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Econ unit 3 progress check

Terms in this set (27)

Which of the following best describes the aggregate demand curve?
It is a curve that shows the level of spending by consumers, businesses, the government, and the foreign sector at different price levels.
Which of the following explains the relationship between the price level and real output along the aggregate demand curve?
At a lower price level, domestic goods will become less expensive compared to foreign goods, which causes an increase in spending on domestic goods.
The government of Euroland is considering increasing government spending to avoid a recession. What is the most likely effect on aggregate demand (AD) in Euroland?
There will be a rightward shift in the ADAD curve.
Assume the marginal propensity to consume is 0.75. What will happen if government spending increases by $100 billion?
Real output will increase by a maximum of $400 billion.
According to the expenditure multiplier, if the marginal propensity to consume is greater than zero, a one-dollar change in autonomous expenditures will result in which of the following?
A greater-than-one-dollar increase in aggregate demand for goods and services
Using the disposable income and consumption data in the table above, calculate the value of the marginal propensity to consume (MPC) and the marginal propensity to save (MPS).
MPC=0.60 , MPS=0.40
In an economy where wages and prices are sticky, which of the following will happen as a result of an increase in the price level?
There will be an upward movement along the short-run aggregate supply curve to a higher real output level.
An increase in taxes on businesses in the United States will likely have what impact on the short-run aggregate supply SRAS curve in the United States?
It will cause the SRAS curve to shift leftward.
If nominal wages are fixed by labor contracts, then which of the following explains why the aggregate supply curve is upward sloping?
An increase in the price level will increase profits and production.
Which of the following is illustrated by the long-run aggregate supply (LRAS) curve and the production possibilities curve (PPC)?
The maximum sustainable capacity
Suppose a nation opened its borders to the free flow of workers from other nations. How would this event likely affect the long-run aggregate supply (LRAS) curve and the production possibilities curve of the nation?
Both curves would shift to the right.
Suppose that the prices of labor and inputs to production are fixed in the short run but not in the long run. What is a consequence of this flexibility in the long run?
The long-run aggregate supply curve is vertical and there is no trade-off between inflation and unemployment in the long run.
Which of the following is true about the equilibrium real output in the aggregate demand-aggregate supply (AD-AS) model in the short run?
Equilibrium real output can be above, equal to, or below full employment.
Which of the following accurately describes the state of the macro-economy if it is operating at the intersection of the AD1 and SRAS2 curves?
It is operating below full employment and is in a short-run but not a long-run equilibrium.
Which of the following is true when an economy is operating at the intersection of the AD2 and SRAS2 curves?
The economy is in short-run and long-run equilibrium.
Assume that stock prices and home values have increased, raising household wealth. At the same time, productivity increased due to new technology. What is the likely short-run impact on the economy?
Both the aggregate demand (AD) and the short-run aggregate supply (SRAS) curves shift right, resulting in a higher real output level and indeterminate price level.
Assume the economy of Country A is in long-run equilibrium. Which of the following will happen in the short run in Country A if one of its major trading partners, Country B, experiences a recession?
Aggregate demand will decrease and the price level will decrease.
Country X is currently in long-run macroeconomic equilibrium. If the country's economy experiences a significant increase in the price of energy, a major input in production, which of the following will occur in the short run?
The short-run aggregate supply curve will shift to the left, and the actual rate of unemployment will exceed the natural rate of unemployment.
Assume an economy is currently at full employment. Which of the following best describes the long-run adjustments that will occur in the economy following a negative aggregate demand shock with no government intervention?
Nominal wages will decrease and short-run aggregate supply will increase until full employment is restored in the long run.
Suppose that the economy is in a recession. In the absence of government policy action to restore the economy to full employment, how will the economy adjust in the long run?
The SRAS2 curve shifts to the right as nominal wages decrease and full employment is restored.
If the natural rate of unemployment exceeds the actual rate of unemployment, which of the following will occur in the long run in the absence of government intervention?
Nominal wages will increase.
Suppose an economy is operating above full employment. Which of the following fiscal policy actions and resulting changes in aggregate demand will move the economy back towards full employment?
Increasing taxes, which will shift the AD curve leftward.
Which of the following represents an appropriate fiscal policy for the given economic conditions?
A contractionary fiscal policy is appropriate to reduce inflation when there is an inflationary gap.
The government of Olympia is considering a fiscal policy action to slow the economy and curb inflation. If the marginal propensity to consume is 0.8, which of the following responses correctly identifies a policy action that would help the government achieve its goals and the impact of that action on Olympia's real gross domestic product (GDP)?
Decreasing government spending by $10 billion decreases real GDPGDP by a maximum of $50 billion.
What is an automatic stabilizer?
It is a program or policy that counteracts the business cycle without any new government action required.
Which of the following best explains how income taxes can moderate a business cycle during an expansion?
Tax revenues increase automatically as gross domestic product (GDP)(GDP) rises, which dampens consumption spending.
How will automatic stabilizers affect the economy during a recession?
They will shift the aggregate demand curve to the right, increasing real output.
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