Question

1. An economy's unemployment rate is at 5%. A recession starts after there is a drop in business investments, which leads to a 4% rise in unemployment. After many months, the unemployment rate goes by to 5%. What explains the drop in unemployment?

a)Spending multiplier

b)the money multiplier

c)The natural rate hypothesis

d)menu costs

e)Permanent income hypothesis.

2.

Suppose consumption expenditures in Japan can be modeled by the equation: C = ¥50 trillion + 0.8 Y_d, where Y_d is aggregate disposable income, and ¥ is the symbol for a yen. Initially, aggregate personal income is ¥500 trillion, and taxes are ¥100 trillion. If the Japanese government cuts taxes by ¥50 trillion, what will happen to real GDP?

a)It rises by ¥40 trillion

b)It rises by ¥370 trillion

c)It rises by ¥200 trillion.

d)It falls by ¥200 trillion.

e) It falls by ¥40 trillion.

3. Which of these could possibly cause an increase in the long-run aggregate supply?

a)More people finish school and then enter labor force

b)Deregulation of railroad industry which means shipping costs decrease

c)Decreasing exchange rates cause exports to increase and imports to decrease

d)Weakening expectations of the future leads to people cutting back on their spending

e)To handle an increase in court trials, the gov. spends more of their funds on construction of the court and hiring judges and court personnel.

Answer 1