The ratio of the increase in ________ to the increase in ________ is called the multiplier.

(Answer to Q. 1)  D

(Answer to Q. 2)  Education raises the level of human capital in an economy. Human capital is the accumulated knowledge and skills that workers acquire from education and training or from their life experiences. Human capital raises a worker's productivity. The increase in productivity increases growth, per capita GDP, and standards of living. Human capital is one of the main sources of technological change. One of the lessons of the economic growth model is that technological change is more important for raising productivity than are increases in capital. It is an important ingredient for rapid economic growth.
The government's role in promoting investment in human capital is important, as the market might not provide the optimal amount of investment in human capital. Nobel laureate Robert Lucas argues that there are increasing returns to investments in human capital. These returns are not entirely captured by the individual, so if left to their own devices, individuals may not invest enough in education. Having the government invest in education will provide the country with a higher and more efficient level of education and training.

(Answer to Q. 3)  C

(Answer to Q. 4)  C

(Answer to Q. 5)  Unemployment will fall during an expansion and rise during a recession. When the economy begins slowing down during a recession, firms cut back on production and workers get laid off. But it doesn't stop there. The unemployment rate typically rises even after the end of the recession. This happens for a couple of different reasons. First, it reflects the behavior of discouraged workers. When the economy goes into recession, the number of discouraged workers rises. When a discouraged worker drops out of the labor force, this actually lowers the unemployment rate. During the recession, the unemployment rate does not rise as much as it would if we counted discouraged workers as unemployed. When the recovery begins, these former discouraged workers enter back into the labor force and start searching for work again. This influx of people without jobs into the labor force raises the unemployment rate.
Second, firms are reluctant to start adding back workers when the recovery begins to take hold. They are cautious and want to be sure that the recession is over. They work their workers overtime rather than add new workers. Both these effects, discouraged workers re-entering the labor market and firm's reluctance to hire in the early part of a recovery, contribute to keeping the unemployment rate high.

(Answer to Q. 6)  D

(Answer to Q. 7)  If the Fed's policy was successful, real GDP in 2017 will rise from 18.5 trillion to the level of potential GDP in 2017 which is 18.7 trillion. Potential GDP is not influenced by monetary policy so it should stay at 18.7 trillion. Since expansionary monetary policy increases AD, the short-run equilibrium will move up the short-run aggregate supply curve and the price level will be higher. Finally, because the level of real GDP is higher with policy, the unemployment rate will be lower than it would have been without the change in policy.

(Answer to Q. 8)  C

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