Unit 3 Econ
Which of the following government policies can reduce the rate of inflation in the short run?
Selling bonds on the open market
Assume the government reduces its spending and raises income taxes in an effort to reduce the budget deficit. The most likely short-run result will be an increase in
unemployment
Based on the graph above, demand-pull inflation is caused by a movement from
AD1 to AD2
An increase in government spending that is financed by an equal increase in taxes results in which of the following changes in aggregate demand (AD) and short-run aggregate supply (SRAS) curves?
ADAD Curve SRAS Curve Shifts to the right . No change
Which of the following is most likely to be caused by an adverse supply shock?
Cost-push inflation
The economy of a country is currently in equilibrium at point A in the diagram above. If the government does nothing and wages are flexible, which of the following will most likely occur in the long run?
Falling wages will shift the aggregate supply curve to the right, producing full employment.
The diagram below shows various points on three aggregate demand (AD) curves. A decrease in the price level will produce a movement between which of the following two points on the diagram above?
From point Y to point Z
An increase in which of the following will most likely cause an increase in aggregate demand and inflation in the short run?
Government spending
If the economy is in a severe recession, which of the following is the fiscal policy most effective in stimulating production?
Government spending increases.
Which of the following statements is true about an expansionary fiscal policy?
It increases aggregate demand.
Which of the following must be true in the long run?
Prices and wages are flexible.
What would be the effect of a large increase in labor productivity on the real gross domestic product and the price level?
Real Gross Domestic Product . Price Level Increase Decrease
If the aggregate supply curve is horizontal, an increase in government spending will result in which of the following?
Real Output . Price Level Increase . No change
The diagram above shows a nation's short-run aggregate supply curve (SRAS), long-run aggregate supply curve (LRAS), and aggregate demand curve (AD). Based on the diagram above, which of the following describes the short-run equilibrium?
The economy is operating above full employment.
Which of the following would be the initial impact on an economy if wages were to increase more than worker productivity?
The short-run aggregate supply curve would shift to the left, increasing the price level.
Policies intended to reduce demand-pull inflation are most likely to increase which of the following in the short run?
Unemployment
Which of the following will most likely occur if a government adopts an annually balanced budget rule that requires the government to eliminate any deficits or surpluses?
Which of the following will most likely occur if a government adopts an annually balanced budget rule that requires the government to eliminate any deficits or surpluses?
Which of the following will remain unchanged when the price level decreases?
Which of the following will remain unchanged when the price level decreases?
An inflationary gap can be eliminated by all of the following EXCEPT
an increase in the money supply
An increase in consumer confidence will result in which of the following in the short run?
A rightward shift of the aggregate demand curve
Which of the following changes would cause an economy's aggregate demand curve to shift to the right?
An increase in autonomous consumption spending
Which of the following will result in a rightward shift of the aggregate demand curve?
An increase in exports
In the short run, which of the following will most likely result if wages in an economy rise faster than workers' productivity?
An increase in the price level
A fiscal policy action to reduce inflationary pressure would be to increase which of the following?
Income tax rates
Which of the following will shift the aggregate demand curve to the right?
Increased spending by businesses on computers
One explanation for the downward slope of the aggregate demand curve is that when the price level increases, which of the following will decrease?
Real value of assets
Recessions will most likely be less severe if tax revenues and transfer payments automatically change in which of the following ways?
Tax revenues decrease, and transfer payments increase.
The value of the spending multiplier decreases when
The value of the spending multiplier decreases when
Which of the following is true of supply shocks?
They tend to change both relative prices and the general price level in the economy.
When an economy is in equilibrium at potential gross domestic product, the actual unemployment rate is
equal to the natural rate
Assume that the marginal propensity to consume out of disposable income is 0.8 and that the government taxes all income at a constant rate of 30 percent. If gross income increases by $100, consumption will initially increase by
$56
Which of the following will result in the greatest increase in aggregate demand?
A $100 increase in government expenditures, coupled with a $100 decrease in taxes
Which of the following changes will have the smallest expansionary effect on aggregate demand in the short run?
A decrease in taxes of $100
Which of the following would cause the short-run aggregate supply curve to shift to the right?
A decrease in the expected price level
When an economy is at full employment, which of the following will most likely create demand-pull inflation in the short run?
A decrease in the real rate of interest
Which of the following will cause an increase in real output in the short run?
A decrease in wages
Which of the following statements best describes the impact of a decrease in Japanese income on aggregate demand in the United States?
Aggregate demand will decrease because the demand for United States exports decreases.
If the federal government decreases its expenditures on goods and services by $10 billion and decreases taxes on personal incomes by $10 billion, which of the following will occur in the short run?
Aggregate income will decrease by up to $10 billion.
Which of the following will most likely occur as a result of an increase in labor productivity in an economy?
An increase in output and a decrease in inflation
An economy is currently operating at the full-employment level of output. Which of the following would result in a recessionary gap in the short run?
An increase in the costs of production
Which of the following would generate cost-push inflation?
An increase in the price of labor
In the graph above, AD denotes the aggregate demand curve, SRAS the short-run aggregate supply curve, and LRAS the long-run aggregate supply curve. If no policy action were taken, which of the following changes would move the economy to its long-run equilibrium?
An increase in wages
Which of the following would most likely cause the United States economy to fall into a recession?
An open market sale by the Federal Reserve
Under which of the following conditions would consumer spending most likely increase?
Consumers' wealth is increased by changes in the stock market.
With an increase in the real interest rate, consumption and real gross domestic product will most likely change in which of the following ways?
Consumption . Real Gross Domestic Product Decrease Decrease
Suppose that disposable income is $1,000, consumption is $700, and the marginal propensity to consume (MPC) is 0.6. If disposable income then increases by $100, consumption and savings will equal which of the following?
Consumption . Savings $760 $340
If a nation's government cuts income taxes, how will consumption spending, real output, and unemployment change in the short run?
Consumption spending will increase, real output will increase, and unemployment will decrease.
In the short run, how would a government's budget deficit, national debt, and real output change if government spending increases with no change in taxes?
Deficit Debt Real Output Increase . Increase Increase
The aggregate demand curve is downward sloping because an increase in the general price level will cause the demand for money, interest rates, and investment to change in which of the following ways?
Demand for Money . Interest Rates Investment Increase . Increase Decrease
Which of the following can be expected to cause an increase in gross domestic product in the short run?
Equal increases in both taxes and government expenditures
Which of the following best explains why equilibrium income will rise by more than $100 in response to a $100 increase in government spending?
Incomes will rise, resulting in higher consumption.
Which of the following is an example of fiscal policy?
Increasing government expenditures to build highways
Which of the following is true of a horizontal aggregate supply curve?
It suggests that increases in output can occur without increases in price levels.
With an upward-sloping aggregate supply curve, an increase in the money supply will affect the price level and real gross domestic product (GDP) in the short run in which of the following ways?
Price Level Real GDP Increase Increase
The aggregate supply and aggregate demand graph above shows the current macroeconomic equilibrium of an economy. How will the price level and real output change if there is a sharp increase in productivity and a simultaneous increase in government purchases?
Price Level Real Output Indeterminate . Increase
According to the graph above and starting with equilibrium point R, which of the following shifts identifies the short-run and the long-run impact of a demand-pull inflation?
Short Run . Long Run R to M . R to N
The graph above depicts an economy's aggregate demand and aggregate supply curves. If aggregate demand remains constant, the equilibrium price levels in the short run and in the long run will be which of the following?
Short Run . Long Run 0B 0A
Assume the economy is currently in long-run equilibrium. An increase in the money supply will affect unemployment in the short run and in the long run in which of the following ways?
Short Run . Long Run Falls below the natural rate . Rises back to the natural rate
Which of the following statements about inflation is true in the short run?
The economy's real output increases when there is demand-pull inflation and decreases when there is cost-push inflation.
The table below shows the level of household savings at various levels of disposable income in a country. Savings Disposable Income $2,000 $10,000 . $2,200 . $12,000 Based on the level of savings and disposable income data in the table above, which of the following must be true?
The marginal propensity to consume is 0.9.
The table below shows the level of household savings at various levels of disposable income in a country. Savings Disposable Income $2,000 $10,000 . $2,200 . $12,000 Based on the level of savings and disposable income data in the table above, which of the following must be true?
The tax multiplier is −9 and the spending multiplier is 10.
Which of the following are the most likely short-run effects of an increase in government expenditures?
Unemployment Rate: Decrease Inflation Rate: Increase Real Gross Domestic Product: Increase
The diagram above shows a nation's short-run aggregate supply (SRAS) curve, long-run aggregate supply (LRAS) curve, and aggregate demand (AD) curve. Based on the diagram above, which of the following describes what will happen in the long-run adjustment process?
Wages and input prices will increase.
According to the graph above, which of the following statements about the economy is true?
Wages will eventually decrease, restoring full employment in the long run.
Assuming no government policies, which of the following will occur in the long run if the actual unemployment rate exceeds the natural rate of unemployment?
Wages will fall.
Following a decrease in aggregate demand, an increase in unemployment will result if
prices and nominal wages are slow to adjust in the short run
Which of the following would directly increase the capital stock of an economy?
A business firm expands its production facilities.
Which of the following will most likely result from a decrease in government spending?
A decrease in aggregate demand
Which of the following would cause both the aggregate demand and aggregate supply curves to shift to the right?
A decrease in corporate income taxes
Which of the following will cause an increase in aggregate demand?
A decrease in income taxes
An increase in the price of oil, an important input to production, will result in which of the following in the short run?
A decrease in short-run aggregate supply
Suppose that in an economy with lump-sum taxes and no international trade, autonomous investment spending increases by $2 million. If the marginal propensity to consume is 0.75, equilibrium gross domestic product will change by a maximum of
$8.0 million
Suppose that autonomous consumption is $400 and that the marginal propensity to consume is 0.8. If disposable income increases by $1,200, consumption spending will increase by
$960
Refer to the income and consumption data presented in the table below. Assume a closed economy with no government and a marginal propensity to consume of 0.80. The marginal propensity to save for this economy is
0.2
According to the income and consumption schedules shown above, the marginal propensity to consume is
0.75
When firms restructure their operations to decrease production costs, the aggregate supply curve, the price level, and real output will change in which of the following ways?
Aggregate Supply Curve . Price Level . Real Output Shift to the right Decrease . Increase
Which of the following would most likely cause a rightward shift in an economy's aggregate supply curve?
An across-the-board reduction of wages in the manufacturing sector
The diagram below shows two points on the short-run aggregate supply curve. The movement from point g to point h is best described as which of the following?
An increase in real output due to an increase in the price level
An economy is in long-run macroeconomic equilibrium. What will be the short-run effects of an increase in investment spending?
An increase in real output, a decrease in unemployment, and an increase in the price level
If there is an inflationary gap, which of the following changes will move the economy back toward full employment?
An increase in taxes
Which of the following combinations of changes in government spending and taxes is necessarily expansionary?
Government Spending . Taxes Increase Decrease
According to the graph above, which of the following will necessarily result in a decrease in output? I.A rightward shift of the aggregate demand curve II.A leftward shift of the aggregate demand curve III.A rightward shift of the aggregate supply curve IV. A leftward shift of the aggregate supply curve
II and IV only
A change in which of the following will cause the short-run aggregate supply curve to shift? I. The price level II. Government spending III. The cost of all inputs
III only
A simultaneous increase in inflation and unemployment could be explained by an increase in which of the following?
Inflationary expectations
Which of the following best explains how an economy could simultaneously experience high inflation and high unemployment?
Negative supply shocks cause factor prices to increase.
If there is an adverse (negative) short-run aggregate supply shock due to an increase in the price of natural resources and the government pursues no policy to address the supply shock, then which of the following will occur in the long run?
Nominal wages will fall with no change in the natural rate of unemployment.
An economy is currently in short-run equilibrium, and real output is below the full-employment level of output. Which of the following market adjustments is most likely to occur in the long run?
Nominal wages will fall, shifting the short-run aggregate supply curve to the right.
Assume that the aggregate supply curve is upward sloping. If both aggregate supply and aggregate demand increase, what will happen to the equilibrium output and price level?
Output . Price Level Increase . Indeterminate
If AD and AS represent aggregate demand and aggregate supply curves, respectively, and the arrows indicate the movement of the curves, which of the following graphs best illustrates long-run economic growth?
Picture not allowed
An increase in which of the following will lead to lower inflation and lower unemployment?
Labor productivity
In the AD−AS model, which of the following is true?
The economy is in a recessionary gap when the short-run equilibrium real output is below the long-run equilibrium real output.
Which of the following is an example of an automatic stabilizer?
Progressive income taxes
During a mild recession, if policymakers want to reduce unemployment by increasing investment, which of the following policies would be most appropriate?
Purchase of government securities by the Federal Reserve
Based on the diagram above, what effect will an increase in the world supply of oil have on real gross domestic product and the price level?
Real Gross Domestic Product . Price Level Increase Decrease
The graph above shows aggregate demand (AD), short-run aggregate supply (SRAS), and long-run aggregate supply curves for an economy. Based on the graph, cost-push inflation is caused by a movement from
SRAS1 to SRAS2
Recession can be caused by
a decrease in aggregate demand
Stagflation is caused by
a decrease in aggregate supply
Stagflation is most likely to be caused by
a decrease in aggregate supply
A contractionary supply shock would most likely result in
a decrease in employment
During a period of stagflation, a nation is most likely experiencing
a decrease in short-run aggregate supply
If the central bank holds interest rates constant, an autonomous decrease of $10 million in investment spending will most likely result in
a decrease of more than $10 million in gross domestic product
An increase in spending in an economy will cause a multiplied increase in gross domestic product because
consumption increases as income increases
Aggregate demand may be measured by adding
consumption, investment, government spending, and net exports
An ongoing increase in the price of oil will result in
cost-push inflation
A major advantage of automatic stabilizers in fiscal policy is that they
go into effect without passage of new legislation
If a large increase in total spending has no effect on real gross domestic product, it must be true that
the price level is rising
A rightward shift in the short-run aggregate supply curve will occur when
the stock of physical capital increases
Which of the following is a reason why the aggregate demand curve is downward sloping?
A higher price level decreases real wealth.
Increases in government subsidies to encourage investment in research and development will affect aggregate demand (AD) and long-run aggregate supply (LRAS) in which of the following ways?
AD . LRAS Increase . Increase
Given the graph of the short-run aggregate supply (SRAS) and long-run aggregate supply (LRAS) curves above, which of the following is true?
At point X, the economy is experiencing a recessionary gap.
A decrease in business taxes would lead to an increase in national income by increasing which of the following?
Both aggregate demand and aggregate supply
Which of the following explains why the long-run aggregate supply curve corresponds to the production possibilities curve?
Both curves illustrate the maximum sustainable capacity.
Automatic stabilizers can do which of the following?
Cause tax revenues to decrease when gross domestic product (GDP) decreases and to increase when GDP increases
Which of the following best explains the increase in national income that results from equal increases in government spending and taxes?
Consumers do not reduce their spending by the full amount of the tax increase.
Which of the following is an example of fiscal policy?
Decreasing income tax rates
Which of the following events will most likely cause an increase in both the price level and real gross domestic product?
Exports increase.
Suppose that the economy is in the midst of a recession and government policy makers want to increase aggregate demand by $600 billion.If the economy's marginal propensity to consume is 0.75 and there is no crowding out, the government should do which of the following?
Increase spending by $150 billion.
Which of the following is true about the marginal propensity to consume?
It determines the size of the simple spending multiplier.
An economy is in short-run equilibrium at a level of output that is greater than potential output. If there were no active fiscal or monetary policy intervention, which of the following changes in output and the price level would occur in the long run?
Output . Price Level Decrease . Increase
Which of the following is true about inflationary expectations?
The actual unemployment rate equals the natural rate of unemployment when wages fully adjust to expected inflation.
Assume the countries of Ornania and Kumbagi are major trading partners. Ornania is currently in long-run macroeconomic equilibrium. As a result of a recession in its economy, Kumbagi decreases its demand for goods produced in Ornania. Which of the following will occur in Ornania in the short run?
The aggregate demand curve will shift to the left, resulting in a recessionary gap.
Which of the following is an assumption underlying an upward-sloping short-run aggregate supply curve?
Wages are sticky.
Which of the following statements concerning economic growth is true?
With long-run economic growth, there is an increase in aggregate supply.
Suppose that, from 1985 to 1986, unemployment fell from 7.2 to 7.0 percent and inflation fell from 3.8 to 1.1 percent. An explanation of these changes might be that the
aggregate supply curve shifted to the right
The long-run aggregate supply curve is likely to shift to the right when there is
an increase in productivity
The aggregate demand curve assumes that
changes in the price level affect real wealth
If the economy was in a severe recession, the most expansionary fiscal policy would be to
decrease personal income taxes and increase government spending by equal amounts
Given the aggregate demand and aggregate supply curves shown above, if policy makers want to increase real output without causing inflation, they can pursue a policy that will
increase aggregate supply only
With an upward-sloping short-run aggregate supply curve, an increase in government expenditure will most likely
increase real gross domestic product
On the graph above, stagflation will be caused by a
leftward shift in the short-run aggregate supply curve only
In the short run, cost-push inflation can be caused by
negative supply shocks
The short-run aggregate supply curve would be vertical if
nominal wages adjust immediately to changes in the price level
As a component of aggregate demand, investment refers to the
purchase of new equipment and additional inventories
The aggregate demand curve is downward sloping because as the price level increases the
purchasing power of wealth decreases
The intersection of the aggregate supply curve and the aggregate demand curve occurs at the economy's equilibrium level of
real national output and the price level
The short-run aggregate supply curve is likely to shift to the left when there is an increase in
the cost of productive resources
If an economy's aggregate supply curve is upward sloping, an increase in government spending will most likely result in a decrease in the
unemployment rate
An economy's full-employment real output will decrease when
workers choose shorter weeks to enjoy more leisure time
An appropriate fiscal policy to combat a recession would be to increase which of the following?
Government spending
An increase in which of the following would cause an increase in aggregate supply?
Labor productivity
Which of the following will cause aggregate supply to increase in Country X?
The discovery of low-cost alternative sources of energy
Assume that the marginal propensity to consume is 0.75, net exports decline by $10 billion, and government spending increases by $20 billion. Given that there is no crowding out, the equilibrium gross domestic product can increase by a maximum of
$40 billion
If the marginal propensity to save is 0.25, a $15 billion increase in government spending will lead to an increase in national income by a maximum of
$60 billion
Refer to the income and consumption data presented in the table below. Assume a closed economy with no government and a marginal propensity to consume of 0.80. Dissaving occurs when disposable income is
$620
Assume that Jane's marginal propensity to consume equals 0.8, and that in 2004 Jane spent $36,000 from her disposable income of $40,000. If her disposable income in 2005 increased to $50,000, her consumption spending increased by
$8,000
Which of the following would most likely lead to cost-push inflation in the short run?
A decrease in labor productivity
Which of the following will cause a rightward shift of the short-run aggregate supply curve?
A decrease in the costs of production
Assume that the economy is at full-employment equilibrium in the diagram shown above. Which of the following would lead to stagflation
A leftward shift of the short-run aggregate supply curve only
A high marginal propensity to consume implies which of the following?
A low marginal propensity to save
An increase in personal income taxes will most likely cause aggregate demand and aggregate supply to change in which of the following ways in the short run?
Aggregate Demand . Aggregate Supply Decrease Not change
An increase in the price of a key input will cause the aggregate demand curve and the short-run aggregate supply curve to change in which of the following ways?
Aggregate Demand Curve . Aggregate Supply Curve No change Shift to the left
If marginal business tax rates are decreased, how will aggregate supply and employment change in the long run?
Aggregate Supply . Employment Increase . Increase
Assume the marginal propensity to consume is 0.8. How will a decrease in taxes of $100 billion and a decrease in government spending of $100 billion affect aggregate demand?
Aggregate demand will decrease by $100 billion.
An increase in the purchases of newly constructed houses will result in which of the following?
Aggregate demand will increase as a result of an increase in investment spending.
An economy is at full-employment equilibrium. If consumers and firms become more optimistic about future income and profits, which of the following will occur in the short run?
Aggregate demand will shift rightward, increasing real output and the price level.
Which of the following changes will necessarily cause inflation?
An increase in aggregate demand and a decrease in short-run aggregate supply.
A negative aggregate supply shock will result in which of the following in the short run?
An increase in both the price level and the unemployment rate
Which of the following will most likely cause the short-run aggregate supply curve to shift to the left?
An increase in energy prices
Which of the following is an example of an expansionary fiscal policy?
An increase in government expenditures
Following a decrease in exports, what fiscal policy would restore the economy to the original equilibrium?
An increase in government transfer payments
Assume a country's economy is currently in long-run equilibrium. What is the long-run effect of an increase in aggregate demand?
An increase in the price level
Assume that an economy is currently in long-run equilibrium and the short-run aggregate supply curve is upward sloping. An adverse supply shock, such as a drought, will most likely cause which of the following to the economy in the short run?
An increase in the price level and a decrease in the real wage
A decrease in the prices of inputs will cause which of the following to occur in the short run?
An increase in the short-run aggregate supply and a decrease in the price level
According to the graph above, which of the following is true about the long-run equilibrium of the economy depicted?
As wages increase, the short-run aggregate supply curve will shift to the left to restore long-run equilibrium.
Which of the following is a fiscal policy action aimed at reducing unemployment?
Decreasing income taxes
Assume that the marginal propensity to consume is 0.90. As a result of an increase in the tax rates, the government collects an additional $20 million. What will be the impact on gross domestic product (GDP) ?
GDP will decrease by a maximum of $180 million.
An increase in which of the following will increase aggregate demand?
Government spending
The graph above shows the macroeconomic conditions of Wattsonia. Many economists estimate that the natural rate of unemployment is 6 percent. If this is true and the current rate of unemployment is 5.1 percent, in what range of real gross domestic product is the economy currently producing?
Greater than Y2
An economy experiences a sharp increase in energy prices, and policy makers adopt a stabilization policy to increase aggregate demand. Compared with the initial short-run equilibrium, which of the following will definitely occur?
Higher price level
An increase in which of the following would most likely cause the gross domestic product of a country to decrease in the short run?
Imports
Assuming fixed exchange rates, if country Z's rate of inflation increases relative to its trading partners, Country Z's imports and exports will most likely change in which of the following ways?
Imports: Increase Exports: Decrease
According to the graph above, an increase in aggregate supply will most likely cause income and employment to change in which of the following ways?
Income . Employment Increase . Increase
An increase in which of the following would cause the aggregate demand curve to shift to the left?
Income taxes
If crowding out only partially offsets the effects of a tax cut, which of the following changes in interest rates and gross domestic product are most likely to occur?
Interest Rates . Gross Domestic Product . Increase . Increase
Which of the following statements best describes the concept of an automatic stabilizer?
It is nondiscretionary fiscal policy that mitigates business cycles by increasing aggregate demand during recessions and decreasing aggregate demand during expansions.
Assume a country's government has a balanced budget. If the economy goes into a recession, what will happen to the government's budget in the short run?
It will be in deficit, because there will be an automatic decrease in tax receipts.
An increase in which of the following would most likely result in an increase in aggregate supply?
Labor-force participation rate
A contraction in the money supply will most likely change the nominal interest rate and aggregate demand in which of the following ways in the short run?
Nominal Interest Rate Aggregate Demand Increase Decrease
A decrease in taxes will necessarily result in an increase in which of the following?
Nominal gross domestic product
How does the automatic adjustment mechanism move the economy to potential real gross domestic product (GDP) in the long run when current real GDP is above potential GDP?
Nominal wages rise, shifting the short-run aggregate supply curve to the left.
An economy is in a short-run equilibrium at a level of output that is less than full-employment output. If there were no fiscal or monetary policy interventions, which of the following changes in output and the price level would occur in the long run?
Output . Price Level Increase . Decrease
An increase in energy costs will most likely cause the price level and real gross domestic product to change in which of the following ways?
Price Level . Real Gross Domestic Product Increase Decrease
If a change in aggregate demand results in a recession, the price level and real output will change in which of the following ways in the short run?
Price Level . Real Output Decrease . Decrease
A favorable supply shock, such as a decrease in energy prices, is most likely to have which of the following short-run effects on the price level and output?
Price Level Output Decrease Increase
If fiscal policy is used to correct a recessionary gap, which of the following would most likely occur in the absence of crowding out in the short run?
Real Output . Unemployment Increase . Decrease
An increase in the marginal propensity to consume causes an increase in which of the following?
Spending multiplier
Thailand and Malaysia are trading partners. If the price level in Thailand decreases relative to the price level in Malaysia, what will happen to Thailand's exports to Malaysia and Thailand's aggregate demand?
Thailand's Exports . Thailand's Aggregate Demand . Increase . Increase
An increase in which of the following will increase the value of the spending multiplier?
The marginal propensity to consume
Assume that with a proportional tax system, the government always sets the tax rate at a level that yields a balanced budget at full employment. Which of the following is necessarily true?
The national debt will increase in any year the economy operates below full employment.
An increase in which of the following is most likely to cause the short-run aggregate supply curve to shift to the left?
The per unit cost of production
If a reduction in aggregate supply is followed by an increase in aggregate demand, which of the following will definitely occur?
The price level will increase.
Assume an economy is in a long-run equilibrium. Following a decrease in aggregate demand, which of the following is true in the short run?
The unemployment rate is greater than the natural rate of unemployment, and the rate of inflation is declining.
If policy makers use fiscal policy to reduce inflation, which of the following will most likely happen in the short run?
The unemployment rate will increase.
An unanticipated decrease in aggregate demand will most likely cause the unemployment rate and the inflation rate to change in which of the following ways?
Unemployment Rate . Inflation Rate Increase Decrease
An inflationary gap could be reduced by
an increase in the income tax rate
All of the following changes will shift the investment demand curve to the right EXCEPT
an increase in the real interest rate
An unanticipated decrease in aggregate demand when the economy is in equilibrium will result in
an increase in unplanned inventories
All of the following explain why prices and wages are sticky EXCEPT
competition in the business sector
Assume that the marginal propensity to consume is 0.8. If the government increases its purchases of goods and services by $200 and exports decline by $50, at most the equilibrium level of income will
increase by $750
A discretionary fiscal policy action to reduce inflation in the short run would be to
increase taxes or decrease government spending
An advance in technology will cause the
long-run aggregate supply curve to shift to the right
Assume that the economy is in long-run equilibrium. A shift in the aggregate demand curve will change
only the price level in the long run
An aggregate supply curve may be horizontal over some range because within that range
resources are underemployed and an increase in demand will be satisfied without any pressure on the price level
An increase in the expected inflation rate will cause the
short-run Phillips curve to shift to the right
A decrease in labor productivity will shift the
short-run aggregate supply curve to the left
