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Look at the figure Aggregate Supply. If the economy is at point E:
actual output is more than potential output
Look at the figure Macroeconomic Equilibrium Curve 1 refers to _______, curve 2 refers to ________, and curve 3 refers to ___________.
aggregate demand; long-run aggregate supply, short run aggregate supply
The long-run aggregate supply curve is vertical because in the long run:
all prices are flexible
Suppose that a presidential candidate who promised large personal income tax cuts is elected. which of the following is most likely?
an increase in aggregate demand
Look at the figure shift of the aggregate demand curve. a movement from AD1 to AD2 may have been the result of
an increase in government spending
The short-run aggregate supply curve would shift to the left for all the following reasons EXCEPT
an increase in interest rates
Stagflation may results from:
an increase in the price of oil.
Look at the fiscal policy choices. in panel (b), if real GDP is equal to Y1 there is
an inflationary gap
A government might want to increase aggregate demand to
close a recessionary gap
Look at the figure AD-AS model I. If the economy is at point X, the appropriate fiscal policy is to:
decrease taxes and increase government spending
If the price level rises by 10%, the purchasing power of 10,000 will:
decrease to $9,000
A contradictionary fiscal policy either____ government spending or ____ taxes.
decreases; increases
A recessionary gap can be closed by ______ wages that shift the ____.
falling; SRAS curve rightward
Look at the figure Inflationary and Recessionary Gaps. at E3 the economy:
has an inflationary gap
Look at the figure inflationary and recessionary gaps. A movement from AD3 to AD1 could be caused by:
higher tax rates
The short-run aggregate supply curve slopes upward because a _____ aggregate price level leads to ________.
higher; higher output, since most production costs are fixed in the short run
Look at the figure Inflationary and Recessionary Gaps. The intersection of SRAS with AD in panel (a) indicates an economy
in a recessionary gap.
Look at the figure policy alternatives. Assume that the economy depicted in panel (a) is in short-run equilibrium at a real GDP level of Y1. The economy will correct itself:
in the long run as wages fall
Look at the figure Shift of the Aggregate Demand Curve. A movement from point A on AD1 to point C on AD2 could have resulted from a(n)
increase in the total quantity of consumer goods and services demanded
Look at the figure short-run equilibrium. if the economy is at equilibrium at Y1 and P1, and appropriate policy to return the economy to potential output would be a(n)
increase taxes
Look at the figure Fiscal Policy Choices. if the government uses discretionary fiscal policy for the economy in panel (a) when real GDP is Y1 government spending is likely to be ____ and taxes are likely to be ____.
increased; cut
Stagflation is a combination of ________ unemployment and ______ inflation.
increasing; increase
Look at the figure Short-Run Equilibrium. If the economy is at equilibrium at Y1 and P1, it is in a(n):
inflationary gap
if the economy is at the equilibrium above potential output, there is a ___ gap and ___ fiscal policy is appropriate
inflationary; contractionary
The interest rate effect is the tendency for changes in the price level to affect
interest rates an thus the quantity of investment spending and consumption
Aggregate demand will increase in all of the following cases except when
interest rates increase
Look at the figure inflationary and Recessionary gaps. At E2 the economy;
is in equilibrium
If the marginal propensity to consume is 0.75, the multiplier for taxes and transfer payments is
less than 4
An expansionary fiscal policy
may include decreases in taxes
Look at the fiscal policy choices. It would be appropriate to use contractionary fiscal policy to shift aggregate demand in ____ from ___
panel (b) AD1 to AD2
Look at the figure shifts of the AD-AS curves. an increase in wages in the short run is illustrated by
panel D
Look at the figure shifts of the AD-AS curves. A short run increase in net exports is illustrated by
panel a
Look at the figure shifts of the AD-AS curves. A short run decrease in investment spending is illustrated by
panel b
Look at the figure shifts of the AD-AS curves. a decrease in wages in the short run is illustrated by
panel c
Look at the figure AD-AS model I. If the economy is at point X, there is a(n) ____ gap with ____ unemployment.
recessionary; high
To close an inflationary gap with fiscal policy the government could
reduce budget allocations to interstate highway maintenance
Look at the figure Fiscal Policy choices. if the government uses discretionary fiscal policy for the economy in panel (b) when real GDP is Y1 government spending is likely to be ____ and taxes are likely to be ___.
reduced; increased
All of the following are examples of fiscal policy EXCEPT
reducing the interest rate by increasing the money supply
Look at the figure An Increase in Aggregate Demand. The short-run equilibrium at Y2 and P2
results in an inflationary gap
If the stock of physical capital increases, all other things unchanged, the aggregate demand curve will
shift to the left
Suppose that consumer expectations improve. The aggregate demand curve will undergo a
shift to the right
Look at the figure Short-Run equilibrium. The economy is in short-run equilibrium. To move the economy to potential GDP, the government should reduce its spending by an amount equal to
(Y1-Yp)(1-MPC).
If checking account has an interest rate of 1% and a Treasury bill has an interest rate of 2%, the opportunity cost of holding the checking account as money is
1%
If the marginal propensity to save is 0.1, then the government spending multiplier has a value of
10
If the marginal propensity to save is .025, investment spending is $700 million, and the government increases its purchases of goods and service by $100 million, then real GDP increases by:
400 Million
Look at the figure AD-AS Model II. when firms decrease their investment spending, in the short run the ____ curve will shift to the _____.
AD ; left
Look at the figure Fiscal Policy I. Suppose that this economy is in equilibrium at E1. If there is a decrease in taxes, ________ will shift to the ______, causing a(n) _______ in the price level and a(n) in real GDP.
AD1: right : increase : increase
Look at the figure Fiscal Policy I. Suppose that this economy is in equilibrium at E2. If there is a decrease in government purchases, ____ will shift to the ______, causing a(n) _____ in the price level and a(n)______ in real GDP.
AD2: left; decrease; decrease
Look at the figure an increase in aggregate Demand. Because of the pressures at the short-run equilibrium at Y2 and P2
the SRAS curve will shift to the left
An increase in government transfers is an example of _____ fiscal policy because it shifts the aggregate demand curve to the _____ aggregate output.
Expansionary; right, increasing
Potential output is the level of real GDP that
the economy would produce if all prices, including nominal wages, were fully flexible.
which of the following is Not a government transfer payment
the federal payroll
A cut in taxes ______, shifting the aggregate demand curve to the _____.
Increases disposable income and consumption; right
when short-run aggregate supply decreases it means that the short-run aggregate supply curve shifts to the _____ and the quantity of aggregate output that producers are willing to supply _______.
Left; decreases
The U.S. national debt as a percentage of GDP is ______ that of Greece.
Lower Than
The aggregate demand curve is downward sloping because of
the wealth effect of a change in aggregate price level
An inflationary gap will be eliminated because there is ____ pressure on wages, shifting the ____.
upward; short-run aggregate supply curve to left
Look at the figure Fiscal Policy Choices. it would be appropriate to use confectionary fiscal policy to shift aggregate demand in ______ from ______.
Panel (a) AD1 to AD2
All of the following are examples of fiscal policy EXCEPT:
Reducing the money supply to raise the interest rate
According to the aggregate demand curve, when the aggregate price level ______, the quantity of aggregate output _______.
Rises; demanded falls
Look at the figure AD-AS Model II. If nominal wages fall, in the short run the _____ curve will shift to the ____.
SRAS; right
Look at the figure Aggregate Supply movements. Which statement is Correct?
Short-run aggregate supply has decreased.
Which of the following represents the government budget balance most accurately?
T-G-TR
Look at the figure Inflationary and Recessionary Gaps. Which of the following measures a recessionary gap?
Y2-Y1
Look at the figure Short-Run Equilibrium. Appropriate fiscal policy action is:
a decrease in transfer payments.
Look at the figure Policy Alternatives. The economy in panel (b) is initially in short-run equilibrium at real GDP level Y1 and price level P2. At real GDP level Y1 there is
a recessionary gap
Look at the figure Policy alternative. Suppose that the initial equilibrium is at real GDP level Y1 and price level P2 in panel (a). at real GDP level Y1 there is
a recessionary gap
Look at the figure inflationary and recessionary gaps. If the economy is in short-run equilibrium at Y1 in panel(a) the economy is in
a recessionary gap
Look at the figure Fiscal Policy Choices. In panel (a), the economy is initially at output level Y1 and there is:
a recessionary gap.
Look at the figure Inflationary and Recessionary gaps. The intersection of AD with SRAS in panel (b) indicates:
a short-run equilibrium
which of the following will shift the short-run aggregate supply curve to the RIGHT?
a widespread decrease in commodity prices