MULTIPLE CHOICE QUESTIONS

(1) The multiplier effect on real GDP occurs because

A) of income taxes.

B) of government stabilization policies.

C) changes in price levels affect our willingness to invest, consume, import and export.

D) a change in autonomous expenditure causes a much larger change in GDP.

(2) If the economy is growing below potential real GDP, which of the following would be an appropriate monetary policy to bring the economy back to the macroeconomic equilibrium? An increase in

A) the money supply and a decrease in interest rates.

B) oil prices.

C) money supply.

D) government purchases.

(3) Saving equals

A) disposable income minus consumption expenditure.

B) consumption expenditure minus disposable income.

C) disposable income plus consumption expenditure.

D) disposable income minus taxes

(4) Long-run macroeconomic equilibrium occurs when

A) structural and frictional unemployment equals zero.

B) output is above potential GDP.

C) aggregate demand equals short-run aggregate supply and they intersect at a point on the long-run supply curve.

D) aggregate demand equals short-run aggregate supply.

(5) Monetary policy is defined as changes in ________ and ________ to achieve macroeconomic objectives such as price stability, high rates of economic growth, and high employment.

A) taxes; expenditures

B) money supply; interest rates;

C) taxes; the money supply

D) taxes; interest rates

(6)If the multiplier is 5 and investment decrease by $40, what impact will that have on aggregate expenditure?

A) decrease by $180

B) increase by $180

C) increase by $30

D) decrease by $120

(7) The level of aggregate supply in the long-run is not affected by

A) changes in technology.

B) changes in the number of workers.

C) changes in the capital stock.

D) changes in the expected change in income.

(8) An increase of the reserve requirements will reduce

A) consumption spending

B) government spending will fall

C) money supply

D) wages will increase

(9)Long-run macroeconomic equilibrium occurs when

A) aggregate demand equals short-run aggregate supply.

B) structural and frictional unemployment equals zero.

C) output is above potential GDP.

D) aggregate demand equals short-run aggregate supply and they intersect at a point on the long-run supply curve