21) Expansionary fiscal policy is so named because itA. involves an expansion of the nation's money supplyB. can only be attained by expanding government consumptionC. is aimed at achieving greater price stabilityD. can motivate an expansion of real GDP22) Suppose the price level is fixed, the MPC is .5, and the GDP gap is a negative $100 billion. To achieve full-employment output (exactly), government shouldA. increase government expenditures by $100 billionB. increase government expenditures by $50 billionC. reduce taxes by $50 billionD. reduce taxes by $200 billion23) GDP understates the value of output produced by an economy because itA. includes transactions that do not take place in organized markets, such as home cooked mealsB. includes environmental degradation caused by increased output productionC. excludes value added from the underground economy, such as tips taken under the tableD. excludes the value of the wages and benefits of government employee24) Other things equal, a decrease in the real interest rate willA. shift the investment demand curve to the rightB. shift the investment demand curve to the leftC. move the economy upward along its existing investment demand curveD. move the economy downward along its existing investment demand curve25) Other things equal, a decrease in corporate income taxes willA. decrease the market price of real capital goodsB. have no effect on the location of the investment demand curveC. shift the investment demand curve to the rightD. shift the investment demand curve to the left26) Inflation in U.S. prices will causeA. an increase in the demand for U.S. dollars and an appreciation in the exchange rateB. an increase in the supply of U.S. dollars and a depreciation in the exchange rateC. a decrease in the demand for U.S. dollars and a depreciation in the exchange rateD. a decrease in the supply of U.S. dollars and an appreciation in the exchange rate27) The quantity theory of money states thatA. the money supply divided by the velocity of money equals the price level divided by real outputB. the money supply times the velocity of money equals the price level times real outputC. the money supply times the price level equals real output divided by the velocity of moneyD. the money supply times the price level equals real output times the velocity of money28) Suppose that U.S. prices rise 4% over the next year while prices in Mexico rise 6%. According to the purchasing power parity theory of exchange rates, what should happen to the exchange rate between the dollar and the peso?A. The dollar should depreciate.B. The peso should appreciate.C. The peso should depreciate.D. The dollar will be revalued.29) A rise in the domestic interest rate leads to capitalA. outflows and exchange rate appreciationB. outflows and exchange rate depreciationC. inflows and exchange rate depreciationD. inflows and exchange rate appreciation30) A firm under monopolistic competition will earnA. a positive economic profit as it has some monopoly powerB. zero economic profit as it sets P = MCC. zero economic profit as its P = ATCD. a positive economic profit as it sets MC = MR
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