Poe exam 3 Flashcards
An increase in aggregate demand is most likely to be caused by a
Increase in real interest rates
Decrease in government spending
Decrease in expected returns on investment
Decrease in the tax rates on household income
Decrease in the tax rates on household income
When looking at data for unemployment and inflation in the 1950s and 1960s there is evidence supporting the short-run Phillips curve model
True
False
true
a reduction in personal income taxes will cause:
The short-run Phillips curve to shift to the left
The short run Phillips curve to shift right
Movement upward along the short run Phillips curve
Movement downward alone the short-run Phillips curve
Movement upward along the short run Phillips curve
the SHORT-RUN version of aggregate supply assumes that product prices are
Fixed while resources prices are flexible
Flexible while resource prices are fixed
Both input and product prices are flexible
Both input and product prices are fixed
flexible while resource prices are fixed
Answer the next question based on the following list of items that are related to aggregate demand and/or aggregate supply.
(1) Government Spending
(2) Consumer Expectations
(3) Degree of Excess Capacity
(4) Personal Income Tax Rates
(5) National Income Abroad
(6) Business Taxes
(7) Domestic Resource Availability
(8) Prices of Imported Products
(9) Profit Expectations on Investments
Which combination of factors best explain why the aggregate supply curve would shift?
1 and 2
2 and 9
3 and 5
6 and 7
6 and 7
The aggregate demand curve or schedule shows the relationship between the total demand for output and the
Multiple Choice
income level.
interest rate.
price level.
real GDP.
Price level
If aggregate demand increases and aggregate supply decreases, the price level
Multiple Choice
will decrease, but real output may increase, decrease, or remain unchanged.
will increase, but real output may increase, decrease, or remain unchanged.
and real output will both increase.
and real output will both decrease.
will increase, but real output may increase, decrease, or remain unchanged.
Assuming an economy is initially at full employment, where will the graph shift/move if there is a recession?
(X-axis real gdp y-axis price level)
to the left (decrease in real gdp)
Inflation that occurs when total spending is greater than the economy’s ability to produce output at the existing price level is
Multiple Choice
expected inflation.
demand-pull inflation.
cost-push inflation.
unexpected inflation.
demand-pull inflation.
Suppose that oil prices increase sharply while the rate of growth in labor productivity declines. The combination of these two factors should
Multiple Choice
shift the aggregate demand curve to the left.
shift the aggregate demand curve to the right.
shift the short-run aggregate supply curve to the left.
shift the short-run aggregate supply curve to the right.
shift the short-run aggregate supply curve to the left.
A movement upward along a given aggregate demand curve is equivalent to a(n)
Multiple Choice
increase in aggregate supply.
increase in aggregate demand.
upward shift in the aggregate expenditures schedule.
downward shift in the aggregate expenditures schedule.
downward shift in the aggregate expenditures schedule.
Stagflation
high inflation and low economic growth
Which of the diagrams best portrays stagflation?
(See Noteful for graphs #13)
Graph a
Graph b
Graph c
Graph d
graph b
If government purchases increase by $10 billion and the economy’s MPC is .8, the aggregate demand curve will shift
Multiple Choice
leftward by $50 billion at each price level.
rightward by $10 billion at each price level.
rightward by $50 billion at each price level.
leftward by $40 billion at each price level.
rightward by $50 billion at each price level.
An increase in production costs is most likely to shift the
Multiple Choice
aggregate demand curve to the left.
aggregate demand curve to the right.
short-run aggregate supply curve to the left.
short-run aggregate supply curve to the right.
Short-run aggregate supply curve to the left
If the MPC in an economy is 0.9, the government could shift the aggregate demand curve rightward by $40 billion by
Multiple Choice
increasing government purchases by $4 billion.
increasing government purchases by $40 billion.
decreasing taxes by $4 billion.
increasing taxes by $4 billion.
increasing government purchases by $4 billion.
Assume that the full-employment level of output is $1,000 and the price level associated with full-employment output is 100. Also assume that the economy’s current level of output is $1,100 and at the price level of 100 current aggregate demand is $1,200. If the government wants to move the economy back to the full-employment level of output and the MPC is 0.8, then it should increase taxes by
Multiple Choice
$25.
$50.
$100.
$200.
$50
In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPC is 0.6, then it would increase government purchases by
Multiple Choice
$10 billion.
$20 billion.
$31.25 billion.
$40.50 billion.
20
One key purpose of fiscal policy is to ________ volatility in the business cycle.
Multiple Choice
eliminate
increase
maintain
reduce
Reduce
If a tax cut of $12 billion causes real GDP to increase by $36 billion, then the tax multiplier is
Multiple Choice
2.
3.
4.
5.
3
Assume that the full-employment level of output is $600 and the price level associated with full-employment output is 100. Also assume that the economy’s current level of output is $550 and, at the price level of 100, current aggregate demand is $450. If the government wants to move the economy back to the full-employment level of output and the MPC is 0.9, then it should
Multiple Choice
increase government purchases by $150.
increase government purchases by $50.
increase government purchases by $15.
increase government purchases by $5.
Increase government purchases by $15
XYZ Gadget Company is currently considering which investment projects it should undertake. The following list of projects along with the estimated rate of return of each project is presented to the executive management team:
Project A (9%)
Project B (7.5%)
Project C (6%)
Project D (11%)
Project E (5.5%)
The current interest rate in the loanable funds market is 7%. However, the government is considering an increase in government borrowing to implement fiscal policy. How high would interest rates need to go to induce the company to drop all but one of its planned investment projects?
Multiple Choice
Above 7%
Above 7.5%
Above 9%
Above 11%
Above 9%
In the diagram, Y* is the full-employment output. An expansionary fiscal policy would be most appropriate and needed if the economy’s present aggregate demand curve were at
Multiple Choice
AD0 or AD1.
AD1.
AD2.
AD3.
AD0 or AD1
If the MPC in an economy is 0.75, government could shift the aggregate demand curve leftward by $90 billion by
Multiple Choice
increasing taxes by $30 billion.
reducing government expenditures by $14 billion.
increasing taxes by $22.5 billion.
reducing government expenditures by $90 billion.
Increasing taxes by 30 billion