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EC 211 > EC 211 SECOND TEST: QUIZZES > Flashcards

EC 211 SECOND TEST: QUIZZES Flashcards

1
Q

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

A

an advance in technology

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2
Q

a decrease in money wage rate…

A

increases short-run aggregate supply

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3
Q

a change in capital stock…

A

shifts SAS and Shifts LAS

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4
Q

Which of the following shifts aggregate demand rightward?

A

an increases in investment expenditure

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5
Q

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

A

An inflationary gap situation

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6
Q

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

A

the price level rises and real GDP increases

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7
Q

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

A

only classical

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8
Q

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…

A

0.8

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9
Q

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

A

the multiplier becomes larger

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10
Q

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

A

2.0

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11
Q

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

A

0.9

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12
Q

If the price level increases, the AE curve shifts…

A

Downward and we move along the AD curve

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13
Q

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…

A

$400

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14
Q

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

A

(i) and (iii)

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15
Q

Which of the following could start demand-pull inflation?

A

An increase in government expenditure

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16
Q

Cost-push inflation might start to occur if the…

A

Money wage rate increases

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17
Q

The SAS curve shifts leftward if…

A

The money wage rate increases

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18
Q

Stagflation is the combination of a____and____…

A

Rise in price level; a decrease in real GDP

19
Q

The short-run Phillips curve shows

A

An inverse relationship between the unemployment rate and inflation rate

20
Q

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

A

Rightward; rightward

21
Q

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

A

the real interest rate

22
Q

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

A

decreasing

23
Q

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

A

Congress must pass laws implementing discretionary fiscal policy

24
Q

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

A

Shift the aggregate demand curve rightward and increase real GDP

25
Q

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

A

Shift rightward; does not shift

26
Q

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

A

Increase both real GDP and the price level

27
Q

Automatic stabilization occurs…

A

Because taxes and transfer payments fluctuate with real GDP

28
Q

The structural deficit is the deficit that occurs when…

A

Real GDP equals potential GDP

29
Q

Why is SAS upward-sloping

A

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

30
Q

Why is LAS vertical

A

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

31
Q

Any factors that shift SAS…

A

will also shift LAS

32
Q

The wealth effect

A

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

33
Q

The Substitution effect

A

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

34
Q

Classical View

A

-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)

35
Q

Keynesian View

A

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

36
Q

Monetarist View

A

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

37
Q

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

A

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.

38
Q

Why is AD downward sloping?

A

price level and real GDP are inversely related.

39
Q

Impact of deficit or surplus on debt.

A

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

40
Q

Automatic stabilizers…

A

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

41
Q

Structural Deficit

A

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

42
Q

Cyclical Deficit

A

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

43
Q

short-run Phillips curves.

A

SRPC shows an inverse relationship between the inflation rate and unemployment

44
Q

long-run Phillips curves.

A

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

EC 211 (2 decks)

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