MACRO TEST

Higher interest rates may cause

both A and B.

In the diagram, a shift from AS1 to AS3 might be caused by a(n)

increase in the prices of imported resources.

Discretionary fiscal policy refers to

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

Contractionary fiscal policy is so named because it

is aimed at reducing aggregate demand and thus achieving price stability.

If investment decreases by $60 billion and the economy's MPC is 0.5, the aggregate demand curve will shift

leftward by $120 billion at each price level.

An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. The per-unit cost of production in this economy is

$0.10.

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. The per-unit cost of production in the economy described is

$2.

Suppose that technological advancements stimulate $20 billion in additional investment spending. If the MPC = 0.6, how much will the change in investment increase aggregate demand?

$50 billion

Answer the question based on the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession. (2) Economists reach agreement that the economy is moving into a recession. (3) A tax cut is proposed in Congress. (4) The tax cut is passed by Congress and signed by the president. (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. The recognition lag of fiscal policy is reflected in events

1 and 2.

The table gives aggregate demand-and-supply schedules for a hypothetical economy. The equilibrium price level will be

200

Answer the question based on the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession. (2) Economists reach agreement that the economy is moving into a recession. (3) A tax cut is proposed in Congress. (4) The tax cut is passed by Congress and signed by the president. (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. The administrative lag of fiscal policy is reflected in events

3 and 4.

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

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, inflation is absent in

A & C

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.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Cost-push inflation is depicted by

B

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in productivity is depicted by

B

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Growth, full-employment, and price stability are depicted by

C

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decrease in resource prices is depicted by

C

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, an increase in investment spending is depicted by

C

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

D

Which of the following best describes the built-in stabilizers as they function in the United States?

Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?

Reductions in federal tax rates on personal and corporate income.

Other things equal, if the U.S. dollar were to depreciate, the

aggregate supply curve would shift to the left.

Discretionary fiscal policy will likely cause budget

deficits during recessions and surpluses during periods of demand-pull inflation.

In a certain year, the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $120 billion. To obtain price-level stability under these conditions, the government should

increase tax rates and/or reduce government spending.

The crowding-out effect of expansionary fiscal policy suggests that

increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

If the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $40 billion by

increasing government spending by $4 billion.

If the MPC in an economy is 0.75, government could shift the aggregate demand curve leftward by $60 billion by

increasing taxes by $20 billion.

In the diagram, a shift from AS3 to AS2 might be caused by an increase in

productivity

Answer the question based on the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession. (2) Economists reach agreement that the economy is moving into a recession. (3) A tax cut is proposed in Congress. (4) The tax cut is passed by Congress and signed by the president. (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. The operational lag of fiscal policy is reflected in event(s)

5.

An appropriate fiscal policy for severe demand-pull inflation is

a tax rate increase.

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.

aggregate demand curve would shift to the right.

Discretionary fiscal policy will stabilize the economy most when

deficits are incurred during recessions and surpluses during inflations.

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. All else being equal, if the price of each input increased from $4 to $6, productivity would

remain unchanged.

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

require no legislative action by Congress to be made effective.