ECON CHP 9-11 test

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A below​ full-employment equilibrium is an equilibrium in which potential GDP​ _____ real GDP. A. exceeds B. is less than C. is the sum of aggregate demand and D. equals

A

A multiplier is the amount by which a change in any component of​ _____ is magnified or multiplied to determine the change in​ _____ and​ _____ that it generates. A. autonomous​ expenditure; equilibrium​ expenditure; real GDP B. real​ GDP; exports; imports C. consumption​ expenditure; government​ expenditure; tax receipts D. autonomous​ expenditure; consumption​ expenditure; nominal GDP

A

The marginal propensity to import is equal to​ _______. A. the change in imports divided by the change in real​ GDP, other things remaining the same B. imports minus exports C. disposable income minus consumption expenditure minus saving divided by real GDP D. the change in net imports divided by the change in disposable​ income, other things remaining the same

A

An economy has a zero marginal tax rate When real GDP​ increases, the change in imports equals​ _______. A. the marginal propensity to import times the increase in real GDP B. ​(1+ the marginal propensity to ​import) times the increase in real GDP C. the increase in real GDP divided by the marginal propensity to import D. the marginal propensity to import divided by the increase in real GDP

A

Draw a​ short-run aggregate supply curve. Label it. As we move up along the​ short-run aggregate supply​ curve, ______. A. the money wage​ rate, the prices of other​ resources, and potential GDP remain constant B. the money wage rate and the prices of other resources change by the same percentage C. the real wage​ rate, the prices of other​ resources, and potential GDP remain constant D. potential GDP increases

A

If real GDP and aggregate expenditure are greater than equilibrium​ expenditure, firms' inventories increase Firms​ _______ production, and real GDP​ _______. A. ​decrease; decreases B. ​decrease; increases C. ​increase; increases D. ​increase; decreases

A

If the price level and the money wage rate rise by the same​ percentage, the quantity of real GDP supplied​ ______ and there is a movement up along the​ ______ aggregate supply curve. A. does not​ change; long-run B. does not​ change; short-run C. ​decreases; long-run D. ​increases; short-run

A

In the long​ run, the money wage rate​ ______, short-run aggregate supply​ ______, and the economy returns to a​ full-employment equilibrium. A. ​rises; decreases B. ​rises; increases C. ​falls; increases D. ​falls; decreases

A

The multiplier increases when the marginal propensity to consume increases The multiplier increases when the marginal propensity to import​ ______ or the income tax rate​ ______. A. ​decreases; decreases B. ​increases; decreases C. ​increases; increases D. ​decreases; increases

A

Inflation expectations​ "become self-fulfilling" because consumers decide to​ _____, which​ ______. A. buy more goods and services at​ today's lower​ prices; increases aggregate demand B. produce more goods and services at​ today's lower​ prices; increases​ short-run aggregate supply C. produce fewer goods and services at​ today's lower​ prices; decreases​ short-run aggregate supply D. buy fewer goods and services until prices return to lower​ levels; decreases aggregate demand

A

Inflation results when​ ______. A. the quantity of money increases rapidly B. the increase in potential GDP exceeds the increase in aggregate demand C. aggregate demand and potential GDP increase at the same pace D. the increase in potential GDP exceeds the increase in​ short-run aggregate supply

A

Interest rate parity means​ ______. A. equal rates of return B. that if interest rates are higher in a developing nation than in the United​ States, U.S. investors will move their assets from the United States into that developing nation C. equal value of money D. interest rates in Canada and the United States are the same

A

Read the news​ clip, then answer the following question. The​ ______ macroeconomic school of thought justifies the policy discussed in this news clip. A. Keynesian B. monetarist C. classical D. new classical

A

Short-run aggregate supply is the relationship between the quantity of​ _____ supplied and the​ _____ when the money wage​ rate, the prices of other​ resources, and potential GDP remain constant. A. real​ GDP; price level B. potential​ GDP; price level C. real​ GDP; interest rate D. nominal​ GDP; exchange rate

A

Stagflation​ ______. A. is a combination of recession and inflation B. is another name for an inflationary gap C. has not been experienced in the United States since the Great Depression D. occurs when aggregate demand decreases by more than​ short-run aggregate supply increases

A

Starting from a position of​ long-run equilibrium, a world expansion​ ______, and an increase in expected future profits​ ______. A. increases real GDP and raises the price​ level; increases real GDP and raises the price level B. decreases real GDP and raises the price​ level; decreases real GDP and raises the price level C. increases real GDP and lowers the price​ level; increases real GDP and raises the price level D. increases real GDP and raises the price​ level; increases real GDP and lowers the price level

A

The Fed cuts the quantity of money and all other things remain the same. In the short​ run, aggregate demand​ _______. A. decreases B. decreases and​ long-run aggregate supply decreases C. increases and​ long-run aggregate supply increases D. increases

A

The defining feature of the Keynesian view of macroeconomics is that the economy is​ ______. A. rarely at full employment B. that the quantity of money is the most significant influence on aggregate demand C. constantly bombarded by shocks that arise from the uneven pace of technological change D. ​self-regulating and always at full employment

A

The defining feature of the classical view of macroeconomics is that the economy is​ ______. A. ​self-regulating and always at full employment B. constantly bombarded by shocks that arise from the uneven pace of technological change C. driven by expectations called​ "animal spirits" D. rarely at full employment

A

The exports effect is the result that the lower the exchange​ rate, other things remaining the​ same, the​ ______. A. lower are the prices of​ U.S.-produced goods and services to foreigners and the greater is the volume of U.S. exports B. lower are the prices of​ foreign-produced goods and services to Americans and the greater is the volume of U.S. exports C. higher are the prices of​ foreign-produced goods and services to Americans and the greater is the volume of U.S. imports D. higher are the prices of​ U.S.-produced goods and services to foreigners and the greater is the volume of U.S. imports

A

The gap between​ ______ is the output gap. When​ _____, the output gap is called an inflationary gap. A. real GDP and potential​ GDP; real GDP exceeds potential GDP B. the interest rate and the price​ level; real GDP exceeds potential GDP C. the price level and the​ cost; real GDP equals the interest rate D. real GDP and aggregate​ demand; real GDP equals potential GDP

A

The imports effect is the result that the higher the exchange​ rate, other things remaining the​ same, the​ ______. A. lower are the prices of​ foreign-produced goods and services to Americans and the greater is the volume of U.S. imports Your answer is correct.B. higher are the prices of​ U.S.-produced goods and services to foreigners and the greater is the volume of U.S. imports C. lower are the prices of​ U.S.-produced goods and services to foreigners and the greater is the volume of U.S. exports D. higher are the prices of​ foreign-produced goods and services to Americans and the greater is the volume of U.S. exports

A

The multiplier matters because we can use it to determine by how much we should change autonomous expenditure to​ ______. A. increase real GDP by a given amount B. make inventories equal to their target levels C. minimize taxes and maximize transfer payments D. maximize real GDP

A

The quantity of U.S. dollars demanded in the foreign exchange market depends on many​ factors, the main ones being​ ______. A. the exchange​ rate, world demand for U.S.​ exports, interest rates in the United States and other​ countries, and the expected future exchange rate B. the exchange​ rate, world demand for U.S.​ exports, the previous path of the exchange​ rate, and the expected future exchange rate C. the price level in the United​ States, world demand for U.S.​ exports, interest rates in the United States and other​ countries, and the expected future exchange rate D. the exchange​ rate, U.S. demand for​ imports, interest rates in the United States and other​ countries, and the previous path of the exchange rate

A

To calculate the​ multiplier, we divide​ ______ by​ ______. A. the change in equilibrium​ expenditure; the change in autonomous expenditure B. equilibrium​ expenditure; the change in autonomous expenditure C. equilibrium​ expenditure; autonomous expenditure D. the change in equilibrium​ expenditure; autonomous expenditure

A

​Short-run macroeconomic equilibrium occurs when the quantity of​ _____ demanded equals the quantity of​ _____ supplied at the point of intersection of the​ _____ curve and the​ _____ curve. A. real​ GDP; real​ GDP; AD​; SAS B. ​reserves; reserves; RD​; RS C. loanable​ funds; loanable​ funds; DLF​; SLF D. ​output; output; MD​; MS

A

A flexible exchange rate is one that​ _______. A. is determined by a decision of the government or the central bank and is achieved by central bank intervention in the foreign exchange market to block the unregulated forces of demand and supply B. is determined by demand and supply in the foreign exchange market with no direct intervention by the central bank C. follows a path determined by a decision of the government or the central bank and is achieved by central bank intervention in the foreign exchange market D. operated in the world economy from the end of World War II to the early 1970s

B

A movement along the aggregate demand curve occurs if​ _______. A. expectations about future inflation or future income change B. the price level changes and all other factors remain unchanged C. the exchange rate or foreign income change D. government expenditure or the interest rate change

B

Aggregate demand increases if expected future​ income, inflation, or profits​ ______. And aggregate demand increases if fiscal policy​ ______ government expenditure. A. decrease​; increases B. increase​; increases C. increase​; decreases D. decrease​; decreases

B

Aggregate demand increases if fiscal policy​ ______ taxes or​ ______ transfer payments. A. decreases​; decreases B. decreases​; increases C. increases​; decreases D. increases​; increases

B

Aggregate demand increases if the exchange rate​ ______ or foreign income ​______. A. decreases​; decreases B. decreases​; increases C. increases​; increases D. increases​; decreases

B

Aggregate demand is the relationship between the quantity of​ _____ demanded and the​ _____ when all other influences on expenditure plans remain the same. A. nominal​ GDP; quantity of output supplied B. real​ GDP; price level C. real​ GDP; exchange rate D. nominal​ GDP; interest rate

B

An economy has a zero marginal tax rate. When real GDP​ increases, the change in consumption expenditure equals​ _______. A. the increase in real GDP divided by the marginal propensity to consume B. the marginal propensity to consume times the increase in real GDP C. the marginal propensity to consume divided by the increase in real GDP D. ​(1+ the marginal propensity to ​consume) times the increase in real GDP

B

An increase in income taxes​ _______, everything else remaining the same. A. makes the multiplier larger B. makes the multiplier smaller C. has no effect on the multiplier D. sometimes increases the multiplier and sometimes decreases the multiplier

B

An increase in potential GDP increases​ ______. A. ​long-run aggregate supply but does not increase​ short-run aggregate supply unless technology advances B. both​ long-run aggregate supply and​ short-run aggregate supply C. the price level D. the money wage rate

B

As we move up along the​ long-run aggregate supply​ curve, ______. A. the prices of goods and services remain constant B. the real wage rate remains constant C. the prices of goods and services increase and the money wage rate decreases D. the money wage rate remains constant

B

A​ ______ macroeconomist believes that the economy is​ self-regulating and always at full employment. A​ ______ macroeconomist believes the economy requires active help from fiscal policy and monetary policy to maintain full employment. A. ​classical; monetarist B. ​classical; Keynesian C. new​ classical; monetarist D. ​Keynesian; new Keynesian

B

Changes in consumption spending play a large role in the business cycle because​ _______ accounts for approximately​ ______ percent of GDP. A. U.S. consumer purchases of net​ exports; 70 B. consumption​ expenditure; 70 C. consumption​ expenditure; 90 D. U.S. consumer purchases of net​ exports; 50

B

Choose the statement that is incorrect. A. Aggregate supply is the relationship between the quantity of real GDP supplied and the price level. B. Over the business​ cycle, aggregate supply fluctuates around potential GDP. .C. The quantity of real GDP supplied is the total quantity of goods and​ services, valued in constant​ base-year (2009)​ dollars, that firms plan to produce during a given period. D. At any given​ time, the quantity of capital and the state of technology are​ fixed, but the quantity of labor is not fixed.

B

Classical macroeconomists recommend​ ______. A. policies that actively offset changes in aggregate demand that bring recession B. policies that minimize the disincentive effects of taxes on​ employment, investment, and technological change C. an increase in the quantity of money to offset decreases in aggregate demand and a decrease in the quantity of money to offset increases in aggregate demand D. policies that actively offset changes in​ long-run aggregate supply that result in negative economic growth

B

Event 3​ ______. A. decreases aggregate demand and​ short-run aggregate supply B. decreases aggregate demand C. increases​ short-run aggregate supply D. increases aggregate demand

B

If disposable income increases from​ $4 trillion to​ $7 trillion, consumption expenditure increases from​ $3.5 trillion to​ $5.5 trillion, and nothing else​ changes, the marginal propensity to consume is​ _____. A. 0.79 B. 0.67 C. 1.5 D. 0.88

B

If equilibrium expenditure changes by​ $50 billion that results from an increase in autonomous taxes by​ $80 billion, find the autonomous tax multiplier. A. 0.429 B. 0.625 C. 0.332 D. 1.314

B

If real GDP and aggregate expenditure are less than equilibrium​ expenditure, firms' inventories decrease ​, Firms​ ______ production, and real GDP​ ______. A. ​decrease; increases B. ​increase; increases C. ​decrease; decreases D. ​increase; decreases

B

If real GDP increases by​ $2 million and potential GDP increases by​ $3 million and the marginal propensity to import is​ 0.2, by how much do imports​ change? A. Imports decrease by​ $200,000 B. Imports increase by​ $400,000 C. Imports decrease by​ $400,000 D. Imports increase by​ $600,000

B

Mexico trades with the United States. When the U.S. economy goes into a recession​, ​______. A. ​Mexico's price level falls and quantity of real GDP demanded​ increases, but​ Mexico's aggregate demand is unchanged B. ​Mexico's exports to the United States decrease​, ​Mexico's aggregate demand decreases​, and​ Mexico's AD curve shifts leftward C. ​Mexico's imports from the United States decrease and​ Mexico's aggregate demand increases D. ​Mexico's price level falls and quantity of real GDP demanded​ decreases, but​ Mexico's aggregate demand is unchanged

B

The balanced budget multiplier equals the change in equilibrium expenditure and real GDP that results from equal changes in​ _____ divided by the change in government expenditure. A. exports and imports B. government expenditure and​ lump-sum taxes C. aggregate demand and aggregate supply D. tax receipts and outlays

B

The consumption function is the relationship between consumption expenditure and​ _____, other things remaining the same. A. saving B. disposable income C. the price level D. aggregate demand

B

The following events have occurred at times in the history of the United​ States: 1. A deep recession hits the world economy 2. The world oil price rises sharply. 3. U.S. businesses expect future profits to fall. Starting from a position of​ long-run equilibrium, a deep recession​ ______, and a decrease in expected future profits​ ______. A. increases real GDP and raises the price​ level; increases real GDP and lowers the price level B. decreases real GDP and lowers the price​ level; decreases real GDP and lowers the price level C. increases real GDP and lowers the price​ level; increases real GDP and raises the price level D. decreases real GDP and raises the price​ level; decreases real GDP and raises the price level

B

The marginal propensity to consume is equal to​ ______, and the marginal propensity to save is equal to​ ______. A. ​1; 0 B. Upper DeltaC divided by Upper DeltaYD​; Upper DeltaS divided by Upper DeltaYD C. Upper DeltaC divided by Upper DeltaY​; Upper DeltaS divided by Upper DeltaY D. ​0; 1

B

The market in which the currency of one country is exchanged for the currency of another country is the​ ______. The price at which one currency exchanges for another currency is the​ ______. A. money​ market; exchange rate B. foreign exchange​ market; exchange rate Your answer is correct.C. money​ market; currency rate D. foreign exchange​ market; currency rate

B

The multiplier increases when the marginal propensity to import​ ______ or the income tax rate​ ______. A. ​increases; decreases B. ​decreases; decreases This is the correct answer.C. ​decreases; increases D. ​increases; increases

B

Which of the following economies is facing a stagflation​? A. The Fed is purchasing government securities to lower the interest rate. B. The European economy is experiencing a decrease in real GDP for three quarters and a rise in the price level. C. The Chinese economy is facing a rising labor cost. D. Japan has announced an increase in public expenditure.

B

Which of the following statements illustrate monetary policy​? A. The US public​ debt-to-GDP ratio in 2011 was about 100 percent. B. The Fed has raised the federal funds rate by 0.3 percent. C. Some US firms have scrapped outsourcing to China due to rising labor costs. D. The US government has increased its spending to boost demand.

B

______ is triggered by a decrease in autonomous expenditure and​ ______ is triggered by an increase in autonomous expenditure. A. An above​ full-employment equilibrium; a below​ full-employment equilibrium B. A​ recession; an expansion C. A decrease in real​ wealth; an increase in real wealth D. A​ deflation; an inflation

B

A Keynesian macroeconomist believes that left​ alone, the economy would​ _____ operate at full employment and that to achieve and maintain full​ employment, active help from fiscal policy and monetary policy is required. A modern version of the Keynesian​ view, known as the new Keynesian​ view, holds not only that the money wage rate is​ _____ but also that prices of goods and services are​ _____. A. ​rarely; ​flexible; flexible B. ​always; ​sticky; sticky C. ​rarely; ​sticky; sticky D. ​always; ​flexible; flexible

C

A fixed exchange rate is one that​ _______. A. follows a path determined by the government or the central bank and is achieved by central bank buying or selling domestic currency in the foreign exchange market B. is determined by demand and supply in the foreign exchange market with no direct intervention by the central bank C. is set by the government or the central bank and is achieved by central bank intervention in the foreign exchange market D. is not influenced by market traders and can only be changed by the government

C

A monetarist is a macroeconomist who believes that the economy is​ self-regulating and that it will normally operate​ _____, provided that monetary policy is not erratic and that the pace of​ _____ is kept steady. A. at full​ employment; economic growth B. below full​ employment; technological growth C. at full​ employment; money growth D. above full​ employment; technological growth

C

A new Classical view is that business cycle fluctuations are the​ _____ responses of a​ well-functioning market economy that is bombarded by shocks that arise from the uneven pace of​ _____. A. ​inefficient; technological change B. ​efficient; labor productivity growth C. ​efficient; technological change D. ​inefficient; economic growth

C

Choose the correct statement. A. The higher the price​ level, the greater is the quantity of real GDP demanded. B. The quantity of real GDP demanded is the sum of the real consumption​ expenditure, investment, government​ expenditure, and exports minus imports. C. The aggregate demand curve slopes downward because of the wealth effect and the money wage rate. D. The quantity of real GDP demanded depends on the quantity of real GDP supplied.

C

Labor productivity is rising at a rapid rate in China and wages are rising at a similar rate. Choose the statement that is incorrect. A. The overall effect of the increase in labor productivity and the rise in the wage rates is an increase in potential GDP. B. Rising wage rates decrease​ short-run aggregate supply and have no effect on​ long-run aggregate supply. C. The increase in labor productivity has no effect on​ short-run aggregate supply. D. The increase in labor productivity increases​ long-run aggregate supply.

C

Consider the following events. Event​ 1: Growth in the world economy slows. Event​ 2: The world price of oil rises. Event​ 3: U.S. labor productivity declines. Choose the statement that is correct. A. A classical macroeconomist and a monetarist recommend an increase in the quantity of money for all events. B. All macroeconomists believe that the economy requires active fiscal policy and monetary policy to keep the economy out of recession. C. A classical macroeconomist and a monetarist recommend that taxes be kept low to avoid disincentive effects for all of the events and a Keynesian recommends active fiscal policy and monetary policy to offset all events. D. A Keynesian recommends no action for all of the events.

C

Economic growth results when there are increases in​ ______. A. the inflationary gap B. the output gap C. capital accumulation D. the real wage rate

C

Everything else remaining the​ same, an increase in aggregate demand increases​ ______. A. ​short-run aggregate supply B. ​long-run aggregate supply C. the quantity of real GDP supplied D. potential GDP

C

If an economy is at a​ full-employment equilibrium and a decrease in consumption expenditure​ occurs, the new​ short-run equilibrium is​ _____ and​ _____ gap emerges. A. an above​ full-employment equilibrium; a recessionary B. an above​ full-employment equilibrium; an inflationary C. a below​ full-employment equilibrium; a recessionary D. a below​ full-employment equilibrium; an inflationary

C

Keynesian macroeconomists recommend​ ______. A. policies that actively offset changes in​ long-run aggregate supply that result in negative economic growth B. policies that minimize the disincentive effects of taxes on​ employment, investment, and technological change C. policies that actively offset changes in aggregate demand that bring recession D. an increase in the quantity of money to offset decreases in aggregate demand and a decrease in the quantity of money to offset increases in aggregate demand

C

Long-run macroeconomic equilibrium occurs when real GDP​ _____ potential GDP​ - equivalently, when the economy is on its​ _____ curve. A. ​exceeds; LAS B. is less​ than; AD C. ​equals; LAS D. ​exceeds; SAS

C

Monetarist macroeconomists recommend​ ______. A. policies that actively offset changes in aggregate demand that bring recession B. increases in the quantity of money to increase​ long-run aggregate supply C. policies that keep taxes low to avoid disincentive effects that decrease potential GDP D. policies that increase​ short-run aggregate supply to offset decreases in aggregate demand

C

Starting from a position of​ long-run equilibrium, an increase in government expenditures​ ______ real GDP and​ ______ the price level. A. decreases real GDP and lowers the price level B. decreases real GDP and raises the price level C. ​increases; real GDP and lowers the price level D. increases real GDP and raises the price level

C

Starting from a​ full-employment equilibrium, an increase in aggregate demand​ ______ real​ GDP, and creates​ ______ gap. A. ​decreases; a recessionary B. ​decreases; an inflationary C. ​increases; an inflationary D. ​increases; a recessionary

C

The government expenditure multiplier equals the change in​ _____ that results from a change in government expenditure divided by the change in government expenditure. A. aggregate supply B. investment C. equilibrium expenditure and real GDP D. consumption expenditure

C

The marginal propensity to consume is​ ______. A. the percentage of a​ household's income that is not saved B. equal to the slope of the 45degrees line C. the fraction of a change in disposable income that is spent on consumption D. greater than the slope of the 45degrees line

C

The marginal propensity to save is​ _______. A. equal to the slope of the 45degrees line B. greater than the slope of the 45degrees line C. the fraction of a change in disposable income that is saved D. the percentage of a​ household's income that is not spent on consumption goods and services

C

The multiplier is the amount by which the change in​ ______ expenditure is magnified or multiplied to determine the change in equilibrium expenditure and real GDP. For every dollar increase in​ ______ expenditure, the multiplier determines the increase in real GDP. A. ​autonomous; induced B. ​induced; autonomous C. ​autonomous; autonomous D. ​induced; induced

C

The multiplier is the amount by which the change in​ ______ expenditure is magnified or multiplied to determine the change in equilibrium expenditure and real GDP. For every dollar increase in​ ______ expenditure, the multiplier determines the increase in real GDP. A. ​autonomous; induced B. ​induced; induced C. ​autonomous; autonomous D. ​induced; autonomous

C

The multiplier matters because we can use it to determine by how much we should change autonomous expenditure to​ ______. A. minimize taxes and maximize transfer payments B. maximize real GDP C. increase real GDP by a given amount D. make inventories equal to their target levels

C

The relationship between saving and​ _____, other things remaining the​ same, is called the saving function. A. price level B. aggregate demand C. disposable income D. consumption expenditure

C

When Mexico decreases the quantity of​ money, Mexico's aggregate demand​ ______. A. is​ unchanged, but the quantity of real GDP demanded increases and there is a movement down along the AD curve B. is​ unchanged, but the quantity of real GDP demanded decreases and there is a movement up along the AD curve C. decreases and its AD curve shifts leftward D. increases and its AD curve shifts rightward

C

When the price level rises but the money wage rate and other factor prices remain the​ same, there is a movement along​ ______. The quantity of real GDP supplied​ ______. A. the LAS curve and the SAS curve​; decreases B. the LAS curve​; decreases C. the SAS​ curve; increases D. the SAS​ curve; decreases

C

When the price​ level, the money wage​ rate, and other factor prices rise by the same​ percentage, there is a movement along​ ______. Potential GDP​ ______. A. the LAS curve and the SAS curve​; does not change and the quantity of real GDP supplied increases B. the LAS curve and the SAS curve​; decreases C. the LAS curve​; does not change D. the LAS curve​; decreases

C

Which of the following statements about the monetarist view of the macroeconomy is ​incorrect? A. Taxes should be kept low to avoid disincentive effects that decrease potential GDP. B. The money wage rate is sticky. C. Left​ alone, the economy rarely operates at full employment. D. All recessions result from inappropriate monetary policy.

C

​______ bring business cycle turning points. A. Changes in​ short-run aggregate supply B. Changes in the price level C. Swings in autonomous expenditure D. Changes in​ long-run aggregate supply

C

Which of these factors will cause the aggregate demand curve to shift?

CORRECT ANSWER: A change in the expectations of households and firms

Which of these factors will shift the short-run aggregate supply to the left?

CORRECT ANSWER: A decrease in the size of the labor force

How can government policies shift the aggregate demand curve to the right?

CORRECT ANSWER: By increasing government purchases

According to the graph, an increase in government spending, all else equal, will shift the AD curve from the initial AD curve to the curve labeled:

CORRECT ANSWER: Increased AD

__________ advocates active government intervention via fiscal policy when the economy is in recession.

CORRECT ANSWER: Keynesian theory

Which of these shifts the aggregate demand curve to the right?

CORRECT ANSWER: Lower interest rates

Which of these policies affects the economy through intended changes in the quantity of money and interest rates?

CORRECT ANSWER: Monetary policy

Which of these factors will cause the long-run aggregate supply curve to shift to the right?

CORRECT ANSWER: The accumulation of more machinery and equipment

If firms reduce investment spending and the economy enters a recession, which of these contributes to the adjustment that causes the economy to return to its long-run equilibrium?

CORRECT ANSWER: The eventual agreement by workers to accept lower wages

The aggregate demand curve shows the relationship between:

CORRECT ANSWER: The price level and the quantity of real GDP demanded

A higher exchange rate will result in:

CORRECT ANSWER: a decrease in net exports and a decrease in aggregate demand

The 1974-1975 recession was a result of a:

CORRECT ANSWER: a leftward shift of the short-run aggregate supply curve

Monetarism is a school of economic thought that favors:

CORRECT ANSWER: a monetary growth rule.

Stagflation is a:

CORRECT ANSWER: combination of inflation and recession

In the short run, an unexpected decrease in oil prices will:

CORRECT ANSWER: decrease the price level but increase real GDP

When aggregate demand increases, unemployment will usually __________ and inflation will __________.

CORRECT ANSWER: fall, rise

A monetary growth rule that might be supported by a monetarist would be a plan:

CORRECT ANSWER: for the Federal Reserve to increase the quantity of money at a fixed rate and not respond to economic fluctuations.

According to Keynesian theory, fiscal policymakers can combat the impact of recessions by:

CORRECT ANSWER: increasing government spending.

If the economy moves into a recession, monetarists argue that the Fed should:

CORRECT ANSWER: keep the money supply growing at a constant rate.

The classical view assumes:

CORRECT ANSWER: money wage rates adjust quickly.

The economy is in long-run equilibrium when the short-run aggregate supply and the aggregate demand curve intersect at a point:

CORRECT ANSWER: on the long-run aggregate supply curve

The long-run aggregate supply curve:

CORRECT ANSWER: shifts to the right as technological change occurs

An unexpected change in the price of oil would cause a shift of the _______ curve.

CORRECT ANSWER: short-run aggregate supply

The aggregate demand and aggregate supply model explains:

CORRECT ANSWER: short-run fluctuations in real GDP and the price level

Keynes maintained that the economy could remain long-term at levels of output below the full-employment level of output due to:

CORRECT ANSWER: sticky wages.

In the long-run, the level of output is:

CORRECT ANSWER: the full-employment level of output

According to the graph, an increase in the quantity of money is best described by:

CORRECT ANSWER: the shift in the AD curve

New classical theorists believe that:

CORRECT ANSWER: the uneven pace of technological change is the most significant cause of business cycle fluctuations.

The wealth effect refers to the fact that:

CORRECT ANSWER: when the price level falls, the real value of household wealth rises, and so will consumption

A Classical macroeconomist believes that the economy is​ self-regulating and always​ _____. A. above full employment B. below full employment C. facing a balanced budget D. at full employment

D

A rise in the money wage rate with no change in potential GDP creates​ ______. A. a leftward shift of the LAS curve and a leftward shift of the SAS curve B. a movement along the SAS curve C. a leftward shift of the LAS curve and no change in the SAS curve D. a leftward shift of the SAS curve and no change in the LAS curve

D

Aggregate demand increases if monetary policy​ ______ the quantity of money and​ ______ interest rates. A. decreases​; decreases B. decreases​; increases C. increases​; increases D. increases​; decreases

D

Aggregate planned expenditure is the sum of planned​ _____. A. borrowing in the loanable funds market by​ households, firms,​ government, and the rest of the world B. consumption​ expenditure, savings, net​ taxes, and net exports C. aggregate demand and aggregate supply D. consumption​ expenditure, investment, government​ expenditure, and exports minus imports

D

An above​ full-employment equilibrium is an equilibrium when real GDP​ _____. A. equals potential GDP B. equals the interest rate C. equals the price level D. exceeds potential GDP

D

Chinese Premier Wen Jiabao has warned Japan that its companies operating in China should raise the pay for their workers. A rise in wages in China​ _______ aggregate supply. A. decreases​ Japan's short-run B. increases​ Japan's long-run C. decreases​ China's long-run D. decreases​ China's short-run

D

Disoposable income is aggregate income minus taxes plus ​ _____. A. transfer payments minus saving B. transfer payments minus saving and minus consumption C. transfer payments minus consumption D. transfer payments

D

If disposable income increases from​ $4 trillion to​ $7 trillion, saving increases from​ $1.5 trillion to​ $2 trillion, and nothing else​ changes, the marginal propensity to save is​ _____. A. 0.67 B. 0.23 C. 1.32 D. 0.17

D

If the price level rises and the money wage rate remains​ constant, the quantity of real GDP supplied​ ______ and there is a movement up along the​ ______ aggregate supply curve. A. does not​ change; long-run B. does not​ change; short-run C. ​decreases; long-run D. ​increases; short-run

D

The U.S. interest rate differential rises if​ ______, and the larger the U.S. interest rate​ differential, the​ ______ is the demand for U.S. dollars in the foreign exchange market. A. the U.S. interest rate​ falls; smaller B. the foreign interest rate​ rises; greater C. the U.S. interest rate​ rises; smaller D. the foreign interest rate​ falls; greater

D

The aggregate demand curve shows the relationship between the quantity of real GDP demanded and​ ______, when everything else remains the same. A. the quantity of real GDP supplied B. expected future​ income, inflation, and profits C. the interest rate D. the price level

D

The components of aggregate expenditure that are influenced by real GDP are​ ______. A. consumption​ expenditure, government​ expenditure, investment, and imports B. consumption​ expenditure, investment, and imports C. ​investment, exports, and imports D. consumption expenditure and imports

D

The defining feature of the monetarist view of macroeconomics is that the economy​ is______. A. constantly bombarded by shocks that arise from the uneven pace of technological change B. ​self-regulating and always at full employment C. rarely at full employment D. ​self-regulating and that it will normally operate at full​ employment, provided that monetary policy is not erratic and that the pace of money growth is kept steady

D

The following events have occurred at times in the history of the United States. 1. A deep recession hits the world economy 2. The world oil price rises sharply 3. U.S. businesses expect future profits to fall Event 1​ ______. Event 2​ ______. A. decreases aggregate demand and​ short-run aggregate​ supply; increases​ short-run aggregate supply and decreases​ long-run aggregate supply B. increases​ short-run aggregate​ supply; decreases​ short-run aggregate supply C. decreases aggregate​ demand; increases​ short-run aggregate supply D. decreases aggregate​ demand; decreases​ short-run aggregate supply

D

The following events have occurred at times in the history of the United​ States: 1. A deep recession hits the world economy 2. The world oil price rises sharply. 3. U.S. businesses expect future profits to fall. Starting from a position of​ long-run equilibrium, a sharp increase in the world oil price​ ______. A. increases real GDP and raises the price level B. increases real GDP and lowers the price level C. decreases real GDP and lowers the price level D. decreases real GDP and raises the price level

D

The multiplier is the amount by which a change in​ ______ expenditure is magnified or multiplied to determine​ ______. A. ​consumption; the change in investment B. ​autonomous; the change in investment C. ​consumption; the change in equilibrium expenditure and real GDP D. ​autonomous; the change in equilibrium expenditure and real GDP

D

When potential GDP​ _____ real​ GDP, the output gap is called a recessionary gap. A. exceeds interest rate and B. is less than C. equals D. exceeds

D

When​ _____ there is a​ full-employment equilibrium. A. the price level equals aggregate demand B. real GDP exceeds potential GDP C. labor productivity exceeds the real wage rate D. real GDP equals potential GDP

D

Which of the following statements illustrate fiscal policy​? A. A stronger dollar has lowered US exports. B. The Fed has increased its reserve requirement. C. A rise in the expected future profits has increased US investments. D. The US government has proposed a hike in the corporate tax rate.

D

​Long-run aggregate supply is the relationship between the quantity of real GDP supplied and the price level when the ​ _____ changes in step with the price level to maintain full employment. A. real wage rate B. quantity of money C. interest rate D. money wage rate

D

​So, as the price level​ rises, there is​ ______. A. an increase in aggregate demand B. a decrease in aggregate demand C. an increase in the quantity of real GDP demanded today D. a decrease in the quantity of real GDP demanded

D

Starting from a​ full-employment equilibrium, a decrease in​ short-run aggregate supply​ ______ the price level and​ ______ real GDP. A. ​increases; increases B. ​decreases; increases C. ​decreases; decreases D. ​increases; decreases This is the correct answer.

D AND A stagflation is created.

In an​ economy, when disposable income increases from​ $400 to​ $500, consumption expenditure increases from ​$420 billion to ​$500. What is the marginal propensity to​ consume, the change in​ saving, and the marginal propensity to​ save? ​>>> Answer to 2 decimal places.

The marginal propensity to consume is 0.8.

When disposable income increases from​ $400 billion to​ $500 billion, saving increases by ​$ 20 billion. ​>>> Answer to 2 decimal places.

The marginal propensity to save is 0.2.

An economy has a fixed price​ level, no​ imports, and no income taxes. An increase in autonomous expenditure of ​$3 trillion increases equilibrium expenditure by ​$12 trillion. Calculate the multiplier and the marginal propensity to consume. ​>>> Answer to 2 decimal places.

The multiplier is 4. The marginal propensity to consume is 0.75. If an income tax is introduced in this​ economy, the multiplier​ _______. A. increases B. does not change C. decreases (THIS) D. increases or decreases but we​ don't know for sure

An economy has a fixed price​ level, no​ imports, and no income taxes. MPC is 0.8​, and real GDP is ​$300 billion. Businesses increase investment by ​$10 billion. Calculate the multiplier and the change in real GDP.

The multiplier is 5. The increase in real GDP is ​$ 50 billion.

An economy has a fixed price​ level, no​ imports, and no income taxes. MPC is 0.8​, and real GDP is ​$200 billion. Businesses increase investment by ​$10 billion. Calculate the new level of real GDP and explain why real GDP increases by more than ​$10 billion.

The new level of real GDP is ​$ 250 billion. Real GDP increases by more than ​$10 billion because the increase in investment​ _______. A. enables firms to produce more output B. (B is CORRECT) induces an increase in consumption expenditure C. increases the marginal propensity to consume D. increases exports

An increase in expected future income increases aggregate demand. An increase in the expected future inflation rate increases aggregate demand. An increase in expected future profits increases aggregate demand.

yes

As the price level​ rises, interest rates rise and real wealth decreases People substitute goods in the future for goods in the present

yes

Canada trades with the United States. Explain the effect of each of the following events on​ Canada's aggregate demand. The government of Canada cuts income taxes. ​Canada's aggregate demand increases The United States experiences strong economic growth. ​Canada's aggregate demand increases . Canada sets new environmental standards that require power utilities to upgrade their production facilities. ​Canada's aggregate demand increases

yes

The multiplier increases when the marginal propensity to consume increases .

yes

When the price level in Mexico falls​, the quantity of real GDP demanded increases

yes


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