ECON200

Economics is the study of:
A. the government’s role in society.

B. how society manages its scarce resources.

C. how a market system functions.

D. how to increase production.

B. how society manages its scarce resources.

The field of economics is traditionally divided into two broad subfields,
A. consumer economics and producer economics.

B. private sector economics and public sector economics.

C. microeconomics and macroeconomics.

D. national economics and international economics.

C. microeconomics and macroeconomics.

The decisions of firms and households are guided by profit and self-interest in a:
A. All of these are correct.

B. traditional economy.

C. command economy.

D. market economy.

D. market economy.

One advantage market economies have over central planning is that market economies:
A. establish government economic control.

B. provide an equal distribution of goods and services to consumers.

C. solve the problem of scarcity.

D. are more efficient.

D. are more efficient.

When economists attempt to simplify the real world and make it easier to understand they make:
A. mistakes in judgment.

B. evaluations.

C. assumptions.

D. predictions.

C. assumptions.

Which of the following is NOT true about most economic models?
A. They are built using assumptions.

B. They do not include every feature of the economy.

C. They are useful to economists, but not to policymakers.

D. They are built using the tools of mathematics.

C. They are useful to economists, but not to policymakers.

Economists view positive statements as:
A. optimistic, putting the best possible interpretation on things.

B. descriptive, making a claim about how the world is.

C. prescriptive, making a claim about how the world ought to be.

D. affirmative, justifying existing economic policy.

B. descriptive, making a claim about how the world is.

Economists consider normative statements to be:
A. prescriptive, making a claim about how the world ought to be.

B. statements about the normal condition of the world.

C. statements which establish production goals for the economy.

D. descriptive, making a claim about how the world is.

A. prescriptive, making a claim about how the world ought to be.

The two basic reasons why economists often appear to give conflicting advice to policymakers are differences in:
A. scientific judgments and education.

B. opinions and values.

C. opinions and education.

D. scientific judgments and values.

D. scientific judgments and values.

Two economists, Adam and Joan, are discussing the possibility of substantially reforming the current tax system. Adam thinks the current system is fine but Joan is in favor of reform. Which of the following is the LEAST likely explanation for the disagreement?
A. Adam is better off under the current system and Joan would be better off if the reforms were implemented.

B. Adam is a positive economist and Joan is a normative economist.

C. Adam and Joan have different values, and so have different normative views about policy.

D. Adam and Joan have different positive views about the effect of changing the tax system.

B. Adam is a positive economist and Joan is a normative economist.

GDP is computed using market prices as the value of final goods and services because:

A. None of the above are correct; market prices are not used to compute GDP.

B. market prices don’t change much, so it is easy to make comparisons between years.

C. if market prices are out of line with how people value goods, the government sets ceilings and floors on them.

D. market prices reflect the value of goods and services.

D. market prices reflect the value of goods and services.

If GDP rises,:

A. income and production must both rise.

B. income must rise, but production may rise or fall.

C. income and production must both fall.

D. production must rise, but income may rise or fall.

A. income and production must both rise.

Over time people have come to rely more on market-produced goods and less on goods that they produce for themselves. For example people eat at restaurants relatively more and prepare their own meals at home relatively less. By itself this change would:

A. not make any change in GDP over time.

B. make GDP rise over time.

C. make GDP fall over time.

D. change GDP, but in an uncertain direction.

B. make GDP rise over time.

Which of the following non-market goods or services is included as an estimate in New Zealand GDP?

A. the value of vegetables that people grow in their gardens

B. the value of unpaid housework

C. None of these is correct.

D. the estimated rental value of owner-occupied homes

D. the estimated rental value of owner-occupied homes

Which of the following is correct?

A. The value of intermediate goods should not be included in GDP.

B. The value of intermediate goods should be included in GDP only if they were produced in the previous year.

C. The value of all intermediate goods and final goods should be included in GDP.

D. The value of intermediate goods should be included in GDP only if they are purchased by firms rather than households.

A. The value of intermediate goods should not be included in GDP.

Which of the following is not included in GDP?

A. unpaid cleaning and maintenance of houses

B. production of foreign citizens living in New Zealand

C. services such as those provided by lawyers and hair stylists

D. the estimated rental value of owner-occupied housing

A. unpaid cleaning and maintenance of houses

Consider two things that might be included in GDP: (A) The estimated rental value of owner-occupied housing; and (B) Purchases of newly constructed homes.

A. B is included as consumption, while A is included as investment.

B. Only B is included in GDP and it is included as investment.

C. A is included as consumption, while B is included as investment.

D. Both A and B are included as consumption.

C. A is included as consumption, while B is included as investment.

In the national income accounts, a transfer payment is:

A. the term that is used to indicate that your paycheck has been automatically deposited to your bank account.

B. a payment for moving expenses a worker receives when he or she is transferred by an employer to a new location.

C. a form of government spending that is not made in exchange for a currently produced good or service.

D. a payment that is automatically transferred from your bank account to pay your utility bill.

C. a form of government spending that is not made in exchange for a currently produced good or service.

A New Zealand farmer buys a new tractor made in Malaysia by a German company. As a result:

A. New Zealand investment increases, Malaysian GDP increases, but German and New Zealand GDP are unaffected.

B. New Zealand investment, New Zealand GDP, Malaysian GDP, and German GDP all increase.

C. New Zealand investment and German GDP increase, but Malaysian and New Zealand GDP are unaffected.

D. New Zealand investment, New Zealand GDP, Malaysian GDP, and German GDP are unaffected, because tractors are intermediate goods.

A. New Zealand investment increases, Malaysian GDP increases, but German and New Zealand GDP are unaffected.

Which of the following statements about nominal GDP and real GDP is most accurate?

A. Real GDP and nominal GDP are equally good measures of economic well-being.

B. Nominal GDP is a better gauge of economic well-being than is real GDP.

C. Real GDP is a better gauge of economic well-being than is nominal GDP.

D. Whether real GDP or nominal GDP is a better measure of economic well-being depends on what sort of goods are produced.

C. Real GDP is a better gauge of economic well-being than is nominal GDP.

If a small country has current nominal GDP of $20 billion and a GDP deflator of 500 (base 1000), what is its real GDP?

A. $100 billion

B. $10 billion

C. $4 billion

D. $40 billion

D. $40 billion

In the country of Mainia, GDP consists of cranberries and maple syrup. In 2002, 50 units of cranberries are sold at $20 per unit, and 100 units of maple syrup are sold at $10 per unit. If the price of cranberries was $10 per unit, the price of maple syrup was $15.00 per unit, and the GDP deflator was 1000 in 2001, the base year, then nominal 2002 GDP is:

A. None of these is correct.

B. $2,000, real 2002 GDP is $2,000, and the GDP deflator is 1000.

C. $2,500, real 2002 GDP is $2,000, and the GDP deflator is 833.

D. $2,000, real 2002 GDP is $2,500, and the GDP deflator is 1250.

B. $2,000, real 2002 GDP is $2,000, and the GDP deflator is 1000.

During an election campaign, the incumbent prime minister argues that he should be re-elected because GDP grew by 12 percent during his three-year term in office. You know that population grew by 4 percent over the period, and that the GDP deflator increased by 6 percent during the past three years. You should conclude that real GDP per person:

A. grew by more than 12 percent.

B. grew, but by less than 12 percent.

C. decreased.

D. was unchanged.

B. grew, but by less than 12 percent.

International studies of the relationship between GDP per person and quality of life measures such as life expectancy and literacy rates show that larger GDP per person is associated with:

A. longer life expectancy and a higher percentage of the population that is literate.

B. very nearly the same life expectancy and a higher percentage of the population that is literate.

C. longer life expectancy and a lower percentage of the population that is literate.

D. very nearly the same life expectancy and a lower percentage of the population that is literate.

A. longer life expectancy and a higher percentage of the population that is literate.

The consumer price index is mainly used to:

A. monitor changes in the level of real GDP.

B. monitor changes in the cost of living.

C. track changes in the stock market.

D. track changes in the level of wholesale prices in the economy.

B. monitor changes in the cost of living.

When the consumer price index rises, the typical family:

A. can spend fewer dollars to maintain the same standard of living.

B. has to spend more dollars to maintain the same standard of living.

C. can offset the effects of rising prices by saving more.

D. finds that its standard of living is not affected.

B. has to spend more dollars to maintain the same standard of living.

The inflation rate is defined as the:

A. price level.

B. percentage change in the price level from the previous period.

C. change in the price level.

D. price level divided by the price level in the previous period.

B. percentage change in the price level from the previous period.

What is the basket of goods used to construct the CPI?

A. goods and services weighted by the ratio of expenditures on them relative to the consumption component of GDP.

B. a random sample of all goods and services produced in the economy.

C. the goods and services typically bought by consumers, according to Statistics New Zealand surveys.

D. the least and the most expensive goods and services in each major category of consumer expenditures.

C. the goods and services typically bought by consumers, according to Statistics New Zealand surveys.

How are the weights on the various goods and services in the CPI basket determined?

A. All goods and services are weighted equally.

B. Each good and service is weighted according to its price.

C. The weights equal the ratio of expenditures on each good or service divided by the total consumption expenditures in the GDP accounts.

D. A survey is conducted to determine how much of each good and service typical consumers purchase.

D. A survey is conducted to determine how much of each good and service typical consumers purchase.

The consumer price index is:

A. not very useful as a measure of the cost of living.

B. not a perfect measure of the cost of living.

C. not used as a measure of the cost of living.

D. a perfect measure of the cost of living.

B. not a perfect measure of the cost of living.

When the quality of a good deteriorates and overall prices are rising, the purchasing power of the dollar:

A. increases, so the change in the CPI understates the true change in the overall cost of living if the quality change is not accounted for.

B. decreases, so the change in the CPI understates the true change in the overall cost of living if the quality change is not accounted for.

C. decreases, so the change in the CPI overstates the true change in the overall cost of living if the quality change is not accounted for.

D. increases, so the change in the CPI overstates the true change in the overall cost of living if the quality change is not accounted for.

C. decreases, so the change in the CPI overstates the true change in the overall cost of living if the quality change is not accounted for.

In the near future, OPEC succeeds in raising world oil prices by 300 percent. This price increase causes inventors to look at alternative sources of fuel for internal-combustion engines. A hydrogen-powered engine is developed which is cheaper to operate than gasoline engines. Which problems in the construction of the CPI does this situation represent?

A. unmeasured quality change and introduction of new goods

B. substitution bias and introduction of new goods

C. income bias and substitution bias

D. introduction of new goods and unmeasured quality change

B. substitution bias and introduction of new goods

An increase in the price of domestically produced industrial robots will be reflected in:

A. the GDP deflator but not in the consumer price index.

B. both the GDP deflator and the consumer price index.

C. the consumer price index but not in the GDP deflator.

D. neither the GDP deflator nor the consumer price index.

A. the GDP deflator but not in the consumer price index.

Say that the 2002 CPI was 177 and the 1982 CPI was 96.5. If Jeremy’s parents put aside $1,000 for him in 1982, how much would he have needed in 2002 in order to buy what he could have with the $1,000 in 1982?

A. $1,777.77

B. $1,834.20

C. $1,714.81

D. $1000

B. $1,834.20

In 1972 in Riverside, Iowa one could buy model rocket engines for $1.50, if those same engines cost $2.50 today what set of CPI’s would make the engine prices in today’s dollars the same for both years?

A. 600 in 1972 and 1000 today

B. 600 in 1972 and 1200 today

C. None of these is correct.

D. 600 in 1972 and 1500 today

A. 600 in 1972 and 1000 today

A nation’s standard of living is mostly determined by:

A. its national income.

B. its productivity.

C. how much it has relative to others.

D. its gross domestic product.

B. its productivity.

The average amount of goods and services produced from each hour of a worker’s time is called:

A. productivity.

B. per capita income.

C. per capita GDP.

D. human capital.

A. productivity.

Cedar Valley Furniture uses 5 workers working 8 hours to produce 80 rocking chairs. What is the productivity of these workers?

A. 2 chairs per hour.

B. 80 chairs.

C. None of these is correct.

D. 1 hour per chair.

A. 2 chairs per hour.

Human capital is the:

A. stock of equipment and structures that is used to produce goods and services.

B. same thing as technological knowledge.

C. total number of hours worked in an economy.

D. knowledge and skills that workers acquire through education, training, and experience.

D. knowledge and skills that workers acquire through education, training, and experience.

Your company discovers a better way to produce mousetraps, but your better methods are not apparent from the mousetraps themselves. Your knowledge of how to more efficiently produce mousetraps is:

A. common, but not technological, knowledge.

B. common technological knowledge.

C. proprietary technological knowledge.

D. proprietary, but not technological, knowledge.

C. proprietary technological knowledge.

Which of the following would increase productivity?

A. an increase in the physical capital stock per worker

B. an increase in human capital per worker

C. an increase in natural resources per worker

D. All of these are correct.

D. All of these are correct.

If the production function for an economy had constant returns to scale, the labour force doubled, and all other inputs stayed the same, then real GDP would:

A. increase, but by something less than double.

B. increase by exactly 50 percent.

C. stay the same.

D. double.

A. increase, but by something less than double.

If an economy with constant returns to scale were to double its physical capital stock, its available natural resources, and its human capital, but leave the size of the labour force the same,:

A. its output and productivity would increase, but less than double.

B. None of these is correct.

C. its output and productivity would increase by more than double.

D. its ouyput would stay the same and so would its productivity.

A. its output and productivity would increase, but less than double.

If a country’s saving rate increases, in the long run:

A. productivity is higher, real GDP per person is not higher.

B. productivity and real GDP per person are both higher.

C. real GDP per person is higher, productivity is not higher.

D. neither productivity nor real GDP per person are higher.

B. productivity and real GDP per person are both higher.

Other things equal, relatively poor countries tend to grow:

A. faster than relatively rich countries; this is called the constant-returns-to-scale effect.

B. slower than relatively rich countries; this is called the poverty trap.

C. slower than relatively rich countries; this is called the Malthus effect.

D. faster than relatively rich countries; this is called the catch-up effect.

D. faster than relatively rich countries; this is called the catch-up effect.

Suppose that there are diminishing returns to capital. Suppose also that two countries are the same except one has less capital and so less real GDP per person. Suppose that both increase their saving rate from 3 percent to 4 percent. In the long run:

A. Both countries will have higher levels of real GDP per person, and the temporary increase in growth in the level of real GDP per person will have been greater in the country with more capital.

B. Both countries will have higher levels of real GDP per person, and the temporary increase in growth in the level of real GDP per person will have been greater in the country with less capital.

C. Both countries will have permanently higher growth rates of real GDP per person, and the growth rate will be higher in the country with more capital.

D. Both countries will have permanently higher growth rates of real GDP per person, and the growth rate will be higher in the country with less capital.

B. Both countries will have higher levels of real GDP per person, and the temporary increase in growth in the level of real GDP per person will have been greater in the country with less capital.

Institutions in the economy that help to match one person’s saving with another person’s investment are collectively called the:

A. monetary system.

B. financial system.

C. banking system.

D. Federal Reserve system.

B. financial system.

Alfred’s income exceeds his expenditures. Alfred is a:

A. saver who demands money from the financial system.

B. borrower who demands money from the financial system.

C. saver who supplies money to the financial system.

D. borrower who demands money from the financial system.

C. saver who supplies money to the financial system.

In a closed economy, what does (Y – T – C) represent?

A. National saving.

B. Public saving.

C. Government tax revenue.

D. Private saving.

D. Private saving.

In a closed economy, public saving is the:

A. amount of tax revenue that the government has left after paying for its spending (z).

B. amount of income that businesses have left after paying for the factors of production (y).

C. amount of income that households have left after paying for taxes and consumption (x).

D. sum of x, y, and z.

A. amount of tax revenue that the government has left after paying for its spending (z).

The slope of the demand for loanable funds curve represents the:

A. positive relation between the real interest rate and saving.

B. negative relation between the real interest rate and investment.

C. negative relation between the real interest rate and saving.

D. positive relation between the real interest rate and investment.

B. negative relation between the real interest rate and investment.

If there is shortage of loanable funds, then:

A. neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium.

B. the supply for loanable funds shifts left and the demand shifts right.

C. neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium.

D. the supply for loanable funds shifts right and the demand shifts left.

C. neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium.

A poor country decides to institute an investment tax credit. As a result:

A. interest rates rise and investment falls.

B. both interest rates and investment fall.

C. interest rates fall and investment rises.

D. both interest rates and investment rise.

D. both interest rates and investment rise.

Other things the same, if the government increases transfer payments to households, then:

A. the rate of interest will rise.

B. investment will rise.

C. public saving will rise.

D. the market for loanable funds will be unaffected.

A. the rate of interest will rise.

Between 2000 and 2001 the debt of Bolivia rose. Other things the same, we would expect that interest rates:

A. and investment both rose.

B. and investment both fell.

C. fell and investment rose.

D. rose and investment fell.

D. rose and investment fell.

Investment rises and interest rates fall. Which of the following could explain these changes?

A. The government went from surplus to deficit.

B. The government reduced the tax rate on savings.

C. None of these is correct.

D. The government instituted an investment tax credit.

B. The government reduced the tax rate on savings.

If the government’s expenditures exceeded its receipts, it would likely:

A. directly buy bonds from the public.

B. borrow money from a bank or other financial intermediary.

C. lend money to a bank or other financial intermediary.

D. directly sell bonds to the public.

D. directly sell bonds to the public.

Which of the following statements is most likely to be correct?

A. A general, persistent decline in stock prices does not tell us anything about the business cycle because stock prices can fall for many reasons.

B. A general, persistent decline in stock prices is a signal that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the past.

C. A general, persistent decline in stock prices is a signal that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits.

D. A general, persistent decline in stock prices is a signal that the economy is about to enter a boom period because people will be able to buy stock for less money.

C. A general, persistent decline in stock prices is a signal that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits.

The labour supply curve is related to the value of the marginal product of labour.

True

False

False

Which of the following lists includes all the categories into which Statistics New Zealand divides the adult population?

A. Employed, unemployed, and not in the labour force.

B. Discouraged workers, employed, and not in the labour force.

C. Discouraged workers, employed, and unemployed.

D. Employed and unemployed.

A. Employed, unemployed, and not in the labour force.

Who of the following would NOT be included in the labour force?

A. Mike, who has retired and is not looking for work.

B. Jay, who is on temporary layoff.

C. Jane, who does not have a job, but has applied for several in the last week.

D. None of these people are included in the labour force.

A. Mike, who has retired and is not looking for work.

Which of the following would reduce the natural rate of unemployment?

A. The government increases the minimum wage.

B. All of these are correct.

C. The Internet provides more readily available information about available jobs.

D. Laws are passed that make it more difficult to monitor the efforts of workers.

C. The Internet provides more readily available information about available jobs.

Discouraged workers:

A. are not counted either as part of the adult population or as part of the labour force.

B. are counted as part of the adult population, and as unemployed.

C. are counted as part of the adult population, but not as part of the labour force.

D. None of these is correct.

C. are counted as part of the adult population, but not as part of the labour force.

When a union bargains successfully with employers, in that industry:

A. both the quantity of labour supplied and the quantity of labour demanded increase.

B. both the quantity of labour supplied and the quantity of labour demanded decrease.

C. the quantity of labour supplied increases and the quantity of labour demanded decreases.

D. the quantity of labour supplied increases the quantity of labour demanded decreases

C. the quantity of labour supplied increases and the quantity of labour demanded decreases.

Four employers have justified their actions as follows. Whose logic is inconsistent with the logic of efficiency wage theory?

A. Kay pays her workers less than the equilibrium wage so they won’t have the time or money to look for work somewhere else.

B. All of these are inconsistent with the logic of efficiency wage theory.

C. Ray pays his workers in a developing country more than the going wage hoping that they will get a better diet and so be more productive.

D. Jay develops a new assembly line technology that limits the amount of shirking workers may do, so he reduces what he pays his employees so as to make it closer to the equilibrium wage.

A. Kay pays her workers less than the equilibrium wage so they won’t have the time or money to look for work somewhere else.

Curtis is a stockbroker. He has had several job offers, but he has turned them down because he thinks he can find a firm that better matches his tastes and skills. John is an accountant. He has looked for work for some time, but no accounting firms are hiring. Which of the following statements is correct?

A. John and Curtis are both structurally unemployed.

B. Curtis is structurally unemployed, and John is frictionally unemployed.

C. Curtis is frictionally unemployed, and John is structurally unemployed.

D. John and Curtis are both frictionally unemployed.

C. Curtis is frictionally unemployed, and John is structurally unemployed.

Arnie is the owner of a firm that produces bottled water in Northland. There are many such firms in the area. Arnie decides that if he pays his workers a wage higher than the going market wage, his profits will increase. Which of the following is a likely explanation for his decision?

A. The higher the wage, the lower will be the cost of obtaining needed supplies.

B. The higher the wage, the more he can charge for his water.

C. The higher the wage, the less often his workers will choose to leave his firm.

D. All of these are likely explanations for Arnie’s decision.

C. The higher the wage, the less often his workers will choose to leave his firm.

Net exports measures an imbalance between a country’s:

A. sale of goods and services abroad and purchase of foreign goods and services.

B. income and expenditures.

C. All of these are correct.

D. sale of domestic assets abroad and purchase of foreign assets.

A. sale of goods and services abroad and purchase of foreign goods and services.

Net capital outflow measures an imbalance between a country’s:

A. investment and saving.

B. sale of domestic assets abroad and domestic purchase of foreign assets.

C. sale of goods and services abroad and buying of foreign goods and services.

D. income and expenditure.

B. sale of domestic assets abroad and domestic purchase of foreign assets.

A Japanese firm buys lumber from New Zealand and pays for it with yen. Other things the same, Japanese:

A. net exports increase, and New Zealand net capital outflow increases.

B. net exports decrease, and New Zealand net capital outflow decreases.

C. net exports decrease, and New Zealand net capital outflow increases.

D. net exports increase, and New Zealand net capital outflow decreases.

C. net exports decrease, and New Zealand net capital outflow increases.

Which of the following statements is correct for an open economy with a trade surplus?

A. The trade surplus implies that the country’s national saving is greater than domestic investment.

B. All of these are correct for an open economy with a trade surplus.

C. The trade surplus must be offset by negative net capital outflow.

D. The trade surplus cannot last for very many years.

A. The trade surplus implies that the country’s national saving is greater than domestic investment.

If the exchange rate changes from 25 Thai bhat per dollar to 30 Thai bhat per dollar, the dollar has:

A. appreciated and so buys fewer Thai goods.

B. appreciated and so buys more Thai goods.

C. depreciated and so buys fewer Thai goods.

D. depreciated and so buys more Thai goods.

B. appreciated and so buys more Thai goods.

The law of one price states that:

A. a good must sell at the same price at all locations.

B. a good cannot sell for a price greater than the legal price ceiling.

C. domestic producers of a good are guaranteed a subsidy by law.

D. a good must sell at the price fixed by law

A. a good must sell at the same price at all locations.

If purchasing-power parity holds, a dollar will buy:

A. as many goods in foreign countries as it does in New Zealand.

B. more goods in foreign countries than in New Zealand.

C. None of these is implied by purchasing-power parity.

D. fewer goods in foreign countries than it does in New Zealand.

A. as many goods in foreign countries as it does in New Zealand.

The open-economy macroeconomic model takes:

A. the price level and GDP as variables to be determined by the model.

B. GDP, but not the price level as given.

C. the price level, but not GDP as given.

D. both the price level and GDP as given.

D. both the price level and GDP as given.

An increase in the New Zealand real interest rate induces:

A. foreigners to buy more New Zealand assets, which reduces New Zealand net capital outflow.

B. foreigners to buy more New Zealand assets, which increases New Zealand net capital outflow.

C. New Zealanders to buy more foreign assets, which reduces New Zealand net capital outflow.

D. New Zealanders to buy more foreign assets, which increases New Zealand net capital outflow.

A. foreigners to buy more New Zealand assets, which reduces New Zealand net capital outflow.

In the market for foreign-currency exchange in the open-economy macroeconomic model for New Zealand, a higher New Zealand real exchange rate makes:

A. New Zealand goods more expensive relative to foreign goods and reduces the quantity of dollars supplied.

B. foreign goods more expensive relative to New Zealand goods and reduces the quantity of dollars demanded.

C. New Zealand goods more expensive relative to foreign goods and reduces the quantity of dollars demanded.

D. foreign goods more expensive relative to New Zealand goods and reduces the quantity of dollars supplied.

C. New Zealand goods more expensive relative to foreign goods and reduces the quantity of dollars demanded.

If the government of India made policy changes that increased national saving, the real exchange rate of the rupee would:

A. depreciate and Indian net exports would fall.

B. appreciate and Indian net exports would rise.

C. appreciate and Indian net exports would fall.

D. depreciate and Indian net exports would rise.

D. depreciate and Indian net exports would rise.

If a government started with a deficit and moved to a surplus, domestic investment:

A. and the real exchange rate would rise.

B. and the real exchange rate would fall.

C. would rise and the real exchange rate would fall.

D. would fall and the real exchange rate would rise.

C. would rise and the real exchange rate would fall.

Which of the following would not be a consequence of an increase in the New Zealand government budget deficit according to the open-economy macroeconomic model?

A. Domestic investment in New Zealand falls.

B. The real exchange rate of the New Zealand dollar appreciates.

C. The New Zealand interest rate rises.

D. The New Zealand trade balance rises.

D. The New Zealand trade balance rises.

If the New Zealand government imposes an import quota on French wine, New Zealand net exports will:

A. None of these is correct.

B. increase, the real exchange rate of the dollar will appreciate, and domestic sales of New Zealand wine will increase.

C. not change, the dollar will depreciate, and domestic sales of New Zealand wine will not change.

D. not change, the real exchange rate of the dollar will appreciate, and domestic sales of New Zealand wine will increase.

D. not change, the real exchange rate of the dollar will appreciate, and domestic sales of New Zealand wine will increase.

Capital flight refers to:

A. the ability of investment expenditures to lift a country out of poverty.

B. the movement of funds between financial intermediaries when interest rates change.

C. a large and sudden movement of funds out of a country.

D. the movement of workers across international borders in response to exchange rate changes.

C. a large and sudden movement of funds out of a country.

Most economists use the aggregate demand and aggregate supply model primarily to analyse:

A. productivity and economic growth.

B. the effects of macroeconomic policy on the prices of individual goods.

C. short-run fluctuations in the economy.

D. the long-run effects of international trade policies.

C. short-run fluctuations in the economy.

A decrease in the price level causes the aggregate quantity of goods and services demanded to increase because:

A. wealth falls, interest rates rise, and the dollar appreciates.

B. wealth falls, interest rates rise, and the dollar depreciates.

C. wealth rises, interest rates fall, and the dollar depreciates.

D. wealth rises, interest rates rise, and the dollar appreciates.

C. wealth rises, interest rates fall, and the dollar depreciates.

Which of the following would shift aggregate demand to the right?

A. An investment tax credit.

B. All of these would shift aggregate demand to the right.

C. An increase in net exports at every exchange rate.

D. An increase in the money supply.

B. All of these would shift aggregate demand to the right.

When taxes decrease, consumption increases as shown by:

A. shifting aggregate supply to the right.

B. shifting aggregate demand to the right.

C. None of these is correct.

D. a movement to the right along a given aggregate demand curve.

B. shifting aggregate demand to the right.

If the dollar appreciates, perhaps because of speculation or government policy, then New Zealand net exports:

A. decrease and aggregate demand shifts to the right.

B. increase and aggregate demand shifts to the right.

C. decrease and aggregate demand shifts to the left.

D. increase and aggregate demand shifts to the left.

C. decrease and aggregate demand shifts to the left.

In the long run, technological progress:

A. makes the price level fall, while increases in the money supply make prices rise.

B. makes the price level rise, while increases in the money supply make prices fall.

C. and increases in the money supply both make the price level rise.

D. and increases in the money supply both make the price level fall.

A. makes the price level fall, while increases in the money supply make prices rise.

According to misperceptions theory, if a firm thought that inflation was going to be 5 percent and actual inflation was 6 percent, the firm would believe that the relative price of what they produce had:

A. increased, so they would decrease production.

B. increased, so they would decrease production.

C. decreased, so they would increase production.

D. increased, so they would increase production.

D. increased, so they would increase production.

The sticky wage theory of the short-run aggregate supply curve says that when the price level rises more than expected, the real wage:

A. rises, so employment rises.

B. rises, so employment falls.

C. falls, so employment falls.

D. falls, so employment rises.

D. falls, so employment rises.

The sticky price theory of the short-run aggregate supply curve says that when prices fall unexpectedly, some firms will have:

A. lower than desired prices which depresses their sales.

B. higher than desired prices which depresses their sales.

C. higher than desired prices which increases their sales.

D. lower than desired prices which increases their sales.

B. higher than desired prices which depresses their sales.

The effects of an increase in the price level that is greater than expected are shown by:

A. moving to the right along a given aggregate supply curve.

B. moving to the left along a given aggregate supply curve.

C. shifting the short-run aggregate supply curve to the left.

D. shifting the short-run aggregate supply curve to the right.

A. moving to the right along a given aggregate supply curve.

When production costs rise,:

A. the aggregate demand curve shifts to the right.

B. the short-run aggregate supply curve shifts to the right.

C. the aggregate demand curve shifts to the left.

D. the short-run aggregate supply curve shifts to the left.

D. the short-run aggregate supply curve shifts to the left.

An increase in the price level and a reduction in real GDP in the short run could be created by:

A. tax rebates.

B. natural disasters such as hurricanes and famines.

C. a fall in stock prices.

D. declining government expenditures.

B. natural disasters such as hurricanes and famines.

If the economy is initially in long-run equilibrium, then shifts in aggregate demand affect prices:

A. in the long and short run, but affect output only in the short run.

B. and output in both the short and long run.

C. in the long and short run, but affect output only in the long run.

D. and output only in the short run.

A. in the long and short run, but affect output only in the short run.

An economic contraction caused by a shift in aggregate demand causes prices to:

A. rise in the short run, and rise even more in the long run.

B. fall in the short run, and fall even more in the long run.

C. fall in the short run, and rise back to their original level in the long run.

D. rise in the short run, and fall back to their original level in the long run.

B. fall in the short run, and fall even more in the long run.

Suppose the economy is in long-run equilibrium. A senior MP succeeds in getting a major new highway project for his electorate. At the same time, another MP succeeds in getting major new restrictions on logging enacted. In the short run, we would expect:

A. real GDP will fall and the price level might rise, fall, or stay the same.

B. real GDP will rise and the price level might rise, fall, or stay the same.

C. the price level will rise, and real GDP might rise, fall, or stay the same.

D. the price level will fall, and real GDP might rise, fall, or stay the same.

C. the price level will rise, and real GDP might rise, fall, or stay the same.

Liquidity preference refers directly to Keynes’ theory concerning:

A. the difference between temporary and permanent changes in income.

B. the effects of changes in money demand and supply on exchange rates.

C. the effects of wealth on expenditures.

D. the effects of changes in money demand and supply on interest rates.

D. the effects of changes in money demand and supply on interest rates.

Keynes used the term "animal spirits" to refer to:

A. debates by politicians concerning fiscal policy.

B. firms’ relentless efforts to maximise profits.

C. arbitrary changes in attitudes of household and firms.

D. mean spirited economists who believed in the classical dichotomy.

C. arbitrary changes in attitudes of household and firms.

The theory of liquidity preference assumes that the nominal supply of money in New Zealand is mainly determined by the:

A. level of real GDP.

B. None of these is correct.

C. interest rate.

D. rate of inflation.

C. interest rate.

According to liquidity preference theory, the money supply curve would shift if the Reserve Bnak:

A. did any of these.

B. changed the reserve requirement.

C. changed the Official Cash Rate.

D. engaged in open-market transactions.

A. did any of these.

Which of the following is correct?

A. Liquidity preference theory assumes the price level adjusts to bring the money market into equilibrium. Classical theory assumes the interest rate adjusts to bring the money market into equilibrium.

B. Both liquidity preference and classical theory assume the price level adjusts to bring the money market into equilibrium.

C. Liquidity preference theory assumes the interest rate adjusts to bring the money market into equilibrium. Classical theory assumes the price level adjusts to bring the money market into equilibrium.

D. Both liquidity preference and classical theory assume the interest rate adjusts to bring the money market into equilibrium.

C. Liquidity preference theory assumes the interest rate adjusts to bring the money market into equilibrium. Classical theory assumes the price level adjusts to bring the money market into equilibrium.

Which of the following shifts money demand to the right?

A. an increase in the price level but not a change in the interest rate

B. an increase in either the price level or the interest rate

C. an increase in the price level or a decrease in the interest rate

D. a decrease in the interest rate but not a change in the price level

A. an increase in the price level but not a change in the interest rate

A monetary injection by the central bank:

A. decreases interest rates and decreases aggregate demand.

B. increases interest rates and decreases aggregate demand.

C. increases interest rates and increases aggregate demand.

D. decreases interest rates and increases aggregate demand.

D. decreases interest rates and increases aggregate demand.

The economy is in long-run equilibrium. Suppose that automatic teller machines become cheaper and more convenient to use, and as a result the demand for money falls. Other things equal, we would expect that in the short run,:

A. the price level and real GDP would rise, but in the long run the price level would rise and real GDP would be unaffected.

B. the price level and real GDP would rise, but in the long run they would both be unaffected.

C. the price level and real GDP would fall, but in the long run the price level would fall and real GDP would be unaffected.

D. the price level and real GDP would fall, but in the long run they would both be unaffected.

A. the price level and real GDP would rise, but in the long run the price level would rise and real GDP would be unaffected.

The government buys a bridge. The owner of the company that builds the bridge pays her workers. The workers increase their spending. Firms that the workers buy goods from increase their output. This type of effect on spending illustrates:

A. the multiplier effect.

B. None of these are correct.

C. the marginal propensity to consume effect.

D. the crowding-out effect.

A. the multiplier effect.

An increase in the marginal propensity to consume:

A. increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand.

B. decreases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand.

C. decreases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand.

D. increases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand.

A. increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand.

The economy is in long-run equilibrium. Immigration of skilled workers shifts the long-run aggregate supply curve $60 billion to the right. At the same time, government purchases increase by $30 billion. If the MPC equals 0.8 and the crowding-out effect is $90 billion, we would expect that in the long-run,:

A. real GDP would be higher but the price level would be the same.

B. real GDP would be higher but the price level would be lower.

C. both real GDP and the price level would be lower.

D. both real GDP and the price level would be higher.

A. real GDP would be higher but the price level would be the same.

If there are automatic stabilisers but no deliberate action by policymakers, government expenditures:

A. rise as output rises.

B. None of these is correct.

C. rise as output falls.

D. remain unchanged as output rises.

C. rise as output falls.

New Zealand economist A.W. (Bill) Phillips found a:

A. negative relationship between unemployment and inflation in the United Kingdom.

B. negative relationship between unemployment and inflation in the United States.

C. positive relationship between unemployment and inflation in the United States.

D. positive relationship between unemployment and inflation in the United Kingdom.

A. negative relationship between unemployment and inflation in the United Kingdom.

If policymakers contract aggregate demand, then in the short run inflation:

A. and unemployment rise.

B. falls, but unemployment rises.

C. rises, but unemployment falls.

D. and unemployment fall.

B. falls, but unemployment rises.

If the short-run Phillips curve were stable, which of the following would be unusual?

A. an increase in inflation and a decrease in output

B. a decrease in the inflation rate and a rise in the unemployment rate

C. a decrease in output and an increase in unemployment

D. an increase in government spending and a fall in unemployment

A. an increase in inflation and a decrease in output

In the diagram, if the economy starts at c and 1, then in the short run, an increase in the money supply growth rate moves the economy to:

A. a and 1.

B. c and 3.

C. b and 2.

D. None of these is correct.

C. b and 2.

n the diagram, if the economy starts at c and 1, then in the short run, an increase in government expenditures moves the economy to:

A. d and 3.

B. None of these is correct.

C. b and 3.

D. b and 2.

D. b and 2.

Which of the following would not be associated with a favourable supply shock?

A. Output rises.

B. Unemployment falls.

C. The price level rises.

D. The short-run Phillips curve shifts to the left.

C. The price level rises.

If policymakers accommodate an adverse supply shock, the unemployment rate:

A. and the inflation rate will both fall.

B. will fall and the inflation rate will rise.

C. and the inflation rate will both rise.

D. will rise and the inflation rate will fall.

B. will fall and the inflation rate will rise.

According to Friedman and Phelps, no matter what the central bank does to the money supply, in the long run, the:

A. economy will have a zero unemployment rate.

B. inflation rate will tend to the natural rate of inflation.

C. economy will have a zero inflation rate.

D. unemployment rate will tend toward the natural rate of unemployment.

D. unemployment rate will tend toward the natural rate of unemployment.

The analysis of Friedman and Phelps can be summarised in the following equation where a is positive number:

A. Unemployment Rate = Natural Rate of Unemployment – a(Actual Inflation – Expected Inflation).

B. Unemployment Rate = Natural Rate of Unemployment – a(Expected Inflation – Actual Inflation).

C. Unemployment Rate = Actual Rate of Inflation – a(Actual Unemployment – Expected Unemployment).

D. Unemployment Rate = Expected Rate of Inflation – a(Actual Inflation – Expected Inflation).

A. Unemployment Rate = Natural Rate of Unemployment – a(Actual Inflation – Expected Inflation).

A vertical long-run Phillips curve:

A. All of these are correct.

B. is consistent with the principle of monetary neutrality.

C. is inconsistent with real world data.

D. implies that the natural rate of unemployment depends on the inflation rate.

B. is consistent with the principle of monetary neutrality.

If the economy is at the point where the short-run Phillips curve intersects the long-run Phillips curve,:

A. unemployment is equal to the natural rate and expected inflation is equal to actual inflation.

B. unemployment is above the natural rate and expected inflation is equal to actual inflation

C. unemployment is equal to the natural rate and expected inflation is greater than actual inflation.

D. None of these is necessarily correct.

A. unemployment is equal to the natural rate and expected inflation is equal to actual inflation.

If efficiency wages became more common,:

A. both the long-run Phillips curve and the long-run aggregate supply curve would shift to the right.

B. both the long-run Phillips curve and the long-run aggregate supply curve would shift to the left.

C. the long-run Phillips curve would shift to the left, and the long-run aggregate supply curve would shift to the right.

D. the long-run Phillips curve would shift to the right, and the long-run aggregate supply curve would shift to the left.

D. the long-run Phillips curve would shift to the right, and the long-run aggregate supply curve would shift to the left.

A policy change that changes the natural rate of unemployment changes:

A. neither the long-run Phillips curve nor the long-run aggregate supply curve.

B. the long-run Phillips curve, but not the long-run aggregate supply curve.

C. both the long-run Phillips curve and the long-run aggregate supply curve.

D. the long-run aggregate supply curve, but not the long-run Phillips curve.

C. both the long-run Phillips curve and the long-run aggregate supply curve.

An increase in expected inflation shifts the:

A. long-run Phillips curve to the left.

B. long-run Phillips curve to the right.

C. short-run Phillips curve to the left.

D. short-run Phillips curve to the right.

D. short-run Phillips curve to the right.

In the diagram below, the economy would move from c and 3 to e and 5:

A. in the short run if money supply growth increased unexpectedly.

B. in the long run if money supply growth decreases.

C. in the short run if money supply growth decreased unexpectedly.

D. in the long run if money supply growth increases.

D. in the long run if money supply growth increases.

In recent years, inflation expectations have fallen. This has shifted the short-run Phillips curve to the:

A. right, meaning that at any given inflation rate unemployment will be higher in the short run than before.

B. left, meaning that at any given inflation rate unemployment will be lower in the short run than before.

C. left, meaning that at any given inflation rate unemployment will be higher in the short run than before.

D. right, meaning that at any given inflation rate unemployment will be lower in the short run than before.

B. left, meaning that at any given inflation rate unemployment will be lower in the short run than before.