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1) Most recessions originate from:

1. a decrease in aggregate supply
2. a decrease in investment spending
3. an increase in aggregate supply
4. an increase in investment spending

Reveal answer 2) During the Great Depression, the United States experienced a ________ the short-run aggregate supply curve; during the 1979 oil crisis, the United States experienced a _________ in the short-run aggregate supply curve.

1. movement down along; a leftward shift
2. movement down along; a rightward shift
3. movement up along; a leftward shift
4. movement up along; a rightward shift

Reveal answer 3) The multiplier is:

1. 1 / (MPC)
2. 1(1 + MPC)
3. 1/(1-MPC)
4. MPS / MPC

Reveal answer 4) If MPS is small, it will:

1. increase the interest rate
2. make the multiplier larger
3. make the multiplier smaller
4. not affect the value of the multiplier

Reveal answer 5) Raising taxes shifts the:

1. aggregate demand curve to the left
2. aggregate demand curve to the right
3. long-run aggregate supply curve to the left
4. short-run aggregate supply curve to the left

Reveal answer 6) If government increases income tax rates, the aggregate demand curve is likely to:

1. become positively sloped
2. remain constant
3. shift to the left
4. shift to the right

Reveal answer 7) Which of the following is one of the reasons that the aggregate demand curve slopes downward?

1. the income effect
2. the interest rate effect
3. the paradox of thrift
4. the substitution effect

Reveal answer 8) If an economy is currently in short-run equilibrium where the level of real GDP is greater than potential output, then, in the long run, one will find:

1. nominal wages will fall and the SRAS curve will shift right bringing the economy back to its potential real GDP
2. nominal wages will fall shifting the AD curve to the left and bringing the economy back to its potential real GDP
3. nominal wages will rise and the SRAS curve will shift left bringing the economy back to its potential real GDP
4. nominal wages will rise shifting the AD curve to the right and restoring real GDP to its potential level

Reveal answer 9) A general increase in wages will result in the:

1. aggregate demand curve shifting to the left
2. aggregate demand curve shifting to the right
3. short-run aggregate supply curve shifting to the left
4. short-run aggregate supply curve shifting to the right

Reveal answer 10) In the short run, the equilibrium price level and the equilibrium level of total output are determined by the intersection of:

1. LRAS and SRAS
2. LRAS and aggregate demand
3. SRAS and aggregate demand
4. potential output and LRAS

Reveal answer 11) An increase in government spending, all other things unchanged, will cause the aggregate demand curve to:

1. become positively sloped
2. remain constant
3. shift to the left
4. shift to the right

Reveal answer 12) A natural disaster that destroys part of a country's infrastructure is a type of _________ and therefore shifts the _________ to the _________.

1. negative demand shock; aggregate demand curve; right
2. negative demand shock; long-run aggregate supply curve; left
3. negative supply shock; aggregate demand curve; left
4. negative supply shock; short-run aggregate supply curve; left

Reveal answer 13) When David has no income, he spends $500. If his income increases to $2,000, he spends $1,900. Which of the following represents his consumption function?

1. C=$500+0.7×YD. D) C=$500+1,000×YD
2. C=0.95×YD
3. C=1.2×YD

Reveal answer 14) Actual investment equals:

1. planned investment in a free market economy
2. planned investment minus unplanned investment
3. planned investment plus unplanned investment
4. unplanned investment minus planned investment

Reveal answer 15) The _______ the _______, the _______ the multiplier.

1. bigger; MPC; bigger
2. bigger; MPC; smaller
3. bigger; MPS; bigger
4. smaller; level of wealth; bigger

Reveal answer 16) An increase in the expected future disposable income of households:

1. decreases the slope of the aggregate spending line
2. increases the slope of the aggregate spending line
3. shifts down the planned aggregate spending line
4. shifts up the planned aggregate spending line

Reveal answer 17) In the long run (as the economy self-corrects), an increase in aggregate demand will cause the price level to _______ and potential output to _______ .

1. fall; decrease
2. fall; remain stable
3. rise; increase
4. rise; remain stable

Reveal answer 18) Suppose investment spending increases by $50 billion and as a result the equilibrium income increases by $200 billion. The value of the MPC is:

1. 0.4
2. 0.75
3. 0.8
4. 4

Reveal answer 19) An increase in the wealth of households, all other things unchanged, will result in _______ the aggregate consumption function.

1. a downward shift of
2. a movement to the right along
3. an upward shift in
4. no effect on

Reveal answer 20) An increase in the aggregate price level will increase:

1. aggregate demand
2. short-run aggregate supply
3. the quantity of aggregate output demanded
4. the quantity of aggregate output supplied in the short run

Reveal answer 21) People are likely to save the most during what part of the life cycle, according to the life-cycle hypothesis?

1. as they get closer to retirement
2. in their old age
3. in their peak earnings years
4. the older they get

Reveal answer 22) Which curve is easier to shift?

1. all of the curves easily shift
2. the aggregate demand curve
3. the long-run aggregate supply curve
4. the short-run aggregate supply curve

Reveal answer 23) The aggregate demand curve is negatively sloped in part because of the impact of interest rates on:

1. consumption and investment
2. government purchases
3. net exports
4. potential output

Reveal answer 24) If the Federal Reserve increases interest rates to reduce inflation:

1. planned investment spending is most likely to decrease
2. planned investment spending is most likely to increase
3. planned investment spending is most likely to remain the same
4. unplanned investment in inventories is likely to be negative

Reveal answer 25) An increase in interest rates on business loans will:

1. decrease planned investment spending
2. decrease unplanned investment spending
3. increase planned investment spending
4. increase unplanned investment spending

Reveal answer 26) If the SRAS curve intersects the aggregate demand curve to the right of LRAS, the result will be:

1. a recessionary gap
2. an inflationary gap
3. cyclical unemployment
4. long-run equilibrium

Reveal answer 27) If the marginal propensity to save is 0.3, the size of the multiplier is:

1. 0.7
2. 1.3
3. 2.3
4. 3

Reveal answer 28) The short-run aggregate supply curve slopes upward because of:

1. a reduction in resource availability at higher price levels
2. increasing technology
3. wage and price flexibility
4. wage and price stickiness

Reveal answer 29) Nominal wages are “sticky” because:

1. in the long run all wages become adjusted for inflation
2. wages are slow to fall in the short run when there are labor shortages and slow to rise even when there is significant level of unemployment
3. wages are slow to rise in the short run when there are labor shortages and slow to fall even when there is significant level of unemployment
4. wages remain fixed in the long run thereby increasing the profitability of the firms

Reveal answer 30) If the interest rate rises, then:

1. excess capacity will increase
2. more investment projects have a rate of return greater than the interest rate
3. planned investment spending rises
4. the opportunity cost of investment is greater

Reveal answer 31) The long-run supply curve illustrates how the aggregate output supplied is:

1. a one-to-one correspondence with the aggregate price level
2. negatively related to the aggregate price level
3. positively related to the aggregate price level
4. unrelated to the aggregate price level

Reveal answer 32) If the MPS = 0.1, then the value of the multiplier equals

1. 1
2. 10
3. 5
4. 9

Reveal answer 33) The marginal propensity to consume (MPC) is equal to the change in:

1. consumer spending divided by the change in disposable income
2. consumer spending divided by the change in gross domestic product
3. consumer spending divided by the change in investment spending
4. disposable income divided by the change in consumer spending

Reveal answer 34) In the long run, nominal wages are:

1. flexible because contracts and informal agreements are renegotiated in the long run
2. sticky downward but flexible in an upward direction
3. sticky in both an upward and downward direction
4. sticky upward but flexible in a downward direction

Reveal answer 35) All of the following will increase the economy's potential output EXCEPT:

1. a decrease in the aggregate price level
2. an increase in human capital
3. an increase in physical capital
4. technological innovation

Reveal answer 36) When the aggregate price level increases, the purchasing power of many assets falls, causing a decrease in consumer spending. This is known as the _____ effect and is a reason why the _____ curve slopes _____.

1. interest rate; aggregate demand; downward
2. interest rate; investment demand; downward
3. wealth; aggregate demand; downward
4. wealth; short-run aggregate supply; upward

Reveal answer 37) Suppose that consumer assets and wealth decrease in real value. How will this affect the aggregate demand curve?

1. The aggregate demand curve shifts to the left
2. The aggregate demand curve shifts to the right
3. There will be a movement downward along the fixed aggregate demand curve
4. There will be a movement upward along the fixed aggregate demand curve

Reveal answer 38) All of the following are sources of federal tax revenue EXCEPT:

1. sales taxes
2. social insurance taxes
3. the corporate profits tax
4. the personal income tax

Reveal answer 39) If membership falls in labor unions and unions become less popular, then:

1. production costs will fall, SRAS will shift to the right, increasing equilibrium GDP and lowering the aggregate price level
2. production costs will fall, there will be a downward movement along SRAS, equilibrium GDP will increase and aggregate price level will fall
3. production costs will increase, SRAS will shift to the left, decreasing equilibrium GDP and increasing the aggregate price level
4. production costs will not change, AD will shift to the right, increasing equilibrium GDP and aggregate price level

Reveal answer 40) A firm has enough retained earnings to finance an investment project. For this firm, the market interest rate:

1. has no impact on the profitability of the investment project
2. is not relevant to the investment decision
3. represents the opportunity cost of using retained earnings
4. will help to calculate the rate of return for the project

Reveal answer 41) In the long run, the economy is:

1. fluctuating as nominal wages rise and fall during short-run economic fluctuations
2. self-correcting as nominal wages rise during recessionary gaps and fall during
3. self-correcting as prices of goods that are sticky in the short run become very flexible in the long run and thus move the economy to full employment
4. self-fulfilling as commodity prices rise during recessionary gaps and fall during inflationary gaps to move the economy to long-run equilibrium

Reveal answer 42) The aggregate demand curve shows the relationship between the aggregate price level and:

1. aggregate productivity
2. government, and the rest of the world
3. the aggregate quantity of output demanded by households, businesses, the
4. the aggregate unemployment rate

Reveal answer 43) If the multiplier equals 4, then the marginal propensity to save must be equal to:

1. 1/2
2. 1/4
3. 3/4
4. the marginal propensity to consume

Reveal answer 44) According to the short-run aggregate supply curve, when the _________ rises, the quantity of _________ rises.

1. aggregate price level; aggregate output demanded
2. aggregate price level; aggregate output supplied
3. interest rate; aggregate output supplied
4. profit per unit; aggregate output demanded

Reveal answer 45) If GDP is smaller than planned aggregate spending, then:

1. GDP will fall
2. the economy is in equilibrium
3. unplanned inventory investment is negative
4. unplanned inventory investment is positive

Reveal answer 46) Potential real GDP is equal to $10,000 and the current level of real GDP is equal to $9,000. The output gap is therefore equal to:

1. -10%
2. -110%
3. -90%
4. 10%

Reveal answer 47) Which of the following factors cannot shift the aggregate demand curve?

1. changes in expectations
2. changes in stock market indices
3. changes in the price level
4. changes in wealth

Reveal answer 48) When Julie Ann's disposable income is $10,000, she spends $10,000, and when her disposable income is $15,000, her spending is $12,500. Julie Ann's autonomous consumption is ________ and her ___________.

1. $0; MPC = 0.5
2. $0; MPS = 0.5
3. $10,000; MPS = 0.5
4. $5,000; MPC = 0.5

Reveal answer 49) An improvement in the business outlook of firms is a type of _________ and therefore shifts the _________ to the _________.

1. positive demand shock; aggregate demand curve; left
2. positive demand shock; aggregate demand curve; right
3. positive supply shock; long-run aggregate supply curve; right
4. positive supply shock; short-run aggregate supply curve; right

Reveal answer 50) According to the National Bureau of Economic Research, the U.S. economy is going through a severe recession. Most households are trying to save more of their income than before. This increase in private saving will lead to:

1. a fall in aggregate income, as more saving means people will spend less
2. an increase in aggregate income, as more saving means more funds for business
3. investment
4. no change in aggregate income, because there is no saving multiplier

Reveal answer 51) The marginal propensity to consume is equal to:

1. the change in saving divided by the change in aggregate disposable income
2. the change in saving divided by the change in consumer spending
3. the proportion of consumer spending as a function of aggregate disposable income
4. the ratio of the change in consumer spending to the change in aggregate disposable income

Reveal answer 52) Which of the following is NOT true about the aggregate demand curve?

1. A fall in the price level will reduce the demand for money, raise the interest rate, and increase investment spending
2. A rise in the price level increases the demand for money, raises the interest rate,
3. and reduces investment spending
4. spending

Reveal answer 53) Unexpectedly rising commodity prices lead to:

1. a negative demand shock
2. a negative supply shock
3. a positive demand shock
4. a positive supply shock

Reveal answer 54) The intersection of an economy's aggregate demand and long-run aggregate supply curves:

1. determines its equilibrium price level in both the long run and the short run
2. determines its equilibrium real GDP in both the long run and the short run
3. occurs at high levels of cyclical unemployment
4. occurs at the economy's potential output

Reveal answer 55) Planned investment spending depends on all of the following EXCEPT:

1. the current level of real GDP
2. the current productive capacity in the economy
3. the expected future level of real GDP
4. the rate of interest

Reveal answer 56) Stagflation may result from:

1. a decrease in the price of imported oil
2. a decrease in the supply of money
3. an increase in the price of imported oil
4. an increase in the supply of money

Reveal answer 57) Income-expenditure equilibrium GDP is:

1. the level of GDP at which GDP equals planned aggregate spending
2. the level of GDP at which autonomous consumption equals planned inventory
3. the level of GDP at which the unemployment rate is zero
4. the level of GDP at which there is no saving

Reveal answer 58) According to the aggregate demand curve, when the aggregate price level _________, the quantity of _________.

1. falls; aggregate output demanded falls
2. rises; aggregate output demanded does not change
3. rises; aggregate output demanded falls
4. rises; aggregate output supplied falls

Reveal answer 59) The _____ curve shows the positive relationship between the aggregate price level and the quantity of aggregate output supplied in the economy.

1. aggregate demand curve
2. aggregate spending curve
3. long-run aggregate supply curve
4. short-run aggregate supply curve

Reveal answer 60) Suppose that the stock market crashes. Which of the following is most likely to occur?

1. a movement down the aggregate demand curve
2. a movement up the aggregate demand curve
3. the aggregate demand curve shifts to the left
4. the aggregate demand curve shifts to the right

Reveal answer 61) If prices are constant, but there is an increase in the value of financial assets: A) aggregate supply shifts to the left.

1. aggregate demand shifts to the left
2. aggregate demand shifts to the right
3. aggregate supply shifts to the right

Reveal answer 62) At the income-expenditure equilibrium:

1. inventory investment is zero
2. investment net of depreciation is zero
3. planned investment is zero
4. unplanned inventory investment is zero

Reveal answer 63) As a result of a decrease in the value of the dollar in relation to other currencies, American imports decrease and exports increase. Consequently, there is a(n):

1. decrease in the quantity of aggregate output demanded
2. decrease in the quantity of aggregate output supplied in the short run
3. increase in aggregate demand
4. increase in short-run aggregate supply

Reveal answer 64) In the long run, inflationary and recessionary gaps are self-correcting because, eventually:

1. nominal wages rise in order to close a recessionary gap and fall to close an
2. nominal wages rise in order to close an inflationary or fall in order to close a recessionary gap
3. the government applies the right combination of fiscal and monetary policies
4. the multiplier compensates the negative supply or demand shocks

Reveal answer 65) Suppose the marginal propensity to consume changes from 0.75 to 0.9. How will this affect the consumption function?

1. Autonomous consumption will increase
2. The function will shift upward
3. The slope will get steeper
4. The slope will get steeper and autonomous consumption will increase

Reveal answer 66) A positive demand shock will:

1. decrease both the aggregate price level and aggregate output
2. decrease the aggregate price level and increase aggregate output
3. increase the aggregate price level and aggregate output
4. increase the aggregate price level and decrease aggregate output

Reveal answer 67) In the long run, the aggregate price level has:

1. a negative effect on the quantity of aggregate output
2. a positive effect on the quantity of aggregate output
3. an impact on aggregate output but no impact on employment
4. no effect on the quantity of aggregate output

Reveal answer 68) The Federal Reserve, the central bank of the United States, has been cutting the interest rate in order to stimulate the recessionary economy. Interest cuts by the Federal Reserve are supposed to:

1. increase cash holding by the general public thus lowering their dependence on credit
2. increase government spending on the economic infrastructure and thus increase GDP through the multiplier process
3. increase investment spending and thus increase GDP via the multiplier
4. lower the savings rate in the economy and stop leakages

Reveal answer 69) If the slope of the aggregate expenditures curve = 0.8, the multiplier is equal to:

1. 1
2. 4
3. 5
4. infinity

Reveal answer 70) Potential output is:

1. the level of real GDP that exists when the actual rate of unemployment is zero
2. the level of real GDP that exists when the economy experiences only cyclical unemployment
3. the level of real GDP that the economy would produce if all prices, including nominal wages, were fully flexible
4. the level of real that the economy would produce if all prices, including nominal wages, were sticky

Reveal answer 71) The slope of the consumption function is equal to the slope of:

1. the 45-degree line
2. the aggregate demand curve
3. the aggregate expenditure line
4. the short-run aggregate supply curve

Reveal answer 72) Inventory investment is:

1. a part of planned investment spending and is always positive
2. a part of unplanned investment spending and may either be positive or negative
3. not a part of investment spending by firms, as it can't be properly planned ahead of
4. time

Reveal answer 73) A graphical representation of the relationship between the total quantity of goods and services demanded and the price level is the:

1. GDP curve
2. aggregate demand curve
3. average price level
4. circular flow model

Reveal answer 74) An increase in aggregate demand will generate _______ in real GDP and _______ in the price level in the short run.

1. a decrease; no change
2. an increase; an increase
3. an increase; no change
4. no change; an increase

Reveal answer 75) The level of output that the economy would produce if all prices, including nominal wages, were fully flexible is called:

1. Keynesian GDP
2. potential output
3. real GDP
4. structural GDP

Reveal answer 76) Which of the following is TRUE with respect to the short-run aggregate supply and the long-run aggregate supply?

1. If the economy is on the long-run aggregate supply curve, it cannot also be on the
2. If the economy is on the short-run aggregate supply curve, it cannot also be on the
3. long-run aggregate supply curve
4. simultaneously

Reveal answer 77) According to the life-cycle hypothesis, wealth affects consumer spending because:

1. people try to consume as early in their lives as they can
2. people try to smooth their consumption over the course of their lives
3. wealthier people have better connections to buy in-demand goods
4. wealthier people have higher incomes

Reveal answer 78) If investment spending increases, the planned aggregate spending line:

1. becomes flatter
2. becomes steeper
3. shifts down
4. shifts up

Reveal answer 79) Suppose that a financial crisis decreases investment spending by $100 billion and the marginal propensity to consume is 0.8. Assuming no taxes and no trade, by how much will real GDP change?

1. $200 billion decrease
2. $400 billion increase
3. $500 billion decrease
4. $800 billion decrease

Reveal answer 80) The short-run aggregate supply curve is positively sloped because:

1. higher prices lead to higher profit and higher output
2. profit is lower when prices increase, so output decreases
3. wages and other costs of production respond immediately to changes in prices
4. workers are willing to work for lower wages rather than be laid off

Reveal answer 81) During the Great Depression, the United States:

1. moved to the left along its aggregate demand curve
2. moved to the left along its short-run aggregate supply curve
3. moved to the right along its aggregate demand curve
4. moved to the right along its short-run aggregate supply curve

Reveal answer 82) Social insurance programs are:

1. government programs intended to protect families against economic hardships
2. private insurance policies that cover gaps in government-provided health care
3. private insurance policies to protect families from hardships caused by government actions
4. programs to help unemployed people have a social life

Reveal answer 83) Assuming the A represents autonomous consumption and YD represents disposable income, for the economy as a whole it holds true that:

1. C=(A+MPC)×YD
2. C=(A-MPS)+(MPC×YD)
3. C=A+(MPC×YD)
4. C=MPC+(A×YD)

Reveal answer 84) The aggregate supply curve shows the relationship between:

1. the aggregate price level and the quantity of aggregate output supplied
2. the level of employment and the quantity of aggregate output supplied
3. the price of money and the quantity of aggregate output supplied
4. the price of oil and the quantity of aggregate output supplied

Reveal answer 85) Rising inventories typically indicate _______ unplanned inventory investment and a _________ economy.

1. negative; expanding
2. negative; slowing
3. positive; expanding
4. positive; slowing

Reveal answer 86) The SRAS curve is upward sloping because:

1. a higher aggregate price level leads to higher output since most production costs are fixed in the short run
2. a higher aggregate price level leads to lower output as costs of production increase
3. a lower aggregate price level leads to higher output since production costs tend to
4. fall in the short run

Reveal answer 87) Which of the following is NOT a determinate of consumer spending?

1. current disposable income
2. expected future disposable income
3. investment spending
4. wealth

Reveal answer 88) An increase in the MPC:

1. decreases the multiplier
2. increases the multiplier
3. shifts the autonomous investment line downward
4. shifts the autonomous investment line upward

Reveal answer 89) If the stock market crashes:

1. GDP will increase
2. the aggregate consumption function will shift down
3. the aggregate consumption function will shift up
4. unplanned inventory investment will be negative

Reveal answer 90) In general, a change in the price level, all other things unchanged, causes:

1. a movement along the aggregate demand curve
2. a shift of the aggregate demand curve
3. both a movement along the aggregate demand curve and a shift in the curve
4. no change in the purchasing power of assets

Reveal answer 91) If the government increases spending in the short run, this will:

1. decrease aggregate output, but increase aggregate price level
2. decrease both aggregate output and aggregate price levels
3. increase aggregate output and aggregate price levels
4. increase aggregate output, but lead to a decrease in aggregate price levels

Reveal answer 92) Profit per unit equals:

1. cost per unit minus price per unit
2. price per unit divided by cost per unit
3. price per unit minus cost per unit
4. price per unit minus the nominal wage rate

Reveal answer 93) The current level of productive capacity ________________ investment spending.

1. has no impact on
2. is negatively related to
3. is positively related to
4. varies directly with

Reveal answer 94) When wages rise:

1. AS shifts left and aggregate price levels falls
2. AS shifts left and the aggregate price level rises
3. AS shifts right and the aggregate output level falls
4. AS shifts right and the aggregate price level rises

Reveal answer 95) Which of the following is NOT an example of government purchases of goods and services?

1. a federal prosecutor's salary in a lawsuit against Halliburton
2. a surgeon's bill reimbursed under the Medicare program
3. equipping U.S. air marshals with electroshock weapons
4. new pavement for interstate highway I-95

Reveal answer 96) A negative supply shock often results in:

1. a drop in the unemployment level
2. a leftward shift of the AD curve
3. an increase in the aggregate price level and a decrease in aggregate output
4. no change in the price level

Reveal answer

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