Test 4.2 Economics
C
The quantity of real GDP demanded increases if ______. A. the buying power of money increases B. the nominal interest rate falls C. the price level falls D. the money wage rate rises
C
A rise in the money wage rate when the economy is at potential GDP ______. A. does not change potential GDP but increases real GDP along the AS curve. B. does not change aggregate supply but decreases production C. decreases aggregate supply because a rise in the money wage rate increases costs, so firms employ fewer workers D. decreases potential GDP because the full-employment quantity of labor decreases
D
Aggregate demand decreases if expected future income, inflation, or profits ______. And aggregate demand decreases if fiscal policy ______ government expenditure. A. decrease; increases B. increase; decreases C. increase; increases D. decrease; decrease
A
Aggregate demand decreases if fiscal policy ______ taxes or ______ transfer payments. A. increases; decreases B. increases; increases C. decreases; increases D. decreases; decreases
A
Aggregate demand decreases if monetary policy ______ the quantity of money and ______ interest rates. A. decreases; increases B. decreases; decreases C. increases; increases D. increases; decreases
B
Aggregate demand decreases if the exchange rate ______ or foreign income ______. A. increases; increases B. increases; decreases C. decreases; increases D. decreases; decreases
B
Aggregate demand is the relationship between the quantity of _____ demanded and the _____ when all other influences on expenditure plans remain the same. A. real GDP; exchange rate B. real GDP; price level C. nominal GDP; quantity of output supplied D. nominal GDP; interest rate
A
Aggregate supply increases when ______. A. the money wage rate falls B. the price level rises C. the money price of oil increases D. consumption increases
B
Aggregate supply is the relationship between the quantity of _____ supplied and the _____ when all other influences on production plans remain the same. A. real GDP; interest rate B. real GDP; price level C. potential GDP; price level D. nominal GDP; exchange rate
B
An economy has a recessionary gap. With no change in aggregate demand, how does the economy return to full employment? A. The money wage rate falls, real GDP increases, and the price level rises. B. The money wage rate falls, aggregate supply increases, and the price level falls. C. The money wage rate rises, real GDP decreases, and the price level rises. D. The money wage rate rises, real GDP increases, and the price level falls.
D
An increase in expected future income increases ______. A. future consumption expenditure and has no effect on current aggregate demand B. investment, which increases current aggregate supply C. the demand for money, which decreases current aggregate demand D. consumption expenditure, which increases current aggregate demand
B
An increase in the expected future inflation rate _______ aggregate demand today, and an increase in expected future profit _______ aggregate demand today. A. increases; does not change B. increases; increases C. does not change; does not change D. does not change; increases
A
Consider potential GDP and then choose the statement that is correct. A. The potential GDP line is vertical because potential GDP is independent of the price level. B. Along the potential GDP line the money wage rate is constant and the real wage rate rises as the price level rises. C. The potential GDP line shows the relationship between potential GDP and the quantity of real GDP supplied. D. Potential GDP is illustrated by an upward-sloping curve.
A
Explain the effect of each of the following events on Mexico's aggregate demand. If the government of Mexico raises income taxes, Mexico's aggregate demand ______. A. decreases, and the aggregate demand curve shifts leftward B. is unchanged because it just increases the amount that taxpayers transfer to the government C. increases because it increases the amount the government can spend D. decreases, and the aggregate demand curve shifts rightward E. is unchanged, but the price level rises and quantity of real GDP demanded decreases
A and A
If potential GDP is $600 billion, the economy is _______. A. above full employment and has an inflationary gap B. below full employment and has a recessionary gap C. at a full-employment equilibrium In the long run, ______. A. aggregate supply decreases, the price level rises, and real GDP decreases to potential GDP B. aggregate demand decreases, the price level falls, and real GDP decreases to potential GDP C. potential GDP increases to $800 billion D. aggregate supply decreases and aggregate demand decreases, the price level either rises or falls, and real GDP decreases to potential GDP
D
If the economy is at full employment and the Fed increases the quantity of money, ______. A. potential GDP and aggregate supply increase together and the price level does not change B. aggregate supply increases, the price level starts to fall, and an expansion begins C. aggregate demand increases, a recessionary gap appears, and the money wage rate starts to rise D. aggregate demand increases, an inflationary gap appears, and the money wage rate starts to rise
D and D
Investment and government expenditure down and exports up The BEA announced that nonresidential investment and federal government spending decreased in the first quarter of 2016 while U.S. exports increased and U.S. imports decreased. Source: Bureau of Economic Analysis, June 28, 2016 Explain how the items in the news clip influence U.S. aggregate demand. The decrease in nonresidential investment ______ aggregate demand. The decrease in federal government spending ______ aggregate demand. A. has no effect on; increases B. increases; has no effect on C. decreases; has no effect on D. decreases; decreases The change in exports and imports _______ aggregate demand because _______. A. decrease; a decrease in imports decreases aggregate demand B. has an unknown effect on aggregate; an increase in exports increases aggregate demand and a decrease in imports decreases aggregate demand C. do not change; the increase in exports is cancelled out by the decrease in imports D. increase; an increase in exports increases aggregate demand and a decrease in imports increases aggregate demand
D
Macroeconomic equilibrium occurs when the quantity of real GDP ______ equals the quantity of ______. A. demanded; real GDP supplied and potential GDP B. supplied; potential GDP C. demanded; potential GDP D. demanded; real GDP supplied
C
Mexico trades with the United States. When the United States experiences negative economic growth, Mexico's aggregate demand ______. A. decreases and the quantity of real GDP demanded increases B. is unchanged, but the price level falls and quantity of real GDP demanded increases C. decreases because its exports to the United States decrease. Mexico's AD curve shifts leftward D. increases because its imports from the United States decrease E. is unchanged, but aggregate demand decreases in the United States
B
Over the past decade, the demand for goods produced in China has brought a sustained increase in demand for China's exports that has outstripped the growth of supply. As a result, China has experienced a ______. A. rising price level and cost-push inflation B. rising price level and demand-pull inflation C. period of stable prices and sustained economic growth D. rising price level and a falling real wage rate
A
Over the past decade, the demand for goods produced in China has brought a sustained increase in demand for China's exports that has outstripped the growth of supply. As a result, China has experienced a ______. A. rising price level and demand-pull inflation B. rising price level and a falling real wage rate C. rising price level and cost-push inflation D. period of stable prices and sustained economic growth
A
Stagflation ______. A. is a combination of recession and inflation. B. has not been experienced in the United States since the Great Depression C. is another name for an inflationary gap D. occurs when aggregate demand decreases by more than aggregate supply increases
A
When Europe trades with Mexico and goes into a recession, ______. A. Mexico's exports to Europe decrease, Mexico's aggregate demand decreases, and Mexico's AD curve shifts leftward B. Mexico's price level falls and quantity of real GDP demanded increases, but Mexico's aggregate demand is unchanged C. Mexico's exports to Europe decrease, Mexico's aggregate demand decreases, and a movement occurs along Mexico's AD curve. D. Mexico's imports from Europe decrease and Mexico's aggregate demand increases E. Mexico's price level falls and quantity of real GDP demanded decreases, but Mexico's aggregate demand is unchanged
B
When Mexico increases the quantity of money, Mexico's aggregate demand ______. A. is unchanged, but the quantity of real GDP demand increases and there is a movement down along the AD curve B. increases and its AD curve shifts rightward C. is unchanged, but the quantity of real GDP demand decreases and there is a movement up along the AD curve D. increases and a movement occurs along the AD curve E. decreases and its AD curve shifts leftward
C
When investment increases, _______ A. aggregate demand increases by an amount equal to the increase in investment B. aggregate supply increases. The increase in aggregate supply is greater than the increase in investment because capital increases, which increases potential GDP C. aggregate demand increases and income increases. The increase in income induces an increase in consumption expenditure so aggregate demand increases by more than the initial increase in investment D. aggregate demand increases and aggregate supply increases
C
When potential GDP increases, ______. A. the price level rises B. both aggregate demand and aggregate supply increase C. aggregate supply increases D. aggregate demand increases
B
When the Mexican government relaxes its environmental standards, so that factories are no longer required to upgrade their production facilities, investment in Mexico decreases and Mexico's aggregate demand ______. A. decreases and a movement occurs along the AD curve B. decreases. The AD curve shifts leftward. C. is unchanged, but the price level rises and quantity of real GDP demanded decreases D. is unchanged, but the price level falls and quantity of real GDP demanded increases E. increases because as less investment occurs, more consumption expenditure occurs
D
When the price level and the money wage rate rise by the same percentage, unemployment _______. A. decreases B. is eliminated C. increases D. remains the same
B
When the price level in Mexico rises, _______. A. the quantity of real GDP demanded in Mexico increases B. the quantity of real GDP demanded in Mexico decreases C. Mexico's aggregate demand decreases D. Mexico's aggregate demand increases
D
When the price level rises but the money wage rate remains unchanged, unemployment ______ and the quantity of real GDP supplied ______. A. increases; decreases B. decreases; decreases C. increases; increases D. decreases; increases
A
Which of the following are examples of monetary policy that decrease aggregate demand? A. a decrease in the quantity of money and an increase in interest rates B. an increase in transfer payments and an increase in interest rates C. a decrease in taxes and a decrease in interest rates D. an increase in the quantity of money and a decrease in interest rates
D
Which of the following are examples of monetary policy that decrease aggregate demand? A. an increase in transfer payments and an increase in interest rates B. a decrease in taxes and a decrease in interest rates C. an increase in the quantity of money and a decrease in interest rates D. a decrease in the quantity of money and an increase in interest rates
B
Which of the following items are examples of fiscal policy that increase aggregate demand? A. An increase in transfer payments and an increase in interest rates. B. An increase in government expenditure, a decrease in taxes, and an increase in transfer payments. C. A decrease in taxes and a decrease in interest rates. D. A decrease in taxes and an increase in the quantity of money.
