17. Which of the following events would decrease both the unemployment rate and the laborforce participation rate?
(A) Laura finally finds a job after a long search.
(B) Lisa finds a job immediately after graduating from college.
(C) Alice searches for a long time and eventually gives up job search.
(D) Tom quits his job to become a fulltime stayathome father.

18. The news often states that the Federal Reserve raises or lowers interest rates, referring to changes in the federal funds rate. The federal funds rate is (A) The interest rate banks charge households and firms on loans. (B) The interest rate at which banks borrow directly from the Federal Reserve. (C) The interest rate on overnight loans of bank reserves between banks. (D) None of the above.

19. Which of the following policies would increase the money supply? (A) The Federal Reserve raises the target federal funds rate. (B) The Federal Reserve raises the interest rate paid on bank reserves. (C) The Federal Reserve conducts an openmarket sale of bonds. (D) The Federal Reserve lowers reserve requirements for banks.

20. Suppose that a Big Mac costs $3 in the United States and NT$120 in Taiwan, and the exchange rate is NT$30 per U.S. dollar. According to purchasing power parity (PPP), (A) The U.S. dollar will depreciate against the New Taiwan dollar. (B) The U.S. dollar will appreciate against the New Taiwan dollar. (C) The exchange rate will remain unchanged. (D) Any of the above is possible.

21. An economist observes that a $10 billion increase in government spending raises aggregate demand by $30 billion. Initially, the economist ignores the crowdingout effect and estimates the marginal propensity to consume (MPC) as 2/3. After taking crowding out into account, the recalculated MPC will be (A) Larger. (B) Smaller. (C) The same. (D) Cannot be determined.

22. Which of the following causes movement along a shortrun Phillips curve? (A) Technological progress. (B) An increase in the minimum wage. (C) An increase in the money supply. (D) An oil crisis.

23. Which of the following statements is correct? (A) The costs of reducing inflation are permanent, while the benefits are temporary. (B) The costs of increasing inflation are permanent, and the benefits are also permanent. (C) The costs of reducing inflation are temporary, while the benefits are permanent. (D) The costs of increasing inflation are temporary, while the benefits are permanent.

24. When a country experiences a large capital inflow, ceteris paribus, (A) Both the equilibrium real interest rate and the equilibrium real exchange rate rise, and net exports increase. (B) Both the equilibrium real interest rate and the equilibrium real exchange rate fall, and net exports decrease. (C) The equilibrium real interest rate rises, the equilibrium real exchange rate falls, and net exports increase. (D) The equilibrium real interest rate falls, the equilibrium real exchange rate rises, and net exports decrease.

25. Stagflation occurs because (A) The longrun aggregate supply curve shifts left. (B) The shortrun aggregate supply curve shifts left. (C) The aggregate demand curve shifts left. (D) Both ( B ) and ( C ) are correct.

1. Bill is restoring a car and has already spent $4000 on the restoration. He expects to be able to sell the car for $6200. Bill discovers that he needs to do an additional $2400 of work to make the car worth $6200 to potential buyers. He could also sell the car now, without completing the additional work, for $3800. What should he do? (A) He should sell the car now for $3800. (B) He should keep the car since it wouldn't be rational to spend $6400 restoring a car and then sell it for only $6200. (C) He should complete the additional work and sell the car for $6200. (D) It does not matter if Bill sells the car now or completes the work and then sells it at the higher price because the outcome will be the same either way.

2. Bridget drinks three sodas during a particular day. The marginal benefit she enjoys from drinking the third soda (A) can be thought of as the total benefit Bridget enjoys by drinking three sodas minus the total benefit she would have enjoyed by drinking just two sodas. (B) determines Bridget's willingness to pay for the third soda. (C) is likely different from the marginal benefit provided to Bridget by the second soda. (D) All of the above are correct. 

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