Question

1. Which of the following accounts for a movement along a given AD curve?

a. The substitution effect

b. The tax rate effect

c. The real-balance effect

d. The foreign aid effect

e. The government spending effect

2. If the nominal interest rate is 6.3 percent and the inflation rate is 7.2 percent, then the real interest rate equals:

a. - 13.5 percent

b. + 13.5 percent

c. - 0.9 percent

d. - 7.2 percent

e. + 1.1 percent

3. The wealth effect, the interest rate effect, and the international trade effect account for the:

a. positive slope of the short-run aggregate supply curve

b. the shape of the long run aggregate supply curve

c. positive slope of the aggregate demand curve

d. negative slope of the aggregate demand curve

e. negative slope of the short-run aggregate supply curve

Scenario 7.1

Of 1,350 people surveyed, 318 are not working.

The status of those not working is as follows:

122 full time students

29 discouraged workers

18 in long term care facilities

21 seeking employment and aged 16 or older

50 retirees

63 under age 16

15 working in the underground economy and not looking for a "real" job

Eight of those working were under 16 years of age.

4. Refer to scenario 7.1. According to the data provided, the number of workers officially unemployed is:

a. 122

b. 36

c. 40

d. 21

e. 55

5. Which of the following is true of nominal GDP?

a. It acts as an indicator of the general price level in the economy

b. It measures the real level of output in the economy

c. It measures national output based on the current year's prices

d. It tends to rise by a smaller amount than real GDP when the general price level increases

e. It measures changes in the output of intermediate goods and services

6. Because there is no way to account for them, the official unemployment rate does not include discouraged workers. What would happen to the unemployment rate if, because of a program that gave them new hope, all discouraged workers suddenly begin reporting themselves as ready to work?

a. The official unemployment rate would remain unchanged

b. The size of labor force would increase

c. The size of labor force would remain unchanged

d. The official unemployment rate would decrease

e. The size of the underground economy would shrink

7. Assume you borrow $1,000 on credit cards at an annual interest rate of 10 percent. If the inflation rate is 12 percent during the year and the debt has to be paid back in 12 months, then:

a. income will be redistributed from you to the bank

b. the real return for the bank will be greater than initially expected

c. you will repay the bank with fewer dollars than you borrowed

d. the dollars repaid will have less purchasing power than those borrowed

e. the bank will obtain the same return on the loan as initially expected

8. Some economists say that "full employment" exists in an economy where:

a. cyclical unemployment is 2 percent

b. cyclical unemployment is 4 to 6 percent

c. frictional unemployment is zero

d. the unemployment rate is 4 to 7 percent

e. the natural unemployment rate is zero

Answer 1

Answer 1

c. The real-balance effect

Other options mentioned are not valid for movement along a given AD curve

Answer 2

c. - 0.9 percent

Real rate of interest = Nominal rate - Inflation rate = 6.3 - 7.2 = -0.9

Answer 3

d. negative slope of the aggregate demand curve

Its a fact that the above wealth effect, the interest rate effect, and the international trade effect reflects negative slope of the AD curve

Answer 4

d. 21

Because unemployment is counted from the age 16 and above