Econ Test 2 MCQ
Which of the following is an example of an expansionary fiscal policy?
An increase in government expenditures
Which of the following would generate cost-push inflation?
An increase in the price of labor
Which of the following explains why the long-run aggregate supply curve corresponds to the production possibilities curve?
Both curves illustrate the maximum sustainable capacity.
An appropriate fiscal policy to combat a recession would be to increase which of the following?
Government Spending
Which of the following statements best describes the concept of an automatic stabilizer?
It is nondiscretionary fiscal policy that mitigates business cycles by increasing aggregate demand during recessions and decreasing aggregate demand during expansions
Which of the following will remained unchanged when the price level decreases?
Long-run aggregate supply
An economy is currently in short-run equilibrium, and real output is below the full-employment level of output. Which of the following market adjustments is most likely to occur in the long run?
Nominal wage will fall, shifting the short-run aggregate supply curve to the right.
Which of the following must be true in the long run?
Prices and wages are flexible
Which of the following is an example of an automatic stabilizer?
Progressive income taxes
Assume the countries of Ornania and Kumbagi are major trading partners. Ornania is currently in long-run macroeconomic equilibrium. As a result of a recession in its economy, Kumbagi decreases its demand for goods produced in Ornania. Which of the following will occur in Ornania in the short run?
The aggregate demand curve will shift to the left, resulting in a recessionary gap
In the AD - AS model, which of the following is true?
The economy is in a recessionary gap when the short-run equilibrium real output is below the long-run equilibrium real output.
Which of the following would indicate that economic growth has occurred?
The long-run aggregate supply curve shifts to the right.
Which of the following are the most likely short-run effects of an increase in government expenditures?
Unemployment Rate: Decrease Inflation rate: Increase Real Gross Domestic Product: Increase
According to the graph above, which of the following statements about the economy is true?
Wages will eventually decrease, restoring full employment in the long run.
An economy is currently producing $250 billion of output. The full-employment output is $260 billion, and the marginal propensity to consume is 0.75. Assuming no crowding out and a horizontal aggregate supply curve, what level of additional spending is necessary to achieve full employment? a. $2.5 billion b. $5 billion c. $10 billion d. $25 billion e. $40 billion
a. $2.5 billion
Which of the following will result in a rightward shift of the aggregate demand curve? a. An increase in the income tax rate b. An increase in exports c. A decrease in the price level d. A decrease in household income e. A decrease in government spending
b. An increase in exports
The diagram below shows two points on the short-run aggregate supply curve. The movement from point g to point h is best described as which of the following? a. A decrease in full employment output b. A decrease in aggregate demand c. An increase in real output due to an increase in the price level
c. An increase in real output due to an increase in the price level
If the marginal propensity to consume is 0.8, an increase of $20,000 in government spending will change the real gross domestic product by a maximum of a. $16,000 b. $20,000 c. $80,000 d. $100,000 e. $120,000
d. $100,000
An increase in the price of a key input will cause the aggregate demand curve and the short-run aggregate supply curve to change in which of the following ways? a. AggregateDemandCurveAggregateSupplyCurve Shift to the right Shift to the right b. AggregateDemandCurveAggregateSupplyCurve Shift to the left Shift to the left c. AggregateDemandCurveAggregateSupplyCurve Shift to the left No change d. AggregateDemandCurveAggregateSupplyCurve no change. Shift to the left e. AggregateDemandCurveAggregateSupplyCurve No change Shift to the right
d. AggregateDemandCurveAggregateSupplyCurve no change. Shift to the left
An increase in which of the following would cause the aggregate demand curve to shift to the left? a. Consumer optimism b. Population c. Cost of resources d. Income taxes e. Net exports
d. Income Taxes
The table below shows the level of household savings at various levels of disposable income in a country. Savings Disposable Income $2,000 $10,000 $2,200 $12,000 Based on the data on savings and disposable income in the table above, what are the income tax multiplier and the spending multiplier? a. The tax multiplier is -0.1 and the spending multiplier is 0.9 b. The tax multiplier is 0.2 and the spending multiplier is -0.8 c. The tax multiplier is -2 and the spending multiplier is 8. d. The tax multiplier is -9 and the spending multiplier is 10.
d. The tax multiplier is -9 and the spending multiplier is 10
An increase in which of the following is most likely to cause the short-run aggregate supply curve to shift to the left? a. Consumers' incomes b. The money supply c. Government spending d. The optimism of business firms e. The per unit cost of production
e. The per unit cost of production
When an economy is in equilibrium at potential gross domestic product, the actual unemployment rate is
equal to the natural rate
In the short run, cost-push inflation can be caused by
negative supply shocks