ECON102 INTRODUCTORY OF MACROECONOMICSONE1) Long-term economic growth is a term used to describe the a) More rapid growth in population than of real output b) Increasing trend in real GDP c) Falling unemployment rates over time d) Rising price level over time 2) which of the following is not held constant along a given aggregate supply curve? a) The price level b) The payment to resources in nominal terms c) the level of technology d) The efficiency of production 3) Suppose the real wage remained unchanged between years 1 and 2, but the nominal wage increased from $20 to $22.

 

ECON102 INTRODUCTORY OF MACROECONOMICS

ONE

1) Long-term economic growth is a term used to describe the 

a) More rapid growth in population than of real output 

b) Increasing trend in real GDP 

c) Falling unemployment rates over time 

d) Rising price level over time 

2) which of the following is not held constant along a given aggregate supply curve? 

a) The price level 

b) The payment to resources in nominal terms 

c) the level of technology 

d) The efficiency of production 

3) Suppose the real wage remained unchanged between years 1 and 2, but the nominal wage increased from $20 to $22. What is true about the price level? 

a) It fell by 10 per cent 

b) It fell by 22 per cent 

c) It rose by 22 per cent 

d) It rose by 10 per cent 

 

4) Cost-push inflation can be caused by: 

a) An increase in aggregate demand which pushes prices higher 

b) An increase in aggregate supply which pushes prices higher 

c) A high growth rate in real wages 

d) Growth in aggregate demand not keeping up with the growth in aggregate supply 

5) If the Reserve Bank of Australia sells bonds and securities in the open market, this is likely to lead to: 

a) A fall in interest rates and an appreciation of the Australian dollar 

b) A rise in interest rates and a depreciation of the Australian dollar 

c) A fall in interest rates and a depreciation of the Australian dollar 

d) A rise in interest rates and an appreciation of the Australian dollarECON102, Semester 2 2011 3 

6) Workers laid off as a result of a recession would be classified as: 

a) Structural unemployment 

b) Frictional unemployment 

c) Seasonal unemployment 

d) Cyclical unemployment 

 

7) Assume an MPC of 0.4, and that the government increases spending by $10 billion and at the same time increases net taxes by $10 billion. The effect on output will be: 

a) $4 billion 

b) $10 billion 

c) $16 billion 

d) $40 billion 

8) If aggregate demand intersects short-run aggregate supply below the economy’s potential output level, which of the following sets of policies would unquestionably move the economy back towards full employment? 

a) Increase government purchases, increase taxes, and decrease transfer payments 

b) Decrease government purchases, increase taxes, and decrease transfer payments 

c) increase government purchases, decrease taxes, and increase transfer payments 

d) decrease government purchases, decrease taxes, and increase transfer payments 

9) If the Australian dollar increases in value relative to other currencies, how does this affect the aggregate demand curve, ceteris paribus? 

a) The economy will move down along a stationary aggregate demand curve 

b) The economy will move up along a stationary aggregate demand curve 

c) The aggregate demand curve will shift to the right 

d) The aggregate demand curve will shift to the left 

10) Automatic stabilisers smooth fluctuations in: 

a) Disposable income 

b) Inflationary expectations 

c) Interest rates 

d) The government budget balanceECON102, Semester 2 2011 4 

11) If the economy were in recession, we would expect: 

a) Government expenditure to be high and tax revenues to be low, probably leading to a budget deficit 

b) Government expenditure to be high and tax revenues to be low, probably leading to a budget surplus 

c) Government expenditure to be high and tax revenues to be high, probably leading to a budget deficit 

d) Government expenditure to be low and tax revenues to be low, probably leading to a budget surplus 

12) Borrowing to pay for long-term capital expenditures makes sense as the benefits are received: 

a) Over many years so the burden of paying for them should be spread over many years 

b) In the current year so the burden of paying for them should be spread over many years 

c) In the current year so the burden of paying for them should be paid in the current year 

d) Over many years so the burden of paying for them should be paid in the current year 

13) Which of the following is NOT included in the current account? 

a) The transfer of migrants’ funds 

b) Income received on investments 

c) An increase in holdings of overseas assets by Australians 

d) Exports of goods 

14) If the exchange rate changes from 46 Australian cents per euro to 56 Australian cents per euro, the Australian dollar has: 

a) Appreciated, since its value has increased 

b) Appreciated, since its value has decreased 

c) Depreciated, since its value has increased 

d) Depreciated, since its value has decreased 

15) Other things being equal, the law of diminishing marginal returns states that as the quantity of capital per worker increases, other things being constant, output per worker eventually: 

a) Increases at a constant rate 

b) Increases at a decreasing rate 

c) Increases at an increasing rate 

d) Decreases 

16) A problem with an active policy approach is that: 

a) Wages are sticky 

b) Prices are sticky 

c) Potential output is unknown 

d) There is a cost to unemployment 

17) If a contractionary monetary policy is used, then which of the following would be most likely to enhance the effect of the contractionary policy on aggregate demand? 

a) Interest rates would increase, leading to an exchange rate appreciation and a fall in net exports 

b) Interest rates would decrease, leading to an exchange rate depreciation and a rise in net exports 

c) Interest rates would decrease, leading to an exchange rate appreciation and a fall in net exports 

d) Interest rates would increase, leading to an exchange rate depreciation and a rise in net exports 

18) If borrowers and lenders anticipate that the rate of inflation will be 5 per cent, but instead it turns out to be 3 per cent, which of the following is likely to occur? 

a) Borrowers wish that they had borrowed more money 

b) Insufficient loans will have been made by lenders to maintain profit levels 

c) The real interest rate is higher than expected 

d) Lenders wish that they had made fewer loans 

19) The Phillips curve illustrates that there is a: 

a) long-run negative relationship between the unemployment rate and the inflation rate 

b) short-run negative relationship between the unemployment rate and the inflation rate 

c) long-run positive relationship between the unemployment rate and the inflation rate 

d) short-run positive relationship between the unemployment rate and the inflation rate 

20) According to the purchasing power parity theory, in the long run: 

a) Exchange rates between any two currencies should be equal all over the world 

b) Inflation rates should equalise around the world 

c) Interest rates should equalise around the world 

d) The exchange rate between two currencies should reflect differences in price levels between those two countriesECON102, Semester 2 2011 6 

21) An increase in interest rates affects aggregate demand because it: 

a) Leads to a decrease in consumption, investment and government expenditure, which decreases aggregate expenditure and hence aggregate demand 

b) Leads to an increase in consumption, investment and net exports, which increases aggregate expenditure and hence aggregate demand 

c) Leads to a decrease in consumption, investment and net exports, which decreases aggregate expenditure and hence aggregate demand 

d) Leads to an increase in consumption, investment and government expenditure, which increases aggregate expenditure and hence aggregate demand 

22) When the short-run aggregate supply curve is steep, then for a given increase in aggregate demand: 

a) The increases in real GDP and the price level will be large 

b) The increase in real GDP will be relatively large and the increase in the price level will relatively small 

c) The increase in real GDP will be relatively small and the increase in the price level will relatively large 

d) The increases in real GDP and the price level will be small 

23) Demand-pull inflation is characterised by 

a) Movement of aggregate supply (AS) up and to the left 

b) Movement of aggregate demand (AD) down and to the left 

c) Movement of AS down and to the right 

d) Movement of AD up and to the right 

24) Efficiency wages are paid for all of the following reasons except to: 

a) Reduce worker turnover 

b) Entice higher-quality workers 

c) Increase productivity 

d) Abide by the minimum wage legislation 

25) In the long-run, how would the solution of someone who favoured an active policy approach to an expansionary gap differ from that of someone who favoured a passive approach to policy? 

a) Both the price level and the level of real GDP would be higher in the long run with the activist solution 

b) Both the price level and the level of real GDP would be lower in the long run with the activist solution 

c) The price level would be higher in the long with the activist solution 

d) The price level would be lower in the long with the activist solution

 

TWO

1) Which of the following is not considered to be a component of investment when calculating GDP? 

a) New residential construction 

b) Construction of new factories 

c) Net increases in inventory 

d) Purchases of corporate shares 

2) GDP is not a perfect measure of material well-being because it ignores: 

a) Goods produced in Australia but shipped overseas 

b) Production of goods and services by the government 

c) Consumer spending on services 

d) Negative externalities 

3) If the government decreases transfer payments: 

a) We move upwards along an existing consumption function 

b) We move downwards along an existing consumption function 

c) The consumption function shifts upwards 

d) The consumption function shifts downward 

 

4) If price levels in Australia fell relative to price levels in other countries, what would happen in Australia? 

a) Consumption and net exports would decline 

b) Consumption and net exports would increase 

c) Consumption would increase and net exports would decline 

d) Consumption would decrease and net exports would increase 

5) Which of the following will shift the aggregate demand schedule to the right? 

a) A decrease in the money supply 

b) A decrease in government spending 

c) A decrease in exports 

d) None of the aboveECON102, Semester 2, 2010 3 

6) In the figure below, if the economy is currently operating at point A, then: 

a) The AE line will shift down to point E 

b) Planned output is greater than planned spending 

c) There will be unintended inventory decreases 

d) The AE line will get steeper as people increase their consumption 

 

 

7) which of the following is not held constant along a given aggregate supply curve? 

a) The supply of resources 

b) The price level 

c) The payment to resources in nominal terms 

d) The level of technology 

8) Which of the following is one of the problems with stagflation? 

a) Demand-management policies can shift the aggregate supply curve further to the left 

b) Demand-management policies can reduce inflation but cause a further decline in real GDP 

c) Demand-management policies can increase real GDP but cause inflation to decline 

d) Demand-management policies can help neither inflation nor real GDPECON102, Semester 2, 2010 4 

9) The economy is at potential output, and aggregate demand falls. Which type of unemployment is most likely to increase? 

a) Frictional unemployment 

b) Cyclical unemployment 

c) Structural unemployment 

d) Casual unemployment 

10) If your nominal wage increases by 3 per cent and the price level remains constant, then: 

a) Your real wage rises by 3 per cent 

b) The purchasing power of your wage decreases by 3 per cent 

c) Your real wage remains the same 

d) Your real wage falls by 3 per cent 

11) Assume an MPC of 0.8, and that the government increases spending by $10 billion and at the same time increases net taxes by $10 billion. The effect on the output will be: 

a) $8 billion 

b) $10 billion 

c) $18 billion 

d) $40 billion 

12) If aggregate output is falling: 

a) Automatic stabilisers will tend to increase the size of the budget surplus 

b) Automatic stabilisers will tend to increase the size of the budget deficit 

c) Automatic stabilisers will tend to decrease the size of the budget deficit 

d) Transfer payments will decrease as fewer people become eligible for public assistance 

13) If aggregate demand intersects short-run aggregate supply below the economy’s potential output level, which of the following sets of policies would unquestionably move the economy back towards full employment? 

a) Increase government purchases, increase taxes, and decrease transfer payments 

b) Decrease government purchases, increase taxes, and decrease transfer payments 

c) Increase government purchases, decrease taxes, and increase transfer payments 

d) Increase government purchases, increase taxes, and increase transfer paymentsECON102, Semester 2, 2010 5 

14) If the Reserve Bank expected a net inflow of exchange settlement funds into the market, then it would: 

a) Buy enough securities to keep the cash rate constant 

b) Sell enough securities to keep the cash rate constant 

c) Buy enough securities to force the cash rate upward 

d) Do nothing if it wanted the cash rate to remain constant 

15) An increase in net taxes: 

a) Raises aggregate expenditure by raising disposable income, thereby increasing consumption 

b) Raises aggregate expenditure by raising disposable income, thereby decreasing consumption 

c) Lowers aggregate expenditure by lowering disposable income, thereby decreasing consumption 

d) Lowers aggregate expenditure by lowering disposable income, thereby increasing consumption 

16) When net income and net transfers are added to the net exports of goods and services, the result is called the: 

a) Merchandise trade balance 

b) Balance of payments 

c) Balance on capital account 

d) Balance on current account 

17) The quantity theory of money states that: 

a) Since velocity is reasonably stable, we can predict the effects of an increase in the money supply on nominal income 

b) Since velocity is not stable, changes in the money supply have unpredictable impacts on income 

c) Since velocity is reasonably stable, we can predict the effects of an increase in the money supply on employment 

d) since velocity is reasonably stable, we can predict the effects of an increase in the money supply on interest ratesECON102, Semester 2, 2010 6 

18) According to those who favour an active approach to policy, how can an economy that is babove its potential output level attain equilibrium at potential output? 

a) The SRAS curve will shift to the left 

b) The SRAS curve will shift to the right 

c) Government spending should be increased 

d) Government spending should be decreased 

19) The crowding out of private investment is associated with: 

a) A reduction in profitable investment opportunities due to a recession 

b) Increased competition from foreign investors in Australian markets 

c) Higher interest rates resulting from a declining rate of saving 

d) Higher interest rates resulting from increased borrowing by the federal government 

20) If real interest rates in the USA fell relative to those in Australia, what would the immediate impact be on the exchange rate for Australian dollars? 

a) There would be an increase in the demand for Australian dollars and a decrease in the supply of Australian dollars, leading to an appreciation of the currency 

b) There would be an increase in the demand for Australian dollars and a decrease in the supply of Australian dollars, leading to a depreciation of the currency 

c) There would be an decrease in the demand for Australian dollars and an increase in the supply of Australian dollars, leading to a depreciation of the currency 

d) There would be an decrease in the demand for Australian dollars and an increase in the supply of Australian dollars, leading to an appreciation of the currency 

21) Sustained economic growth brings the benefit that: 

a) It helps improve the social conditions available to the population 

b) It helps improve the material well-being of the population 

c) It allows for the consumption of more goods and services without making anyone worse off 

d) all of the above 

22) In order to convert nominal GDP to real GDP, we must divide: 

a) Real GDP by the price index 

b) Nominal GDP by the price index 

c) The price index by nominal GDP 

d) Nominal GDP by real GDPECON102, Semester 2, 2010 7 

23) Cost-push inflation is characterised by 

a) Movement of aggregate supply (AS) up and to the left 

b) Movement of aggregate demand (AD) down and to the left 

c) Movement of AS down and to the right 

d) Movement of AD up and to the right 

24) If the time required for an economy to self-correct is shorter than the active policy lags: 

a) Active policy should be strengthened 

b) Active policy will likely be destabilising 

c) The passive policy case is weakened 

d) Active policy will work better than passive policy 

25) The long-run Phillips curve suggests policymakers choose between alternative: 

a) Interest rates 

b) Unemployment rates 

c) Inflation rates 

d) Growth rates

 

THREE

1) Which of the following statements is true about investment? 

a) Planned investment must always equal actual investment because of changes in inventories. 

b) Planned investment is undertaken in command economies; actual investment occurs in market economies. 

c) Actual investment includes unplanned changes in inventories. 

d) Unplanned changes in inventories always result in saving equalling investment. 

2) GDP is not a perfect measure of material well-being because it ignores: 

a) Goods produced in Australia but shipped overseas 

b) Production of goods and services by the government 

c) Consumer spending on services 

d) Negative externalities 

3) Which of the following would shift the consumption function upward? 

a) An increase in disposable income 

b) An increase in the interest rate 

c) Expectations of lower future prices 

d) An increase in net wealth 

 

4) The aggregate supply curve indicates: 

a) The quantity of aggregate output that producers are willing and able to supply at each possible price level 

b) The total quantity of a particular good that all producers are willing to supply at each possible price level 

c) The total quantity of a particular good that all producers are willing to supply at the equilibrium price level 

d) The quantity of aggregate output that producers are willing and able to supply at the equilibrium price level 

5) Which of the following will shift the aggregate demand schedule to the left? 

a) An increase in the money supply 

b) An increase in government spending 

c) An increase in exports 

d) None of the above

7) If the economy is experiencing an expansionary gap, which of the following will occur in the long run? 

a) Workers will negotiate nominal wage increases that will shift the SRAS curve to the right. 

b) Workers will negotiate nominal wage increases that will shift the SRAS curve to the left 

c) Employers will negotiate lower nominal wages (relative to prices) that will shift the SRAS curve to the right. 

d) Employers will negotiate lower nominal wages (relative to prices) that will shift the SRAS curve to the left. 

8) In combating stagflation, a government-induced: 

a) Increase in aggregate demand would help reduce inflation but lower economic growth 

b) Decrease in aggregate demand would help reduce economic growth but aggravate inflation 

c) Increase in aggregate demand would help increase economic growth but aggravate inflation 

d) Decrease in aggregate demand would help increase economic growth but reduce inflation 

9) The economy is at potential output, and aggregate demand falls. Which type of unemployment is most likely to increase? 

a) Cyclical unemployment 

b) Frictional unemployment 

c) Structural unemployment 

d) Casual unemployment

10) If the price level falls by 3 per cent and the nominal wage rises by 4 per cent, the real wage: 

a) Falls by 1 per cent 

b) Falls by 7 per cent 

c) Rises by 1 per cent 

d) Rises by 7 per cent 

11) Assume an MPC of 0.8, and that the government increases spending by $10 billion and at the same time increases net taxes by $10 billion. The effect on the output will be: 

a) $8 billion 

b) $10 billion 

c) $18 billion 

d) $40 billion 

12) Reasons for why nominal wages do not fall when unemployment is high do not include: 

a) Efficiency wage arguments 

b) Sticky wages for final goods 

c) Minimum wage laws 

d) Union power 

13) If aggregate demand intersects short-run aggregate supply above the economy’s potential output level, which of the following sets of policies would unquestionably move the economy back towards full employment? 

a) Increase government purchases, increase taxes, and decrease transfer payments 

b) Decrease government purchases, increase taxes, and decrease transfer payments 

c) increase government purchases, decrease taxes, and increase transfer payments 

d) decrease government purchases, decrease taxes, and increase transfer payments 

14) When a federal budget deficit causes crowding out: 

a) Real GDP does not increase by as much as the government purchases of goods and services multiplier would predict, because investment and consumption decline 

b) Interest rates fall, reducing the burden of the debt 

c) Interest rates fall, bringing the current deficit back down 

d) interest rates fall, so that decreases in investment and government purchases of goods and services exactly offset the expansionary effect of the deficitECON102 Special, Summer 2011 5 

15) If the Reserve Bank expected a net outflow of exchange settlement funds from the market, then it would: 

a) Buy enough securities to keep the cash rate constant 

b) Sell enough securities to keep the cash rate constant 

c) Buy enough securities to force the cash rate upward 

d) Do nothing if it wanted the cash rate to remain constant 

16) A disadvantage of having an annually balanced budget is that government spending would have to: 

a) increase in recessions and decrease during expansions 

b) Decrease during a recession to offset the increase in tax revenues 

c) Rise during a recession to match the increase in tax revenues 

d) Decrease in a recession to match the decrease in tax revenues 

17) As a result of an expansionary monetary policy: 

a) Both aggregate expenditure and aggregate demand decrease 

b) Aggregate expenditure increases and aggregate demand decreases 

c) Both aggregate expenditure and aggregate demand increase 

d) Aggregate expenditure decreases and aggregate demand increases 

18) According to those who favour a passive approach to policy, how can an economy that is below its potential output level attain equilibrium at potential output? 

a) The SRAS curve will shift to the left 

b) The SRAS curve will shift to the right 

c) Government spending should be increased 

d) Government spending should be decreased 

19) If the Australian dollar depreciates in the foreign exchange market: 

a) Australian goods will become more expensive for foreign buyers and foreign goods will be cheaper for Australians. 

b) Australian goods will become more expensive for foreign buyers and foreign goods will be more expensive for Australians. 

c) Australian goods will become less expensive for foreign buyers and foreign goods will be more expensive for Australians. 

d) Australian goods will become cheaper for foreign buyers and foreign goods will be cheaper for Australians.ECON102 Special, Summer 2011 6 

20) According to the purchasing power parity theory, in the long run: 

a) Exchange rates between any two currencies should be equal all over the world 

b) Inflation rates should equalise around the world 

c) Interest rates should equalise around the world 

d) The exchange rate between two currencies should reflect differences in price levels between those two countries 

21) If economic growth is faster than population growth, then GDP per capita will ____ and GDP overall will ____. 

a) Rise, rise 

b) Rise, fall 

c) Fall, rise 

d) Fall, fall 

22) To calculate the GDP price index we divide: 

a) Real GDP by the price index 

b) Real GDP by nominal GDP 

c) Nominal GDP by the price index 

d) Nominal GDP by real GDP 

23) Demand-pull inflation is characterised by 

a) Movement of aggregate supply (AS) up and to the left 

b) Movement of aggregate demand (AD) down and to the left 

c) Movement of AS down and to the right 

d) Movement of AD up and to the right 

24) Other things being equal, the law of diminishing marginal returns states that as the quantity of capital per worker increases, other things being constant, output per worker eventually: 

a) Increases at a constant rate 

b) Increases at a decreasing rate 

c) Increases at an increasing rate 

d) Decreases 

25) The long-run Phillips curve: 

a) Represents the fact that inflation is consistent with many unemployment rates 

b) Has a negative slope because the short-run Phillips curve shifts up and to the left 

c) Shows that expected inflation can never equal actual inflation 

d) Represents the fact that inflation will not influence unemployment in the long run

 

FOUR

 

1) Which of the following is true regarding gross domestic product?

A. It can only be measured from the flow of total spending.

B. It can only be measured from the flow of total income in the economy.

C. It can be measured from either total income or total expenditure.

D. It is calculated by computing total spending and total income; the larger of the two figures is counted as GDP.

2) To determine the CPI, you would need to know:

A. the current market basket at current- and base-year prices.

B. the base-year market basket at current- and base-year prices.

C. the current market basket at current prices and base-year market basket at base-year prices.

D. the current market basket at base-year prices only.

3) In the Keynesian model, when real GDP is less than aggregate expenditure:

A. inventories rise and output falls.

B. inventories rise and output rises.

C. inventories fall and output falls.

D. inventories fall and output rises.

4) The simple expenditure multiplier equals:

A. the marginal propensity to consume.

B. the marginal propensity to save.

C. the reciprocal of the marginal propensity to save.

D. the reciprocal of the marginal propensity to consume.

5) A decrease in planned investment would shift:

A. the aggregate demand curve outward.

B. the aggregate demand curve inward.

C. the aggregate supply curve inward.

D. the aggregate supply curve outward.

 

6) If the price level rises:

A. the aggregate expenditures line shifts upward; the economy moves down along the aggregate demand curve.

B. the aggregate demand curve shifts to the left; the economy moves along the aggregate expenditures line.

C. the aggregate demand curve shifts to the right; the economy moves along the aggregate expenditures line.

D. the aggregate expenditures line shifts downward; the economy moves up along the aggregate demand curve.

7) Assume firms and workers expect the price level to increase by 5 per cent in the coming year, and agree on a nominal wage increase of 5 per cent. Starting from a position of full employment, if actual inflation turns out to be 4 per cent, then:

A. the unemployment rate is above the natural rate.

B. the economy is at potential output.

C. the economy is beyond potential output.

D. the unemployment rate is lower than the natural rate.

8) When there is a contractionary gap, if prices and wages are flexible:

A. the aggregate demand curve will shift to the right and the economy will move towards potential output.

B. the aggregate supply curve will shift to the right and the economy will move towards potential output.

C. the aggregate supply curve will shift to the left and the economy will move towards potential output.

D. the aggregate demand curve will shift to the left and the economy will move towards potential output.

9) Which of the following is true in the long run?

A. The aggregate demand curve determines the level of potential output.

B. The long-run aggregate supply curve is horizontal.

C. Cyclical unemployment is between 5 and 6 per cent.

D. The price level is determined entirely by the aggregate demand curve.

10) Which of the following is most likely to reduce structural unemployment?

A. A reduction in wage rates.

B. Increasing efficiency of the job search through better information on local job opening.

C. Retraining workers in marketable skills.

D. Promotion of full employment through government stabilisation policies.

11) Real-wage rigidity creates additional:

A. structural and seasonal unemployment.

B. structural and frictional unemployment.

C. frictional and cyclical unemployment.

D. cyclical and structural unemployment.

12) If a firm decides to pay efficiency wages to its employees, it is because:

A. of union pressure.

B. higher productivity will offset higher wages.

C. higher wages will offset higher productivity.

D. less efficient workers will quit.

13) If aggregate demand intersects short-run aggregate supply below the economy’s potential output level, which of the following sets of policies would unquestionably move the economy back towards full employment?

A. increase government purchases, increase taxes, and decrease transfer payments.

B. decrease government purchases, increase taxes, and decrease transfer payments.

C. increase government purchases, decrease taxes, and increase transfer payments.

D. decrease government purchases, decrease taxes, and increase transfer payments.

14) Unanticipated inflation is usually viewed as undesirable because it:

A. reduces everyone’s nominal wages.

B. typically redistributes income and wealth.

C. is accompanied by reductions in real GDP.

D. lets lenders gain at the expense of borrowers.

15) Suppose the government reduces its budget deficit at the same time that oil prices rise sharply. Which of the following must happen?

A. The price level will rise, since higher energy prices increase the cost of production.

B. The level of aggregate output will fall, since both events will tend to cause an economic contraction.

C. The price level will fall, because aggregate demand has moved leftward.

D. Both the price level and the level of aggregate output will fall.

16) The steeper the short-run aggregate supply curve:

A. the flatter the aggregate demand curve.

B. the larger the value of the spending multiplier.

C. the smaller the change in government spending needed to achieve the desired change in equilibrium output.

D. the smaller the impact of a shift in aggregate demand on equilibrium output.

17) Because of automatic stabilisers, government budget deficits are:

A. positive during expansions and contractions.

B. smaller during expansions and larger during contractions.

C. larger during expansions and smaller during contractions.

D. negative during expansions and contractions.

18) If the Reserve Bank feels that inflation is well under control, but that unemployment is above its natural rate, then it may decide to:

A. sell securities to create a net inflow of funds into the system, thereby decreasing the cash rate.

B. buy securities to create a net inflow of funds into the system, thereby decreasing the cash rate.

C. sell securities to create a net outflow of funds into the system, thereby increasing the cash rate.

D. buy securities to create a net outflow of funds into the system, thereby increasing the cash rate.

19) The monetary policy transmission mechanism refers to:

A. government activities in the overnight cash market.

B. RBA activities in the overnight cash market.

C. the way inflation affects aggregate demand.

D. the way interest rates affect aggregate demand.

20) If something causes the velocity of money to increase, the same amount of money will:

A. be able to support more transactions, so nominal GDP can increase.

B. be forced to support more transactions, so nominal GDP will decrease.

C. be able to support fewer transactions, so nominal GDP will decrease.

D. no longer have to support so many transactions, so nominal GDP can increase.

21) If the time required for an economy to self-correct is shorter than the active policy lags:

A. active policy should be strengthened.

B. active policy will likely be destabilising.

C. the passive policy case is weakened.

D. active policy will work better than passive policy.

 

22) If real interest rates in the USA rose relative to those in Australia, what would the immediate impact be on the exchange rate for Australian dollars?

A. There would be an increase in the demand for Australian dollars and a decrease in the supply of Australian dollars, leading to an appreciation of the currency.

B. There would be an increase in the demand for Australian dollars and a decrease in the supply of Australian dollars, leading to a depreciation of the currency.

C. There would be a decrease in the demand for Australian dollars and an increase in the supply of Australian dollars, leading to a depreciation of the currency.

D. There would be a decrease in the demand for Australian dollars and an increase in the supply of Australian dollars, leading to an appreciation of the currency.

23) Which of the following would not increase labour productivity?

A. Technological change.

B. Increased capital per unit of labour.

C. An increase in the size of the labour force.

D. Greater job experience for the work force.

24) If economic growth is slower than population growth, then GDP per capita will ____ and GDP overall will ____.

A. rise, rise.

B. rise, fall.

C. fall, rise.

D. fall, fall.

25) Which of the following is not a major macroeconomic policy objective?

A. Stable value of the $AUD

B. Stable current account balance

C. Low and stable inflation

D. Low and stable unemployment