Table 1 The table below contains data for the country of Batterland, which produces only waffles and pancakes. T

The table below contains data for the country of Batterland, which produces only waffles and pancakes. The base year is 2006.

Year Price
of
Waffles Quantity
of
Waffles Price
of
Pancakes Quantity
of
Pancakes
2005 $2 100 $1 100
2006 $2 120 $2 150
2007 $3 150 $3 200
2008 $4 180 $3 220

1. Refer to Table 1. In 2007, Batterland’s GDP deflator was
a. 66.7.
b. 100.
c. 129.6.
d. 150.

2. Which of the following statements about real and nominal interest rates is correct?
a. When the nominal interest rate is rising, the real interest rate is necessarily rising; when the nominal interest rate is falling, the real interest rate is necessarily falling.
b. If the nominal interest rate is 4 percent and the inflation rate is 3 percent, then the real interest rate is 7 percent.
c. An increase in the real interest rate is necessarily accompanied by either an increase in the nominal interest rate, an increase in the inflation rate, or both.
d. When the inflation rate is positive, the nominal interest rate is necessarily greater than the real interest rate.

3. If 2004 is the base year, then the inflation rate for 2005 equals
a.
b.
c.
d.

4. If Congress instituted an investment tax credit, the equilibrium quantity of loanable funds would
a. rise.
b. fall.
c. be unchanged.
d. move in an uncertain direction.

5. Efficiency-wage theory suggests that paying
a. low wages might be profitable because they raise the efficiency of a firm’s workers.
b. low wages might be profitable because they lower the efficiency of a firm’s workers.
c. high wages might be profitable because they raise the efficiency of a firm’s workers.
d. high wages might be profitable because they lower the efficiency of a firm’s workers.

6. Which of the following does not help reduce frictional unemployment?
a. government-run employment agencies
b. public training programs
c. unemployment insurance
d. All of the above help reduce frictional unemployment.

7. Which of the following is included in M2 but not in M1?
a. demand deposits
b. corporate bonds
c. large time deposits
d. money market mutual funds

8. If banks desire to hold no excess reserves, the reserve ratio is 10 percent, and a bank that was previously just meeting its reserve requirement receives a new deposit of $400, then initially the bank has a
a. $400 increase in excess reserves and no increase in required reserves.
b. $400 increase in required reserves and no increase in excess reserves.
c. $360 increase in excess reserves and $40 increase in required reserves.
d. $40 increase in excess reserves and $360 increase in required reserves.