ECON EXAM

Graphically, demand-pull inflation is shown as a

rightward shift of the AD curve along an upsloping AS curve.

The aggregate supply curve

shows the various amounts of real output that businesses will produce at each price level.

The equilibrium price level and level of real output occur where

the aggregate demand and supply curves intersect

If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes

the foreign purchases effect.

When government spending is increased, the amount of the increase in aggregate demand primarily depends on

the size of the multiplier.

When aggregate demand declines, wage rates may be inflexible downward, at least for a time, because of

wage contracts.

The crowding-out effect works through interest rates, and it tends to

decrease the effectiveness of an increase in government spending.

Which of the following fiscal policy changes would be the most contractionary?

a $10 billion increase in taxes and a $30 billion cut in government spending

Which of the following fiscal policy changes would be the most expansionary?

a $40 billion increase in government spending

Refer to the accompanying graph. What combination would most likely cause a shift from AD1 to AD2?

a decrease in taxes and an increase in government spending

The real-balances effect indicates that:

a higher price level will decrease the real value of many financial assets and therefore reduce spending.

Proponents of the notion of a "political business cycle" suggest that

a possible cause of economic fluctuations is the use of fiscal policy by policymakers for political purposes and goals.

The public debt is the

accumulation of all past deficits minus all past surpluses.

The lag between the time that the need for fiscal action is recognized and the time action is actually taken is referred to as the

administrative lag.

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.

aggregate demand curve would shift to the right.

If the aggregate supply curve shifted from AS0 to AS1 and the aggregate demand curve remains at AD0, we could say that

aggregate supply has decreased, equilibrium output has decreased, and the price level has increased.

Which of the following would most likely reduce aggregate demand (shift the AD curve to the left)?

an appreciation of the U.S. dollar

Which of the following would not shift the aggregate supply curve?

an increase in the price level

In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPS is 0.25, then it could

increase taxes by $16 billion.

The crowding-out effect suggests that

increases in government spending may reduce private investment.

The short-run aggregate supply curve represents circumstances where

input prices are fixed, but output prices are flexible.

If investment decreases by $20 billion and the economy's MPC is 0.5, the aggregate demand curve will shift

leftward by $40 billion at each price level.

The practical significance of the multiplier is that it

magnifies initial changes in spending into larger changes in GDP.

Most economists believe that fiscal policy is

not as good as monetary policy for month-to-month stabilization.

In the diagram, a shift from AS3 to AS2 might be caused by an increase in

productivity.

The goal of expansionary fiscal policy is to increase

real GDP.

The time that elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n)

recognition lag.

Other things equal, appreciation of the dollar

decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources.

When the Federal government takes budgetary action to stimulate the economy or rein in inflation, such policy is

discretionary fiscal policy.

If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n)

expansionary fiscal policy.

When the Federal government uses taxation and spending actions to stimulate the economy, it is conducting

fiscal policy.

Prices and wages tend to be

flexible upward but inflexible downward.

A Federal budget deficit is financed by the

government issuance or sale of Treasury securities.

A budget surplus means that

government revenues are greater than expenditures in a given year.

Which combination of fiscal policy actions would most likely offset each other?

increase both taxes and government spending

Given a fixed upsloping AS curve, a rightward shift of the AD curve will

increase both the price level and real output.

If the MPC is 0.70 and investment increases by $3 billion, the equilibrium GDP will

increase by $10 billion.

The immediate-short-run aggregate supply curve represents circumstances where

both input and output prices are fixed.

The last year when there was a surplus in the actual U.S. Federal budget was in

2001

State and local governments are limited in their ability to respond to recessions because of

constitutional and other requirements to balance their budgets.

Assume the MPC is 2/3. If investment spending increases by $2 billion, the level of GDP will increase by

$6 billion.

The multiplier can be calculated as

1/(1 − MPC).

If the MPC is 0.6, the multiplier will be

2.5.

In which of the following sets of circumstances can we confidently expect inflation?

Aggregate supply decreases and aggregate demand increases.

A Federal budget deficit exists when

Federal government spending exceeds tax revenues in a given year.