Section 4 Test MCQ

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37 Terms

1

The level of output in the long run is known as

Potential Output

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2

The blank curve shows the negative relationship between the aggregate price level and the quantity of aggregate output demanded in the economy.

Aggregate Demand

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3

Transfer payments are payments which

governments make to households when government receives a good or service

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4

As a recessionary gap is eliminated through self-correcting adjustment, the equilibrium price level and the equilibrium real output

Decreases, increases

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5

in the basic equation of national income accounting, the government directly conta and influences

G:C and I

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6

Fiscal policy involves

deliberate changes in taxation and/or guvernment spending

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7

The current level of real GOP lies below potential GDP. An appropriate fiscal policy would be to which will shift the curve to the

increase government purchases, AD: right

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8
<p></p>

Is potential output for this economy

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9

The long run in macroeconomics analysis is a period

In which nominal wages and other prices are flexible

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10

The multiplier is equal to

1/(1-MPC)

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11

The short run aggregate supply curve is positively sloped because

wages are sticky or don't readily adjust to changes in economic conditions in the short run

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12

The multiplier process

is limited with the total change in real GDP dependent upon the size of the marginal propensity to consume

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13

When the aggregate price level rises, this will, other things equal

result in a decrease in the quantity of aggregate output demanded

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14

Suppose that a financial crisis decreases investment spending by $100 billion and the marginal propensity to consume is 0.80. Assuming no taxes and no trade, by how much will real GDP change

$500 billion decrease

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15
term image

A short run equilibrium

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16

Changes in short-run aggregate supply can be caused by changes in

Wages

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17

When the economy is on the short-run aggregate supply curve and to the left of the long-run aggregate supply curve, actual aggregate output will eventually equal potential output as:

nominal wages fall and the sport run aggregate supply curve shifts to the right.

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18

An example of an automatic stabilizer that works when the economy contracts is:

a rise in government transfers, as more people receive unemployment insurance benefits

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19
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Decrease taxes and increase government spending

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20

The consumption function will shift up if

households expect an incresse in the mininum wage in the future

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21

If the marginal propensity to consume is 0.5, Individual autonomous consumption is $10,000, and disposable income is $40.000, then individual consumption spending is

$30,000

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22
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A recessionary gap

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23

Stagflation may result from

A increase in the price of imported oil

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24

A increase in the short aggregate supply curve may be caused by

A increase in productivity

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25

Aggregate demand will increase if

The public becomes more optimistic about future income

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26

Suppose the economy is experiencing a recessionary gap. To roove equilibrium aggregate output closer to the lever of potential output, the best fiscal policy option is to

Decrease taxes

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27

A increase in the aggregate price level will increase

the quantity of aggregate output supplied in the short run

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28

A autonomous increase in aggregate spending

Increases GDP by more than that amount

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29

An example of an automatic stabilizer is

Tax reciepts rising when GDP rises

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30

Other things being equal, expectations of lower disposable income in the future would and shift the consumption function

decrease autonomous consumption down

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31
<p>Use the "Consumption and Real GDP Figure 16-1. The slope of the consumption function is called the</p>

Use the "Consumption and Real GDP Figure 16-1. The slope of the consumption function is called the

Marginal propensity to consume

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32
<p>Use the "Policy Alternatives" Figure 19-5. Assume that the economy depicted in Panel (a) is in short-run equilibrium with AD1 and SRAST if the economy is left to correct itselt</p>

Use the "Policy Alternatives" Figure 19-5. Assume that the economy depicted in Panel (a) is in short-run equilibrium with AD1 and SRAST if the economy is left to correct itselt

lower wages will result in a gradual shift from SRAST1 to SRASZ2

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33

According to the wealth effect, when the price level decreases, the purchasing power of assets

Increases and consumer spending increases

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34

An economy is currently in the midst of a recession. An example of a government policy aimed at moving the economy back to potential GDP is:

an increase in goverment spending on enfrastructure improvements

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35

An inflationary gap occurs when

Actual output exceeds potential output

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36

Actual investment spending is equal to

the sum of planned investment spending and unplanned investment spending

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37

A decrease in energy prices will

Increase short-run aggregate supply

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