1. Other things being equal, a recession is most likely to be triggered by:

A. a depreciation of the dollar on the foreign exchange market

B. a decline in interest rates

C. an adverse supply shock

D. an increase in the budget deficit

2. The intent of an enlightened supply-side policy is to:

A. shift AS rightward, reducing inflation and boosting output

B. shift AS rightward, boosting output and the price level

C. shift AS leftward, boosting output and reducing inflation

D. shift AS leftward, reducing output but lowering inflation

3. All of the following will lead to greater productivity except:

A. a larger labor force

B. a larger capital stock

C. a more educated labor force

D. improvements in technology

4. In the early 1980s, under Paul Volcker, Federal Reserve monetary policy was:

A. stimulative

B. inflationary

C. contractionary

D. regressive

5. Increasing inventories are evidence that:

A. the price level is below the equilibrium level

B. aggregate demand is less than aggregate supply

C. exports exceed imports

D. aggregate demand exceeds aggregate supply

6. Stabilization policies influence the economy by:

A. stabilizing interest rates

B. stabilizing the price level

C. influencing the aggregate demand curve

D. influencing the aggregate supply curve

7. An economy is at full employment when:

A. real GDP equal nominal GDP

B. actual GDP equals potential GDP

C. actual GDP equals the natural unemployment rate

D. any of the above occur

8. An increase in income taxes, ceteris paribus:

A. shifts the AS rightward, decreasing prices and increasing output

B. shifts the AD rightward, increasing prices and reducing equilibrium output

C. shifts the AD leftward, reducing prices and reducing equilibrium output

D. shifts the AS leftward, increasing both prices and output

9. An appreciation of the dollar caused by rising interest rates will:

A. stimulate both foreign and domestic demand for U.S. goods, raising prices and equilibrium output

B. reduce both foreign and domestic demand for U.S. goods, reducing inflation and equilibrium output

C. reduce foreign demand for U.S. goods, which will be offset by increases in domestic demand, causing unknown effects on output and inflation

D. none of the above

10. The Reagan supply-side initiative of the early 1980s:

A. accomplished what it was intended to do--shifting the nation's AS curve strongly rightward

B. produced, at least in the short run, chiefly a demand-side stimulus

C. resulted in a substantial reduction in income inequality in the U.S.

D. did all of the above

Answers: 1C, 2A, 3A, 4C, 5B, 6C, 7B, 8C, 9B, 10B.