question
The marginal propensity to consume is equal to:
A. the proportion of consumer spending as a function of aggregate disposable income.
B. the change in saving divided by the change in aggregate disposable income.
C. one.
D. the change in saving divided by the change in consumer spending.
E. the change in consumer spending divided by the change in aggregate disposable income
A. the proportion of consumer spending as a function of aggregate disposable income.
B. the change in saving divided by the change in aggregate disposable income.
C. one.
D. the change in saving divided by the change in consumer spending.
E. the change in consumer spending divided by the change in aggregate disposable income
answer
E
question
Suppose the marginal propensity to consume is equal to 0.90 and investment spending increases by $50
billion. Assuming no taxes and no trade, by how much will real GDP change?
A. $450 billion increase.
B. $90 billion increase.
C. $500 billion increase.
D. $500 billion decrease.
E. $900 billion increase
billion. Assuming no taxes and no trade, by how much will real GDP change?
A. $450 billion increase.
B. $90 billion increase.
C. $500 billion increase.
D. $500 billion decrease.
E. $900 billion increase
answer
C
question
Suppose investment spending increases by $50 billion, and as a result the equilibrium income increases by
$200 billion. The value of the MPC is:
A. 0.8.
B. 0.4.
C. 0.75.
D. 4.
E. 0.5.
$200 billion. The value of the MPC is:
A. 0.8.
B. 0.4.
C. 0.75.
D. 4.
E. 0.5.
answer
C
question
David receives a tax refund of $800. He spends $600 and saves $200. David's marginal propensity to
consume is:
A. 0.6.
B. 0.33.
C. 0.25.
D. 0.20.
E. 0.75.
consume is:
A. 0.6.
B. 0.33.
C. 0.25.
D. 0.20.
E. 0.75.
answer
E
question
Planned investment spending is _______ to the interest rate because ______.
A. positively related; a fall in the market interest rate decreases the supply of loanable funds
B. negatively related; a rise in the market interest rate makes any given investment project
less profitable
C. positively related; a fall in the market interest rate decreases the opportunity cost of
investing
D. negatively related; a rise in the market interest rate causes consumption to "crowd out"
investment
E. negatively related; a rise in the market interest rate causes a lower opportunity cost of
using retained earnings to fund the investment project.
A. positively related; a fall in the market interest rate decreases the supply of loanable funds
B. negatively related; a rise in the market interest rate makes any given investment project
less profitable
C. positively related; a fall in the market interest rate decreases the opportunity cost of
investing
D. negatively related; a rise in the market interest rate causes consumption to "crowd out"
investment
E. negatively related; a rise in the market interest rate causes a lower opportunity cost of
using retained earnings to fund the investment project.
answer
B
question
If households _____ savings in their bank accounts, _______ and the interest rate _______, therefore
increasing investment spending.
A. increase; the supply of loanable funds shifts right; rises
B. increase; the demand of loanable funds shifts right; rises
C. increase; the supply of loanable funds shifts right; falls
D. decrease; the demand of loanable funds shifts left; falls
E. increase; the demand for loanable funds shifts right; falls
increasing investment spending.
A. increase; the supply of loanable funds shifts right; rises
B. increase; the demand of loanable funds shifts right; rises
C. increase; the supply of loanable funds shifts right; falls
D. decrease; the demand of loanable funds shifts left; falls
E. increase; the demand for loanable funds shifts right; falls
answer
C
question
Planned investment spending will decrease if:
A. the interest rate rises.
B. firms expect the growth of real GDP to increase.
C. firms are currently producing near full capacity.
D. consumer expectations about future wealth grow more optimistic.
E. firms have more optimistic expectations about future profits.
A. the interest rate rises.
B. firms expect the growth of real GDP to increase.
C. firms are currently producing near full capacity.
D. consumer expectations about future wealth grow more optimistic.
E. firms have more optimistic expectations about future profits.
answer
A
question
The slope of the consumption function equals:
A. 1 - MPS.
B. 1/(1 - MPS).
C. 1 - MPC.
D. MPC/MPS.
E. MPS.
A. 1 - MPS.
B. 1/(1 - MPS).
C. 1 - MPC.
D. MPC/MPS.
E. MPS.
answer
A
question
If the MPC equals 0.75, then based on the simple model presented in this chapter, one would expect a $100
decrease in government spending to lead to:
A. an increase in spending which will total $100 by the end of all the rounds.
B. an increase in spending which will total $400 by the end of all the rounds.
C. a decrease in spending which will total $100 by the end of all the rounds.
D. a decrease in spending which will total $400 by the end of all the rounds.
E. a decrease in spending which will total $500 by the end of all the rounds.
decrease in government spending to lead to:
A. an increase in spending which will total $100 by the end of all the rounds.
B. an increase in spending which will total $400 by the end of all the rounds.
C. a decrease in spending which will total $100 by the end of all the rounds.
D. a decrease in spending which will total $400 by the end of all the rounds.
E. a decrease in spending which will total $500 by the end of all the rounds.
answer
D
question
A graphical representation of the relationship between the total quantity of goods and services demanded and
the price level is the:
A. aggregate demand curve.
B. average price level.
C. circular flow model.
D. GDP curve.
E. aggregate supply curve
the price level is the:
A. aggregate demand curve.
B. average price level.
C. circular flow model.
D. GDP curve.
E. aggregate supply curve
answer
A
question
The wealth effect suggests:
A. a positive relationship between the price level and consumption spending.
B. that price level changes do not affect real wealth.
C. a negative relationship between the price level and consumption spending.
D. that when the price level increases, the real value of money increases also.
E. that when the price level rises, the real value of wealth also rises.
A. a positive relationship between the price level and consumption spending.
B. that price level changes do not affect real wealth.
C. a negative relationship between the price level and consumption spending.
D. that when the price level increases, the real value of money increases also.
E. that when the price level rises, the real value of wealth also rises.
answer
C
question
If prices are constant, but there is an increase in the value of financial assets:
A. aggregate supply shifts to the left.
B. aggregate supply shifts to the right.
C. aggregate demand shifts to the left
D. aggregate demand shifts to the right.
E. there is a movement down the aggregate demand curve.
A. aggregate supply shifts to the left.
B. aggregate supply shifts to the right.
C. aggregate demand shifts to the left
D. aggregate demand shifts to the right.
E. there is a movement down the aggregate demand curve.
answer
D
question
USE PAPER 13
answer
n/A
question
A general decrease in wages will result in the:
A. aggregate demand shifting to the right.
B. aggregate demand shifting to the left.
C. short-run aggregate supply shifting to the right.
D. short-run aggregate supply shifting to the left.
E. long-run aggregate supply shifting to the right.
A. aggregate demand shifting to the right.
B. aggregate demand shifting to the left.
C. short-run aggregate supply shifting to the right.
D. short-run aggregate supply shifting to the left.
E. long-run aggregate supply shifting to the right.
answer
C
question
According to the long-run aggregate supply curve, when _________, the quantity of aggregate output
supplied _________.
A. nominal wages rise; falls
B. the aggregate price level rises; does not change
C. the aggregate price level rises; falls
D. the price of commodities falls; rises
E. the unemployment rate rises; does not change
supplied _________.
A. nominal wages rise; falls
B. the aggregate price level rises; does not change
C. the aggregate price level rises; falls
D. the price of commodities falls; rises
E. the unemployment rate rises; does not change
answer
B
question
The level of output in the long run is known as:
A. recognized output.
B. structural output.
C. potential output.
D. balanced budget output.
E. inflationary output.
A. recognized output.
B. structural output.
C. potential output.
D. balanced budget output.
E. inflationary output.
answer
C
question
A negative demand shock can cause:
A. a liquidity trap.
B. crowding out.
C. a recessionary gap.
D. an inflationary gap.
E. an economic expansion.
A. a liquidity trap.
B. crowding out.
C. a recessionary gap.
D. an inflationary gap.
E. an economic expansion.
answer
C
question
When an economy experiences stagflation, it is usually caused by a:
A. negative demand shock.
B. positive supply shock.
C. negative supply shock.
D. positive demand shock.
E. negative supply shock and a positive demand shock.
A. negative demand shock.
B. positive supply shock.
C. negative supply shock.
D. positive demand shock.
E. negative supply shock and a positive demand shock.
answer
C
question
Suppose the equilibrium aggregate price level is rising and the equilibrium level of real GDP is falling.
Which of the following most likely caused these changes?
A. An increase in short-run aggregate supply.
B. An increase in aggregate demand.
C. A decrease in short-run aggregate supply.
D. A decrease in aggregate demand.
E. An increase in short-run aggregate supply and an increase in aggregate demand
Which of the following most likely caused these changes?
A. An increase in short-run aggregate supply.
B. An increase in aggregate demand.
C. A decrease in short-run aggregate supply.
D. A decrease in aggregate demand.
E. An increase in short-run aggregate supply and an increase in aggregate demand
answer
C
question
The intersection of the economy's aggregate demand and long-run aggregate supply curves:
A. determines its equilibrium real GDP in both the long run and the short run.
B. determines its equilibrium price level in both the long run and the short run.
C. occurs at the economy's potential output.
D. occurs at high levels of cyclical unemployment.
E. occurs at the level of output that corresponds to an unemployment rate of 0%.
A. determines its equilibrium real GDP in both the long run and the short run.
B. determines its equilibrium price level in both the long run and the short run.
C. occurs at the economy's potential output.
D. occurs at high levels of cyclical unemployment.
E. occurs at the level of output that corresponds to an unemployment rate of 0%.
answer
C
question
USE PAPER 21
answer
n/A
question
A recessionary gap will be eliminated because there is _______ pressure on wages, causing the _______ .
A. downward; short-run aggregate supply curve to shift rightward.
B. downward; short-run aggregate supply curve to shift leftward.
C. downward; aggregate demand curve to shift rightward.
D. upward; aggregate demand curve to shift to leftward.
E. upward; short-run aggregate supply curve to shift rightward
A. downward; short-run aggregate supply curve to shift rightward.
B. downward; short-run aggregate supply curve to shift leftward.
C. downward; aggregate demand curve to shift rightward.
D. upward; aggregate demand curve to shift to leftward.
E. upward; short-run aggregate supply curve to shift rightward
answer
A
question
USE PAPER 23
answer
NA
question
USE PAPER 24
answer
NA
question
If there is an inflationary gap, which of the following accurately describes the adjustment to long-run
equilibrium?
A. Nominal wages decrease, and the aggregate demand curve shifts left until the economy
reaches long-run equilibrium.
B. Nominal wages increase, and the aggregate demand curve shifts right until the economy
reaches long-run equilibrium.
C. Nominal wages decrease, and the short-run aggregate supply curve shifts right until the
economy reaches long-run equilibrium.
D. Nominal wages increase, and the short-run aggregate supply curve shifts right until the
economy reaches long-run equilibrium.
E. Nominal wages increase, and the short-run aggregate supply curve shifts left until the
economy reaches long-run equilibrium.
equilibrium?
A. Nominal wages decrease, and the aggregate demand curve shifts left until the economy
reaches long-run equilibrium.
B. Nominal wages increase, and the aggregate demand curve shifts right until the economy
reaches long-run equilibrium.
C. Nominal wages decrease, and the short-run aggregate supply curve shifts right until the
economy reaches long-run equilibrium.
D. Nominal wages increase, and the short-run aggregate supply curve shifts right until the
economy reaches long-run equilibrium.
E. Nominal wages increase, and the short-run aggregate supply curve shifts left until the
economy reaches long-run equilibrium.
answer
E
question
If actual GDP is less than potential output, then the economy is
A. in an inflationary gap.
B. in a recessionary gap.
C. in a long-run equilibrium.
D. at full employment.
E. experiencing zero cyclical unemployment.
A. in an inflationary gap.
B. in a recessionary gap.
C. in a long-run equilibrium.
D. at full employment.
E. experiencing zero cyclical unemployment.
answer
B
question
USE PAPER 27
answer
NA
question
If an economy is in short-run equilibrium such that the level of output is greater than the potential output,
then this means that:
A. in the long run, nominal wages will rise.
B. the economy is in long-run equilibrium.
C. in the long run, the short run AS curve will shift to the right.
D. unemployment in the economy is much higher than the natural rate of unemployment.
E. in the long run, the unemployment rate will decrease as the short run AS curve shifts to
the right.
then this means that:
A. in the long run, nominal wages will rise.
B. the economy is in long-run equilibrium.
C. in the long run, the short run AS curve will shift to the right.
D. unemployment in the economy is much higher than the natural rate of unemployment.
E. in the long run, the unemployment rate will decrease as the short run AS curve shifts to
the right.
answer
A
question
In the short run, when the AD curve increases:
A. the aggregate price level will rise and the aggregate output level will fall.
B. the aggregate price level will rise and the aggregate output level will increase.
C. the aggregate price level will fall and the aggregate output level will increase.
D. the aggregate price level will fall and the aggregate output level will decrease.
E. the aggregate price level will remain constant and the aggregate output level will
increase.
A. the aggregate price level will rise and the aggregate output level will fall.
B. the aggregate price level will rise and the aggregate output level will increase.
C. the aggregate price level will fall and the aggregate output level will increase.
D. the aggregate price level will fall and the aggregate output level will decrease.
E. the aggregate price level will remain constant and the aggregate output level will
increase.
answer
B
question
The short-run aggregate supply curve is _____, and the long-run aggregate supply curve is ______.
A. vertical; upward sloping
B. upward sloping; vertical
C. downward sloping; vertical
D. vertical; horizontal
E. Upward sloping; downward sloping
A. vertical; upward sloping
B. upward sloping; vertical
C. downward sloping; vertical
D. vertical; horizontal
E. Upward sloping; downward sloping
answer
B
question
BULLSHIT
answer
BULLSHIT
question
The economic policy that uses changes in government spending and taxes to affect the overall spending in the
economy, is known as the:
A. tax and spend policy.
B. monetary policy.
C. fiscal policy.
D. free trade policy.
E. free market policy.
economy, is known as the:
A. tax and spend policy.
B. monetary policy.
C. fiscal policy.
D. free trade policy.
E. free market policy.
answer
C
question
A government might want to increase aggregate demand to:
A. close an inflationary gap.
B. close a recessionary gap.
C. lower prices in the economy.
D. lower employment in the economy.
E. decrease nominal interest rates.
A. close an inflationary gap.
B. close a recessionary gap.
C. lower prices in the economy.
D. lower employment in the economy.
E. decrease nominal interest rates.
answer
B
question
Expansionary fiscal policy includes:
A. increasing taxes.
B. increasing the money supply.
C. decreasing government expenditures.
D. increasing government expenditures.
E. decreasing the federal funds rate.
A. increasing taxes.
B. increasing the money supply.
C. decreasing government expenditures.
D. increasing government expenditures.
E. decreasing the federal funds rate.
answer
D
question
Scenario 20-1: Fiscal Policy
Consider the economy of Arcadia. The households of Arcadia spend 75% of their income. There are no taxes
and no foreign trade. The currency of Arcadia is called "Arcs". The level of potential output in Arcadia is
600 billion arcs.
Refer to the information provided. Suppose the actual real GDP in Arcadia is 500 billion
arcs. Then, the economy has:
A. a recessionary gap.
B. production at the full-employment level.
C. an inflationary gap.
D. a liquidity trap.
E. an unemployment rate that is higher than the natural rate of unemployment
Consider the economy of Arcadia. The households of Arcadia spend 75% of their income. There are no taxes
and no foreign trade. The currency of Arcadia is called "Arcs". The level of potential output in Arcadia is
600 billion arcs.
Refer to the information provided. Suppose the actual real GDP in Arcadia is 500 billion
arcs. Then, the economy has:
A. a recessionary gap.
B. production at the full-employment level.
C. an inflationary gap.
D. a liquidity trap.
E. an unemployment rate that is higher than the natural rate of unemployment
answer
A
question
Other things being equal, investment spending ________ as long as ________.
A. decreases; technological innovation develops faster than technological obsolescence
B. increases; sales exceed the existing production capacity
C. increases; the rate of growth of real GDP is lower than the marginal propensity to save
D. decreases; the rate of growth of physical capital is positive
E. increases; market interest rates continue to rise
A. decreases; technological innovation develops faster than technological obsolescence
B. increases; sales exceed the existing production capacity
C. increases; the rate of growth of real GDP is lower than the marginal propensity to save
D. decreases; the rate of growth of physical capital is positive
E. increases; market interest rates continue to rise
answer
B
question
Scenario 16-2: Income-Expenditure Equilibrium
Suppose GDP is $8,000, autonomous consumption is $500, and planned investment spending is $200. The
marginal propensity to consume is 0.8.
If GDP is $3,000, how much is unplanned inventory investment?
A. 0
B. $600
C. $100
D. -$100
E. $200
Suppose GDP is $8,000, autonomous consumption is $500, and planned investment spending is $200. The
marginal propensity to consume is 0.8.
If GDP is $3,000, how much is unplanned inventory investment?
A. 0
B. $600
C. $100
D. -$100
E. $200
answer
D
question
When the aggregate price level increases, the purchasing power of many assets falls, causing a decrease in
consumer spending. This is known as the _____ effect and is a reason why the _____ curve slopes _____.
A. interest rate; aggregate demand; downward
B. wealth; aggregate demand; downward
C. interest rate; investment demand; downward
D. wealth; short-run aggregate supply; upward
E. substitution; aggregate demand; downward
consumer spending. This is known as the _____ effect and is a reason why the _____ curve slopes _____.
A. interest rate; aggregate demand; downward
B. wealth; aggregate demand; downward
C. interest rate; investment demand; downward
D. wealth; short-run aggregate supply; upward
E. substitution; aggregate demand; downward
answer
B
question
The wealth effect explains why:
A. the aggregate demand curve slopes downward since changes in aggregate price levels
change the purchasing power of peoples' assets.
B. the short-run aggregate supply curve slopes upward since an increase in wealth leads to
more consumption.
C. the short-run aggregate supply curve shifts since changes in wealth affect production.
D. the aggregate demand curve slopes upward since wealth allows consumers to purchase
more regardless of the price level.
E. the long-run aggregate supply curve is vertical as there is no
A. the aggregate demand curve slopes downward since changes in aggregate price levels
change the purchasing power of peoples' assets.
B. the short-run aggregate supply curve slopes upward since an increase in wealth leads to
more consumption.
C. the short-run aggregate supply curve shifts since changes in wealth affect production.
D. the aggregate demand curve slopes upward since wealth allows consumers to purchase
more regardless of the price level.
E. the long-run aggregate supply curve is vertical as there is no
answer
A
question
The short-run aggregate supply curve shows:
A. the price level at which real output will be consumed.
B. the price level at which real output will be in equilibrium.
C. the positive relationship between the aggregate price level and aggregate output supplied.
D. the negative relationship between the aggregate price level and aggregate output
supplied.
E. the inverse relationship between real GDP and the unemployment rate
A. the price level at which real output will be consumed.
B. the price level at which real output will be in equilibrium.
C. the positive relationship between the aggregate price level and aggregate output supplied.
D. the negative relationship between the aggregate price level and aggregate output
supplied.
E. the inverse relationship between real GDP and the unemployment rate
answer
C
question
A natural disaster that destroys part of a country's infrastructure is a type of _________ and therefore shifts
the _________ to the _________.
A. negative demand shock; aggregate demand curve; right
B. negative supply shock; aggregate demand curve; left
C. negative supply shock; short-run aggregate supply curve; left
D. negative demand shock; long-run aggregate supply curve; left
E. negative supply shock; short-run aggregate supply curve; right
the _________ to the _________.
A. negative demand shock; aggregate demand curve; right
B. negative supply shock; aggregate demand curve; left
C. negative supply shock; short-run aggregate supply curve; left
D. negative demand shock; long-run aggregate supply curve; left
E. negative supply shock; short-run aggregate supply curve; right
answer
C
question
A recessionary gap can be closed by _______ wages that shift the _______ .
A. lower; SRAS curve rightward
B. lower; LRAS curve rightward
C. lower; SRAS curve leftward
D. higher; SRAS curve rightward
E. higher; SRAS curve leftward
A. lower; SRAS curve rightward
B. lower; LRAS curve rightward
C. lower; SRAS curve leftward
D. higher; SRAS curve rightward
E. higher; SRAS curve leftward
answer
A
question
USE PAPER 43
answer
C
question
USE PAPER 44
answer
NA
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