EC 211 SECOND TEST: QUIZZES

Question 1

Which of the following events will increase short-run aggregate supply

Answer 1

an advance in technology

Question 2

a decrease in money wage rate…

Answer 2

increases short-run aggregate supply

Question 3

a change in capital stock…

Answer 3

shifts SAS and Shifts LAS

Question 4

Which of the following shifts aggregate demand rightward?

Answer 4

an increases in investment expenditure

Question 5

When real GDP exceeds potential GDP, then the economy is in…

Answer 5

An inflationary gap situation

Question 6

If the economy is in long-run equilibrium and aggregate demand increases, then in the short-run…

Answer 6

the price level rises and real GDP increases

Question 7

Which school of thought believes that real GDP always equals potential GDP?

Answer 7

only classical

Question 8

When disposable income increases from $6 trillion to $6.5 trillion, consumption expenditure increases from $5.5 trillion to $5.9 trillion. The MPC equal…

Answer 8

0.8

Question 9

If the MPC increases from 0.75 to 0.9 and there are no imports,…

Answer 9

the multiplier becomes larger

Question 10

If there are no taxes or imports and MPC= 0.5, the multiplier equals…

Answer 10

2.0

Question 11

If the multiplier is 10 and there are no taxes or imports, then the MPC is

Answer 11

0.9

Question 12

If the price level increases, the AE curve shifts…

Answer 12

Downward and we move along the AD curve

Question 13

if the price level is held constant and the slope of the AE curve is 0.75, a decrease in the investment of $100 leads to a decrease in real GDP of…

Answer 13

$400

Question 14

Which of the following shifts the AE curve AND shifts the AD curve?
(i)A decrease in investment
(ii)A change in the price level
(iii)An increase in exports

Answer 14

(i) and (iii)

Question 15

Which of the following could start demand-pull inflation?

Answer 15

An increase in government expenditure

Question 16

Cost-push inflation might start to occur if the…

Answer 16

Money wage rate increases

Question 17

The SAS curve shifts leftward if…

Answer 17

The money wage rate increases

Question 18

Stagflation is the combination of a____and____…

Answer 18

Rise in price level; a decrease in real GDP

Question 19

The short-run Phillips curve shows

Answer 19

An inverse relationship between the unemployment rate and inflation rate

Question 20

If the natural unemployment rate increases, then the short-run Phillips curve shifts____and long-run Phillips curve____…

Answer 20

Rightward; rightward

Question 21

According to real business cycle theory, workers’ decision to work now versus later depends on…

Answer 21

the real interest rate

Question 22

If the government runs a surplus total amount of debt is…

Answer 22

decreasing

Question 23

The difference between automatic fiscal policy and discretionary fiscal policy is that…

Answer 23

Congress must pass laws implementing discretionary fiscal policy

Question 24

In the short-run, an increase in government expenditure will…

Answer 24

Shift the aggregate demand curve rightward and increase real GDP

Question 25

Assuming there are no supply-side effects, an increase in government expenditure ____the AD curve and ____the SAS curve…

Answer 25

Shift rightward; does not shift

Question 26

Using the AD-AS model, in the short run, an increase in government expenditure…

Answer 26

Increase both real GDP and the price level

Question 27

Automatic stabilization occurs…

Answer 27

Because taxes and transfer payments fluctuate with real GDP

Question 28

The structural deficit is the deficit that occurs when…

Answer 28

Real GDP equals potential GDP

Question 29

Why is SAS upward-sloping

Answer 29

money wages and prices are assumed to be constant/ higher prices will lead to higher output and higher profit

Question 30

Why is LAS vertical

Answer 30

money wage and price level change proportionally, employment is always at full-employment/ regardless of how price level changes GDP does not change

Question 31

Any factors that shift SAS...

Answer 31

will also shift LAS

Question 32

The wealth effect

Answer 32

as price increases, real wealth decreases, to restore wealth people save more and consume less (as price decreases AD increases)`

Question 33

The Substitution effect

Answer 33

as price increases, domestic goods become more expensive, people will substitute domestic goods with foreign goods DOWNWARD SLOPE IN AD

Question 34

Classical View

Answer 34

-wages and prices adjust so fast that real GDP is always equal to potential GDP -the economy always remains at long-run equilibrium (Classical economists argue that tax creates negative effects on incentives and efficiency)

Question 35

Keynesian View

Answer 35

-economy is NOT self-regulating -fiscal and monetary policies are needed to restore full-employment (pessimism lowers AD and leads to recession)

Question 36

Monetarist View

Answer 36

-all recessions are the result of inappropriate monetary policies -they prescribe low taxes and a constant rate of growth of the money supply

Question 37

How is the multiplier related to MPC, MPI, and tax?

Answer 37

Both imports and taxes will reduce the size of the multiplier. An increase in MPC will increase the multiplier and a decrease in MPC will decrease the multiplier.

Question 38

Why is AD downward sloping?

Answer 38

price level and real GDP are inversely related.

Question 39

Impact of deficit or surplus on debt.

Answer 39

Debt is the sum of all previous deficits minus the sum of all previous surpluses. Hence deficit adds to debt and surplus reduces debt.

Question 40

Automatic stabilizers...

Answer 40

Do no require any action by Congress/ Tax revenue depends on income and hence, real GDP

Question 41

Structural Deficit

Answer 41

is the deficit or surplus that would occur if the economy is at full employment or real GDP equals potential GDP.

Question 42

Cyclical Deficit

Answer 42

is an actual deficit or actual surplus minus structural deficit or structural surplus, respectively.

Question 43

short-run Phillips curves.

Answer 43

SRPC shows an inverse relationship between the inflation rate and unemployment

Question 44

long-run Phillips curves.

Answer 44

LRPC shows the relationship between unemployment and the inflation rate when the actual inflation rate equals the expected inflation rate.