AP Macro Section 4 Practice

(Mod 16) Assume that the marginal propensity to consume out of disposable income is 0.8 and that the government taxes all income at a constant rate of 30 percent. If gross income increases by $100, consumption will initially increase by... a. $44 b. $56 c. $70 d. $80 e. $100

b

(Mod 16) Given the aggregate consumption function C = $1.6 trillion + 0.5YD, if aggregate current disposable income is $2.0 trillion, aggregate consumption spending will equal... a. $3.6 trillion. b. $2.6 trillion. c. $2.0 trillion. d. $1.6 trillion. e. $0.6 trillion.

b

(Mod 16) The table below contains information about spending/saving behavior in two fictional countries. MPC MPS Finland 0.70 ? Norway ? 0.40 Which of the following statements is true? a. Norland has a larger spending multiplier than Finway. b. Finway has a larger spending multiplier than Norland. c. Finway has a lesser marginal propensity to consume than Norland. d. Citizens of Finway spend exactly half of each new unit of disposable income. e. Finway has a greater marginal propensity to save than Norland.

b

(Mod 16) Which of the following is true about the marginal propensity to consume? a. It is the percentage of total income that is spent on consumption. b. It determines the size of the simple spending multiplier. c. It increases as incomes increase because increases in income cause people to spend more. d. It is the same as the money multiplier. e. It is equal to the average propensity to consume for people with low incomes.

b

(Mod 17) Decreases in the stock market decrease aggregate demand by decreasing which of the following? a. interest rates b. consumer wealth c. the stock of existing physical capital d. tax revenues e. the price level

b

(Mod 17) Under which of the following conditions would consumer spending most likely increase? a. Consumers have large unpaid balances on their credit cards. b. Consumers' wealth is increased by changes in the stock market. c. The government encourages consumers to increase their savings. d. Social security taxes are increased. e. Consumers believe they will not receive pay increases next year.

b

(Mod 17) Which of the following will result in a rightward shift of the aggregate demand curve? a. An increase in the income tax rate b. An increase in exports c. A decrease in the price level d. A decrease in household income e. A decrease in government spending

b

(Mod 18) Because changes in the aggregate price level have no effect on aggregate output in the long run, the long-run aggregate supply curve is... a. fixed b. vertical c. negatively sloped d. horizontal e. positively sloped

b

(Mod 18) When firms' costs increase, what is the impact on SRAS, the price level, and output? Answer SRAS Price Level Output A Shifts right Decreases Increases B Shifts left Increases Decreases C Shifts right Decreases Decreases D Shifts left Increases Increases E Shifts left No Change. No Change a. A b. B c. C d. D e. E

b

(Mod 20) Which of the following is a fiscal policy that is appropriate to combat inflation? a. decreasing taxes b. decreasing government spending c. increasing government transfers d. increasing interest rates e. expansionary fiscal policy

b

(Mod 20) Which of the following is an example of an expansionary fiscal policy? a. An increase in income tax rates b. An increase in government expenditures c. A decrease in transfer payments d. An increase in the price level e. An increase in consumption spending

b

(Mod 21) Assume households are consistently spending 75 percent of any increase in income. Calculate the spending multiplier resulting from this marginal propensity to consume. a. 1.25 b. 4 c. -4 d. 5 e. -4

b

(Mod 21) The presence of income taxes has what impact on the effect of the spending multiplier process? They... a. destabilize it. b. decrease it. c. have no effect on it. d. increase it. e. negate it.

b

(Mod 21) Which of the following is an example of an automatic stabilizer? a. Discretionary fiscal policy b. Progressive income taxes c. Autonomous consumption d. The spending multiplier e. Cyclical unemployment

b

Assume the economy of Country A is in long-run equilibrium. Which of the following will happen in the short run in Country A if one of its major trading partners, Country B, experiences a recession? a. Aggregate demand will increase and the price level will increase. b. Aggregate demand will decrease and the price level will decrease. c. Short-run aggregate supply will decrease and the price level will decrease. d. Short-run aggregate supply will increase and the price level will increase. e. Short-run aggregate supply will decrease and the price level will increase.

b

In an economy where wages and prices are sticky, which of the following will happen as a result of an increase in the price level? a. There will be a downward movement along the short-run aggregate supply curve and real output will decrease. b. There will be an upward movement along the short-run aggregate supply curve and real output will increase. c. The short-run aggregate supply curve will shift to the right and real output will increase. d. The short-run aggregate supply curve will shift to the left and real output will decrease. e. The aggregate demand curve will shift to the right and real output will increase.

b

Suppose a nation opened its borders to the free flow of workers from other nations. How would this event likely affect the long-run aggregate supply (LRAS) curve and the production possibilities curve of the nation? a. The (LRAS)(LRAS) curve would shift to the right, and the production possibilities curve would not shift. b. Both curves would shift to the right. c. Neither curve would shift. d. Both curves would shift to the left. e. The (LRAS)(LRAS) curve would shift to the left, and the production possibilities curve would shift to the right.

b

What is an automatic stabilizer? a. It is a program or policy that counteracts the business cycle with discretionary fiscal policy. b. It is a program or policy that counteracts the business cycle without any new government action required. c. It is a tax or spending program that is enacted to balance the federal budget. d. It is the change in consumption spending resulting from a given change in disposable income. e. It is a part of a market economic system that ensures that markets achieve equilibrium in the long run.

b

Which of the following is illustrated by the long-run aggregate supply (LRAS) curve and the production possibilities curve (PPC)? a. The multiplier effect b. The maximum sustainable capacity c. The trade-off between inflation and unemployment d. Sticky wages and prices e. Business cycles

b

(Mod 20) If there is an inflationary gap, which of the following changes will move the economy back toward full employment? a. An increase in investment spending b. An increase in government spending c. An increase in taxes d. An increase in exports e. An increase in transfer payments

c

(Mod 21) Government spending on goods and services increases by $10 million while prices are stable. Given a marginal propensity to consume of 0.75, calculate the total potential impact on GDP of the increase in government spending. a. $2 million b. $8 million c. $40 million d. $50 million e. $80 million

c

(Mod 21) The marginal propensity to consume I. has a negative relationship to the spending multiplier. II. is equal to 1. III. represents the portion of consumers disposable income that is spent. a. I only b. II only c. III only d. I and III only e. I, II, and III

c

(Mod 19) When entrepreneurs feel good about the future and expect economic growth to increase over the coming years, which of the following is most likely to happen in the short run? # Invest AD Prices Output LRAS A Incr Incr Incr Incr Shifts Left B Incr Decr Decr Incr Shifts Right C Incr Decr Decr Incr No Change D Incr Incr Incr Incr No Change E Decr Decr Decr Incr Shifts Left a. a b. b c. c d. d e. e

d

(Mod 20) An economy is currently in short-run equilibrium, and real output is below the full-employment level of output. Which of the following market adjustments is most likely to occur in the long run? a. The recessionary gap will create upward pressure on prices, shifting the aggregate demand curve to the left. b. The existence of cyclical unemployment will increase consumption spending and increase real output. c. Full-employment output will fall to equal the short-run equilibrium real output. d. Nominal wages will fall, shifting the short-run aggregate supply curve to the right. e. Input prices will increase as firms compete for labor and capital.

d

(Mod 20) In the AD−AS model, which of the following is true? a. The economy is in an inflationary gap when the short-run equilibrium real output is below the long-run equilibrium real output. b. The economy is in an inflationary gap when the short-run equilibrium real output is at the long-run equilibrium real output. c. The economy is in a recessionary gap when the short-run equilibrium real output is at the long-run equilibrium real output. d. The economy is in a recessionary gap when the short-run equilibrium real output is below the long-run equilibrium real output. e. The economy is in a recessionary gap when the short-run equilibrium real output is above the long-run equilibrium real output.

d

(Mod 20) Which of the following changes will necessarily cause inflation? a. A decrease in aggregate demand and a decrease in short-run aggregate supply. b. A decrease in aggregate demand and an increase in short-run aggregate supply. c. A decrease in aggregate demand with no change in short-run aggregate supply. d. An increase in aggregate demand and a decrease in short-run aggregate supply. e. An increase in aggregate demand and an increase in short-run aggregate supply.

d

(Mod 21) Assume that taxes and interest rates remain unchanged when government spending increases, and that both savings and consumer spending increase when income increases. The ultimate effect on real GDP of a $100 million increase in government purchases of goods and services will be... a. a decrease of $100 million. b. an increase of either more or less than $100 million, depending on the MPC. c. an increase of $100 million. d. an increase of more than $100 million. e. an increase of less than $100 million.

d

(Mod 21) Recessions will most likely be less severe if tax revenues and transfer payments automatically change in which of the following ways? a. Tax revenues increase, and transfer payments increase. b. Tax revenues decrease, and transfer payments decrease. c. Tax revenues increase, and transfer payments decrease. d. Tax revenues decrease, and transfer payments increase. e. Tax revenues do not change, and transfer payments decrease.

d

(Mod 21) Which of the following is NOT an automatic stabilizer? a. unemployment insurance b. income taxes c. Medicaid d. monetary policy e. food stamps

d

(Mod 18) Which of the following would most likely result in a leftward shift of the SRAS? a. Workers enter the country and push down wage rates. b. Only a change in the total amount of production that is possible when all resources are fully and efficiently utilized will shift the SRAS. c. A new source of copper is discovered within a country's borders. d. Government significantly streamlines regulations and taxes, making it simpler, faster, and cheaper to start a business in that country. e. A significant number of workers leave a nation to find employment abroad.

e

(Mod 19) Which of the following causes a positive demand shock? a. an increase in taxes b. a decrease in government spending c. pessimistic consumer expectations d. a relatively high stock of existing capital e. an increase in wealth

e

(Mod 20) Which of the following contributes to the lag in implementing fiscal policy? I. It takes time for Congress and the President to pass spending and tax changes. II. Current economic data take time to collect and analyze. III. It takes time to realize that an output gap exists. a. I only b. II only c. III only d. I and III only e. I, II, and III

e

(Mod 20) Which of the following is a government transfer program? a. Social Security b. Medicare/Medicaid c. unemployment insurance d. food stamps e. all of the above

e

(Mod 21) Which of the following is an example of an "automatic stabilizer"? I. As Henri's income fell, so did his income tax bill, because he was taxed at a lower rate on his lower income. II. As more and more people were unemployed for longer and longer, government unemployment payments rose. III. In an economic boom, incomes tend to rise and people find that they give a larger portion of their income in taxes because they fall into a higher income tax bracket. a. I only b. II only c. III only d. I and II e. I, II, and III

e

According to the expenditure multiplier, if the marginal propensity to consume is greater than zero, a one-dollar change in autonomous expenditures will result in which of the following? a. A one-dollar increase in government spending b. A greater-than-one-dollar increase in government spending c. A one-dollar increase in the production of goods and services d. A one-dollar increase in aggregate demand for goods and services e. A greater-than-one-dollar increase in aggregate demand for goods and services

e

Assume the marginal propensity to consume is 0.75. What will happen if government spending increases by $100 billion? a. Real output will increase by a maximum of $75 billion. b. Real output will increase by a maximum of $100billion. c. Real output will increase by a maximum of $175 billion. d. Real output will increase by a maximum of $300 billion. e. Real output will increase by a maximum of $400 billion.

e

The government of Euroland is considering increasing government spending to avoid a recession. What is the most likely effect on aggregate demand in Euroland? a. There will be a movement along the ADAD curve to a lower real output. b. There will be a movement along the ADAD curve to a higher price level. c. There will be no change in the ADAD curve. d. There will be a leftward shift in the ADAD curve. e. There will be a rightward shift in the ADAD curve.

e

The government of Olympia is considering a fiscal policy action to slow the economy and curb inflation. If the marginal propensity to consume is 0.8, which of the following responses correctly identifies a policy action that would help the government achieve its goals and the impact of that action on Olympia's real gross domestic product (GDP)? a. Increasing taxes by $10 billion increases real GDPGDP by a maximum of $50 billion. b. Decreasing taxes by $10 billion decreases real GDPGDP by a maximum of $50 billion. c. Increasing taxes by $10 billion increases real GDPGDP by a maximum of $40 billion. d. Increasing government spending by $10 billion increases real GDPGDP by a maximum of $50 billion. e. Decreasing government spending by $10 billion decreases real GDPGDP by a maximum of $50 billion.

e

Use the table to answer the question. Disposable Income Consumption Spending $10,000 $6,000 $11,000 $6,600 Using the disposable income and consumption data in the table above, calculate the value of the marginal propensity to consume (MPC) and the marginal propensity to save (MPS). a. MPC=0.04 , MPS=0.96MPC=0.04⁢ , MPS=0.96 b. MPC=0.10 , MPS=0.90MPC=0.10 , ⁢⁢MPS=0.90 c. MPC=0.20 , MPS=0.80MPC=0.20 , MPS=0.80 d. MPC=0.50 , MPS=0.50MPC=0.50 , MPS=0.50 e. MPC=0.60 , MPS=0.40

e

Which of the following represents an appropriate fiscal policy for the given economic conditions? a. An expansionary fiscal policy is appropriate to reduce unemployment when there is an inflationary gap. b. An expansionary fiscal policy is appropriate to reduce inflation when there is a recessionary gap. c. An expansionary fiscal policy is appropriate to reduce inflation when there is an inflationary gap. d. A contractionary fiscal policy is appropriate to reduce unemployment when there is a recessionary gap. e. A contractionary fiscal policy is appropriate to reduce inflation when there is an

e

(Mod 21) If, at full employment, the government wants to increase its spending by $100 billion without increasing inflation in the short run, it must do which of the following? a. Raise taxes by more than $100 billion. b. Raise taxes by $100 billion. c. Raise taxes by less than $100 billion. d. Lower taxes by $100 billion. e. Lower taxes by less than $100 billion.

a

(Mod 21) The government increases taxes by $10 million while prices are stable. Given a marginal propensity to consume of 0.75, calculate the total potential impact on GDP of the increase in taxes. a. The GDP would decrease by $30 million. b. The GDP would decrease by $10 million. c. The GDP would decrease by $40 million. d. The GDP would increase by $40 million. e. The GDP would increase by $30 million.

a

(Mod 16) A country sees an increase in aggregate current disposable income resulting from an economic expansion. Their aggregate consumer spending does not change. Which of the following must be true? a. Their marginal propensity to save is equal to 1. b. Their autonomous consumer spending is equal to 0. c. Their marginal propensity to consume equals their marginal propensity to save. d. Their consumption function has a slope of 1. e. Their marginal propensity to consume is equal to 1.

a

(Mod 17) Which of the following would be the cause of a leftward shift of the U.S. aggregate demand curve? a. Prices in Japan fall relative to prices in the United States, causing Americans to buy more Japanese goods and the Japanese to buy fewer American goods. b. Interest rates fall in the United States, causing an increase in both interest-sensitive consumption and investment. c. Stock values rise increasing consumer wealth for many Americans. d. Federal income tax rates fall, leaving households with higher disposable income. e. The U.S. government embarks upon a major infrastructure improvement program, rebuilding bridges, highways, and mass transit systems across the entire country.

a

(Mod 18) A sudden crash in the stock market shifts... a. the aggregate demand curve. b. the short-run aggregate supply curve, but not the long-run aggregate supply curve. c. the long-run aggregate supply curve, but not the short-run aggregate supply curve. d. both the short-run aggregate supply curve and the long-run aggregate supply curve. e. none of the above.

a

(Mod 19) An increase in the aggregate demand for goods and services has a larger impact on output ________ and a larger impact on the price level _______. a. in the short run, in the long run. b. in the long run, in the short run c. in the short run, also in the short run d. in the long run, also in the long run e. none of the above

a

(Mod 19) An increase in the price of a commodity used in the production and transportation of nearly all goods and services is likely to lead to: a. stagflation. b. deflation. c. budget surpluses. d. lower production costs. e. greater net exports.

a

(Mod 20) A cut in income taxes is an example of a. an expansionary fiscal policy b. a contractionary fiscal policy c. an expansionary monetary policy d. a contractionary monetary policy e. none of the above

a

(Mod 20) If a nation's government cuts income taxes, how will consumption spending, real output, and unemployment change in the short run? a. Consumption spending will increase, real output will increase, and unemployment will decrease. b. Consumption spending will increase, real output will decrease, and unemployment will decrease. c. Consumption spending will decrease, real output will decrease, and unemployment will increase. d. Consumption spending, real output, and unemployment will all decrease. e. Consumption spending, real output, and unemployment will all increase.

a

(Mod 20) If there is an adverse (negative) short-run aggregate supply shock due to an increase in the price of natural resources and the government pursues no policy to address the supply shock, then which of the following will occur in the long run? a. Nominal wages will fall with no change in the natural rate of unemployment. b. Inflation will rise and nominal wages will fall. c. Deflation will worsen and nominal wages will rise. d. Aggregate demand will increase to restore full employment. e. The long-run aggregate supply curve will shift right and increase unemployment.

a

(Mod 20) Which of the following is an example of expansionary fiscal policy? a. increasing government spending b. decreasing interest rates c. increasing the money supply d. decreasing government transfers e. increasing taxes

a

(Mod 21) A lump-sum tax is best described as... a. independent of income. b. a type of business tax. c. lower as income increases. d. higher as income increases. e. the most common form of tax.

a

(Mod 21) Government transfers increase by $10 million while prices are stable. Given a marginal propensity to consume of 0.75, calculate the total potential impact on GDP of the increase in government transfers. a. GDP would increase by $30 million. b. GDP would decrease by $30 million. c. GDP would increase by $40 million. d. GDP would increase by $10 million. e. GDP would decrease by $40 million.

a

(Mod 16) Assume that Jane's marginal propensity to consume equals 0.8, and that in 2004 Jane spent $36,000 from her disposable income of $40,000. If her disposable income in 2005 increased to $50,000, her consumption spending increased by a. $4,000 b. $8,000 c. $9,000 d. $10,000 e. $14,000

b

(Mod 21) Which of the following statements best describes the concept of an automatic stabilizer? a. It is nondiscretionary fiscal policy that mitigates business cycles by increasing aggregate demand during recessions and decreasing aggregate demand during expansions. b. It is discretionary fiscal policy that increases government spending during recessions and decreases government spending during expansions. c. It is a measure of the effect that a change in government spending and investment has on the gross domestic product. d. It is a description of how total income is always equal to total expenditures as a measure of gross domestic product. e. It is the process whereby surpluses lead to falling prices and shortages lead to rising prices to stabilize market equilibrium.

a

Suppose that the prices of labor and inputs to production are fixed in the short run but not in the long run. What is a consequence of this flexibility in the long run? a. The long-run aggregate supply curve is vertical and there is no trade-off between inflation and unemployment in the long run. b. The long-run aggregate supply curve is vertical and there is a trade-off between inflation and unemployment in the long run. c. The long-run aggregate supply curve is horizontal and there is a trade-off between inflation and unemployment in the long run. d. Real output is always greater than full employment in the long run. e. Real output is always less than full employment in the long run.

a

Which of the following best explains how income taxes can moderate a business cycle during an expansion? a. Tax payments increase automatically as gross domestic product (GDP)(GDP) rises, which dampens consumption spending. b. Tax payments decrease automatically as GDPGDP rises, which increases short-run aggregate supply. c. Tax payments increase automatically as GDPGDP falls, which decreases short-run aggregate supply. d. Tax payments increase automatically as GDPGDP falls, which prevents the economy from experiencing a downturn. e. Tax payments decrease automatically as GDPGDP falls, which encourages consumption spending.

a

(Mod 16) Assume households are consistently spending 75 percent of any increase in income. Calculate the spending multiplier resulting from this marginal propensity to consume. a. 1.25 b. 4 c. -4 d. 5 e. -5

b

(Mod 16) A nation has a spending multiplier of 10. What is their marginal propensity to consume? a. 0.1 b. 0.5 c. 0.9 d. 1 e. 10

c

(Mod 16) Government spending on goods and services increases by $10 million while prices are stable. Given a marginal propensity to consume of 0.75, calculate the total potential impact on GDP of the increase in government spending (hint: use the spending multiplier). a. $2 million b. $8 million c. $40 million d. $50 million e. $80 million

c

(Mod 16) The slope of a household's consumption function is equal to a. the inflation rate. b. the real interest rate. c. the marginal propensity to consume. d. the rate of increase in household current disposable income. e. the tax rate.

c

(Mod 17) Aggregate demand may be measured by adding a. consumption, investment, savings, and imports b. savings, government spending, and business inventories c. consumption, investment, government spending, and net exports d. domestic private expenditures and government spending e. domestic expenditures and imports

c

(Mod 18) That employers are reluctant to decrease nominal wages during economic downturns and raise nominal wages during economic expansions is one reason nominal wages are described as... a. flexible. b. real. c. sticky. d. unyeilding. e. long-run.

c

(Mod 18) The x-intercept of the long-run aggregate supply curve is... a. equal to the vertical intercept. b. negative. c. at potential output. d. always the same as the horizontal intercept of the short-run aggregate supply curve. e. at the origin.

c

(Mod 18) Which of the following explains why the long-run aggregate supply curve corresponds to the production possibilities curve? a. Both curves are downward sloping. b. Both curves illustrate flexible wages and prices. c. Both curves illustrate the maximum sustainable capacity. d. Both curves illustrate the trade-off between inflation and unemployment. e. Both curves illustrate short-run macroeconomic equilibrium.

c

(Mod 18) Which of the following will most likely cause the short-run aggregate supply curve to shift to the left? a. A decrease in nominal wages b. A decrease in the expected rate of inflation c. An increase in energy prices d. An increase in the price level e. An increase in the size of the labor force

c

(Mod 18) Which of the following will remain unchanged when the price level decreases? a. Inflationary expectations b. Aggregate quantity demanded c. Long-run aggregate supply d. Nominal wages e. Nominal output

c

(Mod 18) Which of the following would cause a rightward shift of the short-run aggregate supply? a. decrease in gross private domestic investment b. reduction in government spending on goods and services c. decrease in production costs d. increase in the price of natural resources e. consumer spending increases

c

(Mod 19) When investment increases cause an increase in the capital stock and increases in productivity, which of the following is most likely to happen in the short and long run? # SRAS Prices Output LRAS A Increase Increase Increase No Change B Increase Increase Increase Shifts Right C Increase Decrease Increase Shifts Right D Increase Decrease Decrease No Change E Decrease Decrease Decrease Shifts Left a. a b. b c. c d. d e. e

c

(Mod 19) Which of the following causes a negative supply shock? I. a technological advance II. increasing productivity III. an increase in oil prices a. I only b. II only c. III only d. I and III only e. I, II, and III

c

(Mod 20) An economy is in long-run macroeconomic equilibrium. What will be the short-run effects of an increase in investment spending? a. An increase in real output, an increase in unemployment, and a decrease in the price level b. An increase in real output, an increase in unemployment, and an increase in the price level c. An increase in real output, a decrease in unemployment, and an increase in the price level d. A decrease in real output, a decrease in unemployment, and a decrease in the price level e. A decrease in real output, a decrease in unemployment, and no change in the price level

c

(Mod 20) Assume the countries of Ornania and Kumbagi are major trading partners. Ornania is currently in long-run macroeconomic equilibrium. As a result of a recession in its economy, Kumbagi decreases its demand for goods produced in Ornania. Which of the following will occur in Ornania in the short run? a. The aggregate demand curve will shift to the right, causing the actual rate of unemployment to exceed the natural rate of unemployment. b. The aggregate demand curve will shift to the left, resulting in an inflationary gap. c. The aggregate demand curve will shift to the left, resulting in a recessionary gap. d. The short-run aggregate supply curve will shift to the left, resulting in an inflationary gap. e. The short-run aggregate supply curve will shift to the left, resulting in a recessionary gap.

c

Country X is currently in long-run macroeconomic equilibrium. If the country's economy experiences a significant increase in the price of energy, a major input in production, which of the following will occur in the short run? a. The aggregate demand curve will shift to the left, and the actual rate of unemployment will exceed the natural rate of unemployment. b. The aggregate demand curve will shift to the left, and there will be an inflationary gap. c. The short-run aggregate supply curve will shift to the left, and the actual rate of unemployment will exceed the natural rate of unemployment. d. The short-run aggregate supply curve will shift to the left, and the price level will fall. e. The short-run aggregate supply curve will shift to the left and cause an inflationary gap.

c

If the natural rate of unemployment exceeds the actual rate of unemployment, which of the following will occur in the long run in the absence of government intervention? a. There will be cyclical unemployment. b. Input prices will decrease. c. Nominal wages will increase. d. The aggregate demand curve will shift to the left. e. The short-run aggregate supply curve will shift to the right.

c

Suppose an economy is operating above full employment. Which of the following fiscal policy actions and resulting changes in aggregate demand will move the economy back towards full employment? a. Increasing government spending, which will shift the ADAD curve rightward. b. Decreasing government spending, which will shift the ADAD curve rightward. c. Increasing taxes, which will shift the ADAD curve leftward. d. Decreasing taxes, which will shift the ADAD curve leftward. e. Increasing transfer payments, which will shift the ADAD curve leftward.

c

Which of the following best describes the aggregate demand curve? a. It is a curve that shows the relationship between consumer spending and income. b. It is a curve that shows the amount of goods and services domestic consumers will buy from domestic and foreign firms. c. It is a curve that shows the level of spending by consumers, businesses, the government, and the foreign sector at different price levels. d. It is a curve that shows only the level of government spending at different price levels. e. It is a curve that shows the level of spending by all factors of production at different price levels.

c

Which of the following explains the relationship between the price level and real output along the aggregate demand curve? a. At a lower price level, people need more money to spend and therefore deposit less money in banks, which lowers interest rates and increases real output. b. At a lower price level, the real value of savings decreases which causes an increase in spending. c. At a lower price level, domestic goods will become less expensive compared to foreign goods, which causes an increase in spending on domestic goods. d. At a lower price level, real incomes decrease which causes an increase in spending. e. At a lower price level, the purchasing power of consumers' income decreases which causes an increase in spending.

c

(Mod 16) Actual investment spending in any period is equal to... a. planned investment spending + inventory decreases. b. planned investment spending - unplanned inventory investment. c. unplanned inventory investment - inventory increases. d. planned investment spending + unplanned inventory investment. e. unplanned inventory investment + inventory increases.

d

(Mod 16) Change in which of the following leads to a shift of the aggregate consumption function? I. expected future disposable income II. aggregate wealth III. current disposable income a. I only b. II only c. III only d. I and II only e. I, II, and III

d

(Mod 16) The level of planned investment spending is negatively related to... a. the rate of return on investment. b. the level of consumer spending. c. the level of actual investment spending. d. the interest rate. e. all of the above.

d

(Mod 17) The Consumer Confidence Index is used to measure which of the following? a. planned investment spending b. the level of consumer spending c. the rate of return on investments d. consumer expectations e. the level of current disposable income

d

(Mod 17) Which of the following explains the slope of the aggregate demand curve? I. the wealth effect of a change in the aggregate price level II. the interest rate effect of a change in the aggregate price level III. the product-substitution effect of a change in the aggregate price level a. I only b. II only c. III only d. I and II only e. I, II, and III

d

(Mod 17) Which of the following government policies will shift the aggregate demand curve to the left? a. an increase in government purchases of goods and services b. a decrease in taxes c. an increase in government transfers d. a decrease in the quantity of money e. a decrease in interest rates

d

(Mod 17) Which of the following will shift the aggregate demand curve to the right? a. A report that corporate earnings were lower than expected b. An increase in interest rates caused by a tightening of monetary policy c. Increased imports caused by appreciation of the dollar d. Increased spending by businesses on computers e. An increase in the government's budget surplus

d

(Mod 17) Which of the following will shift the aggregate demand curve to the right? a. a decrease in the quantity of money b. pessimistic consumer expectations c. a decrease in wealth d. a decrease in the existing stock of capital e. contractionary fiscal policy

d

(Mod 18) A decrease in which of the following will cause the short-run aggregate supply curve to shift to the left? a. commodity prices b. the cost of health care insurance premiums paid by employers c. nominal wages d. productivity e. the use of cost-of-living allowances in labor contracts

d

(Mod 19) During stagflation, what happens to the aggregate price level and real GDP? Answer Aggregate Price Level Real GDP A decreases increases B decreases decreases C increases increases D increases decreases E stays the same stays the same a. a b. b c. c d. d e. e

d

(Mod 19) Suppose that there is an increase in technological knowledge. Which of the following would shift right? I. aggregate demand II. short-run aggregate supply III. long-run aggregate supply a. I only b. II only c. III only d. II and III e. I, II, and III

d

Assume an economy is currently at full employment. Which of the following best describes the long-run adjustments that will occur in the economy following a negative aggregate demand shock with no government intervention? a. Short-run aggregate supply will decrease, offsetting the initial aggregate demand shock and restoring full employment in the long run. b. The aggregate demand shock will result in a multiplier effect on real output moving the economy farther away from full employment in the long run. c. The price level will decrease and aggregate demand will increase until full employment is restored in the long run. d. Nominal wages will decrease and short-run aggregate supply will increase until full employment is restored in the long run. e. Real income will decrease and consumption spending will decrease moving the economy farther away from full employment in the long run.

d

Assume that stock prices and home values have increased, raising household wealth. At the same time, productivity increased due to new technology. What is the likely short-run impact on the economy? a. The aggregate demand (AD)(AD) curve shifts right and the short-run aggregate supply (SRAS)(SRAS) curve shifts left, resulting in a higher price level and no change in the output level. b. The aggregate demand (AD)(AD) curve shifts left and the short-run aggregate supply (SRAS)(SRAS) curve shifts right, resulting in a lower price level and no change in the output level. c. The aggregate demand (AD)(AD) curve shifts right and the short-run aggregate supply (SRAS)(SRAS) curve shifts left, resulting in a higher output level and lower price level. d. Both the aggregate demand (AD)(AD) and the short-run aggregate supply (SRAS)(SRAS) curves shift right, resulting in a higher output level and indeterminate price level. e. Both the aggregate demand (AD)(AD) and the short-run aggregate supply (SRAS)(SRAS) curves shift right, resulting in a lower output level and indeterminate price level.

d

If nominal wages are fixed by labor contracts, then which of the following explains why the aggregate supply curve is upward sloping? a. A decrease in the price level will increase profits and production. b. A decrease in the price level will decrease profits and increase production. c. An increase in the price level will increase real wages and production. d. An increase in the price level will increase profits and production. e. An increase in the price level will decrease real wages and decrease production.

d

The imposition by the United States of a tariff on imported steel from the European Union will likely have what impact on the short-run aggregate supply (SRAS) curve in the United States? a. It will cause a movement along the (SRAS)(SRAS) curve to a higher real output. b. It will cause a movement along the (SRAS)(SRAS) curve to a lower real output. c. It will have no impact on the (SRAS)(SRAS) curve. d. It will cause the (SRAS)(SRAS) curve to shift leftward. e. It will cause the (SRAS)(SRAS) curve to shift rightward.

d

Which of the following is true about the equilibrium real output in the aggregate demand-aggregate supply (AD-AS) model in the short run? a. Equilibrium real output is always above full employment. b. Equilibrium real output is always below full employment. c. Equilibrium real output is always equal to full employment. d. Equilibrium real output can be above, equal to, or below full employment. e. Equilibrium real output is indeterminate.

d

(Mod 16) A high marginal propensity to consume implies which of the following? a. A small change in consumption when income changes b. A high savings rate c. A high marginal tax rate d. An equilibrium level of income near full employment e. A low marginal propensity to save

e

(Mod 16) The table below shows the level of household savings at various levels of disposable income in a country. Savings Disposable Income $2,000 $10,000 $2,200 $12,000 Based on the level of savings and disposable income data in the table above, which of the following must be true? a. The marginal propensity to save is 0.2. b. The marginal propensity to save is 0.9. c. When disposable income is $12,000$12,000, consumption is $10,000$10,000. d. The marginal propensity to consume is 0.1. e. The marginal propensity to consume is 0.9.

e

(Mod 17) Which of the following is a reason why the aggregate demand curve is downward sloping? a. A higher price level decreases savings. b. A higher price level decreases interest rates. c. A higher price level increases exports. d. A higher price level decreases imports. e. A higher price level decreases real wealth.

e

(Mod 18) Which of the following best illustrates the "sticky wage" theory? a. Aggregate demand is horizontal because nominal wages are based on expected prices and do not respond quickly to unanticipated price changes. b. Short-run aggregate supply is vertical because nominal wages are based on expected prices and do not respond quickly to changes in the prices that do not turn out to be as predicted. c. Aggregate demand is downward sloping because nominal wages are based on expected prices and do not respond quickly to unanticipated price changes. d. Long-run aggregate supply is upward sloping because nominal wages are based on expected prices and do not respond quickly to unanticipated price changes. e. Short-run aggregate supply is upward sloping because nominal wages are based on expected prices and do not respond quickly to unanticipated price changes.

e

(Mod 18) Which of the following must be true in the long run? a. Production increases when prices increase. b. An increase in the price level reduces aggregate demand. c. The natural rate of unemployment is not affected by changes in production capacity. d. Full employment increases when price level decreases. e. Prices and wages are flexible.

e

(Mod 18) Which of the following will cause a rightward shift of the short-run aggregate supply curve? a. An increase in consumption spending b. An increase in nominal wages c. An increase in income taxes d. A decrease in the price level e. A decrease in the costs of production

e

(Mod 18) Which of the following will shift the short-run aggregate supply curve? A change in... a. profit per unit at any given price level b. commodity prices c. nominal wages d. productivity e. all of the above

e