ECO/372T: Principles Of Macroeconomics - Week 3

________ can be interpreted as the overall demand for real GDP from Consumption Gross Investment Government Purchases and Net Exports. Multiple choice question. Market demand Aggregate demand Market supply Aggregate supply

Aggregate demand

Select all that apply Which of the following will result in a rightward shift of the aggregate demand curve? Multiple select question. An increase in investment A decrease in the price of valuable commodities An increase in consumption spending An increase in business taxes A decrease in wages and other input prices

An increase in investment An increase in consumption spending

Suppose that the government runs a budget deficit of $75 billion in year 1. Assume that the year began with a national debt of $25 billion. In year 2 the government ran a budget surplus of $50 billion. In year 3, the government spent $100 billion more than it collected in taxes. The debt is $ ___________________ billion. (Enter a number in the blank. Do not add any units to your answer.)

Blank 1: 150 or -150

Suppose that the government runs a budget deficit of $75 billion in year 1. Assume that the year began with a national debt of $0. In year 2 the government ran a budget surplus of $50 billion. In year 3, the government spent $200 billion more than it collected in taxes. The debt is $ _______________ billion. (Only enter a number; the dollar sign has been provided for you.)

Blank 1: 225 or -225

_______________ demand can be interpreted as the overall demand for real GDP from four different sources.

Blank 1: Aggregate

___________ prices, like wages, tend to be sticky and take time to adjust to a change in the economy.

Blank 1: Input or inputs

The equilibrium price level and real GDP are determined by the intersection of the _________ demand and _________-run _________supply curves.

Blank 1: aggregate Blank 2: short Blank 3: aggregate

When there is a negative demand shock, real GDP lies __________ the full-employment level and unemployment is than _________ the natural rate.

Blank 1: below or under Blank 2: above, higher, more, or greater

The federal government finances its deficits via ______________.

Blank 1: borrowings, loans, or borrowing

If consumers ____________ the amount of spending, the aggregate demand curve shifts to the left.

Blank 1: decrease, lower, reduce, decreases, lowers, or reduces

In the short run, a shift of the aggregate supply curve to the left indicates _____________ production at every price level.

Blank 1: decreased, decreasing, lower, less, reduced, dropped, declining, decrease, low, falling, or lowering

If resource costs rise, output _________ at every price level.

Blank 1: decreases, falls, drops, shrinks, lowers, lessens, decrease, fall, drop, shrink, or lower

A regressive tax is one in which the average tax rate ____________ (increases/decreases) as income increases.

Blank 1: decreases, falls, lowers, declines, or drops

The national debt is the accumulation of _____________ and __________ over time. (Enter one word per blank.)

Blank 1: deficits or deficit Blank 2: surpluses or surplus

A negative shock causes aggregate __________ to fall at every price level.

Blank 1: demand or supply

A positive shock causes aggregate ___________ to rise at every price level.

Blank 1: demand or supply

A budget is balanced when the government's revenue _______________ its expenditure in a given fiscal year.

Blank 1: equals, is the same as, is equal to, meets, or matches

In the short run, the price level decreases. Firms hire ________workers and __________production. The quantity of real GDP ________. As the demand for labor decreases and labor contracts expire, workers will accept lower wages. As wages fall in the ___________ run, firms increase production in the long run and output rises.

Blank 1: fewer, less, decrease, or decreases Blank 2: contract or cut Blank 3: decreases, contracts, falls, or shrinks Blank 4: long

When there is a negative supply shock real GDP falls below the___________ -employment level and unemployment is higher than the __________ rate.

Blank 1: full Blank 2: natural

Aggregate demand can be interpreted as the overall demand for real GDP from broadly four different sources such as consumption, gross investment,________________ , ______________ and net exports. (Enter one word in each blank.)

Blank 1: government Blank 2: purchases

If consumers ___________ the amount of spending, the aggregate demand curve shifts to the right.

Blank 1: increase, raise, increases, or raises

In the short run, a shift of the aggregate supply curve to the right indicates __________ production at every price level.

Blank 1: increased, increasing, higher, more, expanded, increase, greater, or high

In the short run, a shift of the aggregate supply curve to the right indicates ____________ production at every price level.

Blank 1: increased, increasing, higher, more, expanded, increase, greater, or high

The long-run aggregate supply curve is a vertical line originating at the full-employment level of real GDP. It is vertical because all ________ prices are flexible in the __________ run.

Blank 1: input or resource Blank 2: long

In the long run, as _________ prices adjust for all firms, __________ falls and the economy returns to the full-employment level of real GDP.

Blank 1: input, resource, or factor Blank 2: output or GDP

In the short run, the price level increases. Firms hire ________ workers and ____________ production. The quantity of real GDP increases. As the demand for labor increases and labor contracts expire, workers will demand____________ wages. In the ___________ run, output falls.

Blank 1: more, additional, or extra Blank 2: increase, expand, rise, increases, expands, raises, or raise Blank 3: higher, increased, or more Blank 4: long

Aggregate demand illustrates a(n) ______________ relationship between the price level and the quantity of real GDP or output demanded.

Blank 1: negative or inverse

The aggregate demand curve is __________ sloping. (Enter one word in the blank.)

Blank 1: negative, inverse, down, or downward

Productivity is defined as the total amount of _______ produced with a given level of _______.

Blank 1: output Blank 2: inputs, resources, factors, or input

A(n) __________ tax is one in which the average tax rate stays the same as income increases.

Blank 1: proportional or flat

If ______________ costs rise, each additional unit of output will cost more to produce.

Blank 1: resource, input, factor, or production

If the demand for loanable funds increases, interest rates _____________ , which can have big effects on consumers.

Blank 1: rise, increase, increases, or rises

If the short-run aggregate supply curve and the aggregate demand curve intersect at the full employment level of output the economy is in _____________-run and _______________-run equilibrium.

Blank 1: short Blank 2: long

The short-run aggregate supply curve slopes upward because input prices are ___________ .

Blank 1: sticky, constant, fixed, or static

In the aggregate demand and supply model, the price level is on the ______ axis of the graph and real GDP is on the _________ axis.

Blank 1: vertical or y Blank 2: horizontal or x

In an aggregate demand model, price level is on the ____________ axis and the dollar value of real gross domestic product is on the _____________ axis.

Blank 1: vertical, y, or Y Blank 2: horizontal, x, or X

GDP = Multiple choice question. C x (I + G + NX) C + I + G - NX C + (I - G - NX) C + I + G + NX

C + I + G + NX

Which of the following is not an area of most federal spending? Multiple choice question. Education Pensions and income security Health National defense

Education

Sources of revenue are the same for federal, state, and local governments.

False

Most economists prefer measuring the deficit relative to _______ because it places the deficit in better context and allows a comparison across time or across governments from different countries. Multiple choice question. unemployment GDP tax rates inflation

GDP

State governments spend money on all of the following except: Multiple choice question. Education Public Welfare Programs National Defense Infrastructure

National Defense Reason: National defense is an example of a federal government expenditure.

Select all that apply At the federal government level, which of the following are the main sources of income? Multiple select question. Payroll taxes Tariffs Excise taxes Individual and corporate income taxes

Payroll taxes Excise taxes Individual and corporate income taxes

_____________ is defined as the total amount of output produced with a given level of inputs.

Productivity

Which of the following are the three broad categories of the determinants of aggregate supply? Multiple choice question. Population, Productivity, Resource prices Real balances, interest rates, foreign variables Income, Population, Consumption Productivity, Resource prices, Social institutions

Productivity, Resource prices, Social institutions

Suppose there is an economy-wide decrease in business taxes. What can we expect to see in the business cycle model? Multiple choice question. The business cycle reaches its trough. The business cycle enters a contraction. The business cycle reaches its peak. The business cycle enters an expansion.

The business cycle enters an expansion.

During the Great Recession from 2007 to 2009, most countries increased government expenditures to boost aggregate demand. (True or False) True false question. True False

True

Most local governments receive financial support from the federal and state levels. (True or False) True false question. True False

True

The short-run equilibrium level of real GDP is not necessarily the full-employment level of output that is consistent with the long run. (True or False)

True

Select all that apply Which of the following statements about demand and aggregate demand are true? Multiple select question. We use aggregate demand to describe the overall or total demand for all final goods and services produced in an economy. We use demand to talk about the price and quantity of a single good or service produced in a specific market. We use demand to describe the overall or total demand for all final goods and services produced in an economy. We use aggregate demand to talk about the price and quantity of a single good or service produced in a specific market.

We use aggregate demand to describe the overall or total demand for all final goods and services produced in an economy. We use demand to talk about the price and quantity of a single good or service produced in a specific market.

Select all that apply Which of the following statements about demand and aggregate demand are true? Multiple select question. We use demand to describe the overall or total demand for all final goods and services produced in an economy. We use demand to talk about the price and quantity of a single good or service produced in a specific market. We use aggregate demand to talk about the price and quantity of a single good or service produced in a specific market. We use aggregate demand to describe the overall or total demand for all final goods and services produced in an economy.

We use demand to talk about the price and quantity of a single good or service produced in a specific market. We use aggregate demand to describe the overall or total demand for all final goods and services produced in an economy.

The determination of the the long-run equilibrium price level and real GDP is found by using the long-run ______________ supply curve.

aggregate

The equilibrium price level and real GDP are determined by the intersection of the: Multiple choice question. aggregate demand and short-run aggregate supply curves. aggregate expenditure line and short-run aggregate supply curve. short-run and long-run aggregate supply curves. aggregate expenditure line and the 45 degree line.

aggregate demand and short-run aggregate supply curves.

Along the short-run aggregate supply curve Multiple choice question. as price level increases the level of real GDP supplied also increases. as price level rises the level of real GDP does not change. as price level decrease the level of real GDP supplied increases. as price level decreases the level of real GDP supplied increases.

as price level increases the level of real GDP supplied also increases.

A(n) ______________ tax rate equals the amount of tax paid divided by income and multiplied by 100. (Enter one word in the blank.)

average

The type of tax (progressive, regressive, or proportional) is determined by using the ______________ tax rate.

average

The type of tax that is assessed is determined: Multiple choice question. by using the regressive tax rate. by using the average tax rate. by using the progressive tax rate. by using the proportional tax rate.

by using the average tax rate.

The national ___________ is the accumulation of deficits and surpluses over time.

debt

Changes in government purchases and net exports directly affect the aggregate ____________ for real GDP.

demand

We use _______ to talk about the price and quantity of a single good or service produced in a specific market. We use _______ to describe the overall, or total, demand for all final goods and services produced in an economy. Multiple choice question. demand; supply aggregate demand; demand aggregate demand; aggregate supply demand; aggregate demand

demand; aggregate demand

An average tax rate equals the amount of tax paid ___________ by income and multiplied by 100.

divided

Aggregate demand is: Multiple choice question. vertical. downward sloping. horizontal. upward sloping.

downward sloping.

Suppose that tax revenue is $300 billion and that government spending is $350 billion. The budget is: Multiple choice question. in surplus. balanced. in deficit.

in deficit.

Suppose that tax revenue is $400 billion and that government spending is $450 billion. The budget is: Multiple choice question. balanced. in surplus. in deficit.

in deficit.

A progressive tax is one in which the average tax rate ___________ as income increases. (Enter one word in the blank.)

increases, rises, increase, or rise

If the short-run aggregate supply curve and the aggregate demand curve intersect at the full employment level of output the economy: Multiple choice question. cannot produce any more. has a recessionary gap. is in its short and long run equilibrium. has an inflationary gap.

is in its short and long run equilibrium.

Select all that apply Most economists prefer measuring the deficit relative to GDP because: Multiple select question. it allows a comparison between nominal GDP and inflation. it allows a comparison between unemployment and inflation. it allows a comparison across time. it allows a comparison across countries.

it allows a comparison across time. it allows a comparison across countries.

Input prices tend to be sticky because: Multiple choice question. labor contracts allow for wage adjustments several times a year. labor contracts might commit firms to paying a certain wage over multiple years. product prices do not change very often. input price elasticity of demand is low.

labor contracts might commit firms to paying a certain wage over multiple years.

Higher resource costs will shift the aggregate supply curve to the __________ .

left

The main source of income for _____________ governments is property taxes.

local

The __________ -run aggregate supply curve is a vertical line originating at the full-employment level of real GDP. (Enter one word for the blank.)

long

The ___________-run aggregate supply curve is a vertical line originating at the full-employment level of real GDP.

long

More often than not, the federal government spends ___________ than it receives in revenue forcing it to borrow to finance its deficits.

more

The short-run equilibrium level of real GDP is: Multiple choice question. not necessarily the full-employment level of output that is consistent with the long run. only determined by the level of long-run equilibrium GDP. the same as the full-employment level of output that is consistent with the long run. just a theoretical concept.

not necessarily the full-employment level of output that is consistent with the long run.

A negative shock causes aggregate demand or supply to fall at every ____________ level.

price

Aggregate supply illustrates how the total amount of goods and services produced in an economy relates to the ____________ level.

price

In the short run, an increase in the _________ level will increase the quantity of real GDP supplied.

price

In the short run, an increase in the ________ will increase the quantity of real GDP supplied. Multiple choice question. aggregate demand unemployment rate price level price

price level

A(n) ____________ tax is one in which the average tax rate increases as income increases.

progressive

A(n) _________________ tax is one in which the average tax rate increases as income increases.

progressive

Daniel has an annual taxable income of $25,000 and pays $2,500 a year in income taxes. Julia earns $45,000 in taxable income a year and pays $5,000 in income taxes. This tax is:

progressive.

The main source of income for local governments is _______ taxes.

property

Daniel has an annual taxable income of $25,000 and pays $2,500 in income taxes. Julia has a taxable income of $45,000 and pays $4,500 in income taxes. This tax is ___. Multiple choice question. progressive regressive proportional

proportional

A(n) _______________ tax is one in which the average tax rate decreases as income increases.

regressive

Sales taxes are ______________ in that the tax rate falls as the amount taxed rises.

regressive

To provide goods and services, the government needs sources of _____________.

revenue or income

If consumers increase the amount of spending, aggregate demand shifts to the _______________

right

If consumers increase the amount of spending, the aggregate demand curve shifts to the ____________.

right

At the state government level, the main sources of income are:

sales and excise taxes. state individual and corporate income taxes.

Changes in consumption and gross investment can: Multiple choice question. shift the aggregate demand curve. shift the aggregate supply. cause a movement along the aggregate supply curve. cause a movement along the aggregate demand curve.

shift the aggregate demand curve.

In the __________ run, the aggregate supply curve slopes upward.

short

In the ______________ run, input prices are fixed and do not adjust along with other prices in the economy.

short

When the price level falls in the ____________ run, output will contract because profit margins decrease.

short

When the price level increases in the _______________ run, output will expand because profit margins increase.

short

Select all that apply The relationship between the price level and the amount of real GDP supplied in the economy is called: Multiple select question. short-run aggregate supply. aggregate supply. long-run aggregate demand. aggregate demand.

short-run aggregate supply. aggregate supply.

Interest on the national debt is a major expenditure for the federal government which indicates that the federal government: Multiple choice question. must turn to state governments to borrow to finance its deficits. spends more than it receives in revenue forcing it to borrow to finance its deficits. spends less than it receives in revenue forcing it to borrow to finance its deficits. does not value the other categories of expenditure as much.

spends more than it receives in revenue forcing it to borrow to finance its deficits.

Aggregate _______________ illustrates how the total amount of goods and services produced in an economy relates to the price level.

supply

Higher resource costs will shift the aggregate ____________curve to the left.

supply

If the aggregate demand shifts in the short run, aggregate ___________ will eventually shift in the long run to bring the economy back to full employment.

supply

In the short run, the aggregate _________ curve slopes upward.

supply

It doesn't matter what kind of shock an economy experiences, in the standard aggregate demand and aggregate supply model all long-run adjustments are made through changes in aggregate _____________.

supply

The determination of the the long-run equilibrium price level and real GDP is found by using the long-run aggregate __________ curve.

supply

The short-run aggregate _____________ curve slopes upward because input prices are sticky.

supply

Generally changes to social institutions that inhibit production decrease aggregate: Multiple choice question. investment. supply. demand. consumption.

supply.

A budget ______________ occurs when a government receives more revenue than it spends in any given fiscal year.

surplus

The determination of the the long-run equilibrium price level and real GDP is found by using: Multiple choice question. the aggregate expenditures schedule. the long-run aggregate supply curve. the long-run aggregate demand curve. the production possibilities frontier

the long-run aggregate supply curve.

The aggregate demand and supply model can be used: Multiple choice question. to describe changes in an economy's price level and real GDP only in the short run. to describe changes only in an economy's price level in the short and the long run. to describe changes in an economy's price level and real GDP only in the long run. to describe changes in an economy's price level and real GDP in the short and the long run.

to describe changes in an economy's price level and real GDP in the short and the long run.

Generally, the budget deficit is calculated and reported _____ and the national _____ is the accumulation of previous budget deficits and surpluses. Multiple choice question. monthly; stock every ten years; debt yearly; debt daily; flow

yearly; debt