Econ, exam 3

The economy's long-run AS curve assumes that wages and other resource prices _____.

eventually rise and fall to match upward or downward changes in the price level

In the diagram, Qf is the full-employment output. If the economy's current aggregate demand curve is AD0, it would be appropriate for the government to

increase government purchases or reduce taxes.

The expenditure multiplier concept of the aggregate-expenditures model _____.

magnifies the shifts of the aggregate demand curve

Which of the following measures the changes in the prices of a "market basket" of some 300 goods and services purchased by typical urban consumers?

the Consumer Price Index

During a severe recession, we would expect output to fall the most in

the construction industry.

An economy is experiencing a high rate of inflation. The government wants to reduce aggregate demand by $36 billion to reduce inflationary pressure. The MPC is 0.75. By how much should the government raise taxes to achieve its objective?

$12 billion

When successfully implemented, contractionary fiscal policy will cause

a leftward shift of the aggregate demand curve.

A movement upward along a given aggregate demand curve is equivalent to a(n) _____.

downward shift in the aggregate expenditures schedule

For a given amount of nominal income, the real income will

fall if the price level rises.

Real income will rise from one year to the next if nominal income

falls and the price level falls faster.

Automatic stabilizers smooth fluctuations in the economy because they produce changes in the government's budget that

help offset changes in GDP.

Which of the following is a major category for the Consumer Price Index?

housing

A decrease in business taxes will tend to _____.

increase aggregate supply

If the MPC in an economy is 0.75, government could shift the aggregate demand curve leftward by $60 billion by

increasing taxes by $20 billion.

The time that elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n)

recognition lag.

One purpose of discretionary fiscal policy is to

reduce inflation during an expansion.

An increase in aggregate demand will shift the short-run Phillips curve to the right.

true

An increase in net exports will shift the aggregate expenditures curve _____.

upward and the aggregate demand curve rightward

When oil and energy prices rise, the economy tends to experience ______.

Cost-push Inflation

example of structurally unemployed

Jeanette worked as an aircraft design engineer for a company that produces military aircraft until she lost her job last year when the federal government cut defense spending. She has been looking for similar work for a year but no company seems interested in her aircraft design skills.

example of frictionally unemployed

Mollie just graduated from college and is now looking for work. She has had three job interviews in the past month but still has not gotten a job offer.

Which of the following would not shift the aggregate demand curve?

Productivity rates

Kevin has lost his job in an automobile plant because the company switched to robots for its welding step in the assembly line. Kevin plans to go to technical school to learn how to repair microcomputers. The type of unemployment Kevin is faced with is

Structural

Inflation is a rise in

The general level of prices over time

When inflation occurs

The purchasing power of money decreases

If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n)

contractionary fiscal policy.

Inflation caused by a rise in the prices of inputs is referred to as _____.

cost-push inflation

The set of fiscal policies that would be most contractionary would be a(n)

decrease in government purchases and an increase in taxes.

The interest rate effect on aggregate demand indicates that a(n) _____.

decrease in the price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending

With cost-push inflation in the short run, there will be a(n) _____.

decrease real GDP

Suppose that technological advancements stimulate $20 billion in additional investment spending. If the MPC = .6, how much will the change in investment increase aggregate demand?

$50 billion

Consumers in an economy buy only three general types of products, A, B, and C. Changes in the prices of these items over a period are shown below. ProductQuantityAverage Price per UnitYear 1Year 2A10$10$8B152022C85055 Using year 1 as the base year, the country's Consumer Price Index in year 2 is

106.25

Assume that the full-employment level of output is $1,000 and the price level associated with full-employment output is 100. Also assume that the economy's current level of output is $1,100 and, at the price level of 100, current aggregate demand is $1,200. If the government moves the economy back to the full-employment level of output by reducing government purchases by $50, then the expenditures multiplier equals

4

Answer the next question on the basis of the following information about a hypothetical economy. Full-time employed = 80 Part-time employed = 25 Unemployed = 15 Discouraged workers = 5 Members of underground economy = 6 Consumer price index = 110 If the members of the underground economy are presently counted as part of the unemployed when in fact they are employed, the official unemployment rate is overstated by about

5 %

Answer the next question based on the following list of items that are related to aggregate demand and/or aggregate supply. 1) Government Spending 2) Consumer Expectations 3) Degree of Excess Capacity 4) Personal Income Tax Rates 5) National Income Abroad 6) Business Taxes 7) Domestic Resource Availability 8) Prices of Imported Products 9) Profit Expectations on Investments Which combination of factors best explain why the aggregate supply curve would shift?

6 and 7

Which combination of fiscal policy actions would most likely offset each other?

An increase in taxes and an increase in government purchases

Which of the following effects best explains the downward slope of the aggregate demand curve?

An interest-rate effect

Fiscal policy is typically

difficult to implement quickly.

When the federal government changes purchases and/or taxes to stimulate the economy or rein in inflation, such policy is

discretionary fiscal policy.

Crowding out may occur because ________ fiscal policy usually involves the government ________ money.

expansionary; borrowing

When looking at data for unemployment and inflation from the 1970s there is evidence to support the short run Phillips Curve.

false

Part-time workers who want full-time work are counted as

fully employed and therefore the official unemployment rate may understate the level of unemployment.

Which would be considered to be one of the factors that shift the aggregate supply curve in the short run? A change in _____.

government regulation

Each week Jim buys the same market basket composed of a case of ramen noodles, two bottles of coke, and three bags of tortilla chips. Jim has found that it takes more of his wages to buy this market basket than before. Jim is experiencin

inflation

Which of the following statistics can turn negative?

inflation

The CPI compiled by the Bureau of Labor Statistics is used in the computations for the

inflation rate

An increase in personal income taxes would shift AD to the _____.

left because C will decrease

If net exports decrease by $20 billion and the economy's MPC is .5, the aggregate demand curve will shift _____.

leftward by $40 billion at each price level

The tax multiplier is ________ than the expenditures multiplier. This is because with the ________ multiplier a portion of the change is used for savings, but with the ________ multiplier, real GDP is impacted by the full amount of the change.

less; tax; expenditures

If the price level decreases, then the aggregate expenditures schedule will shift and this translates into a _____.

movement down along the aggregate demand curve

Suppose there are 10 million part-time workers and 90 million full-time workers in an economy. Five million of the part-time workers switch to full-time work. As a result, the

official unemployment rate will remain unchanged.

An aggregate supply curve represents the relationship between the _____.

price level and the production of real domestic output

In the diagram, Qf is the full-employment output. A contractionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at

shift upward AD3

Using fiscal policy to stabilize the economy is difficult because

there are time lags involved in the use of fiscal policy.

A decrease in the rate of inflation will increase the rate of unemployment.

true