16. The term "sovereign debt crisis" applies when ________.

 
(A) private businesses cannot borrow money because the government is borrowing so much
(B) nations compete fiercely with each other to increase their borrowing
(C) a government finds that the cost of borrowing is higher than it had anticipated
(D) the debt of a particular government quickly loses value Graph 1: AD - AS Shocks

12. The assumption that in the long run prices and wages are fully flexible implies that the long-run aggregate supply curve is determined by ________. (A) capital and labor inputs (B) technology (C) the natural rate of unemployment (D) all of the above

13. According to the "self-correcting mechanism" in the AD-AS framework, ________. (A) the aggregate demand curve shifts up or down as needed to bring the economy to full employment (B) the inflation rate changes as needed to move the economy along the short-run aggregate supply curve until output is at potential output (C) the long-run aggregate supply curve shifts until it intersects both the aggregate demand and short-run aggregate supply curves at a single point (D) none of the above

14. The "tech bubble" burst of 2000, the terrorist attacks of 2001 and the corporate scandals of 2001 and 2002 all had similar qualitative effects on the economy. Which of the following is an appropriate description of the mechanism that would have ensued? (A) Household and business spending would have been eroded shifting the AD curve to the left. (B) Unemployment would have risen and inflation would have fallen. (C) Output would have declined below potential but through shifts in the AS curve, the self-correcting mechanism of the AD-AS framework would have brought the unemployment rate down to the lower levels we saw by 2004. (D) all of the above 

15. Suppose that inflation is at the target rate and output has fallen substantially below potential output. A central bank with a primary objective of price stability should ________. (A) do nothing, because inflation cannot rise when unemployment is high (B) ease monetary policy, to avoid a decrease in the inflation rate (C) do nothing, because stabilizing economic activity is not a primary objective (D) ease monetary policy, because avoiding high unemployment is more important than avoiding high inflation

17. On the Graph 1 AD-AS Shocks, an example of a positive demand shock is the movement from point ________ to point ________. (A) F； G (B) H； I (C) F； H (D) H； F

18. The theory of purchasing power parity suggests that, in the long-run, exchange rates are determined by ________. (A) relative interest rate levels (B) relative price levels (C) the GDP values for the two countries (D) the most significant monetary authorities, including the Federal Reserve, European Central Bank, Bank of England and the Bank of Japan 

19. A rise in the expected future exchange rate will tend to cause, other things the same ________. (A) a depreciation of the domestic currency (B) no effect on the value of the U.S. dollar in the short-run (C) an appreciation of the domestic currency (D) no effect on the value of the U.S. dollar

20. You can spend $10 for lunch and you would like to purchase two cheeseburgers. When you get to the restaurant, you find out the price for cheeseburger has increased from $5 to $6, so you decide to purchase just one cheeseburger. This is best described as the: (A) substitution effect of a price change. (B) income effect of a price change. (C) a decrease in the buyer's reservation price. (D) an increase in the buyer's reservation price.

21. As coffee becomes more expensive, Joe starts drinking tea instead of coffee. This is called: (A) the income effect of a price change. (B) a decrease in reservation price. (C) the substitution effect of a price change. (D) a decrease in demand.

22. Which of the following is NOT a characteristic of a market in equilibrium? (A) There is neither excess supply nor excess demand. (B) Neither buyers nor sellers want the price to change. (C) Sellers can sell as many units as they want at the equilibrium price. (D) Buyers can buy as many units as they want at the equilibrium price.