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61 Cards in this Set

  • Front
  • Back
If a reduction in the price level causes more real output to be demanded
A. the short-run aggregate supply curve is downward sloping.
B. the short-run aggregate supply curve will shift to the right.
C. the aggregate demand curve will shift to the right.
D. the aggregate demand curve is downward sloping.

D
Which of the following will shift the aggregate demand curve to the left?
A. an increase in personal income taxes
B. a reduction in labor productivity
C. an increase in government spending
D. an increase in society's aggregate wealth

A
Which of the following will increase both the price level and real GDP?
A. a nationwide drought that drives up the prices of agricultural products
B. greater optimism among business executives
C. a reduction in the money supply
D. a reduction in government spending for goods and services

B
According to the real balance effect,
A. a reduction in the price level stimulates spending by lowering interest rates.
B. an increase in society's aggregate wealth will shift the aggregate demand curve to the right.
C. an increase in the money supply will shift the aggregate demand curve to the right.
D. an increase in the price level reduces spending by lowering the real value of society's financial assets.

D
A decrease in foreign income levels would, ceteris paribus, tend to shift the aggregate ________ curve for U.S. products to the ________.
A. supply; left
B. demand; right
C. demand; left
D. supply; right

C
In the short run, an increase in the money supply will
A. increase real GDP and reduce the price level.
B. reduce real GDP and increase the price level.
C. reduce both real GDP and the price level.
D. increase both real GDP and the price level.

D
If the U.S. labor force became better educated and therefore more productive, the
A. the aggregate supply curve would shift left, lowering real GDP and raising the price level.
B. the aggregate supply curve would shift right, raising real GDP and lowering the price level.
C. the aggregate demand curve would shift right, raising both real GDP and the price level.
D. the aggregate demand curve would shift left, lowering both real GDP and the price level.

B
When the overall price level rises,
A. businesses tend to reduce output because production becomes less profitable.
B. businesses have incentive to expand output because many costs are fixed by long-term contracts.
C. wage rates and other input prices tend to increase immediately, forcing businesses to cut back on production.
D. businesses may either increase or decrease output, depending on the magnitude of the hike in the price level.

B
Suppose that the value of the average family home increased dramatically. This change would tend to shift the
A. aggregate supply curve to the right, raising reall GDP and lowering the price level.
B. aggregate demand curve to the left, lowering real GDP and the price level.
C. aggregate supply curve to the left, lowering real GDP and raising the price level.
D. aggregate demand curve to the right, raising real GDP and the price level.

D
The short-run aggregate supply curve slopes upward
A. because increases in the overall price level result in enhanced labor productivity and higher real output.
B. as a result of the real balance effect and the interest rate effect.
C. because input price rigidities make it profitable for firms to expand output when product prices rise.
D. if all wages and input prices are flexible in the short run.

C
According to the self-correcting model,
A. the economy always operates at potential GDP.
B. the economy can never operate beyond potential GDP.
C. unemployment can exist indefinitely.
D. unemployment is eventually eliminated by falling wages and prices.

D
When aggregate demand increases,
A. the economy moves up along a stationary aggregate demand curve.
B. the aggregate demand curve shifts to the left.
C. the aggregate demand curve shifts to the right.
D. the economy moves down along a stationary aggregate demand curve.

C
The type of inflation caused by increased spending for goods and services is termed
A. cost-push inflation.
B. expenditure inflation.
C. structural inflation.
D. demand-pull inflation.

D
In the short run, a tax cut would
A. reduce both real GDP and the price level.
B. increase both real GDP and the price level.
C. reduce real GDP, but raise the price level.
D. increase real GDP, but lower the price level.

B
Based on the figure above, when the self-correcting mechanism has completed its task, the economy will be in equilibrium at an output of
A. $5 trillion and a price level of 100.
B. $5 trillion and a price level of 90.
C. $5 trillion and a price level of less than 90.
D. $4 trillion and a price level of 100.

A
An increase in the productivity of the labor force would be likely to shift
A. the aggregate supply curve to the left.
B. the aggregate demand curve to the left.
C. the aggregate demand curve to the right.
D. the aggregate supply curve to the right.

D
Based on the figure above, suppose an increase in aggregate wealth shifts aggregate demand from AD1 to AD2, and moves the economy beyond potential. If the economy is left to correct itself, full employment will be restored in the long run when
A. contracts expire and workers and input suppliers demand higher wages and input prices, respectively.
B. potential GDP expands to $6 trillion.
C. wages and input prices fall, and shift the aggregate supply curve downward.
D. aggregate demand decreases back to its original level.

A
The ___________________ curve shows the amount of real output that will be demand at various price levels.
aggregate demand
According to the _____________ effect, an increase in the price level will reduce the purchasing power of financial asset and cause society to demand less real output.
real balance
Any change in the spending plans of consumers, businesses or government that results from something other than a change in the _________ will shift the aggregate demand curve.
price level
A broad-based technological advanced will tend to shift the aggregate ____________ curve to the ______________.
supply, right.
The aggregate supply curve is upward sloping in the short run but _____________ in the long run.
vertical
According to the interewst reate effect, a reduction in the price level will tend to ____________ the demand for money which in turn will ____________ the rate of interest and lead to ____________ in the quantity of real output demanded.
decrease, decrease, an increase
Increase in the price level cause businesses to ____________ output in the short-run because some wages and other input prices are fixed by ____________.
increase, contracts
An increase in government spending will tend to shift the aggregate ____________ curve to the ____________ .
demand, right
Cost-pushing inflation is caused by the aggregate ____________ curve shifting to the ____________.
supply, left
The term ____________ is used to describe high inflation combined with high unemployment.
stagflation
If the economy is intially in equilibrium at potential GDP, an increaes in aggregate demand will tend to raise both output and price in the short run, but will only raise ___________ in the long run.
prices
The largest category of federal government expenditures is...
A. purchases of goods and services.
B. interest on the national debt.
C. transfer payments.
D. military spending.

C
Because of automatic stabilizers, the budget will
A. tend toward deficit during a recession.
B. always remain in balance.
C. tend toward deficit during an economic expansion.
D. tend toward surplus during a recession.

A
"Crowding out" refers to
A. the reduction in investment spending that occurs when government borrowing pushes up interest rates.
B. the reduced standard of living suffered by U.S. citizens as foreigners purchase a larger share of our public debt.
C. the unwillingness of politicians to raise taxes or cut government spending to combat inflation.
D. the reduction in consumption spending that results from an increase in tax rates.

A
The major source of federal tax receipts is
A. excise taxes.
B. corporate income taxes.
C. personal income taxes.
D. social insurance taxes.

C
According to activists, when the economy is experiencing unemployment, the federal government should
A. reduce taxes.
B. increase taxes.
C. deliberately incur a surplus budget.
D. reduce government spending.

A
What is our current annual interest payment to China?
A. $123 million
B. $100 million
C. $14.5 billion
D. $50 billion

D
What is our current national debt?
A. $10 billion
B. $21 trillion
C. $0
D. $12trillion

D
What is the budget of the Defence Department in 2009
A. $124 billion
B. $1 trillion
C. $653 billion
D. $1.22 trillion

C
Based on the figure above, suppose the economy is in short-run equilibrium at an output of $2,500 billion. If activist policies are not used, the economy will
A. remain at an output of $2,500 billion indefinitely.
B. return to an output of $2,000 billion when the aggregate demand curve automatically shifts back to AD2.
C. return to an output of $2,000 billion when wage contracts expire and the aggregate demand curve shifts to the left.
D. return to an output of $2,000 billion when wage contracts are renegotiated and the aggregate supply curve shifts left.

D
The classical economists believed that unemployment could not persist because
A. falling wages would cause businesses to expand employment.
B. the government would step in and stimulate the economy by increasing government spending.
C. rising prices would make up for any deficiency in spending and make it profitable to rehire workers.
D. unemployment benefits would eventually run out, and voluntarily unemployed workers would return to their jobs.
E. workers would move abroad, reducing the unemployment ranks.

A
Keynes believed that if unemployment existed,
A. it was voluntary.
B. taxes should be increased in order to reduce the amount of spending in the economy.
C. it could not persist for very long.
D. it would be automatically eliminated.
E. it could be reduced by increasing the level of government spending.
If potential GDP is $2,000 billion and equilibrium GDP is $1,600 billion,
A. activists would propose a cut in government spending.
B. activists would propose a tax increase.
C. a recessionary gap exists.
D. an inflationary gap exists.
E. Both A and B are true.

C
When an economic expansion has resulted in substantial inflationary pressures, the proper activist fiscal policy would be to
A. increase the size of the government's budget deficit.
B. reduce taxes.
C. reduce taxes but increase government spending.
D. increase spending by the federal government.
E. reduce the size of the government's budget deficit.

E
If an inflationary gap existed, increasing government spending would
A. make the problem worse.
B. decrease the size of the multiplier.
C. either reduce or eliminate the gap.
D. increase the size of the multiplier.
E. eliminate the gap.

A
If rapid economic growth resulted in substantial inflation, which of the following policies would be appropriate, according to the Keynesian or activist model?
A. a program of more aggressive antitrust enforcement against firms with substantial market power
B. an increase in government spending
C. a reduction in the tax rates on corporate income
D. an increase in personal tax rates
E. policies designed to increase the size of the economy's multiplier

D
According to the Keynesian (activist) model, the federal government
A. should balance its budget annually.
B. should always incur budget surpluses.
C. should always incur budget deficits.
D. should incur deficits during periods of inflation and surpluses during periods of unemployment.
E. should incur surpluses during periods of inflation and deficits during periods of unemployment.

E
Deficit spending exists when
A. the government fails to earn enough tax revenue to pay off the public debt.
B. government spending exceeds government revenue.
C. government revenue exceeds government spending.
D. government tax revenues exceed government spending.
E. government tax revenues are declining.

B
Stagflation poses a dilemma for policymakers because
A. if aggregate demand is stimulated to expand the economy, the price level will tend to rise.
B. any expansion in aggregate demand will tend to raise both the price level and the unemployment rate.
C. if aggregate demand is reduced to combat inflation, equilibrium GDP will tend to rise.
D. any reduction in aggregate demand will tend to lower both the price level and the unemployment rate.
E. if aggregate demand is increased to combat unemployment, the price level will tend to fall.

A
Suppose the economy is in equilibrium at an output less than potential GDP. According to the self-correcting model,
A. wages and input prices will eventually fall, which will shift the short-run aggregate supply curve to the left and restore potential GDP.
B. aggregate demand will immediately expand and return the economy to potential GDP.
C. policymakers will eventually increase aggregate demand, which will restore potential GDP.
D. wages and input prices will eventually rise which will push the aggregate demand curve to the right and return the economy to potential GDP.
E. wages and input prices will eventually fall, which will shift the short-run aggregate supply curve to the right and restore potential GDP.


E
Assume that potential GDP is $1,000 billion. Suppose that the economy is presently in equilibrium at a price level of 120 and an output of $1,500 billion. According to the self-correcting model, the economy will
A. ultimately return to an output of $1,000 billion but at a price level greater than 120.
B. will remain at an output of $1500 billion, but the price level will rise above 120.
C. ultimately return to an output of $1,000 billion but at a price level less than 120.
D. will remain at an output of $1500 billion, but the price level will fall to something less than 120.
E. ultimately return to an output of $1,000 billion at a price level of 120.

A
Demand-pull inflation is caused by
A. reductions in aggregate supply.
B. reductions in the demand for consumer goods.
C. demands for wage increases in excess of productivity gains.
D. increases in the cost of raw materials.
E. increases in the level of total spending in the economy.


E
Based on the figure above, the economy represented in the diagram is presently
A. experiencing unemployment, which will be corrected in the long run when the economy moves to point D.
B. experiencing unemployment, which will be corrected in the long run when the economy moves to point B.
C. operating at potential GDP.
D. producing less than potential GDP, which will be corrected in the long run when the economy moves to point C.
E. operating beyond potential GDP, which will be corrected in the long run when the economy moves to point B.

D
Based on the figure above, the economy represented is
A. operating above potential. The self-correcting mechanism will ultimately return it to point C.
B. operating above potential. The self-correcting mechanism will ultimately return it to point B.
C. operating below potential. The self-correcting mechanism will ultimately return it to point C.
D. operating below potential. The self-correcting mechanism will ultimately return it to point B.
E. operating above potential. The self-correcting mechanism will ultimately return it to point D.

E
The largest category of federal government expenditures is
A. purchases of goods and services.
B. interest on the national debt.
C. transfer payments.
D. military spending.

C
"Crowding out" refers to
A. the reduction in investment spending that occurs when government borrowing pushes up interest rates.
B. the reduced standard of living suffered by U.S. citizens as foreigners purchase a larger share of our public debt.
C. the unwillingness of politicians to raise taxes or cut government spending to combat inflation.
D. the reduction in consumption spending that results from an increase in tax rates.

A
According to activists, when the economy is experiencing unemployment, the federal government should
A. reduce taxes.
B. increase taxes.
C. deliberately incur a surplus budget.
D. reduce government spending.

A
Which of the following is not an example of near money?
A. an account with a money market fund.
B. a saving account.
C. a government bond.
D. a piece of prime real estate. Student Response

D
Which of the following appears as a liability on the balance sheet of a depository institution?
A. Loans
B. Checkable deposits
C. Securities
D. Reserves

A
Based on the table above, assuming that the reserve requirement is 30 percent, how much additional money can the bank represented below create?
A. $25 million
B. $12 million
C. $15 million
D. $8 million

D
The three functions of money are medium of exchange, standard of value, and
A. store of value.
B. mode of saving.
C. store of utility.
D. store of saving.

A
Which of the following is not part of the M-1 money supply?
A. money-market balances
B. demand deposits
C. currency
D. NOW accounts

A
According to the diagrams above,
A. country A has a comparative advantage in clothing.
B. country B has a comparative advantage in both food and clothing.

A
Student Response
C. country B has a comparative advantage in clothing.
D. country A has a comparative advantage in food.
Dumping occurs whenever a firm
A. earns economic profits on its sales to foreign markets.
B. disposes of wastes by shipping them to disposal sites in foreign countries.
C. charges a lower price in foreign markets than it charges in its home market.
D. sells a lower-quality product in foreign markets than it sells in its home market.

C