Practice Test solution questions and correct answers docs 2020

Practice Test solution questions and correct answers docs 2020 Chapter 15 During recessions A. workers are laid off. B. factories are idle. C. firms may find they are unable to sell all they produce. D. ...

Practice Test solution questions and correct answers docs 2020 Chapter 15 During recessions A. workers are laid off. B. factories are idle. C. firms may find they are unable to sell all they produce. D. All of the above are correct. Which of the following typically rises during a recession? A. investment. B. unemployment. C. tax revenues. D. new home construction. Real GDP A. moves in the opposite direction as unemployment. B. increases as production falls. C. falls when households save a smaller fraction of their income. D. All of the above are correct. Which of the following is correct concerning recessions? A. They come at fairly regular and predictable intervals. B. They are associated with comparatively large increases in investment spending. C. They are any period when real GDP growth is less than average. D. They tend to be associated with rising unemployment rates. A. do not affect real output. B. affect both nominal and real output C. do not affect nominal output. D. affect neither nominal nor real output. Most economists believe that money neutrality A. does not hold in the short run. B. does not hold in the long run. C. does not hold in either the short run or long run. D. holds in the short run and the long run. The model of aggregate demand and aggregate supply explains the relationship between A. the price and quantity of a particular good. B. unemployment and output. C. wages and employment. D. real GDP and the price level. Aggregate demand includes A. the quantity of goods and services the government, households, firms, and customers abroad want to buy. B. neither the quantity of goods and services the government, households, nor firms want to buy nor the quantity of goods and services customers abroad want to buy. C. the quantity of goods and service the government wants to buy, but not the quantity of goods and services households, firms, or customers abroad want to buy. D. the quantity of goods and services households and firms want to buy, but not the quantity of goods and services the government wants to buy. A. an increase in firms’ inventories. B. purchases of goods by households. C. firms’ purchases of newly produced machinery. D. government’s tax collections. Which of the following statements concerning the aggregate demand and aggregate supply model is correct? A. The aggregate demand and aggregate supply model is nothing more than a large version of the model of market demand and supply. B. The price level and quantity of output adjust to bring aggregate demand and supply into balance. C. The aggregate supply curve shows the quantity of goods and services that households, firms, and the government want to buy at each price. D. All of the above are correct. Aggregate demand includes A. only the quantity of goods and services households want to buy. B. only the quantity of goods and services households and firms want to buy. C. only the quantity of goods and services households, firms, and the government want to buy. D. the quantity of goods and services households, firms, the government, and customer abroad want to buy. Which of the following is included in the aggregate demand for goods and services? A. consumption demand B. investment demand C. net exports D. All of the above are correct. A. purchases of stock and bonds B. purchases of services such as visits to the doctor C. purchases of capital goods such as equipment in a factory D. purchases by foreigners of consumer goods produced in the United States The effect of an increase in the price level on the aggregate-demand curve is represented by a A. shift to the right of the aggregate-demand curve. B. shift to the left of the aggregate-demand curve. C. movement to the left along a given aggregate-demand curve. D. movement to the right along a given aggregate-demand curve. Which of the following adjust to bring aggregate supply and demand into balance? A. the price level and real output B. the real rate of interest and the money supply C. government expenditures and taxes D. the saving rate and net exports The aggregate-demand curve A. has a slope that is explained in the same way as the slope of the demand curve for a particular product. B. is vertical in the long run. C. shows an inverse relation between the price level and the quantity of all goods and services demanded. D. All of the above are correct. A. only consumption and investment B. only consumption and net exports C. only investment D. consumption, investment, and net exports A decrease in the price level A. increases the quantity of goods and services supplied in the short run. B. decreases the quantity of goods and services supplied in the long run. C. decreases the quantity of goods and services demanded. D. increases the quantity of goods and services demanded. Other things the same, a decrease in the price level makes consumers feel A. less wealthy, so the quantity of goods and services demanded falls. B. less wealthy, so the quantity of goods and services demanded rises. C. more wealthy, so the quantity of goods and services demanded rises. D. more wealthy, so the quantity of goods and services demanded falls. Other things the same, as the price level falls, A. the dollar depreciates. B. the interest rate rises. C. people feel less wealthy. D. All of the above are correct. Other things the same, as the price level rises, A. the dollar depreciates. B. the interest rate falls. C. people feel less wealthy. D. All of the above are correct. Other things the same, the aggregate quantity of goods demanded in the U.S. increases if A. real wealth rises. B. the interest rate rises. C. the dollar appreciates. D. All of the above are correct. Other things the same, the aggregate quantity of goods demanded decreases if A. real wealth falls. B. the interest rate rises. C. the dollar appreciates. D. All of the above are correct. Suppose a stock market boom makes people feel wealthier. The increase in wealth would cause people to desire A. increased consumption, which shifts the aggregate-demand curve right. B. increased consumption, which shifts the aggregate-demand curve left. C. decreased consumption, which shifts the aggregate-demand curve right. D. decreased consumption, which shifts the aggregate-demand curve left. Suppose a stock market crash makes people feel poorer. This decrease in wealth would induce people to A. decrease consumption, which shifts aggregate supply left. B. decrease consumption, which shifts aggregate demand left. C. increase consumption, which shifts aggregate supply right. D. increase consumption, which shifts aggregate demand right. Other things the same, when the government spends more, the initial effect is that A. aggregate demand shifts right. B. aggregate demand shifts left. C. aggregate supply shifts right. D. aggregate supply shifts left. Which of the following shifts aggregate demand to the right? A. the Federal Reserve buys bonds. B. a decrease in net exports due to something other than a change in domestic prices. C. an increase in household saving. D. All of the above are correct. Aggregate demand shifts right when the government A. decreases taxes. B. cuts military expenditures. C. repeals an investment tax credit. D. None of the above is correct. Which of the following is not a determinant of the long-run level of real GDP? A. the price level. B. the amount of capital used by firms. C. available stock of human capital. D. available technology The long-run aggregate supply curve A. is vertical. B. is a graphical representation of the classical dichotomy. C. indicates monetary neutrality in the long run. D. All of the above are correct. The position of the long-run aggregate supply curve A. is determined by resource usage and technology. B. is at the point where the unemployment rate is zero. C. shifts to the right when the money supply increases. D. is at the point where the economy would cease to grow. The long-run aggregate supply curve shifts right if A. immigration from abroad increases. B. the capital stock increases. C. technology advances. D. All of the above are correct. A. the capital stock increases. B. there is a natural disaster. C. the government removes some environmental regulations that limit production methods. D. None of the above is correct. Which of the following would shift long-run aggregate supply to the right? A. increased immigration from abroad B. a decrease in the price of an imported natural resource C. opening the economy to international trade D. All of the above are correct. Which of the following, other things the same, would make the price level decrease and real GDP increase? A. long-run aggregate supply shifts right B. long-run aggregate supply shifts left C. aggregate demand shifts right D. aggregate demand shifts left The aggregate supply curve is upward sloping in A. the short and long run. B. neither the short nor long run. C. the long run, but not the short run. D. the short run, but not the long run. A. because of contracts, social norms, and notions of fairness. B. because of contracts, but not social norms or notions of fairness. C. because of social norms and notions of fairness, but not contracts. D. None of the above are correct. An unexpected increase in the price level that temporarily lowers real wages and induces more employment and output in an economy, occurs in A. nominal-supply theory. B. stagflation. C. misperceptions theory. D. sticky-wage theory. The misperceptions theory of the short-run aggregate supply curve says that if the price level is higher than people expected, then some firms believe that the relative price of what they produce has A. decreased, so they increase production. B. decreased, so they decrease production. C. increased, so they increase production. D. increased, so they decrease production. Of the following theories, which is consistent with a vertical long-run aggregate supply curve? A. the sticky-wage theory B. misperceptions theory C. both the sticky-wage and misperceptions theories. D. neither the sticky-wage nor the misperceptions theory. if A. the nominal wage they pay their employees was set based on the expected price level. B. prices are costly to adjust and they have set their price at some time in the past but are not ready to change it. C. they believe that the price of their product has risen relative to the price of other products, when in fact the rise in the price of their product reflects an increase in the general price level. D. All of the above are correct. The aggregate demand and aggregate supply model implies monetary neutrality A. only in the short run. B. only in the long run. C. in both the short run and the long run. D. in neither the short run nor long run. Recessions in Canada and Mexico would cause A. the U.S. price level and real GDP to rise. B. the U.S. price level and real GDP to fall. C. the U.S. price level to rise and real GDP to fall. D. the U.S. price level to fall and real GDP to rise. Economic expansions in Europe and China would cause A. the U.S. price level and real GDP to rise. B. the U.S. price level and real GDP to fall. C. the U.S. price level to rise and real GDP to fall. D. the U.S. price level to fall and real GDP to rise. A. foreign economies expand and taxes increase. B. foreign economies expand and taxes decrease. C. foreign economies contract and taxes decrease. D. foreign economies contract and taxes increase. In which case can we be sure real GDP rises in the short run? A. foreign economies expand and government purchases rise. B. foreign economies expand and government purchases fall. C. foreign economies contract and government purchases fall. D. foreign economies contract and government purchases rise. In which case can we be sure real GDP rises in the short run? A. government purchases increase and taxes rise. B. government purchases increase and taxes fall. C. government purchases decrease and taxes rise. D. government purchases decrease and taxes fall. If the government repeals an investment tax credit and increases income taxes, A. real GDP rises, and the price level could rise, fall, or stay the same. B. real GDP falls, and the price level could rise, fall, or stay the same. C. real GDP and the price level rise. D. real GDP and the price level fall. When production costs rise, A. the short-run aggregate supply curve shifts to the right. B. the short-run aggregate supply curve shifts to the left. C. the aggregate demand curve shifts to the right. D. the aggregate demand curve shifts to the left. In the short-run an increase in the costs of production makes A. output and prices rise. B. output rise and prices fall. C. output fall and prices rise. D. output and prices fall. A decrease in the availability of an important major resource such as oil shifts A. aggregate supply right. B. aggregate supply left. C. aggregate demand right. D. aggregate demand left. If there are floods or droughts or a decrease in the availability of raw materials A. aggregate supply shifts right. B. output falls in the short run. C. prices fall in the short run. D. None of the above is correct. An increase in the price level and a reduction in output would result from A. an increase in the money supply. B. an increase in government expenditures. C. a fall in stock prices. D. bad weather in farm states. Which of the following would cause stagflation? A. aggregate demand shifts right B. aggregate demand shifts left C. aggregate supply shifts right D. aggregate supply shifts left Which of the following would cause stagflation? A. rising government expenditures B. rising oil prices C. a falling money supply D. technical progress II. ANALYTICAL PROBLEMS Figure 1 Name possible causes of a shift in the short-run aggregate-supply curve from SRAS1 to SRAS2. could be caused by a decrease in the expected price level. What does Points A and B represent? Point B represents a short-run equilibrium, and Point A represents a long-run equilibrium. Starting from point B and assuming that aggregate demand is held constant, in the long run the economy is likely to experience: a rising price level and a falling level of output, as the economy moves to point A. If the economy starts at Y, then a recession occurs at which point? W. Suppose the economy starts at Y. If aggregate demand increases from AD2 to AD3, then the economy moves to which point? V. Suppose the economy starts at Y. If there is a fall in aggregate demand, then the economy moves to which point? Z in the long run. Suppose the economy starts where LRAS = AD1 = SRAS1. A decrease in short-run aggregate supply would be consistent with the movement to which output level and price level? P2, Y1. If the economy starts at point A, a short-run fall in output would be consistent with a movement to which point? D. If the economy starts at point C, stagflation would be consistent with which point? D. A movement from P1 and Y2, to P2 and Y1 would be consistent with what event? stagflation. Suppose the economy starts at P3 and Y2. If there is a decrease in government purchases, identify the price and output levels that the economy would move to in the short run. P2 and Y1 Suppose the economy starts at P3 and Y2. Explain how government purchases would need to change to move the economy to P2 and Y1. What about taxes? decrease in government purchases, increase in taxes