ap econ unit 3

A major advantage of the built-in or automatic stabilizers is that they A) automatically produce surpluses during recessions and deficits during inflations. B) guarantee that the federal budget will be balanced over the course of the business cycle. C) require no legislative action by Congress to be made effective. D) simultaneously stabilize the economy and reduce the absolute size of the public debt.

c

In the diagram, a shift from AS1 to AS2 might be caused by A) an increase in business taxes. B) a decrease in the prices of domestic resources. C) stricter government regulations. D) an increase in the prices of imported resources.

b

Discretionary fiscal policy refers to A) intentional changes in taxes and government expenditures made by Congress to stabilize the economy. B) any change in government spending or taxes that destabilizes the economy. C) the changes in taxes and transfers that occur as GDP changes. D) the authority that the president has to change personal income tax rates.

a

Graphically, cost-push inflation is shown as a A) leftward shift of the AS curve. B) leftward shift of the AD curve. C) rightward shift of the AS curve. D) rightward shift of the AD curve.

a

In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to A) increase aggregate demand. B) reduce aggregate demand. C) affect neither aggregate supply nor aggregate demand. D) reduce aggregate supply.

a

Other things equal, an improvement in productivity will A) shift the aggregate supply curve to the right. B) increase the price level. C) shift the aggregate demand curve to the left. D) shift the aggregate supply curve to the left.

a

Which of the diagrams for the U.S. economy best portrays the effects of an increase in resource productivity? A) A B) B C) C D) D

a

An expansionary fiscal policy is shown as a A) movement along an existing aggregate demand curve. B) rightward shift in the economy's aggregate demand curve. C) leftward shift in the economy's aggregate demand curve. D) leftward shift in the economy's aggregate supply curve.

b

If investment decreases by $20 billion and the economy's MPC is 0.5, the aggregate demand curve will shift A) rightward by $40 billion at each price level. B) leftward by $20 billion at each price level. C) leftward by $40 billion at each price level. D) rightward by $20 billion at each price level.

c

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, an increase in investment spending is depicted by A) A. B) B. C) C. D) B and C.

c

Suppose the price level is fixed, the MPC is 0.5, and the GDP gap is a negative $80 billion. To achieve full-employment output (exactly), government should A) reduce taxes by $40 billion. B) increase government expenditures by $80 billion. C) reduce taxes by $80 billion. D) reduce government expenditures by $40 billion.

c

Other things equal, a decrease in the real interest rate will A) reduce investment and shift the AD curve to the right. B) expand investment and shift the AD curve to the left. C) reduce investment and shift the AD curve to the left. D) expand investment and shift the AD curve to the right.

d

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S. A) aggregate demand curve would shift to the left. B) aggregate supply curve would shift to the left. C) aggregate supply curve would shift to the right. D) aggregate demand curve would shift to the right.

d

Refer to the diagram, in which Qf is the full-employment output. A contractionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at A) AD0. B) AD1. C) AD2. D) AD3.

d

An increase in personal income taxes would shift AD to the A) right because G will increase. B) right because C will increase. C) left because G will decrease. D) left because C will decrease.

d

Expansionary fiscal policy is so named because it A) involves an expansion of the nation's money supply. B) is aimed at achieving greater price stability. C) necessarily expands the size of government. D) is designed to expand real GDP.

d

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. A recession is depicted by A) A. B) B. C) C. D) A and B.

d

Given a fixed upsloping AS curve, a rightward shift of the AD curve will A) increase the price level but not real output. B) increase real output but not the price level. C) increase both the price level and real output. D) cause cost-push inflation.

c

A rightward shift of the AD curve in the very flat part of the short-run AS curve will A) increase real output by more than the price level. B) reduce the price level by more than real output. C) increase the price level by more than real output. D) reduce real output by more than the price level.

a

The determinants of aggregate supply A) include resource prices and resource productivity. B) explain why real domestic output and the price level are directly related. C) are consumption, investment, government, and net export spending. D) explain the three distinct ranges of the aggregate supply curve.

a

Which of the following represents the most contractionary fiscal policy? A) a $30 billion decrease in government spending. B) a $30 billion tax cut C) a $30 billion tax increase D) a $30 billion increase in government spending

a

Graphically, demand-pull inflation is shown as a A) leftward shift of the AS curve along an upsloping AD curve. B) rightward shift of the AD curve along an upsloping AS curve. C) leftward shift of the AS curve along a downsloping AD curve. D) rightward shift of the AD curve along a downsloping AS curve.

b

If investment increases by $10 billion and the economy's MPC is 0.8, the aggregate demand curve will shift A) leftward by $40 billion at each price level. B) rightward by $50 billion at each price level. C) rightward by $10 billion at each price level. D) leftward by $50 billion at each price level.

b

If the MPC in an economy is 0.8, government could shift the aggregate demand curve rightward by $100 billion by A) increasing government spending by $80 billion. B) decreasing taxes by $25 billion. C) decreasing taxes by $100 billion. D) increasing government spending by $25 billion.

b

In the diagram, the economy's relevant aggregate demand and long-run aggregate supply curves, are lines A) 2 and 4, respectively. B) 4 and 1, respectively. C) 2 and 3, respectively. D) 4 and 2, respectively.

b

Refer to the diagram, in which Qf is the full-employment output. If aggregate demand curve AD1 describes the current situation, appropriate fiscal policy would be to A) reduce taxes on businesses to shift the aggregate supply curve leftward. B) reduce taxes and increase government spending to shift the aggregate demand curve from AD1 to AD2. C) do nothing since the economy appears to be achieving full-employment real GDP. D) increase taxes and reduce government spending to shift the aggregate demand curve rightward to AD2.

b

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Cost-push inflation is depicted by A) A. B) B. C) C. D) B and C.

b

Which of the diagrams for the U.S. economy best portrays the effects of a dramatic increase in energy prices? A) A B) B C) C D) D

b

Which of the following best describes the built-in stabilizers as they function in the United States? A) Personal and corporate income tax collections automatically fall and transfers and subsidies automatically rise as GDP rises. B) Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises. C) The size of the multiplier varies inversely with the level of GDP. D) Personal and corporate income tax collections and transfers and subsidies all automatically vary inversely with the level of GDP.

b

Which of the following is considered a legitimate concern of a large public debt? A) collapse of the financial system B) crowding out of private investment C) burdening future generations D) bankruptcy of the federal government

b

An appropriate fiscal policy for a severe recession is A) a decrease in government spending. B) an increase in interest rates. C) a decrease in tax rates. D) appreciation of the dollar.

c

An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the A) real-balances effect. B) wealth effect. C) multiplier effect. D) net export effect.

c

Contractionary fiscal policy is so named because it A) necessarily reduces the size of government. B) involves a contraction of the nation's money supply. C) is aimed at reducing aggregate demand and thus achieving price stability. D) is expressly designed to expand real GDP.

c

The crowding-out effect of expansionary fiscal policy suggests that A) consumer and investment spending always vary inversely. B) it is very difficult to have excessive aggregate spending in the U.S. economy. C) increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment. D) tax increases are paid primarily out of saving and therefore are not an effective fiscal device.

c

The economy's long-run aggregate supply curve A) slopes downward and to the right. B) is horizontal. C) is vertical. D) slopes upward and to the right.

c

If the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $40 billion by A) increasing taxes by $4 billion. B) decreasing taxes by $4 billion. C) increasing government spending by $40 billion. D) increasing government spending by $4 billion.

d

In the diagram, a shift from AS2 to AS3 might be caused by a(n) A) decrease in interest rates. B) decrease in the prices of domestic resources. C) decrease in the price level. D) increase in business taxes and costly government regulation.

d

In the figure, AD1 and AS1 represent the original aggregate supply and demand curves, and AD2 and AS2 show the new aggregate demand and supply curves. The changes in aggregate demand and supply in the diagram produce A) a higher price level. B) an expansion of real output and a higher price level. C) a decline in real output and a stable price level. D) an expansion of real output and a stable price level.

d

Refer to the diagram. A shift of the aggregate demand curve from AD1 to AD0 might be caused by a(n) A) decrease in the amount of output supplied. B) decrease in net export spending. C) decrease in aggregate supply. D) increase in investment spending.

d

The determinants of aggregate demand A) explain why the aggregate demand curve is downsloping. B) include input prices and resource productivity. C) demonstrate why real output and the price level are inversely related. D) explain shifts in the aggregate demand curve.

d