Final assignments Flashcards
Which term best describes an increase in the spending of households and businesses resulting from the increased purchasing power of a
a. wealth effect
b. inflationary tradeoff
c. nominal-income effect
d. multiplier
a
One reason the aggregate-demand is downward sloping is that
a. an increase in price level makes consumers wealthier and decreases their consumption.
b. an increase in price level increases the interest rate and decreases investment.
c. an increase in price level depreciates the real exchange rate and decreases net exports.
d. an increase in price level depreciates the real exchange rate and increases net exports.
b
How would aggregate demand change if foreign incomes increase and the exchange rate value of the dollar increases?
a. Neither change would affect aggregate demand.
b. The increase in income would decrease aggregate demand; the increase in the exchange rate would increase aggregate demand.
c. The increase in income would increase aggregate demand; the increase in the exchange rate would decrease aggregate demand.
d. Both changes would decrease aggregate demand.
c
Which of the following will lead to a decrease in aggregate demand in Canada?
a. a higher price level
b. a decrease in the real interest rate
c. rapid growth in real income in Japan and Western Europe
d. a depreciation in the exchange rate value of the dollar
a
Which of the following explains the real exchange rate?
a. Real exchange rate = (Nominal exchange rate × Domestic price) / Foreign price
b. Real exchange rate = (Foreign price × Domestic price) / Nominal exchange rate
c. Real exchange rate = (Foreign price × Domestic price × Nominal exchange rate)
d. Real exchange rate = (Nominal exchange rate × Foreign price) / Domestic price
a
Which of the following will NOT shift the aggregate-demand curve?
a. prices
b. taxes
c. pessimism about future economic conditions
d. depreciation of the dollar
a
Why is the long-run aggregate-supply vertical?
a. A rise in the level of prices will increase aggregate supply in the long run.
b. The quantity of output does not depend on the level of prices.
c. Prices are constant in the long run.
d. Real variables depend only on the nominal variables in the long run.
b
Which of the following occurs during a recession?
a. an increase in unemployment and a decrease in real output and real income
b. an increase in unemployment and an increase in real output and real income
c. a decrease in unemployment and an increase in real output and real income
d. a decrease in unemployment and a decrease in real output and real income
a
Which of the following does NOT explain the slope of the short-run aggregate-supply curve?
a. the sticky-price theory
b. the sticky-wage theory
c. the misperception theory
d. the real-exchange rate effect theory
d
What shifts the aggregate-demand curve to the left?
a. increases in the stock market
b. firms’ pessimism about future business conditions.
c. an investment tax credit
d. Parliament’s decision to increase purchases of new equipment for the armed forces
b
Starting with initial long-run equilibrium, which effect, in the short run, will likely occur from a sudden decrease in optimism about future business conditions?
a. an increase in output and a reduction in the price level
b. an increase in both output and the price level
c. a reduction in both output and the price level
d. a reduction in output and an increase in the price level
c
Which basic economic concept most clearly provides the foundation for the long-run aggregate-supply curve?
a. the law of demand
b. the classical dichotomy and monetary neutrality
c. the law of increasing marginal returns
d. the law of diminishing marginal utility
b
What is the effect of a decrease in the price level?
a. a decrease in the quantity of goods and services demanded
b. a reduction in net exports to foreigners
c. a decrease in the wealth of persons holding the fixed supply of money
d. an increase in the value of the money that is in circulation
d
A recession is a period of two or more consecutive quarters of negative real gross domestic product growth and rising unemployment.
a. True
b. False
a
The short-run aggregate-supply curve shifts to the left when the expected price level rises.
a. True
b. False
a
Aggregate supply is a curve that shows the quantity of goods and services that households, firms, and government want to buy at each price level.
a. True
b. False
b
Which of the following is not an example of a fiscal policy?
a. a decrease in the corporate tax rate
b. government’s purchase for the Canadian armed forces
c. an increase in the rate of interest by the Bank of Canada
d. the introduction of a billion-dollar job creation program by the federal government
c
What is the value of the multiplier if the MPC is 0.6?
a. 1.67
b. 2.50
c. 5.00
d. 1.00
b
If the MPC is 2/3, how much does a household save from every extra dollar of its income?
a. 0.25
b. 0.33
c. 0.67
d. 0.72
b
Which statement best explains the crowding-out effect?
a. An increase in government expenditures decreases the interest rate and so increases investment spending.
b. An increase in government expenditures increases the interest rate and so reduces investment spending.
c. A decrease in government expenditures increases the interest rate and so increases investment spending.
d. A decrease in government expenditures decreases the interest rate and so reduces investment spending.
b
A $8 billion increase in government purchases will increase aggregate demand by less than $8 billion if
a. the multiplier and crowding-out effects are equal.
b. the multiplier effect is much smaller than the crowding-out effect.
c. the multiplier effect is much larger than the crowding-out effect.
d. the multiplier effect is positive and the crowding-out effect is zero.
b
How does a policy such as reduction in taxes influence aggregate supply?
a. Workers do not have an incentive to work harder.
b. Workers’ saving rises.
c. Quantity of goods and services supplied decrease when workers have a higher disposable income due to low taxes.
d. Quantity of goods and services supplied increases when workers have an incentive to work more.
d
Which of the following was NOT a Canadian government policy response to COVID-19?
a. increasing income taxes
b. vaccinating as many people as quickly as possible to enable businesses to reopen
c. providing income support measures for those whose employment was impacted by the pandemic
d. providing wage subsidies
a
Which of the following best explains what a fiscal expansion is about?
a. lowering taxes and increasing government spending
b. lowering taxes and lowering government spending
c. raising taxes and lowering government spending
d. maintaining taxes and spending at the current level
a
The multiplier effect is the additional change in aggregate demand that results when expansionary fiscal policy increases income and thereby increases consumer spending.
a. True
b. False
a
The fall in aggregate demand that results when a fiscal expansion reduces the interest rate is called the crowding-out effect on investment.
a. True
b. False
b
When the government increases its purchases by a certain amount, the aggregate demand for goods and services could rise by more or less than that amount.
a. True
b. False
a
John Maynard Keynes argued that the government should undertake active fiscal policies to stimulate aggregate demand when the economy fails to maintain production at its full-employment level.
a. True
b. False
a
