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C

The basic aggregate demand and aggregate supply curve model helps explain ________ fluctuations in real GDP and the price level. A) both short-term and long-term B) long-term C) short-term D) unrelated

B

The formula for aggregate expenditure is: A) AE = C + I + G. B) AE = C + I + G + NX. C) AE = C + I + depreciation - NX. D) AE = C + I + G - NX.

C

U.S. net export spending rises when: A) the value of the U.S. dollar increases relative to other currencies. B) the price level in the United States rises relative to the price level in other countries. C) the growth rate of U.S. GDP is slower than the growth rate of GDP in other countries. D) the inflation rate is higher in the United States relative to other countries.

C

Which is the smallest component of aggregate expenditure? A) government expenditures B) consumption expenditures C) net export expenditures D) planned investment expenditures

B

Which of the following criteria would make gold a poor medium of exchange? A) value relative to its weight so that amounts large enough to be useful in trade can be easily transported B) a supply that would be difficult to control because of the unpredictability of new gold discoveries C) divisibility because different goods are valued differently D) durability so that value is not lost by spoilage

A

Which of the following is a reason why decreases in the price level result in a rise in aggregate expenditure? A) Price level decreases cause firms and consumers to hold less money, which lowers the interest rate. Lower interest rates raise consumption and planned investment expenditures, which raises aggregate expenditure. B) Price level decreases reduce real wealth, which causes consumption spending and aggregate expenditure to rise. C) Price level decreases in the United States relative to other countries' lower net exports, which raises aggregate expenditure. D) As the price level falls, government spending rises, which raises aggregate expenditure.

D

Which of the following is a true statement about the multiplier? A) The smaller the MPC, the larger the multiplier. B) The multiplier effect does not occur when autonomous expenditure decreases. C) The multiplier is a value between zero and one. D) The multiplier rises as the MPC rises.

B

Which of the following is an appropriate policy for the Fed to pursue if it wants to increase the money supply? A) raise the reserve requirement B) buy U.S. Treasury bills C) lower taxes D) raise the discount rate

D

Which of the following is an assumption made by the dynamic model of aggregate demand and aggregate supply? A) Potential real GDP increases continuously during economic expansions and decreases continuously during economic recessions. B) Aggregate demand and potential real GDP decrease continuously. C) The aggregate demand curve shifts to the right except during periods when workers and firms expect higher wages. D) The short-run aggregate supply curve shifts to the right except during periods when workers and firms expect higher wages.

C

Which of the following is not a tool the Fed uses to manage the money supply? A) setting reserve requirements for deposits in the banking system B) open market operations C) expanding and contracting deposit insurance D) setting the discount rate

B

Which of the following is one explanation as to why the aggregate demand curve slopes downward? A) Decreases in the U.S. price level relative to the price level in other countries lower net exports. B) Decreases in the price level raise real wealth and increase consumption spending. C) Decreases in the price level raise the interest rate and increase consumption spending. D) Decreases in the price level raise the interest rate and increase investment spending.

B

Which of the following is one reason for the decline in aggregate demand that led to the recession of 2007-2009? A) falling oil prices B) the end of the housing bubble C) an increase in net exports D) a decline in government spending

D

Workers and firms both expect that prices will be 2.5% higher next year than they are this year. As a result... A) workers will be willing to take lower wages next year, but not lower than a 2.5 percent decrease. B) the purchasing power of wages will rise if wages increase by 2.5%. C) aggregate demand will increase by 2.5%. D) the short-run aggregate supply curve will shift to the left as wages increase.

D

A decrease in ________ can put your job at risk if aggregate expenditures fall. A) the length of a business cycle B) the natural rate of unemployment C) the inflation rate D) consumer confidence

A

According to the quantity theory of money, if the money supply grows at 20 percent and real GDP grows at 5 percent, then the inflation rate will be A) 15 percent. B) 20 percent. C) 25 percent. D) 100 percent.

D

Actual investment will equal planned investment only when: A) there is an unplanned decrease in inventories. B) companies have no inventories. C) there is an unplanned increase in inventories. D) there is no unplanned change in inventories.

C

After an unexpected ________ in the price of oil, the long-run adjustment decreases the price level and ________ the unemployment rate as they return to their original levels. A) decrease; decreases B) increase; increases C) increase; decreases D) decrease; increases

B

All of the following are reasons why the wages of workers and the prices of inputs rise more slowly than the prices of final goods and services except: A) contracts make prices and wages sticky. B) unions are successful in pushing up wages. C) firms are often slow to adjust wages. D) menu costs make some prices sticky.

D

An increase in aggregate demand in the economy will have what effect on macroeconomic equilibrium in the long run? A) The price level will rise, and the level of GDP will fall. B) The price level will fall, and the level of GDP will fall. C) The price level will fall, and the level of GDP will rise. D) The price level will rise, and the level of GDP will be unaffect

C

An increase in the price level ________ real wealth, which causes consumption to ________. A) raises; decrease B) raises; increase C) lowers; decrease D) lowers; increase

D

Because of the slope of the aggregate demand curve, we can say that: A) a decrease in the price level leads to a lower level of real GDP demanded. B) an increase in the price level leads to no change in the level of real GDP demanded. C) an increase in the price level leads to a higher level of real GDP demanded. D) a decrease in the price level leads to a higher level of real GDP demanded.

D

Declines in spending on residential construction are often due to increases in interest rates. The collapse in residential construction prior to and during the recession of 2007-2009 was due more to ________ than to higher interest rates. A) increases in the price of lumber B) the rapid inflation of the early 2000s C) rising wages in the construction industry D) the financial crisis that began in 2007

B

Decreases in the price level will: A) lower consumption because goods and services are less affordable. B) raise consumption because real wealth increases. C) lower consumption because real wealth decreases. D) raise consumption because goods and services are more affordable.

A

Equilibrium GDP is equal to: A) autonomous expenditure times the multiplier. B) autonomous expenditure. C) autonomous expenditure times the marginal propensity to consume. D) autonomous expenditure times the marginal propensity to save.

C

Fiat money A) serves well as a medium of exchange, but not as a store of value. B) functions well only if can be redeemed for gold or other precious metals. C) has no or very little value except as money. D) is rarely used in modern economies.

B

Firms in a small economy anticipated that inventories would grow over the past year by $750,000, and over that year, inventories grew by exactly $750,000. This implies that: A) there was an unplanned decrease in inventories that year. B) aggregate expenditure and GDP were equal that year. C) aggregate expenditure was greater than GDP that year. D) there was an unplanned increase in inventories that year.

B

Firms in a small economy planned that inventories would grow over the past year by $500,000. Over that year, inventories did grow by exactly $500,000. This implies that: A) there was an unplanned increase in inventories that year. B) aggregate expenditure that year was equal to GDP that year. C) aggregate expenditure that year was greater than GDP that year. D) there was an unplanned decrease in inventories that year.

B

Full-employment GDP is also known as... A) balanced-budget GDP. B) potential GDP. C) politico-economic GDP. D) realized GDP.

A

If firms are more optimistic that future profits will rise and remain strong for the next few years, then... A) investment spending will rise. B) investment spending will rise and then fall. C) investment spending will fall. D) investment spending will remain unaffected.

D

If firms find that consumers are purchasing less than expected, which of the following would you expect? A) The economy will adjust to macroeconomic equilibrium as inventories rise, and production and employment rise. B) The economy will adjust to macroeconomic equilibrium as inventories fall, and production and employment rise. C) Aggregate expenditure will likely be greater than GDP. D) Aggregate expenditure will likely be less than GDP.

A

If inflation in the United States is lower than inflation in other countries, what will be the effect on net exports for the United States? A) Net exports will rise as U.S. exports increase. B) Net exports will decrease as U.S. exports decrease. C) Net exports will decrease as U.S. imports decrease. D) Net exports will rise as U.S. imports increase.

D

If national income increases by $20 million and consumption increases by $5 million, the marginal propensity to consume is: A) 4. B) 0.75. C) 0.5. D) 0.25.

D

If you transfer all of your currency to your checking account, then initially, M1 will ________ and M2 will ________. A) not change; increase B) increase; not change C) decrease; increase D) not change; not change

B

In 2005, Hurricane Katrina destroyed oil and natural gas refining capacity in the Gulf of Mexico which subsequently drove up natural gas, gasoline, and heating oil prices. Three years later, oncethe refining capacity was restored, these prices came back down. The restoration of refining capacity should: A) shift the short-run aggregate supply curve to the left. B) shift the short-run aggregate supply curve to the right. C) move the economy down along a stationary short-run aggregate supply curve. D) move the economy up along a stationary short-run aggregate supply curve.

B

In 2008, Zimbabwe ran out of locally produced Coca Cola and local Coke bottlers were not able to import the concentrated syrup needed to make Coke from the United States because they could not obtain U.S. dollars. A small amount of Coke was imported from South Africa, but a singlebottle sold for around 15 billion Zimbabwean dollars. Zimbabwe was experiencing rapid increases in the price level, which is known as: A) stagflation. B) hyperinflation. C) inflation. D) deflation.

A

In a small economy in 2018, aggregate expenditure was $800 million while GDP that year was $850 million. Which of the following can explain the difference between aggregate expenditureand GDP that year? A) Firm investment in inventories was greater than anticipated in 2018. B) Aggregate expenditure is always less than GDP in developing countries. C) Firm investment in inventories was less than anticipated in 2018. D) Aggregate expenditure is always less than GDP in developed countries.

C

In response to the destructive bank panics of the Great Depression, future bank panics are designed to be prevented by: A) establishing a fractional reserve system of banking. B) the Federal Reserve System conducting open market operations. C) the establishment of the Federal Deposit Insurance Corporation. D) increasing the required reserve ratio to 100%.

C

In the aggregate expenditure model, ________ has both an autonomous component and an induced component. A) planned investment spending B) net export spending C) consumption spending D) government spending

A

In the long run... A) GDP = potential GDP. B) unemployment is below its natural rate. C) unemployment is above its natural rate. D) LRAS and SRAS lie on the same line.

B

Investment spending will increase when: A) the interest rate rises. B) business cash flow increases. C) the corporate income tax increases. D) firms become more pessimistic about earning future profits.

B

John Maynard Keynes argued that if many households decide to increase saving and reduce spending at the same time: A) this will have a major negative impact on the economy in both the short run and in the long run. B) this may benefit the economy in the long run, but could be counterproductive in the short run. C) this may benefit the economy in the short run, but not in the long run. D) the economy will benefit in the short run and benefit by an even greater amount in the long run.

B

Last week, six Swedish kronor could purchase one U.S. dollar. This week, it takes eight Swedish kronor to purchase one U.S. dollar. This change in the value of the dollar will ________ exportsfrom the United States to Sweden and ________ U.S. aggregate demand. A) decrease; increase B) decrease; decrease C) increase; increase D) increase; decrease

C

M2 includes M1 plus: A) checking account deposits, large-denomination time deposits, and noninstitutional money market fund shares. B) currency in circulation, checking account deposits in banks, and holdings of traveler's checks. C) savings account balances, money market deposit accounts in banks, small-denomination time deposits, and noninstitutional money market fund shares. D) currency in circulation, savings account balances, and small-denomination time deposits.

D

On the 45 degree line-diagram, for points that lie above the 45 degree line A) planned aggregate expenditure is less than aggregate income. B) planned aggregate expenditure is equal to GDP. C) planned aggregate expenditure is less than GDP. D) planned aggregate expenditure is greater than GDP.

C

On the 45 degree-line diagram, for points that lie below the 45 degree line: A) planned aggregate expenditure is less than aggregate income. B) planned aggregate expenditure is equal to GDP. C) planned aggregate expenditure is less than GDP. D) planned aggregate expenditure is greater than GDP.

A

On the long-run aggregate supply curve: A) a decrease in the price level has no effect on the aggregate quantity of GDP supplied. B) a decrease in the price level decreases the level of potential GDP. C) a decrease in the price level decreases the aggregate quantity of GDP supplied. D) a decrease in the price level increases the aggregate quantity of GDP supplied.

C

Paper currency is a A) commodity money. B) barter money. C) fiat money. D) bond.

A

Planned aggregate expenditure is equal to: A) consumption spending plus planned investment spending plus government purchases plus net exports. B) consumption spending only. C) planned investment spending only. D) consumption spending plus planned investment spending. 27)

A

Potential GDP is also referred to as: A) full-employment GDP. B) politico-economic GDP. C) balanced-budget GDP. D) realized GDP.

D

Potential GDP refers to the level of... A) nominal GDP in the short run. B) real GDP in the short run. C) nominal GDP in the long run. D) real GDP in the long run.

D

Proponents of the ________ model argue that the short-run supply curve is vertical. A) the new classical model B) the new Keynesian model C) the monetarist model D) the real business cycle model

C

Soldiers in a World War II prisoner-of-war camp: A) used cowrie shells as money. B) used U.S. dollars as a commodity money. C) used cigarettes as money. D) used gold as a fiat money.

B

Suppose a recession occurs as a result of a negative supply shock, and instead of the economy naturally working its way back to equilibrium, the government uses policy to shift the aggregate demand curve to fight the recession. Using policy this way would: A) quickly result in a new, higher level of real GDP and a permanently lower price level. B) bring real GDP back to potential GDP more quickly but would result in a permanently higher price level. C) bring real GDP back to potential GDP more slowly but would bring the price level back to the original price level more quickly. D) bring the price level back to its original level more quickly but would result in a permanently lower level of potential GDP.

A

Suppose the economy is at full employment and firms become more pessimistic about the future profitability of new investment. Which of the following will happen in the short run? A) Unemployment will rise. B) Prices will rise. C) The aggregate demand curve will shift to the right. D) Output will rise.

D

Suppose the economy is in long-run equilibrium and there is an increase in investment. As a result, real GDP will ________ in the short run, and ________ in the long run. A) decrease; decrease further B) decrease; increase to its initial level C) increase; increase further D) increase; decrease to its initial value

B

The "interest rate effect" can be described as an increase in the price level that raises the interest rate and chokes off: A) government spending and unplanned investment. B) investment and consumption spending. C) net exports. D) government spending.

B

The Federal Reserve's narrowest definition of the money supply is: A) M0. B) M1. C) M2. D) M3.

C

The M1 measure of the money supply equals: A) paper money plus coins in circulation. B) currency plus checking account balances plus traveler's checks plus savings account balances. C) currency plus checking account balances plus traveler's checks. D) currency plus checking account balances.

C

The ________ illustrates the relationship between the price level and the quantity of planned aggregate expenditure, holding constant all other factors that affect aggregate expenditure. A) savings line B) 45-degree line C) aggregate demand curve D) consumption function

D

The ________ model focuses on the relationship between total spending and real GDP in the short run, assuming the price level is constant. A) business cycle B) national income C) supply and demand D) aggregate expenditure

C

The ________ the reserve ratio, the ________ the money multiplier. A) larger; larger B) smaller; smaller C) smaller; larger D) None of the above are correct.

C

The aggregate expenditure model focuses on the short-run relationship between ________ and 30) ________. A) planned inventories; unplanned inventories B) nominal spending; nominal GDP C) real spending; real GDP D) unemployment; inflation

C

The automatic mechanism ________ the price level in the case of ________ and ________ the price level in the case of ________. A) lowers; expansion; lowers; recession B) raises; expansion; raises; recession C) lowers; recession; raises; expansion D) raises; recession; lowers; expansion

B

The key idea of the aggregate expenditure model is that in any particular year, the level of GDP is determined mainly by: A) government spending. B) the level of aggregate expenditure. C) investment spending. D) export spending.

B

The long-run adjustment to a negative supply shock results in: A) unemployment rising. B) the short-run aggregate supply curve shifting to the right. C) the price level rising. D) workers being willing to accept higher wages.

D

The long-run aggregate supply curve shows the relationship between the ________ and ________. A) real interest rate; quantity of real GDP supplied B) inflation rate; quantity of real GDP demanded C) nominal interest rate; quantity of real GDP supplied D) price level; quantity of real GDP supplied

A

The long-run aggregate supply curve: A) is vertical. B) has a steep but positive slope. C) is horizontal. D) has a negative slope.

D

The main belief of the monetarist model is that: A) workers and firms have rational expectations. B) the economy is slow to adjust to sticky wages and prices. C) productivity shocks explain fluctuations in real GDP. D) the quantity of money should be increased at a constant rate.

A

The passage of the Smoot-Hawley Tariff in 1930 sparked a trade war that caused net exports to ________ and real GDP to ________. A) decrease; decrease B) increase; increase C) increase; decrease D) decrease; increase

D

The portion of ________ that a bank does not loan out or spend on securities is known as ________. A) loans; reserves B) deposits; securities C) loans; securities D) deposits; reserves

B

The primary tool the Federal Reserve uses to increase the money supply is: A) lowering the required reserve ratio. B) buying Treasury securities. C) lowering the discount rate. D. printing more money.

C

The real business cycle model focuses on how: A) the Federal Reserve should adopt a monetary growth rule. B) the labor theory of value is the best measure of value of a good or service. C) productivity shocks explain fluctuations in real GDP. D) wage and price stickiness explains fluctuations in real GDP.

C

The real power within the Federal Reserve lies with the: A) Council of Economic Advisors. B) Council of Monetary Advisors. C) Board of Governors. D) Federal Reserve District banks.

D

The recession of 2007-2009 began in ________, with the end of the economic expansion that had begun in ________. A) March 2007; March 1995 B) January 2007; April 1984 C) July 2007; August 2006 D) December 2007; November 2001

D

The recession of 2007-2009 made many consumers pessimistic about their future incomes. How does this increased pessimism affect the aggregate demand curve? A) This will move the economy down along a stationary aggregate demand curve. B) This will shift the aggregate demand curve to the right. C) This will move the economy up along a stationary aggregate demand curve. D) This will shift the aggregate demand curve to the left.

A

You earn $500 a month, currently have $200 in currency, $100 in your checking account, $2,000 in your savings accounts, $3,000 worth of illiquid assets and $1,000 of debt. Using the M1 measure of money, you have: A) money = $300, annual income = $6,000, and wealth = $4,300. B) money = $2,300, annual income = $6,000, and wealth = $5,000. C) money = $200, annual income = $500, and wealth = $4,300. D) money = $300, annual income = $6,000, and wealth = $5,000.