Sample Questions
1. In the long-run the Aggregate Supply curve will:
a) slope upward.
b) slope downward.
c) have a vertical slope.
d) have a horizontal slope.
2. If the United States were to pass legislation that would make it easier for people to emigrate to the United States, this would cause
a) the short-run aggregate supply curve to shift to the right
b) the short-run aggregate supply curve to shift to the left
c) the short-run aggregate supply curve to become flatter
d) the short-run aggregate supply curve to become nearly vertical at all levels of output
3. An increase in aggregate demand when the economy is operating at full capacity is likely to temporarily result in:
a) an increase in output but no increase in the overall price level
b) an increase in both output and the overall price level
c) no increase in either output or the overall price level
d) an increase in the overall price level but no increase in output
4. Potential GDP is the level of aggregate output:
a) that can be produced at a zero unemployment rate
b) that can be sustained in the long run, when wages are "sticky"
c) that can be produced if structural unemployment is zero
d) that can be sustained in the long run when cyclical unemployment is zero
5. The proportion of additional income that households spend on consumption is known as the:
a) marginal propensity to consume
b) household spending multiplier
c) average propensity to consume
d) average standard of living
6. During a recession, which of the following will be true?
a)The actual rate of unemployment will be lower than the natural rate.
b) Actual GDP will be lower than potential GDP.
c) Actual employment will exceed what is considered full employment.
d) Actual inflation will be higher than was anticipated.
7. The actions of borrowers and lenders are coordinated in
a) the loanable funds market by the real interest rate.
b) the goods and services market by the general price level.
c) the resource market by wage rates.
d) the loanable funds market by the inflation rate.
8. If the economy is initially at a point on its long-run aggregate supply curve, a decrease in aggregate demand will:
a) permanently increase unemployment
b) temporarily increase unemployment
c) permanently increase inflation
d) temporarily increase inflation
9. Because nominal wages do not fully adjust to price level changes in the short run:
a) the short-run aggregate supply curve is vertical
b) the short-run aggregate demand curve is downward sloping
c) the short-run aggregate supply curve is upward sloping
d) the long-run aggregate demand curve is horizontal
10. Fiscal policy is:
a) the deliberate control of the money supply to achieve macroeconomic goals.
b) using the government's regulatory powers to improve economic efficiency.
c) the government provision of goods to improve economic efficiency.
d) using government taxation and expenditure policies to achieve macroeconomic goals.
11. In the context of aggregate supply, the short run is defined as the period during which:
a) some prices are set by contracts and cannot be adjusted.
b) prices can change, but neither aggregate supply nor aggregate demand can shift.
c) individuals have sufficient time to modify their behavior in response to price changes.
d) quantity changes cannot occur in response to changes in relative prices.
12. The long-run aggregate supply curve indicates that in the long run, a decrease in prices will lead to
a) no change in output.
b) an increase in output.
c) a reduction in output.
d) an unknown change in output.
13. Which of the following will most likely occur during the expansionary phase of a business cycle?
a) Real GDP rises, and unemployment falls.
b) Real GDP declines, and inflation rises.
c) Interest rates rise, and the number of business failures rise.
d) Inflation rises, and employment falls.
14. Which of the following is not a function of money:
a) means of payment
b) an investment to earn a high rate of return
c) a store of purchasing power
d) a unit to express individual product prices
15. A shock that could trigger a recession is a:
a) large military buildup.
b) large increase in the price of oil.
c) sudden unexplained increase in consumption.
d) new technological breakthrough.
e) large decrease in the price of oil.
16. The federal government buys $15 million dollars worth of farm products from the nation's farmers in order to provide food supplements for the subsidized milk and lunch programs. If the MPC is .90, predict the impact on the national income (Y)?
a) Y will increase by $150 million.
b) Y will increase by $80 million.
c) Y will increase by $30 million.
d) Y will increase by $16.7 million.
e) Y will increase by $13.5 million.
17. Within the aggregate demand/aggregate supply framework, the quantity produced and purchased in the goods and services market represents
a) nominal output or nominal GDP.
b) the interest rate.
c) real output or real GDP.
d) the consumer price index.
18. During the 1970s, the real price of crude oil increased sharply on the world market. Other things constant, how will an unanticipated increase in oil prices influence prices and real output of oil-importing nations such as the United States and Japan?
a) Both real output and prices will decrease.
b) Both real output and prices will increase.
c) Real output will increase, and prices will decrease.
d) Real output will decrease, and prices will increase.
19. Within the AD/AS model, an unanticipated increase in short-run aggregate supply will cause real output to:
a) increase and prices to decrease.
b) decrease and prices to increase.
c) increase and prices to increase.
d) decrease and prices to decrease.
20. 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) a high rate of capital investment, which expands the future supply of productive resources
21. Which of the following will most likely cause a decrease in aggregate supply in the goods and services market?
a) an increase in the productivity of labor
b) a decrease in the expected inflation rate
c) an increase in resource prices
d) a decrease in prices
22. Within the AD/AS model, decreased consumer and investor optimism concerning the future direction of the economy will lead to a(n)
a) increase in aggregate demand (AD shifts to the right).
b) decrease in aggregate demand (AD shifts to the left).
c) increase in long-run aggregate supply (LRAS shifts to the right).
d) reduction in the natural rate of unemployment.
23. An increase in technology would shift which of the following curve(s)?
a) aggregate demand and short-run aggregate supply
b) only the short-run aggregate supply
c) only the aggregate demand
d) short-run and long-run aggregate supply
24. The crowding-out model implies that a
a) budget surplus will be highly effective against inflation.
b) budget deficit is likely to stimulate aggregate demand and trigger a multiplier effect that will lead to inflation.
c) budget deficit will increase the real interest rate and thereby retard private spending.
d) budget surplus will retard aggregate demand and throw the economy into a downward spiral.