Macro exam 3

In the short-run, an increase in aggregate supply leads to ____ price level and _____ in unemployment. 1. An increase/ A decrease 2. A decrease/ A decrease 3. A decrease/ An increase 4. An increase/ An increase 5. An increase/ No change

2. A decrease/ A decrease

The federal reserve controls ______ and influences ______ with the intention of influencing _________. 1. Money supply/ Interest Rates/ Aggregate Supply 2. Money Supply/ Interest Rates/ Investment 3. Monday Demand/ Interest Rates/ Investment 4. Money demand/ Tax Rates/ Government Spending 5. Money supply/ Government Spending/ Price Level

2. Money supply/ Interest Rates/ Investment

Which of the following would not lead to a decrease in aggregate demand and a leftward shirt in the AD curve? 1. All of the above would increase aggregate demand and shift the AD curve leftward. 2. A decrease in housing prices. 3. An Appreciation of the domestic currency. 4. An in increase in interest rate. 5. An Increase in domestic price level.

5. An Increase in domestic price level.

Examples of automatic stabilizers include government expenditures that _____ when national income decreases and help explain why deficits are _____ during recessions. 1. Increase/ smaller 2. Do not change/ larger 3. Decrease/ smaller 4. Decrease/ larger 5. Increase/ larger

5. Increase/larger

Which of the following would lead to a shift in the short-run aggregate supply curve but no change in the long-run aggregate supply curve? 1. A decrease in the expected price level. 2. an increase in the level of capital stock. 3. All would shift both the long-run aggregate supply and short-run aggregate supply curves. 4. An increase in the general level of technology. 5. An increase in the population.

1. A decrease in the expected price level.

From 2001 to 2005 there was a dramatic rise in the value of houses. If this rise made people feel wealthier, then it would have shifted 1. Aggregate demand right 2. Aggregate supply left 3. Aggregate demand left 4. Aggregate supply right

1. Aggregate demand right

In the long-run, 1. An increase in the price level has no effect on the aggregate quantity of GDP supplied. 2. An increase in the price level reduces the aggregate quantity of GDP supplied. 3. An increase in the price level increases the aggregate quantity of GDP supplied. 4. An Increase in the price level increases the level of potential GDP.

1. An increase in the price level has no effect on the aggregate quantity of GDP supplied.

If the economy is producing below the natural rate of output in the short-run, wages and input prices will eventually ________ and _______ will increase, returning the economy to long-run equilibrium. 1. Fall/Short-run aggregate supply 2. Fall/ Aggregate Demand 3. Rise/ Aggregate Demand 4. Fall/ Long-run aggregate supply 5. Rise/ Short-run Aggregate Supply

1. Fall/ Short-run aggregate supply

Which of the following would lead to a decrease in the multiplier effect of fiscal policy? 1. Households save a higher fraction of income. 2. Households borrow more to finance spending. 3. The income tax rate decreases. 4. Household save a lower fraction of income.

1. Households save a higher fraction of income

Which of the following would be classified as fiscal policy? 1. The federal government cuts taxes to stimulate the economy. 2. The federal government passes laws restricting the use of dangerous chemical in food production. 3. A state government passes laws regarding voting access. 4. The Federal Reserve cuts interest rates to stimulate the economy. 5. All of these.

1. The federal government cuts taxes to stimulate the economy.

Monetary policy is determined by 1. The federal reserve and involves changing in the money supply 2. The president and congress and involves changing the money supply. 3. The federal reserve and involves changing government spending and taxation. 4. The president and congress and involves changing government spending and taxation.

1. The federal reserve and involves changing the money supply.

In 2009 President Obama and Congress increased government spending. Some economists thought this increase would have little effect on output. Which of the following would make the effect of an increase in government expenditure on aggregate demand smaller? 1. The MPC is small and changes in the interest rate have a small effect on investment. 2. The MPC is small and changes in the interest rate have large effects on investment. 3. The MPC is large and changes in the interest rate have large effect on investment. 4. The MPC is large and changes in the interest rate have small effect on investment.

2. The MPC is Small and changes in the interest rate have large effects on investment.

Liquidity refers to 1. The measurement of the durability of a good. 2. The ease with which an asset is converted to the medium of exchange. 3. The measurement of the Intrinsic value of commodity money. 4. How many times a dollar circulates in a given year.

2. The ease with which an asset is converted to the medium of exchange.

An earthquake destroys capital stock in an economy. The result is 1. A leftward shift in the short-run aggregate supply curve and no change in the long-run aggregate supply curve. 2. A rightward shift in the long run aggregate supply curve. 3. A leftward shift in the long-run aggregate supply curve. 4. A rightward shift in the aggregate demand curve.

3. A leftward shift in the long-run aggregate supply curve.

Money neutrality suggests that an increase in the money supply leads to _____ in price level and inflation and _____ in real GDP. 1. An increase/ An increase 2. A decrease/ A decrease 3. An increase/ No change 4. An increase/ A decrease 5. No change/ No change

3. An Increase/ No change

Which of the following shifts both the short-run and long-run aggregate supply right? 1. An increase in the actual price level 2. None of the above is correct 3. An increase in the capital stock 4. An increase in the expected price level

3. An increase in the capital stock

If inflation is higher than what was expected, 1. Debtors receive a higher real interest rate than they had anticipated. 2. Creditors pay a lower real interest rate than they had anticipated. 3. Creditors receive a lower real interest rate than they had anticipated. 4. Debtors pay a higher real interest rate that's they had anticipated.

3. Creditors receive a lower real interest rate then they had anticipated.

In the long run, an economy's production of goods and services depends on its supply of 1. Labor, and natural resources only. 2. Labor, natural resources, and capital only. 3. Labor, Natural resources, capital, and available technology. 4. Labor only.

3. Labor, Natural resources, capital, and available technology.

relative price variability 1. Falls with inflation, leading to an improved allocation of resources. 2. Falls with inflation, leading to a misallocation of resources. 3. Rises with inflation, leading to a misallocation of resources. 4. Rises with Inflation, leading to an improved allocation of resources.

3. Rises with inflation, leading to a misallocation of resources.

In order to understand how the economy works in the short run, we need to 1. Understand that "money is veil" 2. Understand that money is neutral in the short run 3. Study a model in which real and nominal variables interact 4. Study the classical model

3. Study a model in which real and nominal variables interact

Suppose the expected inflation rate increases from 5% to 8%. According to the Fisher effect 1. The nominal interest rate decreases by 3 percentage points. 2. The real interest rate increases by 3 percentage points. 3. The nominal interest rate Increases by 3 percentage points. 4.The real interest rate decreases by 3 percentage points.

3. The nominal interest rate increases by 3 percentage points.

Which of the following policy actions shifts the aggregate-demand curve? 1. An Increase in government spending. 2. An increase in the Money Supply. 3. An increase in taxes. 4. All of the above are correct.

4. All of the above are correct.

The inflation Tax 1. Is the revenue created when the government prints money. 2. Is like a tax on everyone who holds money. 3. Is an alternative to income taxes and government borrowing. 4. All the above are correct.

4. All the above are correct.

Other things the same, when the price levels falls, Interest rates 1. Fall, so firms decrease investment. 2. Rise, so firms increase Investment. 3. Rise, so firms decrease investment 4. Fall, so firms increase investment.

4. Fall, so firms increase investment.

The sticky-wage theory of the short-run aggregate supply curve says that when the price level rises more than expected, 1. Production is less profitable and employment falls. 2. Production is more profitable and employment falls. 3. Production is less profitable and employment rises. 4. Production is more profitable and employment rises.

4. Production is more profitable and employment rises.

Assume the MPC is 0.65. Assuming only the multiplier effect matters, and increase in government purchase of $20 billion will shift the aggregate demand curve to the 1. Left by about $30.77 Billion 2. Left by about $57.1 Billion 3. Right by about $30.77 Billion 4. Right by about $47.1 Billion

4. Right by about $57.1 Billion

Which of the following accounts for about two-thirds of the decline in output during a recession? 1. The decline in government purchases. 2. The decline in total consumption spending. 3. The decline in net exports. 4. The decline in Investment spending.

4. The decline in Investment spending.

Refer to the figure above. Suppose the economy is producing at Point A. Which of following best describes the adjustment back to the natural level of output? 1. Aggregate supply increases and in the new equilibrium point is D. 2. The economy will not adjust back to the natural level in this case. 3. wages and Input prices fall and the new equilibrium is point D. 4. Aggregate demand decreases and the new equilibrium point is D. 5. Wages and input prices rise and the new equilibrium in point B.

4. Wages and Input prices ride and the new equilibrium in point B.