AS and AD and Taxation optional Quizes

The four major components of aggregate demand are consumption, investment, government purchases of goods and services, and net exports.

true

The real wealth and the real interest rate effects are both causes of the downward slope of the aggregate demand curve.

true

The SRAS is ____; the LRAS is ____.

upward sloaping; verticle

If Sue earns $30,000 and pays $5,000 in taxes and Julie earns $60,000 and pays $9,000 in taxes, what type of tax system does this situation represent?

regressive

If each U.S. citizen paid $8,000 in taxes, what type of tax system would that represent?

regressive; Since everyone is paying the same dollar amount, those with higher incomes are actually paying a smaller percentage of their incomes and those with lower incomes are actually paying a larger percentage of their incomes.

In Exhibit 14-2, which curve represents long-run aggregate supply?

A

In the Laffer curve below, which point would lead to the greater amount of tax revenues?

A and B would hvae the same amount

Along the long-run aggregate supply curve, the level of RGDP supplied ____ with increases in the price level.

DOES NOT CHANGE

Which of the following will cause consumption, and as a result, aggregate demand, to decrease?

a decrease in consumer confidence

The SRAS curve is vertical at the natural level of real output.

false

An increase in business tax rates, combined with a decrease in consumer confidence, would have what effect on aggregate demand?

AD would decrease.

The short-run aggregate supply curve:

Aall of the above: a) Is a schedule showing the relationship between the price level and the quantity of real GDP supplied. b) Is typically upward sloping. c) reflects output prices changing relative to input prices.

In Exhibit 14-2, which curve represents short-run aggregate supply?

B

Based on the Laffer curve depicted below, which of the following would cause a decrease in tax revenues?

Both A and D above

Based on the Laffer curve depicted below, if the government wished to increase tax revenues what would be necessary?

Both B and C above

In Exhibit 14-2, which curve represents aggregate demand?

C

Which of the following is true when there is a recessionary gap?

Employment exceeds full employment.

An increase in the tax rate will always lead to an increase in tax revenues.

FALSE; If we are already "overtaxing" the economy, a further increase in the tax rate could slow the economy and lead to less taxable income and less tax revenues.

Along the long-run aggregate supply curve, the price level ____ with increases in aggregate demand.

INCREASES

An increase in disposable income would tend to shift aggregate demand right.

TRUE

If net exports are negative, then aggregate demand will be less than the sum of consumption, investment, and government purchases.

TRUE

Imports are not included in GDP because they do not reflect output produced within the domestic economy.

TRUE

The real wealth effect is one reason for the negative slope of the aggregate demand curve.

TRUE

As indicated by the Laffer curve, it is possible for two different tax rates to generate the same amount of tax revenue.

TRUE; A lower tax rate will lead to lower tax revenues but a very high tax rate could also lead to lower tax revenues because a high tax rate could cause a decrease in economic activity which could decrease the amount of income available for taxation.

As indicated by the Laffer curve, it is possible for a decrease in the tax rate to generate an increase in the amount of tax revenue.

TRUE; If the government sets a very high tax rate it could cause a in decrease economic activity. If this was already taking place and the government then chose to decrease the tax rate it would lead to an increase in tax revenue.

Refer to Exhibit 14-1. Which of the following would be illustrated by a shift in aggregate demand from AD0 to AD2?

an increase in business tax rates, combined with a decrease in consumer confidence

Which of the following would lead to an increase in aggregate demand?

an increase in consumer confidence

Refer to Exhibit 14-1. Which of the following would be illustrated by a shift in aggregate demand from AD0 to AD1?

an increase in consumption, combined with an increase in exports

According to the interest rate effect, as the price level decreases, households and firms' holdings of money ____, interest rates ____, investments ____, and the quantity RGDP demanded ____.

decrease, decrease, increase, increase

In the long run, an increase in the price level:

does none of the above: increases output prices relative to input prices. b) increases the profit margins of many producers. c) increases RGDP supplied.

Holding all other things constant, when the price level falls, interest rates:

falls and firms want to borrow more for new plants and equipment and households want to borrow more for homebuilding.

A reduction in the price level will cause the aggregate demand curve to shift to the left.

false

If the overall price level decreases, then the aggregate demand curve will shift to the right.

false

If the price level in the United States decreases, domestic goods will become relatively cheaper than foreign goods, the demand for U.S.-made goods will increase, and the U.S. aggregate demand curve will shift to the right.

false

If there is currently an inflationary gap, an increase in aggregate demand will make the inflationary gap smaller, but a decrease in aggregate demand would make the inflationary gap larger.

false

The interest rate effect helps explain why a lower price level will reduce the quantity of real goods and services demanded as an economy moves down along its aggregate demand curve.

false

A progressive tax system is defined by those who earn higher incomes paying a higher amount of taxes.

false; Progressive taxes are based on individuals with higher income paying a higher percentage of their incomes in taxes.

A proportional tax system describes a situation in which everyone pays the same amount of taxes.

false; Proportional taxation describes a situation in which everyone pays the same percentage of their incomes in taxes - not the same dollar amount.

An increase in the U.S. price level will:

increase US imports

In an open economy as the price level decreases, a(n) ____ in demand for domestic goods relative to foreign goods results in a(n) ____ in the quantity of RGDP demanded.

increase, increase

In an open economy, as the price level increases, a(n) ____ in demand in the quantity of domestic goods results in a(n) ____ in the quantity of RGDP demanded.

increase, increase

According to the interest rate effect, as the price level increases, households and firms' holdings of money ____, interest rates ____, investments ____, and the quantity RGDP demanded ____.

increase, increase, decrease, decrease

In an open economy, the real level of U.S. exports and the quantity of RGDP demanded ______ the price level.

move in the opposite direction of

Which of the following decreases U.S. aggregate demand?

none of the above decrease US AD

The short-run aggregate supply curve:

normally slopes upward to the right because the costs of labor and other inputs are relatively fixed in the short run.

If Olaf earns $100,000 and pays $20,000 in taxes and George earns $200,000 and pays $48,000 in taxes, what type of tax system does this situation represent?

progressive

If Loraine earns $50,000 and pays $12,000 in taxes and Marsha earns $40,000 and pays $9,600 in taxes, what type of tax system does this situation represent?

proportional

If Sid earns $1,500,000 and pays $450,000 in taxes and Nancy earns $80,000 and pays $28,000 in taxes, what type of tax system does this situation represent?

regressive

Holding all other things constant, when the price level rises, interest rates:

rise and firms will want to borrow less for new plants and equipment and households will want to borrow less for homebuilding.

As the price level decreases, other things being equal,

the quantity of real gross domestic product demanded increases.

Ben N. Jerry prefers to keep his $10,000 retirement savings buried in the backyard. After an increase in the price level, Ben reduces the amount of goods and services he wants to purchase. Ben's rationalization, that now his retirement savings won't buy as much, is consistent with which explanation of the aggregate demand curve's negative slope?

the real wealth effect

A change that shifted the long-run aggregate supply curve to the right would also shift the short-run aggregate supply curve to the right.

true

According to the "misperception effect" explanation of short-run aggregate supply, firms increase output as the price level rises because they mistake the increase in overall prices for an increase in the relative price of their own output.

true

If input prices adjusted just as quickly as output prices, the profit effect leading to an increase in RGDP supplied would disappear.

true

If the overall price level increases, it will cause a decrease in the quantity of real goods and services demanded but not a change in aggregate demand curve.

true

If there is currently a recessionary gap, a decrease in aggregate demand would make the recessionary gap larger.

true

The aggregate supply curves show how much a nation's businesses are willing and able to produce at each price level.

true

The economy is in long-run equilibrium only when the short run aggregate supply curve intersects the aggregate demand curve along the long run aggregate supply curve.

true

The short run aggregate supply curve refers to a period in which input prices have not yet had time to adjust to changes in aggregate demand.

true

The LRAS curve is ____ with real output levels that ____.

vertical; are equal to the maximum level of real output without causing inflation

If there was no profit effect or misperception effect in the short run, then SRAS is ____ and LRAS is ____.

verticle; verticle