exam 3 practice exam

13. (graph) If potential output is less than the equilibrium output, the economy is experiencing an a. recessionary gap b. inflationary gap c. high level of unemployment d. liquidity trap

b. inflationary gap

a natural disaster that destroys part of a country's infrastructure is a type of __ __ shock and therefore shifts the __ to the __ a. negative demand shock; aggregate demand curve; right b. negative supply shock; aggregate demand curve; left c. negative supply shock; short-run aggregate supply curve; left d. negative demand shock; long-run aggregate supply curve; left

c. negative supply shock; short-run aggregate supply curve; left

when the gov decreases government spending, the a. ad curve will shift to the left b. sras curve will shift to the left c. gov's budget balance will move toward a deficit d. gov debt will increase

a. AD curve will shift to the left

34. the positive relationship between the aggregate price level and aggregate output supplied gives the short-run aggregate supply curve: a. an upward slope b. a vertical slope c. a horizontal slope d. a downward slope

a. an upward slope

32. a recessionary gap can be closed by __ wages that shift the __ curve __ a. falling; sras curve rightward b. falling; lras curve to the right c. falling; sras curve leftward d. rising; seas curve rightward

a. falling; SRAS curve rightward

social insurance programs are: A) government programs intended to protect families against economic hardships. B) private insurance policies to protect families from hardships caused by government actions. C) private insurance policies that cover gaps in government-provided health care. D) programs to help unemployed people have a social life.

a. gov programs intended to protect families against economic hardships

Which of the following will shift the AD curve to the right? a. increase in wealth b. pessimism about the future of the economy c. a supply shock d. a decrease in productivity

a. increase in wealth

29. a positive demand shock will: a. increase the aggregate price level and aggregate output. b. decrease the aggregate price level and increase aggregate output. c. increase the aggregate price level and decrease aggregate output. d. decrease both the aggregate price level and aggregate output.

a. increase the aggregate price level and aggregate output

a gov budget surplus would be contractionary bc of all the following except: a. increases in gov purchases are contractionary b. decreases in government purchases are contractionary c. increases in taxes are contractionary d. decreases in gov transfers are contractionary

a. increases in gov purchases are contractionary

24. During the Great Depression, the US experienced a ___ the SRAS curve; during the 1979 oil crisis the US experienced a __ in the SRAS curve A) movement down along; a leftward shift B) movement up along; a leftward shift C) movement up along; a rightward shift D) movement down along; a rightward shift

a. movement down along; a leftward shift

19. in the long run, inflationary and recessionary gaps are self-correcting because eventually: A) nominal wages rise in order to close an inflationary or fall in order to close a recessionary gap. B) the government applies the right combination of fiscal and monetary policies. C) the multiplier compensates the negative supply or demand shocks. D) nominal wages rise in order to close a recessionary gap and fall to close an inflationary gap.

a. nominal wages rise in order to close an inflationary or fall in order to close a recessionary gap

37. a recessionary gap causes: a. sras to gradually increase b. sras to gradually decrease c. ad to gradually increase d. ad to gradually decrease

a. sras to gradually increase

46. the point at which the long-run aggregate supply curve touches the x-axis is known as: a. the economy's potential output b. the accelerator point c. the multiplier point d. the self-correcting economy point

a. the economy's potential output

48. the interest rate effect of a change in the aggregate price level occurs: a. when a higher price level decreases the purchasing power of money resulting in an increase in interest rate b. when the Fed uses contractionary monetary policy causing an increase in interest rate c. when gov borrowing in the loanable funds market causes interest rate to increase d. when the price of a bond increases resulting in a fall in the interest rate

a. when a higher price level decreases the purchasing power of money resulting in an increase in interest rate

if nominal wages fall, in the short run, the __ curve will shift to the __ a. SRAS curve will shift to the left b. SRAS curve will shift to the right c. LRAS will shift to the right d. AD curve will shift to the right

b. SRAS curve will shift to the right

8. President Johnson's use of a temporary 10% surcharge on income taxes is a classic example of a. expansionary fiscal policy b. contractionary fiscal policy c. expansionary monetary policy d. contractionary monetary policy

b. contractionary fiscal policy

18. the long run in macroeconomic analysis is a period: a. in which wages and some other prices are sticky b. in which nominal wages are flexible c. greater than 12 months d. in which the capital stock is held constant

b. in which nominal wages are flexible

21. which of the following is one of the reasons that the AD curve slopes downward? a. paradox of thrift b. interest rate effect c. substitution effect d. income effect

b. interest rate effect

38. a general decrease in wages will result in the: a. AD curve shifting to the right b. ad curve shifting to the left c. sras curve shifting to the right d. sras curve shifting to the left

c. sras curve shifting to the right

a cyclically adjusted balance budget: A) shows what the budget balance would be with a significant amount of cyclical unemployment. B) is an estimate of what the budget balance would be if real GDP were equal to potential output. C) is a good indicator of the structural deficit that exists in the economy. D) is the same as the national debt, and it rises as interest cost is accrued.

b. is an estimate of what the budget balance would be if real GDP were equal to potential output

50. a cut in taxes will have a greater impact on aggregate demand if it is given to: a. people with a low MPC b. people with a high MPC c. everyone in the economy d. those who hold a large amount of wealth

b. people with a high MPC

14. the government budget balance = A) taxes plus government purchases plus government transfers. B) taxes minus government purchases minus government transfers. C) taxes minus government purchases plus government transfers. D) taxes plus government purchases minus government transfers.

b. taxes - government purchases - government transfers

the interest rate effect of an aggregate price level change causes: a. the LRAS curve to be vertical b. the aggregate demand curve to be negatively sloped c. the SRAS curve to be positively sloped d. the aggregate demand curve to be positively sloped

b. the aggregate demand curve to be negatively sloped

28. According to the LRAS curve, when ___, the quantity of aggregate output supplied__ a. nominal wages rise; falls b. the aggregate price level rises; does not change c. the aggregate price level rises; falls d. the price of commodities falls; rises

b. the aggregate price level rises; does not change

47. an increase in the aggregate price level will increase: a. short-run aggregate supply b. the quantity of aggregate output supplied in the short run c. aggregate demand d. the quantity of aggregate output demanded

b. the quantity of aggregate output supplied in the short run

15. Medicaid, Medicare, and social security are examples of: a. unilateral payments b. transfer payments c. monetary policy d. taxes

b. transfer payments

11. suppose the economy is operating at an output level of $4000 billion. Assume that potential output is $5000 billion and the MPC is 0.75. Which of the following would be required to close this recessionary gap? A) a $25 billion increase in government spending B) a $25 billion increase in taxes C) a $250 billion increase in government spending D) a $1,000 billion increase in government spending

c $250 billion increase in government spending

12. Real GDP equals $400 billion, the gov collects 25% of any increase in real GDP in the form of taxes, and the MPC is 0.8. If the gov decreases spending by $40 billion, real GDP will decrease by a. $40 billion b. $80 billion c. $100 billion d. $200 billion

c. $100 billion

If MPC is 0.75 and the federal gov increases spending by $100 billion, income expenditure model would predict that real GDP will increase by: a. $100 billion b. $750 billion c. $400 billion d. $300 billion

c. $400 billion

increasing the quantity of money in circulation shifts the: a. AD curve to the left b. LRAS curve to the right c. AD curve to the right d. SRAS curve to the right

c. AD curve to the right

26. if the central bank reduces the quantity of money that is circulating in the economy, which of the following will take place: a. lras will shift to the right b. lras will shift to the left c. ad curve will shift to the left d. ad curve will shift to the right

c. AD curve will shift to the left

45. when consumers and firms become more optimistic about the future, which of the following will take place in the short run: a. SRAS curve will shift to the left b. SRAS curve will shift to the right c. AD curve will shift to the right d. none

c. AD curve will shift to the right

stagflation may result from: a. an increase in the supply of money b. a decrease in the supply of money c. an increase in the price of imported oil d. a decrease in the price of imported oil

c. an increase in the price of imported oil

49. the aggregate demand curve is negatively sloped in part because of the impact of interest rates on: a. potential output b. net exports c. consumption and investment d. government purchases

c. consumption and investment

10. fiscal policy that decreases aggregate demand is a. balanced b. supplemental c. contractionary d. expansionary

c. contractionary

17. an expansionary fiscal policy either ___ gov spending or ___ taxes a. increases; increases b. decreases; increases c. increases; decreases d. decreases; decreases

c. increases/decreases

41. government purchases of goods and services differ from changes in taxes and transfer payments because government purchases of goods and services... a. is a type of fiscal policy while changes in taxes and transfer payments is a type of monetary policy. b. is a type of monetary policy while changes in taxes and transfer payments is a type of fiscal policy. c. influences aggregate demand directly while change in taxes and transfer payments influence aggregate demand indirectly d. influences aggregate demand indirectly while changes in taxes and transfer payments influence aggregate demand directly

c. influences aggregate demand directly while changes in taxes and transfer payments influence aggregate demand indirectly

when the gov borrows funds in financial markets to pay for budget deficits: A) planned aggregate spending decreases rather than increases. B) the multiplier effect of government purchases increases. C) private investment spending may be crowded out. D) the interest rate and savings decrease.

c. private investment spending may be crowded out

31. an increase in government spending, all other things unchanged, will cause the aggregate demand curve to: a. become positively sloped b. remain constant c. shift to the right d. shift to the left

c. shift to the right

suppose that the aggregate output level is lower than potential output. which is not true a. workers are abundant b. jobs are scarce c. nominal wages will fall over time d. SRAS curve will gradually shift to the left

d. SRAS curve will gradually shift to the left (it will not)

30. the LRAS curve is vertical because in the long run: a. technological progress outpaces raises in nominal wages b. all factors of production increase c. the price of labor is flexible, while the price of physical capital is fixed d. all prices are flexible

d. all prices are flexible

42. producing a short-run level of aggregate output that exceeds the economy's potential output results in... a. a downward adjustment in nominal wages b. an upward adjustment in profits per unit of output c. a downward adjustment in production costs d. an upward adjustment in nominal wages

d. an upward adjustment in nominal wages

16. which of the following is not a method of fiscal policy? a. changing tax rates b. gov transfers c. gov purchases of goods and services d. changes in the money supply

d. changes in the money supply

33. According to the wealth effect, when prices decrease, the purchasing power of assets: a. decreases and consumer spending decreases b. increases and consumer spending decreases c. decreases and consumer spending increases d. increases and consumer spending increases

d. increases and consumer spending increases

22. when the economy is producing output above the potential, it has an a. Keynesian gap b. falling wages c. recessionary gap d. inflationary gap

d. inflationary gap

36. the aggregate demand curve would shift left for all of the following reasons except: a. a fall in consumers wealth b. a decrease in the amount of money in circulation c. more pessimistic consumer expectations d. lower labor productivity

d. lower labor productivity

43. an improvement in the business outlook of firms is a type of ___ ___ ___ and therefore shifts the ___ to the ___. a. positive supply shock; long-run aggregate supply curve; right b. positive demand shock; aggregate demand curve; left c. positive supply shock; short-run aggregate supply curve; right d. positive demand shock; aggregate demand curve; right

d. positive demand shock; aggregate demand curve; right

35. in the US during the 1970s, oil prices increased dramatically and caused the a. ad to shift right b. ad to shift left c. sras to shift right d. sras to shift left

d. sras to shift left

25. the wealth effect is reflected in: A) increases in interest rate to savers. B) the upward slope in aggregate supply. C) the upward slope in aggregate demand. D) the downward slope in aggregate demand

d. the downward slope in aggregate demand

9. expansionary fiscal policy pushes the aggregate demand curve to the right, T/F

true