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Practice Questions
Chapters 26, 27 and 28
Use the figure below to answer the following questions.
Figure 26.1.1
1) Refer to Figure 26.1.1. Which graph illustrates what happens when
factor prices decrease?
A) (a)
B) (b)
C) (c)
D) (d)
E) (a) and (b)
1) _______
2) Which of the following does not change short-run aggregate supply?
A) A change in expected future profits.
B) A change in the full-employment quantity of labour.
C) A change in the money wage rate.
D) An increase in the quantity of capital.
E) Technological change.
2) _______
3) A vertical long-run aggregate supply curve indicates that
A) output rates greater than the long-run output rate are unattainable.
B) an increase in the price level will not expand an economy's output
in the long run.
C) an increase in the price level will increase technological change
and economic growth.
D) an increase in the price level will permit the economy to achieve a
higher level of output.
E) the long-run aggregate supply curve never shifts.
3) _______
4) If the money wage rate falls, then
A) the SAS curve shifts rightward.
B) firms hire less labour.
C) the AD curve shifts rightward.
D) the LAS curve shifts rightward.
E) C and D.
4) _______
5) Which one of the following variables is not held constant along a given
aggregate demand curve?
A) fiscal policy
B) real income
C) the price level
D) expectations about inflation
E) tax rates
5) _______
6) Everything else remaining the same, an increase in the quantity of
money
A) creates a movement down along the aggregate demand curve.
B) shifts the aggregate demand curve rightward.
C) shifts the aggregate supply curve leftward.
D) shifts the aggregate demand curve leftward.
E) shifts the aggregate supply curve rightward.
6) _______
7) Which of the following does not change aggregate demand?
A) A change in monetary policy.
B) An increase in expected future income.
C) An advance in technology.
D) A rise in the exchange rate.
E) A change in fiscal policy.
7) _______
8) When the actual unemployment rate is equal to the natural
un employ
ment
8)
rate, then
the
__
__
__
_
A)
B)
C)
D)
E)
the money wage rate will rise.
economy is operating at potential GDP.
long-run aggregate supply curve is upward sloping.
short-run aggregate supply curve is vertical.
inflation rate must be zero.
Use the figure below to answer the following questions.
Figure 26.3.1
9) Refer to Figure 26.3.1. Econoworld is at its short-run macroeconomic
equilibrium. There is a difference between ________ real GDP and
potential GDP of $________ billion.
A) below full-employment equilibrium; 20
B) above full-employment equilibrium; 40
C) above full-employment equilibrium; 20
D) below full-employment equilibrium; 40
E) full-employment equilibrium; 0
10) Refer to Figure 26.3.1. If Econoworld automatically adjusts to a long-run
equilibrium, then in the long-run macroeconomic equilibrium
A) the price level is 70.
B) real GDP is $440 billion.
C) potential GDP is greater than in the short run.
D) actual unemployment exceeds the natural unemployment rate.
E) both A and B.
9) _______
10) ______
Use the figure below to answer the following questions.
Figure 26.3.3
11) Refer to Figure 26.3.3. In which of the graphs would we predict that
eventually the price level will fall and real GDP will decrease, all else
remaining the same?
A) (a)
B) (b)
C) (c)
D) (d)
E) none of the graphs
11) ______
12) Beginning at a long-run equilibrium, an increase in aggregate demand
A) increases the price level and in the long run decreases real GDP.
B) increases the price level, but in the long run there is no change in
real GDP.
C) decreases the price level and in the long run increases real GDP.
D) decreases the price level and in the long run decreases real GDP.
E) increases the price level and in the long run increases real GDP.
12) ______
13) Consider an economy starting from a position of full employment.
Which one of the following occurs as a result of an advance in
technology?
A) The price level falls.
B) Real GDP decreases in the short run.
C) The long-run aggregate supply curve shifts leftward to create the
new long-run equilibrium.
D) An inflationary gap arises.
E) Factor prices rise in the long run, shifting the short-run aggregate
supply curve leftward.
13) ______
14) The marginal propensity to consume is calculated as
A) consumption expenditure divided by total disposable income.
B) consumption expenditure divided by the change in disposable
income.
C) the change in consumption expenditure divided by the change in
disposable income.
D) the change in consumption expenditure divided by saving.
E) the change in consumption expenditure divided by disposable
income.
14) ______
15) If the marginal propensity to consume is 0.85, what change in
consumption expenditure would you expect if disposable income
increases by $200 million?
A) $20 million
B) $18 million
C) $180 million
D) $1,800 million
E) $170 million
15) ______
Use the table below to answer the following questions.
Table 27.1.2
Disposable Income Consumption Expenditure
(dollars)
(dollars)
325
325
400
375
475
425
550
475
625
525
16) Refer to Table 27.1.2. When saving is zero, what is the level of
dis posable
income? 16)
A) $325
___
___
B) $625
C) $400
D) $475
E) $550
17) Refer to Table 27.1.2. What is the value of the marginal propensity to
save?
A) 0.67
B) 1.33
C) 0.33
D) 0.25
E) 0.27
17) ______
18) The marginal propensity to import is equal to ________.
A) imports minus exports
B) the change in imports divided by the change in real GDP that
brought it about, other things remaining the same
C) disposable income minus consumption expenditure minus saving
divided by real GDP
D) 1 - MPC
E) the change in net imports divided by the change in disposable
income, other things remaining the same
18) ______
19) If aggregate planned expenditure exceeds real GDP, then inventories
A) increase and real GDP falls.
B) decrease and real GDP decreases.
C) decrease and real GDP increases.
D) increase and real GDP increases.
E) remain constant and real GDP remains constant.
19) ______
20) Which one of the following variables has an induced component?
A) exports
B) government expenditure on goods and services
C) consumption
D) investment
E) all of the above
20) ______
21) Which one of the following will lead to an increase in the slope of the
AE function?
A) a decrease in the marginal propensity to save
B) an increase in the marginal propensity to import
C) a decrease in the marginal propensity to consume
D) an increase in the marginal propensity to save
E) an increase in the marginal tax rate
21) ______
22) The formula for the multiplier in an open economy is
A) 1/(1 - slope of the AE curve).
B) 1/(1 + marginal propensity to import).
22) ______
C) 1/(1 - marginal propensity to import).
D) 1/(1 + slope of the AE curve).
E) 1/(1 - MPC).
Use the figure below to answer the following question.
Figure 27.3.2
23) In Figure 27.3.2, the multiplier is
A) 1.00.
B) 10.
C) 2.50.
23) ______
D) 0.25.
E) 1.60.
24) A shift in the aggregate expenditure curve as a result of a rise in the
price level,
A) creates a movement up along the aggregate demand curve.
B) shifts the aggregate demand curve leftward.
C) has no effect on the aggregate demand curve.
D) creates a movement down along the aggregate demand curve.
E) shifts the aggregate demand curve rightward.
24) ______
25) Suppose that investment decreases by $15 billion. If the multiplier is 2.5,
the aggregate demand curve
A) shifts upward by a vertical distance of $37.5 billion.
B) shifts leftward by a horizontal distance greater than $37.5 billion.
C) is not affected.
D) shifts leftward by a horizontal distance of $37.5 billion.
E) shifts leftward by a horizontal distance less than $37.5 billion.
25) ______
26) Which of the following would cause the aggregate demand curve to
keep shifting rightward year after year?
A) A one-time increase in government expenditures on goods and
services.
B) A persistent increase in the quantity of money.
26) ______
C) Inflation.
D) Excess wage demands.
E) A one-time tax cut.
27) Which one of the following can create a demand-pull inflation?
A) Higher wages negotiated by unions.
B) A cut in the interest rate.
C) A sharp increase in the price of oil.
D) A decrease in government expenditure on goods and services.
E) A decrease in investment as a result of a decrease in expected
future profits.
27) ______
Use the figure below to answer the following questions.
Figure 28.1.2
28) Refer to Figure 28.1.2. The economy is in long-run equilibrium. If the
short-run aggregate supply curve shifts leftward from SAS0 to SAS1,
28) ______
ceteris paribus, then people expected
A) the price level to rise to 110.
B) a 15 percent inflation.
C) the real wage rate to fall by 10 percent.
D) a 10 percent inflation.
E) a real GDP decrease of $50 billion.
29) An economy is in long-run equilibrium when aggregate supply
unexpectedly decreases. Then real GDP (ceteris paribus) will be
A) above potential GDP.
B) below potential GDP.
C) either above or equal to potential GDP depending on the position
of the aggregate demand curve.
D) either above, below, or equal to potential GDP depending on the
position of the aggregate demand curve.
29) ______
E) equal to potential GDP.
30) For a given expected inflation rate, the higher the unemployment rate,
the lower is the actual inflation rate. This relationship is the ________
Phillips curve. When the expected inflation rate changes, this is shown
as a movement along the ________ Phillips curve.
A) long-run; natural
B) natural; short-run
C) long-run; long-run
D) short-run; long-run
E) short-run; short-run
30) ______
31) If the natural unemployment rate increases, the long-run Phillips curve
________, the short-run Phillips curve ________, and the expected
inflation rate ________.
A) shifts rightward; shifts rightward; falls
B) shifts rightward; shifts rightward; does not change
C) does not shift; does not shift; does not change
D) does not shift; shifts rightward; rises
E) shifts rightward; curve does not shift; falls
31) ______