Download Modules 16-21

Section 4 Review (Modules 16-21)
Multiple Choice
Identify the choice that best completes the statement or answers the question.
____
1. If the planned aggregate spending rises by $10 billion and the MPC is .75, then GDP changes by:
A. $2.5 billion.
B. - $10 billion.
C. $10 billion.
D. $40 billion.
E. - $40 billion.
____
2. If the planned aggregate spending rises by $25 billion and the MPC is .8, then GDP changes by:
A. $25 billion.
B. $125 billion.
C. - $25 billion.
D. $250 billion.
E. $100 billion.
____
3. A movement along the aggregate demand curve is caused by a:
A. a change in the aggregate price level.
B. an increase in consumer spending.
C. a fall in commodity prices.
D. a reduction in government spending.
E. a decline in net exports.
____
4. Which of the following will shift the AD curve to the right?
A. an increase in wealth
B. pessimism about the future of the economy
C. a decrease in government spending.
D. a decrease in productivity
E. an increase in commodity prices.
Figure 18-2: Aggregate Supply
____
5. Use the “Aggregate Supply” Figure 18-2. At point F, potential output is:
A. less than actual output and unemployment is high.
B. less than actual output and unemployment is low.
C. greater than actual output and unemployment is high.
D. greater than actual output and unemployment is low.
E. equal to actual output and unemployment is zero.
____
6. As an inflationary gap is eliminated through self-correcting adjustment, the equilibrium price level ________
and the equilibrium real output ________.
A. increases; decreases
B. increases; increases
C. decreases; decreases
D. decreases; increases
E. remains constant; decreases
Figure 19-6: AD–AS Model I
____
7. Use the “AD–AS Model I” Figure 19-6. If the economy is at point X, which of the following describes the
likely adjustment to long-run equilibrium?
A. Nominal wages decrease, and the aggregate demand curve shifts left until the economy
reaches long-run equilibrium.
B. Nominal wages increase, and the aggregate demand curve shifts right until the economy
reaches long-run equilibrium.
C. Nominal wages decrease, and the short-run aggregate supply curve shifts right until the
economy reaches long-run equilibrium.
D. Nominal wages decrease, and the short-run aggregate supply curve shifts left until the
economy reaches long-run equilibrium.
E. Nominal wages increase, and the short-run aggregate supply curve shifts right until the
economy reaches long-run equilibrium.
____
8. When actual output is above potential output, in the absence of deliberate monetary or fiscal policy:
A. nominal wages will increase, and the short-run aggregate supply curve will shift to the
right.
B. nominal wages will increase, and the short-run aggregate supply curve will shift to the left.
C. the aggregate demand curve will shift to the right.
D. the short-run aggregate supply curve will shift to the right.
E. nominal wages will increase, and the aggregate demand curve will shift to the left.
____
9. Suppose the government increases taxes by more than is necessary to close an inflationary gap. Which of the
following would most likely be the end result?
A. Equilibrium real GDP will be more than anticipated.
B. The economy could move into a recession.
C. The economy will generate a larger inflationary gap than anticipated.
D. This will not have any adverse effects on the economy, since inflation has been abated.
E. The unemployment rate will continue to decline.
____ 10. Suppose the government increases spending more than is necessary to close a recessionary gap. Which of the
following is likely to be the end result?
A. The economy will experience inflation.
B. The price level will decline.
C. The equilibrium real GDP will fall.
D. The equilibrium real GDP will rise, but still fall short of potential GDP.
E. The unemployment rate will continue to rise.
____ 11. Suppose that marginal propensity to consume is equal to 0.9, and the government increases its spending by
$200 billion. This new increase in spending is financed by a fresh increase in taxes equal to $200 billion. As a
result of this, GDP will:
A. not change at all.
B. decrease by $200 billion.
C. increase by $2,000 billion.
D. increase by $200 billion.
E. increase by $1,800 billion.
____ 12. Assume that marginal propensity to consume is 0.8, and potential output is $800 billion. The tax multiplier is:
A. 0.8.
B. 1.25.
C. 5.
D. 4.
E. 8.
____ 13. The multiplier effect of changes in government transfers is equal to:
A. 1/(1 – MPS).
B. 1/(1 – MPC).
C. MPC/(1 – MPC).
D. MPS/(1 – MPC).
E. 1/MPC
____ 14. Suppose the economy is currently experiencing a recessionary gap. Which of the following fiscal policy
options is most likely to increase real GDP by the largest amount?
A. a decrease in taxes
B. an increase in government purchases
C. an increase in transfer payments
D. an increase in government purchases, paid for by an increase in taxes.
E. an increase in taxes.
____ 15. Assume that the MPC = 0.8 and the government increases spending by $100 billion, financing this spending
with a $100 billion tax increase. Which of the following will be the likely effect of this action?
A. Real GDP will contract by $200 billion.
B. Real GDP will contract by $100 billion.
C. Real GDP will expand by $500 billion.
D. Real GDP will expand by $400 billion.
E. Real GDP will expand by $100 billion.
Section 4 Review (Modules 16-21)
Answer Section
MULTIPLE CHOICE
1. ANS:
SKL:
2. ANS:
SKL:
3. ANS:
SKL:
4. ANS:
SKL:
5. ANS:
SKL:
6. ANS:
SKL:
7. ANS:
SKL:
8. ANS:
SKL:
9. ANS:
SKL:
10. ANS:
SKL:
11. ANS:
SKL:
12. ANS:
SKL:
13. ANS:
SKL:
14. ANS:
SKL:
15. ANS:
SKL:
D
PTS:
Analytical Thinking
B
PTS:
Analytical Thinking
A
PTS:
Concept-Based
A
PTS:
Critical Thinking
C
PTS:
Analytical Thinking
A
PTS:
Critical Thinking
C
PTS:
Analytical Thinking
B
PTS:
Analytical Thinking
B
PTS:
Analytical Thinking
A
PTS:
Analytical Thinking
D
PTS:
Analytical Thinking
D
PTS:
Analytical Thinking
C
PTS:
Analytical Thinking
B
PTS:
Analytical Thinking
E
PTS:
Critical Thinking
1
DIF: D
REF: Module 16
1
DIF: D
REF: Module 16
1
DIF: M
REF: Module 17
1
DIF: M
REF: Module 17
1
DIF: D
REF: Module 18
1
DIF: D
REF: Module 19
1
DIF: D
REF: Module 19
1
DIF: D
REF: Module 19
1
DIF: D
REF: Module 20
1
DIF: D
REF: Module 20
1
DIF: D
REF: Module 21
1
DIF: D
REF: Module 21
1
DIF: D
REF: Module 21
1
DIF: D
REF: Module 21
1
DIF: D
REF: Module 21