Part 1. Multiple Choice

1. Aggregate demand can shift to the right because of:

(a) an unexpected tax cut.

(b) a tax credit targeted to incentivize investment.

(c) the government spending more on public infrastructure.

(d) a depreciation of the U.S. dollar that boosts net exports.

(e) all of the above.

2. According to Mankiw Chapter 21, economists called supplied siders:

(a) are experts in studying aggregate supply but they don't know much about aggregate demand.

(b) tend to agree more often with producers (the supply) than consumers (the demand).

(c) don't believe in Keynes' theory of "animal spirits" affecting aggregate demand.

(d) are well known for giving economic advise only to producers.

(e) believe that the influence of fiscal policy on aggregate supply is large.

3. Along any aggregate demand curve, a decrease in the quantity of real GDP demanded could only be the result of:

(a) an increase in the price level.

(b) a decrease in income.

(c) contractionary fiscal policy.

(d) a slowdown in the rate of technological change.

(e) worsening economic conditions abroad.

4. If the MP C is 0.2 then the government-purchases multiplier is:

(a) 1.2

(b) 0.2

(c) 2

(d) 1.25

(e) 0.8

5. Government budget deficits:

(a) have occurred occasionally in the U.S. over the past 50 years, but they are not very common.

(b) reduce the supply of loanable funds, increase the interest rate, and crowd out investment.

(c) can be a result of having automatic stabilizers.

(d) (a) and (b) are correct.

(e) (b) and (c) are correct.

6. The belief that erratic movements in investment and consumption can cause fluctuations in real output is most consistent with the views of:

(a) Friedman

(b) Hayek

(c) Smith

(d) Keynes

(e) Laffer

7. If government purchases increase by $100 billion, and the crowd-out effect is larger than the multiplier effect,

then aggregate demand:

(a) shifts to the right by exactly $100 billion.

(b) shifts to the left.

(c) shifts to the right by less than $100 billion.

(d) shifts to the right by slightly more than $100 billion.

(e) none of the above.

8. Which one one of the following statements is not correct in a closed economy?

(a) (T G) represents public saving.

(b) if the government runs a balanced budget, then aggregate saving is equal to private saving.

(c) private saving is always equal to investment.

(d) total investment is equal to private saving plus public saving.

(e) net exports (NX) are zero.

9. According to Mankiw Chapter 13, the debt-to-GDP ratio in the U.S.

(a) rises during times of war and does not fall after.

(b) has been below 100 percent during most of U.S. history.

(c) falls during times of war and rises after.

(d) (a) and (b) are correct.

(e) (a) and (c) are correct.

10. If the government-purchases multiplier is 4, then the MPC is

(a) 0.75

(b) -0.33

(c) 1

(d) 0.33

(e) 0.25