Module 3 Quizzes

Which set of events would most likely decrease aggregate demand

An increase in personal income tax rates

which of the following would most likely shift aggregate demand curve to the right?

An increase in stock prices that increases consumer wealth

The aggregate expenditures model is built upon which of the following assumptions

Prices are fixed

Since 2002, the United States has had

large federal budget deficits.

Suppose the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPS is 0.4, then it would increase government spending by:

$20 billion

Suppose that the level of GDP increased by $100 billion in a private closed economy where the marginal propensity to consume is 0.5. Aggregate expenditures must have increased by:

50 billion

Which of the following fiscal policy changes would be the most expansionary?

A $40 billion increase in government spending

If the U.S. Congress passes legislation to raise personal income taxes to control demand-pull inflation, then this would be an example of a(n):

Contractionary fiscal policy

If the dollar depreciates relative to the foreign currencies, we would expect

U.S net exports to rise

An appropriate fiscal policy for severe demand-pull inflation is:

a tax rate increase

Based on the ratchet effect prices and wages tend to be:

flexible downward, but inflexible upward

A decline in the quantity of real output demanded along the aggregate demand curve is an result of an

increase in the price level

The amount by which an aggregate expenditures schedule must shift downward (decrease) to eliminate demand-pull inflation and still achieve the full employment

inflationary Gap

If investment decreases by $20 billion and the economy's MPC is .5, the aggregate demand curve will shift:

leftward by $40 billion at each price level

Graphically, cost push inflation (stagflation) is shown as a:

leftward shift of the AS curve

The fear of unwanted price wars may explain why many firms are reluctant to:

reduce prices when a decline in aggregate demand occurs

If the MPS in an economy is .4, government could shift the aggregate demand curve leftward by $50 billion by:

reducing government expenditures by $20 billion.

A major advantage of the built-in or automatic stabilizers is that they:

require no legislative action by Congress to be made effective

Graphically, demand-pull inflation is shown as a:

rightward shift of the AD curve along an upsloping supply curve.

The immediate primary cause of the swing from Federal budget surpluses in 2000 and 2001 to a budget deficit in 2002 was:

the recession of 2001

The cyclically-adjusted budget tells us:

the size of the Federal budget deficit or surplus if the economy were operating at full employment.

If there is unintended disinvestment in business inventories:

we can expect businesses to increase the level of production in the future