Econ 101 FINAL

Which of the following events shifts the aggregate-demand curve leftward? a. A decrease in government expenditures, but not a change in the price level. b. An increase in government expenditures or a decrease in the price level. c. A decrease in government expenditures or an increase in the price level. d. An increase in the price level, but not a decrease in government expenditures

a. A decrease in government expenditures, but not a change in the price level.

refer to Figure 4 Suppose that there is an increase in government purchases of $10. If there is no crowding-out, aggregate demand will increase and the economy will move from point A to point a. C b. B c. A d. None of the above

a. C

31. If unemployment is decreasing, the Federal Reserve will a. Sell bonds to decrease the money supply and increase the interest rate. b. Sell bonds to increase the money supply and decrease the interest rate. c. Buy bonds to decrease the money supply and increase the interest rate. d. Buy bonds to increase the money supply and decrease the interest rate

a. Sell bonds to decrease the money supply and increase the interest rate.

An aide to a U.S. Congressman computes the effect on aggregate demand of a $20 billion tax cut. The actual increase in aggregate demand is less than the aide expected. Which of the following errors in the aide's computation would be consistent with an overestimation of the impact on aggregate demand? a. The aide thought the tax cut would be permanent, but the actual tax cut was temporary. b. The aide thought the crowding out effect was larger than it was. c. The actual MPC was larger than the MPC the aide used to compute the multiplier. d. The aide thought the tax cut would be temporary, but the actual tax cut was permanent.

a. The aide thought the tax cut would be permanent, but the actual tax cut was temporary.

29. Which of the following shifts short-run aggregate supply left? a. an increase in price expectations b. an increase in the actual price level c. a decrease in the money supply d. a decrease in the price of oil

a. an increase in price expectations

Refer to Figure 2 If the economy is at point b, a policy to restore full employment would be a. an increase in the money supply. b. a decrease in government purchases. c. an increase in taxes. d. All of the above are correct.

a. an increase in the money supply.

he equation: quantity of output supplied = natural rate of output + a(actual price level - expected price level), where a is a positive number, represents a. an upward-sloping short-run aggregate supply curve b. a vertical short-run aggregate supply curve c. a downward-sloping aggregate demand curve d. None of the above is correct.

a. an upward-sloping short-run aggregate supply curve

The marginal propensity to consume (MPC) is defined as the fraction of a. extra income that a household consumes rather than saves. b. extra income that a household either consumes or saves. c. total income that a household consumes rather than saves. d. total income that a household either consumes or saves.

a. extra income that a household consumes rather than saves.

An increase in the MPC a. increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand. b. increases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand. c. decreases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand. d. decreases the multiplier, so that changes in government expenditures have a smaller effect on aggregate demand

a. increases the multiplier, so that changes in government expenditures have a larger effect on aggregate demand.

Refer to Figure 3. As we move from one point to another along the money-demand curve MD1,What shifts MD: money demand curve? Two factor shift money demand MD: P and Y. If P or Y goes up, MD increases and shifts to the right, and vice versa. If we are moving along MD1, P and Y have to stay fixed because if they don't, we would move to a different MD curve. a. the price level is held fixed at P1.->correct b. the interest rate is held fixed at r1.->incorrect because the interest rate changes if we move along the money demand MD curve. For example, if we move down along MD1, the interest would fall from r1 to another interest rate. c. the money supply is changing so as to keep the money market in equilibrium.->incorrect d. the expected inflation rate is changing so as to keep the real interest rate constant.->incorrect

a. the price level is held fixed at P1.->correct

If the actual price level is 165, but people had been expecting it to be 160, then a. the quantity of output supplied is higher than natural output, but only in the short run. b. the quantity of output supplied is higher than natural output in the short run and the long run. c. the quantity of output supplied is lower than natural output,, but only in the short run. d. the quantity of output supplied is lower than natural output, in the short run and the long run.

a. the quantity of output supplied is higher than natural output, but only in the short run.

If the multiplier is 6, then the MPC is a. 0.16. b. 0.83. c. 0.71. d. 0.86

b. 0.83.

refer to Figure 4 The multiplier is a. 0.57 b. 4 c. 2 d. 5

b. 4

refer to Figure 4 If crowding- out exists, and government purchases increase by $10, then aggregate demand will increase and the economy will move from point A to point a. A b. B c. C d. None of the above.

b. B

refer to Figure 4 If crowding- out exists, and government purchases increase by $10, then aggregate demand will increase by a. More than $40 b. Less than $40 c. $40 d. None of the above.

b. Less than $40

Refer to Figure 1 Suppose the economy starts at Z. If changes occur that move the economy to anew short run equilibrium of P3 and Y3 , then it must be the case that a. Firms decreased investment expenditure because of pessimism about the future of the economy. b. The government implemented a tax cut. c. Oil prices rose. d. There was a stock market crash

b. The government implemented a tax cut.

Refer to Figure 2 The aggregate-demand curve could shift from AD1 to AD2 as a result of a. an increase in government purchases. b. a decrease in net exports. c. households saving a smaller fraction of their income. d. a decrease in the price level.

b. a decrease in net exports.->AD shifts left

28. A change in the expected price level is likely to cause which of the following? a. a shift in the short-run aggregate supply curve and long-run aggregate supply curve b. a shift in the short run aggregate supply curve c. a shift in the aggregate demand curve d. a shift in the long-run aggregate supply curve

b. a shift in the short run aggregate supply curve

Suppose the MPC is 0.60. Assume there are no crowding out. If the government increases expenditures by $200 billion, then what is the multiplier and by how much does aggregate demand shift to the right? a. 0.6 and $300 billion. b. 0.6 and $500 billion. c. 2.5 and $500 billion. d. 2.5 and $300 billion.

c. 2.5 and $500 billion.

refer to Figure 4 Suppose that there is an increase in government purchases of $10. How much will aggregate demand increase if there is no crowding-out? a. 10 b. 20 c. 40 d. None of the above.

c. 40

Refer to Figure 1 Which of the following events would shift the aggregate demand curve from AD2 to AD3? a. A stock market crash. b. A wave of pessimism which leads to a decline in business investment spending. c. A tax cut. d. A decrease in the money supply

c. A tax cut.

Suppose that the Federal Reserve increases the money supply. Using the AD-AS model, what is the expected effect of this policy change on the economy in the short run? a. Decrease real GDP (Y), and decrease the price level (P). b. Increase real GDP (Y), but decrease the price level (P). c. Increase real GDP (Y), and increase the price level (P). d Leave real GDP (Y) the same, but decrease the price level (P).

c. Increase real GDP (Y), and increase the price level (P).

Refer to Figure 2 8. Which of the following is correct? a. A wave of optimism could move the economy from point a to point b.-> moving from a to b implies that AD shifts left and total spending is decreasing. But optimism causes AD to shift to the right, so the statement is incorrect. b. If aggregate demand moves from AD1 to AD2, the economy will stay at point b in both the short run and long run.->The statement is incorrect because the economy will only stay at b in the SHORTRUN. In the long run it will move to point c (see above). c. It is possible that either fiscal or monetary policy might have caused the shift from AD1 to AD2.->Correct because either contractionary monetary policy (decrease in the MS) or contractionary fiscal policy (decrease in G and/or increase in T) could shift AD to the left. d. All of the above are correct.

c. It is possible that either fiscal or monetary policy might have caused the shift from AD1 to AD2.->Correct because either contractionary monetary policy (decrease in the MS) or contractionary fiscal policy (decrease in G and/or increase in T) could shift AD to the left.

Refer to Figure 1 Suppose the economy starts at Z. Stagflation would be consistent with the move to Z=long run equilibrium because all three curves intersect there: LRAS, SRAS and AD2 intersect.Y2=YnP2=PeStagflation GDP Y decreases and P increase At Z Y=Y2 and P=P2Y would decrease to Y1 and P increases to P3 a. P1 and Y1 . b. P1 and Y3 . c. P3 and Y1 . d. P3 and Y3 .

c. P3 and Y1 .

Refer to Figure 3. If the money-supply curve MS on the left-hand graph were to shift to the left, this would a. represent an action taken by the Federal Reserve. b. shift the AD curve to the left. c. create, until the interest rate adjusted, an excess demand for money at the interest rate that equilibrated the money market before the shift. d. All of the above are correct.

d. All of the above are correct.

The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for a. the slope of short-run aggregate supply. b. the slope of long-run aggregate supply. c. the slope of the aggregate-demand curve. d. everything that makes the aggregate-demand curve shift

c. the slope of the aggregate-demand curve.

Refer to Figure 2 9. Which of the following is correct? a. Unemployment rises as the economy moves from point a to point b. b. Either fiscal or monetary policy could be used to move the economy from point b to point a. c. If the economy is left alone, then as the economy moves from point b to long-run equilibrium, the price level will fall farther. d. All of the above are correct

d. All of the above are correct

33. Suppose that the Federal Reserve increases the interest rate. Using the AD-AS model, what is the expected effect of this policy change on the economy in the long run? a. Decrease real GDP (Y), and decrease the price level (P). b. Increase real GDP (Y), but decrease the price level (P). Page | 11c. Increase real GDP (Y), and increase the price level (P). d. Leave real GDP (Y) the same, but decrease the price level (P).

d. Leave real GDP (Y) the same, but decrease the price level (P).

Refer to Figure 1 Suppose the economy starts at Z. If changes occur that move the economy to anew short run equilibrium of P1 and Y1 , then it must be the case that a. short run aggregate supply has decreased. b. short run aggregate supply has increased. c. aggregate demand has increased. d. aggregate demand has decreased

d. aggregate demand has decreased

Changes in the price level affect which components of aggregate demand? a. only consumption and investment b. only consumption and net exports c. only investment d. consumption, investment, and net exports

d. consumption, investment, and net exports

When taxes increase, the interest rate a. increases, making the change in aggregate demand larger. b. increases, making the change in aggregate demand smaller c. decreases, making the change in aggregate demand larger. d. decreases, making the change in aggregate demand smaller

d. decreases, making the change in aggregate demand smaller.

An increase in the price of oil leads to if there is no policy response a. lower output and higher prices in the short run and in the long run. b. lower output and higher prices in the long run but not in the short run. c. lower output and higher prices in the short run and no change in output but higher prices in the long run. d. lower output and higher prices in the short run but no change in output and prices in the long run.

d. lower output and higher prices in the short run but no change in output and prices in the long run.

When the Fed wants to increase the interest rate, it conducts an open-market operation, in which it Increase in interest corresponds to a decrease in the MS and a sale of bonds. Decrease in the interest rate corresponds to increase in the MS and the purchase of bonds. a. buys government bonds, and in so doing increases the money supply. b. buys government bonds, and in so doing decreases the money supply. c. sells government bonds, and in so doing increases the money supply. d. sells government bonds, and in so doing decreases the money supply.

d. sells government bonds, and in so doing decreases the money supply.