Quiz Questions and Answers for this section

1. Refer to Figure 12-3. Suppose that investment spending decreases by $5 million, decreasing aggregate expenditure and decreasing real GDP from GDP2 to GDP1. If the MPC is 0.8, then what is the change in GDP?

-25 mil

1. A decrease in investment causes the price level to ________ in the short run and ________ in the long run. (Hint: Negative Demand Shock)

A. decrease; decrease further

1. The ratio of the increase in ________ to the increase in ________ is called the multiplier.

A. equilibrium real GDP; autonomous expenditure

1. Refer to Figure 16-5. In the dynamic model of AD-AS in the figure above, if the economy is at point A in year 1 and is expected to go to point B in year 2, Congress and the president would most likely pursue

A. expansionary fiscal policy.

1. Automatic stabilizers refer to

A. government spending and taxes that automatically increase or decrease along with the business cycle.

1. Economists refer to the series of induced increases in consumption spending that result from an initial increase in autonomous expenditures as the ________ effect.

A. multiplier

1. Crowding out refers to a decline in ________ as a result of an increase in ________.

A. private expenditures; government purchases

1. Decreases in the price level will (one would be correct)

A. raise consumption because goods and services are more affordable. B. raise consumption because real wealth increases.

1. A decrease in aggregate demand causes a decrease in ________ only in the short run, but causes a decrease in ________ in both the short run and the long run.

A. real GDP; the price level

1. The basic aggregate demand and aggregate supply curve model helps explain

A. short-term fluctuations in real GDP and the price level.

1. At macroeconomic equilibrium, total ________ equals total ________.

A. spending; production

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

A. the AD curve shifts more to the right than the LRAS curve.

1. Long-run macroeconomic equilibrium occurs when

A. the aggregate demand and short-run aggregate supply curves intersect at a point on the long-run aggregate supply curve.

1. Ceteris paribus, in the long run, a negative supply shock causes

A. the price level to rise initially, and then return to its lower level.

1. Workers and firms both expect that prices will be 2.5% higher next year than they are this year. As a result

A. the short-run aggregate supply curve will shift to the left as wages increase.

1. Refer to Figure 16-1. An increase in taxes would be depicted as a movement from ________, using the basic AD-AS model in the figure above.

B to A

1. In the aggregate expenditure model, ________ has both an autonomous component and an induced component.

consumption spending

1. Refer to Figure 12-2. If the U.S. economy is currently at point N, which of the following could cause it to move to point K? (moves down diago to the left)

hosuehold wealth falls

1. The tax multiplier

negative, less than 1

1. Refer to Figure 13-1. Ceteris paribus, an increase in the price level would be represented by a movement from

point B to point A.

quiz 4

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quiz 5

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Question: What are the 3 lags of fiscal policy? (3 points)

recognition lags, decision lags, and implementation lags.

1. Refer to Figure 16-1. Suppose the economy is in short-run equilibrium below potential GDP and Congress and the president lower taxes to move the economy back to long-run equilibrium. Using the basic AD-AS model in the figure above, this would be depicted as a movement from

A to b

1. If the marginal propensity to consume is 0.75, the marginal propensity to save is

A. 0.25.

1. ________ consumption is consumption that depends upon the level of GDP and ________ consumption is consumption that does not depend upon the level of GDP.

A. Induced; autonomous

1. If full-employment GDP is equal to $4.2 trillion, what does the long-run aggregate supply curve look like?

A. It is a vertical line at $4.2 trillion of GDP.

1. Which of the following would be classified as fiscal policy?

A. The federal government cuts taxes to stimulate the economy.

1. When aggregate expenditure is more than GDP, which of the following is true?

A. There was an unplanned decrease in inventories.

1. In the long run, most economists agree that a permanent increase in government spending leads to

A. a decrease in private spending by the same amount that government spending increased.

1. If inventories decline by more than analysts predict they will decline, this implies that

A. actual investment spending was less than planned investment spending.

1. The process of an economy adjusting from a recession back to potential GDP in the long run without any government intervention is known as

A. an automatic mechanism.

Quiz 3

Questions/A

1. Decreasing government spending ________ the price level and ________ equilibrium real GDP.

decrease, decrease