test 3 macro

This figure depicts an economy: A) in neither short-run nor long-run equilibrium. B) in short-run equilibrium only. C) in both short-run and long-run equilibrium D) in long-run equilibrium only.

in short-run equilibrium only

(Figure 9.10) Equilibrium output is ________ and the equilibrium price level is ________. A) 2,000; 130. B) 5,000; 160. C) 3,000; 100. D) 100; 3,000.

3,000; 100.

Aggregate supply is: A) the real GDP that firms will produce at varying price levels. B) the total supply over a span of several years. C) the amount of goods, but not services, firms supply at various price levels. D) the amount of output that is sold at each price level.

the real GDP that firms will produce at varying price levels.

Say's law was emphasized by a. Keynesian economists. b. classical economists. c. both Keynesian and classical economists. d. neither Keynesian nor classical economists.

classical economists.

in the short run, a decrease in the price level a. increases output prices relative to input prices. b. increases the profit margins of many producers. c. decreases RGDP supplied. d. decreases unemployment rates. e. does none of the above.

decreases RGDP supplied.

A massive increase in interstate highway construction will affect aggregate demand through which sector? Will this change increase or decrease aggregate demand? a. investment, increase b. government purchases, increase c. government purchases, decrease d. consumption, decrease

government purchases, increase

An increase in government purchases, combined with a decrease in investment, would have what effect on aggregate demand? a. AD would increase. b. AD would decrease. c. AD would stay the same. d. AD could either increase or decrease, depending on which change was of greater magnitude.

AD could either increase or decrease, depending on which change was of greater magnitude.

According to the real wealth effect, if you are living in a period of falling price levels on a fixed income (that is not indexed), the cost of the goods and services you buy ____ and your real income ____. a. decreases; decreases b. increases; increases c. decreases; remains the same d. decreases; increases

decreases; increases

A reduction in personal income taxes, other things being equal, will A. leave consumers with less disposable income. b. decrease aggregate demand. c. leave consumers with more disposable income. d. increase aggregate demand. e. do both c and d.

do both c and d.

If private consumption in the United States were 67 percent of GDP, investment were 16 percent, government purchases were 13 percent, exports were 12 percent, and imports were 8 percent, net exports would be equal to ____ percent of GDP. a. 4 b. -4 c. 20 d. -20 e. none of the above

4

In the AD/AS model, the vertical axis is labeled: A) aggregate price level. B) consumption. C) GDP. D) consumption plus investment plus government spending.

aggregate price level.

The largest component of aggregate demand is a. government purchases. b. net exports. c. consumption. d. investment.

consumption

Empirical evidence suggests that consumption ____ with any ____. a. decreases, increase in income b. decreases, tax cut c. increases, decrease in consumer confidence d. increases, increase in income e. Both a and b are true.

increases, increase in income

As the price level decreases, real wealth ____, purchasing power ____, and the quantity of RGDP demanded ____. a. increases; decreases; increases b. increases; increases; increases c. decreases; decreases; decreases d. decreases; decreases; increases e. increases; decreases; decreases

increases; increases; increases

The ____ is vertical at full employment. A) short-run aggregate supply curve B) long-run aggregate supply curve C) short-run aggregate demand curve D) long-run aggregate demand curve

long-run aggregate supply curve

When a recessionary gap occurs, a. real output exceeds the natural level of output, and unemployment exceeds its natural rate. b. real output exceeds the natural level of output, and unemployment is less than its natural rate. c. real output is less than the natural level of output, and unemployment exceeds its natural rate. d. real output is less than the natural level of output, and unemployment is less than its natural rate.

real output is less than the natural level of output, and unemployment exceeds its natural rate.

Economic growth is shown as a: A) shift to the left in the long-run aggregate supply curve. B) movement up along the short-run aggregate supply curve. C) shift to the right in the long-run aggregate supply curve. D) shift to the left in the short-run aggregate supply curve.

shift to the right in the long-run aggregate supply curve.

An increase in input prices causes a. the short-run aggregate supply curve to shift outward, which means the quantity supplied at any price level declines. b. the short-run aggregate supply curve to shift inward, which means the quantity supplied at any price level declines. c. the short-run aggregate supply curve to shift inward, which means the quantity supplied at any price level increases. d. the short-run aggregate supply curve to shift outward, which means the quantity supplied at any price level increases.

the short-run aggregate supply curve to shift inward, which means the quantity supplied at any price level declines.

Which of the following do not explain the downward slope of the aggregate demand curve? A) the wealth effect B) the interest rate effect C) the net export effect D) the substitution effect

the substitution effect

in a stagflation situation a. unemployment increases and the price level increases. b. unemployment increases and the price level decreases. c. unemployment decreases and the price level increases. d. unemployment decreases and the price level decreases.

unemployment increases and the price level increases.

if exports and imports both decrease, but exports decrease more than imports a. AD would decrease. b. AD would increase. c. AD would be unaffected. d. AD could either increase or decrease.

AD would decrease.

(Figure 9.10) Which statement is not correct? A) Equilibrium output is $3,000 worth of goods and services. B) An increase in aggregate demand would lead to deflation. C) Full employment exists when the economy produces $3,000 worth of goods and services. D) In the short run equilibrium, output can be greater than or less than $3,000.

An increase in aggregate demand would lead to deflation.

Starting from long-run equilibrium, an increase in aggregate demand will cause a. an inflationary gap in the short run. b. a recessionary gap in the short run. c. an inflationary gap in the short run and long run. d. a recessionary gap in the short run and long run. e. neither an inflationary nor a recessionary gap in the short run or the long run.

an inflationary gap in the short run.

The short-run aggregate supply curve slopes up because: A) profits increase at higher price levels. B) productivity increases at higher price levels. C) wages increase at higher output in the short run. D) resource costs increase at higher price levels.

profits increase at higher price levels.

The aggregate demand curve displays: A) real GDP demanded at different price levels. B) nominal GDP versus real GDP. C) GDP demanded at different investment levels. D) the business cycle.

real GDP demanded at different price levels.

(Figure 9.2) If imports rise, the AD curve will shift from AD0 to _____ and the price will be at _____. A) AD1; P2 B) AD1; P1 C) AD2; P0 D) AD2; P2

AD2; P2

_____ will most likely increase the economy's long-run aggregate supply. A) A low rate of investment B) Unfavorable weather conditions in the corn belt C) Advances in technology D) An increase in the expected inflation rate

Advances in technology

If exports increased and imports decreased, a. AD would decrease. b. AD would increase. c. AD would be unaffected. d. AD could either increase or decrease.

AD would increase.

(Figure 9.2) If rising confidence in the economy eases job security fears, this will shift the AD curve from AD0 to _____ and the price level will be at _____. A) AD1; P0 B) AD1; P1 C) AD2; P1 D) AD2; P2

AD1; P1

The aggregate demand curve a. is negatively sloped. b. demonstrates an inverse relationship between the price level and real gross domestic product demanded. c. shows how real gross domestic product demanded changes with the changes in the price level. d. All of the above are correct.

All of the above are correct.

Aggregate demand is the sum of ____. a. C+I+G b. C+I+G+X c. C+I+G+(X-M) d. C+I+G+(X+M)

C+I+G+(X-M)

Which of the following may be an explanation for the shift in aggregate demand from A to B? A) Prices fall and increase real wealth. B) Consumer confidence drops and consumption spending falls. C) Goods and services become less competitive and exports fall. D) Interest rates fall and boost investment.

Interest rates fall and boost investment.

If the price level rises, what will happen to the quantity of RGDP produced along the long-run aggregate supply curve? a. It will increase. b. It will usually increase, but not always. c. Nothing will happen to it. d. It will decrease. e. It will usually decrease, but not always.

Nothing will happen to it.

If there are advances in technology, the SRAS curve will shift from SRAS0 to _____ and the price level will be at _____. A) SRAS1; P0 B) SRAS1; P1 C) SRAS2; P1 D) SRAS2; P0

SRAS1; P1

(Figure 9.7) If there is a increase in input prices, the SRAS curve will shift from SRAS0 to _____ and the price level will be at _____. A) SRAS1; P0 B) SRAS1; P1 C) SRAS2; P1 D) SRAS2; P0

SRAS2; P0

The proposition that "supply creates its own demand" is called a. Keynes law. b. the classical law. c. Say's law. d. the iron law of wages.

Say's law.

If Europe experiences a large increase in income, what will happen in the United States? A) The AD curve shifts to the right. B) The AD curve shifts to the left. C) Nothing happens to the AD curve. D) The AD curve shifts to the left in the short run and then shifts to the right in the long run.

The AD curve shifts to the right.

Which is the following best illustrates the wealth effect? A) Jacob saved $25,000, which he put in the stock market. The market did very well and his wealth in stock rose to $36,000. B) Simon felt he needed at least $800,000 to retire comfortably. He increased his saving to build up his wealth. C) The Jones family has $50,000 in a bank. Price at the stores rose dramatically, so the purchasing power represented by that $50,000 diminished. D) Margaret had her savings in Treasury bonds. She thought that stocks might offer her a better opportunity to increase her wealth, so she sold her bonds to buy stocks.

The Jones family has $50,000 in a bank. Price at the stores rose dramatically, so the purchasing power represented by that $50,000 diminished.

a recession could result from a. a decrease in aggregate demand. b. an increase in long-run aggregate supply. c. an increase in aggregate demand. d. an increase in short-run aggregate supply. e. none of the above.

a decrease in aggregate demand.

(Figure) Starting at the long-run equilibrium, point d, if there is a supply shock, such as a drastic increase in the price of oil, this will cause _____ and move to a short-run equilibrium at point _____. A) a leftward shift in AD1; a B) a rightward shift in AD1; c C) a rightward shift in SRAS2; c D) a leftward shift in SRAS2; a

a leftward shift in SRAS2; a

(Figure) Starting at the long-run equilibrium, point d, if businesses become irrationally exuberant and expand investment, this will cause _____ and move to a short-run equilibrium at point _____. A) a leftward shift in AD1; a B) a rightward shift in AD1; c C) a rightward shift in SRAS2; c D) a leftward shift in SRAS2; a

a rightward shift in AD1; c

What is the typical response of firms to an increase in the price of what they sell, for given input prices? a. an increase in output b. an increase in hiring factors of production c. an increase in the profit level of firms d. an increase in employment in the industry e. all of the above

all of the above

Which of the following could be expected to shift the short-run aggregate supply curve upward? a. a rise in the price of oil b. a natural disaster c. wage increases without increases in labor productivity d. all of the above

all of the above

Which of the following will cause consumption and, as a result, aggregate demand to decrease? a. a tax increase b. a fall in consumer confidence c. reduced stock market wealth d. rising levels of consumer debt e. all of the above

all of the above

An economic bust or severe downturn in the Japanese economy will likely result in a(n) a. decrease in U.S. exports and U.S. aggregate demand. b. increase in U.S. exports and U.S. aggregate demand. c. decrease in U.S. imports and U.S. aggregate demand. d. increase in U.S. imports and U.S. aggregate demand.

decrease in U.S. exports and U.S. aggregate demand.

The long-run aggregate supply curve is: A) downward sloping. B) upward sloping. C) perfectly vertical. D) perfectly horizontal.

perfectly vertical.

Investment (I) includes a. the amount spent on new factories and machinery. b. the amount spent on stocks and bonds. c. the amount spent on consumer goods that last more than one year. d. the amount spent on purchases of art. e. all of the above.

the amount spent on new factories and machinery.