18. (03.08 LC) Which of the following accurately describes a limitation of fiscal policy? (2 points) The spending multiplier will always be more effective than the tax multiplier because of savings. The government can have no direct impact on aggregate demand in the economy. The government can influence the price level but not real output or aggregate demand. The government has the ability to slow inflation but not close a recessionary gap. There is always a time lag to discretionary fiscal policy between action and impact. W 19. (03.09 LC) Which one of the following is true for transfer payments as a type of automatic stabilizer? (2 points) O Transfer payments require regular fiscal policy action to be effective. Transfer payments increase during times of economic expansion. Transfer payments are a type of discretionary fiscal policy. Transfer payments decrease during times of economic expansion. Transfer payments decrease during the time of economic downturn. 3 20. (03.09 Me) As automatic stabilizers, transfer payments _ and income taxes _ in order to maintain _ when the economy is experiencing a negative output gap. (2 points) 0 increase; decrease; aggregate demand 0 increase; increase; unemployment 0 decrease; decrease; aggregate demand 0 decrease; increase; money supply increase; increase; aggregate demand D j 2. (03.01 LC) How does the real wealth effect explain the slope of the aggregate demand curve? (2 points) A negatively sloped curve; a decrease in the price level increases real wealth or real balances O A positively sloped curve, depicting a positive relationship between price and quantity demanded O A negatively sloped curve; with an increase in real wealth, the nominal value of the money decreases O A positively sloped curve; since the real value of the money is xed, but the nominal value depends on the price 0 A negatively sloped curve; when the prices decrease, it decreases the money available in consumers' hands :7] 3. (03.02MC) Assume that the marginal propensity to consume is 0.6. What is the signicance of an increase in expenditure on the equilibrium real GDP? (2 points) A $1 increase in expenditure will increase the equilibrium real GDP by $2.50. 0 A $1 increase in expenditure will decrease the equilibrium real GDP by $2.50. 0 A $1 increase in expenditure will increase the equilibrium real GDP by $1.50. 0 A $1 increase in expenditure will decrease the equilibrium real GDP by $1.50. 0 Being a function of autonomous components of government expenditure; there are no changes in the equilibrium real GDP. 3 4, (03.02 MC) Assume that the marginal propensity to consume is 0.9. If the government decreases spending by $50 billion at the same time that it decreases taxes by $50 billion, what would be the maximum impact on aggregate demand? (2 points) 0 A decrease of $9 billion 0 A decrease of $10 billion A decrease of $50 billion 0 A decrease of $950 billion 0 No change 3 5, (ostoamc) Which of the following best describes the main reason for the upward-sloping shape of the short-run aggregate supply curve? (2 points) Sticky wages and prices 0 Flexible input prices 0 Lack of government intervention 0 Inationary expectations 0 Rising unemployment rate [I [j 6. (03.03MC) Which of the following could explain a rightward shift of the shortrun aggregate supply curve? (2 points) 0 An increase in business investment 0 An increase in the personal income tax rate Q A nominal wage increase An increase in the price level 0 A decrease in business regulation [1 3 7. (03.03 LC) What is true about movement along the aggregate supply curve in the short run? (2 points) There is an inverse relationship between ination and the unemployment rate. Q There is no direct relationship between ination and the unemployment rate. Q There is a positive relationship between ination and the unemployment rate. 0 An increase in ination creates a demand shock that in turn increases the unemployment rate. Q There is an inverse relationship between the general price level and the wage rate. I] [3 8. (03.04LC) The aggregate supply curve is vertical in the long run. Which of the following correctly describes the rationale behind it? (2 points) 0 The wages and prices are exible in the short run and are sticky in the long run, which makes the long-run aggregate supply vertical. 0 The wages and prices are exible in both the short run and long run, which makes the long-run aggregate supply vertical. The wages and prices are sticky in the short run and exible in the long run, which makes the long-run aggregate supply vertical. 0 The wages and prices are sticky in both the short run and long run, that makes the long-run aggregate supply vertical. 0 The wages and prices are neither sticky nor exible in the long run, which makes the longrun aggregate supply vertical. 1] [3 9. (03.04MC) Which of the following is true about the characteristics of the long-run aggregate supply curve and the production possibilities curve? (2 points) 0 Resources are fully employed in both curves. 0 Price is an important variable to determine the curves. 0 A rightward shift in the long-run aggregate supply curve resembles a leftward shift of the production possibility curve. 0 A leftward shift in both long-run aggregate supply curve and production possibility curve reects an increase in the total output. A production possibility curve is constructed when all the inputs are xed, and in the case of the long-run aggregate supply curve, all the inputs are exible. D [3 10. (03.05 MC) Use the graph to answer the question that follows. Price level Real GDP At which point on the graph is the economy producing output in equilibrium at its maximum sustainable potential? (2 points) W 11. (03.05 MC) Use the graph to answer the question that follows. Price Level LRAS LRASB SRAS P3 P2 AD X Z Real GDP Which of the following combinations from the model above would accurately illustrate an economy in an equilibrium with a recession according to the AD-AS model? (2 points) A price level of P1 with LRASA A price level of P1 with LRASB A price level of P2 with LRASA O A price level of P2 with LRASB A price level of P3 with LRASm j 12. (03.06 MC) Assume that production in a country was affected because of a drought. Which of the following statements would be true in this scenario? (2 points) 0 The negative supply shock has increased production and decreased prices. 0 The positive demand shock has decreased production and increased prices. 0 The negative demand shock has increased production and decreased prices. The negative supply shock has decreased production and increased prices. 0 The negative supply shock has decreased production and decreased prices. D j 13. (03.06 MC) Which of the following factors will cause a recession in an economy showing a long-run equilibrium? (2 points) 0 A negative supply shock that causes an increase in output and an increase in the price level 0 A negative demand shock that causes an increase in output and an increase in the price level O A positive supply shock that causes a decrease in output and a decrease in the price level 0 A positive demand shock that causes a decrease in output and an increase in the price level A negative demand shock that causes a decrease in output and a decrease in the price level [3 14. (03.07 MC) An economy is operating with a signicant inationary gap. Based on this, what would happen in the long run? (2 points) 0 Aggregate demand will increase. Wages and factor prices will increase. 0 Potential real GDP will increase. 0 The natural rate of unemployment will decrease O The short-run aggregate supply will shift right. m :71 15. (03.07 MC) Suppose an economy is experiencing a positive demand shock. What will happen in the long run if the government doesn't intervene? (2 points) 0 wages decrease; AD decrease; output decrease; unemployment decrease O wages increase; AD increase; output increase; unemployment increase 0 wages increase; AS decrease; output decrease; return to full employment 0 wages decrease; AS increase; output increase; return to full employment 0 wages increase; AS decrease; output increase; unemployment increase 16. (03.08 LC) How can an expansionary fiscal policy be useful in an economy? (2 points) Decreasing money supply can help relieve inflationary pressures in the economy. Increasing tax rates can help relieve inflationary pressures in the economy. Decreasing tax rates can help relieve inflationary pressures in the economy. Increasing government expenditures can help relieve recessionary pressures in the economy. Increasing money supply can help relieve recessionary pressures in the economy. W Q 17. (03.08 MC) If the government of a country decides to spending on infrastructure development and increase. then it is trying to implement a contractionary fiscal policy. (2 points) decrease; education funding increase; transfer payments O decrease; taxation increase; public savings increase; aggregate supplyQ 1. (03.01 MC) Use the graph to answer the question that follows. Price level AS P1/- P2/ AD1 AD2 Y2 Y1 Output Which of the following changes could explain the reason for the shift in output from Y1 to Y2? (2 points) O Increase in income tax rates O Decrease in input prices O Increase in household spending Decrease in price level Increase in private investment