Macro Part 1

9. In the above diagram, the economy's relevant aggregate demand and immediate-short-run aggregate supply curves, respectively, are lines:

A. 4 and 3.

39. The combined cost of Social Security and Medicare programs was what percent of U.S. GDP in 2008?

A. 7.6

19. The group of three economists appointed by the President to provide fiscal policy recommendations is the

A. Council of Economic Advisers.

6. Which one of the following would not shift the aggregate demand curve?

A. a change in the price level

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

A. aggregate demand curve would shift to the right.

21. If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion by:

A. increasing government spending by $4 billion.

17. If personal taxes were decreased and resource productivity increased simultaneously, the equilibrium:

A. output would necessarily rise.

14. Graphically, demand-pull inflation is shown as a:

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

10. The shape of the immediate-short-run aggregate supply curve implies that:

A. total output depends on the volume of spending.

37. Which of the following did not contribute directly to the Great Recession?

B. Bursting of the Dot.Com stock market bubble.

28. Refer to the above figure. Suppose that the economy is currently operating at the intersection of AS and AD2, and that the full employment level of output is Y. If contractionary fiscal policy and accompanying multiplier effects move aggregate demand from AD2 to AD1, what will be the effect on real GDP and the price level?

B. Real GDP will fall to X and the price level will remain unchanged, assuming a ratchet effect occurs.

34. Which of the following statements is correct?

B. The cyclically-adjusted budget is less likely to show a deficit than is the actual budget.

33. Refer to the above diagram, in which C1 is the before-tax consumption schedule. The consumption schedule represented by C3 reflects:

B. a proportional tax system

32. Refer to the above diagram, in which C3 is the before-tax consumption schedule. The after-tax consumption schedule represented by C2 reflects:

B. a regressive tax system.

16. In the above figure AD1 and AS1 represent the original aggregate supply and demand curves and AD2 and AS2 show the new aggregate demand and supply curves. The changes in aggregate demand and supply in the above diagram produce:

B. an expansion of real output and a stable price level.

27. Suppose the price level is fixed, the MPC is .5, and the GDP gap is a negative $100 billion. To achieve full-employment output (exactly), government should:

B. increase government expenditures by $50 billion.

3. 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:

B. the foreign purchases effect.

15. In the above figure AD1 and AS1 represent the original aggregate supply and demand curves and AD2 and AS2 show the new aggregate demand and supply curves. The change in aggregate supply from AS1 to AS2 could be caused by:

B. the increased availability of entrepreneurial talent.

40. To say money is socially defined means that:

B. whatever performs the functions of money extremely well is considered to be money.

26. Suppose the price level is fixed, the MPC is .5, and the GDP gap is a negative $80 billion. To achieve full-employment output (exactly), government should:

D. reduce taxes by $200 billion.

35. Refer to the above diagram where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment GDP is $400 billion while the actual GDP is $200 billion, the actual budget deficit is:

C. $40 billion.

8. In the above diagram, the economy's immediate-short-run aggregate supply curve is shown by line:

C. 3.

4. Which of the following is incorrect?

C. When the price level increases, real balances increase, businesses and households find themselves wealthier and therefore increase their spending.

24. Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward:

C. an excess of government expenditures over tax receipts.

23. The effect of a government surplus on the equilibrium level of GDP is substantially the same as:

C. an increase in consumption.

2. The interest-rate effect suggests that:

C. an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.

13. The short-run aggregate supply curve represents circumstances where:

C. input prices are fixed, but output prices are flexible.

20. Discretionary fiscal policy refers to:

C. intentional changes in taxes and government expenditures made by Congress to stabilize the economy.

30. A major advantage of the built-in or automatic stabilizers is that they:

C. require no legislative action by Congress to be made effective.

11. Other things equal, an improvement in productivity will:

C. shift the aggregate supply curve to the right.

36. Refer to the above diagram where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment GDP is $400 billion while the actual GDP is $200 billion, the cyclically-adjusted budget deficit is:

D. $20 billion.

31. Which of the following best describes the built-in stabilizers as they function in the United States?

D. Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

38. Which of the following statements is correct?

D. There is a tendency for the public debt to grow during recessions.

25. An appropriate fiscal policy for severe demand-pull inflation is:

D. a tax rate increase.

29. Refer to the above figure. Suppose that the economy is currently operating at the intersection of AS and AD2, and that the full employment level of output is Y. Because of the ratchet effect:

D. contractionary fiscal policy that shifts aggregate demand to AD1 will cause real GDP to fall below its full employment level.

18. Prices and wages tend to be:

D. flexible upward, but inflexible downward.

12. The determinants of aggregate supply:

D. include resource prices and resource productivity.

22. If the MPC in an economy is .75, government could shift the aggregate demand curve leftward by $60 billion by:

D. increasing taxes by $20 billion.

7. An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the:

D. multiplier effect.

1. The aggregate demand curve

D. shows the amount of real output that will be purchased at each possible price level.