Multiple choice questions:
Question 1
When the real GDP increases, disposable income and consumption expenditure __________.
A. do not change
B. become inverted
C. decrease
D. increase
Question 2
A rise in the price level __________ the buying power of money.
A. does not affect
B. increases
C. decreases
D. inverts
Question 3
How does an increase in potential GDP affect aggregate supply?
A. It decreases aggregate supply.
B. It increases aggregate supply.
C. It barely has any effect.
D. Since it applies to an "imaginary" market, it does not affect aggregate supply.
Question 4
__________ occurs when aggregate planned expenditure equals real GDP.
A. Price-fixing
B. Stable economic leveling
C. Unplanned inventory change
D. Equilibrium expenditure
Question 5
Aggregate __________ is the sum of planned consumption expenditure, investment, government expenditure on goods and services, and exports minus imports.
A. planned expenditure
B. supply
C. demand
D. expenditure schedule
Question 6
When governments change taxes, their transfer payments, and expenditure on goods and service, they influence aggregate demand through __________.
A. the world economy
B. consumer expectations
C. monetary policy
D. fiscal policy
Question 7
If the price level from the GDP price index falls, what happens to the quantity of real GDP supplied?
A. it remains constant
B. it increases
C. it decreases
D. it barely changes
Question 8
Which of the following would cause an increase in aggregate demand in the short run?
A. an increase in the supply of money
B. a decrease in the price level
C. an increase in taxes
D. a crop failure
Question 9
What is the total amount of final goods and service produced in a country that people, businesses, governments, and foreigners plan to buy?
A. the supply-demand model
B. the quantity of real GDP supplied
C. the quantity of potential GDP
D. the quantity of real GDP demanded
Question 10
The __________ is the amount by which a change in autonomous expenditures is multiplied in order to determine the change in equilibrium expenditure that it generates.
A. marginal tax rate
B. marginal multiplier
C. expenditure reducer
D. expenditure multiplier
Question 11
The change in equilibrium expenditure also equals the change in __________.
A. the potential GDP
B. the real GDP
C. income taxes
D. interest rates
Question 12
Which of the following does NOT decrease aggregate demand in the United States?
A. a decrease in the price of oil
B. a decrease in GDP in Germany
C. a decrease in government spending
D. a decrease in the supply of money
Question 13
The __________ curve summarizes the relationship between aggregate planned expenditure and the real GDP.
A. AES
B. AE
C. AD
D. APE
Question 14
Why does the quantity of real GDP supplied change when the price level changes?
A. movement along the AS curve brings a change in the price of resources
B. movement along the AS curve brings a change in the potential GDP
C. movement along the AS curve brings a change in the GDP price index
D. movement along the AS curve brings a change in the real wage rate
Question 15
To determine the equilibrium price level and equilibrium level of real GDP, the aggregate demand and aggregate supply must __________.
A. be considered separately
B. intersect
C. be disregarded
D. be considered as a multiplier
Question 16
When the real wage rate changes, firms change the __________ and the level of production.
A. wage rate of employees
B. quality of goods or services produced
C. quantity of labor employed
D. production plans
Question 17
All other things remaining the same, the lower the price level, the __________ the quantity of real GDP demanded.
A. smaller
B. greater
C. more constant
D. less constant
Question 18
Expenditures such as investment, government expenditure on goods and services, and exports __________ on real GDP.
A. do not depend
B. depend greatly
C. remain constant based
D. vary in their individual dependence
Question 19
What are the two main influences that the world economy has on aggregate demand?
A. foreign exchange rate and foreign income
B. foreign investments and foreign profit
C. revenues from overseas and foreign exchange rate
D. foreign expenditures and international trade
Question 20
What is the total amount of final goods and service that firms in a country plan to produce, depending on the labor, capital, technology, natural resources, and entrepreneurial talent in the market?
A. the supply-demand model
B. the quantity of real gross domestic product (GDP. supplied
C. the quantity of potential GDP
D. the quantity of real GDP demanded
Question 21
Suppose GDP __________ the level of potential output. We would expect to see __________ unemployment, rising wages, and rising prices.
A. exceeds; high
B. exceeds; low
C. is below; high
D. is below; low
Question 22
What is the difference between how GDP is determined in the short run and how it is determined in the long run?
A. In the short run, GDP is determined by current demand for goods and services in the economy. In the long run, GDP is determined by supply of labor, the stock of capital and technological progress.
B. In the short run, GDP is determined by future demand for goods and services in the economy. In the long run, GDP is determined by supply of labor, the stock of capital and technological progress.
C. In the long run, GDP is determined by current demand for goods and services in the economy. In the short run, GDP is determined by supply of labor, the stock of capital and technological progress.
D. In the long run, GDP is determined by future demand for goods and services in the economy. In the short run, GDP is determined by supply of labor, the stock of capital and technological progress.
Question 23
If the natural unemployment rate increases, the short-term Phillips curve __________ and the long-run Phillips curve __________.
A. shifts rightward; shifts rightward
B. shifts leftward; shifts leftward
C. shifts rightward; remains the same
D. shifts leftward; remains the same
Question 24
How does change in the expected inflation rate affect the short-run tradeoff between inflation and unemployment?
A. Immediately, because the money wage rate is sensitive to change in the expected inflation rate.
B. Immediately, because unemployment and job production respond quickly to change in the expected inflation rate.
C. Gradually, because the money wage rate responds only gradually to change in the expected inflation rate.
D. Gradually, because the natural unemployment rate rarely changes.
Question 25
The __________ shows the relationship between inflation and unemployment when the economy is at full employment.
A. AS curve
B. short-run Phillips curve
C. long-run Phillips curve
D. AE curve
Question 26
The __________ is a curve that shows the relationship between the inflation rate and the unemployment rate when the natural unemployment rate and the expected inflation rate remain constant.
A. aggregate demand (AD. curve
B. short-run Phillips curve
C. long-run Phillips curve
D. aggregate expenditure (AE. curve
Question 27
What policy action by the Fed describes an unexpected rise in interest rates and deceleration in money growth in order to slow inflation at the cost of recession?
A. rational reduction
B. surprise inflation reduction
C. credible announced inflation reduction
D. statistical model of reduction
Question 28
What is the forecast for inflation that results from the analysis of all the relevant data and economic science?
A. rational expectation
B. surprise inflation expectation
C. credible announced inflation expectation
D. statistical model of expectation
Question 29
The __________ is the percentage change in the price level.
A. Phillips curve
B. consumer price index
C. unemployment rate
D. inflation rate
Question 30
The short-run Phillips curve is another way at looking at the __________.
A. equilibrium expenditure
B. AD curve
C. aggregate supply (AS. curve
D. potential GDP
Question 31
A necessary condition for the classical model to work is that __________.
A. wages and prices are fully flexible
B. prices, but not wages, are fully flexible
C. wages and prices are not fully flexible
D. wages, but not prices, are fully flexible
Question 32
Suppose that the unemployment rate is __________ the natural rate. We would expect prices to fall, money demand to fall, interest rates to fall, and total demand to __________.
A. above; rise
B. above; fall
C. below; rise
D. below; fall
Question 33
Since the long-run Phillips curve is vertical at the natural unemployment rate, what type of trade-off is there between employment and inflation?
A. There is no trade-off between employment and inflation.
B. There is a constant trade-off between employment and inflation.
C. There is a linear trade-off between employment and inflation.
D. Employment and inflation are indirectly proportional (the one goes up, the other goes down..
Question 34
What is the name for the inflation rate that people forecast and use to set the money wage rate and other money prices?
A. the equilibrium inflation rate
B. the fixed-money inflation rate
C. the potential inflation rate
D. the expected inflation rate
Question 35
Keynes expressed doubts that that the economy would __________.
A. ever return to full-employment
B. ever move away from full-employment
C. recover from a major recession without active policy
D. recover from the effects of higher prices
Question 36
A decrease in aggregate demand that brings a movement down along the aggregate supply curve lowers the price level and __________ real GDP.
A. does not affect
B. decreases
C. increases
D. varies with
Question 37
To lower the expected inflation rate, the Fed must take actions that will __________ the actual inflation rate.
A. decelerate
B. accelerate
C. increase
D. decrease
Question 38
The Federal Reserve can use monetary policy to __________.
A. change output in the long run, but not the short run
B. change output in the short run, but not the long run
C. change output in both the short run and the long run
D. Monetary policy has no effect on output
Question 39
In the long run, a decrease in the money supply __________.
A. has no effect on real interest rates, investment, or output
B. increases real interest rates, decreases investment, and decreases output
C. increases real interest rates, increases investment, and decreases output
D. decreases real interest rates, decreases investment, and decreases output
Question 40
Say's law from a classical economic perspective __________.
A. states that supply creates its own demand
B. explains the classical idea that the value of GDP will equal the demand for goods and services
C. supports economists belief that neither surplus nor shortage would ever exist when production and demand are equal for goods and services
D. all of the above