, like that in Mexico in 1994, makes

the world financial market uneasy. The resulting
capital flight caused which of the following? The peso
depreciated.

Which of the following would NOT be a method by

which a country
could effectively maintain a fixed exchange rate?
passing a law requiring that the exchange rate remain
fixed
If U.S. interest rates decrease, then U.S. residents will
want to purchase more foreign assets and foreign
residents will want to purchase fewer U.S. assets
When a nation's currency appreciates, it is likely that:
this will lead to a deficit in the current account.
Which of the following is most likely to result if
foreigners stop buying U.S. government bonds because
they believe the U.S. government will soon default on
its debt? US exports will rise

% in real exchange rate % in nominal exchange

rate + % in domestic price level % in foreign price
level = ( 5%) + (7%) 0% = 2%. So the real exchange
rate increased, meaning that U.S. goods became more
expensive relative to goods made in Mexico.
If the U.S. government goes from a budget deficit to a
budget surplus next year, then the U.S. interest rate
would decrease and the dollar will depreciate.

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