Question 1

Which of the following best explains the multiplier effect as a result of a $100 million increase in government spending on highways?

Accepted Answer

A) To fund the government spending, more money must be printed.The resulting increase in money supply lowers interest rates which in turn stimulates consumption and investment spending. 
B) The initial change in spending will cause an increase in real GDP and it also becomes income to someone else.As a result, the government's tax revenue increases which in turn allows the government to further increase its spending. 
C) The government spending creates a demand for domestically produced goods and services which in turn increases income and higher incomes will lead to increased consumption. 
D) The initial change in government spending creates a supply of jobs and stimulates production of domestically produced goods and services.The resulting increases in wages and investment demand leads to increased real GDP. 
A) To fund the government spending, more money must be printed.The resulting increase in money supply lowers interest rates which in turn stimulates consumption and investment spending. 
B) The initial change in spending will cause an increase in real GDP and it also becomes income to someone else.As a result, the government's tax revenue increases which in turn allows the government to further increase its spending. 
C) The government spending creates a demand for domestically produced goods and services which in turn increases income and higher incomes will lead to increased consumption. 
D) The initial change in government spending creates a supply of jobs and stimulates production of domestically produced goods and services.The resulting increases in wages and investment demand leads to increased real GDP. C

Question 2

To eliminate an inflationary gap, policy-makers may pursue

Accepted Answer

A) an expansionary policy that reduces the price level. 
B) a contractionary policy that decreases aggregate demand. 
C) a non-intervention policy that leaves aggregate demand unaffected and increases aggregate supply. 
D) an intervention policy that increases aggregate supply and decreases aggregate demand. 
A) an expansionary policy that reduces the price level. 
B) a contractionary policy that decreases aggregate demand. 
C) a non-intervention policy that leaves aggregate demand unaffected and increases aggregate supply. 
D) an intervention policy that increases aggregate supply and decreases aggregate demand. B

Question 3

Use the following to answer questions 
Exhibit: Aggregate Demand  
-(Exhibit: Aggregate Demand)
What could have caused a movement from point A to point D?

Accepted Answer

A) Technological advancement 
B) An increase in the inflation rate 
C) An increase in household wealth 
D) A recession in foreign countries 
A) Technological advancement 
B) An increase in the inflation rate 
C) An increase in household wealth 
D) A recession in foreign countries C

Question 4

The use of government purchases, transfer payments, and taxes to influence the level of economic activity is called

Accepted Answer

A) monetary policy. 
B) fiscal policy. 
C) congressional policy. 
D) Federal Government policy. 
A) monetary policy. 
B) fiscal policy. 
C) congressional policy. 
D) Federal Government policy.

Question 5

According to the wealth effect, if the average price level rises, the value of consumers'

Accepted Answer

A) real wealth, nominal wealth, and consumption spending fall. 
B) nominal wealth and consumption spending fall. 
C) real wealth and consumption spending fall. 
D) nominal wealth and saving fall. 
A) real wealth, nominal wealth, and consumption spending fall. 
B) nominal wealth and consumption spending fall. 
C) real wealth and consumption spending fall. 
D) nominal wealth and saving fall.

Question 6

A change in the price level produces an immediate shift of the short-run aggregate supply curve.

Accepted Answer

A) True 
 B)False

Question 7

How will a recession in the economies of our foreign trading partners affect U.S.aggregate demand?

Accepted Answer

A) It will have no effect on our aggregate demand. 
B) U.S.aggregate demand will increase. 
C) U.S.aggregate demand will decrease. 
D) It depends on whether the U.S.offers financial aid to these countries. 
A) It will have no effect on our aggregate demand. 
B) U.S.aggregate demand will increase. 
C) U.S.aggregate demand will decrease. 
D) It depends on whether the U.S.offers financial aid to these countries.

Question 8

Suppose the U.S.government decides to increase its imports from Turkey.All other things unchanged,

Accepted Answer

A) U.S.aggregate demand increases and Turkey's aggregate demand decreases. 
B) U.S.aggregate demand decreases and Turkey's aggregate demand increases. 
C) U.S.aggregate demand and Turkey's aggregate demand increase. 
D) U.S.aggregate demand is not affected but Turkey's aggregate demand increases. 
A) U.S.aggregate demand increases and Turkey's aggregate demand decreases. 
B) U.S.aggregate demand decreases and Turkey's aggregate demand increases. 
C) U.S.aggregate demand and Turkey's aggregate demand increase. 
D) U.S.aggregate demand is not affected but Turkey's aggregate demand increases.

Question 9

As an inflationary gap is eliminated through an economy's self-correcting adjustments process,

Accepted Answer

A) the equilibrium price level increases and the equilibrium real output decreases. 
B) the equilibrium price level decreases and the equilibrium real output increases. 
C) the equilibrium price level and the equilibrium real output increase. 
D) the equilibrium price level and the equilibrium real output decrease. 
A) the equilibrium price level increases and the equilibrium real output decreases. 
B) the equilibrium price level decreases and the equilibrium real output increases. 
C) the equilibrium price level and the equilibrium real output increase. 
D) the equilibrium price level and the equilibrium real output decrease.

Question 10

Potential output is

Accepted Answer

A) the level of real GDP that exists when the economy is experiencing only cyclical and structural unemployment. 
B) the level of real GDP that exists when the quantity of labor supplied is equal to the quantity of labor demanded. 
C) the level of real GDP that exists when the actual rate of unemployment is zero. 
D) the level of real GDP that exists when the economy is experiencing only frictional and cyclical unemployment. 
A) the level of real GDP that exists when the economy is experiencing only cyclical and structural unemployment. 
B) the level of real GDP that exists when the quantity of labor supplied is equal to the quantity of labor demanded. 
C) the level of real GDP that exists when the actual rate of unemployment is zero. 
D) the level of real GDP that exists when the economy is experiencing only frictional and cyclical unemployment.

Question 11

Public policy to eliminate a recessionary gap could involve an increase in taxes.

Accepted Answer

A) True 
 B)False

Question 12

A change in the aggregate quantities of goods and services demanded at each price level is called a

Accepted Answer

A) change in aggregate demand. 
B) change in the aggregate quantity of goods and services demanded. 
C) determinant of aggregate demand. 
D) revealed expenditure on aggregate demand. 
A) change in aggregate demand. 
B) change in the aggregate quantity of goods and services demanded. 
C) determinant of aggregate demand. 
D) revealed expenditure on aggregate demand.

Question 13

The economy's potential output corresponds to the level of

Accepted Answer

A) natural employment. 
B) frictional unemployment. 
C) structural unemployment. 
D) cyclical unemployment. 
A) natural employment. 
B) frictional unemployment. 
C) structural unemployment. 
D) cyclical unemployment.

Question 14

Use the following to answer questions 
Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1  
-(Exhibit: Using the Aggregate Demand/Aggregate Supply Model 1)
Suppose the economy is initially in short-run equilibrium at B.Policy makers could either pursue a stabilization policy or allow the economy to adjust on its own.What is the difference between the two policy choices, if any?

Accepted Answer

A) A stabilization policy would return real GDP to its potential at a price level of Pa while a nonintervention policy would return real GDP to its potential at a price level of Pd. 
B) A stabilization policy would return real GDP to its potential at a price level of Pd while a nonintervention policy would return real GDP to its potential at a price level of Pa. 
C) Both policies would return real GDP to its potential at a price level of Pa. 
D) Both policies would return real GDP to its potential at a price level of Pd. 
A) A stabilization policy would return real GDP to its potential at a price level of Pa while a nonintervention policy would return real GDP to its potential at a price level of Pd. 
B) A stabilization policy would return real GDP to its potential at a price level of Pd while a nonintervention policy would return real GDP to its potential at a price level of Pa. 
C) Both policies would return real GDP to its potential at a price level of Pa. 
D) Both policies would return real GDP to its potential at a price level of Pd.

Question 15

The sticky price explanation of the short-run aggregate supply curve says that when the average price level rises,

Accepted Answer

A) some firms will immediately pass the higher prices to consumers. 
B) because of adjustment costs associated with changing prices, some firms will not raise their prices immediately which may temporarily boost their sales. 
C) firms will raise their output prices by more than the increase in the average price level to make up for the shortfall in sales. 
D) consumers are unwilling to pay higher prices resulting in a decrease in aggregate demand. 
A) some firms will immediately pass the higher prices to consumers. 
B) because of adjustment costs associated with changing prices, some firms will not raise their prices immediately which may temporarily boost their sales. 
C) firms will raise their output prices by more than the increase in the average price level to make up for the shortfall in sales. 
D) consumers are unwilling to pay higher prices resulting in a decrease in aggregate demand.

Question 16

Suppose households become more future-oriented and decide to save more at each income level.All other things unchanged, this will

Accepted Answer

A) shift the aggregate demand curve to the right. 
B) shift the aggregate demand curve to the left. 
C) not affect aggregate but rather aggregate supply because firms will now produce less. 
D) shift both the aggregate demand curve and the aggregate supply curve to the left. 
A) shift the aggregate demand curve to the right. 
B) shift the aggregate demand curve to the left. 
C) not affect aggregate but rather aggregate supply because firms will now produce less. 
D) shift both the aggregate demand curve and the aggregate supply curve to the left.

Question 17

Using the aggregate demand-aggregate supply model, predict what happens in the short run if an increase in health insurance premiums paid by firms raises the cost of employing each worker.

Accepted Answer

A) The aggregate supply curve shifts right; the aggregate demand curve is not affected; price level decreases; real GDP increases. 
B) The aggregate demand curve shifts right; the aggregate supply curve is not affected; price level and real GDP increase. 
C) The aggregate demand curve shifts left; the aggregate supply curve is not affected; price level and real GDP decrease. 
D) The aggregate supply curve shifts left; the aggregate demand curve is not affected; price level increases; real GDP decreases. 
A) The aggregate supply curve shifts right; the aggregate demand curve is not affected; price level decreases; real GDP increases. 
B) The aggregate demand curve shifts right; the aggregate supply curve is not affected; price level and real GDP increase. 
C) The aggregate demand curve shifts left; the aggregate supply curve is not affected; price level and real GDP decrease. 
D) The aggregate supply curve shifts left; the aggregate demand curve is not affected; price level increases; real GDP decreases.

Question 18

Use the following to answer questions 
Exhibit: The Aggregate Demand/Aggregate Supply Model 2  
-(Exhibit: The Aggregate Demand/Aggregate Supply Model 2)
What are the prevailing price level and the output level in the economy?

Accepted Answer

A) Price level = P1; real GDP = Yp 
B) Price level = P1; real GDP = Y1 
C) Price level = P2; real GDP = Y2 
D) Price level = P3; real GDP = Yp 
A) Price level = P1; real GDP = Yp 
B) Price level = P1; real GDP = Y1 
C) Price level = P2; real GDP = Y2 
D) Price level = P3; real GDP = Yp

Question 19

All other things unchanged, a lower exchange rate

Accepted Answer

A) increases exports, imports, and aggregate demand. 
B) decreases exports, imports, and aggregate demand. 
C) increases exports, decreases imports, increases net exports and aggregate demand. 
D) decreases exports, increases imports, decreases net exports and aggregate demand. 
A) increases exports, imports, and aggregate demand. 
B) decreases exports, imports, and aggregate demand. 
C) increases exports, decreases imports, increases net exports and aggregate demand. 
D) decreases exports, increases imports, decreases net exports and aggregate demand.

Question 20

Use the following to answer questions 
Exhibit: Aggregate Demand  
-All other things unchanged, an increase in personal income tax rates will

Accepted Answer

A) shift the aggregate demand curve to the right. 
B) shift the aggregate demand curve to the left. 
C) make the aggregate demand curve flatter. 
D) make the aggregate demand curve steeper. 
A) shift the aggregate demand curve to the right. 
B) shift the aggregate demand curve to the left. 
C) make the aggregate demand curve flatter. 
D) make the aggregate demand curve steeper.

Which of the following best explains the multiplier effect as a result of a $100 million increase in government spending on highways?

To eliminate an inflationary gap, policy-makers may pursue

Use the following to answer questions Exhibit: Aggregate Demand -(Exhibit: Aggregate Demand) What could have caused a movement from point A to point D?

The use of government purchases, transfer payments, and taxes to influence the level of economic activity is called

According to the wealth effect, if the average price level rises, the value of consumers'

A change in the price level produces an immediate shift of the short-run aggregate supply curve.

How will a recession in the economies of our foreign trading partners affect U.S.aggregate demand?

Suppose the U.S.government decides to increase its imports from Turkey.All other things unchanged,

As an inflationary gap is eliminated through an economy's self-correcting adjustments process,

Potential output is

Public policy to eliminate a recessionary gap could involve an increase in taxes.

A change in the aggregate quantities of goods and services demanded at each price level is called a

The economy's potential output corresponds to the level of

The sticky price explanation of the short-run aggregate supply curve says that when the average price level rises,

Suppose households become more future-oriented and decide to save more at each income level.All other things unchanged, this will

Using the aggregate demand-aggregate supply model, predict what happens in the short run if an increase in health insurance premiums paid by firms raises the cost of employing each worker.

Use the following to answer questions Exhibit: The Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: The Aggregate Demand/Aggregate Supply Model 2) What are the prevailing price level and the output level in the economy?

All other things unchanged, a lower exchange rate

Use the following to answer questions Exhibit: Aggregate Demand -All other things unchanged, an increase in personal income tax rates will

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

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Exam 7: Aggregate Demand and Aggregate Supply

Which of the following best explains the multiplier effect as a result of a $100 million increase in government spending on highways?

To eliminate an inflationary gap, policy-makers may pursue

Use the following to answer questions Exhibit: Aggregate Demand -(Exhibit: Aggregate Demand) What could have caused a movement from point A to point D?

The use of government purchases, transfer payments, and taxes to influence the level of economic activity is called

According to the wealth effect, if the average price level rises, the value of consumers'

A change in the price level produces an immediate shift of the short-run aggregate supply curve.

How will a recession in the economies of our foreign trading partners affect U.S.aggregate demand?

Suppose the U.S.government decides to increase its imports from Turkey.All other things unchanged,

As an inflationary gap is eliminated through an economy's self-correcting adjustments process,

Potential output is

Public policy to eliminate a recessionary gap could involve an increase in taxes.

A change in the aggregate quantities of goods and services demanded at each price level is called a

The economy's potential output corresponds to the level of

The sticky price explanation of the short-run aggregate supply curve says that when the average price level rises,

Suppose households become more future-oriented and decide to save more at each income level.All other things unchanged, this will

Using the aggregate demand-aggregate supply model, predict what happens in the short run if an increase in health insurance premiums paid by firms raises the cost of employing each worker.

Use the following to answer questions Exhibit: The Aggregate Demand/Aggregate Supply Model 2 -(Exhibit: The Aggregate Demand/Aggregate Supply Model 2) What are the prevailing price level and the output level in the economy?

All other things unchanged, a lower exchange rate

Use the following to answer questions Exhibit: Aggregate Demand -All other things unchanged, an increase in personal income tax rates will

Economics: the Study of Choice

Confronting Scarcity: Choices in Production

Demand and Supply

Applications of Supply and Demand

Macroeconomics: the Big Picture

Measuring Total Output and Income

Economic Growth

The Nature and Creation of Money

Financial Markets and the Economy

Monetary Policy and the Fed

Government and Fiscal Policy

Consumption and the Aggregate Expenditures Model

Investment and Economic Activity

Net Exports and International Finance

Inflation and Unemployment

A Brief History of Macroeconomic Thought and Policy

Inequality, Poverty, and Discrimination

Filters