ECON 103 Quiz 2

How long can the U.S. government keep spending more than it raises in taxes?

-what interest are you paying -how much it crowds out investment

Which statement(s) about fiscal policy and aggregate demand is/are correct? 1) A reduction in unemployment compensation would increase aggregate demand 2) an increase in government spending would increase aggregate demand 3) an increase in government spending would increase aggregate demand and lead to a permanent increase in aggregate output if government spending is implemented when the economy is in long-run equilibrium

2 only

Eastland's government has a total national debt of $500 million, which is financed as follows: $100 million is held by other government agencies, $200 million is held by Eastland's citizens, and $200 million is held by foreign citizens. The amount of public debt in Eastland is:.

400 million

in the long run, the SRAS will aways move back to the

LRAS

Which of these would shift the short-run aggregate supply curve but not have any impact on the long-run aggregate curve? a) an increase in market concentration cross many industries b) an increase in the price level faced by consumers in a country c) an increase in the land area of a country d) an increase in technology

a) an increase in market concentration cross many industries

Increasing taxes to combat inflation is an example of _____ policy a) contractionary fiscal b) conservative fiscal c) demand-braking d) expansionary fiscal

a) contractionary fiscal

Which of these would cause a movement along a country's aggregate demand curve, but not a shift in its aggregate demand curve? a) increase in a country's CPI, meaning that household income does not buy as much b)fall in real interest rates c) expectation amount business owners for profits to increase so that they make more in investments d) the value of stocks in a country's stock market

a) increase in a country's CPI, meaning that household income does not buy as much

Which measure is an example of expansionary fiscal policy? a) increasing unemployment compensation b) raising taxes c) reducing welfare payments d) decreasing government spending

a) increasing unemployment compensation

The _____ is the sum of past _____ less surpluses. a) national debt; budget deficits b) budget deficits; public debts c) budget deficit; national debts d) public debt; national debts

a) national debt; budget deficits

an economy is operating at long-run equilibrium. What is the MOSt likely result of an aggressive expansionary fiscal policy? a) no change in long-run GDP and employment b) a decrease in the unemployment rate c) a crease in prices d) a rise in long-run employment

a) no change in long-run GDP and employment

If the economy is below full employment and the government uses expansionary fiscal policy in an attempt to reduce unemployment: a) output and price level will rise b) it will have no effect, as fiscal policy does not work during times of unemployment c) output and the price level will fall d) output will rise, but the price level will fall

a) output and price level will rise

Suppose last year a firm expected inflation this year to be 10%, and based on this expectation, it signed a contract with its workers agreeing to pay them $20 an hour. Yet the actual inflation turned out to be only 5%; the firm overestimated its inflation. As a result of this misestimation during the year the contract is in place (this year), the firm will a) reduce the quantity of output supplied b) increase the quantity of output supplied c) keep the quantity supplied the same

a) reduce the quantity of output supplied

Which of these is an example of contractionary fiscal policy? a) reducing military spending b) sending taxpayers a $600 rebate c) rebuilding a new interstate highway d) increasing federal spending to renovate college campuses

a) reducing military spending

At 23% of the total U.S. budget, which of these programs is the largest share of government spending? a) social security b) defense c) interest on the debt d) medicare e) unemployment and welfare

a) social security

The U.S. Government gets over 90% if its tax revenue from: a) the income of individuals b) the profits (income) of corporations c) the income of foreign individuals

a) the income of individuals

The solution to simultaneous deflation and unemployment is to shift the:

aggregate demand curve to the right

Which of the following actors would cause the aggregate demand curve to increase? a) a decrease in consumer confidence b) a government stimulus program c) a rise in interest rates d) a rise in imports

b) a government stimulus program

What would cause the price level to decrease and employment to increase? a) a shift to the right of the aggregate demand curve b) a shift to the right of the short-run aggregate supply curve c) a shift to the left of the aggregate demand curve d) a shift to the left of the short run aggregate supply curve

b) a shift to the right of the short-run aggregate supply curve

The solution to simultaneous deflation and unemployment is to shift the: a) Aggregate demand curve to the left b) aggregate demand curve to the right c) short-run aggregate supply curve to the right d) short-run aggregate supply curve to the left

b) aggregate demand curve to the right

Econia currency appreciates. this will cause a) a movement up along econias aggregate demand curve b) aggregate demand to fall c) aggregate demand to rise d) movement down along econias aggregate demand curve

b) aggregate demand to fall

Which fiscal policy will increase aggregate supply? a) instituting more regulations on businesses b) allocating more money for federal student loans c) increasing tax rates on businesses d) increasing tax rates on consumers

b) allocating more money for federal student loans

Which of these will shift the aggregate supply curve to the right? a) the development of a cartel in the production of soybeans b) an increase in the investment of human capital c) an increase in corporate taxes d) an increase in the price of garbage collection

b) an increase in the investment of human capital

If the government of Balancia runs a deficit of $50 million per year in Year 1 and in Year 2 due to its recession, but then has $100 million surplus in Year 3 due to a strong economic recovery, Balancia is likely following which type of rule? a) functional finance b) cyclically balanced budget c) biannually balanced budget d) annually balanced budget

b) cyclically balanced budget

suppose the economy is at full employment, and energy prices spike. In the short run, the output will ____; in the long run, the output will _____ a) remain unchanged, increase b) decrease, remain unchanged c) remain unchanged, decrease d) decrease, increase

b) decrease, remain unchanged

When the economy is at full employment, expansionary fiscal policy results in a new long-run equilibrium at an output level ___ full employment and a ____ price level a) equal to; lower b) equal to; higher c) above; higher d) below; higher

b) equal to; higher

Which of the following would be an example of expansionary fiscal policy? a) an increase in the individual income tax rate b) extending the period in which unemployment workers can collect unemployment benefits c) a decrease in the amount of federal grants given to college students d) a decrease in interest rates

b) extending the period in which unemployment workers can collect unemployment benefits

If the economy is at full employment, increases in government spending: a) have a multiplier effect on equilibrium output b) have no effect on the aggregate price level c) are primarily absorbed by price increases d) reduce aggregate output

b) have no effect on the aggregate price level

The federal government can finance its debt by all of these measures EXCEPT a(n) a) increase in the money supply b) increase in the federal funds rate c) sales of Treasury bonds d) sale of government assets

b) increase in the federal funds rate

Suppose the economy is at full employment, and consumers spend more then usual. In the short run, price will ___; in the long run, price will _____. a) increase; remain unchanged b) increase; increase c) remain unchanged; decrease d) remain unchanged; increase

b) increase; increase

rising productivity will increase economic growth and raise the average standard of living, shifting the ___ curve to the ____. a) long-run aggregate supply; left b) long-run aggregate supply; right

b) long-run aggregate supply; right

Assume initially the economy is at full employment. If aggregate demand increases, the aggregate price level and costs will _____, and ultimately, the short run aggregate supply curve shifts to the _____. a) fall, rise b) rise, left c) fall, left d), rise, right

b) rise, left

If the national incomes of foreign countries fall at the same time the dollar appreciates, then in the United States, the aggregate demand curve: a) shift to the right b) shift to the left c) does not shift, but there is movement along it d) remains unchanged

b) shift to the left

Which of these will increase aggregate supply? a) the secretary of education finalizes rules that make it more difficult for students to obtain federal loans b) the president asks Congress for $200 billion for rebuilding roads and bridges c) The Environmental Protection Agency (EPA) announces new, tighter standards for lead in dust on floors and windowsills d) the president raises tariffs on Chinese imports

b) the president asks Congress for $200 billion for rebuilding roads and bridges

Suppose policymakers wish to use fiscal policy to fight inflation. Which statement is MOST accurate? a) the government can have the best of both worlds in the form of low inflation and economic growth b) the way to lower the inflation rate is to decrease aggregate demand, which causes a rise in unemployment c) they should not use fiscal policy because in the long run, the economy will always go back to equilibrium, d) policymakers should use an expansionary policy because job creation is more important than inflation

b) the way to lower the inflation rate is to decrease aggregate demand, which causes a rise in unemployment

A falling aggregate price level ____ demand for a country's exports and therefore _____ output demanded. a) increases, reduces b), increases, increases c) reduces, reduces d) reduces, increases

b), increases, increases

Suppose that at the end of 2019, the government has a national debt of $150 billion, has collected tax revenue of $50 billion, and has spent $75 billion. The national debt at the beginning of 2020 is a) $25 billion b) $275 billion c) $175 billion d) $125 billion

c) $175 billion

suppose the economy is in a recession. To increase demand using discretionary discal policy, the government can: a) raise interest rates b) raise taxes or reduce government spending c) increase government spending or reduce taxes d) reduce interest rates

c) increase government spending or reduce taxes

Suppose the government passes a new law providing companies with low-cost alternative energy sources such as solar and wind. This would lead to a(n): a) increase in aggregate demand b) decrease in aggregate demand c) increase in aggregate supply d) decrease in aggregate supply

c) increase in aggregate supply

Suppose the economy is at full employment, and consumers spend more than usual. In the short run, output will___; in the long run, out will ___ a) increase, increase b) remain unchanged, decrease c) increase, remain unchanged d) remain unchanged, increase

c) increase, remain unchanged

Which of these will result if the economy expands beyond the level of full employment? a) unemployment b) lower interest rates c) inflation d) recession

c) inflation

An expansionary fiscal policy can result in a) recession b) lower prices c) inflation and higher GDP d) higher unemployment rates

c) inflation and higher GDP

A stronger dollar will shift the U.S. aggregate demand curve to the ___ and ____ output demanded a) left; increase b) right; decrease c) left; decrease d) right; increase

c) left; decrease

The short-aggregate supply curve is positively sloped because a) all variables are fixed in the short run b) a short run increase in GDP usually is accompanied by a slower rise in price level c) many inputs prices are slow to change in the short run d) a short run increase in GDP usually is accompanied by a rise in the price level

c) many inputs prices are slow to change in the short run

The total accumulation of past deficits less surpluses is called the a) public surplus b) national deficit c) national debt d) public debt

c) national debt

What is a determinant of aggregate supply? a) household expectations b) interest rates c) productivity d) prices of substitutes

c) productivity

the short run supply curve slopes upward because a) productivity increases at higher price levels b) wages increase at higher output levels in the short run c) profits increase at higher price levels d) resource costs increase at higher price levels

c) profits increase at higher price levels

As market interest rates rise, the cost of the public debt a) is unaffected, because the interest on the debt is fixed b) is unaffected until Congress votes to increase the interest paid c) rises, because the government must make larger interest payments d) falls, because investors will prefer safer financial assets such as Treasury Bonds

c) rises, because the government must make larger interest payments

If a country's currency appreciates, what impact will it have on aggregate demand or aggregate supply? a) Aggregate demand will rise because the currency will buy more abroad b) long run aggregate supply will rise because investment returns will rise c) short run aggregate supply will rise due to lower prices on imported inputs d) long run aggregate supply will fall because imports will rise

c) short run aggregate supply will rise due to lower prices on imported inputs

The solution to the simultaneous presence of inflation and unemployment is to implement policies that shift the: a) aggregate demand curve to the right b) aggregate demand curve to the left c) short-run aggregate supply curve to the right d) short-run aggregate supply curve to the left

c) short-run aggregate supply curve to the right

___ are components of consumer spending that affect aggregate demand. a) expected rates of return on investment b) exchange rate changes c) taxes d) government spending programs

c) taxes

Which of the following occurs when investment is crowded out by government spending? a) interest rates fall b) the amount of borrowing by the government falls c) the amount of government debt rises d) consumption increases

c) the amount of government debt rises

If an expansionary policy pushes output beyond the full employment level of GDP: a) production costs will decrease b) the economy will undergo deflation c) the short-run aggregate supply curve will shift to the left d) the natural rate of unemployment will fall

c) the short-run aggregate supply curve will shift to the left

aggregate supply increases when a) input prices rise b) subsides are reduced c) there is a decrease in firms' market power d) business expectations are pessimistic

c) there is a decrease in firms' market power

Which set of events would lead to a decrease in aggregate demand if the events occurred simultaneously? a) taxes are cut, while household debt levels rise b) interest rates fall, while government spending on research is cut c) there is a strong expansion in the economy of the country's main trading partner at the same time the country's currency appreciates d) none of these

c) there is a strong expansion in the economy of the country's main trading partner at the same time the country's currency appreciates

What would cause inflation and employment to increase? a) leftward shift of the aggregate demand curve b) a leftward shift of the short-run aggregate supply curve c) rightward shift of the short-run aggregate supply curve d) a rightward shift of the aggregate demand curve

d) a rightward shift of the aggregate demand curve

Which factor will cause the aggregate demand curve to shift to the left? a) a fall in excess capacity of businesses b) a rise in consumer confidence c) an increase in foreign income d) an appreciation of the dollar

d) an appreciation of the dollar

which of these would shift the short-run aggregate supply curve but not have any impact on the long-run aggregate supply curve? a) an increase in land area of a country b) an increase in the price level faced by consumers in a country c) an increase in technology d) an increase in market concentration across many industries

d) an increase in market concentration across many industries

The ____ is the amount by which annual tax revenues exceed government expenditures a) public debt b) government investment c) budget deficit d) budget surplus

d) budget surplus

Suppose the economy is at full employment and energy prices spike. In the short run, output will ___; in the long run, output will ____. a) remain unchanged; decrease b) decrease; increase c) remain unchanged; increase d) decrease; remain unchanged

d) decrease; remain unchanged

expansionary fiscal policy is typically used to _____ aggregate demand in order to _____ a) decrease; slow down an overheated economy b) decrease; avoid a recession c) increase; slow down an overheated economy d) increase; avoid a recession

d) increase; avoid a recession

When the economy is overheating and policymakers pursue contractionary fiscal policy, they express a willingness to trade of ____ output for a _____ price level a) higher; higher b) higher; lower c) lower; higher d) lower; lower

d) lower; lower

If the British pound sterling appreciates against the U.S. dollar, England buys ___ U.S. goods, causing the U.S. aggregate demand curve to shift to the ___. a) fewer; left b) more; left c) fewer; right d) more; right

d) more; right

Suppose the government increases aggregate demand to a level that increases GDP above its long-run equilibrium level. What sequence of events would follow? a) prices fall; workers receive lower wages; short-run aggregate supply shifts to the right; GDP rises b) prices fall; workers receive lower wages; aggregate supply shifts to the right; GDP rises c) prices rise; GDP increases; workers demand higher wages; long-run aggregate supply shifts to the left; GDP falls d) prices rise; GDP increases; workers demand higher wages; short-run aggregate supply shifts to the left; GDP drops

d) prices rise; GDP increases; workers demand higher wages; short-run aggregate supply shifts to the left; GDP drops

If the interest rates rise, the burden of a nation's debt ___ and the probability of a default ___ a) falls; rises b) falls; falls c) rises; falls d) rises; rises

d) rises; rises

The government can finance a budget deficit by a) buying bonds from the Federal Reserve b) buying bonds from the public c) buying assets d) selling assets

d) selling assets

if an expansionary policy pushes output beyond the full employment level of GDP a) the economy will undergo deflation b) the natural rate of unemployment will fall c) production costs will decrease d) the short-run aggregate supply curve will shift to the left

d) the short-run aggregate supply curve will shift to the left

In the long run, attempts to expand beyond an economy's natural rate of unemployment tend to result in

increased inflation

create unemployment to reduce

inflation

In his last State of the Union President Biden proposed the following three policies in order to lower inflation 1) instead of relying on foreign supply chains, let's make it in America 2) cut the cost of prescription drugs 3) cut energy costs for families an average of $500 a year combatting climate change which of these policies would be effective at reducing inflation?

none

If a pill is discovered that allows people to work twice as fast they would ordinarily work, then the aggregate supply curve will

shift to the right

If a country's currency appreciates. what impact will it have on aggregate demand or aggregate supply? a) aggregate demand will rise because the currency will buy more abroad b) long-run aggregate supply will rise because investment returns will rise c) short-run aggregate supply will rise due to lower prices on imported inputs d) long-run aggregate supply will fall because imports will rise

short-run aggregate supply will rise dye to lower prices on imported goods

SRAS is ____ sloping

upward

LRAS is

vertical