1. Which of the following is a supply-side economic policy to lower prices?
 a. give tax breaks to firms that invest in new equipment
 b. increase government spending on farmers
 c. decrease the money supply
 d. raise taxes on gasoline

  2. If the MPC is 0.75 and the MPM is 0.15 and if government spending increases by $200 million, how much will the equilibrium level of income increase?
 a.    $500 million
 b.    $800 million
 c. $2,000 million
 d. $5,000 million

  3. If the government cuts taxes as a way to reduce unemployment,
 a. exports will rise.
 b. exports will fall.
 c. imports will rise.
 d. imports will fall.

  4. Under fixed exchange rates, an increase in foreign demand for U.S. goods will
 a. increase the U.S. money supply and reduce interest rates.
 b. decrease the U.S. money supply and increase interest rates.
 c. raise the U.S. price level, but not change the U.S. money supply.
 d. reduce the U.S. price level, but not change the U.S. money supply.

  5. Which of the following countries is NOT in the G-7?
 a. Canada
 b. France
 c China
 d Japan

  6. Soichi's Autos imported $100,000 worth of Japanese cars and paid the Japanese manufacturer with a note promising to repay the manufacturer in 90 days.  This transaction results a $100,000 credit in the U.S.
 a. exports
 b. imports
 c. private capital inflows
 d. private capital outflows
 
 
 
 
 

ANSWERS:
 
 
 
 
 

1.  a,
2.  a   MPS = 1 - 0.75 = 0.25,   m = 1/(MPS + MPM) = 1/(.25+.15) = 1/.4 = 2.5,
          change in equilibrium Y = m • change in G = 2.5 • 200 = 500
3.  c    T down -->  C up --> Aggregate expenditure up --> equilibrium income up --> imports up
          (exports may also fall as domestic factories satisfy domestic demand, leaving less output for exports.  This effect will be weaker than the effect on imports.)
4.  a.
5.  c.
6.  d.  "private capital outflows" means the same as "increase in foreign ownership of U.S. assets"--like an export, these are credits.  Imports are debits.