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- 1. Multiple Choice
Part of the reason that aggregate demand is downward sloping is because
here is a direct relationship between price level and the real GDP demanded.
lower price levels increase the demand for consumer goods
lower price levels cause real interest rates to increase and increase investment
higher price levels decrease the purchasing power of money which decreases the quantity of consumption
- 2. Multiple Choice
An increase in which of the following will decrease aggregate demand?
Consumer Wealth
Government Spending
Real Estate Interest
Net Exports
- 3. Multiple Choice
A change in which of the following would increase the short-run aggregate supply curve?
I. An increase in consumer spending
II. A decrease in the price of resources
III. A decrease in labor productivity
IV. An increase in capital stock
II only
III only
II and IV
II, III, and IV
- 4. Multiple Choice
Assume that Canada imports products from the United States. A large decrease in the Canadian incomes will cause the United States price level and real GDP to change in which of the following ways?
FIRST PART IS PRICE LEVEL AND SECOND PART IS REAL GDP
INCREASE INCREASE
INCREASE DECREASE
DECREASE INCREASE
DECREASE DECREASE
- 5. Multiple Choice
An increase in the wealth of consumers will likely cause price level and unemployment to change in which of the following ways?
NOTE: 1ST PART OF ANSWER IS PRICE LEVEL, 2ND PART IS UNEMPLOYMENT
INCREASE INCREASE
INCREASE DECREASE
INCREASE STAY THE SAME
DECREASE DECREASE
- 6. Multiple Choice
A decrease in the price of inputs will result in which of the following in the short run?
An increase in short-run aggregate supply and an increase in long-run aggregate supply
An increase in short-run aggregate supply and a decrease in output
An increase in short-run aggregate supply and a decrease in price level
A decrease in aggregate demand and a decrease in price level
- 7. Multiple Choice
All of the following are true regarding the concept of the long-run except?
An economy cannot produce more output then what can be produced in the long-run
An economy at long-run equilibrium has full employment
Price levels generally increases as rightward shifts in aggregate demand move closer toward the long-run
The long-run aggregate supply suggests that there is no relationship between price level and real GDP in the long-run
- 8. Multiple Choice
Refer to the graph above. Assume this economy is currently producing at Q1 with a price level of PL1. Which of the following will most likely occur as the economy adjusts to long-run equilibrium?
Aggregate supply will shift left since workers will be laid off
Aggregate supply will shift left as wages increase
Aggregate demand will shift left as consumer spending fall due to inflation
Aggregate demand will shift left as government spending decreases
- 9. Multiple Choice
Assume an economy is at full-employment equilibrium when a negative supply shock occurs. All the following will occur in the short-run except
A decrease in aggregate demand
Stagflation
A decrease in real output
An increase in unemployment
- 10. Multiple Choice
According to classical economists, which of the following will occur to move this economy to long-run equilibrium
Autonomous consumption will cause aggregate demand to increase
Consumer spending will increase shifting aggregate demand to the right
Deficit government spending should be used to shift aggregate demand to the right
Wages will decrease causing aggregate supply to increase
- 11. Multiple Choice
All the following are true regarding the horizontal portion of the short-run aggregate supply curve except
It occurs when an economy is at the Natural Rate of Unemployment
It most likely occurs when an economy is in a recession
It is used by Keynesian economists to show that wages are not flexible
It is an example of how economic theories and models change over time
- 12. Multiple Choice
Which of the following is the best example of a non-discretionary fiscal policy to combat demand-pull inflation?
New economic stimulus legislation
A progressive income tax system
Crowding out
Decrease in government spending on national defense
- 13. Multiple Choice
An increase in the marginal propensity to save clearly causes a decrease in which of the following?
Aggregate supply
Marginal propensity to consume
Simple spending multiplier
Exports
- 14. Multiple Choice
Assume that current real GDP falls short of full-employment output by $400 billion and the marginal propensity to consume is 0.8. What is the minimum increase in government spending that could bring about full employment?
$40 billion
$80 billion
$400 billion
$320 billion
- 15. Multiple Choice
A decrease in government spending by a given amount accompanied by a decrease in taxes by the same amount will cause which of the following?
Aggregate demand to increase
Aggregate demand to decrease
Aggregate demand to stay the same
Aggregate supply to decrease
- 16. Multiple Choice
Which of the following is true regarding budget deficits?
The national debt is the accumulation of budget deficits and surpluses over time
Budget deficits occur when tax revenues are greater than government expenditures
Large budget surpluses can cause the crowding-out effect
Budget deficits occur when imports are more than exports
- 17. Multiple Choice
A decrease in interest rates resulting in the increase in capital stock will likely cause which of the following in the long-run?
Decrease in only aggregate demand
Increase in only aggregate demand
Increase in only aggregate supply
Increase in aggregate demand, aggregate supply, and long-run aggregate supply
- 18. Multiple Choice
Which of the following will most likely result in economic growth?
Increased wages
Decreased savings
Increased business taxes
Increased labor productivity
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