ECON 202: Exam 3

An increase in the price level results in a (a) downward shift in the AE curve and a movement up along the AD curve. (b) downward shift in both the AE and AD curves. (c) downward shift in the AD curve and a movement down along the AE curve. (d) leftward movement along both the AE and AD curves.

(a)

In the above figure, at the price level of 140 and real GDP of (a) $15 trillion, firms will not be able to sell all their output. (b) $5 trillion, firms will not be able to sell all their output. (c) $5 trillion, consumers will not be able to buy all the goods and services they demand. (d) $15 trillion, consumers will not be able to buy all the goods and services they demand

(a) $15 trillion, firms will not be able to sell all their output.

The multiplier measures the (a) horizontal shift in the aggregate demand curve from an increase in autonomous spending. (b) vertical shift in the aggregate demand curve from an increase in autonomous spending. (c) horizontal difference between two points on the same aggregate demand curve. (d) vertical difference between two points on the same aggregate demand curve

(a) horizontal shift in the aggregate demand curve from an increase in autonomous spending

Autonomous consumption is that portion of consumption expenditure that is not influenced by (a) income. (b) preferences. (c) prices. (d) the legal authorities

(a) income

As real disposable income increases, consumption expenditure_________and saving_____________. (a) increases; increases (b) increases; decreases (c) decreases; increases (d) decreases; decreases

(a) increases; increases

If prices are fixed, an increase in aggregate expenditures results in an increase in equilibrium GDP that (a) is greater than the change in aggregate expenditure. (b) is equal to the change in aggregate expenditure. (c) is less than the change in aggregate expenditure. (d) has no necessary relationship to the size of the change in aggregate expenditure

(a) is greater than the change in aggregate expenditure

The slope of the consumption function is (a) less than the slope of the 45-degree line but not equal to zero. (b) greater than the slope of the 45-degree line. (c) equal to the slope of the 45-degree line. (d) equal to zero

(a) less than the slope of the 45-degree line but not equalto zero

In the short-run, real GDP can be greater than or less than potential GDP because in the short run the (a) money wage rate is fixed. (b) quantity of capital is fixed. (c) full-employment level of employment is fixed. (d) price level is fixed.

(a) money wage rate is fixed

In the above figure, the economy is initially at point B. Then the price level falls by 10. The wealth effect will help (a) move the economy to point A. (b) move the economy to point C. (c) move the economy to point D. (d) keep the economy at point B

(a) move the economy to point A.

As a result of a tax increase (a) the aggregate demand curve shifts leftward. (b) the aggregate demand curve shifts rightward. (c) the aggregate supply curve shifts leftward. (d) the aggregate supply curve shifts rightward

(a) the aggregate demand curve shifts leftward

Suppose disposable income increases from $7 trillion to $8 trillion. At the same time, consumption expenditure increases from $6.8 trillion to________. Thus the MPC must equal__________. (a) $7.8 trillion; 0.80 (b) $7.6 trillion; 0.80 (c) $7.4 trillion; 0.40 (d) $8 trillion; 1.00

(b) $7.6 trillion; 0.80

In an economy with no income taxes or imports, the multiplier equals (a) 1/MPC. (b) 1/MPS. (c) 1/(1 − MPS). (d) 1/(MPC + MPS)

(b) 1/MPS

Based on the figure above, short-run equilibrium occurs at the price level of (a) 120 and real GDP of $5 trillion. (b) 130 and real GDP of $10 trillion. (c) 140 and real GDP of $15 trillion. (d) 130 and real GDP of $15 trillion.

(b) 130 and real GDP of $10 trillion.

Which of the following shifts the aggregate expenditure curve AND shifts the aggregate demand curve? I. a decrease in investment II. a change in the price level III. an increase in exports (a) I and II (b) I and III (c) II and III (d) III only

(b) I and III

A short-run macroeconomic equilibrium occurs (a) at the intersection of the short-run aggregate supply curve and the long-run aggregate supply curve. (b) at the intersection of the short-run aggregate supply curve and the aggregate demand curve. (c) at the intersection of the short-run aggregate supply curve, the long-run aggregate supply curve, and the aggregate demand curve. (d) when the rate at which prices of goods and services increase equals the rate at which money wage rates increase

(b) at the intersection of the short-run aggregate supply curve and the aggregate demand curve.

If the slope of the expenditures curve increases, the multiplier (a) decreases. (b) increases. (c) stays the same. (d) can either increase or decrease depending on what happens to the MPC

(b) increases

The multiplier effect exists because a change in autonomous expenditure (a) leaves the economy in the form of imports. (b) leads to changes in income, which generate further spending. (c) prompts further exports. (d) will undergo its complete effect in one round

(b) leads to changes in income, which generate further spending

If the MPC is 0.9 (and there are no income taxes or imports), the multiplier for a change in autonomous expenditure equals (a) 0.1. (b) 9.0. (c) 10.0. (d) 100.0

(c) 10.0

The multiplier is the amount by which________________is multiplied to determine___________. (a) autonomous expenditure; real GDP (b) induced expenditure; real GDP (c) a change in autonomous expenditure; the change in equilibrium expenditure (d) a change in induced expenditure; the change in equilibrium expenditure

(c) a change in autonomous expenditure; the change in equilibrium expenditure

In the above figure, the economy is initially at point B. If taxes increase, there is (a) a movement to point C. (b) a movement to point A. (c) a shift to AD2. (d) a shift to AD1

(c) a shift to AD2

People expect their incomes will decrease next year. As a result, the__________will shift___________. (a) short-run aggregate supply curve; rightward (b) aggregate demand curve; rightward (c) aggregate demand curve; leftward (d) long-run aggregate supply curve; rightward

(c) aggregate demand curve; leftward

Autonomous expenditure refers to (a) aggregate expenditure solely prompted by policy. (b) changes in short-run aggregate supply. (c) aggregate expenditure that does not change when real GDP changes. (d) aggregate expenditure that varies because of changes in real GDP

(c) aggregate expenditure that does not change when real GDP changes

Which of the following shifts the aggregate demand curve rightward? (a) an increase in the tax rate (b) a decrease in the price level (c) an increase in the quantity of money (d) an increase in the exchange rate

(c) an increase in the quantity of money

In the short run with fixed prices, an increase in investment of $100 billion (a) increases real GDP by $100 billion. (b) increases real GDP by less than $100 billion. (c) increases real GDP by more than $100 billion. (d) decreases real GDP by $100 billion because of the decrease in induced expenditures

(c) increases real GDP by more than $100 billion

A decrease in government expenditure shifts the AD curve_______________, while a decrease in taxes shifts the AD curve_________________. (a) rightward; rightward (b) rightward; leftward (c) leftward; rightward (d) leftward; leftward

(c) leftward; rightward

When there is unplanned inventory investment, aggregate planned expenditure is___________real GDP and actual investment is______________planned investment. (a) greater than; greater than (b) greater than; less than (c) less than; greater than (d) less than; less than

(c) less than; greater than

The short-run multiplier is equal to 3, real GDP equals potential GDP of $8,000, and the price level is equal to 100. Suppose that government expenditure decreases by $200. The LONG-RUN effect of the decrease in government expenditure changes real GDP by (a) a decrease of 600. (b) an increase of 600. (c) nothing; that is, in the long run real GDP equals $8,000. (d) a decrease of $200 because in the long-run, the multiplier is 1

(c) nothing; that is, in the long run real GDP equals $8,000

In an economy, the multiplier is 3. If government expenditure increases by $1 million, then in the short run, the price level___________and real GDP_______________$3 million. (a) falls; decreases by less than (b) rises; equals (c) rises; increases by less than (d) rises; decreases by less than

(c) rises; increases by less than

The data in the above figure indicate that the economy will be in a long-run macroeconomic equilibrium at a price level of (a) 140. (b) 130. (c) 100. (d) 120.

(d) 120

In the short run, the intersection of the aggregate demand and the short-run aggregate supply curves, (a) determines the equilibrium price level. (b) is a point where there is neither a surplus nor a shortage of goods. (c) determines the equilibrium level of real GDP. (d) All of the above answers are correct

(d) All of the above answers are correct

Read the two statements below and indicate if they are true or false. I. Autonomous expenditures change when GDP changes. II. Aggregate planned expenditure is the sum of planned consumption expenditure, investment, and government expenditure (a) I and II are both true. (b) I and II are both false. (c) I is true and II is false (d) I is false and II is true

(d) I is false and II is true

Suppose consumers decrease their consumption expenditure because they worry about what their in-come will be in the future. There is (a) a rightward shift of the aggregate demand curve. (b) an upward movement along the aggregate demand curve. (c) a downward movement along the aggregate demand curve. (d) a leftward shift of the aggregate demand curve

(d) a leftward shift of the aggregate demand curve

In the above figure, the economy is initially at point B. If the Fed increases the quantity of money, there is (a) a movement to point C. (b) a movement to point A. (c) a shift to AD2. (d) a shift to AD1

(d) a shift to AD1

Which of the following changes would NOT shift the aggregate demand curve? (a) a change in fiscal policy (b) a change in monetary policy (c) a change in expectations about future income (d) an increase in technology

(d) an increase in technology

A decrease in government transfer payments (a) increases aggregate demand. (b) increases the aggregate quantity demanded. (c) decreases the aggregate quantity demanded. (d) decreases aggregate demand

(d) decreases aggregate demand

The figure shows Tropical Isle's aggregate planned expenditure curve. When aggregate planned ex-penditure is______________$2 trillion, aggregate planned expenditure is than real GDP, firms' inventories,______________and firms____________their production. (a) greater; decrease (b) less; decrease; increase (c) less; increase; decrease (d) greater; decrease; increase

(d) greater; decrease; increase

As the price level falls and other things remain the same, real wealth__________and_______________. (a) decreases; the short-run aggregate supply decreases (b) decreases; the quantity of real GDP demanded decreases (c) increases; aggregate demand increases (d) increases; the quantity of real GDP demanded increases

(d) increases; the quantity of real GDP demanded increases

If the economy is in short run equilibrium then (a) real GDP equals potential GDP. (b) nominal GDP equals potential GDP. (c) real GDP cannot be equal to potential GDP. (d) real GDP can be greater than, less than, or equal to potential GDP

(d) real GDP can be greater than, less than, or equal to potential GDP

In the figure above, in the short-run macroeconomic equilibrium (a) there is no structural unemployment. (b) real GDP is greater than potential GDP. (c) real GDP equals potential GDP. (d) real GDP is less than potential GDP

(d) real GDP is less than potential GDP