Exercise.

The short-run aggregate supply curve may shift to the left if:

a inflationary expectations increase. b productivity increases. c government spending increases. d personal income taxes decrease. e commodity prices fall. Question

11 (1 point) Which of the following would cause the aggregate demand in Pinkertonville to decrease?

a Firms in Pinkertonville are more optimistic about future profits. b Interest rates in Pinkertonville are falling. c Government spending in Pinkertonville is rising. d Net exports to Fieldsville are decreasing. e Personal income tax rates are falling in Pinkertonville.

Question 12 (1 point) According to classical economic theory, a recessionary gap will automatically adjust when the:

a aggregate demand gradually increases due to higher taxation. b aggregate demand gradually decreases due to higher taxation. c short-run aggregate supply gradually increases due to increasing wages and resources prices. d long-run aggregate supply gradually increases due to declining productivity. e short-run aggregate supply gradually increases due to falling wages and resource prices.

Question 13 (1 point) The economy is currently in long-run equilibrium. Covid-19 causes consumer expectations to decline. In the long-run, we will expect:

a a short-run decrease in the unemployment rate and an increase in the price level. b a rightward shift in the long-run aggregate supply curve. c a return to full employment at a lower price level. d a decrease in nominal wages and an increase in potential GDP. e a short-run increase in both the unemployment rate and the price level.

Question 14 (1 point) Assume that current real GDP is above potential GDP. How would the self-correcting mechanism move the economy to its potential long-run equilibrium?

a The short-run aggregate supply curve shifts to the right as nominal wages remain unchanged. b The short-run aggregate supply curve shifts to the left as a result of increasing nominal wages. c The short-run aggregate supply curve shifts left as a result of decreasing nominal wages. d The short-run aggregate supply curve shifts right as a result of decreasing nominal wages. e The short-run aggregate supply curve shifts to the right as a result of increasing nominal wages.

Question 15 (1 point) If the cost of a market basket is $200 in Year 1 and $250 in Year 2, the price index for Year 2 with a Year 1 base is: a 125 b 200 c 115 d 130 e 100

Question 16 (1 point) Suppose you have a population of 170. You have 95 people that are employed, 5 are unemployed and looking for work, 3 are discouraged workers, and 30 people are retired. Based on this information, what is the unemployment rate?

a 5.0% b 10% c 5.3% d 4.8% e 2.9%

Question 17 (1 point) Pinkertonville has a population of 20,000 people. Of this population, 2,000 people are full-time students and not looking for work, 4,000 people are discouraged workers. There are currently 1,400 people that are unemployed, but actively looking for a job, and 5,000 people work part-time. The remaining people are considered fully employed. Based on this scenario, what is the unemployment rate in Pinkertonville? a 10% b 2% c 7.14% d 4.25% e 11.11%

Question 18 (1 point) An upward sloping, short-run aggregate supply is best described as a the level of real GDP that will be purchased at each possible price level. b the relationship between outputs and inputs. c the level of real GDP that will be produced at each possible price level. d the amount consumers plan to spend on output. e the trade-off between inflation and unemployment.

Question 19 (1 point) An economy can experience both high inflation and high unemployment, simultaneously, when a government spending increases while taxes remain unchanged. b negative supply shocks lead to an increase in commodity prices. c taxes increase while spending remains unchanged. d expectations of inflation decrease. e teenagers stay out of the labor force.

Question 20 (1 point) Suppose investment spending increases by $50 billion, and as a result real GDP increases by $300 billion. The multiplier is: a 6. b 4. c 10. d 3. e 1/4.

Question 21 (1 point) Suppose that the economy of Greenland is in equilibrium price of P1 and equilibrium output is Y1. If Congress uses fiscal policy which action would be most appropriate: a increase interest rates. b increase personal income taxes. c increase government spending on national defense. d increase transfer payments to retired persons. e increase subsidies for research and investment.

Question 22 (1 point) Apple Computers increases their capital business inventories. In the long-run, this increase in business inventories will cause the a long-run aggregate supply curve to shift rightward. b aggregate demand curve to shift leftward. c consumption function to shift down. d Phillips curve to shift out. e production possibilities curve to shift in.

Question 23 (1 point) Over the last year, Mr. Green has worked hard and his employer has taken notice, giving him a 6% raise in his salary. During this last year, overall prices in the economy have decreased by 4%. Given this information, Mr. Green's real wage has: a increased by 10% b increased by 6% c increased by 2% d stayed constant e decreased by 4%

Question 24 (1 point) In the United States, a $500 decrease in government spending typically causes Gross Domestic Product to fall by $5000. The spending multiplier in the United States is equal to: a 10 b 5 c .90 d .10 e 100

Question 25 (1 point) If the MPS = 0.1, then the value of the multiplier equals ___ and an increase of $500 in consumption spending will cause real gross domestic product to increase by _____. a 100; $5,000. b 1; $500. c 10; $5,000. d 1; $5,000. e 10; $500.

Question 26 (1 point) a Option A b Option B c Option C d Option D

Question 27 (1 point) If the marginal propensity to save is 0.3 and consumers receive $100, they will save ___ and spend ____: a $60; $40 b $70; $30. c $0.30; $0.70. d $50; $50 e $30; $70.

Question 28 (1 point) Congress reduces income taxes from 15% to 10% and at the same time increases government spending. What will happen to consumption and employment in the short-run? Consumption / Employment A. Decrease / Decrease B. Increase / Increase C. Decrease / Increase D. Increase / Decrease E. Increase / No Change a Option A b Option B c Option C d Option D e Option E

Question 29 (1 point) Suppose that this economy is in equilibrium at E2. If there is a decrease in disposable income, then: a AD1 will shift to the right, causing an increase in the price level and an increase in real GDP. b AD2 will shift to the left, causing an increase in the price level and a decrease in real GDP. c AD2 will shift to the left, causing a decrease in the price level and an increase in the real GDP. d AD1 will shift to the right, causing a decrease in the price level and an increase in real GDP. e AD2 will shift to the left, causing a decrease in the price level and a decrease in the real GDP.

Question 30 (1 point) Due to low interest rates, the US government begins to borrow money and spend on research and development. What is the most likely impact on the aggregate supply curve, the long-run aggregate supply curve, and the PPC? Aggregate Supply / Long-Run Aggregate Supply / PPC A. Decrease / No Change / No Change B. Decrease / Decrease / Shift Inwawrd C. Increase / Increase / Shift Outward D. Increase / No Change / Shift Inward E. Increase / Increase / No Change a Option A b Option B c Option C d Option D e Option E

Question 31 (1 point) Suppose the government increases its spending by $100 billion as a stimulus package. If the MPC is 0.5, then real GDP will: a decrease by $250 billion. b increase by $250 billion. c decrease by $200 billion. d increase by $200 billion. e increase by $600 billion.

Question 32 (1 point) Suppose Congress wants to move the United States out of a recession and towards full employment. Which of the following policies will shift the aggregate demand curve to the right? a The central bank decreases the money supply in the economy. b The government decreases its level of taxation in the economy. c The government decreases its level of transfer payments to households. d The government increases transfer payments to households. e The government increases its level of taxing on businesses.

Section B

1. Which of the following is considered investment spending in macroeconomics? (Points : 2) GM builds a new plant to manufacture automobiles. Ryan Jones buys some GM stock. Ryan Jones buys some GM bonds. Ryan Jones buys some GM stock and bonds. 2. A budget surplus would exist when which of the following occurs? (Points : 2) Taxes are greater than government spending. Taxes are less than government spending. Taxes are less than government spending plus investment. Investment is less than government spending less taxes. 3. To help increase investment spending, the government can: (Points : 2) lower taxes on consumption, so that disposable income rises. lower taxes on the returns from savings, so that total savings increase and the interest rate falls. raise taxes on the returns from bonds while lowering taxes on stock dividends. lower taxes on investment spending while raising taxes on savings, so that total tax revenue remains constant. 4. If there is an increase in the government budget deficit: (Points : 2) the demand for loanable funds will increase, interest rates will increase, and the amount of borrowing will increase. the demand for loanable funds will decrease, interest rates will decrease, and the amount of borrowing will decrease. the supply of loanable funds will increase, interest rates will decrease, and the amount of borrowing will increase. the supply of loanable funds will decrease, interest rates will increase, and the amount of borrowing will decrease. 5. In the market for loanable funds, suppose the current interest rate is 5%. At a rate of 5%, investors wish to borrow $100 million and savers wish to save $125 million. We would expect: (Points : 2) the interest rate to fall as there is currently a shortage of loanable funds. the interest rate to rise as there is currently a surplus of loanable funds. the interest rate to rise as there is currently a shortage of loanable funds. the interest rate to fall as there is currently a surplus of loanable funds. 6. The price determined in the market for loanable funds is: (Points : 2) the margin call. the profit rate. the transaction fee. the interest rate. 7. Crowding out is a phenomenon: (Points : 2) where an increase in government's budget surplus decreases the overall investment spending. where overproduction in the goods market leads to a sharp drop in the aggregate price level. where an increase in government's budget deficit causes the overall investment spending to fall. where an increase in imports causes the overall domestic production to fall. 8. From the standpoint of economic growth, banks are important to: (Points : 2) fight inflation. keep interest rates low. channel savings into investment. channel investment into savings. 9. Which of the following is NOT one of the three tasks of a financial system? (Points : 2) transactions costs reduction risk management provide liquidity determining fiscal policy 10. Which of the following portfolios is the most diversified in terms of risk? (Points : 2) $100,000 worth of stock in ten different companies in the same industry $100,000 worth of stock in ten different companies in two different industries $100,000 worth of stock in ten different companies in five different industries $100,000 worth of stock in one company that sells ten different products 11. When you take out a loan from a bank, it is: (Points : 2) an asset to you and a liability to the bank. an asset to you and an asset to the bank. a liability to you and a liability to the bank. a liability to you and an asset to the bank. 12. Which of the following financial assets is likely to be the most liquid? (Points : 2) stocks bonds mutual funds shares bank demand deposits 13. The financial system performs certain tasks in order to make the financial market more efficient. Which one of the following is NOT one of these tasks? (Points : 2) reducing risk reducing menu costs reducing transaction costs providing liquidity 14. Which of the following qualify as an asset from the viewpoint of a household? (Points : 2) a house mortgage credit card debt car loan 15. Samantha is asking her employer for a 5% raise for the coming year. If the inflation rate during the next year is 5.5%, then her real wage will: (Points : 2) increase by 5%. decrease by .5%. decrease by 5%. increase by .5%. 16. The MPS plus the MPC must equal: (Points : 2) zero. one. income. saving. 17. If the MPS = .1, then the value of the multiplier equals: (Points : 2) 1. 5. 9. 10. 18. If the MPC is 0.8, then the multiplier is: (Points : 2) 4. 5. 8. 10. 19. If your disposable income increases from $10,000 to $15,000 and your consumption increases from $9,000 to $12,000, your MPC is: (Points : 2) 0.2. 0.4. 0.6. 0.8. 20. Suppose the government increases its spending by $100 billion as a stimulus package. If the MPC is 0.6, then equilibrium income will: (Points : 2) decrease by $250 billion. increase by $250 billion. increase by $600 billion. decrease by $400 billion. 21. Consumer spending in the United States normally accounts for approximately ______ of the economy. (Points : 2) 1/3. 1/2. 2/3. 3/4. 22. David receives a tax refund of $800. He spends $600 and saves $200. David's marginal propensity to consume is: (Points : 2) 0.6. 0.75. 0.25. 0.20. 23. If the disposable income increases, then: (Points : 2) the consumption function will shift upwards. there will be a rightward movement along the consumption function. there will be a leftward movement along the consumption function. the consumption function will shift downwards. 24. Suppose the marginal propensity to consume is equal to 0.90 and investment spending increases by $50 billion. Assuming no taxes and no trade, by how much will real GDP change? (Points : 2) $450 billion increase $90 billion increase $500 billion increase $500 billion decrease 25. When David has no income, he spends $500. If his income increases to $2,000, he spends $1,900. Which of the following represents his consumption function? (Points : 2) C = 1.2 ? YD. C = 0.95 ? YD. C = $500 + 0.7 ? YD. C = $500 + 1,000 ? YD. 26. Which of the following is NOT a determinate of consumer spending? (Points : 2) current disposable income expected future disposable income wealth investment spending 27. The consumption function shifts when: (Points : 2) disposable income changes. expected future disposable income changes. people receive a pay raise. disposable income goes down. 28. If the Federal Reserve increases interest rates to reduce inflation: (Points : 2) planned investment spending is most likely to increase. planned investment spending is most likely to decrease. planned investment spending is most likely to remain the same. unplanned investment in inventories is likely to be negative. 29. If households increase savings in their bank accounts, _______ and the interest rate _______, therefore increasing investment spending. (Points : 2) the supply of loanable funds shifts right; rises the demand of loanable funds shifts right; rises the supply of loanable funds shifts right; falls the demand of loanable funds shifts left; falls 30. Rising inventories typically indicate _______ unplanned inventory investment and a _________ economy. (Points : 2) positive; slowing negative; slowing positive; expanding negative; expanding 31. In general, a change in the price level, all other things unchanged, causes: (Points : 2) a movement along the aggregate demand curve. a shift of the aggregate demand curve. both a movement along the aggregate demand curve and a shift in the curve. no change in the purchasing power of assets. 32. Suppose that the stock market crashes. Which of the following is most likely to occur? (Points : 2) the aggregate demand curve shifts to the right the aggregate demand curve shifts to the left a movement up the aggregate demand curve a movement down the aggregate demand curve 33. Suppose that a presidential candidate who promised large personal income tax cuts is elected. Which of the following is most likely to occur? (Points : 2) a decrease in short-run aggregate supply a decrease in aggregate demand an increase in short-run aggregate supply an increase in aggregate demand 34. All of the following are examples of fiscal policy, EXCEPT when the: (Points : 2) government spends on building and repairing the nation's bridges and roads. Fed lowers the interest rate by increasing the money supply. U.S. Congress approves an economic stimulus package. taxpayers receive a $1500 per family rebate. 35. Which of the following would shift the aggregate demand curve to the left? (Points : 2) An increase in the interest rate. An increase in the aggregate price level. An increase in consumer wealth. Stronger consumer optimism about future income. 36. If the government lowers taxes in response to a recession, the government is engaging in what economists call: (Points : 2) monetary policy. investment policy. consumption policy. fiscal policy. 37. Which of the following has the most direct effect on aggregate demand? (Points : 2) changes in taxes changes in interest rates changes in the money supply changes in government spending 38. If the Fed increases the quantity of money in circulation: (Points : 2) interest rates decrease, investment increases, and the aggregate demand curve shifts to the right. interest rates increase, investment increases, and the aggregate demand curve shifts to the right. interest rates decrease, investment increases, and the aggregate demand curve shifts to the left. interest rates increase, investment decreases, and the aggregate demand curve shifts to the left. 39. The long-run aggregate supply curve is vertical because in the long run: (Points : 2) technological progress outpaces raises in nominal wages. all factors of production increase. the price of labor is flexible, while the price of physical capital is fixed. all prices are flexible. 40. An increase in aggregate demand will generate _______ in real GDP and _______ in the price level in the short run. (Points : 2) an increase; an increase an increase; no change a decrease; no change no change; an increase 41. A recessionary gap occurs if: (Points : 2) actual real GDP is less than potential output. actual real GDP is greater than potential output. actual real GDP is equal to potential output. unemployment is less than the natural rate. 42. An inflationary gap: (Points : 2) is generally regarded as desirable, especially by people living on a fixed income. means that the economy is operating beyond its potential output. means that there are pressures for wages to fall. means that SRAS will soon shift rightward. 43. Stabilization policies have: (Points : 2) not reduced the effects of business cycles caused by either demand shocks or supply shocks. reduced the economic fluctuations caused by demand shocks but have not been effective against supply shocks. reduced the economic costs of supply shocks but have not been so successful against demand shocks. been successful in reducing the economic fluctuations by neutralizing the effects of both supply and demand shocks. 44. Suppose that the economy is in a recessionary gap, the policy makers in the government can: (Points : 2) increase taxes and increase aggregate spending via the multiplier to remove the recessionary gap increase the money supply, lower the interest rate, increase investment and consumption spending and thus increase aggregate demand. cut government expenditure, decrease investment and consumption spending and thus increase aggregate supply. increase nominal wages, shift the short run aggregate supply to the left and thus remove the recessionary gap. 45. If the economy is currently in a recessionary gap, real GDP will be ________ potential output. (Points : 2) below the same as above in equilibrium with 46. Explain the difference between fiscal and monetary policy.