Unit 3 Macro Test

Stagflation might be caused by

Increase in the price of raw materials

A negative supply shock would most likely result in

A decrease in national income

Which of the following would cause a leftward shift in aggregate demand? I. Congress increases personal income taxes II. An increase in government spending on public goods III. A recession in another country that is a close trading partner

I and III only

If exports from the United States increased, what would most likely happen to real gross domestic product and price level?

Increase / Increase

If government expenditures and taxes are increased by the same amount, which of the following will occur?

Aggregate demand will increase

The income that households have after taxes is called

Disposable income

The formula to calculate the expenditures or simple multiplier is

1/1-MPC

An increase in the marginal propensity to save clearly causes a decrease in which of the following?

Simple Spending Multiplier

If an increase in government spending of $100 billion increases equilibrium output by a total of $500 billion, then the marginal propensity to consume must be at least

.8

Assume that Canada imports products from the United States. A large decrease in the Canadian incomes will cause the United States price level and real GDP to change in which of the following ways?

Decrease / Decrease

Which of the following is the best example of a non-discretionary fiscal policy to combat demand-pull inflation?

progressive income tax system

If the economy is operating in the intermediate range of the aggregate supply curve and if aggregate demand increases due to an increase in net exports, then the price level, output, & the unemployment rate are most likely to change in which of the following ways?

Increase / increase / decrease

Suppose that from 2014 to 2015, unemployment fell from 7.2 to 5.6% and inflation fell from 2.17 to 1.1%. An explanation of these changes might be that the

The aggregate supply curve shifted to the right

An decrease in the wages and production cost will most likely cause the price level and real GDP to change in which of the following ways in the short-run?

Decrease / increase

Which of the following would cause a rightward shift of the aggregate supply curve?

An across-the-board reduction of wages in the manufacturing sector

If Congress wants to close an inflationary gap, which policy is matched to the change in policy, output and price level?

Decrease Spending / Decrease / Decrease

How will a decrease in personal income taxes and an increase in government spending affect consumer spending and employment in the short-run?

Increase / Increase

Refer to the graph above. Assume this economy is currently producing at Q1 with a price level of PL1. Which of the following will most likely occur as the economy adjusts to long-run equilibrium?

Aggregate demand will shift left as consumer spending fall due to inflation

If, at full employment, the government wants to increase its spending by $200 billion without increasing inflation in the short run, it must do which of the following?

Raise taxes by more than $200 billion

The intersection of the aggregate demand and aggregate supply curve occurs at the economy’s equilibrium level of

Real domestic output and the price level

If Congress wants to close a recessionary gap, which policy is matched to the change in policy, output and price level? Policy / Price Level / Output

Increase Spending / Decrease / Increase

A positive supply shock, such as a decrease in the price of oil, is most likely to have which of the following short-run effects on the price level and output? Price Level / Output

Decrease / Increase

An increase in consumer spending will most likely cause the price level and real GDP to change in which of the following ways in the short-run? Price Level / Real GDP

Increase / increase

A major advantage of automatic stabilizers in fiscal policy is that they

Go into effect without passage of new legislation

The value of the simple spending multiplier decreases when

The marginal propensity to save increases