Macroeconomics Unit 3

Which of the following represents an appropriate fiscal policy for the given economic conditions?

A contractionary fiscal policy is appropriate to reduce inflation when there is an inflationary gap.

According to the expenditure multiplier, if the marginal propensity to consume is greater than zero, a one-dollar change in autonomous expenditures will result in which of the following?

A greater-than-one-dollar increase in aggregate demand for goods and services.

If nominal wages are fixed by labor contracts, then which of the following explains why the aggregate supply curve is upward sloping?

An increase in the price level will increase profits and production.

Which of the following explains the relationship between the price level and real output along the aggregate demand curve?

At a lower price level, domestic goods will become less expensive compared to foreign goods, which causes an increase in spending on domestic goods.

Which of the following is true about the equilibrium real output in the aggregate demand aggregate supply (AD-AS) model in the short run?

Equilibrium real output can be above, equal to, or below full employment.

Which of the following best describes the aggregate demand curve?

It is a curve that shows the level of spending by consumers, businesses, the government, and the foreign sector at different price levels.

The imposition by the United States of a tariff on imported steel from the EU will likely have what impact on the short-run aggregate supply (SRAS) curve in the United States?

It will cause the (SRAS) curve to shift leftward.

If the natural rate of unemployment exceeded the actual rate of unemployment, which of the following will occur in the long run in the absence of government intervention?

Nominal wages will increase.

Assume the marginal propensity to consume is 0.75. What will happen if the government spending increases by $100 billion?

Real output will increase by a maximum of $400 billion.

Which of the following best explains how income taxes can moderate a business cycle during an expansion?

Tax payments increase automatically as gross domestic product (GDP) rises, which dampens consumption spending.

Suppose that the prices of labor and inputs to production are fixed in the short run but not in the long run. What is a consequence of this flexibility in the long run?

The long-run aggregate supply curve is vertical and there is no trade-off between inflation and unemployment in the long run.

Which of the following is illustrated by the long-run aggregate supply (LRAS) curve and the production possibilities curve (PPC)?

The maximum sustainable capacity.

Country X is currently in long-run macroeconomic equilibrium. If the country's economy experiences a significant increase in the price of energy, a major input in production, high of the following will occur in the short run?

The short-run aggregate supply curve will shift to the left, and the actual rate of unemployment will exceed the natural rate of unemployment.

The government of Euroland is considering increasing the government spending to avoid a recession. What. Is the most likely effect on aggregate demand in Euroland?

There will be a rightward shift in the AD curve

In an economy where wages and prices are sticky, which of the following will happen as a result of an increase in the price level?

There will be an upward movement along the short-run aggregate supply curve and the real output will increase.

How will automatic stabilizers affect the economy during a recession?

They will shif the aggregate demand curve to the right, increasing real output.