ECON CHP 9-11 test
A below full-employment equilibrium is an equilibrium in which potential GDP _____ real GDP. A. exceeds B. is less than C. is the sum of aggregate demand and D. equals
A
A multiplier is the amount by which a change in any component of _____ is magnified or multiplied to determine the change in _____ and _____ that it generates. A. autonomous expenditure; equilibrium expenditure; real GDP B. real GDP; exports; imports C. consumption expenditure; government expenditure; tax receipts D. autonomous expenditure; consumption expenditure; nominal GDP
A
The marginal propensity to import is equal to _______. A. the change in imports divided by the change in real GDP, other things remaining the same B. imports minus exports C. disposable income minus consumption expenditure minus saving divided by real GDP D. the change in net imports divided by the change in disposable income, other things remaining the same
A
An economy has a zero marginal tax rate When real GDP increases, the change in imports equals _______. A. the marginal propensity to import times the increase in real GDP B. (1+ the marginal propensity to import) times the increase in real GDP C. the increase in real GDP divided by the marginal propensity to import D. the marginal propensity to import divided by the increase in real GDP
A
Draw a short-run aggregate supply curve. Label it. As we move up along the short-run aggregate supply curve, ______. A. the money wage rate, the prices of other resources, and potential GDP remain constant B. the money wage rate and the prices of other resources change by the same percentage C. the real wage rate, the prices of other resources, and potential GDP remain constant D. potential GDP increases
A
If real GDP and aggregate expenditure are greater than equilibrium expenditure, firms' inventories increase Firms _______ production, and real GDP _______. A. decrease; decreases B. decrease; increases C. increase; increases D. increase; decreases
A
If the price level and the money wage rate rise by the same percentage, the quantity of real GDP supplied ______ and there is a movement up along the ______ aggregate supply curve. A. does not change; long-run B. does not change; short-run C. decreases; long-run D. increases; short-run
A
In the long run, the money wage rate ______, short-run aggregate supply ______, and the economy returns to a full-employment equilibrium. A. rises; decreases B. rises; increases C. falls; increases D. falls; decreases
A
The multiplier increases when the marginal propensity to consume increases The multiplier increases when the marginal propensity to import ______ or the income tax rate ______. A. decreases; decreases B. increases; decreases C. increases; increases D. decreases; increases
A
Inflation expectations "become self-fulfilling" because consumers decide to _____, which ______. A. buy more goods and services at today's lower prices; increases aggregate demand B. produce more goods and services at today's lower prices; increases short-run aggregate supply C. produce fewer goods and services at today's lower prices; decreases short-run aggregate supply D. buy fewer goods and services until prices return to lower levels; decreases aggregate demand
A
Inflation results when ______. A. the quantity of money increases rapidly B. the increase in potential GDP exceeds the increase in aggregate demand C. aggregate demand and potential GDP increase at the same pace D. the increase in potential GDP exceeds the increase in short-run aggregate supply
A
Interest rate parity means ______. A. equal rates of return B. that if interest rates are higher in a developing nation than in the United States, U.S. investors will move their assets from the United States into that developing nation C. equal value of money D. interest rates in Canada and the United States are the same
A
Read the news clip, then answer the following question. The ______ macroeconomic school of thought justifies the policy discussed in this news clip. A. Keynesian B. monetarist C. classical D. new classical
A
Short-run aggregate supply is the relationship between the quantity of _____ supplied and the _____ when the money wage rate, the prices of other resources, and potential GDP remain constant. A. real GDP; price level B. potential GDP; price level C. real GDP; interest rate D. nominal GDP; exchange rate
A
Stagflation ______. A. is a combination of recession and inflation B. is another name for an inflationary gap C. has not been experienced in the United States since the Great Depression D. occurs when aggregate demand decreases by more than short-run aggregate supply increases
A
Starting from a position of long-run equilibrium, a world expansion ______, and an increase in expected future profits ______. A. increases real GDP and raises the price level; increases real GDP and raises the price level B. decreases real GDP and raises the price level; decreases real GDP and raises the price level C. increases real GDP and lowers the price level; increases real GDP and raises the price level D. increases real GDP and raises the price level; increases real GDP and lowers the price level
A
The Fed cuts the quantity of money and all other things remain the same. In the short run, aggregate demand _______. A. decreases B. decreases and long-run aggregate supply decreases C. increases and long-run aggregate supply increases D. increases
A
The defining feature of the Keynesian view of macroeconomics is that the economy is ______. A. rarely at full employment B. that the quantity of money is the most significant influence on aggregate demand C. constantly bombarded by shocks that arise from the uneven pace of technological change D. self-regulating and always at full employment
A
The defining feature of the classical view of macroeconomics is that the economy is ______. A. self-regulating and always at full employment B. constantly bombarded by shocks that arise from the uneven pace of technological change C. driven by expectations called "animal spirits" D. rarely at full employment
A
The exports effect is the result that the lower the exchange rate, other things remaining the same, the ______. A. lower are the prices of U.S.-produced goods and services to foreigners and the greater is the volume of U.S. exports B. lower are the prices of foreign-produced goods and services to Americans and the greater is the volume of U.S. exports C. higher are the prices of foreign-produced goods and services to Americans and the greater is the volume of U.S. imports D. higher are the prices of U.S.-produced goods and services to foreigners and the greater is the volume of U.S. imports
A
The gap between ______ is the output gap. When _____, the output gap is called an inflationary gap. A. real GDP and potential GDP; real GDP exceeds potential GDP B. the interest rate and the price level; real GDP exceeds potential GDP C. the price level and the cost; real GDP equals the interest rate D. real GDP and aggregate demand; real GDP equals potential GDP
A
The imports effect is the result that the higher the exchange rate, other things remaining the same, the ______. A. lower are the prices of foreign-produced goods and services to Americans and the greater is the volume of U.S. imports Your answer is correct.B. higher are the prices of U.S.-produced goods and services to foreigners and the greater is the volume of U.S. imports C. lower are the prices of U.S.-produced goods and services to foreigners and the greater is the volume of U.S. exports D. higher are the prices of foreign-produced goods and services to Americans and the greater is the volume of U.S. exports
A
The multiplier matters because we can use it to determine by how much we should change autonomous expenditure to ______. A. increase real GDP by a given amount B. make inventories equal to their target levels C. minimize taxes and maximize transfer payments D. maximize real GDP
A
The quantity of U.S. dollars demanded in the foreign exchange market depends on many factors, the main ones being ______. A. the exchange rate, world demand for U.S. exports, interest rates in the United States and other countries, and the expected future exchange rate B. the exchange rate, world demand for U.S. exports, the previous path of the exchange rate, and the expected future exchange rate C. the price level in the United States, world demand for U.S. exports, interest rates in the United States and other countries, and the expected future exchange rate D. the exchange rate, U.S. demand for imports, interest rates in the United States and other countries, and the previous path of the exchange rate
A
To calculate the multiplier, we divide ______ by ______. A. the change in equilibrium expenditure; the change in autonomous expenditure B. equilibrium expenditure; the change in autonomous expenditure C. equilibrium expenditure; autonomous expenditure D. the change in equilibrium expenditure; autonomous expenditure
A
Short-run macroeconomic equilibrium occurs when the quantity of _____ demanded equals the quantity of _____ supplied at the point of intersection of the _____ curve and the _____ curve. A. real GDP; real GDP; AD; SAS B. reserves; reserves; RD; RS C. loanable funds; loanable funds; DLF; SLF D. output; output; MD; MS
A
A flexible exchange rate is one that _______. A. is determined by a decision of the government or the central bank and is achieved by central bank intervention in the foreign exchange market to block the unregulated forces of demand and supply B. is determined by demand and supply in the foreign exchange market with no direct intervention by the central bank C. follows a path determined by a decision of the government or the central bank and is achieved by central bank intervention in the foreign exchange market D. operated in the world economy from the end of World War II to the early 1970s
B
A movement along the aggregate demand curve occurs if _______. A. expectations about future inflation or future income change B. the price level changes and all other factors remain unchanged C. the exchange rate or foreign income change D. government expenditure or the interest rate change
B
Aggregate demand increases if expected future income, inflation, or profits ______. And aggregate demand increases if fiscal policy ______ government expenditure. A. decrease; increases B. increase; increases C. increase; decreases D. decrease; decreases
B
Aggregate demand increases if fiscal policy ______ taxes or ______ transfer payments. A. decreases; decreases B. decreases; increases C. increases; decreases D. increases; increases
B
Aggregate demand increases if the exchange rate ______ or foreign income ______. A. decreases; decreases B. decreases; increases C. increases; increases D. increases; decreases
B
Aggregate demand is the relationship between the quantity of _____ demanded and the _____ when all other influences on expenditure plans remain the same. A. nominal GDP; quantity of output supplied B. real GDP; price level C. real GDP; exchange rate D. nominal GDP; interest rate
B
An economy has a zero marginal tax rate. When real GDP increases, the change in consumption expenditure equals _______. A. the increase in real GDP divided by the marginal propensity to consume B. the marginal propensity to consume times the increase in real GDP C. the marginal propensity to consume divided by the increase in real GDP D. (1+ the marginal propensity to consume) times the increase in real GDP
B
An increase in income taxes _______, everything else remaining the same. A. makes the multiplier larger B. makes the multiplier smaller C. has no effect on the multiplier D. sometimes increases the multiplier and sometimes decreases the multiplier
B
An increase in potential GDP increases ______. A. long-run aggregate supply but does not increase short-run aggregate supply unless technology advances B. both long-run aggregate supply and short-run aggregate supply C. the price level D. the money wage rate
B
As we move up along the long-run aggregate supply curve, ______. A. the prices of goods and services remain constant B. the real wage rate remains constant C. the prices of goods and services increase and the money wage rate decreases D. the money wage rate remains constant
B
A ______ macroeconomist believes that the economy is self-regulating and always at full employment. A ______ macroeconomist believes the economy requires active help from fiscal policy and monetary policy to maintain full employment. A. classical; monetarist B. classical; Keynesian C. new classical; monetarist D. Keynesian; new Keynesian
B
Changes in consumption spending play a large role in the business cycle because _______ accounts for approximately ______ percent of GDP. A. U.S. consumer purchases of net exports; 70 B. consumption expenditure; 70 C. consumption expenditure; 90 D. U.S. consumer purchases of net exports; 50
B
Choose the statement that is incorrect. A. Aggregate supply is the relationship between the quantity of real GDP supplied and the price level. B. Over the business cycle, aggregate supply fluctuates around potential GDP. .C. The quantity of real GDP supplied is the total quantity of goods and services, valued in constant base-year (2009) dollars, that firms plan to produce during a given period. D. At any given time, the quantity of capital and the state of technology are fixed, but the quantity of labor is not fixed.
B
Classical macroeconomists recommend ______. A. policies that actively offset changes in aggregate demand that bring recession B. policies that minimize the disincentive effects of taxes on employment, investment, and technological change C. an increase in the quantity of money to offset decreases in aggregate demand and a decrease in the quantity of money to offset increases in aggregate demand D. policies that actively offset changes in long-run aggregate supply that result in negative economic growth
B
Event 3 ______. A. decreases aggregate demand and short-run aggregate supply B. decreases aggregate demand C. increases short-run aggregate supply D. increases aggregate demand
B
If disposable income increases from $4 trillion to $7 trillion, consumption expenditure increases from $3.5 trillion to $5.5 trillion, and nothing else changes, the marginal propensity to consume is _____. A. 0.79 B. 0.67 C. 1.5 D. 0.88
B
If equilibrium expenditure changes by $50 billion that results from an increase in autonomous taxes by $80 billion, find the autonomous tax multiplier. A. 0.429 B. 0.625 C. 0.332 D. 1.314
B
If real GDP and aggregate expenditure are less than equilibrium expenditure, firms' inventories decrease , Firms ______ production, and real GDP ______. A. decrease; increases B. increase; increases C. decrease; decreases D. increase; decreases
B
If real GDP increases by $2 million and potential GDP increases by $3 million and the marginal propensity to import is 0.2, by how much do imports change? A. Imports decrease by $200,000 B. Imports increase by $400,000 C. Imports decrease by $400,000 D. Imports increase by $600,000
B
Mexico trades with the United States. When the U.S. economy goes into a recession, ______. A. Mexico's price level falls and quantity of real GDP demanded increases, but Mexico's aggregate demand is unchanged B. Mexico's exports to the United States decrease, Mexico's aggregate demand decreases, and Mexico's AD curve shifts leftward C. Mexico's imports from the United States decrease and Mexico's aggregate demand increases D. Mexico's price level falls and quantity of real GDP demanded decreases, but Mexico's aggregate demand is unchanged
B
The balanced budget multiplier equals the change in equilibrium expenditure and real GDP that results from equal changes in _____ divided by the change in government expenditure. A. exports and imports B. government expenditure and lump-sum taxes C. aggregate demand and aggregate supply D. tax receipts and outlays
B
The consumption function is the relationship between consumption expenditure and _____, other things remaining the same. A. saving B. disposable income C. the price level D. aggregate demand
B
The following events have occurred at times in the history of the United States: 1. A deep recession hits the world economy 2. The world oil price rises sharply. 3. U.S. businesses expect future profits to fall. Starting from a position of long-run equilibrium, a deep recession ______, and a decrease in expected future profits ______. A. increases real GDP and raises the price level; increases real GDP and lowers the price level B. decreases real GDP and lowers the price level; decreases real GDP and lowers the price level C. increases real GDP and lowers the price level; increases real GDP and raises the price level D. decreases real GDP and raises the price level; decreases real GDP and raises the price level
B
The marginal propensity to consume is equal to ______, and the marginal propensity to save is equal to ______. A. 1; 0 B. Upper DeltaC divided by Upper DeltaYD; Upper DeltaS divided by Upper DeltaYD C. Upper DeltaC divided by Upper DeltaY; Upper DeltaS divided by Upper DeltaY D. 0; 1
B
The market in which the currency of one country is exchanged for the currency of another country is the ______. The price at which one currency exchanges for another currency is the ______. A. money market; exchange rate B. foreign exchange market; exchange rate Your answer is correct.C. money market; currency rate D. foreign exchange market; currency rate
B
The multiplier increases when the marginal propensity to import ______ or the income tax rate ______. A. increases; decreases B. decreases; decreases This is the correct answer.C. decreases; increases D. increases; increases
B
Which of the following economies is facing a stagflation? A. The Fed is purchasing government securities to lower the interest rate. B. The European economy is experiencing a decrease in real GDP for three quarters and a rise in the price level. C. The Chinese economy is facing a rising labor cost. D. Japan has announced an increase in public expenditure.
B
Which of the following statements illustrate monetary policy? A. The US public debt-to-GDP ratio in 2011 was about 100 percent. B. The Fed has raised the federal funds rate by 0.3 percent. C. Some US firms have scrapped outsourcing to China due to rising labor costs. D. The US government has increased its spending to boost demand.
B
______ is triggered by a decrease in autonomous expenditure and ______ is triggered by an increase in autonomous expenditure. A. An above full-employment equilibrium; a below full-employment equilibrium B. A recession; an expansion C. A decrease in real wealth; an increase in real wealth D. A deflation; an inflation
B
A Keynesian macroeconomist believes that left alone, the economy would _____ operate at full employment and that to achieve and maintain full employment, active help from fiscal policy and monetary policy is required. A modern version of the Keynesian view, known as the new Keynesian view, holds not only that the money wage rate is _____ but also that prices of goods and services are _____. A. rarely; flexible; flexible B. always; sticky; sticky C. rarely; sticky; sticky D. always; flexible; flexible
C
A fixed exchange rate is one that _______. A. follows a path determined by the government or the central bank and is achieved by central bank buying or selling domestic currency in the foreign exchange market B. is determined by demand and supply in the foreign exchange market with no direct intervention by the central bank C. is set by the government or the central bank and is achieved by central bank intervention in the foreign exchange market D. is not influenced by market traders and can only be changed by the government
C
A monetarist is a macroeconomist who believes that the economy is self-regulating and that it will normally operate _____, provided that monetary policy is not erratic and that the pace of _____ is kept steady. A. at full employment; economic growth B. below full employment; technological growth C. at full employment; money growth D. above full employment; technological growth
C
A new Classical view is that business cycle fluctuations are the _____ responses of a well-functioning market economy that is bombarded by shocks that arise from the uneven pace of _____. A. inefficient; technological change B. efficient; labor productivity growth C. efficient; technological change D. inefficient; economic growth
C
Choose the correct statement. A. The higher the price level, the greater is the quantity of real GDP demanded. B. The quantity of real GDP demanded is the sum of the real consumption expenditure, investment, government expenditure, and exports minus imports. C. The aggregate demand curve slopes downward because of the wealth effect and the money wage rate. D. The quantity of real GDP demanded depends on the quantity of real GDP supplied.
C
Labor productivity is rising at a rapid rate in China and wages are rising at a similar rate. Choose the statement that is incorrect. A. The overall effect of the increase in labor productivity and the rise in the wage rates is an increase in potential GDP. B. Rising wage rates decrease short-run aggregate supply and have no effect on long-run aggregate supply. C. The increase in labor productivity has no effect on short-run aggregate supply. D. The increase in labor productivity increases long-run aggregate supply.
C
Consider the following events. Event 1: Growth in the world economy slows. Event 2: The world price of oil rises. Event 3: U.S. labor productivity declines. Choose the statement that is correct. A. A classical macroeconomist and a monetarist recommend an increase in the quantity of money for all events. B. All macroeconomists believe that the economy requires active fiscal policy and monetary policy to keep the economy out of recession. C. A classical macroeconomist and a monetarist recommend that taxes be kept low to avoid disincentive effects for all of the events and a Keynesian recommends active fiscal policy and monetary policy to offset all events. D. A Keynesian recommends no action for all of the events.
C
Economic growth results when there are increases in ______. A. the inflationary gap B. the output gap C. capital accumulation D. the real wage rate
C
Everything else remaining the same, an increase in aggregate demand increases ______. A. short-run aggregate supply B. long-run aggregate supply C. the quantity of real GDP supplied D. potential GDP
C
If an economy is at a full-employment equilibrium and a decrease in consumption expenditure occurs, the new short-run equilibrium is _____ and _____ gap emerges. A. an above full-employment equilibrium; a recessionary B. an above full-employment equilibrium; an inflationary C. a below full-employment equilibrium; a recessionary D. a below full-employment equilibrium; an inflationary
C
Keynesian macroeconomists recommend ______. A. policies that actively offset changes in long-run aggregate supply that result in negative economic growth B. policies that minimize the disincentive effects of taxes on employment, investment, and technological change C. policies that actively offset changes in aggregate demand that bring recession D. an increase in the quantity of money to offset decreases in aggregate demand and a decrease in the quantity of money to offset increases in aggregate demand
C
Long-run macroeconomic equilibrium occurs when real GDP _____ potential GDP - equivalently, when the economy is on its _____ curve. A. exceeds; LAS B. is less than; AD C. equals; LAS D. exceeds; SAS
C
Monetarist macroeconomists recommend ______. A. policies that actively offset changes in aggregate demand that bring recession B. increases in the quantity of money to increase long-run aggregate supply C. policies that keep taxes low to avoid disincentive effects that decrease potential GDP D. policies that increase short-run aggregate supply to offset decreases in aggregate demand
C
Starting from a position of long-run equilibrium, an increase in government expenditures ______ real GDP and ______ the price level. A. decreases real GDP and lowers the price level B. decreases real GDP and raises the price level C. increases; real GDP and lowers the price level D. increases real GDP and raises the price level
C
Starting from a full-employment equilibrium, an increase in aggregate demand ______ real GDP, and creates ______ gap. A. decreases; a recessionary B. decreases; an inflationary C. increases; an inflationary D. increases; a recessionary
C
The government expenditure multiplier equals the change in _____ that results from a change in government expenditure divided by the change in government expenditure. A. aggregate supply B. investment C. equilibrium expenditure and real GDP D. consumption expenditure
C
The marginal propensity to consume is ______. A. the percentage of a household's income that is not saved B. equal to the slope of the 45degrees line C. the fraction of a change in disposable income that is spent on consumption D. greater than the slope of the 45degrees line
C
The marginal propensity to save is _______. A. equal to the slope of the 45degrees line B. greater than the slope of the 45degrees line C. the fraction of a change in disposable income that is saved D. the percentage of a household's income that is not spent on consumption goods and services
C
The multiplier is the amount by which the change in ______ expenditure is magnified or multiplied to determine the change in equilibrium expenditure and real GDP. For every dollar increase in ______ expenditure, the multiplier determines the increase in real GDP. A. autonomous; induced B. induced; autonomous C. autonomous; autonomous D. induced; induced
C
The multiplier is the amount by which the change in ______ expenditure is magnified or multiplied to determine the change in equilibrium expenditure and real GDP. For every dollar increase in ______ expenditure, the multiplier determines the increase in real GDP. A. autonomous; induced B. induced; induced C. autonomous; autonomous D. induced; autonomous
C
The multiplier matters because we can use it to determine by how much we should change autonomous expenditure to ______. A. minimize taxes and maximize transfer payments B. maximize real GDP C. increase real GDP by a given amount D. make inventories equal to their target levels
C
The relationship between saving and _____, other things remaining the same, is called the saving function. A. price level B. aggregate demand C. disposable income D. consumption expenditure
C
When Mexico decreases the quantity of money, Mexico's aggregate demand ______. A. is unchanged, but the quantity of real GDP demanded increases and there is a movement down along the AD curve B. is unchanged, but the quantity of real GDP demanded decreases and there is a movement up along the AD curve C. decreases and its AD curve shifts leftward D. increases and its AD curve shifts rightward
C
When the price level rises but the money wage rate and other factor prices remain the same, there is a movement along ______. The quantity of real GDP supplied ______. A. the LAS curve and the SAS curve; decreases B. the LAS curve; decreases C. the SAS curve; increases D. the SAS curve; decreases
C
When the price level, the money wage rate, and other factor prices rise by the same percentage, there is a movement along ______. Potential GDP ______. A. the LAS curve and the SAS curve; does not change and the quantity of real GDP supplied increases B. the LAS curve and the SAS curve; decreases C. the LAS curve; does not change D. the LAS curve; decreases
C
Which of the following statements about the monetarist view of the macroeconomy is incorrect? A. Taxes should be kept low to avoid disincentive effects that decrease potential GDP. B. The money wage rate is sticky. C. Left alone, the economy rarely operates at full employment. D. All recessions result from inappropriate monetary policy.
C
______ bring business cycle turning points. A. Changes in short-run aggregate supply B. Changes in the price level C. Swings in autonomous expenditure D. Changes in long-run aggregate supply
C
Which of these factors will cause the aggregate demand curve to shift?
CORRECT ANSWER: A change in the expectations of households and firms
Which of these factors will shift the short-run aggregate supply to the left?
CORRECT ANSWER: A decrease in the size of the labor force
How can government policies shift the aggregate demand curve to the right?
CORRECT ANSWER: By increasing government purchases
According to the graph, an increase in government spending, all else equal, will shift the AD curve from the initial AD curve to the curve labeled:
CORRECT ANSWER: Increased AD
__________ advocates active government intervention via fiscal policy when the economy is in recession.
CORRECT ANSWER: Keynesian theory
Which of these shifts the aggregate demand curve to the right?
CORRECT ANSWER: Lower interest rates
Which of these policies affects the economy through intended changes in the quantity of money and interest rates?
CORRECT ANSWER: Monetary policy
Which of these factors will cause the long-run aggregate supply curve to shift to the right?
CORRECT ANSWER: The accumulation of more machinery and equipment
If firms reduce investment spending and the economy enters a recession, which of these contributes to the adjustment that causes the economy to return to its long-run equilibrium?
CORRECT ANSWER: The eventual agreement by workers to accept lower wages
The aggregate demand curve shows the relationship between:
CORRECT ANSWER: The price level and the quantity of real GDP demanded
A higher exchange rate will result in:
CORRECT ANSWER: a decrease in net exports and a decrease in aggregate demand
The 1974-1975 recession was a result of a:
CORRECT ANSWER: a leftward shift of the short-run aggregate supply curve
Monetarism is a school of economic thought that favors:
CORRECT ANSWER: a monetary growth rule.
Stagflation is a:
CORRECT ANSWER: combination of inflation and recession
In the short run, an unexpected decrease in oil prices will:
CORRECT ANSWER: decrease the price level but increase real GDP
When aggregate demand increases, unemployment will usually __________ and inflation will __________.
CORRECT ANSWER: fall, rise
A monetary growth rule that might be supported by a monetarist would be a plan:
CORRECT ANSWER: for the Federal Reserve to increase the quantity of money at a fixed rate and not respond to economic fluctuations.
According to Keynesian theory, fiscal policymakers can combat the impact of recessions by:
CORRECT ANSWER: increasing government spending.
If the economy moves into a recession, monetarists argue that the Fed should:
CORRECT ANSWER: keep the money supply growing at a constant rate.
The classical view assumes:
CORRECT ANSWER: money wage rates adjust quickly.
The economy is in long-run equilibrium when the short-run aggregate supply and the aggregate demand curve intersect at a point:
CORRECT ANSWER: on the long-run aggregate supply curve
The long-run aggregate supply curve:
CORRECT ANSWER: shifts to the right as technological change occurs
An unexpected change in the price of oil would cause a shift of the _______ curve.
CORRECT ANSWER: short-run aggregate supply
The aggregate demand and aggregate supply model explains:
CORRECT ANSWER: short-run fluctuations in real GDP and the price level
Keynes maintained that the economy could remain long-term at levels of output below the full-employment level of output due to:
CORRECT ANSWER: sticky wages.
In the long-run, the level of output is:
CORRECT ANSWER: the full-employment level of output
According to the graph, an increase in the quantity of money is best described by:
CORRECT ANSWER: the shift in the AD curve
New classical theorists believe that:
CORRECT ANSWER: the uneven pace of technological change is the most significant cause of business cycle fluctuations.
The wealth effect refers to the fact that:
CORRECT ANSWER: when the price level falls, the real value of household wealth rises, and so will consumption
A Classical macroeconomist believes that the economy is self-regulating and always _____. A. above full employment B. below full employment C. facing a balanced budget D. at full employment
D
A rise in the money wage rate with no change in potential GDP creates ______. A. a leftward shift of the LAS curve and a leftward shift of the SAS curve B. a movement along the SAS curve C. a leftward shift of the LAS curve and no change in the SAS curve D. a leftward shift of the SAS curve and no change in the LAS curve
D
Aggregate demand increases if monetary policy ______ the quantity of money and ______ interest rates. A. decreases; decreases B. decreases; increases C. increases; increases D. increases; decreases
D
Aggregate planned expenditure is the sum of planned _____. A. borrowing in the loanable funds market by households, firms, government, and the rest of the world B. consumption expenditure, savings, net taxes, and net exports C. aggregate demand and aggregate supply D. consumption expenditure, investment, government expenditure, and exports minus imports
D
An above full-employment equilibrium is an equilibrium when real GDP _____. A. equals potential GDP B. equals the interest rate C. equals the price level D. exceeds potential GDP
D
Chinese Premier Wen Jiabao has warned Japan that its companies operating in China should raise the pay for their workers. A rise in wages in China _______ aggregate supply. A. decreases Japan's short-run B. increases Japan's long-run C. decreases China's long-run D. decreases China's short-run
D
Disoposable income is aggregate income minus taxes plus _____. A. transfer payments minus saving B. transfer payments minus saving and minus consumption C. transfer payments minus consumption D. transfer payments
D
If disposable income increases from $4 trillion to $7 trillion, saving increases from $1.5 trillion to $2 trillion, and nothing else changes, the marginal propensity to save is _____. A. 0.67 B. 0.23 C. 1.32 D. 0.17
D
If the price level rises and the money wage rate remains constant, the quantity of real GDP supplied ______ and there is a movement up along the ______ aggregate supply curve. A. does not change; long-run B. does not change; short-run C. decreases; long-run D. increases; short-run
D
The U.S. interest rate differential rises if ______, and the larger the U.S. interest rate differential, the ______ is the demand for U.S. dollars in the foreign exchange market. A. the U.S. interest rate falls; smaller B. the foreign interest rate rises; greater C. the U.S. interest rate rises; smaller D. the foreign interest rate falls; greater
D
The aggregate demand curve shows the relationship between the quantity of real GDP demanded and ______, when everything else remains the same. A. the quantity of real GDP supplied B. expected future income, inflation, and profits C. the interest rate D. the price level
D
The components of aggregate expenditure that are influenced by real GDP are ______. A. consumption expenditure, government expenditure, investment, and imports B. consumption expenditure, investment, and imports C. investment, exports, and imports D. consumption expenditure and imports
D
The defining feature of the monetarist view of macroeconomics is that the economy is______. A. constantly bombarded by shocks that arise from the uneven pace of technological change B. self-regulating and always at full employment C. rarely at full employment D. self-regulating and that it will normally operate at full employment, provided that monetary policy is not erratic and that the pace of money growth is kept steady
D
The following events have occurred at times in the history of the United States. 1. A deep recession hits the world economy 2. The world oil price rises sharply 3. U.S. businesses expect future profits to fall Event 1 ______. Event 2 ______. A. decreases aggregate demand and short-run aggregate supply; increases short-run aggregate supply and decreases long-run aggregate supply B. increases short-run aggregate supply; decreases short-run aggregate supply C. decreases aggregate demand; increases short-run aggregate supply D. decreases aggregate demand; decreases short-run aggregate supply
D
The following events have occurred at times in the history of the United States: 1. A deep recession hits the world economy 2. The world oil price rises sharply. 3. U.S. businesses expect future profits to fall. Starting from a position of long-run equilibrium, a sharp increase in the world oil price ______. A. increases real GDP and raises the price level B. increases real GDP and lowers the price level C. decreases real GDP and lowers the price level D. decreases real GDP and raises the price level
D
The multiplier is the amount by which a change in ______ expenditure is magnified or multiplied to determine ______. A. consumption; the change in investment B. autonomous; the change in investment C. consumption; the change in equilibrium expenditure and real GDP D. autonomous; the change in equilibrium expenditure and real GDP
D
When potential GDP _____ real GDP, the output gap is called a recessionary gap. A. exceeds interest rate and B. is less than C. equals D. exceeds
D
When _____ there is a full-employment equilibrium. A. the price level equals aggregate demand B. real GDP exceeds potential GDP C. labor productivity exceeds the real wage rate D. real GDP equals potential GDP
D
Which of the following statements illustrate fiscal policy? A. A stronger dollar has lowered US exports. B. The Fed has increased its reserve requirement. C. A rise in the expected future profits has increased US investments. D. The US government has proposed a hike in the corporate tax rate.
D
Long-run aggregate supply is the relationship between the quantity of real GDP supplied and the price level when the _____ changes in step with the price level to maintain full employment. A. real wage rate B. quantity of money C. interest rate D. money wage rate
D
So, as the price level rises, there is ______. A. an increase in aggregate demand B. a decrease in aggregate demand C. an increase in the quantity of real GDP demanded today D. a decrease in the quantity of real GDP demanded
D
Starting from a full-employment equilibrium, a decrease in short-run aggregate supply ______ the price level and ______ real GDP. A. increases; increases B. decreases; increases C. decreases; decreases D. increases; decreases This is the correct answer.
D AND A stagflation is created.
In an economy, when disposable income increases from $400 to $500, consumption expenditure increases from $420 billion to $500. What is the marginal propensity to consume, the change in saving, and the marginal propensity to save? >>> Answer to 2 decimal places.
The marginal propensity to consume is 0.8.
When disposable income increases from $400 billion to $500 billion, saving increases by $ 20 billion. >>> Answer to 2 decimal places.
The marginal propensity to save is 0.2.
An economy has a fixed price level, no imports, and no income taxes. An increase in autonomous expenditure of $3 trillion increases equilibrium expenditure by $12 trillion. Calculate the multiplier and the marginal propensity to consume. >>> Answer to 2 decimal places.
The multiplier is 4. The marginal propensity to consume is 0.75. If an income tax is introduced in this economy, the multiplier _______. A. increases B. does not change C. decreases (THIS) D. increases or decreases but we don't know for sure
An economy has a fixed price level, no imports, and no income taxes. MPC is 0.8, and real GDP is $300 billion. Businesses increase investment by $10 billion. Calculate the multiplier and the change in real GDP.
The multiplier is 5. The increase in real GDP is $ 50 billion.
An economy has a fixed price level, no imports, and no income taxes. MPC is 0.8, and real GDP is $200 billion. Businesses increase investment by $10 billion. Calculate the new level of real GDP and explain why real GDP increases by more than $10 billion.
The new level of real GDP is $ 250 billion. Real GDP increases by more than $10 billion because the increase in investment _______. A. enables firms to produce more output B. (B is CORRECT) induces an increase in consumption expenditure C. increases the marginal propensity to consume D. increases exports
An increase in expected future income increases aggregate demand. An increase in the expected future inflation rate increases aggregate demand. An increase in expected future profits increases aggregate demand.
yes
As the price level rises, interest rates rise and real wealth decreases People substitute goods in the future for goods in the present
yes
Canada trades with the United States. Explain the effect of each of the following events on Canada's aggregate demand. The government of Canada cuts income taxes. Canada's aggregate demand increases The United States experiences strong economic growth. Canada's aggregate demand increases . Canada sets new environmental standards that require power utilities to upgrade their production facilities. Canada's aggregate demand increases
yes
The multiplier increases when the marginal propensity to consume increases .
yes
When the price level in Mexico falls, the quantity of real GDP demanded increases
yes