4

Question 1

automatic stabilizers

Answer 1

are government programs that automatically implement counter cycle fiscal policy in response to economic conditions

Question 2

suppose people are worried about losing their jobs, in the short run, this will

Answer 2

decrease aggregate demand and output

Question 3

assume households become thriftier (cheaper). this would cause

Answer 3

the supply of loanable funds to increase

Question 4

a technological advance leads to a shift in

Answer 4

both short tun and long-run aggregate supply

Question 5

shifts in the short-run aggregate supply curve are caused by

Answer 5

supply shocks

Question 6

you read in the paper that there has been a significant increase in the consumer confidence index. having taken an economics class, you predict that spending in the economy will — and aggregate demand will —.

Answer 6

increase, increase

Question 7

an example of expansionary fiscal policy is

Answer 7

lowering taxes

Question 8

suppose the majority of students who are graduating in May from a large university have found jobs and signed employment contracts by February. starting in Feb, these students are likely to — spending, and aggregate demand will —.

Answer 8

increase, increase

Question 9

assume inflation is occurring in a nation, the implication(s)

Answer 9

is that the nominal interest rate exceed the real interest rate

Question 10

when median home prices rise, the value of real wealth — and aggregate demand —.

Answer 10

increases, in unaffected

Question 11

if large emerging economies continue to grow rapidly, we can expect US aggregate

Answer 11

demand to increase

Question 12

the notion of the loanable funds market is the method by which

Answer 12

savers (typically households and individuals) supply funds to borrowers (typically firms)

Question 13

during a recession consumption falls, causing the aggregate demand curve to shift to the —. in response, the government can increase government spending to shift the —.

Answer 13

left, aggregate demand (AD) curve to the right

Question 14

during recessionary periods

Answer 14

outlays (spending) increase and tax revenue falls

Question 15

supply shocks always cause short-run aggregate supply to

Answer 15

return to its original position in the long run

Question 16

— is an example of an automatic stabilizer

Answer 16

unemployment consumption

Question 17

wealth increases in the US because the value of the stock market increases, if all else is equal, this would cause

Answer 17

the supply of loanable funds to increase

Question 18

typical fiscal policy focuses squarely on

Answer 18

aggregate demand

Question 19

borrowers in the loanable funds market consist of

Answer 19

governments and firms

Question 20

contractionary fiscal policy occurs when the

Answer 20

government decreases spending or increases taxes to slow economic expansion

Question 21

aggregate demand is about — and aggregate supply is about —.

Answer 21

spending, production

Question 22

an increase in aggregate demand is beneficial in the short run because — but not in the long run because —

Answer 22

the unemployment rate falls, the price level rises

Question 23

when making decisions about saving and borrowing people care most about

Answer 23

the real rate of interest

Question 24

time lags, crowding out, and saving shifts are all

Answer 24

issues that arise in the application of activist fiscal policy

Question 25

shifts in the aggregate demand curve caused by

Answer 25

changes in spening

Question 26

congress and the president would conduct expansionary fiscal policy in order to

Answer 26

try to stimulate the economy towards the expansion

Question 27

an example of the multiplier effect is when

Answer 27

the government increases government spending initially by $100 billion, and total income in the economy increases by more than $100 billion

Question 28

if people expect higher incomes in the future, then spending today — and the aggregate demand —

Answer 28

increases, increases

Question 29

during economic expansions

Answer 29

outlays increase and tax revenue increases

Question 30

which of the following is true about price level and aggregate supply

Answer 30

the price level influences aggregate supply in the short run but not in the long run

Question 31

if your marginal propensity is to consume 0.75 and you get an additional $400 in income, you would spend — on consumption

Answer 31

$300

Question 32

the interest rate is

Answer 32

both a return to savers and a cost to borrowers