Macro 3 AP Classroom

If the government increases expenditures on goods and services and increases taxation by the same amount, which of the following will occur?

Aggregate demand will increase

Which of the following changes will necessarily cause inflation?

An increase in aggregate demand and a decrease in short-run aggregate supply.

Which of the following is an example of an expansionary fiscal policy?

An increase in government expenditures

An economy is in long-run macroeconomic equilibrium. What will be the short-run effects of an increase in investment spending?

An increase in real output, a decrease in unemployment, and an increase in the price level

Assume that an economy is currently in long-run equilibrium and the short-run aggregate supply curve is upward sloping. An adverse supply shock, such as a drought, will most likely cause which of the following to the economy in the short run?

An increase in the price level and a decrease in the real wage

A decrease in the prices of inputs will cause which of the following to occur in the short run?

An increase in the short-run aggregate supply and a decrease in the price level

According to the graph above, which of the following is true about the long-run equilibrium of the economy depicted?

As wages increase, the short-run aggregate supply curve will shift to the left to restore long-run equilibrium

Given the graph of the short-run aggregate supply (SRAS) and long-run aggregate supply (LRAS) curves above, which of the following is true?

At point X, the economy is experiencing a recessionary gap.

The graph above depicts an economy's aggregate demand and aggregate supply curves. If aggregate demand remains constant, the equilibrium price levels in the short run and in the long run will be which of the following?

0B and 0A

If a nation's government cuts income taxes, how will consumption spending, real output, and unemployment change in the short run?

Consumption spending will increase, real output will increase, and unemployment will decrease.

The economy of a country is currently in equilibrium at point A in the diagram above. If the government does nothing and wages are flexible, which of the following will most likely occur in the long run?

Falling wages will shift the aggregate supply curve to the right, producing full employment.

The graph above shows the macroeconomic conditions of Wattsonia. Many economists estimate that the natural rate of unemployment is 6 percent. If this is true and the current rate of unemployment is 5.1 percent, in what range of real gross domestic product is the economy currently producing?

Greater than Y2

Which of the following is an example of fiscal policy?

Increasing government expenditures to build highways

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.

A decrease in taxes will necessarily result in an increase in which of the following?

Nominal gross domestic product

How does the automatic adjustment mechanism move the economy to potential real gross domestic product (GDP) in the long run when current real GDP is above potential GDP?

Nominal wages fall, shifting the short-run aggregate supply curve to the left.

An economy is in a short-run equilibrium at a level of output that is less than full-employment output. If there were no fiscal or monetary policy interventions, which of the following changes in output and price level would occur in the long run?

Output: Increase, Price Level: Decrease

If an economy's aggregate supply curve is upward sloping, an increase in government spending will most likely result in a decrease in the

Price level

The diagram above shows a nation's short-run aggregate supply curve (SRAS), long-run aggregate supply curve (LRAS), and aggregate demand curve (AD). Based on the diagram above, which of the following describes the short-run equilibrium?

The economy is operating above full employment.

A contractionary supply shock would most likely result in

a decrease in employment

A decrease in business taxes would lead to an increase in national income by increasing which of the following?

both aggregate demand and aggregate supply.

A major advantage of automatic stabilizers in fiscal policy is that they

go into effect without passage of new legislation

A discretionary fiscal policy action to reduce inflation in the short run would be to

increase taxes or decrease government spending

Assume that the economy is in long-run equilibrium. A shift in the aggregate demand curve will change

only the price level in the long run

Which of the following is an example of an automatic stabilizer?

progressive income taxes