Chap 10, 11 ECON 102 practice test

Which movement illustrates the impact of a falling price level and a constant money wage rate? A) E to J (downward on LAS) B) E to F (upward on SAS) C) E to H (to left of equilibrium) D) E to I (downward on SAS)

D) E to I (downward on SAS)

When real GDP exceeds aggregate planned expenditure A) a higher level of equilibrium income will prevail. B) actual inventories decrease below their target. C) the circular flow will increase. D) GDP will decrease.

D) GDP will decrease.

Aggregate demand increases when A) the exchange rate rises. B) foreign incomes fall. C) interest rates rise. D) None of the answers provided are correct.

D) None of the answers provided are correct.

A shift in aggregate demand to the left might be the result of A) an increase in the price level. B) a decrease in the price level. C) an increase in the quantity of money. D) a decrease in government expenditures.

D) a decrease in government expenditures.

Disposable income is equal to A) aggregate income plus transfer payments. B) aggregate income minus taxes plus government expenditures on goods and services. C) consumption expenditure minus taxes plus transfer payments. D) aggregate income minus taxes plus transfer payments.

D) aggregate income minus taxes plus transfer payments.

The graph of the aggregate expenditure curve has ________ on the y-axis and ________ on the x-axis. A) aggregate actual expenditure; real GDP B) household expenditures; real GDP C) real GDP; aggregate planned expenditure D) aggregate planned expenditure; real GDP

D) aggregate planned expenditure; real GDP

The size of the multiplier A) is unaffected by the amount of time that elapses. B) is constant in the long run. C) increases in the long run. D) decreases in the long run

D) decreases in the long run

If the price level rises, the purchasing power of wealth A) increases at first but in the long run decreases. B) does not change. C) increases. D) decreases.

D) decreases.

19) Which of the following is NOT an autonomous expenditure in the aggregate expenditure model? A) exports B) investment C) government expenditures D) imports

D) imports

In a short-run macroeconomic equilibrium, potential GDP exceeds real GDP. If aggregate demand does not change, then the A) short-run aggregate supply curve will shift leftward as the money wage rate rises. B) long-run aggregate supply curve will shift leftward as the money wage rate falls. C) long-run aggregate supply curve will shift leftward as the money wage rate rises. D) short-run aggregate supply curve will shift rightward as the money wage rate falls.

D) short-run aggregate supply curve will shift rightward as the money wage rate falls.

In the above figure the economy is initially at point A on the aggregate expenditure curve AE0. Suppose firms expect profits to increase and decide to increase investment. As a result A) there is a movement along AE0 to a point such as B. B) there is a movement along AE0 to a point such as C. C) the AE curve shifts downward to a curve such as AE1. D) the AE curve shifts upward to a curve such as AE2

D) the AE curve shifts upward to a curve such as AE2

Suppose the price level is fixed. If investment increases by $1 trillion and the aggregate expenditure curve is shown in the figure above, (slope of curve= 2/3) equilibrium expenditure will increase by A) $3 trillion. B) less than $1 trillion. C) $1 trillion. D) indeterminate from the information given

A) $3 trillion.

Real GDP; C; I; G; X; M 100; 75; 25; 95; 10; 1 200; 150; 25; 95; 10; 2 300; 225; 25; 95; 10; 3 400; 300; 25; 95; 10; 4 500; 375; 25; 95; 10; 5 600; 450; 25; 95; 10; 6 700; 525; 25; 95; 10; 7 800; 600; 25; 95; 10; 8 900; 675; 25; 95; 10; 9 1000; 750; 25; 95; 10; 10 In the above table, C is consumption expenditure, I is investment, G is government expenditure, X is exports, and M is imports. All entries are in dollars. What is the unplanned inventory change when GDP is equal to $400? A) -$26 B) -$5 C) $5 D) $26

A) -$26

What happens to LAS and SAS curve if there is a destruction of part of the nation's capital stock? A) LAS and SAS curve shift left B) only SAS curve shifts left C) LAS and SAS curve shift right D) only SAS curve shifts right

A) LAS and SAS curve shift left

Which of the following events will increase long-run aggregate supply? A) an advance in technology B) an increase in resource prices C) a decrease in expected profit D) an increase in the interest rate

A) an advance in technology

Business cycle turning points are A) brought about by changes in autonomous expenditures that are then subject to the multiplier effect. B) unaffected by, and unrelated to the multiplier. C) easy to predict. D) None of the answers provided are correct.

A) brought about by changes in autonomous expenditures that are then subject to the multiplier effect.

A Keynesian economist believes that A) if the economy was left alone, it would rarely operate at full employment. B) the economy is self-regulating and will normally, though not always, operate at full employment if fiscal policy is not erratic. C) the economy is self-regulating and always at full employment. D) the economy is self-regulating and will normally, though not always, operate at full employment if monetary policy is not erratic.

A) if the economy was left alone, it would rarely operate at full employment.

Suppose that the slope of the AE curve is 0.67. Then a $100 increase in autonomous spending means equilibrium expenditure will A) increase by $300. B) decrease by $300. C) decrease by $200. D) increase by $200.

A) increase by $300.

The slope of the saving function is equal to the A) marginal propensity to save. B) marginal propensity to consume divided by the marginal propensity to save. C) marginal propensity to save divided by the marginal propensity to consume. D) marginal propensity to consume.

A) marginal propensity to save.

The short-run aggregate supply curve shifts leftward when the A) money wage rate increases. B) general level of technology advances. C) price level increases. D) availability of on-the-job training expands to all workers.

A) money wage rate increases.

"Dissaving" occurs when A) saving is negative. B) the consumption function is below the 45-degree line drawn from the origin. C) income exceeds consumption expenditure. D) saving is positive.

A) saving is negative.

A decrease in autonomous consumption will A) shift the aggregate expenditure function downward. B) decrease the marginal propensity to consume. C) decrease the marginal propensity to save. D) change the slope of the aggregate expenditure curve.

A) shift the aggregate expenditure function downward.

With an increase in the capital stock, the short-run aggregate supply curve A) shifts rightward. B) shifts leftward. C) becomes steeper. D) remains as it is.

A) shifts rightward.

The AD curve will shift rightward if A) taxes decrease. B) the substitution effect occurs. C) expected future profits decrease. D) the quantity of money decreases.

A) taxes decrease.

Which movement illustrates the impact of the price level and money wage rate rising at the same rate? E= equilibrium A) E to K (to right of equilibrium) B) E to G (upward on LAS) C) E to J (downward on LAS) D) E to H (to left of equilibrium)

B) E to G (upward on LAS)

If the expected future inflation rate decreases, then A) long-run aggregate supply decreases. B) aggregate demand decreases. C) aggregate demand increases. D) short-run aggregate supply increases.

B) aggregate demand decreases.

Disposable income ________ when ________. A) decreases; transfer payments increase B) decreases; taxes increase C) decreases; aggregate income increases D) increases; government expenditures decrease

B) decreases; taxes increase

An increase in autonomous consumption to $4 trillion with no change to the MPC would cause the consumption function to A) exhibit a parallel shift downward. B) exhibit a parallel shift upward. C) become steeper. D) become flatter.

B) exhibit a parallel shift upward.

When aggregate planned expenditure is $2 trillion, aggregate planned expenditure is ________ than real GDP, firms' inventories ________, and firms ________ their production. A) less; decrease; increase B) greater; decrease; increase C) less; increase; decrease D) greater; increase; decrease

B) greater; decrease; increase

The long-run aggregate supply (LAS) curve A) has a positive slope. B) is vertical. C) has a negative slope. D) is horizontal.

B) is vertical.

In the long run, the multiplier A) is greater than 1 because of the position and slope of the SAS curve. B) is zero. C) is twice the short-run multiplier. D) depends on the slope of the AD curve.

B) is zero.

The U.S. exchange rate rises. As a result, there is a A) rightward shift of the U.S. aggregate demand curve. B) leftward shift of the U.S. aggregate demand curve. C) movement along the U.S. aggregate demand curve but the curve does not shift. D) rightward shift of the long-run U.S. aggregate supply curve.

B) leftward shift of the U.S. aggregate demand curve.

Because of changes in the ________, the long-run effect of a $10 increase in investment on real GDP equals ________. A) interest rate; zero B) money wage rate and price level; zero C) interest rate; $10 D) money wage rate and price level; $10

B) money wage rate and price level; zero

What happens to LAS and SAS curve when there is an increase in the money wage rate? A) LAS and SAS curve shift left B) only SAS curve shifts left C) LAS and SAS curve shift right D) only SAS curve shifts right

B) only SAS curve shifts left

If the aggregate demand curve shifts ________ faster than the long-run aggregate supply curve, then ________ occurs. A) leftward; economic growth B) rightward; inflation C) rightward; economic growth D) leftward; inflation

B) rightward; inflation

In the above figure, B is the current long-run aggregate supply curve and E is the current short-run aggregate supply curve. Technological advances mean the long-run aggregate supply curve and the short-run aggregate supply curve A) shift right to C and remain E, respectively. B) shift right to C and right to F, respectively. C) shift left to A and left to D, respectively. D) remain B and E.

B) shift right to C and right to F, respectively.

Price level; AD; SAS; LAS 140; 4; 8; 7 130; 5; 7; 7 120; 6; 6; 7 110; 7; 5; 7 100; 8; 4; 7 The data in the above table show that when the price level is 120, if aggregate demand does not change then the A) short-run aggregate supply curve will shift leftward. B) short-run aggregate supply curve will shift rightward. C) long-run aggregate supply curve will shift rightward. D) long-run aggregate supply curve will shift leftward.

B) short-run aggregate supply curve will shift rightward.

Moving along which curve does the money wage rate and the price level change in the same proportions? A) the AD curve B) the LAS curve C) the SAS curve D) None of the answers provided because there is no curve along which both the money wage rate and the price level change in the same proportions.

B) the LAS curve

The smaller the slope of the AE curve, A) the greater is the value of the multiplier. B) the smaller is the value of the multiplier. C) the smaller is slope of the saving function. D) the steeper is the consumption function.

B) the smaller is the value of the multiplier.

Intertemporal substitution means changes in purchases A) across different stores. B) through time. C) between imports and exports. D) across different goods and services.

B) through time.

disposable income; consumption expenditure 0; 100 100; 180 300; 340 500; 500 700; 660 900; 820 In the above table, savings are positive when disposable income is greater than A) zero. B) $300. C) $500. D) $100.

C) $500.

Between 2012 and 2013 real GDP increased by $600 billion and imports increased by $90 billion. Based on these data, the marginal propensity to import equals A) 6.67. B) 0.90. C) 0.15. D) 0.25

C) 0.15.

Real GDP; C; I; G; X; M 100; 75; 25; 95; 10; 1 200; 150; 25; 95; 10; 2 300; 225; 25; 95; 10; 3 400; 300; 25; 95; 10; 4 500; 375; 25; 95; 10; 5 600; 450; 25; 95; 10; 6 700; 525; 25; 95; 10; 7 800; 600; 25; 95; 10; 8 900; 675; 25; 95; 10; 9 1000; 750; 25; 95; 10; 10 In the above table, C is consumption expenditure, I is investment, G is government expenditure, X is exports, and M is imports. All entries are in dollars. What is the marginal propensity to consume? A) 0.25 B) 0.80 C) 0.75 D) 0.20

C) 0.75

price level; real GDP demanded; short run real GDP supplied; long run real GDP supplied 90; 700; 300; 600 100; 600; 400; 600 110; 500; 500; 600 120; 400; 600; 600 The table above gives the aggregate demand and aggregate supply schedules in Lotus Land. With no changes in aggregate demand or long-run aggregate supply, in long-run macroeconomic equilibrium, the price level will be ________ and real GDP will be ________. A) 110; $500 B) 90; $400 C) 100; $600 D) 120; $400

C) 100; $600

What could Keynes have meant by his now famous statement, "in the long run we are all dead?" A) Government intervention in the economy is only effective if it is not erratic. B) Government intervention in the economy is useless because it takes too long to take effect. C) Government intervention in the economy is necessary in times of recession because an economy rarely restores itself to fullemployment. D) Government intervention is destabilizing, will lead to slower growth in the long run, and will prevent an economy from selfregulating.

C) Government intervention in the economy is necessary in times of recession because an economy rarely restores itself to fullemployment.

________ economists believe that the economy is self-regulating and will be at full employment as long as monetary policy is not erratic. A) All B) Keynesian C) Monetarist D) Classical

C) Monetarist

You observe that unplanned inventories are increasing. You predict that there will be A) an expansion. B) a business cycle. C) a recession. D) a trough.

C) a recession.

The economy is initially at point B on the original AD curve. If the Fed decreases the quantity of money, there is A) a movement upward and to the left along the aggregate demand curve B) a movement downward and to the right along the aggregate demand curve C) a shift in aggregate demand to the left D) a shift in aggregate demand to the right

C) a shift in aggregate demand to the left

The economy is initially at point B on the original AD curve. If the government decreases transfer payments, there is A) a movement upward and to the left along the aggregate demand curve B) a movement downward and to the right along the aggregate demand curve C) a shift in aggregate demand to the left D) a shift in aggregate demand to the right

C) a shift in aggregate demand to the left

An increase in U.S. exports prompted by a rise in foreign incomes represents ________ in the United States. A) a decrease in autonomous expenditure B) a decrease in induced expenditure C) an increase in autonomous expenditure D) an increase in induced expenditure

C) an increase in autonomous expenditure

Which of the following shifts the aggregate demand curve rightward? A) a decrease in consumption B) a decrease in net exports C) an increase in investment D) a decrease in government expenditure on goods and services

C) an increase in investment

Suppose that the economy begins at a long-run equilibrium. Which of the following raises the price level and decrease real GDP in the short run? A) an increase in the stock of capital that increases aggregate supply B) an increase in government expenditures C) an increase in the price of oil that decreases aggregate supply D) a decrease in the quantity of money

C) an increase in the price of oil that decreases aggregate supply

Suppose that in a particular economy, the multiplier is equal to 5. In terms of aggregate demand and aggregate supply, this value for the multiplier means that after an increase in investment A) at each price level, the aggregate supply curve shifts rightward by an amount equal to 5 times the change in investment. B) at each level of real GDP, the aggregate supply curve shifts upward by an amount equal to 5 times the change in investment. C) at each price level, the aggregate demand curve shifts rightward by an amount equal to 5 times the change in investment. D) at each level of real GDP, the aggregate demand curve shifts upward by an amount equal to 5 times the change in investment.

C) at each price level, the aggregate demand curve shifts rightward by an amount equal to 5 times the change in investment

The intertemporal substitution effect of a change in the price level results from a A) change in the purchasing power of wealth. B) change in the price of foreign goods relative to domestic goods. C) change in the price of current goods relative to future goods. D) Both answers B and C are correct.

C) change in the price of current goods relative to future goods.

Imports A) increase the size of the multiplier because imports make disposable income less than real GDP. B) decrease the size of the multiplier because imports lead to an increase in taxes and government purchases. C) decrease the size of the multiplier because spending on imports does not increase real GDP in the domestic nation. D) increase the size of the multiplier because imports are paid for by exports.

C) decrease the size of the multiplier because spending on imports does not increase real GDP in the domestic nation.

An economy currently has an inflationary gap. An increase in the money wage rate will ________ the inflationary gap and ________ the price level. A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease

C) decrease; increase

If the price level increases, the AE curve shifts A) upward and there is movement along the AD curve. B) downward and the AD curve shifts rightward. C) downward and there is movement along the AD curve. D) upward and the AD curve shifts leftward.

C) downward and there is movement along the AD curve.

the short-run aggregate supply curve is SAS and the aggregate demand curve is AD. An inflationary gap exists A) if the long-run aggregate supply curve is LAS3 (to right of original LAS). B) if the long-run aggregate supply curve is LAS2 (original LAS curve). C) if the long-run aggregate supply curve is LAS1 (to left of original LAS). D) None of the answers provided are correct.

C) if the long-run aggregate supply curve is LAS1 (to left of original LAS).

price level; AD; SAS; LAS 130; 8; 12; 10 120; 9; 11; 10 110; 10; 10; 10 100; 11; 9; 10 90; 12; 8; 10 The data in the above table indicate that when the price level is 120 A) the unemployment rate is at its equilibrium level. B) the economy is in a long-run macroeconomic equilibrium. C) inventories rise and the price level falls. D) inventories fall and the price level rises.

C) inventories rise and the price level falls.

The larger the multiplier, the ________ the AE curve and the ________ the AD curve from an increase in investment. A) steeper; smaller the shift in B) flatter; larger the movement along C) steeper; larger the shift in D) flatter; smaller the movement along

C) steeper; larger the shift in

If income taxes increase, A) the AE curve becomes steeper. B) there is a movement leftward along the unchanged AE curve. C) the AE curve becomes flatter. D) there is a movement rightward along the unchanged AE curve

C) the AE curve becomes flatter

When autonomous expenditure decreases, A) the AE curve shifts upward. B) the AE curve becomes less steep. C) the AE curve shifts downward. D) there is a movement down along the AE curve.

C) the AE curve shifts downward.

Other things constant, the economy's aggregate demand curve shows that A) as the price level falls, real GDP decreases. B) the quantity of real GDP demanded and the price level are not related. C) the quantity of real GDP demanded decreases when the price level rises. D) any change in the price level shifts the aggregate demand curve.

C) the quantity of real GDP demanded decreases when the price level rises.

The aggregate demand curve illustrates that, as the price level rises A) the AD curve shifts rightward. B) the quantity of real GDP demanded increases. C) the quantity of real GDP demanded decreases. D) the AD curve shifts leftward.

C) the quantity of real GDP demanded decreases.

The aggregate demand curve slopes downward because of A) the MPC. B) the multiplier. C) wealth and substitution effects. D) import and taxation effects.

C) wealth and substitution effects.

After an increase in autonomous spending, in the long run a change in the price level A) will not affect the multiplier. B) will make the AE curve flatter. C) will reduce the effect of the multiplier. D) will make the AE curve steeper

C) will reduce the effect of the multiplier.

Real GDP; C; I; G; X-M 2500; 1430; 540; 400; 90 2400; 1360; 540; 400; 100 2300; 1290; 540; 400; 110 2200; 1220; 540; 400; 120 2100; 1150; 540; 400; 130 In the above table, C is consumption expenditure, I is investment, G is government expenditure, and X - M is net exports. All entries are in dollars. The equilibrium level of real GDP is A) $2,500. B) $2,200. C) $2,300. D) $2,400.

D) $2,400.

real GDP; C; I; G 3000; 2500; 500; 500 4000; 3250; 500; 500 5000; 4000; 500; 500 6000; 4750; 500; 500 7000; 5500; 500; 500 8000; 6250; 500; 500 In the above table, there are no taxes and no imports or exports. The total level of expenditure in the economy when real GDP is $7,000 is A) $7,000. B) 0.75. C) $13,500. D) $6,500.

D) $6,500.

Which of the following statements CORRECTLY describes the policy stance of a macroeconomist? A) A new classical macroeconomist believes that fiscal and monetary policy are required to maintain full employment. B) A monetarist believes that the quantity of money should be constantly changed in order to offset changes in aggregate demand. C) A Keynesian believes that if taxes are always kept low and the quantity of money is kept on a steady growth path, no policy actions will be needed to maintain full employment. D) A new classical macroeconomist believes that business cycle fluctuations are the efficient responses of a well-functioning market economy that is bombarded by shocks.

D) A new classical macroeconomist believes that business cycle fluctuations are the efficient responses of a well-functioning market economy that is bombarded by shocks.

If the quantity of money increases, the A) AD curve does not shift and there is a movement upward along the curve. B) price level rises and the AD curve does not shift. C) AD curve shifts leftward and aggregate demand decreases. D) AD curve shifts rightward and aggregate demand increases.

D) AD curve shifts rightward and aggregate demand increases.

Disposable income is A) income plus transfer payments minus consumption expenditure. B) income minus saving. C) total income divided by the price level. D) income minus taxes plus transfer payments.

D) income minus taxes plus transfer payments

Any expenditure component that depends on the level of real GDP is called A) spurious expenditure. B) equilibrium expenditure. C) autonomous expenditure. D) induced expenditure.

D) induced expenditure.

The multiplier effect exists because a change in autonomous expenditure A) prompts further exports. B) will undergo its complete effect in one round. C) leaves the economy in the form of imports. D) leads to changes in income, which generate further spending.

D) leads to changes in income, which generate further spending.

The short-run multiplier is equal to 3, real GDP equals potential GDP of $8,000, and the price level is equal to 100. Suppose that government expenditure decreases by $200. The LONG-RUN effect of the decrease in government expenditure changes real GDP by A) an increase of 600. B) a decrease of $200 because in the long-run, the multiplier is 1. C) a decrease of 600. D) nothing; that is, in the long run real GDP equals $8,000.

D) nothing; that is, in the long run real GDP equals $8,000.

If the economy is initially at point a on the original AD curve, in increase in ________ will move the economy to _______. A) expected future income; downward and to the right to point c B) real wealth from the fall in the price level; point b on AD curve shifted to the right C) expected future income; upward and to the left to point d D) real wealth from the fall in price level; downward and to the right to point c

D) real wealth from the fall in price level; downward and to the right to point c

The land of Mordor increases its capital stock. As a result, the long-run aggregate supply curve shifts ________ and so does the ________ curve. A) rightward; aggregate demand B) leftward; aggregate demand C) leftward; short-run aggregate supply D) rightward; short-run aggregate supply

D) rightward; short-run aggregate supply

In an economy, the multiplier is 3. If government expenditure increases by $1 million, then in the short run, the price level ________ and real GDP ________ $3 million. A) rises; decreases by less than B) falls; decreases by less than C) rises; equals D) rises; increases by less than

D) rises; increases by less than

In the above figure, B is the current long-run aggregate supply curve and E is the current short-run aggregate supply curve. If there is an increase in the full-employment quantity of labor, then the long-run aggregate supply curve and the short-run aggregate supply curve A) remain B and E. B) shift left to A and left to D, respectively. C) remain at B and shift right to F, respectively. D) shift right to C and right to F, respectively.

D) shift right to C and right to F, respectively.

In a short-run macroeconomic equilibrium, real GDP exceeds potential GDP. If aggregate demand does not change, then the A) short-run aggregate supply curve will shift rightward as the money wage rate falls. B) long-run aggregate supply curve will shift leftward as the money wage rate rises. C) long-run aggregate supply curve will shift leftward as the money wage rate falls. D) short-run aggregate supply curve will shift leftward as the money wage rate rises.

D) short-run aggregate supply curve will shift leftward as the money wage rate rises.

A monetarist economist believes that A) if the economy was left alone, it would rarely operate at full employment. B) the economy is self-regulating and always at full employment. C) the economy is self-regulating and will normally, though not always, operate at full employment if fiscal policy is not erratic. D) the economy is self-regulating and will normally, though not always, operate at full employment if monetary policy is not erratic

D) the economy is self-regulating and will normally, though not always, operate at full employment if monetary policy is not erratic