Macro Exam #2

The unemployment rate tells us: A. what percentage of the labor force want to work and can't find a job. B. who is being affected by the fluctuations of the economy. C. how to solve the problem of unemployment. D. what portion of the population is causing the economy to languish.

A. what percentage of the labor force want to work and can't find a job.

Real-wage unemployment can be caused by which of the following? A.Minimum wage laws B. Retraining programs C. Low-interest student loans D. None of these cause real-wage unemployment.

A.Minimum wage laws

Which model is used to evaluate the effects of macroeconomic policy such as tax cuts? Aggregate demand and aggregate supply Demand and supply Game theory Circular flow.

Aggregate demand and aggregate supply

Which of the following is a component of aggregate demand? Consumption Investment Net exports All of these are components of aggregate demand.

All of these are components of aggregate demand.

During a recession, government deficits can grow because: government spending often increases as part of an expansionary fiscal policy. income tax revenues tend to decrease because people are earning less. sales tax revenues tend to decrease because people are spending less. All of these are true.

All of these are true.

Keynesian policy: refers to policies that actively shift aggregate demand in an effort to reach full employment. refers to fiscal policy. promotes spending more and taxing less to boost economic activity to potential GDP. All of these are true.

All of these are true.

LOOK AT THE GRAPH OF CHAPTER 13 #29 TO ANSWER Assuming the economy in the graph shown is currently at equilibrium A, we can conclude: the economy is in a recession. the economy is producing less than its potential level of output. there must be unemployment of resources. All of these are true.

All of these are true.

Lags in the policy-making process come from: lack of understanding the current state of the economy. the process of deciding on and passing legislation. the time it takes for policy to have an impact on the economy. All of these are true.

All of these are true.

The government budget involves: money coming in as tax revenues. money going out through government purchases. money going out to individuals for programs that do not involve goods or services. All of these are true.

All of these are true.

The multiplier effect suggests that: a ripple effect occurs from one person's initial spending. government spending $1 will create more than a $1 increase in GDP. a tax cut will increase GDP by more than the amount of the initial tax cut. All of these are true.

All of these are true.

Transfer payments: are payments from government accounts to individuals for programs that do not involve a purchase of goods or services. involve programs such as Social Security and welfare. do not show up in GDP. All of these are true.

All of these are true.

When the economy slows down: firms contract their operations. demand for workers decreases. GDP growth is slowing or negative. All of these are true.

All of these are true.

Something that would cause the long-run aggregate supply curve to shift to the right would be: technological advance. discovery of a new oil reserve. increase in the growth rate of the labor force. All of these would shift the long-run aggregate supply curve to the right.

All of these would shift the long-run aggregate supply curve to the right.

Johnny has been working in a sandwich shop full-time while he attends college. When he graduates, he quits the sandwich shop and begins to search for full-time employment related to his college degree. Johnny would be considered: A. structurally unemployed. B. frictionally unemployed. C. cyclically unemployed. D. classically unemployed.

B. frictionally unemployed.

Higher interest rates motivate: individuals to spend more on consumption goods. firms to invest more in new factories and working capital. firms to invest less in new factories and working capital. individuals to spend more on capital goods.

firms to invest less in new factories and working capital.

When PAE increases we expect that economy will be at ______ levels of equilibrium GDP. lower higher constant cycling

higher

If the government were to increase income taxes, we would predict: a downward movement along the aggregate demand curve. a shift in aggregate demand to the right. a shift in aggregate demand to the left. an upward movement along the aggregate demand.

a shift in aggregate demand to the left.

The total amount of money that a government owes at a point in time is called: a budget deficit. a budget surplus. public debt. national surplus.

public debt.

Government decreasing taxes is an example of: contractionary fiscal policy. expansionary fiscal policy. expansionary monetary policy. contractionary monetary policy.

expansionary fiscal policy.

Which of the following conveys the correct relationship between production and inventories? A. If planned inventories > actual inventories then increase production. B. If planned inventories < actual inventories then decrease production. C. There is not clear relationship between inventories and production. D. If planned inventories > actual inventories then reduce production.

A. If planned inventories > actual inventories then increase production.

Economists believe that lower taxes should reduce unemployment because: A. people will not want to miss out on the opportunity to keep more of the income they earn when taxes are lower, so they will have an incentive to keep their job and not quit. B. people have more incentive to find a job, knowing they will keep more of the income they earn from the job when taxes are low. C. people have more incentive to be productive if the money they earn is not being taxed as much when taxes are low. D. None of these is true.

B. people have more incentive to find a job, knowing they will keep more of the income they earn from the job when taxes are low.

If the government decreases the income tax rate, they assume it will affect which component of GDP? C NX G A change to the income tax rate will not affect any of these components.

C

Crowding out refers to the effect that: C is directly affected by changes in G. C and I are directly affected by changes in G. C and I are indirectly affected by changes in G C and I are completely unrelated to changes in G.

C and I are indirectly affected by changes in G.

If we wanted to describe unemployment in terms of supply and demand, we could say: A. at the prevailing wage, the demand is greater than the supply of labor. B. the quantity of those demanding labor is greater than those supplying labor. C. there is a surplus of labor. D. All of these are true.

C. there is a surplus of labor.

What is a benefit of giving the government freedom to spend more than they receive in taxes and run a deficit? It allows the government to be flexible if something unexpected happens. It can make it more difficult for businesses and consumers to borrow. There is never a good enough reason to allow public debt. The federal government cannot run a deficit.

It allows the government to be flexible if something unexpected happens.

What is a benefit of giving the government freedom to spend more than they receive in taxes and run a deficit? It can make it more difficult for businesses and consumers to borrow. There is never a good enough reason to allow public debt. It allows the government to be flexible if something unexpected happens. The federal government cannot run a deficit.

It allows the government to be flexible if something unexpected happens.

Unemployed + Employed

Labor Force

The shortest term security sold by the US is the: Treasury bonds. Treasury notes. Treasury bills. certificate of deposit.

Treasury bills.

Unemployed -------------------- X 100 Labor Force

Unemployment Rate

If the government were to increase its spending, it would expect: aggregate demand to shift to the left. aggregate supply to shift to the right. aggregate demand to shift to the right. aggregate supply to shift to the left.

aggregate demand to shift to the right.

Fiscal policy most directly affects the economy by increasing or decreasing: interest rate. long-run aggregate supply. the money supply. aggregate demand.

aggregate demand.

A budget deficit is the: amount of net revenue a government brings in beyond what it spends. amount of money a government spends beyond the net revenue it brings in. total amount of money that a government owes. total amount of money that a government spends for discretionary policies.

amount of money a government spends beyond the net revenue it brings in.

If the government were to increase taxes, it would be enacting: contractionary fiscal policy. expansionary fiscal policy. contractionary monetary policy expansionary budgetary policy.

contractionary fiscal policy.

If the government wished to shift aggregate demand to the left, it might: decrease military spending. increase the amount of educational grants available. decrease corporate income taxes. All of these would cause a decrease in aggregate demand.

decrease military spending.

If the government increases the income tax rate: disposable income increases. disposable income remains unaffected. total income increases. disposable income decreases.

disposable income decreases.

A major distinction to be made is that deficits count government spending shortfalls ___________, and public debt counts _______________. in a year; the total amount owed from all years from all years; the total from a single year in real terms; in nominal terms as a percentage of GDP; in nominal terms

in a year; the total amount owed from all years

Economist John Maynard Keynes once said, "In the long run, we are all dead." Keynes was likely: against the use of fiscal policy. in favor of using fiscal policy. in favor of allowing the economy to always correct itself. Economy never achieves its long run equilibrium.

in favor of using fiscal policy.

LOOK AT THE GRAPH OF CHAPTER 13 #31 TO ANSWER If the economy in the graph shown is at point D, and the government wished to bring the economy back to its long-run equilibrium, it might: increase government spending. decrease income taxes. increase corporate income taxes. All of these would bring the economy back to potential GDP.

increase corporate income taxes.

One way fiscal policy affects aggregate demand is: indirectly through government spending. directly through tariffs. directly through taxation. indirectly through taxation.

indirectly through taxation.

An indirect cost of government debt is: it can distort the credit market and slow economic growth. it can cause hyperinflation. it can cause unemployment below the natural rate. All of these are true.

it can distort the credit market and slow economic growth.

If the government increases the income tax rate, consumers have: less to spend and will reduce their consumption. more to spend and will reduce their consumption. less to spend and will increase their consumption. more to spend and will increase their consumption.

less to spend and will reduce their consumption.

During times of economic boom, the spending on unemployment insurance: likely falls, since more people are working. likely goes up, since wages typically rise during booms. likely stays the same, as government spending is through set criteria and unaffected by the business cycle. is usually based on discretionary fiscal policy.

likely falls, since more people are working.

If interest rates increase, the government debt becomes: less expensive to pay. more volatile. less of a burden. more expensive to pay.

more expensive to pay.

LOOK AT THE GRAPH OF CHAPTER 13 #30 TO ANSWER Assuming the economy is represented by the graph shown, if the government were to enact a partially successful expansionary fiscal policy, it would be most likely to: move from equilibrium A to B. move from equilibrium B to A. cause unemployment to temporarily increase. cause deflation.

move from equilibrium A to B.

Contractionary fiscal policy is enacted when the overall effect of decisions about taxation and spending is to: increase aggregate demand. reduce aggregate supply. increase aggregate supply. reduce aggregate demand.

reduce aggregate demand.

The US government generally finances its debt by: printing money. selling US securities. borrowing directly from the FED. borrowing directly from very large banks.

selling US securities.

A direct cost of public debt is: it allows the government to be flexible when something unexpected happens. it can pay for investments that will lead to economic growth in the long run. the interest the government has to pay to the people it has borrowed from. All of these are costs to holding public debt.

the interest the government has to pay to the people it has borrowed from.

The effect of an initial spending change causing a larger change in overall output is: the multiplier effect crowding out. the income effect. the substitution effect.

the multiplier effect

Disposable income is defined to be: total income plus taxes. total income minus taxes. total income minus depreciation. All of these are true.

total income minus taxes.

Which type of unemployment contributes to the natural rate of unemployment? A. Real-wage unemployment B. Cyclical unemployment C. Unemployment of government workers. D. All of these contribute to the natural rate.

A. Real-wage unemployment

Assume the equilibrium wage rate is $6. A. The government introduces a minimum wage of $5.50. Compared to unemployment at the equilibrium wage, unemployment will __________. -Increase -Decrease -Stay the same B. The government introduces a minimum wage of $6.50. Compared to unemployment at the equilibrium wage, unemployment will__________. -Increase -Decrease -Stay the same

A. Stay the same B. Increase

One of the major insights by economist John Maynard Keynes about production was that: A. firms may not produce all they can at a given price, but what they can sell. B. firms generally produce as much as they can at a given price. C. government spending needs to be kept in check in order for the economy to operate efficiently. D. household spending patterns don't really influence the health of the economy.

A. firms may not produce all they can at a given price, but what they can sell.

The labor demand curve: A. is provided by firms who want to hire workers at each given wage. B. is made up of workers who want to work for firms at each given wage. C. shows number of workers who are willing and able to work at higher wages. D. shows that the number of people who want to work increases as the wage increases.

A. is provided by firms who want to hire workers at each given wage.

Discouraged workers are people who have: A. looked for work in the past year but have given up looking because of the condition of the labor market. B. not looked for work in the past year but would take a job if one was offered to them. C. looked for work in the past year but decided to leave the labor market to go back to school, retire, or be a stay-at-home parent. D. not looked for work in over a year because of the condition of the labor market.

A. looked for work in the past year but have given up looking because of the condition of the labor market.

Unemployment insurance is: A. money that is paid by the government to people who are unemployed. B. money that is paid to the government by employers who lay off employees. C. offered by the government as a way to affect the level of cyclical unemployment. D. offered by the government as a way to affect the level of seasonal unemployment.

A. money that is paid by the government to people who are unemployed.

Sasha has a master's degree in writing, and currently works full-time as a 2nd grade classroom helper. She submits articles for the local paper on occasion, and gets paid only when the editor agrees to publish a submission. Sasha would love to be a full-time reporter. The best way to describe Sasha is to say she is ________________; the Bureau of Labor Statistics would count Sasha as ____________. A. underemployed; employed B. employed; employed C. discouraged; underemployed D underemployed; underemployed

A. underemployed; employed

Consumption (C) + Investment (I) + Government Spending (G) + Net Exports (NX)

Aggregate Expenditure

A basic factor of production that is used to produce output is: technology. labor. capital. All of these are considered factor inputs.

All of these are considered factor inputs.

If the economy is in a recession, it means that: the economy is not in long-run equilibrium. total output is less than potential output. the short-run equilibrium is to the left of the long-run aggregate supply curve. All of these are true.

All of these are true.

In the macroeconomic model of aggregate supply and aggregate demand, quantity is: represented by GDP. the measure of the value of all goods and services produced by the economy. a measure of total output. All of these are true.

All of these are true.

When the economy goes through ups and downs over time: A. it is not reflected by changes in GDP growth. B. economists call this pattern the business cycle. C. it affects the supply of labor. D. All of these are true.

B. economists call this pattern the business cycle.

The labor supply curve: A. is made up of firms who want to hire workers at each given wage. B. is made up of workers who want to work for firms at each given wage. C. shows number of firms who are willing and able to hire workers at each given wage. D. shows that the number of firms who want to hire workers decreases as the wage increases.

B. is made up of workers who want to work for firms at each given wage.

Transfer payments are payments that are: A. made to firms in order to transfer goods and services to the government. B. payments made to households that can then be spent by the households. C. made in market transactions in order to get the seller to transfer the goods or services to the buyer. D. made in order to obtain public goods or services.

B. payments made to households that can then be spent by the households.

Carol is a coal miner who just got laid off when the last coal mine in the area was shut down. She has looked everywhere for another job as a miner, but cannot find one. Given that Carol is unlikely to find another job as a miner, she would be considered: A. frictionally unemployed. B. structurally unemployed. C. real-wage unemployed. D. Carol is a discouraged worker.

B. structurally unemployed.

The unemployment rate may: A. understate the effect of a recession on employment because many enter the labor force. B. understate the effect of a recession on employment because some leave the labor force. C. overstate the effect of a recession on employment because some leave the labor force. D. overstate the effect of a recession on employment because many enter the labor force.

B. understate the effect of a recession on employment because some leave the labor force.

In 2015, the labor force participation rate was 62.6 percent. This means that: A. 62.6 % of all working age people were employed. B. there was 37.4 % unemployment. C. 62.6 % of all working age people wanted a job. D. only 62.4 percent of labor force was in working age population.

C. 62.6 % of all working age people wanted a job.

Matt is a college graduate who majored in creative writing and currently works at a local bookstore as a sales clerk. The best way to describe Matt is to say he is: A. unemployed. B. a discouraged worker. C. underemployed. D. overemployed.

C. Underemployed

When economists say wages are "sticky," they mean that they: A. get stuck behind current market trends, and follow a typical two-week lag with changes in the economy. B. stick to current market trends, and adjust to equilibrium when changes in the economy occur. C. are slow to adjust to changes in the economy, and can cause unemployment. D. lead market trends, and other variables will stick to the wage rate and follow it closely.

C. are slow to adjust to changes in the economy, and can cause unemployment.

The multiplier effect occurs when: A. increased spending by one or more individuals causes others to react and increase their savings. B. the level of consumer confidence increases more than predicted given a tax cut. C. spending by one person generates income for others and causes others to spend more too, increasing the impact of the initial spending on the economy. D. None of these is true.

C. spending by one person generates income for others and causes others to spend more too, increasing the impact of the initial spending on the economy.

Wages tend to be "sticky" because: A. contracts are often negotiated for long terms and cannot be easily changed. B. workers are less likely to work as hard if their pay may be cut due to market performance and not their performance. C. constantly changing wages creates uncertainty and costs the employer a lot of time and energy to change wage rates. D. All of these are possible reasons why wages might be sticky.

D. All of these are possible reasons why wages might be sticky.

Why don't wages fall so that everyone with the skills and desire gets a job? A. The government might prevent it, through minimum-wage legislation. B. Labor unions might prevent it, through bargaining backed by the threat to strike. C. Firms themselves might prevent it, by voluntarily choosing to pay higher wages than necessary. D. All of these are reasons why wages may not fall to equilibrium.

D. All of these are reasons why wages may not fall to equilibrium.

Policies designed to protect workers: A. include minimum wage laws. B. include unionization laws. C. can lead to unemployment. D. All of these are true.

D. All of these are true.

When the prevailing market wage is above equilibrium: A. the surplus of labor is the amount of unemployment in the market. B. the difference between the quantity supplied and the quantity of labor demanded is unemployment. C. unemployment occurs. D. All of these are true.

D. All of these are true.

Bob just graduated from college and has just landed his first job with a local accounting firm that will start in three months. Bob plans to use that time to find a place to live, and adjust to the new area. Bob would be considered: A. frictionally unemployed. B. employed. C. structurally unemployed. D. Bob is not in the labor force.

D. Bob is not in the labor force.

Planned investment is the: A. spending households engage in based on forecasted budget. B. amount that firms decide to allocate to inventory accumulation. C. investment that a firm decides upon as a result of temporary market changes. D. amount that firms decide to allocate to new capital resources and inventory accumulation.

D. amount that firms decide to allocate to new capital resources and inventory accumulation.

Actual investment is the: A. spending households engage in based on forecasted budget. B. amount that firms actually allocate to inventory accumulation. C. investment a firm makes into stocks and bonds in order to generate profit. D. amount that firms really allocated to new capital resources and inventory accumulation.

D. amount that firms really allocated to new capital resources and inventory accumulation.

How would the real exchange rate need to change to get aggregate expenditure to increase? Increase Decrease Remain constant Exchange rates don't generally affect aggregate expenditure.

Decrease

1 --------------------------------------- 1-Marginal Propensity to Consume (MPC)

Government Spending Multiplier (Mg)

Which of the following could be a cause of consumption decreasing? Real income increases. Interest rates increase. Wealth increases. Expected future income increases.

Interest rates increase.

Which of the following is not a direct determinant of net export spending? Domestic income. Foreign income. Interest rates. Exchange rates.

Interest rates.

The economist in the 1930s who is credited with key insights into causes of economic downturns was: John Maynard Keynes Ben Bernanke Adam Smith David Ricardo

John Maynard Keynes

Labor Force ----------------------------- Working Age Population

Labor Force Participation Rate

The aggregate supply and aggregate demand model describes the interaction of which macroeconomic variables? Output and number of sellers Employment and immigration Prices and immigration Output and the price level

Output and the price level

Which of the following is not a primary determinant of consumption spending? Interest rates on savings Real income Wealth Rate of return on capital

Rate of return on capital

Which of the following is not a determinant of Investment spending? Expected profitability Interest rates Taxes Real income

Real income

Marginal Propensity to Consume (MPC) -- -------------------------------------------------- 1-Marginal Propensity to Consume (MPC)

Taxation Multiplier (Mt)

An inflationary output gap is defined to be when the current level of output is: below full employment GDP. above full employment GDP. equivalent to full employment GDP. high enough to cause an unexpected amount of inflation.

above full employment GDP.

In general, it is easier to: adjust final prices rather than input prices. adjust input prices rather than final prices. change wage rates for employees than other input prices. change input prices than output level.

adjust final prices rather than input prices.

Fiscal policy most directly affects the economy by increasing or decreasing: interest rate. long-run aggregate supply. aggregate demand. the money supply.

aggregate demand.

Giving people income through unemployment insurance: creates one effect positive on unemployment. reduces seasonal employment because people find good matches, and change jobs less often. allows people to prolong their unemployment until they find a better match. All of these are true.

allows people to prolong their unemployment until they find a better match.

The slope of the short-run aggregate supply curve shows that: firms are constrained to a certain price in the short run, regardless of level of output. as overall price levels decrease, firms are willing to produce more. firms are constrained to a certain level of output in the short run, regardless of the price. as overall price levels increase, firms are willing to produce more.

as overall price levels increase, firms are willing to produce more.

If we consider the equation PAE = A + bY the independent part of the equation that depends on income is: A Y b PAE

b

One of reasons the government may choose to spend would be the: real interest rates decrease. real interest rates increase. government expected to earn a large return on its spending. beliefs about what citizens may need.

beliefs about what citizens may need.

Unemployment insurance: is an explanation for why wages do not reach equilibrium. can affect how quickly people find jobs. will not affect the natural rate of unemployment. is a mandated federal policy all states must adhere to.

can affect how quickly people find jobs.

The four components of aggregate expenditure (AE) are: consumption, investment, exports, and imports. consumption, investment, government, and capital spending. consumption, investment, government, and net export spending. consumption, internet, government, and capital spending.

consumption, investment, government, and net export spending.

U.S. goods will become relatively less expensive than goods from other countries if prices were to: increase in the United States only. decrease in the United States only. increase in the United States and foreign countries at the same rate. decrease in the United States and foreign countries at the same rate.

decrease in the United States only.

If tastes for foreign goods and services go up, then we would expect aggregate expenditure to: increase. decrease. remain constant. increase and then sharply decrease more.

decrease.

If the foreign income decrease, then we might expect net export spending to: increase. decrease. remain constant. there is not enough information to determine what would happen.

decrease.

A main reason the federal government may choose to spend would be the: real interest rates decrease. real interest rates increase. desire to achieve full-employment GDP. government expected to earn a large return on its spending.

desire to achieve full-employment GDP.

The wealth effect explains the: downward-sloping aggregate demand curve. upward-sloping aggregate demand curve. downward-sloping aggregate supply curve. upward-sloping aggregate supply curve.

downward-sloping aggregate demand curve.

A recessionary output gap is defined to be when: equilibrium aggregate expenditure is below full employment GDP. government spending is insufficient causing a gap in GDP. equilibrium aggregate expenditure is above full employment GDP. equilibrium aggregate expenditure is equal to full employment GDP.

equilibrium aggregate expenditure is below full employment GDP.

When the government considers whether it should change its spending in response to a recession, it must weigh the tradeoff between ____________ and ________________. faster recovery time; lower prices less output; higher prices more output; lower prices faster recovery time; inflation

faster recovery time; inflation

Government decisions about the level of taxation and public spending are called: fiscal policy. monetary policy. congressional policy. legislative budgeting policy.

fiscal policy.

In macroeconomics, the long run refers to: the time period when sticky wages are in place. how long it takes for prices of inputs to fully adjust to changes in economic conditions. how long it takes for output decisions to adjust to changes in economic conditions. how long it takes for fixed inputs to become variable.

how long it takes for prices of inputs to fully adjust to changes in economic conditions.

If the economy is in a recession, in an effort to move the economy to the long-run equilibrium, the government could: increase spending to increase aggregate demand. decrease spending to decrease aggregate demand. increase spending to decrease aggregate demand. decrease spending to increase aggregate demand.

increase spending to increase aggregate demand.

Economist John Maynard Keynes noted one of the main contributors to the Great Depression in the 1930s was: insufficient spending causing below natural rate output. poor infrastructure for manufacturing. a labor market that could not meet the demands of the market at the time.

insufficient spending causing below natural rate output.

When we compare PAE and actual output (Y) if PAE is greater than Y we expect that: inventories to increase. inventories to decrease. there will be no change in inventories. the government will spend more than it has collected in taxes.

inventories to decrease.

The long-run aggregate supply curve represents the level of output possible if the economy: is operating at full capacity. is operating at an unemployment rate of zero. has a zero inflation rate. has no structural unemployment.

is operating at full capacity.

We define autonomous expenditure to be expenditure that: depends on how much income changes in the economy. that changes under the guidance of the government. is unaffected by the current level of income in the economy. people make that pertains to the auto industry.

is unaffected by the current level of income in the economy.

The business cycle matters for unemployment because: it affects the demand for labor. it affects the supply of labor. Both of these are true. Neither of these is true.

it affects the demand for labor.

Policies that make it more difficult to fire an employee are likely to: lead to greater unemployment. lead to less unemployment. have no impact on unemployment. affect frictionally unemployed workers more than other unemployed workers.

lead to greater unemployment.

The introduction of the Internet over the last 20 years has caused the: long-run aggregate supply curve to shift to the right. long-run aggregate supply curve to shift to the left. short-run aggregate supply curve to shift to the left. long-run aggregate supply to remain fixed.

long-run aggregate supply curve to shift to the right.

Higher interest rates make it: more expensive to borrow. harder to get a loan typically. easier to get a loan typically. less expensive to borrow.

more expensive to borrow.

When the U.S. price level increases, we would expect a: movement downward along the aggregate demand curve. movement up along the aggregate demand curve. shift to the right of the aggregate demand curve. shift to the left of the aggregate demand curve.

movement up along the aggregate demand curve.

The effect of government spending or tax cuts on national income is measured by the: multiplier. output gap. aggregator. tax rate.

multiplier.

Domestic income has a ______ relationship with net export spending. negative positive secondary constant

negative

What type of relationship does the real interest rate have with respect to Investment spending? positive relationship negative relationship no relationship constant relationship

negative relationship

If U.S. prices increase relative to the rest of the world, we would expect: net exports to increase. net exports to decrease. net exports to be unaffected. government spending to increase.

net exports to decrease.

The aggregate supply and aggregate demand model is used to explain the: overall health of the economy. overall effect of large markets within the economy. interaction of all sellers and all buyers within a particular market. way that unemployment may affect output, but not how price level does.

overall health of the economy.

When we say investment in economics we are talking about: stocks. bonds. physical capital. None of these are examples of investment in economics.

physical capital.

Some call the Great Recession the: period when the economy does not grow for four consecutive quarters. recession that began in 2007 due to the decline in consumer spending when the housing bubble burst. period of high inflation that took place in the early 1970s. period of economic stagnation that took place in the early 1990s.

recession that began in 2007 due to the decline in consumer spending when the housing bubble burst.

Increases in the overall price level: result in an increase to peoples dollar-denominated wealth. reduce people's real wealth. tends to cause people to increase their consumption. mean that a given number of dollars can buy as much in terms of real goods and services as before.

reduce people's real wealth.

An increase in the price level causes government spending to: increase. decrease. remain unaffected. increase in social welfare spending only.

remain unaffected.

If consumption increases in general the aggregate demand curve will: shift to the right. shift straight down. remain unchanged but the economy will move down along the curve to a higher quantity. remain unchanged but the economy will move down along the curve to a lower quantity.

shift to the right.

An increase in the costs of production will cause the: short-run aggregate supply curve to shift to the right. aggregate demand curve to shift to the right. short-run aggregate supply curve to shift to the left. long-run aggregate supply curve to shift to the left.

short-run aggregate supply curve to shift to the left.

Sticky wages cause the: long-run aggregate supply curve to slope upward. short-run aggregate supply curve to slope downward. short-run aggregate supply curve to slope upward. long-run aggregate supply curve to slope downward.

short-run aggregate supply curve to slope upward.

A year-long drought that destroys most of the summer's crops would be considered a: short-run demand shock. long-run supply shock. short-run supply shock. long-run demand shock.

short-run supply shock.

In the short run, the aggregate supply curve: slopes upward. slopes downward. is perfectly elastic. is perfectly inelastic.

slopes upward.

The multiplier effect suggests that: spending $1 increases GDP by more than $1. spending $1 increases GDP by less than $1. saving $1 increases GDP by more than $1. spending $1 decreases GDP by more than $1.

spending $1 increases GDP by more than $1.

A situation in which output decreases while prices increase is often referred to as: inflation. stagflation. negative economic growth. a recession.

stagflation.

In the long run aggregate: demand is fixed. supply is fixed. demand tends to shift to the right. supply tends to shift to the left.

supply is fixed.

Assuming an economy starts in long-run equilibrium, if the aggregate demand curve were to decrease: prices in the economy would increase . output in the economy would increase. the short-run aggregate supply curve would shift left. the long-run effect would be a lower price level.

the long-run effect would be a lower price level.

The aggregate supply curve is: the relationship between the overall price level and total production by firms. downward-sloping. the sum total of the production of all the firms in the economy for every given demand level. the sum total of the production of all the firms in the economy for every level of profit.

the relationship between the overall price level and total production by firms.

Because the prices of final goods and services tend to increase more quickly than the prices of inputs, the short run aggregate supply curve is: upward sloping. downward sloping. perfectly elastic. perfectly inelastic.

upward sloping.