Quiz 3

A price index is:

A. a measurement showing how the average price of a bundle of goods changes over time.

The index used most often to measure prices paid by households is the:

A. consumer price index.

Fiscal policy affects aggregate demand because:

A. government purchases is a category of aggregate demand. B. taxes affect corporate spending and so investment. C. taxes affect disposable income and so consumption. D. all of the above.

In 1981, the nominal interest rate in the US was 15%, but the inflation rate was 10%. What was the real interest rate?

5%

Which of the following is an example of a contractionary fiscal policy?

A. government purchases is a category of aggregate demand. B. taxes affect corporate spending and so investment. C. taxes affect disposable income and so consumption. D. all of the above.

Please refer to Figure 1. Suppose the economy is at point A. An increase in the labor force will:

A. move the economy to point B.

Please refer to Figure 1. Suppose the economy is at point A. An improvement in technology will:

A. move the economy to point D.

Please refer to Figure 1. Suppose the economy is at point A. An increase in the capital stock will:

A. move the economy to point D.

Refer to Figure 9.1. An increase in government spending causes:

A. the aggregate demand curve to shift from AD1 to AD2.

Refer to Figure 9.2. The flooding in the Midwest during the summer of 1993 destroyed a large portion of the agricultural crop in the United States. This caused:

A. the aggregate supply curve to shift from AS1 to AS0 .

The CPI overstates actual changes in cost of living due to:

A. the difficulty of measuring quality improvements.

In the long run, output is determined by:

A. the size of the capital stock. B. the size of the labor force. C. the state of technology. D. all of the above.

The level of full-employment output in an economy increases as:

A. the supply of labor increases. B. the stock of capital increases. C. the natural rate of unemployment decreases. D. all of the above.

Which of the following would not cause an increase in output?

All of the above would cause an increase in output.

What does an upward-sloping labor supply curve mean?

An increase in the wage leads to an increase in the quantity of labor supplied

Refer to Figure 9.2. Which of the following causes the economy to move from Point A to Point E in the short run?

an oil embargo that increases the price of oil sharply

Diminishing returns to labor implies that:

as labor increases, labor productivity decreases.

The four components of the aggregate demand curve are:

consumption, investment, government purchases and net exports.

Which of the following is an example of a contractionary fiscal policy?

increasing taxes

The production function describes the relationship between the quantities of which two variables?

inputs and output

The long run aggregate supply curve assumes that in the long run, the economy:

is at full employment.

Which of the following would not be considered part of the stock of capital?

on-the-job training

Another term for full-employment output is:

potential output.

When we draw the aggregate demand curve, ________ should be on the x-axis and ________ should be on the y-axis.

real GDP; the price level

The aggregate demand curve would shift to the left if:

taxes were increased.

Refer to Figure 9.1. A reduction in the money supply causes:

the aggregate demand curve to shift from AD1 to AD0

An increase in government spending or a decrease in taxes will cause:

the aggregate demand curve to the right.

Expansionary fiscal policy shifts:

the aggregate demand curve to the right.

Fiscal policy shifts the:

the aggregate demand curve.

In the market for labor, the buyers of labor are:

the firms. the government both B and C are correct.

Full-employment output is:

the level of output that is produced when the labor market is in equilibrium.

Assume that the short-run AS is upward sloping. If the government chooses to reduce government expenditure or to increase taxes, according to the Aggregate Supply - Aggregate Demand model:

the price level will fall and GDP will decrease.

The aggregate demand curve slopes downward because at a higher price level:

the purchasing power of consumers' wealth declines and consumption decreases.

Fiscal policy refers to:

the spending and taxing policies used by the government to influence the economy.

When constructing a production function between labor and output, which of the following is held constant?

the stock of capital the level of technology B and C are both correct.

In the market for labor, the sellers of labor are:

the workers

A decrease in the money supply will cause output:

to decrease in the short run; not change in the long run.

An increase in consumption spending will cause output:

to increase in the short run; not change in the long run.

In the long run, the aggregate supply curve is:

vertical at the full employment level of GDP.

The marginal product of labor is:

The change in output when an extra worker is employed.

What happens to the labor supply curves in the U.S. and Canada when Canadian workers migrate to the United States?

The labor supply curve shifts to the right in the U.S. and to the left in Canada

If Y is total output, K is the capital stock and L is the total labor input stock, which of the following represents a production function?

Y = f(L,K)

A leftward shift in the aggregate demand curve cannot be caused by:

a decrease in imports.

In the short run, a decrease in the price of a major input such as oil will:

decrease the price level and increase the level of output.

In the short run, an improvement in the technology will:

decrease the price level and increase the level of output.

An increase in the productivity of workers shifts the labor ________ curve to the ________.

demand; right

The production function described in the chapter assumes that with a fixed capital stock, increases in the labor input results in increases in output at a decreasing rate. This relationship between labor and output is known as:

diminishing returns.

The labor demand curve is:

downward sloping, because a lower real wage entices firms to hire more workers