question
The aggregate demand curve is:
A. vertical under conditions of full employment
B. horizontal when there is considerable unemployment in the economy
C. downsloping because of the interest-rate, real balances, and foreign purchases effects
D. downsloping because production costs decrease as real output rises
A. vertical under conditions of full employment
B. horizontal when there is considerable unemployment in the economy
C. downsloping because of the interest-rate, real balances, and foreign purchases effects
D. downsloping because production costs decrease as real output rises
answer
C
question
The real-balances effect indicates that:
A. an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending
B. a lower price level will decrease the real value of many financial assets and therefore reduce spending
C. a higher price level will increase the real value of many financial assets and therefore increase spending
D. a higher price level will decrease the real value of many financial assets and therefore reduce spending
A. an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending
B. a lower price level will decrease the real value of many financial assets and therefore reduce spending
C. a higher price level will increase the real value of many financial assets and therefore increase spending
D. a higher price level will decrease the real value of many financial assets and therefore reduce spending
answer
D
question
The foreign purchases effect suggests that a decrease in the US price level relative to other countries will:
A. shift the aggregate demand curve leftward
B. shift the aggregate supply curve leftward
C. decrease US exports and increase US imports
D. increase US exports and decrease US imports
A. shift the aggregate demand curve leftward
B. shift the aggregate supply curve leftward
C. decrease US exports and increase US imports
D. increase US exports and decrease US imports
answer
D
question
Which one of the following would not shift the aggregate demand curve?
A. change in the price level
B. depreciation of the international value of the dollar
C. decline in the interest rate at each possible price level
D. an increase in personal income tax rates
A. change in the price level
B. depreciation of the international value of the dollar
C. decline in the interest rate at each possible price level
D. an increase in personal income tax rates
answer
A
question
A decline in investment will shift the AD curve to the:
A. left by a multiple of the change in investment
B. left by the same amount as the change in investment
C. right by the same amount as the change in investment
D. right by a multiple of the change in investment
A. left by a multiple of the change in investment
B. left by the same amount as the change in investment
C. right by the same amount as the change in investment
D. right by a multiple of the change in investment
answer
A
question
If the investment decreases by $20 billion and the economy's MPC is .5 the aggregate demand curve will shift:
A. leftward by $40 billion at each price level
B. rightward by $20 billion at each price level
C. rightward by $40 billion at each price level
D. leftward by $20 billion at each price level
A. leftward by $40 billion at each price level
B. rightward by $20 billion at each price level
C. rightward by $40 billion at each price level
D. leftward by $20 billion at each price level
answer
A
question
Which of the following would most likely reduce aggregate demand (shift the AD curve to the left)?
A. reduced amount of excess capacity of capital
B. increased government spending on military equipment
C. an appreciation of the US dollar
D. increased consumer optimism regarding future economic conditions
A. reduced amount of excess capacity of capital
B. increased government spending on military equipment
C. an appreciation of the US dollar
D. increased consumer optimism regarding future economic conditions
answer
C
question
The immediate-short-run aggregate supply curve is:
A. downsloping
B. upsloping
C. vertical
D. horizontal
A. downsloping
B. upsloping
C. vertical
D. horizontal
answer
D
question
The aggregate supply curve (short run):
A. slopes downward and to the right
B. graphs as a vertical line
C. slopes upward and to the right
D. graphs as a horizontal line
A. slopes downward and to the right
B. graphs as a vertical line
C. slopes upward and to the right
D. graphs as a horizontal line
answer
C
question
The aggregate supply curve (short run) is upsloping because:
A. wages and other resource prices match changes in the price level
B. the price level is flexible upward but inflexible downward
C. per-unit production costs rise as the economy moves toward and beyond its full-employment real output
D. wages and other resources prices are flexible upward but inflexible downward
A. wages and other resource prices match changes in the price level
B. the price level is flexible upward but inflexible downward
C. per-unit production costs rise as the economy moves toward and beyond its full-employment real output
D. wages and other resources prices are flexible upward but inflexible downward
answer
C
question
A rightward shift in the aggregate supply curve is best explained by an increase in:
A. business taxes
B. productivity
C. nominal wages
D. the price of imported resources
A. business taxes
B. productivity
C. nominal wages
D. the price of imported resources
answer
B
question
Which of the following would not shift the aggregate supply curve?
A. an increase in labor productivity
B. a decline in the price of imported oil
C. a decline in business taxes
D. an increase in the price level
A. an increase in labor productivity
B. a decline in the price of imported oil
C. a decline in business taxes
D. an increase in the price level
answer
D
question
Per-unit production cost is:
A. real output / inputs
B. total input cost / units of output
C. units of output / total input cost
D. a determinant of aggregate demand
A. real output / inputs
B. total input cost / units of output
C. units of output / total input cost
D. a determinant of aggregate demand
answer
B
question
Suppose that nominal wages fall and productivity rises in a particular economy. Other things equal, the aggregate:
A. demand curve will shift leftward
B. supply curve will shift rightward
C. supply curve will shift leftward
D. expenditures curve will shift downward
A. demand curve will shift leftward
B. supply curve will shift rightward
C. supply curve will shift leftward
D. expenditures curve will shift downward
answer
B
question
The economy's long-run aggregate supply curve:
A. slopes upward and to the right
B. vertical
C. horizontal
D. slopes downward and to the right
A. slopes upward and to the right
B. vertical
C. horizontal
D. slopes downward and to the right
answer
B
question
Graphically, cost-push inflation is shown as a:
A. leftward shift of the AD curve
B. rightward shift of the AS curve
C. leftward shift of the AS curve
D. rightward shift of the AD curve
A. leftward shift of the AD curve
B. rightward shift of the AS curve
C. leftward shift of the AS curve
D. rightward shift of the AD curve
answer
C
question
A rightward shift of the AD curve in the very flat part of the short-run AS curve will:
A. increase real output by more than the price level
B. increase the price level by more than real output
C. reduce real output by more than the price level
D. reduce the price level
A. increase real output by more than the price level
B. increase the price level by more than real output
C. reduce real output by more than the price level
D. reduce the price level
answer
A
question
Given a fixed upsloping AS curve, a rightward shift of the AD curve will:
A. cause cost-push inflation
B. increase real output but not the price level
C. increase the price level but not real output
D. increase both the price level and real output
A. cause cost-push inflation
B. increase real output but not the price level
C. increase the price level but not real output
D. increase both the price level and real output
answer
D
question
An increase in input productivity will:
A. shift the aggregate supply curve leftward
B. reduce the equilibrium price level, assuming downward flexible prices
C. reduce the equilibrium real output
D. reduce aggregate demand
A. shift the aggregate supply curve leftward
B. reduce the equilibrium price level, assuming downward flexible prices
C. reduce the equilibrium real output
D. reduce aggregate demand
answer
B
question
In response to the Great Recession, the federal government engaged in significant deficit-funded spending. What was the result of that spending over the first 3 years?
A. Neither economic growth nor unemployment responded as well as many economists had predicted.
B. Economic growth responded in accordance with predictions, but unemployment remained much higher than anticipated
C. Economic growth remained sluggish, but the unemployment rate fell to predicted levels
D. Both economic growth and the unemployment rate responded well, reaching the fiscal policy targets set by the government
A. Neither economic growth nor unemployment responded as well as many economists had predicted.
B. Economic growth responded in accordance with predictions, but unemployment remained much higher than anticipated
C. Economic growth remained sluggish, but the unemployment rate fell to predicted levels
D. Both economic growth and the unemployment rate responded well, reaching the fiscal policy targets set by the government
answer
A
question
Discretionary fiscal policy is so named because it:
A. is undertaken at the option of the nation's central bank
B. occurs automatically as the nation's level of GDP changes
C. involves specific changes in T and G undertaken expressly for stabilization at the option of Congress
D. is invoked secretly by the Council of Economic Advisers
A. is undertaken at the option of the nation's central bank
B. occurs automatically as the nation's level of GDP changes
C. involves specific changes in T and G undertaken expressly for stabilization at the option of Congress
D. is invoked secretly by the Council of Economic Advisers
answer
C
question
Contractionary fiscal policy is so named because it:
A. involves a contraction of the nation's money supply
B. necessarily reduces the size of the government
C. is aimed at reducing aggregate demand and thus achieving price stability
D. is expressly designed to expand real GDP
A. involves a contraction of the nation's money supply
B. necessarily reduces the size of the government
C. is aimed at reducing aggregate demand and thus achieving price stability
D. is expressly designed to expand real GDP
answer
C
question
An economist who favored expanded government would recommend:
A. tax cuts during recession and reductions in government spending during inflation
B. tax increases during recession and tax cuts during inflation
C. tax cuts during recession and tax increases during inflation
D. increases in government spending during recession and tax increases during inflation
A. tax cuts during recession and reductions in government spending during inflation
B. tax increases during recession and tax cuts during inflation
C. tax cuts during recession and tax increases during inflation
D. increases in government spending during recession and tax increases during inflation
answer
D
question
Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?
A. a congressional proposal to incur a federal surplus to be used for the retirement of public debt
B. reductions in agricultural subsidies and veterans' benefits
C. postponement of a highway construction program
D. reductions in federal tax rates on personal and corporate income
A. a congressional proposal to incur a federal surplus to be used for the retirement of public debt
B. reductions in agricultural subsidies and veterans' benefits
C. postponement of a highway construction program
D. reductions in federal tax rates on personal and corporate income
answer
D
question
In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $200 billion. To obtain full employment under these conditions, the government should:
A. encourage personal saving by increasing the interest rate on government bonds
B. decrease government expenditures
C. reduce tax rates and/or increase government spending
D. discourage private investment by increasing corporate income taxes
A. encourage personal saving by increasing the interest rate on government bonds
B. decrease government expenditures
C. reduce tax rates and/or increase government spending
D. discourage private investment by increasing corporate income taxes
answer
C
question
An appropriate fiscal policy for severe demand-pull inflation is:
A. an increase in government spending
B. depreciation of the dollar
C. reduction of interest rates
D. tax rate increase
A. an increase in government spending
B. depreciation of the dollar
C. reduction of interest rates
D. tax rate increase
answer
D
question
In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will:
A. shift the AD curve to the right
B. increase the equilibrium GDP
C. not affect the AD curve
D. shift the AD curve to the left
A. shift the AD curve to the right
B. increase the equilibrium GDP
C. not affect the AD curve
D. shift the AD curve to the left
answer
D
question
Which of the following represents the most contractionary fiscal policy?
A. $30 billion tax cut
B. $30 billion increase in government spending
C. $30 billion tax increase
D. $30 billion decrease in government spending
A. $30 billion tax cut
B. $30 billion increase in government spending
C. $30 billion tax increase
D. $30 billion decrease in government spending
answer
D
question
A tax reduction of a specific amount will be more expansionary the:
A. smaller is the economy's MPC
B. larger is the economy's MPC
C. smaller is the economy's multiplier
D. less is the economy's built-in stability
A. smaller is the economy's MPC
B. larger is the economy's MPC
C. smaller is the economy's multiplier
D. less is the economy's built-in stability
answer
B
question
Built-in stability means that:
A. an annually balanced budget will offset the procyclical tendencies created by state and local finance and thereby stabilize the economy
B. with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus
C. congress will automatically change the tax structure and expenditure programs to correct upswings and downswings in business activity
D. government expenditures and tax receipts automatically balance over the business cycle, though they may be out of balance in any single year
A. an annually balanced budget will offset the procyclical tendencies created by state and local finance and thereby stabilize the economy
B. with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus
C. congress will automatically change the tax structure and expenditure programs to correct upswings and downswings in business activity
D. government expenditures and tax receipts automatically balance over the business cycle, though they may be out of balance in any single year
answer
B
question
Which of the following best describes the built-in stabilizers as they function in the US?
A. the size of the multiplier varies inversely with the level of GDP
B. Personal & corporate income tax collections automatically fall and transfers and subsidies automatically rise as GDP rises
C. Personal and corporate income tax collections and transfers and subsidies all automatically vary inversely with the level of GDP
D. Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises
A. the size of the multiplier varies inversely with the level of GDP
B. Personal & corporate income tax collections automatically fall and transfers and subsidies automatically rise as GDP rises
C. Personal and corporate income tax collections and transfers and subsidies all automatically vary inversely with the level of GDP
D. Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises
answer
D
question
The cyclically adjusted budget tells us:
A. that in a full-employment economy, the federal budget should be in balance
B. that tax revenues should vary inversely with GDP
C. what the size of the federal budget deficit or surplus would be if the economy was at full employment
D. the actual budget deficit or surplus realized in any given year
A. that in a full-employment economy, the federal budget should be in balance
B. that tax revenues should vary inversely with GDP
C. what the size of the federal budget deficit or surplus would be if the economy was at full employment
D. the actual budget deficit or surplus realized in any given year
answer
C
question
Which of the following statements is correct?
A. The cyclically adjusted budget and the actual budget differ because the latter does not take government transfer payments into account
B. The cyclically adjusted budget is less likely to show a deficit than is the actual budget.
C. The cyclically adjusted budget and the actual budget will show the same size deficit or surplus in any given fiscal year
D. The cyclically adjusted budget is more likely to show a deficit than is the actual budget
A. The cyclically adjusted budget and the actual budget differ because the latter does not take government transfer payments into account
B. The cyclically adjusted budget is less likely to show a deficit than is the actual budget.
C. The cyclically adjusted budget and the actual budget will show the same size deficit or surplus in any given fiscal year
D. The cyclically adjusted budget is more likely to show a deficit than is the actual budget
answer
B
question
When the current government expenditures equal current tax revenues and the economy is achieving full employment:
A. the cyclically adjusted budget has neither a deficit nor a surplus
B. the cyclically adjusted budget may have either a deficit or a surplus
C. fiscal policy is contractionary
D. nominal GDP and real GDP are equal
A. the cyclically adjusted budget has neither a deficit nor a surplus
B. the cyclically adjusted budget may have either a deficit or a surplus
C. fiscal policy is contractionary
D. nominal GDP and real GDP are equal
answer
A
question
The amount by which government expenditures exceed revenues during a particular year is the:
A. public debt
B. budget deficit
C. full employment
D. GDP gap
A. public debt
B. budget deficit
C. full employment
D. GDP gap
answer
B
question
Which of the following did not contribute directly to the Great Recession?
A. Crisis in the mortgage lending market
B. Bursting of the dot.com stock market bubble
C. Freezing credit markets
D. Pessimism originating from financial market turmoil
A. Crisis in the mortgage lending market
B. Bursting of the dot.com stock market bubble
C. Freezing credit markets
D. Pessimism originating from financial market turmoil
answer
B
question
Increases in the federal budget deficit from 2007 to 2009 were caused:
A. exclusively by the loss of tax revenue due to recession
B. exclusively by expansionary fiscal policy, as shown through growth in the cyclically adjusted deficit
C. primarily by a combination of recession and expansionary fiscal policy
D. primarily by increased outlays to a rapidly growing number of Social Security recipients
A. exclusively by the loss of tax revenue due to recession
B. exclusively by expansionary fiscal policy, as shown through growth in the cyclically adjusted deficit
C. primarily by a combination of recession and expansionary fiscal policy
D. primarily by increased outlays to a rapidly growing number of Social Security recipients
answer
C
question
The political business cycle refers to the possibility that:
A. incumbent politicians will be reelected regardless of the state of the economy
B. politicians will manipulate the economy to enhance their chances of being reelected
C. there is more inflation during Democratic administration than during Republican administrations
D. recessions coincide with election years
A. incumbent politicians will be reelected regardless of the state of the economy
B. politicians will manipulate the economy to enhance their chances of being reelected
C. there is more inflation during Democratic administration than during Republican administrations
D. recessions coincide with election years
answer
B
question
The crowding-out effect of expansionary fiscal policy suggests that:
A. government spending increases at the expense of private investment
B. imports replace domestic production
C. private investment increases at the expense of government spending
D. saving increases at the expense of investment
A. government spending increases at the expense of private investment
B. imports replace domestic production
C. private investment increases at the expense of government spending
D. saving increases at the expense of investment
answer
A
question
Which of the following fiscal policy actions is most likely to increase aggregate supply?
A. An increase in personal income tax rates
B. A reduction in interest rates that encourages consumers to purchase more durable goods
C. An increase in transfer payments to unemployed workers
D. An increase in government spending on infrastructure that increases private sector productivity
A. An increase in personal income tax rates
B. A reduction in interest rates that encourages consumers to purchase more durable goods
C. An increase in transfer payments to unemployed workers
D. An increase in government spending on infrastructure that increases private sector productivity
answer
D
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