Multiple choice Questions 1) Business cycles will occur if either of the two theories below characterizes the behavior of the economy A) deflation...

Multiple choice Questions1) Business cycles will occur if either of the two theories below characterizes the behavior of the economy A) deflation impotence or rigid nominal wages. B) the classical or the real balance theory. C) the classical or the Keynesian theories of aggregate demand. D) A and C. 2) If it is less costly for business firms to adjust the labor demanded as the price level changes than it is for households to adjust Ns, then in the short-runA) Ns has a positive slope and the demand for labor (Nd) negative slope. B) Nd has a negative slope and the supply of labor (Ns) a positive slope. C) SAS has a positive slope. D) AD has a negative slope. 3) Switzerland has experienced the lowest rate of price increases in the post World War II period. Consequently, Lucas would predictA) small demand responses to variations in the inflation rate. B) small supply responses to variations in the inflation rate. C) large demand responses to variations in the inflation rate. D) large supply responses to variations in the inflation rate. 4) According to the classical model, real wages shouldA) rise during recessions. B) stay the same during recessions but rise during expansions. C) fall during recessions. D) remain constant. 5) The structural deficit isA) the difference between the actual deficit and the natural employment deficit and it increases whenever income rises. B) identical to the natural employment deficit and it decreases whenever the natural level of output increases. C) identical to the natural employment deficit and it increases whenever the natural level of output increases. D) identical to the natural employment deficit and it decreases whenever tax rates are cut. 6) The cyclical deficit isA) the same as the structural deficit. B) what the budget deficit would be if the economy were operating at the natural real GDP level. C) the amount by which structural deficit exceeds the actual budget deficit. D) the amount by which the actual government budget deficit exceeds the structural deficit. 7) The 2001 recession was caused principally by A) a drop in autonomous consumption spending. B) a slowing in the growth of the money supply. C) a drop in real business investment. D) a decrease in government spending 8) A government budget deficit is financed by a combination of A) domestic investment rising relative to saving and exports rising relative to imports. B) saving rising relative to domestic investments and exports rising relative to imports. C) saving rising relative to domestic investment and imports rising relative to exports. D) domestic investment rising relative to saving and imports rising relative to exports. 9) The ballooning of the U.S. foreign debt to 500 billion dollars by 1988 implied that A) the ratio of foreign debt to the U.S. GNP was increasing. B) a foreign trade deficit is required to reduce the interest payment burden. C) the ratio of foreign debt to the U.S. GNP was decreasing. D) a foreign trade surplus is required to reduce the interest payment burden. 10) If the Federal Reserve intervenes in the foreign-exchange markets and buys foreign currenciesA) the U.S. money supply rises and foreign currencies depreciate. B) the U.S. money supply falls and foreign currencies appreciate. C) the U.S. money supply rises and foreign currencies appreciate. D) the U.S. money supply falls and foreign currencies depreciate. PROBLEM 1What are the principal differences between flexible and fixed exchange systems?