maCro cHaptEr AnyTing 23-24

23-3 Suppose that government spending increases, shifting up the aggregate expenditure line. GDP increases from GDP1 to GDP2, and this amount is $400 billion. If the MPC is .75 then what is the distance between N and L of by how much did government spending change?

A

23-4 Potnetial GDP equals $100 billion. The economy is currently producing GDP1 which is equal to $90 billion. If the MPC is .8, then how much must autonomous spending change for the economy to move to potential GDP?

A

The ratio of the increase in ___ to the increase in ___ is called the multiplier.

C

Which of the following could explain why there is an increase in potential GDP but the equilibrium level of GDP does not rise?

C AD shifted to the right by less than SRAS

23-2 If the U.S. economy is currently at point N, which of the following could cause it to move to point K?

C Households expect future income to decline

Stagflation occurs when

C Inflation rises and GDP falls

Why does the short run aggregate supply curve shift to the left in the long run, following an increase in aggregate demand?

C. Firms and workers will adjust their expectation of wages and prices upward and they push for higher wages and prices.

If disposable income increases by $100 million, and consumption increases by $90 million, then the marginal propensity to consume is

B .9

Which of the following is considered a negative supply shock?

B An unexpected increase in the price of natural gas

Which of the following is not one of the four main categories of spending identified by John Maynard Keynes?

B Transfer Payments

24-2 Given the economy is at point A in year 1, what is the inflation rate between year 1 and year 2?

A 1.8%

In the dynamic aggregated demand and aggregate supply model, inflation occurs if

A AD is faster than AS

23-2 Suppose that the level of GDP associated with point N is potential GDP. If the U.S. economy is currently at point K

A the level of unemployment is equal to the natural rate

24-2 In the figure above, LRAS1 and SRAS1 denote LRAS and SRAS in year 1, while LRAS2 and SRAS2 denote LRAS and SRAS in year 2. Given the economy is at point A in year 1, what is the growth rate in potential GDP in yeaar2?

D 10%

Which of the following is not an assumption made by the dynamic model of aggregate demand and aggregate supply?

D Aggregate demand and potential real GDP decrease continuously

24-2 Given the economy is at point A in year 1, what will happen to the unemployment rate in year 2?

D Not enough information

After unexpected increase in the price of oil, the long-run adjustment ___ the price level and ____ the unemployment rate as they return to their original levels.

D decreases, decreases

The aggregate expenditure model focuses on the ___ relationship between real spending and ___.

D short-run, real GDP