1)As actual output falls below the potential level in the short run, which of th
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Question
1)As actual output falls below the potential level in the short run, which of the following is most likely to occur? A. More resources will become unemployed. B. Nominal GDP will remain constant. C. Real GDP will increase. D. The price level will increase.
2)A recessionary gap develops: A. only when the economy is in recession. B. when resource prices are “sticky” upward. C. only when GDP grows by more than 4 percent. D. only when unemployment exceeds its natural rate.
3)Given the aggregate demand curve, a beneficial supply shock will: A. increase potential output and decrease the price level. B. increase potential output and the price level. C. decrease potential output and increase the price level. D. decrease potential output and the price level.
4)Stagflation is defined as: A. increased output accompanied by a lower price level. B. decreased output accompanied by a lower price level. C. increased output accompanied by a higher price level. D. decreased output accompanied by a higher price level.
5)Fiscal policy is concerned with _____. A. government spending and changes in money supply B. money supply and taxation C. government spending and taxation D. government spending, taxation, and money supply
6)Discretionary fiscal policy works by shifting the aggregate demand curve. True or False
7)Which of the following are components of fiscal policy? A. Government purchases, transfer payments, and taxes B. Money supply and government purchases C. Transfer payments only D. Government purchases only
8)Which of the following is most likely to close a recessionary gap in the economy? A. An increase in the compensation for government employees B. An increase in the income tax rate C. A decrease in money supply D. A decrease in the expenditure on infrastructure
9)A federal budget deficit occurs when: A. aggregate demand is greater than aggregate supply. B. there is inflation. C. federal government purchases exceed net taxes. D. there is deflation.
10)Which of the following is an appropriate fiscal policy prescription that addresses the inflation that occurs when the economy is above potential GDP? A. Decreasing taxes to protect consumers from the effects of inflation B. Decreasing government spending to cause a decrease in the demand for money C. Increasing government spending to provide some of the goods that consumers can no longer afford at the higher prices D. Increasing taxes to reduce aggregate demand
11)The steeper the short-run aggregate supply curve, _____. A. the larger the impact of a shift in aggregate demand on equilibrium output B. the smaller the impact of a shift in aggregate demand on equilibrium output C. the larger the value of the spending multiplier D. the smaller the change in government spending needed to achieve the desired change in equilibrium output
12)Which of the following is true about classical economists? A. They advocated laissez-faire policies to promote economic growth. B. They believed the economy would naturally tend toward unemployment. C. They believed prices and wages were rigid. D. They argued that the sources of depressions and high unemployment lay within the market system.
13)Which of the following had the greatest impact in pulling the U.S. economy out of the Great Depression? A. The federal government's aggressive policy of tax cuts B. Increased spending during World War II C. The federal government's aggressive policy of monetary stimuli D. The economy's natural tendency to contract toward potential output
14)An automatic stabilizer: A. Increases the drop in disposable income during recessions and increases the jump in disposable income during expansions. B. increases inflationary pressure during expansions. C. increases tax revenue relative to government spending throughout the business cycle. D. reduces the drop in disposable income during recessions and reduces the jump in disposable income during expansions.
Explanation / Answer
1)As actual output falls below the potential level in the short run, which of the following is most likely to occur? A. More resources will become unemployed.
2)A recessionary gap develops: A. only when the economy is in recession
3)Given the aggregate demand curve, a beneficial supply shock will: A. increase potential output and decrease the price level.
4)Stagflation is defined as: D. decreased output accompanied by a higher price level.
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