Introduction to Economic Fluctuations

1. Short-run equilibrium output means that aggregate demand ___ actual output: a.
fluctuates around; b. is greater than; c. equals; d. is less than; e. a and b
2. Aggregate demand without a foreign sector is: a. C+I; b. C+G; c. I+S; d. C+I+G; e.
none of the above
3. The government budget deficit will grow in___ and decline in ___: a. recessions;
booms; b. booms; recessions; c. booms; booms; d. recessions; recessions; e. none of
the above
4. Aggregate demand in an economy trading internationally with a government sector
can be written as: a. AD=C+I+G; b. AD=C+I+G+X-M; c. AD= C+I+G-X+M; d.
AD=S+T+M; e. AD=C+I
5. What is the driving force behind business cycles: a. consumption spending; b. money
supply; c. government expenditure; d. taxes; e. investment spending
6. A source of fluctuations in investment spending is: a. changes in households
expectations about future output growth; b. changes in households expectations about
future output growth and risk of bankruptcy; c. changes in government expectations
about future output growth; d. changes in investors expectations about future
profits; e. a and b
7. Which of the following is most likely to lead to an increase in aggregate demand: a.
tax revenues; b. household savings; c. demand for imports; d. foreign exchange
currency; e. business capital investment
8. Aggregate demand is likely to fall when: a. the exchange rate falls; b. the interest rate
falls; c. business and consumer confidence fall; d. the tax rate falls; e. all of the
above
9. Ceteris paribus, the aggregate demand will shift to the right if: a. consumer
confidence increases; b. consumer confidence decreases; c. imports increase; d.
interest rates increase; e. savings increase
10. The aggregate demand curve is most likely to shift rightward due to: a. a fall in
government spending; b. a fall in the proportion of income saved; c. a rightward
shift of aggregate supply; d. an increase in the price level; e. a, b and c
11. Which of the following would cause aggregate demand to fall: a. a rise in labour
productivity, wages staying constant; b. a fall of government expenditure on defense
and transport infrastructure; c. a rise of government expenditure on defense and
transport infrastructure; d. a decrease in the unemployment rate; e. a fall in consumer
demand for imported goods and services

12. Which of the following is a component of aggregate demand: a. saving; b. taxes; c.

private consumption; d. money demand; e. money supply
13. In a macroeconomics model without foreign trade or government, aggregate demand
is the sum of: a. personal saving and private investment; b. personal saving and
personal consumption; c. personal consumption and private investment; d. all of
the above; e. none of the above
14. The difference between aggregate demand and aggregate expenditure is much like the
difference between: a. price and quantity; b. G and T; c. investment and consumption;
d. demand and quantity demanded; e. exports and imports
15. A leftward shift of aggregate demand curve is most likely caused by: a. an increase in
interest rates; b. a decrease in unemployment; c. expectations of rising inflation; d. a
decrease in taxes; e. an increase in unemployment
Why: if interest rates increase, investment decreases and the AD curve shifts leftward
16. The currency exchange rate is most likely to change and cause a shift of the aggregate
demand curve through a change in: a. investment; b. taxes; c. saving; d. net export; e.
consumption
17. Demand-management policies are aimed at shifting: a. long run supply curve; b. short
run supply curve; c. production possibilities curve; d. Philips curve; e. aggregate
demand curve

18. Why is the aggregate demand downward sloping: a. an increase in the price level
causes the level of aggregate output to fall; b. an increase in the price level leads to a
decrease in consumption; c. an increase in the price level lowers the real value of some
types of wealth; d. all of the above; e. none of the above
19. Ceteris paribus, an increase in labour productivity will lead to: a. an increase in the
general level of prices; b. a rightward shift of the long run aggregate supply curve;
c. an increase in the size of the labour force; d. a fall in the level of aggregate demand;
e. none of the above
20. A rightward shift of the LRAS can be caused by: a. a fall in the general price level; b.
increased investment in human and fixed capital; c. an increase in the natural rate
of unemployment; d. an increase in the supply of money and credit; e. none of the
above
21. If aggregate demand is constant, a leftward shift in the LRAS curve will: a. increase
real GDP and lower the price level; b. affect only the level of real GDP; c. reduce real
GDP and raise the price level; d. affect only the general level of prices; e. none of the
above
22. Most economists believe that the long-run aggregate supply curve is vertical because:
a. the natural rate of output is decreasing; b. in the long run, the level of output

produced in the economy is determined by the stock of factor resources and the
state of technology rather than changes in the price level; c. a vertical long run
supply curve reflects the maximum level of output that an economy can achieve; d. a
vertical long run supply curve reflects the maximum level of output that an economy
can achieve; e. none of the above
23. Which of the following is not a determinant of LRAS: a. labour productivity; b. rate of
investment; c. imports of consumer goods; d. new technology in manufacturing and
service sector industries; e. none of the above
24. If the aggregate supply curve is perfectly inelastic, an increase in AD will result in an
increase in: a. economic growth; b. real national output; c. the price level; d. all of the
above; e. none of the above
25. Which of the following could cause a shift in LRAS? An increase: a. in productivity of
labour; b. in capital inputs; c. in inflation; d. in the volume of goods and services
exported; e. a and b
26. At the intersection of AD and AS equilibrium is achieved in: a. the goods market; b.
the money market; c. the labour market; d. all of the above; e. none of the above
27. Aggregate supply is the relation between real output and: a. foreign trade; b. the price
level; c. the exchange rate; d. needs; e. utility
28. The long run is best defined as a period: a. of one year; b. of less than two years; c. in
which all prices are sticky; d. in which all prices are flexible; c. a period higher than
5 years
29. Resource markets are in equilibrium: a. only in the long run; b. only in the short run;
c. neither in the short run nor in the long run; d. both in the short and in the long run;
e. cannot say
30. In the short run, the economy can increase the output beyond full employment by: a.
eliminating the scarcity problem; b. reducing production costs; c. fooling workers
into working harder; d. increasing the natural rate of unemployment; e. increasing
structural unemployment
31. The LRAS curve is: a. upward sloping; b. downward sloping; c. horizontal at the full
employment level; d. vertical at the full employment level; e. the same as AD curve
32. Economy-wide reductions in salaries will cause: a. a leftward shift of the LRAS curve;
b. an increase in the price level; c. a rightward shift of the LRAS curve; d. a
reduction in full employment output; e. a decrease in the AS
33. During recessions, the national output: a. falls; b. rises at a high pace; c. rises at a
slowdown pace; d. b or c; e. cannot say

34. If the economy is operating at the full employment level of national output and
achieves a more efficient allocation of resources, national income per capita: a. stays
constant; b. will be redistributed more equitably; c. will fall in real terms; d. will rise
in real terms; e. cannot tell
35. Potential output can be increased by: a. increasing the use of labour and land; b.
increasing the use of land and capital; c. increasing the use of all inputs and
technical advances; d. increasing the use of capital and labour; e. none of the above
36. The business cycle describes output fluctuations around the: a. boom; b. recession; c.
trend path of output; d. short-run output fluctuations; e. inflation rate
37. Which is not part of the business cycle: a. acceleration; b. boom; c. recovery; d.
slump; e. recession
38. The real business cycle theory suggests that one of the following is not important in
explaining short-term fluctuations around actual output: a. potential output; b. real
variables; c. aggregate demand; d. aggregate supply; e. aggregate demand and
aggregate supply
39. Real business cycles refer to: a. actual output; b. potential output; c. real output; d.
international trade; e. regional trade
40. The recurring changes in aggregate economic activity are called: a. a. yearly trade; b.
secular trends; c. business cycles; d. seasonal fluctuations; e. consumer cycles
41. When the economys output reaches its highest level after rising for several years is
called a business cycle: a. peak; b. expansion; c. recession; d. trough; e. contraction
42. The early stages of an economic expansion is called: a. peak; b. recovery; c. trough; d.
recession; e. contraction
43. A growth cycle is measured by the rise and fall in: a. growth rate of production; b.
growth rate of population; c. growth rate of prices; d. production; e. exchange rates
44. An expansion will cause: a. an increase in unemployment; b. a decrease in
unemployment; c. a decrease in unemployment and prices; d. an increase in
unemployment and prices; e. none of the above
45. A contraction will cause: a. an increase in unemployment; b. a decrease in
unemployment; c. a decrease in unemployment and prices; d. an increase in
unemployment and prices; e. a decrease in inflation
46. Business cycles expansions and recessions are explained by fluctuations in: a.
consumption; b. investment; c. government expenditure; d. export; e. import
47. When production increases and unemployment decreases, we are dealing with: a.
macroeconomic expansions; b. business cycles; c. recessions; d. depression; e.
inflation

48. What conditions decrease chances of receiving a reasonable job: a. low output growth
and high inflation; b. high output growth and low unemployment; c. low output
growth and high unemployment; d. low inflation and low unemployment; e. low
inflation and high business satisfaction
49. In recessions or depressions: a. production and employment increase both; b.
production and employment increase and inflation decreases; c. production, inflation
and employment increase; d. production, employment and inflation decrease; e.
production, unemployment and inflation increase
50. During recessions: a. investment increases; b. employment increases; c. taxes increase;
d. unemployment increases; e. there is full employment
51. Which of the following best characterise business cycles: a. symmetric, regular,
recurrent; b. symmetric, irregular, recurrent; c. asymmetric, regular, single-episode; d.
asymmetric, irregular, recurrent; e. symmetric, regular, single-episode
52. Which of the following would result in an increase in output: a. extra machines; b.
extra workers; c. longer workweek; d. better quality of workers and machines; e. all of
the above
53. Real business cycles theory says that: a. real GDP stays the same over time; b. shocks
to LRAS are the main cause of instability; c. changes in utility are the main cause of
instability; d. changes in tariffs are the main cause of instability; e. output fluctuations
are caused by changes in wages and prices
54. The main impulse for the business cycle is: a. adjustments in money growth; b.
unanticipated changes in AD; c. fluctuations in the unemployment rate; d. changes in
technology; e. open-mindedness
55. Classical economists believed that: a. wages are sticky; b. the AS curve is vertical; c.
monetary policies may influence the level of output and employment; d. all of the
above; e. none of the above
56. According to classical economists: a. decline in the demand for labor does not
necessarily mean that the unemployment rate will rise; b. there should be no persistent
unemployment above the unemployment that occurs naturally; c. at the equilibrium
wage rate, everyone who wants a job can have one; d. all of the above; e. None of the
above
57. The equilibrium rate of inflation is determined by the intersection of: a. demand and
supply; b. IS and LM; c. labour demand and labour supply; d. AD and AS; e. none of
the above
58. The AD curve shows that ___ inflation is associated with ___ output: a. higher, lower;
b. lower; lower; c. higher; higher; d. lower, higher; e. a and d

59. The AD curve shows that if the general level of prices decreases: a. demanded real
GDP increases; b. demanded real GDP decreases; c. demanded nominal GDP
increases; d. demanded nominal GDP decreases; e. real net export decreases
60. If SRAS is perfectly elastic, an expansionary monetary policy leads to: a. an increase
in the level of prices and in output; b. a decrease in the level of price and in output; c.
a decrease in prices; d. an increase in prices; e. an increase in output
61. Which of the following belong to AD: a. private investment; b. public expenditure; c.
imports; d. a and b; e. b and c
62. A rightward shift of the AD curve would be most likely caused by: a. the reduction of
the general level of prices; b. the increase in the general level of prices; c. the decrease
in imports; d. the increase in exports; e. the decrease in money supply
63. On the long term, AS is: a. decreasing; b. parallel to the prices axes; c. parallel to the
output axes; d. negatively sloped; e. identical to SRAS
64. If indirect taxes increase to a higher level: a. AS decreases; b. AD increases; c. prices
tend to reduce; d. domestic output increases; e. unemployment falls
65. In recession, one of the following is true: a. real GDP increases faster than nominal
GDP; b. AS curve shifts to the left; c. AD curve shifts to the right; d. inflation
increases and unemployment diminishes; e. all of the above
66. AD does not include: a. private consumption; b. investment; c. government
expenditure; d. export; e. import
67. AS is the sum of: a. consumption and investment; b. consumption and saving; c.
production and consumption; d. production and import; e. production and export
68. The goods and services market is in equilibrium if: a. there is overproduction; b. there
is underproduction; c. AD = AS; d. real national income is higher than aggregate
expenditure; e. real national income is lower than aggregate expenditure
69. If AD is higher than AS: a. there is overproduction; b. inventories are increasing; c.
prices diminish; d. firms increase their production; e. the goods and services market
is in partial equilibrium
70. If AD is lower than AS: a. there is underproduction; b. inventories are falling; c. prices
rise; d. firms decrease their production; e. the goods and services market is in partial
equilibrium
71. Macroeconomic equilibrium is characterised by: a. unemployment; b. inflation; c.
aggregate expenditures high enough to buy all the output; d. surplus of the balance
of payments; e. deficit of the balance of payments

72. If AD intersects AS at a point to the left of the LRAS then: a. GDP is lower than
potential GDP; b. potential GDP is lower than GDP; c. LRAS is vertical; d. potential
GDP is lower than SRAS; e. none of the above
73. Real GDP is higher than potential GDP. Under these conditions: a. inflation
diminishes; b. there is deflation; c. disinflation takes place; d. the unemployment rate
is higher than the natural rate of unemployment; e. the unemployment rate is lower
than the natural rate of unemployment
74. AD increases when: a. investment increases; b. consumption expenditure increases; c.
government expenditure diminishes; d. exports are lower than imports; e. a and b
75. If AD is 150,000 trillion m.u., and the weights of private consumption, investment,
government expenditure in the aggregate demand are: 50%, 20%, 10%, and export is
40,000, import is: a. 20,000; b. 15,000; c. 10,000; d. 5,000; e. 250,000
NX=100%-50%-20%-10%=20%=0.2*150,000=30,000
30,000=10,000

=>

import

is

40,000-

76. Which of the following is necessary in prolonged recession periods: a. increase in

compulsory reserves; b. increase in taxes; c. decrease in interest rates; d. decrease in
government expenditure; e. tighter prices control
77. During expansion periods, which of the following usually increases: a. unemployment
rate; b. bankruptcies number; c. price index; d. public debt; e. exchange rate
78. In the expansion phase: a. money demand reduces, interest rates increase; b. money
demand and interest rates diminish both; c. money demand and interest rates
increase; d. money demand increases and interest rates diminish; e. money demand
and interest rates stay constant
79. Which of the following stimulates the increase of output toward the full employment
level: a. increasing compulsory reserves; b. reducing taxes; c. increasing interest
rates; d. diminishing government expenditure; e. diminishing budget deficit
80. Business cycles are: a. a rare phenomenon in contemporary economies; b. the
succession of expansionary economic periods and contractions; c. characteristic to
poor countries; d. a and b; e. a and c
81. Which of the following is false about business cycles: a. they may be produced by
supply shocks; b. they may be produced by demand shocks; c. government
intervention may be one cause of recession triggering; d. they are all identical; e.
there is no unique model for business cycles
82. In expansions, there is a positive evolution for: a. financial instruments prices; b.
employment; c. prices; d. unemployment; e. a, b and c

83. In recession, AD should be fiscally influenced by: a. increasing interest rates; b.

reducing taxes; c. decreasing government spending; d. increasing taxes; e. reducing
interest rates
84. In booms, one of the following monetary policies is recommended: a. reducing interest
rates; b. increasing government spending; c. increasing interest rates; d. increasing
taxes; e. reducing compulsory reserves
85. In recessions, one of the following monetary policies is recommended: a. better money
supply control; b. reducing government spending; c. decreasing interest rates; d. all
of the above; e. none of the above
86. Increasing government expenditure is a way of: a. overcoming recessions; b.
worsening crises; c. stopping booms; d. reducing expansions; e. increasing
unemployment
87. During expansions one of the following is recommended: a. reducing interest rates; b.
increasing salaries; c. increasing taxes; d. increasing government spending; e. all of
the above
88. In the last resort, business cycles are generated by the evolution of: a. output; b.
general level of prices; c. employment; d. the productivity of the factors of
production; e. none of the above
89. In recessions: a. productivity increases; b. profit rates increase; c. economic problems
are overcome; d. productivity of factors of production decreases; e. stocks stay
constant
90. In order to increase AD, one should not: a. increase government expenditure; b.
diminish interest rates; c. reduce taxes; d. increase compulsory reserves; e. increase
salaries

Economic growth
1. Which of the following is mostly likely to lead to economic growth: a. consumer
spending; b. net imports; c. labour and capital productivity; d. taxes; e. government
spending on health care
2. Which of the following would best indicate economic growth: a. consumer spending;
b. consumer saving; c. share prices and company profits; d. GDP per capita index; e.
all of the above
3. Economic growth refers to: a. a continuous outward shift of aggregate demand; b. a
stable aggregate supply; c. a long term expansion of a countrys potential GDP; d.
an increase in exports; e. all of the above
4. The neoclassical theory of growth identifies the steady rate of growth as the
investment just sufficient to keep ___ constant, while labour grows: a. productivity; b.
investment in tangibles; c. labour growth; d. capital per person; e. salaries
5. Economic growth may depend on: a. population growth and technical progress; b.
population ageing and primary education; c. tertiary education and brain drain; d.
population growth and resources depletion; e. formal education and health
6. The zero-growth proposal states that: a. zero growth is impossible in the long run; b.
zero growth is favourable in recessions; c. zero growth is best to aim for in
measured GNP in order to avoid environmental costs; d. a and c; e. none of the
above
7. One of the factors influencing the economys output growth is: a. the pace of
employment growth; b. the increase in tax levels; c. the decrease in tax levels; d. the
rate of growth in the efficiency of labour; e. a, b and d
8. Which indicator is not used in the in the Human Development Index: a. education; b.
GDP per capita; c. happiness; d. health; a, b and d
9. As a rule, potential GDP is: a. not changing on the long term; b. is increasing on the
long term; c. does not depend on the quality of factors of production; d. lower than
estimated; e. none of the above
10. Economic growth is not generated by: a. technology; b. capital stock; c. education; d.
natural resources; e. unemployment
11. Economic growth is: a. constant; b. linear; c. decreasing; d. slow; e. non-linear
12. Extensive economic growth may be achieved by: a. higher consumption; b. higher
pollution; c. investment in capital goods at the level of existing technologies; d. a
and b; e. all of the above

13. Intensive economic growth is mainly due to: a. the increase in the efficiency of
factors of production utilization; b. the decrease in the efficiency of factors of
production utilization; c. a or b; d. unemployment decrease; e. inflation decrease
14. The opportunity cost for growth is: a. future consumption of population being
sacrificed; b. past consumption of population ; c. present consumption of population
being sacrificed; d. investment in education; e. investment in health care services
15. Sustainable growth implies: a. the harmonization of economic, ecologic and social
aspects of development; b. only economic aspects; c. only ecologic and social
aspects; d. economic growth solely; e. all of the above
16. Economic growth takes place when: a. population and real GDP decrease; b.
population and real GDP increase; c. population decreases and GDP stays constant;
d. population and GDP evolve to the same extent; e. none of the above
17. Referring to economic growth, technical progress has been considered: a. useless; b.
an indirect factor; c. a direct factor; d. a residual factor; all of the above, depending
on the theory
18. For economic growth, the size of the aggregate demand is: a. a direct factor; b. a
residual factor; c. an indirect factor; d. no factor at all; e. a and b
19. Intensive-growth economies are mainly based on: a. a lot of capital stock; b.
investment in tangible assets; c. technical progress; d. a and b; e. none of the above
20. GDP per capita increases when: a. GDP decreases; b. GDP increases and population
increases by more than the GDP; c. GDP increases and population stays constant; d.
a and b; e. a or b
21. Which of the following is true: a. sustainable development is implied by economic
growth; b. sustainable development and economic growth are the same thing; c.
sustainable development refers to the short term; d. sustainable development refers
to the long term and implies structural and qualitative changes in the economy; e.
all of the above
22. If real GDP increases by 10% and population decreases by 7%, then real GDP per
capita: a. increased by 3%; b. decreased by 3%; c. decreased by 2.8%; d. increased by
18.27%; e. increased by 17%
23. Human Development Index is used to express: a. economic growth; b. business
cycles; c. sustainable development; d. a and b; e. none of the above
24. On the basis of Solow function, it is known that 50% of the income belongs to labour,
the difference between the rate of output growth and the rate of capital growth was 5
percentage points, the difference between the rate of output growth was 6 percentage
points. The technical progress rate and the type of economic growth is: a. -1%,
extensive; b. 5.5% intensive; c. 4.5% extensive; d. 0%, intensive; e. cannot say

Why: deltaY/Y=(deltaL/L)+(1-)(deltaK/K)+ deltaA/A or

delta/A=(deltaY/Y-deltaL/L)+(1-)(deltaY/Y-deltaK/K)=50%*5%+50%*6%=5.5%
25. Over a period of one year, the employed population increases by 1% and capital
increases by 8%; real GDP increases by 12% and 40% of the revenues belong to the
employed population. From the Solow function perspective: a. there was no economic
growth recorded; b. economic growth was 1%; c. the rate of technical progress was
3%; d. there was extensive growth; e. there was intensive growth
Why: deltaY/Y=(deltaL/L)+(1-)(deltaK/K)+A;
deltaA/A=6.8%

12%=40%*1%+60%*8%+A=>