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- 1. Multiple Choice
A negative aggregate supply shock will result in which of the following in the short run?
An increase in the price level and a decrease in the unemployment rate
A decrease in the price level and an increase in the unemployment rate
A decrease in both the price level and real output
An increase in both the price level and real output
An increase in both the price level and the unemployment rate
- 2. Multiple Choice
An increase in the purchases of newly constructed houses will result in which of the following?
Aggregate demand will decrease as a result of a decrease in the price level.
Aggregate demand will increase as a result of an increase in investment spending.
Aggregate demand will increase as a result of an increase in exports.
Aggregate demand will not change, since consumer spending has not changed.
Aggregate demand will not change, since investment spending has not changed.
- 3. Multiple Choice
In the short run, a reduction in the money supply will cause
a rightward shift in the aggregate demand curve
a leftward shift in the aggregate demand curve
a rightward shift in the aggregate supply curve
a leftward shift in the aggregate supply curve
a movement along the aggregate demand curve
- 4. Multiple Choice
A country’s economy is currently in equilibrium at point R. Which of the following policy actions could the country’s government take to achieve potential output (YP) ?
Decreasing the money supply
Decreasing investment tax credits
Increasing interest rates
Increasing government expenditures
Increasing the minimum wage
- 5. Multiple Choice
Which of the following is LEAST likely to affect the long-run growth of an economy?
Investment in physical capital
Research and development
Education and training
A specific tax on luxury goods
Stable and efficient institutions
- 6. Multiple Choice
An economy experiences a sharp increase in energy prices, and policy makers adopt a stabilization policy to increase aggregate demand. Compared with the initial short-run equilibrium, which of the following will definitely occur?
Lower level of output
Higher level of output
Lower price level
Higher price level
Higher aggregate supply
- 7. Multiple Choice
Assume that the marginal propensity to consume is 0.8. If the government increases its purchases of goods and services by $200 and exports decline by $50, at most the equilibrium level of income will
decrease by $250
decrease by $1,000
increase by $150
increase by $750
increase by $1,250
- 8. Multiple Choice
If the short-run aggregate supply curve is upward sloping, which of the following will cause inflation?
An increase in long-run aggregate supply
An increase in short-run aggregate supply
An increase in aggregate demand
A decrease in aggregate demand
A decrease in aggregate demand and an increase in aggregate supply
- 9. Multiple Choice
The economy is currently in long-run equilibrium. If the central bank increases the money supply, in the long run the price level will
increase, and output will remain at the full-employment level
increase, and output will be above the full-employment level
increase, and output will be below the full-employment level
remain unchanged, and output will remain at the full-employment level
remain unchanged, and output will be above the full-employment level
- 10. Multiple Choice
Which of the following will occur in the money market when the aggregate price level increases?
The money supply will increase and nominal interest rates will decrease.
The demand for money will increase and nominal interest rates will decrease.
The demand for money will increase and nominal interest rates will increase.
The demand for money will decrease and nominal interest rates will decrease.
The opportunity cost of holding money will decrease.
- 11. Multiple Choice
Increases in government subsidies to encourage investment in research and development will affect aggregate demand (AD) and long-run aggregate supply (LRAS) in which of the following ways?
AD:Increase LRAS:Increase
AD:Increase LRAS:Decrease
AD:Increase LRAS:No change
AD:Decrease LRAS:Increase
AD:Decrease LRAS:No change
- 12. Multiple Choice
An increase in the expected inflation rate will cause the
short-run Phillips curve to shift to the left
short-run Phillips curve to shift to the right
long-run Phillips curve to shift to the left
long-run Phillips curve to shift to the right
actual inflation rate to fall below the expected inflation rate
- 13. Multiple Choice
Which of the following is true about the Phillips curve?
A change in aggregate demand does not shift the long-run Phillips curve (LRPC).
A change in aggregate demand does not cause a movement along the short-run Phillips curve (SRPC).
The LRPC shows the trade-off between unemployment and inflation but the SRPC does not.
Changes in expected inflation affect the LRPC only
Negative supply shocks affect the LRPC only.
- 14. Multiple Choice
The long-run Phillips curve indicates that there are no trade-offs between
aggregate demand and aggregate supply
imports and exports
consumption and investment
consumption and saving
inflation and unemployment
- 15. Multiple Choice
Which of the following would cause a movement from point S to point R on the short-run Phillips curve above?
An unanticipated increase in government spending
An unanticipated adverse supply shock
A decrease in net investment
An increase in real interest rates
An increase in the labor-force participation rate
- 16. Multiple Choice
Based on the graph above, demand-pull inflation is caused by a movement from
SRAS1 to SRAS2
SRAS2 to SRAS1
AD1 to AD2
AD2 to AD1
Yf to Y1
- 17. Multiple Choice
Assume that the marginal propensity to consume is 0.75, net exports decline by $10 billion, and government spending increases by $20 billion. Given that there is no crowding out, the equilibrium gross domestic product can increase by a maximum of
$7.5 billion
$15 billion
$40 billion
$80 billion
$120 billion
- 18. Multiple Choice
Which of the following will most likely result in an increase in aggregate demand?
An increase in the interest rates charged on credit card balances
A disruption in global oil supply
An open-market purchase of government bonds by the central bank
A reduction of pay and benefits for government employees
A decrease in the wealth of households
- 19. Multiple Choice
Assume a country’s economy is currently in long-run equilibrium. What is the long-run effect of an increase in aggregate demand?
A decrease in the unemployment rate
A decrease in the inflation rate
A decrease in the long-run aggregate supply
An increase in the price level
An increase in the money supply
- 20. Multiple Choice
In a closed economy with lump sum taxes, if the marginal propensity to consume increased from 0.5 to 0.75, the simple multiplier and the marginal propensity to save (MPS) would change in which of the following ways?
Multiplier: Increase MPS: Increase
Multiplier: Increase MPS: Decrease
Multiplier: No Change MPS: Decrease
Multiplier: Decrease MPS: Increase
Multiplier: Decrease MPS: Decrease
- 21. Multiple Choice
In an economy the MPC is 0.90, and the GDP is $100 Billion. If gross private domestic investment declines by $2 Billion, then GDP will
decrease by a maximum of $1.8 Billion
decrease by a maximum of $2 Billion
decrease by a maximum of $20 Billion
increase by a maximum of $1.8 Billion
increase by a maximum of $20 Billion
- 22. Multiple Choice
According to the income and consumption schedules shown above, the marginal propensity to consume is
1.33
0.90
0.80
0.75
decreasing as real disposable income increases
- 23. Multiple Choice
Suppose that the economy is in the midst of a recession and government policy makers want to increase aggregate demand by $600 billion. If the economy's MPC is 0.75 and there is no crowding out, the government should do which of the following?
Increase spending by $2,400 Billion
Increase spending by $600 Billion
Increase spending by $150 Billion
Decrease taxes by $150 Billion
Decrease taxes by $600 Billion
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