Macro Review III
Macro Review III
Macro Review III
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____
____
2. The aggregate supply curve shows the relationship between the aggregate price level and:
A. aggregate output supplied.
B. the aggregate money supply.
C. the aggregate unemployment rate.
D. aggregate employment.
E. average worker productivity.
____
____
____
5. According to the short-run aggregate supply curve, when the _________ rises, the quantity of _________
rises.
A. profit per unit; aggregate output demanded
B. interest rate; investment
C. aggregate price level; aggregate output demanded
D. interest rate; aggregate output supplied
E. aggregate price level; aggregate output supplied
____
____
A.
B.
C.
D.
E.
____
8. Which of the following will shift the short-run aggregate supply curve to the right?
A. An economy-wide decrease in commodity prices.
B. An increase in nominal wages.
C. A decrease in productivity.
D. A decrease in government purchases of goods and services.
E. A decrease in personal income taxes.
____
9. The short-run aggregate supply curve may shift to the right if:
A. productivity increases.
B. nominal wages increase.
C. personal income taxes decrease.
D. commodity prices rise.
E. government spending increases.
____ 10. Which of the following would cause a shift in the short-run aggregate supply curve?
A. The quantity of real output supplied.
B. The price level.
C. A change in commodity prices.
D. Changes in aggregate demand.
E. Changes to government transfer payments..
____ 11. Which of the following would likely cause the short-run aggregate supply curve to shift to the left?
A. A decrease in consumer spending.
B. A decrease in the price of imported oil.
C. An increase in the price of imported oil.
D. An increase in consumer spending.
E. An increase in personal income taxes.
____ 12. A rise in labor productivity is most likely to result in:
A. an increase in aggregate demand.
B. a decrease in aggregate demand.
C. a decrease in short-run aggregate supply.
D. a decrease in long-run aggregate supply.
E. an increase in short-run aggregate supply.
____ 13. If nominal wages fall, then short-run aggregate:
A. supply shifts to the right.
B. supply shifts to the left.
C. demand shifts to the right.
D. demand shifts to the left.
E. supply becomes vertical.
____ 14. Changes in short-run aggregate supply can be caused by changes in:
A. wages.
B. wealth.
C. government spending.
D. consumption spending.
E. investment spending.
____ 15. Changes in short-run aggregate supply can be caused by changes in:
A. wealth.
B. commodity prices.
C. government spending.
D. the price level.
E. short-term interest rates.
____ 16. In the long run, nominal wages are:
A. sticky downward but flexible in an upward direction.
B. sticky upward but flexible in a downward direction.
C. sticky in both an upward and downward direction.
D. flexible because contracts and informal agreements are renegotiated in the long run.
E. flexible because the government adjusts disequilibrium in labor markets in the long run.
____ 17. The long-run aggregate supply curve is:
A. upward sloping.
B. downward sloping.
C. horizontal.
D. initially upward sloping, but approaches horizontal as GDP increases.
E. vertical.
____ 18. The point where the long-run aggregate supply curve intercepts the horizontal axis:
A. is the point of macroeconomic equilibrium.
B. is the economy's potential output.
C. is the level of real GDP the economy would produce if all prices were flexible and wages
were fixed.
D. is impossible to actually attain.
E. is where a nations output is maximized.
____ 19. Because the aggregate price level has no effect on aggregate output in the long run, the long-run aggregate
supply curve is:
A. upward sloping.
B. vertical.
C. horizontal.
D. downward sloping.
E. backward bending.
____ 20. The level of output that the economy would produce if all prices, including nominal wages, were fully
flexible is called:
A. real GDP.
B. Keynesian GDP.
C. structural GDP.
D. potential output.
E. recessionary output.
____ 21. The short-run aggregate supply curve is:
A. an inverted U-shaped curve.
B. vertical.
C. horizontal.
D. downward sloping.
E. upward sloping.
____ 24. Use the Shifts of the ADAS Curves Figure 19-1. In the short run, a decrease in investment is illustrated
by:
A. Panel (A).
B. Panel (B).
C. Panel (C).
D. Panel (D).
____ 28. Use the Macroeconomics Equilibrium Figure 19-2. In the accompanying figure, curve 1 refers to _____,
curve 2 refers to _____, and curve 3 refers to _____.
A. long-run aggregate supply; short-run aggregate supply; aggregate demand
B. aggregate demand; short-run aggregate supply; long-run aggregate supply
C. short-run aggregate supply; long-run aggregate supply; aggregate demand
D. aggregate demand; long-run aggregate supply; short-run aggregate supply
E. short-run aggregate supply; aggregate demand; long-run aggregate supply
____ 29. In the short run, the equilibrium price level and the equilibrium level of total output are determined by the
intersection of:
A. LRAS and SRAS.
B.
C.
D.
E.
____ 30. A decrease in aggregate demand will generate _______ in real GDP and _______ in the price level in the
short run.
A. an increase; no change
B. a decrease; no change
C. a decrease; a decrease
D. no change; an increase
E. a decrease; an increase
____ 31. Suppose the equilibrium aggregate price level is rising and the equilibrium level of real GDP is rising. Which
of the following most likely caused these changes?
A. An increase in aggregate supply.
B. An increase in aggregate demand.
C. A decrease in aggregate supply.
D. A decrease in aggregate demand.
E. An increase in aggregate demand and a decrease in aggregate supply.
____ 32. An improvement in the business outlook of firms is a type of _________ and therefore shifts the _________
to the _________.
A. positive supply shock; long-run aggregate supply curve; right
B. positive demand shock; aggregate demand curve; left
C. positive supply shock; short-run aggregate supply curve; right
D. positive demand shock; aggregate demand curve; right
E. positive supply shock; short-run aggregate supply curve; left
____ 33. In the short run, a positive demand shock:
A. reduces aggregate output and increases the aggregate price level.
B. increases aggregate output and reduces the aggregate price level.
C. reduces aggregate output and the aggregate price level.
D. increases aggregate output and the aggregate price level.
E. increases aggregate output with no impact on the aggregate price level.
____ 34. Stagflation may result from:
A. an increase in the supply of money.
B. a decrease in the supply of money.
C. an increase in the price of imported oil.
D. a decrease in the price of imported oil.
E. an increase in personal income taxes.
____ 35. A positive demand shock leads to:
A. higher prices and higher employment.
B. higher prices and higher unemployment.
C. higher prices and lower output.
D. lower prices and lower output.
E. higher prices and lower employment.
____ 36. If the SRAS curve intersects the aggregate demand curve to the right of LRAS, the result will be:
A. a recessionary gap.
B. an inflationary gap.
C. cyclical unemployment.
D. long-run equilibrium.
E. crowding out.
____ 37. When the economy is producing output below potential, it has a(n):
A. full-employment output.
B. natural level of employment.
C. recessionary gap.
D. inflationary gap.
E. expanding economy.
____ 38. A recessionary gap occurs if:
A. actual real GDP is less than potential output.
B. actual real GDP is greater than potential output.
C. actual real GDP is equal to potential output.
D. unemployment is less than the natural rate.
E. unemployment is equal to zero.
Figure 19-3: Inflationary and Recessionary Gaps
____ 39. Use the Inflationary and Recessionary Gaps Figure 19-3. In Panel (a), the intersection of SRAS with AD
indicates:
A. an economy experiencing a recessionary gap.
B. an economy experiencing an inflationary gap.
C. that the economy is in long-run equilibrium.
D. that the economy has an unusually low unemployment rate.
E. that the economy is operating at potential output.
____ 40. Use the Inflationary and Recessionary Gaps Figure 19-3. In Panel (b), the level of real GDP represented
by Yp:
A. is potential output for this economy.
B. indicates that the economy is currently experiencing an inflationary gap.
C. indicates that the economy is currently experiencing a recessionary gap.
D. would be associated with considerable unemployment.
E. indicates that the economy is currently in long-run equilibrium.
____ 41. Use the Inflationary and Recessionary Gaps Figure 19-3. In Panel (b), the level of income associated
with Y1:
A.
B.
C.
D.
E.
____ 46. Use the ADAS Model I Figure 19-6. If the economy is at point X, there is:
A. an inflationary gap with low unemployment.
B. an inflationary gap with high unemployment.
C. a recessionary gap with low unemployment.
D. a recessionary gap with high unemployment.
E. long-run equilibrium with full employment.
____ 47. Use the ADAS Model I Figure 19-6. If the economy is at point X, which of the following describes the
likely adjustment to long-run equilibrium?
A. Nominal wages decrease, and the aggregate demand curve shifts left until the economy
reaches long-run equilibrium.
B. Nominal wages increase, and the aggregate demand curve shifts right until the economy
reaches long-run equilibrium.
C. Nominal wages decrease, and the short-run aggregate supply curve shifts right until the
economy reaches long-run equilibrium.
D. Nominal wages decrease, and the short-run aggregate supply curve shifts left until the
economy reaches long-run equilibrium.
E. Nominal wages increase, and the short-run aggregate supply curve shifts right until the
economy reaches long-run equilibrium.
Figure 19-7: ADAS Model II
____ 48. Use the ADAS Model II Figure 19-7. As the size of the labor force increases over time, which of the
following will take place?
A. LRAS will shift to the right.
B. LRAS will shift to the left.
C. AD curve will shift to the left.
D. AD curve will shift to the right.
E. SRAS curve will shift to the right.
____ 49. Use the ADAS Model II Figure 19-7. When consumers and firms become more optimistic, which of the
following will take place in the short run?
A. SRAS curve will shift to the left.
B. SRAS curve will shift to the right.
C. AD curve will shift to the right.
D. AD curve will shift to the left.
E. LRAS will shift to the left.
____ 50. Suppose that the economy is in long-run macroeconomic equilibrium and aggregate demand increases. As the
economy moves to short-run macroeconomic equilibrium , there is:
A. a recessionary gap with high inflation.
B. a recessionary gap with low inflation.
C. an inflationary gap with high unemployment.
D. an inflationary gap with low unemployment.
E. an inflationary gap with zero unemployment.
____ 51. A recessionary gap is when:
A. potential output is below aggregate output.
B. potential output is receding.
C. aggregate output is below potential output.
D. aggregate output is above potential output.
E. the unemployment rate is below the natural rate of unemployment.
____ 52. The correct formula for the Output Gap is:
A.
B.
C.
D.
E.
____ 53. Use the Inflationary and Recessionary Gaps Figure 19-9. In Panel (a), an expansionary policy designed
to move the economy from Y1 to Yp would attempt to:
A. shift aggregate demand to the left.
B. shift aggregate demand to the right.
C. shift SRAS to the left.
D. shift LRAS to the left.
E. shift SRAS to the right.
Figure 19-10: An Increase in Aggregate Demand
____ 54. Use the An Increase in Aggregate Demand Figure 19-10. Assume that the economy is initially in longrun equilibrium at YP and P1. Now suppose that there is an increase in the level of government purchases at
each price level. This will:
A. shift aggregate demand from AD2 to AD1.
B. shift aggregate demand from AD1 to AD2.
C. lead to increased output and a decrease in the price level.
D. lead to decreased output and price level.
E. shift short-run aggregate supply from SRAS2 to SRAS1.
____ 55. Use the An Increase in Aggregate Demand Figure 19-10. At the Y2 level of real GDP:
A. an inflationary gap exists equal to the sum of Y2 and YP.
B. an inflationary gap exists equal to the difference between Y2 and YP.
C. the output at Y2 is a long-run equilibrium.
D. a recessionary gap exists equal to the difference between Y2 and YP.
E. the economy will self-correct at output Yp and price level P1.
____ 56. Using monetary policy to address a recessionary gap created by a supply shock involves _________ to
_________.
A. decreasing the amount of money in circulation; lower the aggregate price level
B. increasing interest rates; decrease investment spending
C. decreasing interest rates; lower the aggregate price level
D. increasing the amount of money in circulation; lower the unemployment rate
E. decreasing interest rates; decrease investment spending
____ 57. If an economy is operating at a real GDP level which is below its potential real GDP, one will find:
A. relatively high unemployment levels.
B. nominal wages moving upwards as the economy moves from the short run to the long run.
C. the SRAS curve shifting left as the economy corrects itself from the short run to the long
run.
D. no long-run change in price levels.
E. zero cyclical unemployment.
____ 58. Changing the level of government spending is an example of:
A. fiscal policy.
B. interest rate policy.
C. monetary policy
D. exchange rate policy
E. health care policy.
A.
B.
C.
D.
E.
D. government spending.
E. investment demand.
____ 74. The basic equation of national income accounting shows: GDP = C + I + G + X IM. When the government
uses fiscal policy to make changes to taxes and transfers, this policy primarily affects:
A. IM
B. I
C. G
D. X
E. C
____ 75. Suppose the economy is experiencing a recessionary gap. To move equilibrium aggregate output closer to the
level of potential output, the best fiscal policy option is to:
A. decrease government purchases.
B. decrease taxes.
C. decrease government transfers.
D. increase real interest rates.
E. increase the money supply.
____ 76. The current level of real GDP lies below potential GDP. An appropriate fiscal policy would be to _____,
which will shift the _____ curve to the _____.
A. increase government purchases; AD; left.
B. increase transfer payments; SRAS; right.
C. increase tax rates; AD; right.
D. increase government purchases; AD; right.
E. decrease government purchases; AD; left
Figure 20-1: Short-Run Equilibrium
____ 77. Use the Short-Run Equilibrium Figure 20-1. The accompanying graph shows the current short-run
equilibrium in the economy. Appropriate fiscal policy action in this situation would be:
A. a decrease in transfer payments.
B. an increase in government purchases.
C. a decrease in income tax rates.
D. an increase in the investment tax credit.
E. a reduction in the capital gains tax rate.
____ 78. Use the North-West Government Figure 20-2. Using the accompanying figure, which of the following
would be the appropriate response of the North-West government?
A. Expand aggregate demand by increasing taxes to close the inflationary gap.
B. Reduce aggregate demand by cutting taxes to close the inflationary gap.
C. Expand aggregate demand by decreasing taxes to close the recessionary gap.
D. Reduce aggregate demand by increasing taxes to close the recessionary gap.
E. Expand aggregate demand by increasing taxes to close the recessionary gap.
____ 79. Expansionary fiscal policy:
A. increases long-run aggregate supply.
B. decreases long-run aggregate supply.
C. increases aggregate demand.
D. decreases aggregate demand.
E. increases short-run aggregate supply.
____ 80. If the economy experiences a decline in overall spending, and thus a contraction, the government could
counter this by:
A. raising tax rates.
B. decreasing government transfers.
C. increasing government spending.
D. decreasing the investment tax credit.
E. decreasing the money supply.
Figure 20-3: North Placid Government
____ 81. Use the North Placid Government Figure 20-3. Using the accompanying figure, which of the following
would be the appropriate response on the part of the North Placid government?
A. Increase government spending to close the recessionary gap.
B. Decrease government transfer payments to close the recessionary gap.
C. Decrease taxes to close the inflationary gap.
D. Increase taxes to close the recessionary gap.
E. Increase taxes to close the inflationary gap.
____ 82. An increase in government transfers is considered to be an example of ________ because it ________.
A. expansionary fiscal policy; shifts the aggregate demand curve to the left, increasing
aggregate output
B. contractionary fiscal policy; shifts the aggregate demand curve to the left, decreasing
aggregate output
C. expansionary fiscal policy; shifts the aggregate demand curve to the right, increasing
aggregate output
D. contractionary fiscal policy; shifts the aggregate demand curve to the right, decreasing
aggregate output
E. expansionary fiscal policy; shifts the aggregate demand curve to the right, decreasing
aggregate output
____ 83. To close an inflationary gap employing fiscal policy, the government could:
A. reduce budget allocations to interstate highway construction.
B. increase federal subsidies to state universities.
C. lower the corporate income tax rate.
D. raise the average amount awarded for veterans benefits.
E. decrease the money supply.
____ 84. Consumer spending will rise if:
A. government transfers rise.
B. taxes increase.
C. government transfers fall.
D. taxes increase or if government transfers fall.
E. the central bank reduces the money supply.
____ 85. Contractionary fiscal policy would include:
A.
B.
C.
D.
E.
____ 86. Use the Inflationary and Recessionary Gaps Figure 20-4. At E1, the economy:
A. is in long-run equilibrium.
B. has an inflationary gap.
C. has a recessionary gap.
D. is booming.
E. would benefit from contractionary fiscal policy.
____ 87. Use the Inflationary and Recessionary Gaps Figure 20-4. At E2, the economy:
A. is in long-run equilibrium.
B. has an inflationary gap.
C. has a recessionary gap.
D. is booming.
E. would benefit from contractionary fiscal policy.
____ 88. Use the Inflationary and Recessionary Gaps Figure 20-4. The movement from AD3 to AD1 would be
caused by:
A. increased government purchases.
B. increased government transfers.
C. increasing the money supply.
D. decreased taxes.
E. increased taxes.
Macro II
Answer Section
MULTIPLE CHOICE
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B
PTS:
Definitional
A
PTS:
Definitional
B
PTS:
Concept-Based
D
PTS:
Concept-Based
E
PTS:
Concept-Based
B
PTS:
Concept-Based
C
PTS:
Concept-Based
A
PTS:
Concept-Based
A
PTS:
Concept-Based
C
PTS:
Concept-Based
C
PTS:
Critical Thinking
E
PTS:
Concept-Based
A
PTS:
Concept-Based
A
PTS:
B
PTS:
Fact-Based
D
PTS:
Concept-Based
E
PTS:
Fact-Based
B
PTS:
Concept-Based
B
PTS:
Concept-Based
D
PTS:
Definitional
E
PTS:
Fact-Based
B
PTS:
Fact-Based
DIF: E
REF: Module 18
DIF: M
REF: Module 18
DIF: M
REF: Module 18
DIF: M
REF: Module 18
DIF: E
REF: Module 18
DIF: M
REF: Module 18
DIF: E
REF: Module 18
DIF: M
REF: Module 18
DIF: M
REF: Module 18
DIF: E
REF: Module 18
DIF: M
REF: Module 18
DIF: M
REF: Module 18
DIF: M
REF: Module 18
1
1
REF: Module 18
DIF: M
REF: Module 18
DIF: E
REF: Module 18
DIF: E
REF: Module 18
DIF: E
REF: Module 18
DIF: E
REF: Module 18
DIF: E
REF: Module 18
DIF: E
REF: Module 18
DIF: M
REF: Module 18
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A
PTS:
Definitional
B
PTS:
Analytical Thinking
A
PTS:
Analytical Thinking
C
PTS:
Critical Thinking
D
PTS:
Critical Thinking
D
PTS:
Concept-Based
C
PTS:
Concept-Based
C
PTS:
Concept-Based
B
PTS:
Critical Thinking
D
PTS:
Critical Thinking
D
PTS:
Concept-Based
C
PTS:
Critical Thinking
A
PTS:
Critical Thinking
B
PTS:
Concept-Based
C
PTS:
Definitional
A
PTS:
Definitional
A
PTS:
Critical Thinking
A
PTS:
Critical Thinking
B
PTS:
Critical Thinking
E
PTS:
Concept-Based
A
PTS:
Concept-Based
D
PTS:
Concept-Based
D
PTS:
Concept-Based
D
PTS:
Critical Thinking
C
PTS:
DIF: E
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: E
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: E
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: D
REF: Module 19
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
SKL:
ANS:
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ANS:
SKL:
Analytical Thinking
A
PTS:
Critical Thinking
C
PTS:
Critical Thinking
D
PTS:
Critical Thinking
C
PTS:
Definitional
C
PTS:
Definitional
B
PTS:
Analytical Thinking
B
PTS:
Critical Thinking
B
PTS:
Critical Thinking
D
PTS:
Critical Thinking
A
PTS:
Critical Thinking
A
PTS:
Fact-Based
B
PTS:
Fact-Based
B
PTS:
Fact-Based
A
PTS:
Fact-Based
A
PTS:
Fact-Based
D
PTS:
Fact-Based
C
PTS:
Fact-Based
E
PTS:
Fact-Based
B
PTS:
Definitional
B
PTS:
Fact-Based
B
PTS:
Definitional
C
PTS:
Critical Thinking
A
PTS:
Definitional
B
PTS:
Critical Thinking
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: D
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: M
REF: Module 19
DIF: E
REF: Module 20
DIF: E
REF: Module 20
DIF: E
REF: Module 20
DIF: E
REF: Module 20
DIF: E
REF: Module 20
DIF: E
REF: Module 20
DIF: E
REF: Module 20
DIF: M
REF: Module 20
DIF: E
REF: Module 20
DIF: M
REF: Module 20
DIF: E
REF: Module 20
DIF: E
REF: Module 20
DIF: E
REF: Module 20
DIF: M
REF: Module 20
72. ANS:
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88. ANS:
SKL:
A
PTS:
Concept-Based
C
PTS:
Concept-Based
E
PTS:
Concept-Based
B
PTS:
Critical Thinking
D
PTS:
Critical Thinking
A
PTS:
Critical Thinking
C
PTS:
Critical Thinking
C
PTS:
Definitional
C
PTS:
Concept-Based
E
PTS:
Critical Thinking
C
PTS:
Critical Thinking
A
PTS:
Critical Thinking
A
PTS:
Concept-Based
C
PTS:
Concept-Based
C
PTS:
Concept-Based
A
PTS:
Concept-Based
E
PTS:
Critical Thinking
DIF: M
REF: Module 20
DIF: M
REF: Module 20
DIF: M
REF: Module 20
DIF: D
REF: Module 20
DIF: M
REF: Module 20
DIF: M
REF: Module 20
DIF: M
REF: Module 20
DIF: E
REF: Module 20
DIF: M
REF: Module 20
DIF: M
REF: Module 20
DIF: M
REF: Module 20
DIF: M
REF: Module 20
DIF: M
REF: Module 20
DIF: M
REF: Module 20
DIF: M
REF: Module 20
DIF: M
REF: Module 20
DIF: M
REF: Module 20