macroeconomics test 3

48 terms by mollydollyx33 

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last third of class

The aggregate supply curve shows the relationship of prices:

A. to sales.
B. and the output people want to buy.
C. and the output producers are willing to provide.
D. to both the amount people want to buy and the amount producers want to provide.

C. and the output producers are willing to provide

The short-run aggregate supply curve is positively sloped because:

A. wages and other costs of production respond immediately to changes in prices.
B. profit is lower when prices increase, so output decreases.
C. workers are willing to work for lower wages rather than be laid off.
D. higher prices lead to higher profit and higher output.

D. higher prices lead to higher profit and higher output.

The short-run aggregate supply curve is positively sloped because:

A. business people suffer from money illusion.
B. wages are sticky or don't readily adjust to changes in economic conditions in the short run.
C. workers care about nominal wages, not real wages.
D. of diminishing returns to labor.

B. wages are sticky or don't readily adjust to changes in economic conditions

According to the short-run aggregate supply curve, when the _________ rises, the quantity of _________ rises.

A. profit per unit; aggregate output demanded
B. aggregate price level; aggregate output supplied
C. aggregate price level; aggregate output demanded
D. interest rate; aggregate output supplied

B. aggregate price level; aggregate output supplied

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.

C. the positive relationship between the aggregate price level and aggregate output supplied.

In the short run, wages and some prices are considered to be:

A. sticky.
B. unpredictable.
C. extremely flexible.
D. irrelevant.

A. sticky

The short run in macroeconomic analysis is a period:

A. in which many production costs can be taken as fixed.
B. in which wages become fully flexible.
C. of 2 months, and the long run is a period greater than 12 months.
D. in which interest rates are fixed.

A. in which many production costs can be taken as fixed

Holding everything else constant, assume there is a decrease in the price of a commodity. In the short run, this will:

A. cause producer's profit per unit to increase.
B. lead to a movement along the AS curve.
C. lead to a movement along the AD curve.
D. result in less production by producers.

A. cause producer's profit per unit to increase

Nominal wages are "sticky" because:

A. in the short run these payments are slow to rise when there are labor shortages and slow to fall even when there is significant level of unemployment.
B. in the long run these payments remain fixed thereby increasing the profitability of the firms.
C. in the short run these payments are slow to fall when there are labor shortages and slow to rise even when there is significant level of unemployment.
D. in the long run all wages become adjusted for inflation.

A. in the short run these payments are slow to rise when there are labor shortages and slow to fall even when there is significant level of unemployment.

If an economy is operating at a real GDP level which is below its potential real GDP, one will find:

A. relatively high unemployment levels.
B. nominal wages moving upwards as the economy moves from the short run to the long run.
C. the SRAS curve shifting left as the economy corrects itself from the short run to the long run.
D. no change in price levels.

A. relatively high unemployment levels.

In the long run, changes in the aggregate price level will be accompanied by:

A. less than proportional changes in input prices.
B. more than proportional changes in input prices.
C. equal proportional changes in input prices.
D. changes in input prices that will move in the opposite direction.

C. equal proportional changes in input prices.

The long-run aggregate supply curve is:

A. upward sloping.
B. downward sloping.
C. horizontal.
D. vertical.

D. vertical

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

B. the aggregate price level rises; does not change

The long-run aggregate supply curve is vertical because in the long run:

A. technological progress outpaces raises in nominal wages.
B. all factors of production increase.
C. the price of labor is flexible, while the price of physical capital is fixed.
D. all prices are flexible.

D. all prices are flexible

The level of output in the long run is known as:

A. recognized output.
B. structural output.
C. potential output.
D. balanced budget output.

C. potential output.

In the short run, the equilibrium price level and the equilibrium level of total output are determined by the intersection of:

A. LRAS and SRAS.
B. LRAS and aggregate demand.
C. SRAS and aggregate demand.
D. potential output and LRAS.

C. SRAS and aggregate demand.

An increase in investment leads to _______ in the price level and _______ in real GDP in the short run.

A. an increase; no change
B. a decrease; no change
C. no change; no change
D. an increase; an increase

D. and increase; and increase

Suppose that the U.S. government doubles its spending on health care. Which of the following is most likely to occur?

A. The short-run aggregate supply curve shifts right, output increases, and prices decrease.
B. The short-run aggregate supply curve shifts left, output decreases, and prices increase.
C. The aggregate demand curve shifts left, output decreases, and prices decrease.
D. The aggregate demand curve shifts right, output increases, and prices increase.

D. the aggregate demand curve shifts right, output increases, and price increases

A negative demand shock can cause:

A. a liquidity trap.
B. crowding out.
C. a recessionary gap.
D. an inflationary gap.

C. a recessionary gap.

Stagflation may result from:

A. an increase in the supply of money.
B. a decrease in the supply of money.
C. an increase in the price of imported oil.
D. a decrease in the price of imported oil.

C. an increase in the price of imported oil

A positive demand shock leads to:

A. higher prices and higher employment.
B. higher prices and higher unemployment.
C. higher prices and lower output.
D. lower prices and lower output.

A. higher prices and higher unemployment

When an economy experiences stagflation, it is usually caused by a:

A. a negative demand shock.
B. a positive supply shock.
C. a negative supply shock.
D. a positive demand shock.

C. a negative supply shock

If the SRAS curve intersects the aggregate demand curve to the right of LRAS, the result will be:

A. a recessionary gap.
B. an inflationary gap.
C. cyclical unemployment.
D. long-run equilibrium.

B. an inflationary gap

An inflationary gap occurs if:

A. actual real GDP is less than potential output.
B. actual real GDP is greater than potential output.
C. actual real GDP is equal to potential output.
D. unemployment is greater than the natural rate.

B. actual real GDP is greater than potential output

As a recessionary gap is eliminated through self-correcting adjustment, the equilibrium price level _______ and the equilibrium real output _______.

A. increases; decreases
B. increases; increases
C. decreases; decreases
D. decreases; increases

D. decreases; increases

Suppose that the economy is in long-run macroeconomic equilibrium and aggregate demand increases. As the economy moves to short-run macroeconomic equilibrium , there is:

A. a recessionary gap with high inflation.
B. a recessionary gap with low inflation.
C. an inflationary gap with high unemployment.
D. an inflationary gap with low unemployment.

D. an inflationary gap with low unemployment

In the long run, the economy is:

A. self-fulfilling as commodity prices increase during recessionary gaps and decrease during inflationary gaps to move the economy to long-run equilibrium.
B. self-correcting as prices of goods that are sticky in the short run become very flexible in the long run and thus move the economy to full employment.
C. fluctuating as nominal wages increase and decrease during short-run economic fluctuations.
D. self-correcting as nominal wages increase during recessionary gaps and decrease during inflationary gaps to move the economy to long-run equilibrium.

B. self-correcting as prices of goods that are sticky in the short run become very flexible in the long run and thus move the economy to full unemployment

If the government's total revenues are less than its total expenditures, then it has a budget:

A. deficit.
B. surplus.
C. balance.
D. equality.

A. deficit

The government deficit:

A. is the essentially the same as the government debt.
B. is much higher than the government debt.
C. measures the difference between the amount which government spends and the amount it collects in tax revenues in a given period of time.
D. is the total amount of money a government owes at a particular point in time.

C. measures the difference between the amount which government spends and the amount it collects in tax revenues in a given period of time

The national debt:

A. is the sum of all past federal surpluses.
B. grows when the government runs a deficit.
C. grows when the government runs a surplus.
D. did not exist until 1998.

B. grows when the government runs a deficit

To expand the money supply, the Federal Reserve would have to do which of the following?

A. engage in an open purchase of Treasury bills
B. engage in an open sale of Treasury bills
C. raise interest rates
D. get approval from Congress.

A. engage in an open purchase of treasury bills

When the Fed buys Treasury bills, this leads to:

A. a decrease in the money supply.
B. an increase in the money supply.
C. an increase in short-term interest rates.
D. an increase in the Fed funds rate.

B. an increase in the money supply

Expansionary monetary policy:

A. increases the money supply, interest rates, consumption, and investment.
B. decreases the money supply, interest rates, consumption, and investment.
C. increases the money supply, decreases interest rates, and increases consumption and investment.
D. decreases the money supply, increases interest rates, and decreases consumption and investment.

C. increases the money supply, decreases interest rates, and increases consumption and investment

To close a recessionary gap using monetary policy, the Fed should ________ the money supply to ________ investment and consumer spending, and shift the aggregate demand curve to the ________.

A. increase; increase; left
B. decrease; decrease; left
C. increase; increase; right
D. decrease; decrease; right

C. increase; increase; right

Monetary policy that lowers the interest rate is called ________ because it ________.

A. contractionary monetary policy; aims at heading off inflation
B. expansionary monetary policy; increases short-run aggregate supply
C. contractionary monetary policy; reduces saving and increases consumption
D. expansionary monetary policy; increases aggregate demand

D. expansionary monetary policy; increases aggregate demand

Monetary policy affects GDP and the price level by:

A. changing aggregate supply.
B. changing aggregate demand.
C. changing the aggregate amount of labor supplied.
D. changing the exports.

B. changing aggregate demand

Expansionary monetary policy increases all of the following EXCEPT:

A. aggregate demand.
B. GDP and the price level.
C. consumption spending.
D. interest rates.

D. interest rates

If the economy is experiencing an inflationary gap, the Fed should conduct ______ monetary policy to ______ aggregate demand.

A. contractionary; decrease
B. contractionary; increase
C. expansionary; decrease
D. expansionary; increase

A. contractionary; decrease

To fight inflation, the Fed should conduct _____ monetary policy to ______ interest rates and shift aggregate demand to the _____.

A. contractionary; increase; left
B. contractionary; increase; right
C. expansionary; decrease; right
D. expansionary; increase; left

A. contractionary; increase; left

A $100 million increase in government spending increases equilibrium GDP by:

A. $100 million.
B. more than $100 million.
C. less than $100 million.
D. zero.

B. more than $100 million

If the government decides to spend an extra $5 billion:

A. GDP will go up by $5 billion.
B. GDP will remain unchanged.
C. GDP will increase by less than $5 billion.
D. GDP will increase by more than $5 billion.

D. GDP will increase by more than $5 billion

An example of an automatic stabilizer is:

A. tax receipts rising when GDP rises.
B. a discretionary increase in taxes.
C. governments purchases rising when GDP rises.
D. government transfers rising when GDP rises.

A. tax receipts rising when GDP rises

When the economy is in a recession:

A. tax receipts decrease but unemployment insurance payments increase.
B. both tax receipts and unemployment insurance payments increase.
C. tax receipts increase but unemployment insurance payments decrease.
D. both tax receipts and unemployment insurance payments decrease.

A. tax receipts decrease but unemployment insurances payments increase

Prior to the 1930s, the _____ model of economics dominated economic thinking about how the economy worked.

A. Keynesian
B. classical
C. monetarist
D. real business cycle

B. classical

Adam is an economist who believes that in the long run, all prices are flexible and that any increase in the money supply will lead only to inflation, not an increase in aggregate output. Because the economy would self-correct to long-run equilibrium output, there is no role for either fiscal or monetary policy. Adam is best described as a _____.

A. supply-side economist
B. Keynesian economist
C. classical economist
D. monetarist

C. classical economist

Classical economists focused mainly on:

A. unemployment.
B. the short run.
C. the long run.
D. government economic policy.

C. the long run

If wages and prices are perfectly flexible, a decrease in aggregate demand will cause a(n):

A. increase in the price level and unemployment.
B. decrease in the price level and employment.
C. increase in the price level and no change in employment.
D. decrease in the price level and no change in employment.

D. decrease in the price level and no change in employment

Keynesian economics placed its emphasis on the:

A. role of money.
B. long run.
C. impact of changes in aggregate demand.
D. impact of changes in aggregate supply.

C. impact of changes in aggregate demand

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