1. When most consumers and firms reduce spending only becausethey expect other consumers and firms to reduce spending, and arecession results, A. a real-business-downturn has occurred. B. aself-correction has occurred. C. a coordination failure hasoccurred. D. an adverse aggregate supply shock has occurred. 2. Agovernment may be able to reduce the international value of itscurrency by A. selling foreign currencies in the foreign exchangemarket. B. selling its currency in the foreign exchange market. C.buying its currency in the foreign exchange market. D. increasingits domestic interest rates. 3. In terms of aggregate supply, aperiod in which nominal wages and other resource prices are fullyresponsive to price-level changes is called the A. short run. B.long run. C. immediate market period. D. very long run. 4.Monetarists believe the private economy is inherently A. stable andthat the government sector should be small. B. unstable and thepublic sector should be small. C. unstable and the public sectorshould be large. D. stable, but that the public sector should belarge. 5. The “brain drain” problem in the developing countriesrefers to the fact the best-educated workers A. often emigrate toindustrialized countries. B. are reluctant to become entrepreneurs.C. are reluctant to work in the public sector. D. are concentratedin rural areas where their skills are underutilized. 6. Which oneof the following statements about capital flight is correct? A.Capital flight refers to the high international mobility ofspeculative funds caused by variations in exchange rates. B.Capital flight refers to the tendency of large corporations ofindustrially advanced countries to build new plants in thedeveloping countries because labor is cheaper. C. Capital flightrefers to developing countries’ citizens accumulating or investingtheir savings in the industrially advanced countries. D. Capitalflight refers to the tendency of developing countries to overinvestin commercial aircraft. 7. If a nation’s goods exports are $55billion, while its goods imports are $50 billion, we can concludewith certainty that this nation has a A. balance of paymentssurplus. B. positive balance on current account. C. balance oftrade (goods) surplus. D. positive balance on goods and services.8. A major difficulty with the argument that trade barriers arenecessary because foreign workers are paid low wages is that A.wage rates and labor productivity are directly related. B. there’sno discernible relationship between wage rates and laborproductivity. C. wage rates and labor productivity are inverselyrelated. D. labor costs and product prices are not related. 9. Theequation of exchange suggests that, if the supply and velocity ofmoney remain unchanged, an increase in the physical volume of goodsand services produced will cause A. a decline in the price level.B. the unemployment rate to rise. C. an automatic budget deficit.D. the Federal Reserve Banks to sell securities in the open market.10. The Laffer Curve is a central concept in A. welfare economics.B. monetarism. C. supply-side economics. D. Keynesianism. 11. Ifgovernment uses its stabilization policies to maintain fullemployment under conditions of cost-push inflation, A. stagflationis likely to occur. B. an inflationary spiral is likely to occur.C. the Phillips Curve is likely to shift inward. D. a deflationaryspiral is likely to occur. 12. Rational expectations theory isbased on the assumption that A. both product and resource marketsare very competitive. B. both product and resource markets aremonopolistic. C. wages and prices are flexible upward, butinflexible downward. D. product markets are competitive, butresource markets are monopolistic. 13. In terms of aggregatesupply, a period in which nominal wages and other resource pricesare unresponsive to price-level changes is called the A. long run.B. short run. C. very long run. D. immediate market period. 14.Which one of the following statements about the velocity of moneyis correct? A. The velocity of money is the number of times peryear the average dollar is spent on final goods and services. B.The velocity of money is the price level divided by aggregatesupply. C. The velocity of money is the relationship between themoney supply and the price level. D. The velocity of money is therelationship between asset and transactions demands for money. 15.Which one of the following statements about disinflation iscorrect? A. Disinflation occurs when investment plans exceedsaving. B. Disinflation occurs when the price level is falling. C.Disinflation occurs when the inflation rate is declining. D.Disinflation occurs when a speculative investment “bubble” isbursting. 16. In the U.S. balance of payments, U.S. purchases ofassets abroad are a(n) A. U.S. dollar outflow. B. current accountitem. C. U.S. dollar inflow. D. inpayment. 17. The internationalagency that lends money to developing countries for economicdevelopment projects is the A. World Trade Organization (WTO). B.World Credit Union. C. World Bank. D. International Monetary Fund(IMF). 18. Which one of the following is typically not a problemfor low-income developing countries? A. Capital flight B. Highsaving rates C. “Brain drains” D. Poor infrastructure End of exam19. The very poorest low-income developing countries typically haverelatively A. low rates of both population growth and economicgrowth. B. high rates of economic growth and relatively low ratesof population growth. C. high rates of both population growth andeconomic growth. D. low rates of economic growth and relativelyhigh rates of population growth. 20. Inflation accompanied byfalling real output and employment is known as A. Okun’s law. B.Laffer’s law. C. the Phillips Curve. D. stagflation