Exam 3 Flashcards
The portion of after-tax income a consumer does not spend on consumption is called
a. investment
b. saving
c. supply
d. temporary income
b. saving
Within the framework of the AD/AS model. if a long-run equilibrium is present in the goods and service market,
a. decision makers will have accurately forecasted the current price level when they arrive at resource price and loanable funds agreements
b. the profit rates of the firms will generally exceed the competitive level
c. the actual rate of unemployment will be less than the natural rate of unemployment
d. output will exceed the economy’s long-run sustainable output
a. decision makers will have accurately forecasted the current price level when they arrive at resource price and loanable funds agreements
The actual rate of unemployment will be greater than the natural rate of unemployment when
a. the actual output is less than the economy’s potential output
b. the actual output is greater than the economy’s potential output
c. the actual output is equal to the economy’s potential output
d. the inflation rate has been relatively constant for several years.
a. the actual output is less than the economy’s potential output
Which of the following would be most likely to cause an increase in current aggregate demand in the US?
a. increased fear that the U.S. economy was going into a recession
b. an increase in the real interest rate
c. sharp increase in the value of stocks owned by Americans
d. a recession in Canada, Mexico, and Western Europe
c. sharp increase in the value of stocks owned by Americans
Which of the following would most likely be a result of an unanticipated decrease in aggregate supply due to unfavorable weather conditions in agricultural areas?
a. a decrease in inflation
b. a decrease in unemployment
c. an increase in the general level of prices
d. an increase in the natural rate of unemployment
c. an increase in the general level of prices
Which of the following will most likely increase aggregate supply in the long run?
a. unfavorable weather conditions in agricultural areas
b. an increase in the expected inflation rate
c. higher real interest rates
d. an increase in the rate of capital formation.
d. an increase in the rate of capital formation.
An increase in the long-run aggregate supply curve indicates that
a. the natural rate of unemployment has increased
b. unemployment has increased
c. the general level of prices has increased
d. potential real GDP has increased
d. potential real GDP has increased
An unanticipated economic event is a change that
a. catches most people by surprise
b. was foreseen by most economic participants
c. is the result of a steady long-term trend in an economic variable
d. was forecast by most economists
a. catches most people by surprise
Other things constant, a reduction in the real interest rate will
a. cause consumers to cut back on their purchases of durable items like automobiles
b. induce businesses to increase their level of investment
c. increase the natural rate of unemployment
d. increase the actual rate of unemployment
b. induce businesses to increase their level of investment
The consumer sentiment index is designed to measure
a. whether consumers believe that the inflation rate will increase or decrease in the future
b. Consumer sentiment regarding the expected future direction of real interest rates
c. how optimistic consumers are about their future economic prospects
d. consumer sentiment regarding the expected future direction of nominal interest rates
c. how optimistic consumers are about their future economic prospects
A large grain crop resulting from favorable weather conditions would shift which of the following curves?
a. only aggregate demand
b. aggregate demand and short-run aggregate supply
c. only short-run aggregate supply
d. only long-run aggregate supply
c. only short-run aggregate supply
An increase in the general level of prices in the goods and services market that is accompanied by a short-run expansion in output is most likely caused by
a. an unanticipated decrease in AD
b. an unanticipated increase in AD
c. a favorable supply shock that shifts SRAS to the right
d. an unfavorable supply shock that shifts SRAS to the left
b. an unanticipated increase in AD
The short-run effect of a sudden increase in stock prices will be a(n)
a. increase in output and a decrease in prices
b. increase in both output and prices
c. decrease in both output and prices
d. decrease in output and an increase in prices
b. increase in both output and prices
The short-run effects of a favorable supply shock will include a(n)
a. increase in the general level of prices and a decrease in real output
b. increase in the general level of prices and an increase in real output
c. decrease in the general level of prices and a decrease in real output
d. decrease in the general level of prices and an increase in real output
d. decrease in the general level of prices and an increase in real output
For an oil-importing country such as the US, the immediate effect of supply shock caused by an increase in the price of imported oil would tend to be
a. increase in real output and a decrease in the general level of prices
b. decrease in real output and an increase in the general level of prices
c. decrease in both the general level of prices and real output
d. increase in both the general level of prices and real output
b. decrease in real output and an increase in the general level of prices
Which of the following adjustments will most likely occur when output exceeds the economy’s long-run capacity?
a. Prices will decline, bringing actual output into balance with its potential
b. The natural rate of unemployment will increase and, thereby, restore equilibrium
c. Higher resource prices and costs will reduce short-run aggregate supply until output falls to the economy’s long-run capacity
d. Lower interest rates will increase the economy’s long-run capacity and restore equilibrium
c. Higher resource prices and costs will reduce short-run aggregate supply until output falls to the economy’s long-run capacity
Which of the following views would a Keynesian economist be most likely to stress?
a. Supply creates its own demand
b. Businesses will not produce goods and services if they do not think people will buy them
c. you cannot spend your way out of a recession
d. when the unemployment rate is high, wage rates will fall
b. Businesses will not produce goods and services if they do not think people will buy them
The Great Depression provided support for the declaration of John Maynard Keynes that
a. government action was necessary to ensure interest rates remained at the equilibrium level
b. prolonged periods of unemployment were possible
c. falling resource prices would bring the economy out of a recession
d. lower interest rates would quickly restore the full-employment equilibrium of an economy
b. prolonged periods of unemployment were possible
Within the Keynesian model, if the output of an economy is less than the full-employment level,
a. a reduction in government expenditures will direct the economy back to full-employment equilibrium
b. a reduction in wage rates and resource prices will quickly restore full-employment equilibrium
c. a reduction in the real interest rate will soon restore full-employment equilibrium
d. output will tend to remain below full-employment capacity unless aggregate expenditures increase
d. output will tend to remain below full-employment capacity unless aggregate expenditures increase
The primary difference between planned investment and actual investment is
a. net aggregate saving
b. planned consumption
c. unplanned changes in inventories
d. the presence of an excess supply of funds in the loanable funds market
c. unplanned changes in inventories
In the simple Keynesian model, the equilibrium level of aggregate output is determined by
a. the real interest rate
b. prices
c. aggregate expenditures
d. aggregate supply
c. aggregate expenditures
According to the Keynesian model, when aggregate expenditures increase,
a. real output will always rise
b. prices will rise unless the economy is already at full employment
c. aggregate supply must decrease to offset the increase in demand
d. real output will rise until the economy’s full-employment capacity is reached
d. real output will rise until the economy’s full-employment capacity is reached
Within the Keynesian model, the multiplier effect tends to
a. smooth out the up and down swings of the business cycle
b. promote price stability
c. magnify small changes in spending into much larger changes in output and employment
d. reduce the impact o f an increase in investment on output and employment
c. magnify small changes in spending into much larger changes in output and employment
Mathematically, the marginal propensity to consume is
a. consumption divided by income
b. the change in consumption divided by the change in income
c. income divided by consumption
d. the change in income divided by the change in consumption
b. the change in consumption divided by the change in income
