question
The MPS plus the MPC must equal
answer
1
question
If the MPS = 1, then the value of the multiplier equals
answer
10
question
Which of the following will shift the aggregate consumption function upward?
answer
The stock market is strong and wealth is rising
question
The ________________ curve shows the negative relationship between the aggregate price level and the quantity output demanded in the economy.
answer
aggregate demand
question
According to the wealth effect, when the price level decreases, the purchasing power of assets
answer
increase and consumer spending increase
question
The interest rate effect of the price level is reflected in
answer
the downward slope in aggregate demand
question
Suppose that the stock market crashes. Which of the following is most likely to occur?
answer
The AD curve shifts to left
question
An increase in government spending on health care is likely to shift the
answer
AD curve to the right
question
The short-run aggregate supply curve is positively sloped because
answer
wages are sticky or don't readily adjust to changes in economic conditions in the short run
question
Which of the following will shift the short-run aggregate supply curve to the right?
answer
an economy-wide decrease in commodity prices
question
The level of output in the long run is know as
answer
potential output
question
A decrease in aggregate demand will generate __________ in real GDP and _________ in the price level in the short run
answer
decrease;decrease
question
In the short run, a positive demand shock
answer
increases aggregate output and the aggregate price level
question
If commodity prices rise unexpectedly, it will cause
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a negative demand shock
question
When the economy is producing output ABOVE the potential, it has an
answer
inflationary gap
question
If nominal wages decrease
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SRAS curve will shift right, increase
question
When consumers and firms become more optimistic
answer
AD curve will shift to right, increase
question
When firms decrease their investment spending
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AD curve will shift to the left, decrease
question
Fiscal policy refers to
answer
the manipulation of government spending and taxations
question
Medicaid, Medicare and Social Security are examples of
answer
transfer payments
question
Suppose the economy is experiencing a recessionary gap. To move equilibrium aggregate output closer to the level of potential output, the best fiscal policy option is to
answer
decrease taxes
question
Expansionary fiscal policy
answer
increases aggregate demand
question
Contractionary fiscal policy would include
answer
increase taxes
question
If the government decides to spend an extra $5 billion
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GDP will increase by more than $5 billion
question
If the MPC is 0.9, then the tax multiplier will be
answer
9
question
Government spending and taxation rules that cause fiscal policy to be expansionary when the economy contracts and contractionary when the economy expands are know as
answer
automatic stabilizers
question
If the MPC is 0.8, and the federal government decreases spending by $200 billion, the income expenditure model would predict that real GDP will decrease by
answer
$1000 billion
question
According to the long-run aggregate supply curve, when _________, the quantity of aggregate output supplied ___________
answer
the aggregate price level rises, does not change
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