Macro Unit 4 AG supply and Demand

On the graph above, stagflation will be caused by a A leftward shift in the short-run aggregate supply curve only B rightward shift in the short-run aggregate supply curve only C leftward shift in the aggregate demand curve only D rightward shift in the aggregate demand curve only E rightward shift in both the short-run aggregate supply and aggregate demand curves

A

An economy is currently operating at the full-employment level of output. Which of the following would result in a recessionary gap in the short run? A An increase in the costs of production B An improvement in the productivity of labor C An increase in money supply D A positive supply shock E A decrease in income tax rates

A An increase in the cost of production causes the short-run aggregate supply curve to shift to the left, reducing real output below full employment. This will result in a recessionary gap.

If there is an adverse (negative) short-run aggregate supply shock due to an increase in the price of natural resources and the government pursues no policy to address the supply shock, then which of the following will occur in the long run? A Nominal wages will fall with no change in the natural rate of unemployment. B Inflation will rise and nominal wages will fall. C Deflation will worsen and nominal wages will rise. D Aggregate demand will increase to restore full employment. E The long-run aggregate supply curve will shift right and increase unemployment.

A The supply shock results in a leftward shift of the short-run aggregate supply curve, which will increase unemployment (above the natural rate), leading to a decrease in nominal wages but not necessarily a change in the natural rate of unemployment. In the long run the short-run aggregate supply curve will shift right and restore full employment.

According to the graph above and starting with equilibrium point R, which of the following shifts identifies the short-run and the long-run impact of a demand-pull inflation? A Short RunLong RunR to NM to N B Short RunLong RunR to MR to N C Short RunLong RunR to QQ to N D Short RunLong RunR to MR to Q E Short RunLong RunR to N N to Q

B

An increase in the purchases of newly constructed houses will result in which of the following? A Aggregate demand will decrease as a result of a decrease in the price level. B Aggregate demand will increase as a result of an increase in investment spending. C Aggregate demand will increase as a result of an increase in exports. D Aggregate demand will not change, since consumer spending has not changed. E Aggregate demand will not change, since investment spending has not changed.

B

An ongoing increase in the price of oil will result in A demand-pull inflation B cost-push inflation C expansionary fiscal policy D a decrease in the prices of substitute forms of energy E deflation

B

Assume that Jane's marginal propensity to consume equals 0.8, and that in 2004 Jane spent $36,000 from her disposable income of $40,000. If her disposable income in 2005 increased to $50,000, her consumption spending increased by A $4,000 B $8,000 C $9,000 D $10,000 E $14,000

B

Under which of the following conditions would consumer spending most likely increase? A Consumers have large unpaid balances on their credit cards. B Consumers' wealth is increased by changes in the stock market. C The government encourages consumers to increase their savings. D Social security taxes are increased. E Consumers believe they will not receive pay increases next year.

B

Thailand and Malaysia are trading partners. If the price level in Thailand decreases relative to the price level in Malaysia, what will happen to Thailand's exports to Malaysia and Thailand's aggregate demand? A Thailand's ExportsThailand's Aggregate DemandIncreaseDecrease B Thailand's ExportsThailand's Aggregate DemandIncreaseIncrease C Thailand's ExportsThailand's Aggregate DemandIncreaseIndeterminate D Thailand's ExportsThailand's Aggregate DemandDecreaseDecrease E Thailand's ExportsThailand's Aggregate DemandDecreaseIncrease

B When the price level in Thailand decreases relative to the price level in Malaysia, this will make domestic goods less expensive relative to foreign goods, which increases the Malaysian demand for Thai goods, increasing Thailand's exports and decreasing Thailand's imports. Therefore, Thailand's net exports increase and Thailand's aggregate demand increases.

CWhich of the following best explains the relationship between the price level and real output along the aggregate demand curve? A A higher price level increases the value of real assets. B A higher price level increases the relative price of imports. C A lower price level reduces the real interest rate and increases investment. D A higher price level increases consumers' wealth and consumption. E A lower price level reduces consumers' confidence and consumption.

C

In the short run, cost-push inflation can be caused by A printing too much money B increased government spending C negative supply shocks D decreased tariffs E decreased taxes

C

Suppose that the economy is in the midst of a recession and government policy makers want to increase aggregate demand by $600 billion.If the economy's marginal propensity to consume is 0.75 and there is no crowding out, the government should do which of the following? A Increase spending by $2,400 billion. B Increase spending by $600 billion. C Increase spending by $150 billion. D Decrease taxes by $150 billion. E Decrease taxes by $600 billion.

C

The aggregate demand curve assumes that A as the price of a good or service increases, nominal wages decrease B as the domestic price level increases, consumers substitute domestic goods for foreign goods C all prices and total consumer incomes are constant D changes in the price level affect real wealth E nominal interest rates increase as the price level decreases

C

Which of the following explains why the long-run aggregate supply curve corresponds to the production possibilities curve? A Both curves are downward sloping. B Both curves illustrate flexible wages and prices. C Both curves illustrate the maximum sustainable capacity. D Both curves illustrate the trade-off between inflation and unemployment. E Both curves illustrate short-run macroeconomic equilibrium.

C The long-run aggregate supply curve illustrates the maximum sustainable capacity because of flexible wages and prices; the economy adjusts in the long run to the maximum sustainable capacity, or full employment. The production possibilities curve illustrates the maximum quantity of output when an economy fully utilizes its resources.

A rightward shift in the short-run aggregate supply curve will occur when A exports exceed imports B the money supply increases C the prices of imported raw materials increase D the stock of physical capital increases E unions have negotiated a wage increase for their members

D

Assume that the marginal propensity to consume is 0.8. If the government increases its purchases of goods and services by $200 and exports decline by $50, at most the equilibrium level of income will A decrease by $250 B decrease by $1,000 C increase by $150 D increase by $750 E increase by $1,250

D

Assume that the marginal propensity to consume is 0.90. As a result of an increase in the tax rates, the government collects an additional $20 million. What will be the impact on gross domestic product (GDP) ? A GDP will increase by a maximum of $200 million. B GDP will increase by a maximum of $180 million. C GDP will decrease by a maximum of $200 million. D GDP will decrease by a maximum of $180 million. E GDP will decrease by a maximum of $20 million.

D

Automatic stabilizers can do which of the following? A Offset the destabilizing influence of changes in tax revenues B Aid the economy to move away from the full-employment output level C Allow policymakers to formulate a set of rules flexible and comprehensive enough to eliminate discretionary actions D Cause tax revenues to decrease when gross domestic product (GDP) decreases and to increase when GDP increases E Allow policymakers to prescribe public works programs during inflationary periods because expenditures for unemployment and welfare have correspondingly decreased

D

A negative aggregate supply shock will result in which of the following in the short run? A An increase in the price level and a decrease in the unemployment rate B A decrease in the price level and an increase in the unemployment rate C A decrease in both the price level and real output D An increase in both the price level and real output E An increase in both the price level and the unemployment rate

E

According to the graph above, which of the following is true about the long-run equilibrium of the economy depicted? A The economy is in long-run equilibrium. B The aggregate demand curve will shift to the left to restore long-run equilibrium. C The long-run aggregate supply curve will shift to the right to restore long-run equilibrium. D Without a fiscal policy stimulus, the economy will remain in a recession. E As wages increase, the short-run aggregate supply curve will shift to the left to restore long-run equilibrium.

E

Faced with a large federal budget deficit, the government decides to decrease expenditures and tax revenues by the same amount. This action will affect output and interest rates in which of the following ways? A OutputInterest RatesIncreaseIncrease B OutputInterest RatesIncrease Decrease C OutputInterest RatesNo changeDecrease D OutputInterest RatesDecreaseIncrease E OutputInterest RatesDecreaseDecrease

E

If a change in aggregate demand results in a recession, the price level and real output will change in which of the following ways in the short run? A Price LevelReal OutputNo changeIncrease B Price LevelReal OutputIncreaseNo change C Price LevelReal OutputIncreaseDecrease D Price LevelReal OutputDecreaseNo change E Price LevelReal OutputDecreaseDecrease

E

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? A Falling wages will shift the aggregate demand curve to the right, producing full employment. B Rising wages will shift the aggregate demand curve to the right, producing full employment. C The economy will remain at point A. D Rising wages will shift the aggregate supply curve to the right, producing full employment. E Falling wages will shift the aggregate

E

Which of the following would cause the short-run aggregate supply curve to shift to the right? A An increase in the wage rate B An increase in the interest rate C An increase in the natural rate of unemployment D A decrease in the capital stock E A decrease in the expected price level

E

If a large increase in total spending has no effect on real gross domestic product, it must be true that A the price level is rising B the economy is experiencing high unemployment C The spending multiplier is equal to 1 D the economy is in short-run equilibrium E aggregate supply has increased

A