chapter 10/11

• how does the automatic adjustment mechanism move the economy to potential real gross domestic product (GDP) in the long run when the current real GDP is above potential GDP?

  A: nominal wages fall, shifting SRAS to the right

  B: nominal wages fall, shifting SRAS to the left

  C: nominal wages do not change, shifting SRAS to the right

  D: nominal wages rise, shifting SRAS to the right

  E: nominal wages rise, shifting SRAS to the left

  E
• if a change in aggregate demand results in a recession, the price level and real output will change in which of the following ways in the short run?

  A: PL: no change, RGDP: increase

  B: PL: increase, RGDP: no change

  C: PL: increase, RGDP: decrease

  D: PL: decrease, RGDP: no change

  E: PL: decrease, RGDP: decrease

  E
• assume the economy is in a short-run equilibrium at point U. in the absence of any fiscal or monetary policy actions, what will happen in the long run?

  A: AD will shift to the right, and long-run equilibrium at point W

  B: AD will shift to the right and AS will shift to the left, and long-run equilibrium at point S

  C: AD will shift to the right and AS will shift to the right, and long-run equilibrium at point X

  D: AS will shift to the right, and long-run equilibrium at point V

  E: AS will shift to the left, and long-run equilibrium at point S

  D
• assume that the economy is at full-employment equilibrium. which of the following would lead to stagflation?

  A: SRAS shifts left

  B: SRAS shifts right

  C: AD shifts left

  D: AD shifts right

  E: SRAS and AD shift right

  A
• diagram: SRAS1 shifted left and is SRAS2, AD1 shifted right and is AD2

  according to the graph above, starting with equilibrium point R, which of the following shifts identifies the short-run and long-run impact of a demand-pull inflation?

  A: short run: R to N, long run: N to M

  B: short run: R to M, long run: M to N

  C: short run: R to Q, long run: Q to N

  D: short run: R to M, long run: M to R

  E: short run: N to M, long run: M to R

  B
• a major advantage of automatic stabilizers in fiscal policy is that they

  A: reduce the public debt

  B: increase the possibility of a balanced budget

  C: stabilize the unemployment rate

  D: go into effect without passage of new legislation

  E: automatically reduce the inflation rate

  D
• if subsidies for research and development on new technologies lead to an increase in the average productivity of labor, what will most likely happen to real GDP per capita and LRAS for a given population size?

  A: RGDP per capita will decrease, LRAS will increase

  B: RGDP per capita will decrease, LRAS will decrease

  C: RGDP per capita will increase, LRAS will increase

  D: RGDP per capita will increase, LRAS will decrease

  E: RGDP per capita will increase, LRAS will not change

  C
• assume the government reduces its spending and raises income taxes in an effort to reduce the budget deficit. the most likely short-run result will be an increase in

  A: interest rates

  B: unemployment

  C: the money supply

  D: the price level

  E: personal savings

  B
• a decrease in labor productivity will shift

  A: AD right

  B: AD left

  C: LRAS right

  D: SRAS right

  E: SRAS left

  E
• which of the following is an example of fiscal policy?

  A: decreasing income tax rates

  B: increasing the money supply

  C: decreasing the discount rate

  D: selling government bonds

  E: decreasing the required reserve ratio

  A
• which of the following statements best describes the concept of an automatic stabilizer?

  A: non-discretionary fiscal policy

  B: discretionary fiscal policy

  C: measure of the effect that a change in government spending and investment has on GDP

  D: description of how total income always equals total expenditures

  E: process whereby surpluses lead to falling prices

  A
• a discretionary fiscal policy action to reduce inflation in the short run would be to

  A: increase transfer payments to those on fixed incomes

  B: increase taxes or decrease government spending

  C: decrease taxes or increase government spending

  D: increase taxes and the money supply

  E: decrease taxes and interest rates

  B
• assume that an economy is currently in long-run equilibrium and the short-run aggregate supply curve is upward sloping. an adverse supply shock, such as a drought, will most likely cause which of the following to the economy in the short run?

  A: decrease in price level, decrease in nominal wage

  B: decrease in price level, increase in nominal wage

  C: increase in price level, increase in nominal wage

  D: increase in price level, increase in real wage

  E: increase in price level, decrease in real wage

  E
• which of the following is an example of an automatic stabilizer?

  A: discretionary fiscal policy

  B: progressive income taxes

  C: autonomous consumption

  D: the spending multiplier

  E: cyclical unemployment

  B
• which of the following would indicate that economic growth has occurred?

  A: the production possibilities curve shifts left

  B: LRAS shifts right

  C: AD shifts right

  D: Phillips curve becomes flatter

  E: business cycles no longer exist

  B