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Review for Exam 3 (excludes # 11, 12, 13, 17, 18, 20, 21, 23, 24, 25, 38, due to graphs and/or tables)

The aggregate demand curve:

Shows the amount of real output that will be purchased at each possible price level

The aggregate demand curve is:

Down-sloping because production costs decrease as real output rises

The interest-rate and real-balances effects are important because they help explain:

The shape of the aggregate demand curve

The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will:

Increases U.S. exports and decrease U.S. imports

The real-balances, interest-rate, and foreign purchases effects all help explain:

Why the aggregate demand curve is downsloping

The determinants of aggregate demand:

Explain shifts in the aggregate demand curve

Other things equal, a decrease in the real interest rate will:

Expand investment and shift the AD curve to the right

In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to:

Increase aggregate demand

The immediate-short-run aggregate supply curve represents circumstances where:

Both input and output prices are fixed

The immediate-short-run aggregate supply curve is:


The shape of the immediate-short-run aggregate supply curve implies that:

Total output depends on the colume of spending

What percentage of the average firm's costs are accounted for by wages and salaries?


Other things equal, an improvement in productivity will:

Shift the aggregate supply curve to the right

Shifts in the aggregate supply curve are caused by changes in:

One or more of the determinants of aggregate supply

The equilibrium price level and level of real output occur where:

The aggregate demand and supply curves intersect

The group of three economists appointed by the President to provide fiscal policy recommendations is the:

Council of Economic Advisors

Fiscal policy is carried out primarily by:

The Federal government

Discretionary fiscal policy refers to:

Changes in taxes and government expenditures made by congress to stabilize the economy

Fiscal policy refers to the:

Manipulation of government spending and taxes to stabilize domestic output, employment, and the price level

Discretionary fiscal policy is so named because it:

Involves specific changes in T and G undertaken expressly for stabilization at the option of Congress

Expansionary fiscal policy is so named because it:

Is designated to expand real GDP

Contractionary fiscal policy is so named because it:

Is aimed at reducing aggregate demand and thus achieving price stability

An economist who favors small government would recommend:

Tax cuts during recession and reductions in government spending during inflation

An economist who favored expanded government government would recommend:

Increases in government spending during recession and tax increases during inflation

In the United States monetary policy is the responsibility of the:

Board of Governors of the Federal Reserve System

The consumption schedule shows:

The amounts households intend to consume at various possible levels of aggregate income, a direct relationship between aggregate consumption and accumulated financial wealth

Which of the following is correct?


As disposable income increases, consumption:

And saving both increase

The MPC for an economy is:

The slop of the consumption schedule or line

Dissaving means:

That saving and investment is less than zero

Which is NOT correct?


The greater is the marginal propensity to consume, the:

Smaller is the marginal propensity to save

In the late 1990s the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the:

Wealth effect

The investment demand curve will shift to the right as the result of:

Business becoming more optimistic about future business conditions

If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is:

12 percent

The multiplier effect means that:

An increase in investment can cause GDP to change by a larger amount

If the MPC is .70 and investment increases by $3 billion, the equilibrium GDP will:

Increase by $10 billion

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