2. In Irving Fisher's two-period model, if consumption in bothperiods is a normal good, then an increase in income in periodtwo:
(A) increases consumption in period one only.
(B) increases consumption in period two only.
(C) increases consumption in both periods.
(D) does not increase consumption in either period.

3. According to the Mundell-Fleming model for a small openeconomy with flexible exchange rates, if the governmentdecreases the money supply, then in the new short-runequilibrium:(A) income falls and the exchange rate rises.(B) the exchange rate falls and income rises.(C) ncome remains unchanged but the exchange rate rises.(D) the exchange rate remains unchanged but income falls.

4. In the Mundell-Fleming model with fixed exchange rates, attemptsby the central bank to decrease the money supply:(A) lead to a lower equilibrium level of income.(B) lead to a higher equilibrium level of income.(C) must be abandoned in order to maintain the fixed exchangerate.(D) must be offset by expansionary fiscal policy.

5. Over the past year, output grew 4%, capital grew 2%, and laborgrew 1%. If theincome shares of output with respect to capital and labor are 0.3and 0.7, respectively, how much did total factor productivity grow?(A) 2.0% (B) 2.7%(C) 3.0% (D) 3.3%

6. According to the Solow model, an increase in the capital-laborratio will(A) always reduce steady state consumption per worker.(B) always increase steady state consumption per worker.(C) reduce steady state consumption per worker if the capital-labor ratio is below the Golden rule capital stock.(D) increase steady state consumption per worker if the capital-labor ratio is below the Golden rule capital stock.

7. The Bigdrillcompany drills for oil, which it sells for $200 million tothe Bigoil company to be made into gas. The Bigoilcompany's gasis sold for a total of $600 million. What is the total contribution tothe country's GDP from companies Bigdrill and Bigoil?(A) $200 million (B) $400 million(C) $600 million (D) $800 million

8. The country of Old Jersey produces milk and butter, and it haspublished the following macroeconomic data, where quantities arein gallons and prices are dollars per gallon. Between Year 1 and Year 2, the percent change in real GDP(based on Year 1 as a base year) was(A) 58% (B) 60%(C) 130% (D) 190%

9. Consider the money demand function that takes the form (M/P)d =kY, where M is the quantity of money, P is the price level, and Y isreal output. If the money supply is growing at a 10 percent rate,real output is growing at a 3 percent rate, and k is constant, whatis the rate of inflation in this country?(A) 3 percent (B) 7 percent(C) 10 percent (D) 13 percent

10. According to the theory of Ricardian equivalence, if consumersare forward-looking, they will view a tax cut that has no plans toreduce government spending as ______, so their consumption will______.(A) additional disposable income; increase(B) additional disposable income; remain unchanged(C) a rescheduling of taxes into the future; increase(D) a rescheduling of taxes into the future; remain unchanged

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