Deck 19: Macroeconomic Fluctuations

Question 1

Japan's population increased by 3 percent in 2010. As a result,which of the following occurred?
I) an increase in potential GDP
II) a rightward shift in the long-run aggregate supply curve
III) a rightward shift in the short-run aggregate supply curve.

A) I, II and III.
B) III only.
C) I and II only.
D) II and III.

Answer 1

A

Question 2

Suppose disposable income increases from $11 trillion to $12 trillion.At the same time,consumption expenditure increases from $4.2 trillion to ________.Thus the MPC must equal ________.

A) $5.0 trillion; 0.50
B) $5.0 trillion; 0.80
C) $4.4 trillion; 0.40
D) $5.5 trillion; 0.50

Answer 2

B

Question 3

At potential GDP

A) there is no unemployment but there is not necessarily full employment.
B) there is no unemployment and there is full employment.
C) unemployment is at its natural rate.
D) None of the above is correct.

Answer 3

C

Question 4

The marginal propensity to consume measures

A) the cyclical deficit.
B) the structural deficit.
C) how much consumption expenditure occurs at the equilibrium level of income.
D) how much of a change in consumption expenditure results from a change in disposable income.

Question 5

The level of potential GDP

A) increases when the inflation rate rises.
B) rises and falls with the business cycle.
C) determines the location of the long-run aggregate supply curve.
D) changes when cyclical unemployment changes.

Question 6

Business cycles result when

A) aggregate demand grows faster than potential GDP.
B) the labor force participation rate changes.
C) aggregate supply and aggregate demand change at an uneven pace.
D) real GDP equals potential GDP.

Question 7

If the economy is at the natural unemployment rate,

A) real GDP > potential GDP.
B) real GDP < potential GDP.
C) real GDP = potential GDP.
D) All of the above can occur when the economy is at the natural unemployment rate.

Question 8

A recessionary gap occurs when

A) the short-run aggregate supply curve shifts rightward.
B) real GDP is less than potential GDP.
C) the economy is at its long-run equilibrium.
D) government interferes with the economy.

Question 9

Keynesians and monetarists believe that economic fluctuations are caused

A) by shifts in both the AS and AD curves.
B) largely by shifts in the AD curve.
C) changes in the structural deficit.
D) by fiscal policy.

Question 10

The Keynesian aggregate expenditure model focuses on changes in

A) the price level.
B) real GDP.
C) potential GDP.
D) the SAS curve.

Question 11

Suppose that a severe shock that decreases investment demand hits the United States.Which of the following can we expect to occur according to the real business cycle model?

A) The Fed will lower the federal funds rate.
B) The structural deficit will increase.
C) The real wage rate will rise.
D) The real interest rate will fall.

Question 12

Classical economists believe that the economy

A) requires activist government intervention to reach its potential level of GDP.
B) is self-regulating and does not require government intervention.
C) can be affected by only monetary policy.
D) is persistently below its potential level of GDP.

Question 13

The growth rate of productivity is a major feature of

A) Keynesian and monetarist economists.
B) monetarist economists.
C) real business cycle economists.
D) why the marginal propensity to consume is less than 1.0.

Question 14

Keynesian economists believe that

A) the economy automatically adjusts towards full employment.
B) monetary policy causes business cycles.
C) there are no business cycles.
D) activist government policy is needed to get the economy to full employment.

Question 15

The impulse leading to business cycles in the Keynesian model is changes in

A) the structural deficit.
B) open market operations.
C) business confidence.
D) the expected future price level.

Question 16

Which of the following is true?

A) The structural deficit changes over the business cycle.
B) MPS + MPC = 1.
C) At equilibrium expenditure, unplanned changes in inventory must be positive.
D) In the real business cycle model, there is no AD curve.

Question 17

If the Fed increases the quantity of money,________ economists believe that the ________.

A) Keynesian; aggregate supply curve shifts rightward
B) Keynesian; structural deficit increases
C) monetarist; cyclical deficit increases
D) monetarist; aggregate demand curve shifts rightward

Question 18

The order for the chain of events for the Keynesian model is for a change in ________ to lead to a change in ________,which is then multiplied resulting in a change in ________.

A) investment; animal spirits; the price level
B) business confidence; investment; real GDP
C) the Fed's intermediate targets; the Fed's goals; real GDP
D) real GDP; income; consumption

Question 19

The Keynesian aggregate expenditure model best describes the economy in the ________ run when prices are ________.

A) long; fixed
B) short; variable
C) long; variable
D) short; fixed

Question 20

Long-run macroeconomic equilibrium occurs when

A) real GDP is equal to potential GDP.
B) real GDP is at a point along the short-run aggregate supply curve.
C) the unemployment rate is zero.
D) all able-bodied adults have jobs.

Question 21

The presence of imports ________ the size of the ________.

A) increases; government budget deficit
B) increases; multiplier
C) decreases; multiplier
D) decreases; government budget deficit

Question 22

The multiplier effect

A) is nonexistent in the Keynesian model.
B) has no effect if the cyclical deficit is positive.
C) magnifies small changes in spending into larger changes in output and income.
D) increases the MPC.

Question 23

Which of the following leads to an rightward shift in the short-run Phillips curve?
I) a reduction in inflationary expectations.
II) an increase in the natural rate of unemployment.
III) an increase in the velocity of circulation

A) I only
B) II only
C) I and II
D) I and III