1) In which situation are inventories most likely to rise unexpectedly:
a. aggregate demand is greater than output
b. aggregate demand is less than output
c. aggregate demand is equal to output
d. all of the above
2) Which of the following will decrease Consumption Expenditures:
a. raising income taxes
b. a rise in the price level
c. decrease in wealth
d. all of the above
e. only a and b
3) Currently, G=100 and T=100. If the government increases G and T by 50, then:
a. equilibrium GDP will rise
b. equilibrium GDP will not change
c. equilibrium GDP will fall
4) Autonomous consumption is defined as consumption that:
a. changes as disposable income changes
b. changes as interest rates change
c. doesn't change as disposable income changes
d. changes as inventories change
e. none of the above
5) If nothing else happens, then an increase in productivity should:
a. lead to higher unemployment and inflation
b. lead to lower unemployment and inflation
c. lead to higher unemployment but lower inflation
d. lead to lower unemployment but higher inflation
6) If the Aggregate Supply curve is vertical in the Long Run (LR), then:
a. increases in AD will always lead to higher output (lower unemployment) in the LR
b. it is possible to use fiscal policy to permanently increase output (lower unemployment) above Potential GDP
c. decreases in AD will lead to higher output (lower unemployment) in the LR
d. a tradeoff between output (unemployment) and inflation does not exist in the LR
7) A higher MPC will always lead to:
a. greater Investment expenditures
b. bigger Investment expenditure multiplier
c. higher marginal propensity to save
d. both b and c
8) Which of the following is not a belief of supply side economists:
a. Deregulation of specific industries
b. Lowering marginal income tax rates to increase productivity
c. Accelerating depreciation schedules to encourage capital accumulation
d. Lowering corporation tax rates to encourage investment
e. none of the above
9) At low levels of GDP, the AS curve is flat. As GDP increases, the curve gradually becomes vertical. What is the best explanation why.
a. at low levels of output, the price level is more flexible
b. a vertical AS shows that there is no (short run) constraint on production, while a horizontal AS shows just the opposite
c. there is less pressure on prices to change during recession than during full employment
d. the economy is capable of producing more at higher levels of GDP
10) In a graph with the variables P (price level) and Y (real GDP), the Aggregate Supply curve that corresponds with the AE model must be:
a. negatively sloped
b. horizontal
c. vertical
d. positively sloped
11) What problem(s) typically exist(s) with the implementation of expansionary fiscal policy?
a. significant time lags
b. serious deflation
c. expansionary policy is more difficult to implement (politically) than contractionary policy
d. expansionary fiscal policy may cause interest rates to fall to "dangerously low levels"
e. all of the above
12) If the government decreases (autonomous) taxes from 500 to 400, then the most likely result is:
a. consumption increases by 100
b. consumption decreases by 100
c. consumption increases by MPC x 100
d. consumption decreases by MPC x 100
Questions #13-17 correspond with the following economy below:
(C = consumption expenditures, Y = real GDP, I = autonomous investment,
G = government expenditures, T = tax revenues, Yp = Potential GDP)
13) There is a(n) _____________ gap of __________.
a. recessionary; 2000
b. inflationary; 4000
c. inflationary; 2800
d. recessionary; 4000
14) Which of the following statements about this economy is false:
a. the expenditure multiplier is 4
b. the tax multiplier is -3
c. the government's budget is in surplus
d. the price level is fixed (constant)
15) If the government increased G and T by 1000, then equilibrium GDP would:
a. remain the same
b. increase by 1000
c. increase by 2000
d. increase by 4000
e. decrease by 1000
16) To close the output gap, the government could:
a. increase G by 1000
b. increase G by 4000
c. decrease G by 1000
d. decrease G by 4000
17) If the government raised T by 1000, then:
a. the gap would decrease by 1000
b. the gap would decrease by 3000
c. the gap would decrease by 4000
d. the gap would increase by 3000
18) According to the Laffer curve, it is possible that:
a. increasing the marginal tax rate may lead to lower tax revenues
b. decreasing the marginal tax rate may lead to lower tax revenues
c. increasing the marginal tax rate may lead to higher tax revenues
d. decreasing the marginal tax rate may lead to lower tax revenues
e. all of the above are possible
19) Increases in government expenditure may lead to which of the following:
a. higher interest rates
b. crowding out
c. a lower unemployment rate
d. all of the above are possible
20) Potential GDP is measured as:
a. the output achieved when only voluntary unemployment exists
b. the output achieved when all factors are employed
c. the output achieved when all available factors are employed
d. the output achieved when the economy is located at a point on its production possibilities curve