Download Sample Questions_Chap 24

Exam
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1) Which of the following characteristics define the short run in macroeconomics?
A) Factor prices adjust to output gaps, and technology and factor prices are changing.
B) Factor prices are exogenous, technology and factor prices are endogenous.
C) Factor prices adjust to output gaps, and technology and factor supplies are constant.
D) Factor prices are exogenous, and technology and factor supplies are constant.
E) Factor prices are exogenous, and technology and factor supplies are changing.
2) A recessionary output gap implies that
A) the intersection of AD and AS occurs where real GDP exceeds potential output.
B) the economyʹs resources are being used at more than their normal capacity.
C) the demand for all factor services will be relatively low.
D) there is upward pressure on wages.
E) none of the above.
3) A common assumption among macroeconomists is that when real GDP is less than potential output, factor
prices adjust and the
A) AS curve shifts to the right only very slowly.
B) AD curve shifts to the left rapidly.
C) AS curve shifts to the left fairly rapidly.
D) AS curve shifts to the right very rapidly.
E) none of the above -- the AS curve remains unchanged.
4) If the economy in the short run is experiencing a recessionary gap, we are likely to see
A) the number of employment-insurance recipients the lowest ever.
B) consumers optimistic about the future.
C) rising output prices.
D) many workers receiving employment-insurance benefits.
E) severe labour shortages.
The table below shows data for five economies of similar size. Real GDP is measured in billions of dollars. Assume that potential output
for each economy is $340 billion.
Economy A
Economy B
Economy C
Economy D
Economy E
Real GDP
300
320
340
360
380
Rate of Wage Change
-1%
-0.5%
0%
+3%
+6%
TABLE 24-1
5) Refer to Table 24-1. Which of the following statements explains why wages are rising in Economy E?
A) Potential output is rising, putting upward pressure on wages.
B) The aggregate supply curve is shifting to the right, which is causing wages to rise.
C) The aggregate demand curve is shifting to the right, causing wages to rise.
D) The inflationary gap generates excess demand for labour, which causes wages to rise.
E) The inflationary gap generates lower profits for firms because workers are demanding higher wages.
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6) Consider an AD/AS model in long-run equilibrium. An output gap, caused by a leftward shift of the AD curve,
would be eliminated if
A) wages and other factor prices fell quickly.
B) prices rose quickly.
C) the AS curve shifted upward.
D) wages rose quickly.
E) real national income decreased.
7) Consider the basic AD/AS macro model. A negative AS shock will ________ the price level and ________
output in the short run. In the long run, the price level will ________ and output ________.
A) increase; decrease; increase further; will be restored to potential output
B) increase; increase; increase further; will be restored to potential output
C) decrease; decrease; decrease further; will decrease further
D) decrease; decrease; decrease further; will be restored to potential output
E) increase; decrease; decrease; will be restored to potential output
8) Consider the AD/AS model. In the long run, after factor prices have fully adjusted to any output gaps, real
GDP
A) and the price level are determined by aggregate demand.
B) is determined by aggregate demand and the price level by potential output.
C) is determined by potential output and the price level by aggregate demand.
D) is determined by AD and the price level is determined by the AS curve.
E) and the price level are determined by ʺlong-run aggregate supplyʺ.
9) The main source of increases in material living standards over the long term is the
A) continual avoidance of recessionary gaps.
B) continuous outward shift of aggregate demand.
C) positive slope of the aggregate supply curve.
D) continual increase in potential national income.
E) maintenance of a continuous inflationary gap.
10) Consider the basic AD/AS model, and suppose there is a negative output gap. If an expansionary fiscal policy
is pursued and the AS curve shifts right unexpectedly, the fiscal policy may be ________, and real GDP may
________ potential GDP.
A) too strong; stay below
B) too strong; rise above
C) too weak; rise above
D) too weak; stay below
E) appropriate; equal
11) Which of the following statements about fiscal policy is an example of ʺfine tuningʺ?
A) The government cuts taxes to remove a large and persistent recessionary gap.
B) The government uses automatic stabilizers to reduce any output gaps.
C) The government consistently uses its spending powers to hold real GDP at potential.
D) The government increases its spending to reduce an inflationary gap.
E) The government increases tax rates to decrease an inflationary gap.
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12) The ʺparadox of thriftʺ refers to the understandable tendency of worried people to ________ their saving, but
in aggregate it causes a ________ recession.
A) decrease; less severe
B) increase; more severe
C) increase; shorter
D) increase; less severe
E) decrease, more severe
13) Suppose that the government announces temporary tax cuts to stimulate consumersʹ consumption
expenditures but the impact of this tax change on consumption is observed to be very small. This outcome
might be explained by the fact that
A) this economy is already at its long-run equilibrium.
B) the government has little credibility.
C) the impact of the policy is dampened by the automatic fiscal stabilizers.
D) this economy is suffering from the paradox of thrift.
E) the consumers anticipate that the tax change is only temporary and thus is unlikely to affect their
ʺlifetimeʺ income.
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Answer Key
Testname: SAMPLE QUESTIONS_CHAP 24
1) D
ID: econ12 24-1
Diff: 2
Topic: 24.1a. time spans in macroeconomics
2) C
ID: econ12 24-10
Diff: 1
Topic: 24.1b. output gaps and the adjustment of factor prices
3) A
ID: econ12 24-20
Diff: 1
Topic: 24.1b. output gaps and the adjustment of factor prices
4) D
ID: econ12 24-30
Diff: 1
Topic: 24.1b. output gaps and the adjustment of factor prices
5) D
ID: econ12 24-40
Diff: 2
Topic: 24.1b. output gaps and the adjustment of factor prices
6) A
ID: econ12 24-50
Diff: 2
Topic: 24.2a. AD shocks
7) E
ID: econ12 24-60
Diff: 3
Topic: 24.2b. AS shocks
8) C
ID: econ12 24-70
Diff: 2
Topic: 24.2c. long-run equilibrium and potential output
9) D
ID: econ12 24-80
Diff: 1
Topic: 24.2c. long-run equilibrium and potential output
10) B
ID: econ12 24-90
Diff: 3
Topic: 24.3a. discretionary fiscal stabilization policy
11) C
ID: econ12 24-100
Diff: 2
Topic: 24.3a. discretionary fiscal stabilization policy
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Answer Key
Testname: SAMPLE QUESTIONS_CHAP 24
12) B
ID: econ12 24-110
Diff: 2
Topic: 24.3c. paradox of thrift
13) E
ID: econ12 24-120
Diff: 3
Topic: 24.3d. limitations of fiscal policy
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