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1. Because a monopolistically competitive firm is usually in competition with other similar goods, we generally say:

a. their demand curve is perfectly elastic.
b. their demand curve is less elastic than that for a monopolist.
c. their demand curve is more elastic than that for a monopolist.
d. their demand curve is more elastic than that for a perfectly competitive firm.
e. both C and D above.

2. GDP can be measured at:

a. factor costs.
b. market prices.
c. market costs.
d. both A and B above.
e. both B and C above

3. In an economy with persistent inflation:

a. real GDP will grow faster than nominal GDP.
b. nominal and real GDP will grow at the same rate.
c. nominal GDP will grow faster than real GDP.
d. nominal and real GDP will both fall.

4. The business cycle occurs from:

a. changes in aggregate demand.
b. changes in aggregate supply.
c. changes in total spending.
e. changes in the costs of production.
f. all of the above.

5. Total spending influences the business cycle because:

a. increases in spending flow through to higher output, employment and income.
b. it allows GDP to increase well beyond the full-employment level of output.
c. decreases in spending will increase inflation, which then reduces real GDP.
d. increases in spending will decrease inflation, which then increases real GDP.
e. of all of the above.

6. Which of the following would understate the consumer price index?

a. Substitution bias.
b. Deteriorating quality of products.
c. Improving quality of products.
d. Law of demand bias.

7. The impact of inflation on wealth is:

a. always negative.
b. always positive.
c. often positive when wealth is held in real estate assets.
d. often negative when wealth is held in real estate assets.
e. zero, as inflation only impacts on income, not wealth.

8. When inflation is relatively high and unstable, firms tend to invest more in _____ and less in _____.

a. productive assets; real estate
b. shares; real estate
c. real estate; productive assets
d. real estate; consumption
e. Both B and C.

9. If there is a recession, the RBA would most likely:

a. encourage banks to provide loans by lowering the cash rate.
b. encourage banks to provide loans by raising the cash rate.
c. restrict bank lending by lowering the cash rate.
d. restrict bank lending by raising the cash rate.

10. Juanita is an engineer working for the roads department in a small town in New South Wales. When the government cut spending, Juanita and 99 others were laid off. The only other business in the town is growing grapes to be made into raisins, but the growers refuse to hire laid-off engineers, knowing they will leave at the first opportunity. The unemployment Juanita is experiencing is:

a. structural.
b. cyclical.
c. permanent.
d. frictional.
e. voluntary.

11. People react to an excess supply of money by:

a. selling bonds, thus driving up the interest rate.
b. selling bonds, thus driving down the interest rate.
c. buying bonds, thus driving down the interest rate.
d. buying bonds, thus driving up the interest rate.

12. Year Consumer price index
1 80
2 100
3 105
4 125
5 150

As shown in Exhibit 13–1, the rate of inflation for year 2 is:

a. 5 per cent.
b. 10 per cent.
c. 20 per cent.
d. 25 per cent.

13. A person pays cash for a house in 1990 for $200 000 and sells it in 2000 for $400 000. Over the same period the CPI has risen from its base index to 250. In terms of this asset, the purchasing power of this person:

a. has increased.
b. has decreased.
c. has remained unchanged.
d. is indeterminate.

14. Exhibit 11–1 Expenditure approach

National income account (Billions of $)
Personal consumption expenditures (C) $500
Net exports (X – M) 50
Federal government consumption and gross investment
expenditures (G) 100
State and local government consumption and
gross investment expenditures (G) 200
Imports 15
Gross private domestic investment (I) 65

As shown in Exhibit 11–1, total expenditures by households for domestically produced goods is:
Answer

a. $15 billion.
b. $50 billion.
c. $300 billion.
d. $500 billion.

15. Find the size of the civilian labour force from the following data: frictional unemployment = 150, structural unemployment = 200, cyclical unemployment = 225, discouraged workers = 25, underemployed workers = 75, fully employed workers = 850, total population = 2 000.

a. 1425.
b. 1450.
c. 1500.
d. 1525.
e. 2000.

16. GDP is equal to:

a. GNP plus net income payable to foreigners.
b. NNP plus depreciation, plus net income payable to foreigners.
c. C + I + G + NX.
d. all of the above.
e. only B and C above.

17. The Keynesian cause-and-effect sequence predicts that an increase in the money supply will cause interest rates to:

a. fall, boosting investment and shifting the AD curve rightward, leading to an increase in real GDP.

b. fall, boosting investment and shifting the AD curve rightward, leading to a decrease in real GDP.

c. rise, cutting investment and shifting the AD curve rightward, leading to an increase in real GDP.

d. rise, boosting investment and shifting the AD curve rightward, leading to an increase in real GDP.

e.fall, cutting investment and shifting the AD curve leftward, leading to a decrease in real GDP.

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