macro

12. Other things equal, a reduction in personal and business taxes can be expected to: A. increase aggregate demand and decrease aggregate supply. B. increase both aggregate demand and aggregate supply . C. decrease both aggregate demand and aggregate supply. D. decrease aggregate demand and increase aggregate supply.

B

9. In the above diagram, a shift from AS1 to AS3 might be caused by a(n): A. increase in productivity. B. increase in the prices of imported resources. C. decrease in the prices of domestic resources. D. decrease in business taxes.

B

11. Which one of the following would increase per unit production cost and therefore shift the aggregate supply curve to the left? A. a reduction in business taxes B. production bottlenecks occurring when producers near full plant capacity C. an increase in the price of imported resources D. deregulation of industry

C

4. The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the: A. real-balances, interest-rate, and foreign purchases effects. B. determinants of aggregate supply. C. determinants of aggregate demand. D. sole determinants of the equilibrium price level and the equilibrium real output.

C

10. A rightward shift in the aggregate supply curve is best explained by an increase in: A. business taxes. B. productivity. C. nominal wages. D. the price of imported resources.

B

13. The economy's long-run aggregate supply curve: A. slopes upward and to the right. B. is vertical . C. is horizontal. D. slopes downward and to the right.

B

24. Which of the following represents the most expansionary fiscal policy? A. a $10 billion tax cut B. a $10 billion increase in government spending C. a $10 billion tax increase D. a $10 billion decrease in government spending

B

17. If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, it is most likely that: A. the money supply has declined. B. the price level is inflexible downward and a recession has occurred. C. cost-push inflation has occurred. D. productivity has declined.

B

25. A tax reduction of a specific amount will be more expansionary, the: A. smaller is the economy's MPC. B. larger is the economy's MPC. C. smaller is the economy's multiplier. D. less the economy's built-in stability.

B

5. Other things equal, a decrease in the real interest rate will: A. expand investment and shift the AD curve to the left. B. expand investment and shift the AD curve to the right. C. reduce investment and shift the AD curve to the left. D. reduce investment and shift the AD curve to the right.

B

23. In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $200 billion. To obtain full employment under these conditions the government should: A. encourage personal saving by increasing the interest rate on government bonds. B. decrease government expenditures. C. reduce tax rates and/or increase government spending. D. discourage private investment by increasing corporate income taxes.

C

2. The real-balances effect indicates that: A. an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending. B. a lower price level will decrease the real value of many financial assets and therefore reduce spending. C. a higher price level will increase the real value of many financial assets and therefore increase spending. D. a higher price level will decrease the real value of many financial assets and therefore reduce spending.

D

21. An economist who favored expanded government would recommend: A. tax cuts during recession and reductions in government spending during inflation. B. tax increases during recession and tax cuts during inflation. C. tax cuts during recession and tax increases during inflation. D. increases in government spending during recession and tax increases during inflation.

D

7. Suppose that technological advancements stimulate $20 billion in additional investment spending. If the MPC = 0.6, how much will the change in investment increase aggregate demand? A. $12 billion. B. $20 billion. C. $33.3 billion. D. $50 billion.

D

19. Fiscal policy refers to the: A. manipulation of government spending and taxes to stabilize domestic output, employment, and the price level. B. manipulation of government spending and taxes to achieve greater equality in the distribution of income. C. altering of the interest rate to change aggregate demand . D. fact that equal increases in government spending and taxation will be contractionary.

A

22. Discretionary fiscal policy will stabilize the economy most when: A. deficits are incurred during recessions and surpluses during inflations. B. the budget is balanced each year. C. deficits are incurred during inflations and surpluses during recessions. D. budget surpluses are continuously incurred.

A

20. If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion by: A. increasing government spending by $4 billion. B. increasing government spending by $40 billion. C. decreasing taxes by $4 billion. D. increasing taxes by $4 billion.

A

16. Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in net exports caused by the foreign purchases effect of a price-level increase is depicted by the: A. shift of the AD curve in panel (A). B. move from point a to point b in panel (B). C. shift of the AS curve in panel (B). D. move from point a to point c in panel (C).

B

1. The interest-rate effect suggests that: A. a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending. B. an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending. C. an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending. D. an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending.

C

14. Refer to the above data. If the price level is 250 and producers supply $450 of real output: A. a shortage of real output of $150 will occur. B. a shortage of real output of $100 will occur. C. a surplus of real output of $150 will occur. D. neither a shortage nor a surplus of real output will occur.

C

15. Graphically, the full-employment, low-inflation, rapid-growth economy of the last half of the 1990s is depicted by a: A. rightward shift of the aggregate demand curve along a fixed aggregate supply curve. B. rightward shift of the aggregate supply curve along a fixed aggregate demand curve. C. rightward shift of the aggregate demand curve and a rightward shift of the aggregate supply curve. D. leftward shift of the aggregate demand curve and a leftward shift of the aggregate supply curve.

C

8. The aggregate supply curve: A. is explained by the interest rate, real-balances, and foreign purchases effects . B. gets steeper as the economy moves from the top of the curve to the bottom of the curve. C. shows the various amounts of real output that businesses will produce at each price level. D. is downsloping because real purchasing power increases as the price level falls.

C

3. The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will: A. shift the aggregate demand curve leftward. B. shift the aggregate supply curve leftward. C. decrease U.S. exports and increase U.S. imports. D. increase U.S. exports and decrease U.S. imports.

D

6. An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the: A. net export effect. B. wealth effect C. real-balances effect. D. multiplier effect.

D