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PPSC Lecturer Recruitment 2015 Economics Important Mcqs from Past Papers for Lecturer Test Preparation 2015

PPSC Lecturer Recruitment 2015 Economics  Important Mcqs from Past Papers for Lecturer Test Preparation 2015

The fundamental economic problem faced by all societies is:
a. unemployment
b. inequality
c. poverty
d. scarcity

2. “Capitalism” refers to:
a. the use of markets
b. government ownership of capital goods
c. private ownership of capital goods
d. private ownership of homes & cars

3. There are three fundamental questions every society must answer. Which of the following is/are one of these questions?
a. What goods and services are to be produced?
b. How are the goods and services to be produced?
c. Who will get the goods and services that are produced?
d. All of the above

4. If you were working full-time now, you could earn $20,000 per year. Instead, you are working part-time while going to school. In your current part-time job, you earn $5,000 per year. At your school, the annual cost of tuition, books, and other fees is $2,000. The opportunity cost of completing your education is:
a. $2,000
b. $5,000
c. $17,000
d. $20,000
e. $22,000

5. The bowed shape of the production possibilities curve illustrates:
a. the law of increasing marginal cost
b. that production is inefficient
c. that production is unattainable
d. the demand is relatively inelastic

6. You have taken this quiz and received a grade of 3 out of a possible 10 points (F). You are allowed to take a second version of this quiz. If you score 7 or more, you can raise your score to a 7 (C). You will need to study for the second version. In making a rational decision as to whether or not to retake the test, you should
a. always retake the quiz
b. consider only the marginal benefits from of retaking the quiz (four extra points)
c. consider only the marginal opportunity costs from taking the quiz (the time spent
studying and taking the quiz)
d. consider both the marginal benefits and the marginal opportunity costs of retaking the quiz

7. The law of demand states that:
a. as the quantity demanded rises, the price rises
b. as the price rises, the quantity demanded rises
c. as the price rises, the quantity demanded falls
d. as supply rises, the demand rises
8. The price elasticity of demand is the:
a. percentage change in quantity demanded divided by the percentage change in price
b. percentage change in price divided by the percentage change in quantity demanded
c. dollar change in quantity demanded divided by the dollar change in price
d. percentage change in quantity demanded divided by the percentage change in quantity supplied

9. Community Colleges desired to increase revenues. They decided to raise fees paid by students with Bachelors degrees to $50 per unit because they believed this would result in greater revenues. But in reality, total revenues fell. Therefore, the demand for Community College courses by people with Bachelors degrees must have actually been:
a. relatively inelastic
b. unit elastic
c. relatively elastic
d. perfectly elastic

10. The demand for a product would be more inelastic:
a. the greater is the time under consideration
b. the greater is the number of substitutes available to buyers
c. the less expensive is the product in relation to incomes
d. all of the above
1. In the case of agriculture,
a. the demand has shifted to the right more than the supply has shifted to the right
b. the demand has shifted to the right less than the supply has shifted to the right
c. the demand has shifted to the left more than the supply has shifted to the left
d. the demand has shifted to the left less than the supply has shifted to the left

2. The agricultural price support program is an example of
a. a price ceiling
b. a price floor
c. equilibrium pricing

3. If there is a price floor, there will be
a. shortages
b. surpluses
c. equilibrium

4. If there is a price ceiling, there will be
a. shortages
b. surpluses
c. equilibrium

5. If there is a price ceiling, which of the following is NOT likely to occur?
a. rationing by first-come, first-served
b. black markets
c. gray markets
d. sellers providing goods for free that were formerly not free

6. The goal of a pure market economy is to best meet the desires of
a. consumers
b. companies
c. workers
d. the government

7. In a pure market economy, which of the following is a function of the price?

I. provide information to sellers and buyers , II. provide incentives to sellers and buyers
a. I only
b. II only
c. both I and II
d. neither I nor II

8. In a market system, sellers act in ____________ interest , but this leads to behaviors in ____________ interest.
a. self; self
b. self; society’s
c. society’s; society’s
d. society’s; self

9. The law of diminishing (marginal) returns states that as more of a variable factor is added to a certain amount of a fixed factor, beyond some point:
a. Total physical product begins to fall
b. The marginal physical product rises
c. The marginal physical product falls
d. The average physical product falls

10. Why is the law of diminishing marginal returns true?
a. specialization and division of labor
b. spreading the average fixed cost
c. limited capital
d. all factors being variable in the long-run
Which of the following is a characteristic of pure monopoly?
a. one seller of the product
b. low barriers to entry
c. close substitute products
d. perfect information

2. In pure monopoly, what is the relation between the price and the marginal revenue?
a. the price is greater than the marginal revenue
b. the price is less than the marginal revenue
c. there is no relation
d. they are equal

3. In order to maximize profits, a monopoly company will produce that quantity at which the:
a. marginal revenue equals average total cost
b. price equals marginal revenue
c. marginal revenue equals marginal cost
d. total revenue equals total cost

4. Quantity Price Total Cost
1 $100 $ 60
2 95 130
3 90 210
4 85 300
5 80 400

This monopolist should produce:
a. 1
b. 2
c. 3
d. 4
e. 5

5. Compared to the case of perfect competition, a monopolist is more likely to:
a. charge a higher price
b. produce a lower quantity of the product
c. make a greater amount of economic profit
d. all of the above

6. Which of the following is necessary for a natural monopoly?
a. economies of scale
b. a high proportion of the total cost is the cost of capital goods
c. the market is very small
d. all of the above

7. Which of the following is true about the way by which SDG&E has been regulated by the PUC?
a. SDG&E has been allowed to earn very high economic profits
b. The profits of SDG&E are calculated as a percent of the value of the capital goods
c. When the demand for electricity would fall, the price of electricity would also fall
d. All of the above

8. Which of the following best defines price discrimination?
a. charging different prices on the basis of race
b. charging different prices for goods with different costs of production
c. charging different prices based on cost-of-service differences
d. selling a certain product of given quality and cost per unit at different prices to different buyers

9. In order to practice price discrimination, which of the following is needed?
a. some degree of monopoly power
b. an ability to separate the market
c. an ability to prevent reselling
d. all of the above

10. In price discrimination, which section of the market is charged the higher price?
a. the section with the richest people
b. the section with the oldest people
c. the section with the most inelastic demand
d. the section with the most elastic demand

Which of the following concepts represents the extra revenue a firm receives from the services of an additional unit of a factor of production?
a. total revenue
b. marginal physical product
c. marginal revenus product
d. marginal revenue

2. Workers Quantity Produced
1 15
2 28
3 39
4 48
5 55
6 60

This company is a profit-maximizing firm selling in a competitive product market and hiring in a competitive labor market. It uses semi-skilled labor to produce dampers used in office building ventilation systems. Assume that the current market price per damper is $50 and that the prevailing weekly salary per semi-skilled worker is $550. This company should employ ______ workers.
a. 2
b. 3
c. 4
d. 5
e. 6

3. The demand for labor is the same as the
a. marginal revenue product
b. marginal physical product
c. marginal cost
d. wage

4. The demand for labor slopes down and to the right because of
a. the law of demand
b. the iron law of wages
c. the law of diminishing marginal returns
d. economies of scale

5. The demand for labor will be more elastic if:
a. there are few substitutes for labor
b. there is a short time under consideration
c. labor is a large percent of the total cost of production
d. the demand for the product is relatively inelastic
e. all of the above

6. Skills that can be transferred to other employers are called:
a. general skills
b. specific skills
c. non-pecuniary skills
d. all of the above

7. Which skills are most likely to be paid for by the employer?
a. General skills
b. Specific skills
c. Educational skills

8. If worker A earns more in wages than worker B, it could be because:
a. The product made by worker A sells for a higher price than that made by worker B
b. Worker A uses more capital per worker than worker B
c. Worker A has more natural ability than worker B
d. All of the above

9. Skills that embodied in a person are called
a. Human capital
b. Embodied skills
c. Physical capital
d. Experience skills

10. “Treating an individual as typical of a group” is the definition of
a. pure discrimination
b. statistical discrimination
c. human capital
d. specific skills
. The largest source of tax revenue for the federal government is:
a. the personal income tax
b. the social security tax
c. the property tax
d. the sales tax

2. When my income was $100,000, I paid $10,000 in taxes. When my income became $200,000, I paid $40,000 in taxes. My marginal tax rate is:
a. 10%
b. 20%
c. 30%
d. 40%

3. The tax is question #2 is:
a. progressive
b. regressive
c. proportional

4. Which of the following taxes is regressive?
a. the federal income tax
b. the state income tax
c. the sales tax
d. the Medicare tax

5. Assume that there are two goods, A and B. In 1996, Americans produced 10 units of A at a price of $10 and 20 units of B at a price of $20. In 2002, Americans produced 20 units of A at a price of $20 and 30 units of B at a price of $30. The Nominal GDP for 2002 is:
a. $100
b. $400
c. $500
d. $900
e. $1300

6. Using the numbers in question 5, the Real GDP for 2002 is:
a. $400 b. $500 c. $800 d. $900 e. $1,300

7. Which of the following statements is/are true?
a. Business Investment Spending occurs when individuals buy stock in the stock market
b. Productivity is the United States grew very slowly between 1973 and 1996
c. Because of discouraged workers, the official unemployment rate is too high
d. “Full employment” occurs when there is no frictional unemployment

8. Immediately after a trough, we would expect to have a/an
a. peak
b. recession
c. recovery
d. another trough

9. Last week, Martha spent one day cleaning a house. For this, she was paid $50. The rest of the week, she spent looking for a job. Martha would be classified as
a. employed
b. unemployed
c. not in the labor force

10. John lost his accounting job when Montgomery Wards closed its stores in San Diego. He looked for a similar job for ten months before finding an accounting job at Sears. During the month John was unemployed, he was
a. frictionally unemployed
b. seasonally unemployed
c. cyclically unemployed
d. structurally unemployed
Assume that there are only two goods: A and B
In the base year, Quantity Price
A 10 $1
B 10 $4
In the current year, Quantity Price
A 20 $ 5
B 25 $20
The Consumer Price Index (CPI) for the current year is:
a. 50
b. 100
c. 200
d. 500
e. 600

2. Which of the following groups is most hurt by unexpected inflation?
a. workers with cost of living adjustments in their labor contracts
b. homeowners
c. people with large debts to pay for their homes and cars
d. people with large retirement savings held in savings accounts

3. If the nominal interest rate is 5% and the inflation rate is 2%, the real interest rate is:
a. 2%
b. 3%
c. 5%
d. 7%
e. 2 ½%

4. For which of the following reasons might inflation cause Real GDP to grow slower than it otherwise would?
a. Inflation makes everyone poorer
b. Inflation reduces the value of consumer debt
c. Inflation increases business investment spending
d. Inflation decreases savings in financial form

5. Disposable Income is equal to:
a. National Income c. National Income Minus Taxes
b. Real GDP
c. National Income Minus Taxes
d. National Income Minus Taxes Plus Transfers

6. Assume that Potential Real GDP equals $10,000. National Income is therefore $10,000. Of this, consumers will pay $2,000 in taxes, save $1,000, and spend $7,000 on consumer goods. Business Investment spending is $2000. In order to avoid recessions and inflation (to have equilibrium), the government should have a:
a. balanced budget
b. budget deficit of $1000
c. budget surplus of $1000
d. budget deficit of $2000

7. According to Keynes, when the Great Depression started, the government should have:
a. done nothing
b. decreased the money supply
c. had a large increase in government spending
d. enacted high tariffs, such as the Smoot-Hawley Tariff

8. If the government lowers taxes by $10 billion, the Real GDP will rise by
a. more than $10 billion
b. less than $10 billion
c. exactly $10 billion

9. Which of the following is an automatic stabilizer?
a. unemployment benefits
b. spending on education
c. defense spending
d. net interest

10. “Crowding out” means that
a. a government budget deficit lowers interest rates and causes investment spending to rise
b. an increase in marginal tax rates lowers production
c. a government budget deficit raises interest rates and causes investment spending to fall
d. a government budget deficit raises American exports and lowers American imports

Which of the following IS a function of money?
a. medium of exchange
b. store of value
c. unit of accounting
d. all of the above

2. Which of the following is a component of M-1?
a. savings deposits
b. credit card
c. checkable deposits
d. gold

3. Which of the following is a NOT component of M-2?
a. small time deposits
b. money market mutual funds
c. stocks
d. checkable deposits

4. Which of the following is true about the Federal Reserve System (Fed)?
a. it is a system of 12 central banks
b. its Board of Governors is elected by a vote of the people
c. its main policy-making body is the FDIC
d. it accepts deposits from the public and makes loans to businesses
e. all of the above

5. An IOU of the Federal Reserve Bank of San Francisco to Bank of America is called:
a. discounts
b. federal funds
c. reserves
d. collateral

6. Which of the following is the most liquid?
a. a savings account
b. a 6 month CD
c. a home
d. water

7. The monetary base is composed of:
a. gold and silver
b. currency only
c. currency and reserves
d. currency and checkable deposits

8. If the monetary base is increased by $1,000 and the reserve requirement is 10% (1/10), by how much will the money supply be increased?
a. $100
b. $1,000
c. $5,000
d. $10,000

9. If the Federal Reserve wishes to increase the money supply, it should:
a. raise the reserve requirement
b. raise the discount rate
c. buy Treasury securities in the open market
d. all of the above

10. An increase in the money supply will cause interest rates to
a. rise
b. fall
c. remain unchanged

PPSC Lecturer Recruitment 2015 Economics Important Mcqs from Past Papers for Lecturer Test Preparation 2015

PPSC Lecturer Recruitment 2015 Economics  Important  Mcqs from Past Papers for Lecturer Test Preparation 2015

A study of how increases in the minimum wage rate will affect the national unemployment rate is an example of
A. descriptive economics.
B. normative economics.
C. macroeconomics.
D. microeconomics.

2 Aggregate supply is the total amount
A. of goods and services produced in an economy.
B. produced by the government.
C. of products produced by a given industry.
D. of labour supplied by all households.

3 The total demand for goods and services in an economy is known as
A. aggregate demand.
B. national demand.
C. gross national product.
D. economy-wide demand.

4 Deflation is
A. an increase in the overall level of economic activity.
B. an increase in the overall price level.
C. a decrease in the overall level of economic activity.
D. a decrease in the overall price level.

5 A recession is
A. a period of declining prices.
B. a period during which aggregate output declines.
C. a period of declining unemployment.
D. a period of falling trade volumes.

6 Involuntary unemployment means that
A. people are not willing to work at the going wage rate.
B. at the going wage rate, there are people who want to work but cannot find work.
C. there are some people who will not work at the going wage rate.
D. there is excess demand in the labour market.

7 A cut in the income tax rate designed to encourage household consumption is an example of
A. expansionary demand-side policy.
B. contractionary demand-side policy.
C. expansionary supply-side policy.
D. contractionary supply-side policy.
8 A cut in the tax rate designed to reduce the cost of capital and hence encourage business investment is an example of
A. expansionary demand-side policy.
B. contractionary demand-side policy.
C. expansionary supply-side policy.
D. contractionary supply-side policy.

9 Macroeconomics is the branch of economics that deals with
A. the economy as a whole.
B. imperfectly competitive markets.
C. only the long run adjustments to equilibrium in the economy.
D. the functioning of individual industries and the behaviour of individual decision-making units – business firms and households.

10 A group of modern economists who believe that price and wage rigidities do not provide the only rationale for macroeconomic policy activism are called:
A. New-Keynesians.
B. Keynesians.
C. Monetarists.
D. The Classical school.

11 Macroeconomic theory that emphasised the theories of Keynes and de-emphasised the Classical theory developed as the result of the failure of
A. economic theory to explain the simultaneous increases in inflation and unemployment during the 1970s.
B. fine tuning during the 1960s.
C. the economy to grow at a rapid rate during the 1950s.
D. the Classical model to explain the prolonged existence of high unemployment during the Great Depression.

12 Keynes believed falling wages were not a solution to persistent unemployment because
A. falling wages demoralised workers.
B. this would reduce the purchasing power of labourers as consumers. This in turn would bleaken firms’ prospects of selling more goods, hence inducing them to cut their investment (and hence labour) demand.
C. the unemployment was caused by frictional and structural factors.
D. wages would fall more than required to clear the labour market.

13 The practice of using fiscal and monetary policy to stabilise the economy is known as
A. fine tuning of demand
B. monetarism
C. laissez faire economics
D. supply side economics

14 According to Classical models, the level of employment is determined primarily by
A. interest rates.
B. the level of prices.
C. the level of aggregate supply in the economy
D. the level of aggregate demand for goods and services.

15 According to Keynes, the level of employment is determined by
A. interest rates.
B. the level of prices.
C. the level of aggregate supply in the economy
D. the level of aggregate demand for goods and services.

16 According to the Classical model, unemployment
A. could not persist because wages would fall to eliminate the excess supply of labour.
B. could persist for long periods of time because wages are not flexible.
C. could be eliminated only through government intervention.
D. could never exist.

17 To get the economy out of a slump, Keynes believed that the government should
A. increase both taxes and government spending.
B. increase taxes and/or decrease government spending.
C. cut both taxes and government spending.
D. decrease taxes and/or increase government spending.

18 Aggregate demand refers to the total demand for all domestically produced goods and services in an economy generated from
A. the household and government sectors.
B. the household sector.
C. all sectors except the rest of the world.
D. all sectors including the rest of the world.

19 Government policies that focus on increasing production rather than demand are called:
A. fiscal policies.
B. monetary policies.
C. incomes policies.
D. supply-side policies.

20 Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded are
A. market prices.
B. sticky prices.
C. fixed prices.
D. regulatory prices.

21 The economists who emphasised wage-flexibility as a solution for unemployment were
A. Monetarists.
B. New-Keynesians.
C. Classical economists.
D. Keynesians.

22 According to the Classical economists, the economy
A. requires fine tuning to reach full employment.
B. should not be left to market forces.
C. will never be at full employment.
D. is self correcting.

23 Monetarism became popular because it was able to, unlike Classical or Keynesian economics, explain
A. stagflation in the late 1970s.
B. demand-pull inflation in the 1960s.
C. low growth rates in the 1950s.
D. the prolonged existence of high unemployment during the Great Depression.
24 Keynes’ explanation for low firm investment during the Great Depression was
A. low savings, which placed a constraint on investment
B. high real borrowing rates, which discouraged firm borrowing
C. high savings, which left consumers with less money to spend on goods and serviced produced by firms
D. A permanent change in Europe’s corporate ownership structures.

25 Rapid increases in the price level during periods of recession or high unemployment are known as
A. slump.
B. stagnation.
C. stagflation.
D. inflation.

26 The hypothesis that people know the ‘true model’ of the economy and that they use this model and all available information to form their expectations of the future is the
A. rational-expectations hypothesis.
B. active-expectations hypothesis.
C. static-expectations hypothesis.
D. adaptive-expectations hypothesis.

27 Neo-Classical theories were an attempt to explain
A. how unemployment could have persisted for so long during the Great Depression.
B. the stagflation of the 1970s.
C. why policy changes that are perceived as permanent have more of an impact on a person’s behaviour than policy changes that are viewed as temporary.
D. the increase in the growth rate of real output in the 1950s.

28 A group of modern economists who believe that markets clear very rapidly and that expanding the money supply will always increase prices rather than employment are the
A. New-Keynesians.
B. Keynesians.
C. Monetarists.
D. The Classical school.

29 Say’s law states that:
A. Supply creates its own demand.
B. Demand creates its own supply.
C. There is no such things as a free lunch
D. Macroeconomic policy activism is essential to ensure full-employment.

30 The aggregate supply (AS) curve and aggregate demand (AD) curve in a realistic Keynesian world are:
A. AS: fully horizontal; AD: downward sloping
B. AS: horizontal only till the full capacity level; AD: downward sloping
C. AS: vertical; AD: upward sloping
D. AS: horizontal; AD: vertical
. By how much has real GDP grown from 2001 to 2002?
A. -10%
B. 12.5%
C. 20%
D. 0%

2. By how much has per capita nominal GNP changed from 2001 to 2002?
A. -10%
B. 12.5%
C. 20%
D. 0%

3. Based on the above information, we can say that:
A. Poverty has fallen in the country
B. Per capita real GDP is falling
C. Income inequality has worsened
D. Real growth in the informal sector is 0%

4. In the circular flow of income, Keynesian equilibrium obtains when
A. All the individual sectors are in equilibrium: S=I, T=G, M=X
B. The aggregate injections equal aggregate withdrawals S+T+M = I+G+X
C. There is no inflation or unemployment
D. The interest rate and exchange rate are at their market clearing levels

5. Under conditions of Keynesian equilibrium:
A. aggregate demand equals aggregate supply
B. aggregate demand equals national income
C. both A and B
D. none of the above

6. Which of the following is a determinant of consumption
A. expectations about future prices
B. level of indebtedness of consumers
C. the price level
D. all of the above

7. Which is the most volatile component of aggregate demand
A. Net exports
B. consumption
C. investment
D. government spending

8. Which of the following is not an obvious or direct determinant of a country’s imports
A. real exchange rate
B. income
C. tariff rates
D. interest rate

9. When consumption is 650, income is 750; when consumption is 620, income is 700. Assuming there is no government, I=100, net exports are 10, what is the level of equilibrium income?
A. 500
B. 625
C. 775
D. 850

10. Which of the following is not true?
A. Starting from no growth, a positive output growth rate would be associated with even higher rates of investment (the accelerator effect)
B. Higher investment causes a multiplied increase in income
C. Such increases in income would continue to induce higher investment, which in turn would continue to cause multiplied increases in output.
D. All of the above.

11. In the equation C = a + bY, which describes the aggregate consumption function, ‘a’ stands for
A. the amount of consumption when income is zero.
B. the marginal propensity to consume.
C. the amount of consumption when income is Maximum.
D. the average consumption level.

12. Total consumption divided by total income gives us:
A. the average propensity to consume.
B. the marginal propensity to save.
C. the marginal propensity of expenditure.
D. the marginal propensity to consume.

13 Disposable income is the part of households’ income left after the deduction of

A. pension contributions.
B. income tax and social security payments.
C. income tax.
D. savings.

14. As the MPS increases, the multiplier will

A. increase.
B. either increase or decrease depending on the size of the change in investment.
C. remain constant.
D. decrease.

15. In macroeconomics, equilibrium is defined as that point at which
A. planned aggregate expenditure equals aggregate output.
B. planned aggregate expenditure equals consumption.
C. aggregate output equals consumption minus investment.
D. saving equals consumption.

16. The ratio of the change in the equilibrium level of output to a change in some autonomous component of aggregate demand is the
A. elasticity coefficient.
B. multiplier.
C. marginal propensity of the autonomous variable.
D. automatic stabiliser.

17. Assuming there are no taxes (and no foreign sector), if the MPC is .8, the multiplier is
A. 2.5.
B. 8.
C. 5.
D. 2.

18. Assuming the net income tax rate is 25% (and there is no foreign sector), if the MPC is 0.8, the multiplier is
A. 2.5.
B. 8.
C. 5.
D. 2.

19. Assuming there is no foreign sector, if the multiplier is 3, and the net income tax rate is 20%, the MPC is
A. 3/4
B. 4/5
C. 5/6
D. 6/7

20. Assume there is no government or foreign sector. If the MPC is .75, a Rs.20 billion decrease in planned investment will cause aggregate output to decrease by
A. Rs. 80 billion.
B. Rs. 20 billion.
C. Rs. 26.67 billion.
D. Rs. 15 billion.

21. According to the ‘paradox of thrift,’ increased efforts to save will cause
A. an increase in income and an increase in overall saving.
B. a decrease in income and an overall decrease in saving.
C. a decrease in income but an increase in saving.
D. an increase in income but no overall change in saving.

22. If injections are less than withdrawals at the full-employment level of national income, there is
A. an inflationary gap.
B. equilibrium.
C. a deflationary gap.
D. hyperinflation.

23. The accelerator theory of investment says that induced investment is determined by
A. the rate of change of national income.
B. expectations.
C. the level of national income.
D. the level of aggregate demand.

24. The diagram that shows the money received and paid out by each sector of the economy is the
A. income-price diagram.
B. income-expenditures diagram.
C. circular flow diagram.
D. aggregate demand-aggregate supply diagram.
The index used most often to measure inflation is the
A. consumer price index.
B. wholesale price index.
C. student price index.
D. producer price index.

12. If you were the owner of a cycle manufacturing firm, would you be particularly worried if wage inflation were higher than price inflation?

A. No. Because you would still be able to sell your goods at the higher price.
B. Yes. Because the cost of your input is growing faster than the revenue obtained from your output
C. Yes. Because both price and wage inflation are bad.
D. No. Because any loss to the firm will be offset by the gain to the workers.

13. Which of the following is not a major cost of inflation:

A. Resource wastage: as people spend time and money to guard against the “purchasing power erosion” effects of inflation, while firms suffer menu costs (i.e. the costs of frequently issuing “revised” price lists).
B. Uncertainty: firms defer investment when inflation is high and volatile as the latter complicates predicting future cashflows.
C. Worsened income inequality: inflation is a regressive tax on the people that does not take into account the taxpayers’ “ability to pay”. As such, there is a redistribution of wealth from the poor to the rich.
D. Money printing costs: inflation requires more currency notes to be printed and this raises the government’s printing costs.

14. In the long run, the Phillips curve will be vertical at the natural rate of unemployment if
A. the long-run supply curve is horizontal at the natural rate of inflation.
B. the long-run aggregate demand curve is vertical at potential GDP.
C. the long-run aggregate demand curve is horizontal at the natural rate of inflation.
D. the long-run aggregate supply curve is vertical at potential GDP.

15. According to the monetarists, the measured unemployment rate can
A. be reduced below the natural rate only in the short run, and not without inflation.
B. be reduced below the natural rate only in the long run, and only if the price level is constant.
C. be reduced below the natural rate only in the short run, and only if the price level is constant.
D. be reduced below the natural rate only in the long run, and not without inflation.

16. If the prices of all inputs seem to be rising, can you be absolutely sure that it is cost-push inflation?
A. No, because cost-push inflation is caused by an increase in the cost of only one input.
B. Yes, because that is exactly the definition of cost-push inflation.
C. No, because such a situation can also be caused by particular demand pressures in the economy.
D. Yes, because this is exactly what happens in stagflation.

17. The quantity theory of money implies that, provided velocity of money is constant, a given percentage change in the money supply will cause
A. an equal percentage change in nominal GDP.
B. a larger percentage change in nominal GDP.
C. an equal percentage change in real GDP.
D. a smaller percentage change in nominal GDP.

18. If input prices adjusted very slowly to output prices, the Phillips curve would be
A. downward sloping.
B. vertical or nearly vertical.
C. upward sloping.
D. horizontal or nearly horizontal.

19. If inflationary expectations increase, the short-run Phillips curve will
A. become vertical.
B. become upwarding sloping.
C. shift to the right.
D. shift to the left.

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