Econ Chapter 12 HW

Refer to the diagrams, in which AD 1 and AS 1 are the "before" curves and AD 2 and AS 2 are the "after" curves. Cost-push inflation is depicted by A. B. C. B and C.

B.

Which of the diagrams for the U.S. economy best portrays the effects of a substantial reduction in government spending? A B C D

D

The aggregate supply curve (short run): a. graphs as a horizontal line. b. is steeper above the full-employment output than below it. c. slopes downward and to the right. d. presumes that changes in wages and other resource prices match changes in the price level.

b. is steeper above the full-employment output than below it.

Refer to the diagrams, in which AD 1 and AS 1 are the "before" curves and AD 2 and AS 2 are the "after" curves. Other things equal, inflation is absent in: a b c a & c

a&c

(Advanced analysis) Assume that the MPS is 0.33 in an economy that has an aggregate supply curve with a slope of 1. An increase in investment spending of $10 billion will shift the aggregate demand curve rightward by: a. $30 billion and increase real GDP by $15 billion. b. $30 billion and increase real GDP by $30 billion. c. $10 billion and increase real GDP by $30 billion. d. $10 billion and increase real GDP by $10 billion.

a. $30 billion and increase real GDP by $15 billion.

(Last Word) In response to the Great Recession, the federal government engaged in significant deficit-funded spending. While it kept the recession from getting worse, and did result in some positive economic growth, it did not fully achieve the desired result. Which of the following best explains why the fiscal policy actions fell short of their objective? a. Despite the fiscal stimulus, aggregate demand continued to shift to the right. b. The fiscal stimulus caused a significant leftward shift of aggregate supply. c. Offsetting monetary policy caused the aggregate demand to remain virtually unchanged, meaning that all gains in output came from aggregate supply shifts. d. The fiscal stimulus shifted aggregate demand to the right, but not enough to restore full employment.

a. Despite the fiscal stimulus, aggregate demand continued to shift to the right. WRONG

An increase in net exports will shift the AD curve to the a. left by a multiple of the change in net exports. b. left by the same amount as the change in net exports. c.right by the same amount as the change in net exports. d. right by a multiple of the change in net exports.

a. left by a multiple of the change in net exports. wrong

If personal taxes were decreased and resource productivity increased simultaneously, the equilibrium a. output would necessarily rise. b. output would necessarily fall. c. price level would necessarily fall. d. price level would necessarily rise.

a. output would necessarily rise.

The shape of the immediate-short-run aggregate supply curve implies that a. total output depends on the volume of spending. b. increases in aggregate demand are inflationary. c. output prices are flexible, but input prices are not. d. government cannot bring an economy out of a recession by increasing spending.

a. total output depends on the volume of spending.

(Advanced analysis) Assume that the MPC is 0.8 in an economy that has an aggregate supply curve with a slope of 1. Also, suppose that the price level is flexible downward. A decrease in investment spending of $10 billion will shift the aggregate demand curve leftward by: a. $50 billion and decrease real GDP by $50 billion. b. $50 billion and decrease real GDP by $25 billion. c. $10 billion and decrease real GDP by $10 billion. d. $10 billion and decrease real GDP by $25 billion.

b. $50 billion and decrease real GDP by $25 billion.

An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. If the per-unit price of raw materials rises from $4 to $8 and all else remains constant, the per-unit cost of production will rise by about: a. 100 percent. b. 50 percent. c. 40 percent. d. 30 percent.

b. 50 percent. wrong

Other things equal, a decrease in the real interest rate will a. expand investment and shift the AD curve to the left. b. expand investment and shift the AD curve to the right. c. reduce investment and shift the AD curve to the left. d. reduce investment and shift the AD curve to the right.

b. expand investment and shift the AD curve to the right.

When deriving the aggregate demand (AD) curve from the aggregate expenditures model, an increase in U.S. product prices would cause an increase in: a. the value of household wealth and lower consumption expenditures. b. interest rates and lower investment expenditures. c. exports and imports. d. U.S. resource prices and an increase in aggregate supply.

b. interest rates and lower investment expenditures.

If aggregate demand decreases, and, as a result, real output and employment decline but the price level remains unchanged, it is most likely that: a. the money supply has declined. b. the price level is inflexible downward and a recession has occurred. c. cost-push inflation has occurred. d. productivity has declined.

b. the price level is inflexible downward and a recession has occurred.

An aggregate supply curve represents the relationship between the: a. price level and the buying of real domestic output. b.price level and the production of real domestic output. c. real domestic output bought and the real domestic output sold. d. price level that producers are willing to accept and the price level buyers are willing to pay.

b.price level and the production of real domestic output.

Cost-push inflation is characterized by a(n) a. increase in aggregate supply and a decrease in aggregate demand. b. increase in aggregate demand and no change in aggregate supply. c. decrease in aggregate supply and no change in aggregate demand. d. decrease in both aggregate supply and aggregate demand.

c. decrease in aggregate supply and no change in aggregate demand

Changes in the national incomes of our trading partners would directly impact our: a. consumption. b. exports. c. imports. d. government spending.

c. imports. wrong

Graphically, cost-push inflation is shown as a: a. leftward shift of the AD curve. b. rightward shift of the AS curve. c. leftward shift of the AS curve. d. rightward shift of the AD curve.

c. leftward shift of the AS curve.

A sharp rise in the real value of stock prices, which is independent of a change in the price level, would best be an example of: a. the interest-rate effect. b. the real-balances effect. c. a change in the degree of excess capacity. d. a change in the real value of consumer wealth.

d. a change in the real value of consumer wealth.

Which would most likely increase aggregate supply? a. an increase in the prices of imported products b. an increase in productivity c. a decrease in business subsidies d. a decrease in personal income taxes

d. a decrease in personal income taxes . wrong

Government actions that were taken in order to stimulate the economy during the Great Recession of 2007-09 included the following, except: a. a significant reduction of interest rates to nearly zero. b. a large increase in transfer payments. c. an increase in the deficit spending of the government. d. a sharp increase in the natural rate of unemployment.

d. a sharp increase in the natural rate of unemployment.

If the dollar appreciates relative to foreign currencies, then: a. U.S. goods will look cheaper to foreign buyers.. b. foreign goods will look more expensive to U.S. buyers. c. net exports of the U.S. will increase. d. foreign buyers will find U.S. goods become more expensive.

d. foreign buyers will find U.S. goods become more expensive.

The immediate-short-run aggregate supply curve is a. downsloping. b. upsloping. c. vertical. d. horizontal.

d. horizontal.

Menu costs will a. increase the amount of training of workers. b. result in price wars between businesses. c. increase the legal minimum wage. d. make prices inflexible downward.

d. make prices inflexible downward.

The foreign purchases effect: a. shifts the aggregate demand curve rightward. b. shifts the aggregate demand curve leftward. c. shifts the aggregate supply curve rightward. d. moves the economy along a fixed aggregate demand curve.

d. moves the economy along a fixed aggregate demand curve.