1) Which of the following have a tendency to raise the unemployment rate?

a) The establishment of effective trade unions in an economy

b) Firms deciding to pay efficiency wages in an economy
c) Implementing a minimum wage in an economy
d) All of these are correct.

2) Unemployment benefits paid to the unemployed
a) increases the level of frictional unemployment.
b) helps the unemployed maintain their income and spending.
c) increases the amount of time the unemployed spend searching for a job.
d) all of these are correct.

3) Enterprise bargaining is the negotiation of wages and working conditions
a) at the workplace level.
b) through the compulsory arbitration system.
c) between employers and the government.
d) between trade unions and the government.

4) Minimum wage laws cause unemployment because the legal minimum wage is set
a) below the market wage, causing labour demand to be greater than labour supply.
b) below the market wage, causing labour demand to be less than labour supply.
c) above the market wage, causing labour demand to be less than labour supply.
d) above the market wage, causing labour demand to be greater than labour supply.

5) Trade unions cause unemployment because the union contract wage is set
a) above the market wage, causing a shortage of labour.
b) below the market wage, causing a surplus of labour.
c) below the market wage, causing a shortage of labour.
d) above the market wage, causing a surplus of labour.

6) Effective collective bargaining will:
a) raise the wage of union workers.
b) increase the demand for union workers.
c) decrease the supply of labour in the non-unionised parts of the economy.
d) none of the above.

7) Recently a trade union argued that the standard of living, of its members, was falling. A critic of the union argued
that this could not possibly be true because the union had been acquiring significant increases in the nominal
incomes of its members through collective bargaining. Is the critic correct?
a) Yes, because when you have a large nominal income your standard of living automatically increases.
b) No, because real income may fall if price increases are proportionately more than the increase in
nominal income.
c) No, because real income may fall if price increases are proportionately less than the increases in nominal
income.
d) Yes, because real income may fall if price increases are proportionately less than the increases in nominal
income.

8) An efficiency wage
a) is lower than the market wage and tends to increase productivity.
b) is lower than the market wage and tends to decrease productivity.
c) is higher than the market wage and tends to decrease productivity.
d) is higher than the market wage and tends to increase productivity.

9) Efficiency-wage theory suggests that to improve workers performance, firms should:
a) fire all existing workers and hire new ones.
b) spend more money and effort on monitoring.
c) give incentive pay to employees for dobbing in their fellow workers who are shirking.
d) raise wages above the market equilibrium level.
10) Suppose that a person's nominal income rises from $10,000 to $12,000 and the consumer price index rises from
100 to 105. The person's real income will:
a) fall by about 20 per cent.
b) fall by about 2 per cent.
c) rise by about 15 per cent.
d) rise by about 25 per cent.

11) Suppose that a person's nominal income rises by 5 per cent and the price level rises from 125 to 130. The
person's real income will:
a) fall by about 1 per cent.
b) remain constant.
c) rise by about 4 per cent.
d) rise by about 1 per cent.

12) In 1998, Ruth's nominal income rose by 8 per cent and the price level rose by 5 per cent. We can conclude that
Ruth's real income:
a) may have either increased or decreased.
b) rose by 13 per cent.
c) rose by 3 per cent.
d) fell by 13 per cent.

13) If there is ________ in prices overseas relative to Vietnam, the demand for ________ in the foreign exchange
market.
a) an increase; Vietnamese dong will increase
b) a decrease; foreign currencies will decrease
c) an increase; Australian dollars will decrease
d) None of these are correct.

14) Vietnamese demand Japanese yen to
a) enable them to buy Japanese products.
b) be able to supply Vietnamese goods to Japan.
c) enable them to export goods and services to Japan.
d) allow Japanese businesses to import Vietnamese products.

15) If inflation in Vietnam is higher than inflation in Australia, what will happen to the exchange rate between the Dong
and the Australian dollar?
a) The dongs value relative to the dollar will not change.
b) The dong will depreciate against the dollar.
c) The dong will appreciate against the dong.
d) Both the dong and the dollar will appreciate.

16) The demand by other countries for Vietnamese will increase when
a) more Vietnamese travel overseas.
b) there is a decrease in demand by other countries for Vietnamese goods and services.
c) Vietnam imports more goods.
d) foreigners purchase more Vietnamese goods.

17) The nominal exchange rate is
a) the value of one country's currency over time.
b) the value of one country's currency in terms of another country's currency adjusted for the price level.
c) the value of one country's currency in terms of another country's currency.
d) the average value of one country's currency over one quarter.

18) Which of the following is NOT a source of demand for the Vietnamese dong?
a) An Indian financier who wants to buy a Vietnamese bond
b) A German firm that wants to purchase agricultural products from Vietnamese
c) A Vietnamese bank that wants to buy a Japanese bond
d) A currency trader who thinks the value of the dong will be greater in the future relative to the value today
19) Which of the following is NOT a source of demand for Japanese yen?
a) A Vietnamese bank that wants to buy a Japanese bond
b) A Chinese firm that wants to purchase Vietnamese beef
c) A Chinese person who wants to buy Japanese financial securities
d) A currency trader who thinks the value of the yen will be greater in the future relative to its value today

20) The demand for dong in exchange for yen will rise, if, ceteris paribus,
a) speculators think the value of the dong will fall.
b) the desirability of investing in Vietnam declines.
c) Vietnamese interest rates fall relative to the yen.
d) income in Vietnam rises.

21) The demand for yen in exchange for dollars will increase if, ceteris paribus,
a) speculators think the value of the yen relative to the dollar will fall.
b) income in Australia falls.
c) the desirability of investing in Japan falls.
d) Japanese interest rates increase relative to interest rates in other countries.

22) Speculators who anticipate a(n) ________ in the future value of the dong relative to the future value of the dollar
will ________.
a) increase; increase the demand for dong
b) decrease; decrease the demand for dollars
c) decrease; increase the demand for dong
d) increase; increase the demand for dollars

23) The supply of dong in exchange for yen will decline, if, ceteris paribus,
a) there is a recession in Vietnam.
b) speculators think the value of the dollar will fall relative to the yen.
c) the desirability of investing in Japan rises.
d) Japanese interest rates rise relative to interest rates in other countries.

24) The dong will appreciate relative to the dollar if, ceteris paribus,
a) Vietnamese interest rates decrease relative to interest rates in other countries.
b) there is a recession in Australia.
c) speculators think the value of the dong relative to the dollar will rise.
d) income in Australia falls.

25) The dong will depreciate relative to the dollar if
a) Australian interest rates decrease relative to interest rates in other countries.
b) there is a recession in Vietnam but not in other countries.
c) income in Vietnam rises.
d) speculators think the future value of the dollar will be lower relative to future value of the dong.


26) Which of the following explanations are consistent with Figure 15.1?
a) Speculators think that the value of the dollar relative to the euro will rise.
b) A recession in the European Union
c) An increase in Australian interest rates relative to interest rates in other countries
d) An increase in incomes in the European Union


27) Which of the following explanations are consistent with Figure 15.1?
a) A general decrease in demand for European Union financial assets
b) Speculators think that the value of the euro will fall relative to the dollar.
c) An increase in interest rates in the European Unions relative to interest rates in Australia
d) A recession in Australia which lowers Australian incomes

28) Assume the exchange rate between the dollar and yen is 80= $1. Suppose that the exchange rate changes to
75 = $1. As a result of the change, there will be
a) more Japanese goods sold in Australia and the same amount of Australian goods sold in Japan.
b) the same number of Japanese goods sold in Australia and less Australian goods sold in Japan.
c) more Japanese goods sold in Australia and less Australian goods sold in Japan.
d) less Japanese goods sold in Australia and more Australian goods sold in Japan.

29) Assume that the exchange rate between the dollar and the Euro is 1 = $1. Suppose the exchange rate changes
to 1.25 = $1. What is the price in dollars of a 200 pair of Italian shoes before and after the exchange rate
change?
a) $160 before; $125 after
b) $200 before; $250 after
c) $200 before; $160 after
d) $125 before; $160 after

30) Suppose that the European Union experiences a recession and this causes a decline in income in the European
Union relative to Australia. Because of this, the dollar will, ceteris paribus,
a) depreciate, and Australian net exports will rise.
b) appreciate, and Australian net exports will rise.
c) depreciate, and Australian net exports will fall.
d) appreciate, and Australian net exports will fall.

31) ________ are financial securities that represent partial ownership of a firm.
a) Certificates of deposit
b) Bonds
c) Treasury bills
d) Shares

32) ________ are financial securities that represent promises to repay a fixed amount of funds.
a) Savings accounts
b) Bonds
c) Certificates of deposit
d) Shares

33) ________ is the ease with which a financial security can be exchanged for money.
a) Liquidity
b) The rate of return
c) Risk
d) The face value

34) Let I = investment; Y = total income; C = consumption; G = government purchases. In a closed economy,
a) I = Y + C - G.
b) I = Y - C + G.
c) I = Y - C - G.
d) I = Y + C + G.
35) Let Y = total income; C = consumption; G = government purchases; T = taxes; TR = transfer payments. Private
saving is defined as
a) T - G + TR.
b) Y + TR + C - T.
c) T + G + TR.
d) Y + TR - C - T.

36) Public savings in the economy can be increased by
a) raising government spending.
b) raising transfer payments.
c) lowering taxes.
d) raising taxes.

37) Let Y = total income; C = consumption; G = government purchases; T = taxes; TR = transfer payments. Total
saving in the economy can be expressed as
a) Y T.
b) T - G - TR.
c) Y - C - G.
d) Y + TR - C - T.

38) If taxes are less than transfers plus government spending, then
a) there is a balanced budget.
b) there is a budget deficit.
c) there is a budget surplus.
d) there are positive saving.

39) Let G = government purchases; T = taxes; TR = transfer payments. The budget deficit is defined as
a) T - (G + TR) > 0.
b) T + (G - TR) < 0.
c) T + (G + TR) < 0.
d) T - (G + TR) < 0.

40) Let G = government purchases; T = taxes; TR = transfer payments. The budget surplus is defined as
a) T + (G + TR) > 0.
b) T - (G + TR) < 0.
c) T - (G + TR) > 0.
d) T + (G - TR) > 0.

41) The demand for loanable funds has a ________ slope because the lower the interest rate, the ________ number
of investment projects are profitable, and the ________ the quantity of loanable funds demanded.
a) positive; lesser; lesser
b) negative; greater; greater
c) negative; greater; lesser
d) negative; lesser; greater

42) Using the market for loanable funds, which of the following has the potential to raise the real interest rate?
a) An increase in the quantity demanded of loanable funds
b) An increase in the supply of loanable funds
c) An increase in the demand for loanable funds
d) An increase in the quantity supplied of loanable funds

43) The supply of loanable funds has a ________ slope because the greater the interest rate, the ________ the
reward to savings, and the ________ the quantity of loanable funds supplied.
a) positive; greater; greater
b) negative; lesser; greater
c) positive; greater; lesser
d) positive; lesser; lesser

44) In the model of the market for loanable funds, which of the following will NOT shift the demand curve for loanable
funds?
a) The effect of technological change on profitability
b) The expectation of a recession by businesses
c) Lower interest rates
d) Expectations of high returns to investments

45) In the model of the market for loanable funds, which of the following will NOT shift the supply curve for loanable
funds?
a) A decrease in taxation on interest earned on savings accounts
b) Expectations of high returns to investments
c) A government budget surplus
d) A government budget deficit

46) A government budget deficit will shift the ________ curve for loanable funds to the ________ and the equilibrium
real interest rate will ________.
a) demand; right; rise
b) demand; left; fall
c) supply; right; fall
d) supply; left; rise