National income and price determination Unit Test

By how much will household consumption increase as a result of an increase in disposable incomes of $2000?

$1400

Which of the following types of events shifts the short-run aggregate supply (SRAS) curve to the right?

Any event that makes it less expensive or easier to produce goods and services

Which of the following types of events shifts the short-run aggregate supply (SRAS) curve to the left?

Any event that makes it more expensive or more difficult to produce goods and services

How do automatic stabilizers affect an economy during inflationary periods?

As national income increases, tax revenues increase, which slows consumption spending.

Which of the following is the best description of economic growth in the AD-AS model?

A shift of the long-run aggregate supply (LRAS) curve to the right

What happens to inflation and unemployment as you move to the left along the short-run aggregate supply (SRAS) curve?

Inflation decreases and unemployment increases.

What happens to inflation and the unemployment rate as you move to the right along the short-run aggregate supply (SRAS) curve?

Inflation increases and the unemployment rate decreases.

Which of the following is an example of an automatic stabilizer that can reduce the effect of a recession on output?

Institutions such as paying unemployment compensation

Which of the following best describes a nation that is producing at its short-run macroeconomic equilibrium?

It has a price level and output associated with the intersection of aggregate demand (AD) and short-run aggregate supply (SRAS)

Based on this graph, which of the following is true about Verminville?

It is in both short-run equilibrium and long-run equilibrium

Which of the following graphs of the long-run aggregate supply (LRAS) curve is correct based on the data in this graph?

LRAS $190

Which of the following best describes how this self-correction process will occur?

Lower output and higher unemployment leads to lower wages, causing short-run aggregate supply (SRAS) to increase.

Which of the following scenarios illustrates an increase in the full-employment level of output?

The long-run aggregate supply (LRAS) curve shifts to the right.

Which of the following describes a short-run equilibrium that is not also a long-run equilibrium?

The output and price level associated with the intersection of aggregate demand (AD) and short-run aggregate supply (SRAS)

Which of the following best describes the relationship illustrated by the short-run aggregate supply (SRAS) curve?

The positive relationship between the price level and the quantity of output produced

Which of the following best describes how wages respond to changes in the price level in the long run?

Wages fall when the price level falls and rise when the price level rises

If no policy actions are taken by the government of Johnrudia, what will happen to wages and output in the long run?

Wages will increase; output will decrease

Which point or points have a value of $6 billion?

X and R

If the economy's marginal propensity to consume is 0.50.50, point, 5 and there is no crowding out, the government should do which of the following fiscal policy actions?

Decrease government spending by $250 billion

What impact will this progressive tax system have on real GDP?

Decrease real GDP during the expansion phase; increase real GDP during the recession phase

If the government of Xela wants to use a discretionary fiscal policy tool to return the economy to full employment output, which of the following would be the most appropriate choice?

Decrease taxes

Which of the following is a fiscal policy action that would be the best choice to return the economy to full employment output?

Decrease taxes by $ 25 million

Which of the following best describes the purpose of the expenditure multiplier?

quantify the size of the change in aggregate demand (AD) that occurs as a result of a change in a component of AD

What will happen to real GDP, unemployment, and the price level if there is a negative shock to aggregate demand?

real GDP decreases, unemployment increases, and the price level decreases

What impact would a decrease in business regulations have in the short run?

A positive short-run aggregate supply (SRAS) shock and lower inflation

Which of the following best describes economic conditions in Dodgeland?

A positive output gap

If current real gross domestic product (GDP) in this country is $170 million, what is the size of the output gap?

-$20 million

Which of the following would most likely cause a decrease in this country's aggregate output from Y_1Y1​Y, start subscript, 1, end subscript to Y_2Y2​Y, start subscript, 2, end subscript?

A decrease business confidence

Which of the following best describes a tradeoff that a country will experience when it moves from point E to point F?

A decrease in the unemployment rate, but an increase in inflation

Which of the following leads to stagflation?

A negative short-run aggregate supply (SRAS) shock

Which of the levels of output in the PPC shown here corresponds to Verminville's maximum sustainable output and its long-run aggregate supply (LRAS) curve?

A only

Which points are associated with the long-run aggregate supply (LRAS) curve for Verminville?

A or B

Based on the graph shown here, which of the following best describes this economy?

A point inside its production possibilities curve

Which of the following best describes what happens when a country is in long-run equilibrium?

AD intersects SRAS and LRAS at the same point.

Assuming that this is a closed economy with no crowding out, which of the following best describes the impact that a \$100$100dollar sign, 100 billion increase in government spending will have on this economy?

Aggregate demand and real output will eventually increase by only $400 billion, and the price level will increase

Which of the following shifts in aggregate demand and short-run aggregate supply would cause an unambiguous increase in inflation?

An increase in AD and a decrease in SRAS

Which of the following options best describes what would lead to a higher price level?

An increase in aggregate demand (AD) or a decrease in short-run aggregate supply (SRAS)

Which of the following would most likely cause the shift from AD_1AD1​A, D, start subscript, 1, end subscript to AD_2AD2​A, D, start subscript, 2, end subscript in the graph shown here?

An increase in consumer spending

Which of the following could cause the change shown?

An increase in interest rates

Which of the following could cause the change shown?

An increase in national income in a trading partner, such as the eurozone

Which of the following changes would most likely lead to the shift from AD_1AD1​A, D, start subscript, 1, end subscript to AD_2AD2​A, D, start subscript, 2, end subscript shown in this graph?

An increase in real interest rates

Which of the following best describes something that would cause an increase in output along a short-run aggregate supply (SRAS) curve?

An increase in the consumer price index (CPI)

Which of the following would cause short-run aggregate supply to decrease?

An increase in the cost of labor

What would be the long-run impact of an increase in consumer confidence?

An increase in the price level

Which of the following best describes the interest rate effect?

An increase in the price level will lead to an increase in interest rates

Which of the following unambiguously leads to inflation?

An increase in wages and an increase in consumer spending

Which of the following could cause an unanticipated increase in both the inflation rate and the unemployment rate?

An unanticipated increase in energy prices

What will happen to the size of the expenditure multiplier and the size of the tax multiplier when the marginal propensity to save (MPS) increases?

Both decrease

Which of the following would be the most appropriate discretionary fiscal policy action to restore Maxistan to full employment output?

Increase taxes

Which point or points in the graph shown here represent a short-run equilibrium level of output?

E

Which of the following best describes why long-run aggregate supply is vertical at full employment output, as opposed to some other output?

Full employment output is the output associated with the natural rate of unemployment

What is the value of the government spending multiplier and what is the value of the tax multiplier?

Government spending multiplier = 4 tax multiplier = -3

Which of the following would be a government spending and tax multiplier for a country?

Government spending multiplier equal 9 and tax multiplier equals -8

Which of the following best describes an automatic stabilizer that will help Lincolnland recover from a recession?

Government transfer programs, such as unemployment benefits

Which of the following actions will occur automatically to increase employment and output without requiring any action by the government of Hamiltonia?

Income tax collected will decrease.

If the economy's marginal propensity to consume is 0.90.90, point, 9 and there is no crowding out, the government should do which of the following fiscal policy actions?

Increase government spending by $80 billion

Which of the following best explains why the long-run aggregate supply (LRAS) curve is vertical?

Nominal wages eventually adjust to changes in the price level

How will nominal wages respond to a decrease in the price level in the short run?

Nominal wages will not change, or will change in an amount smaller than the change in the price level

What will be the effect of this AD shock on Maxistan's level of output and unemployment rate in the long run?

Output will be unaffected; unemployment rate will be unaffected.

How will a decrease in short-run aggregate supply (SRAS) caused by increased government regulation affect the equilibrium price level (PLPLP, L), equilibrium output (Y^*Y∗Y, start superscript, times, end superscript) and the full employment level of output (Y_fYf​Y, start subscript, f, end subscript) in an economy?

PL /\, Y*\/, no change to Yf

How will a decrease in short-run aggregate supply (SRAS) caused by increased government regulation affect the equilibrium price level (PLPLP, L), equilibrium output (Y^*Y∗Y, start superscript, times, end superscript) and the full employment level of output (Y_fYf​Y, start subscript, f, end subscript) in an economy?

PL(/\), Y*(\/), no change to Yf

What is the price level and real GDP associated with current output in the economy shown in this graph?

PL=105, rGDP=$200b

Which points correspond to a point on Verminville's production possibilities curve (PPC)?

Point T only

All else equal, what happens to the price level and unemployment when investment spending by firms increases?

Price level increases, unemployment decreases

What is the long-run effect of an increase in AD on the price level and the level of output?

Price level increases; output doesn't change.

Which of the following best describes why the short-run aggregate supply (SRAS) curve is upward sloping?

Prices and nominal wages are slow to adjust to changes in the price level

What will happen to aggregate demand Maggietopia if there is a \$2$2dollar sign, 2 billion increase in lump-sum taxes?

Real GDP will decrease by $ 3 billion

If there is an autonomous increase in new home construction of \$10$10dollar sign, 10 billion, what will happen to real gross domestic product (GDP)?

Real GDP will increase by more than \$10$10dollar sign, 10 billion

How does a decrease in the price level affect real wealth and aggregate demand?

Real wealth increases; the quantity of aggregate demand increases

Which of the following statements makes a correct distinction between the short run and the long run?

Short run: wages are fixed; long run: wages are fully flexible

If the GDP deflator in this economy is increasing, which of the following correctly describes the shift that has occurred in the aggregate demand-aggregate supply (AD-AS) model for this economy and the change in points on the PPC associated with that shift?

Short-run aggregate supply (SRAS) decreased, causing a move from $250 to $190.

Which of the following best describes how the economy will adjust in the long run?

Short-run aggregate supply will decrease and the price level will increase.

Which of the following describes why the short-run aggregate supply (SRAS) curve is upward sloping but the long-run aggregate supply (LRAS) curve is vertical?

Some expectations are incorrect in the short run, but all expectations are correct in the long run.

Which of the following best describes how taxes work as an automatic stabilizer during a recession?

Tax revenues automatically decrease as GDP falls, which prevents consumption and real GDP from falling further

If the marginal propensity to consume (MPC) decreases from 0.80.80, point, 8 to 0.60.60, point, 6, how will the marginal propensity to save (MPS) and the spending multiplier change?

The MPS increases; spending multiplier decreases

Based on this graph, which of the following is true about Verminville?

The actual unemployment rate equals the natural rate of unemployment

Which curve shows the relationship between the price level and the quantity of goods and services demanded by households, firms, government, and the rest of the world?

The aggregate demand (AD) curve

Which of the scenarios below is a consequence of sticky wages?

The amount of aggregate output supplied increases in response to inflation.

Which of the following best describes what happens if national income in Fredland increases?

The current account will move to a deficit.

Which of the following statements best describes this nation's economy?

The economy has a positive output gap

What is the term for the relationship described above?

The exchange rate effect

Which of the following could cause the change in short run aggregate supply (SRAS) shown in the graph here?

The expectation of lower inflation in the future

Which of the following best describes the relationship illustrated by the aggregate demand (AD) curve?

The inverse relationship between the price level and the quantity of aggregate output demanded by households, firms, the government, and the rest of the world

Which of the following best describes how an outward shift of a country's PPC would be illustrated in the AD-AS model?

The long-run aggregate supply (LRAS) curve increases

How are an increased potential output and an unchanged current output represented in the aggregate demand-aggregate supply (AD-AS) model?

The long-run aggregate supply (LRAS) curve shifts to the right.

What happens to the rate of inflation and unemployment as a country moves from point Y to point X in this graph?

The rate of inflation decreases and unemployment increases.

What happens to inflation and unemployment if a country moves from point A to point B on the short-run aggregate supply (SRAS) curve shown here?

The rate of inflation increases and unemployment decreases.

What measure can be used to determine the final impact on aggregate demand that occurs as a result of the change in lump-sum taxes?

The tax multiplier

Which of the following best describes a relationship that is illustrated in the short-run aggregate supply (SRAS) curve?

There is a short-run tradeoff between inflation and unemployment

Which statement correctly describes the difference between short-run aggregate supply (SRAS) and long-run aggregate supply (LRAS)?

There is a tradeoff between inflation and unemployment in the SRAS curve but not with the LRAS curve.

Which of the following best describes the function of automatic stabilizers in an economy?

They decrease tax revenues when gross domestic product decreases.

Which of the following best describes what will happen to transfer payments and income taxes as a result of the decrease in AD?

Transfer payments will increase; taxes will decrease

In the long run, how does the change in unemployment and the price level compare if the government takes an appropriate fiscal policy action rather than allowing the economy to self-adjust?

Unemployment increases in both approaches, but the price level will be lower if the government takes action rather than allowing the economy to self adjust.

What is the relationship between inflation and unemployment in the long run?

Unemployment is not affected by inflation in the long run

Which of the following best describes what will happen to this economy in the long run?

Wages and prices will increase and output will decrease from Y_1Y1​Y, start subscript, 1, end subscript to Y_fYf​

What will be the long-run impact of a negative aggregate demand shock on nominal wages and the level of unemployment in Libertyville?

Wages decrease; no change in unemployment

Full-employment output has definitely increased in which graph?

two x two red and two blue with line through each center

Which of the following graphs correctly shows an economy producing its long-run equilibrium level of output?

x and line in center

Which of the following graphs correctly shows an economy experiencing economic growth?

x center line moving left

Which of the following graphs correctly shows an economy producing its long-run equilibrium level of output?

x with red and blue LRAS line at center