1 The resource market is important from a macroeconomic perspective because a it coordinates the allocation of productive resources and determines the costs of production b it determines the interest rates faced by borrowers and lenders c inflation rates are set in the resource market by the government d resource prices determine the position of the long run aggregate supply curve 2 Other things equal which of the following is true a A reduction in prices will increase the real wealth of those holding a fixed quantity of money b A reduction in prices will lead to a decline in net exports c A reduction in prices will increase the scarcity of money raise the real interest rate and thereby encourage investment and consumption d A reduction in prices will increase profit margins and thereby stimulate additional investment 3 When prices rise consumers and businesses hold larger money balances This reduces the supply of loanable funds increases the interest rate and discourages both consumption and investment This process is called the a interest rate effect b real balance effect c investment effect d disinvestment effect 4 In the short run a price increase in the goods and services market will a increase the purchasing power of money b improve producer profits and thereby induce suppliers to expand output c increase resource prices lower profits and lead to a decline in output d reduce the natural rate of unemployment 5 Raul borrowed 1 000 from Marta for a year and agreed to repay her 1 050 at the end of the year If the inflation rate was 3 percent what is the real rate of interest Marta received a 10 percent b 5 percent c 3 percent d 2 percent e 2 percent 6 People anticipate inflation will be 3 percent during the next several years If this is true when the real interest rate is 4 percent the money interest rate will be a 1 percent b 3 percent c 4 percent d 7 percent 7 When the foreign exchange market is in equilibrium which of the following will be true a imports exports net capital inflow b imports exports net capital inflow c imports budget deficit net savings d imports investment exports savings 8 The long run aggregate supply curve is vertical reflecting the fact that a changes in price have no effect on output in the long run In the long run the price of goods and the price of resources move together and firms have no incentive to change their output b fluctuations in inflation cannot be anticipated in the long run so future prices have no effect on output c changes in price affect output a lot in the long run because in the long run firms can adjust factory sizes to meet changing demand conditions d changes in price have a large effect on output because they lead to highly variable interest rates and business is hard to conduct under those circumstances Answers 1 A 2 A 3 A 4 B 5 D 6 D 7 B 8 A
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