Download Quiz: Introductory Macroeconomics

Quiz: Introductory Macroeconomics
Date: 3/2/06
(Each question is worth 10 points)
Name:
For Problems 1 and 2, use the chart below:
Aggregate Demand
when I = $600
Aggregate Demand
when I = $550
Aggregate Supply
$3650
3500
3350
3200
3050
2900
$3150
3000
2850
2700
2550
2400
$2900
3000
3100
3200
3300
3400
Price
Level
50
70
90
110
130
150
Suppose that the economy starts in the situation where I = $600 and equilibrium output is $3200 at a price
level of 110. Now suppose that investment falls to $550.
1) What does equilibrium output change to initially, before the price changes?
a.
b.
c.
d.
$3000
$2850
$2700
$2550
ANSWER:
____
2) After the price changes, what is equilibrium output now?
a.
b.
c.
d.
$3000
$2850
$2700
$2550
$3000
ANSWER:
$3100
____ $3200
$3300
3) As a result of the war in Afghanistan, the population of Afghanistan as well as their capital stock was
reduced. This can be illustrated by aggregate supply curve
a.
b.
c.
d.
shifting outward.
becoming flatter.
shifting inward.
becoming more elastic.
ANSWER:
____
4) Educational reforms that result in improved reading and math skills of high school graduates as they
enter the labor force would do what to the aggregate supply curve?
a.
b.
c.
d.
Shift it outward.
Shift it inward.
Move the economy up along the curve.
Move the economy down along the curve.
ANSWER:
____
5) How are aggregate supply and stagflation related?
a.
b.
c.
d.
Stagflation usually causes an adverse shift in aggregate supply.
An adverse supply shift usually causes stagflation.
Stagflation only follows inflation, with no relation to aggregate supply.
There is no relationship between the two.
ANSWER:
____
6) Assume an economy with an upward-sloping aggregate supply curve and an MPC of .80. In the
medium run, an increase in investment spending of $50 billion will increase total income by
a.
b.
c.
d.
$200 billion.
$40 billion.
more than $200 billion.
more than $50 billion but less than $250 billion.
ANSWER:
____
7) During the period from 2001 to 2006, there were be several major cuts in personal income tax rates.
What effect did they have on the value of the multiplier?
a.
b.
c.
d.
They decreased the value of the multiplier.
They had no effect on the multiplier.
They increased the value of the multiplier.
The effect is uncertain.
ANSWER:
____
8) How does an increase in government transfer payments affect aggregate demand? An example of an
increase in transfer payments is an increase in Social Security payments, which increases the disposable
income of the person who receives it.
a. It has the same effect as a tax increase, which lowers AD with a larger
multiplier than a spending decrease.
b. It has the same effect as a tax cut, which increases AD but with a
smaller multiplier than a change in spending.
c. It has the same effect as a spending increase, which increases AD with a
larger multiplier than a tax cut.
d. It has the same effect as a spending decrease, which increases AD with
a larger multiplier than a spending decrease.
ANSWER:
____
9) Which of the above graphs best reflects a supply-sider's view of the impact of an increase in the
personal income tax rate?
a.
b.
c.
d.
1
2
3
4
ANSWER:
____
10) In the graphs above, which line represents the change in the consumption schedule caused by a cut in
the personal income tax as advocated by President George W. Bush in 2001?
a.
b.
c.
d.
C1 in graph (a)
C2 in graph (a)
C1 in graph (b)
C2 in graph (b)
ANSWER:
____