Macro Econ, 2nd Mitderm
According to Baumol and Blinder, from the demand side an increase in the price level causes aggregate expenditures to a. fall, resulting in a lower level of equilibrium income. b. fall, resulting in a higher level of equilibrium income. c. rise, resulting in a higher level of equilibrium income. d. rise, resulting in a lower level of equilibrium income.
A...
Economists before Keynes assumed that equilibrium GDP occurred a. automatically. b. only with the help of government stabilization. c. if spending was generally greater than output. d. only in socialist economies with central planning.
A...
In Figure 9-1, at $3,000 billion real GDP, a. spending exceeds total output and inventories will fall. b. inventories are constant. c. aggregate demand equals aggregate supply. d. spending falls short of output and inventories will rise.
A...
Government stabilization policy would be unnecessary if the economy automatically gravitated toward a. full inflation. b. full employment. c. full recession. d. an inflationary gap.
B...
If the price level rises, the effect on the expenditure schedule and equilibrium real GDP is to a. increase both. b. decrease both. c. shift the expenditure schedule upward and decrease equilibrium real GDP. d. shift the expenditure schedule downward and increase equilibrium real GDP.
B...
In Figure 9-3, at $3,000 billion GDP, a. inventories will be falling, signaling businesses to decrease production. b. inventories will be falling, signaling businesses to increase production. c. planned saving increases planned investment. d. inventories will be accumulating, signaling businesses to increase production.
B...
In a simple economy (no government sector), the equilibrium level of GDP will be less than the full employment level of income if, at the full employment level of income, the a. saving that consumers want to do is less than investing that businesses want to do. b. saving that consumers want to do is greater than investing that businesses want to do. c. saving that consumers want to do is less than spending that consumers want to do. d. inventories are being depleted.
B...
In a simple macroeconomic model, only one component of expenditures is allowed to change: a. investment. b. consumption. c. net exports. d. government spending. e. transfer payments.
B...
Investment spending might be larger when GDP is higher. Such added investment as GDP rises is called a. mutual investment. b. induced investment. c. positive investment. d. net investment.
B...
One of the main conclusions of Keynes in The General Theory of Employment, Interest, and Money is that the economy a. will usually be at full employment. b. will not automatically gravitate to full employment. c. will automatically move quickly toward full employment without inflation. d. is usually on the verge of a major depression or hyperinflation.
B...
The slope of the aggregate demand curve illustrates that real GDP demanded will increase when a. the price level rises. b. the price level falls. c. real income rises. d. real income falls.
B...
Two variables that affect the slope of the aggregate demand curve are a. government purchases and real taxes. b. tax rates and interest rates. c. government purchases and interest rates. d. exchange rates and income rates.
B...
When the expenditure level is above the full employment level of GDP, a possible consequence is a. falling prices. b. rising prices. c. falling disposable income. d. high levels of unemployment.
B...
From the demand side, the equilibrium level of GDP is one at which a. everyone who wants a job has one and firms are not looking for extra workers. b. the only unemployment is frictional. c. aggregate demand equals production. d. the only unemployment is cyclical.
C
If total spending exceeds total output, then a. inventory levels will rise. b. inventory levels will remain constant. c. inventory levels will fall. d. output will eventually decrease.
C
When businesses are cutting back production, then it probably true that a. total spending is greater than total output. b. total output is greater than total income. c. total spending is less than total output. d. inventory levels are decreasing.
C
If net exports are reduced, the expenditure schedule will shift a. downward and equilibrium real GDP will rise. b. upward and equilibrium real GDP will rise. c. downward and equilibrium real GDP will fall. d. upward and equilibrium real GDP will fall.
C...
In Figure 9-1, the economy is a. experiencing an inflationary gap, shown by the horizontal distance EB. b. at full employment without inflation. c. experiencing a recessionary gap, shown by the horizontal distance EB. d. experiencing a recessionary gap, shown by the distance between EF.
C...
In Figure 9-3, at $5,000 billion GDP, inventories will be a. falling, signaling businesses to increase production. b. accumulating, signaling businesses to increase production. c. accumulating, signaling businesses to cut production. d. falling, signaling businesses to cut production.
C...
In the basic 45-degree line model, what is the effect of an increase in the price level? a. There will be movement to the left on the expenditure line. b. There will be movement to the right on the expenditure line. c. The expenditure line will shift downward. d. The expenditure line will shift upward.
C...
Inventory reductions are a signal indicating that a. the economy is close to disaster. b. the Dow Jones Industrial Average will fall. c. manufacturers need to increase production. d. All of the above are true.
C...
Recessionary gaps are most likely to be accompanied by a. inflation. b. inventory reductions. c. unemployment. d. expanding output.
C...
The economy will reach equilibrium in a simple economy only if saving is a. greater than investment. b. less than investment. c. equal to investment. d. equal to disposable income.
C...
The main examples of macroeconomic coordination failures are a. profit declines. b. relative price changes. c. recessions and depressions. d. consumer taste changes.
C...
The price level effects consumer spending through changes in real a. disposable income. b. interest rates. c. wealth. d. GDP.
C...
Using the standard 45-degree line diagram, how does a decrease in investment spending effect the expenditure schedule? a. It increases the slope of the expenditure schedule. b. It decreases the slope of the expenditure schedule. c. It shifts the expenditure schedule downward. d. It shifts the expenditure schedule upward.
C...
When equilibrium real GDP falls short of potential GDP, there is a(n) a. inflationary gap. b. potential gap. c. recessionary gap. d. precautionary gap.
C...
Which of the following shows the relationship between national income (GDP) and total spending? a. Demand schedule b. Consumption curve c. Expenditure schedule d. Balance schedule
C...
Which one of the following could cause a recessionary gap? a. Interest rates are too low. b. Consumers spend more than they earn. c. Price levels are too high. d. Businesses spend more than they save.
C...
By definition, total production must always equal total a. sales. b. demand. c. purchases. d. income.
D
If total spending is less than total output, then price levels will a. rise and output will increase. b. rise and output will decrease. c. fall and output will increase. d. fall and output will decrease.
D
In a market economy, the decisions about what to produce and how much of each good or service to produce are made by a. government officials. b. economic planners. c. central bankers. d. consumers and producers.
D
An expenditure schedule that lies below the full employment level of GDP will cause a. rising prices. b. increasing output. c. falling inventories. d. falling prices.
D...
Equilibrium GDP on the demand side occurs when total spending a. equals total production, and inventories are zero. b. equals total production, and firms are unable to adjust inventories. c. exceeds total production, and inventories are rising. d. equals total production, and inventories remain at desired levels. e. is less than total production, and inventories are falling.
D...
In Figure 9-1, a. the 45-degree line represents all points where spending equals output. b. to the left of equilibrium GDP, inventories will fall. c. to the right of equilibrium GDP, inventories will rise. d. All of the above are correct.
D...
In Figure 9-1, at $7,000 billion real GDP, a. inventories are increasing. b. spending falls short of output. c. spending exceeds output. d. Both a and b are correct.
D...
John Maynard Keynes concluded that investment spending is determined by a. business confidence. b. economic expectations. c. psychological perceptions about the economy. d. All of the above are correct.
D...
The amount by which equilibrium real GDP exceeds full-employment GDP is known as a. stagflation. b. employment. c. a recessionary gap. d. an inflationary gap.
D...
Why does an increase in the price level cause a decrease in real GDP demanded? a. Consumer wealth increases. b. Net exports will increase. c. Interest rates decrease and cause higher investment. d. Net exports will decrease.
D...
A shift outward of the aggregate supply curve could be caused by a. higher import prices. b. lower import prices. c. energy shortages. d. rising wage rates.
b
A decrease in the price of resources will cause the aggregate supply curve to a. shift outward. b. shift inward. c. become flatter. d. become steeper.
a
As the slope of the aggregate supply curve increases, this indicates that a. the economy is getting close to potential GDP. b. the economy is reducing employment. c. inflation will be less of a problem. d. output is falling.
a
If aggregate quantity demanded exceeds aggregate quantity supplied, we can expect an unplanned a. depletion of inventories, causing firms to raise prices. b. depletion of inventories, causing firms to lower prices. c. accumulation of inventories, causing firms to raise prices. d. accumulation of inventories, causing firms to lower prices.
a
If the price level decreases, what will happen to the level of real GDP supplied? a. It will usually decrease. b. It will usually increase. c. Nothing. d. It will decrease at first and then increase.
a
Refer to Figure 10-7. Which of the diagrams in Figure 10-7 represents a decrease in consumer spending combined with a positive supply shock? a. Panels (A) & (B) b. Panels (C) & (D) c. Panels (A) & (C) d. Panels (B) & (D)
a
Suppose we observe an economy experience an economic expansion and high inflation. This means the expansion is attributed to a. growth in aggregate demand. b. growth in aggregate supply. c. a reduction in aggregate demand. d. a reduction in aggregate supply.
a
The post-World War II record shows that recessionary gaps may be long-lasting because ____ tends not to occur. a. deflation b. reflation c. stagflation d. disinflation
a
The reason that stagflation tends to follow an inflationary gap is that a. output tends to fall even as prices continue to rise as part of the self-correcting mechanism. b. government officials tend to overact in controlling inflation. c. businesses try to increase profits by raising prices and increasing output. d. workers accept pay cuts to maintain employment.
a
The usual results of an adverse supply shock are a. a rise in prices and a fall in output. b. a fall in prices and a rise in output. c. increased growth and lower inflation. d. higher net exports.
a
When the inflationary gap is finally eliminated, a long-run equilibrium is established with a ____ price level and with GDP ____ potential GDP. a. higher; equal to b. higher; greater than c. lower; equal to d. lower; greater than
a
Which of the panels in Figure 10-7 shows an economic recession caused by primarily by a change aggregate demand? a. Panel (A) b. Panel (B) c. Panel (C) d. Panel (D)
a
A statement issued by the president's economic advisors stating that growth can continue without price increases indicates that they believe the relevant aggregate supply curve is a. vertical. b. horizontal. c. downward sloping. d. upward sloping.
b
An increase in wages will cause the aggregate supply curve to a. shift outward. b. shift inward. c. become flatter. d. become steeper.
b
During 2008-2010, the U.S. economy showed signs of a(n) a. mild recession. b. recessionary gap. c. inflationary gap. d. deflationary gap.
b
If resource prices are fixed and the selling price rises, then a. profits will decrease. b. profits will increase. c. profits will remain constant. d. both profits and output will decrease.
b
If the price level does not fall or only falls very slowly, then the result will be a prolonged period of a. inflation whenever supply increases. b. production below potential GDP. c. production above potential GDP. d. rapid price increases when demand changes.
b
In Figure 10-3, we would expect the aggregate supply curve in graph (b) to eventually a. shift to the right, eliminating the recessionary gap. b. shift to the left, eliminating the inflationary gap. c. become steeper in the upper portion, eliminating the inflationary gap. d. become flatter in the upper portion, eliminating the recessionary gap.
b
In Table 10-1, if full employment occurs at $3,400 billion, then a. the economy experiences a recessionary gap of $75 billion. b. the economy experiences a recessionary gap of $150 billion. c. the economy experiences an inflationary gap of $75 billion. d. the economy experiences an inflationary gap of $150 billion.
b
Recessionary gaps usually lead to a. structural unemployment. b. cyclical unemployment. c. seasonal unemployment. d. frictional unemployment.
b
Table 10-1 Aggregate Quantity Aggregate Quantity Demanded Supplied Price (billions) (billions) Level $3500 $2900 65 3400 3000 75 3350 3150 90 3250 3250 110 3100 3400 130 In Table 10-1, what is the equilibrium level of real output and the equilibrium price? a. $3,100 real output and a price of 75 b. $3,250 real output and a price of 110 c. $3,350 real output and a price of 90 d. $3,400 real output and a price of 75
b
The Japanese economy has been consistently weak throughout the 1990s. This has caused a slight deflation, illustrating the a. negligible cost of eliminating inflation. b. very slow operation of the economy's self-correcting mechanism. c. tendency of inflation to accelerate during recessions. d. rapidity with which inflation can be stopped.
b
The combination of high unemployment and high inflation is termed a. reflation. b. stagflation. c. depression. d. unflation.
b
The principal way in which an economy self-corrects from an inflationary gap is through a. deflation, which increases purchasing power. b. inflation, which reduces purchasing power. c. disinflation, which maintains purchasing power. d. price level decreases, which stimulate production.
b
The self-correcting mechanism would be expected to be very rapid in an economy with a. a large multiplier. b. flexible prices. c. rigid wages. d. high labor productivity.
b
When money wages rise, the most significant effect on the aggregate supply curve is that it a. shifts outward. b. shifts inward. c. becomes flatter. d. becomes steeper.
b
. In Table 10-1, if full employment occurs at $3,100 billion, then a. the economy experiences a recessionary gap of $150 billion. b. the economy experiences a recessionary gap of $300 billion. c. the economy experiences an inflationary gap of $150 billion. d. the economy experiences an inflationary gap of $300 billion.
c
. The concept of aggregate supply refers to a a. fixed number of output. b. list of products demanded. c. schedule of output. d. schedule of production costs.
c
A period of stagflation is the normal aftermath of a period of a. excess aggregate supply. b. deficient aggregate demand. c. excess aggregate demand. d. high unemployment rates.
c
An inflationary gap exists when consumers a. are saving more than businesses are investing. b. and businesses are purchasing less than the economy is capable of producing. c. and businesses are demanding more than the economy is capable of producing. d. and businesses are demanding less than the full employment level of output.
c
Equilibrium GDP in excess of potential GDP eventually will cause the aggregate a. demand curve to shift outward. b. supply curve to shift outward. c. supply curve to shift inward. d. demand curve to become flatter.
c
Figure 10-8 illustrates a period of a. low unemployment and high inflation. b. low unemployment and low inflation. c. high unemployment and high inflation. d. high unemployment and low inflation.
c
If scientific research produces a technological breakthrough in the production of computer memory, then a. business costs will increase, profits will fall, and production will decrease. b. business costs will fall, but profits will also fall, and production will decrease. c. business costs will fall, profits will improve, and production will increase. d. profits will increase, allowing businesses to cut back production.
c
If the MPC of an economy is .90 and the economy has a horizontal aggregate supply curve, then an increase in investment spending of $50 million will increase total income by a. $50 million. b. more than $50 million but less than $500 million. c. $500 million. d. more than $500 million.
c
If the price level rises, what will happen to aggregate supply? a. It will shift outward. b. It will shift inward. c. Nothing. d. It will get steeper. e. It will get flatter.
c
Refer to Figure 10-7. Which of the diagrams in Figure 10-7 represents a period of economic growth and inflation? a. Panel (A) b. Panel (B) c. Panel (C) d. Panel (D)
c
The federal government increases spending by $50 billion and the main effect is an increase in the price level. It must be true that the economy is operating on the a. horizontal portion of the aggregate demand curve. b. horizontal portion of the aggregate supply curve. c. vertical portion of the aggregate supply curve. d. vertical portion of the aggregate demand curve.
c
The main reason that firms adjust their output when the price level changes is that a. uncertainty causes a drop in output. b. taxes cause a supply-side reaction. c. their profit margins change. d. increased risks lead to a change in output. e. All of the above are correct.
c
The slope of the aggregate supply curve is a. perfectly vertical. b. perfectly horizontal. c. upward. d. downward.
c
The years 2002 through 2007 can be described as a period of a. falling output accompanied by increasing inflation. b. falling output accompanied by decreasing inflation. c. rising output accompanied by increasing inflation. d. rising output accompanied by decreasing inflation.
c
What does inflation do to the value of the oversimplified multiplier? a. Inflation increases the value of the multiplier above the value of the oversimplified formula. b. Inflation does not change the value of the multiplier. c. Inflation decreases the value of the multiplier below the value of the oversimplified formula. d. Inflation increases the value of the multiplier unless the level of unemployment also rises.
c
When economists refer to the economy's self-correcting mechanism, they are referring to the fact that the a. economy will react automatically to a recessionary gap through inflation. b. economy will react automatically to an inflationary gap through deflation. c. economy will react automatically to an inflationary gap through inflation. d. simple multiplier is greater than the complex multiplier.
c
When equilibrium GDP is below potential GDP, jobs are a. plentiful and unemployment is low. b. plentiful and unemployment is high. c. scarce and unemployment is high. d. scarce and unemployment is low.
c
Which of the panels in Figure 10-7 shows an economic expansion caused primarily by a change in aggregate demand? a. Panel (A) b. Panel (B) c. Panel (C) d. Panel (D)
c
A recessionary gap exists when a. real GDP exceeds nominal GDP. b. nominal GDP exceeds real GDP. c. real GDP exceeds potential GDP. d. potential GDP exceeds real GDP.
d
An increase in the money wage rate will cause the aggregate supply curve to shift a. outward, which means the quantity supplied at any price level decreases. b. outward, which means the quantity supplied at any price level increases. c. inward, which means the quantity supplied at any price level increases. d. inward, which means the quantity supplied at any price level decreases.
d
Economists generally assume that there is a short-run trade-off between a. output and employment. b. inflation and employment. c. deflation and unemployment. d. inflation and unemployment. e. output and growth.
d
If the prices of inputs changes, what will happen to the aggregate supply curve? a. It does not move but the economy moves along the curve. b. It depends on whether the input prices rise or fall. c. The curve will become flatter or steeper depending on whether the input prices rise or fall. d. It shifts inward or outward depending on whether the input prices rise or fall.
d
In Figure 10-2, which segment of the aggregate supply curve has the smallest multiplier effect? a. AB b. BC c. CD d. DG
d
In Figure 10-3, both graphs (a) and (b) indicate that the economy is experiencing a(n) a. recessionary gap of RE. b. recessionary gap of RG. c. inflationary gap of RG. d. inflationary gap of RE.
d
Recessionary gap arises when a. inventory stock falls. b. government spending increases. c. when the general price level increases. d. there is less spending than desired.
d
The aggregate demand and aggregate supply curve intersect a. at potential GDP. b. below potential GDP. c. above potential GDP. d. at a point which may or may not be equal to potential GDP.
d
The aggregate supply curve normally a. slopes downward and to the right due to higher resource prices. b. has a horizontal slope equal to zero. c. is very steep in the lower portion and flatter in the upper portion. d. slopes upward to the right due to short-run fixed costs of production.
d
The aggregate supply curve will shift to the left if a. energy prices fall. b. technology and productivity increase in the economy. c. the capital stock of the economy increases. d. the money wage rate increases.
d
The economy's self-correcting mechanism appears to be more efficient at curing a. recessionary gaps by reducing price levels. b. inflationary gaps by reducing price levels. c. unemployment by reducing wage levels. d. inflationary gaps through inflation.
d
The existence of an inflationary gap should cause a. wages to fall. b. prices to fall. c. unemployment to rise. d. net exports to rise.
d
The price of imported oil decreased in 2001. How did this affect the aggregate supply curve? a. It became steeper. b. It became flatter. c. It shifted inward. d. It shifted outward.
d
What is the principal reason that economists give for the existence of deflationary and inflationary gaps? a. Wages are flexible in the short run. b. Wages are flexible in the long run. c. Wages are fixed in the long run. d. Wages are fixed in the short run.
d
When the economy represented in Figure 10-3 has completed the self-correcting adjustment process, the expenditure line in graph (a) will be a. flatter. b. steeper. c. higher. d. lower. e. unchanged.
d
Which of the following events will lead to an inward shift of the aggregate supply curve? a. an increase in the price level b. an increase in consumer spending c. an increase in labor productivity d. an increase in wage rates
d
Which of the following is evidence of an inflationary gap? a. very long lines at employment agencies b. very short waiting times for product delivery c. very long search times for people looking for jobs d. very low unemployment rates
d
