Macro exam 2

Recurring upswings and downswings in an economy's real GDP over time are called

business cycles

Which of the following would most likely occur during the expansionary phase of the business cycle?

demand-pull inflation

The aggregate demand curve is

downsloping because of the interest-rate, real-balances, and foreign purchases effects.

Given a fixed upsloping AS curve, a rightward shift of the AD curve will

increase both the price level and real output

A major advantage of the built-in or automatic stabilizers is that they

require no legislative action by Congress to be made effective.

Which of the following relations is not correct?

MPS = MPC + 1.

If actual GDP is $500 billion and there is a negative GDP gap of $10 billion, potential GDP is

$510 billion

Assume the MPC is 2/3. If investment spending increases by $2 billion, the level of GDP will increase by

$6 billion

Assuming the total population is 100 million, the civilian labor force is 50 million, and 42 million workers are employed, the unemployment rate is

16 %

In the diagram, the economy's immediate-short-run AS curve is line ______, its short-run AS curve is _____, and its long-run AS curve is line ______.

3; 2; 1

You are given the following information about the economy: the nominal interest rate = 8 percent, and the real rate of interest = 4 percent. The inflation premium is

4%

If the rate of inflation is 12 percent per year, the price level will double in about

5.8%

Assume the natural rate of unemployment in the U.S. economy is 4 percent and the actual rate of unemployment is 7 percent. According to Okun's law, the GDP gap as a percentage of potential GDP is

6%

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. A recession is depicted by

A and B.

Which of the diagrams for the U.S. economy best portrays the effects of a substantial reduction in government spending?

D

Prices and wages tend to be

flexible upward but inflexible downward.

Refer to the diagram, in which Qf is the full-employment output. If the economy's present aggregate demand curve is AD2,

government should undertake neither expansionary nor contractionary fiscal policy.

The actual multiplier effect in the U.S. economy is less than the multiplier effect in the text examples because

in addition to saving, households use some of any increase in income to buy imported goods and to pay additional taxes.

Discretionary fiscal policy refers to

intentional changes in taxes and government expenditures made by Congress to stabilize the economy.

When changes in taxes and government spending occur in the economy without explicit action by Congress, such policy is called ______ fiscal policy.

nondiscretionary

Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called

structural unemployment

Fiscal policy is enacted through changes in

taxation and government spending.

Which of the following did not contribute directly to the Great Recession?

the bursting of the dot-com stock market bubble

When current tax revenues exceed current government expenditures and the economy is achieving full employment,

the cyclically adjusted budget has a surplus.