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________________________ Name: Class: ___________________ Date: __________ ID: A Test 2 Figure 10-8 5. If the economy is in a recessionary gap and the price level falls very slowly, then the result will be a prolonged period of a. high unemployment. b. production above potential GDP. c. shortages in supply. d. inflation whenever supply increases. 6. The slope of the consumption function is measured by the marginal propensity to save. 7. If the stock market falls by 25 percent next year and remains down, what is most likely to happen to the consumption function? a. It will shift downward. b. It will shift upward. c. It will not shift, but people will move upward along the consumption function. d. It will not shift, but people will move downward along the consumption function. 8. If total spending is greater than current output, GDP will rise. Figure 10-1 1. Figure 10-8 illustrates a period of a. low unemployment and high inflation. b. high unemployment and low inflation. c. high unemployment and high inflation. d. low unemployment and low inflation. 2. Households can finance their consumer spending from current a. none of them. b. income and current wealth. c. wealth. d. income. 3. If consumers receive an increase in income of $1,000, their spending will increase by a smaller amount. 4. The aggregate supply curve will shift to the left if a. the capital stock of the economy increases. b. the money wage rate increases. c. technology and productivity increase in the economy. d. energy prices fall. 9. If the price level in Figure 10-1 were 100, a. inventories would be accumulating. b. firms would have to lower their prices. c. shortages of goods would exist. d. aggregate quantity supplied would exceed aggregate quantity demanded. 1 Name: ________________________ 10. If the price level in Figure 10-1 were 110, a. inventories would be accumulating. b. firms would have to lower their prices. c. shortages of goods would exist. d. aggregate quantity demanded would equal aggregate quantity supplied. 11. The aggregate supply curve slopes a. downward because firms can hire more workers at lower prices. b. upward because firms can hire labor at fixed wages for short-run periods. c. downward because firms can sell more at lower prices. d. upward because firms want to hire more workers at higher wage levels. Table 9-1 Output 1000 1500 2000 2500 3000 3500 4000 Consumption 800 1200 1600 2000 2400 2800 3200 Investment 500 500 500 500 500 500 500 Gov. Spending 100 100 100 100 100 100 100 ID: A 12. Identify the "oversimplified multiplier formula." a. Multiplier = 1 divided by (1 - change in GDP) b. Multiplier = 1 divided by (1 - marginal propensity to save) c. Multiplier = 1 divided by (1 - marginal propensity to consume) d. Multiplier = 1 divided by (1 - rate of inflation) 13. In Table 9-1, the equilibrium real GDP is at a. decreasing by 2000. b. decreasing by 3500. c. increasing by 2500. d. increasing by 3000. 14. If an increase in investment of $100 billion generates an increase of $500 billion in real GDP, the multiplier is a. 5.00. b. 50. c. 20. d. 1.50. 15. Given the slope of the aggregate demand curve, real GDP demanded will decrease along the curve when a. personal wealth increases. b. the price level increases. c. the technological level increases. d. the government expenditure increases. 2 Name: ________________________ Figure 10-7 ID: A 20. A decrease in disposable income will a. shift the consumption function upward. b. lead to an upward movement along the consumption function. c. lead to a downward movement along the consumption function. d. shift the consumption function downward. 21. For a given price level, an upward shift of the expenditures schedule caused by an increase of government spending corresponds to an a. outward shift of the aggregate supply curve. b. inward shift of the aggregate demand curve. c. inward shift of the aggregate supply curve. d. outward shift of the aggregate demand curve 22. If resource prices are fixed and the selling price rises, then a. profits will decrease. b. both profits and output will decrease. profits c. will remain constant. d. profits will increase. 23. A change in the aggregate price level moves the economy along a given aggregate demand curve. 24. In comparison to the oversimplified formula for the multiplier, the real-world multiplier is a. higher. b. lower. c. higher if taxes are included. d. almost equal to it. 25. Which of the following groups would most likely to benefit from inflation? a. borrowers b. lenders c. creditors d. pensioners 26. Whenever the aggregate supply curve is upward sloping, the multiplier a. is smaller. b. does not change. c. depends on the level of spending. d. is bigger. 27. Aggregate demand is the total demand for the final goods and services produced in an economy. 16. Which of the panels in Figure 10-7 shows an economic expansion caused primarily by a change in aggregate demand? a. Panel (A) b. Panel (D) c. Panel (B) d. Panel (C) 17. If the expenditure schedule lies above the level of potential GDP, then there is a(n) a. inflationary gap. b. precautionary gap. c. deflationary gap. d. recessionary gap. 18. Actual GDP below potential GDP will shift the aggregate supply curve to the left and the price level will increase. 19. An inflationary gap will exist when a. there is downward pressure on prices. b. expenditures are not equal to aggregate demand. c. equilibrium GDP is greater than potential GDP. d. aggregate demand grows more slowly than aggregate supply. 3 Name: ________________________ 28. Technological change or the effects of automation cause a. frictional unemployment. b. structural unemployment. c. cyclical unemployment. d. seasonal unemployment. 29. The basic idea behind the multiplier is that an increase in a. price brings about an additional, larger increase in GDP. b. government spending causes a larger increase in tax revenues. c. consumer spending causes a larger increase in investment spending. d. spending will cause an even larger increase in equilibrium GDP. 30. Which of the following scenarios best illustrates the concept of cyclical unemployment? a. Ellen quits looking for work because she doesn't think she can find a suitable job. b. Marian loses her job because of a recession. c. Sean quits his job to look for work that is more fun. d. Grace loses her job because of new automated machinery. 31. The MPC in the U.S. economy has been estimated to be near 0.90. If this is an accurate measure, then the numerical value for the oversimplified multiplier would be a. 0.9. b. 9.0. c. 10.0. d. 1.9. 32. Free markets coordinate economic activity in such a way as to eliminate the possibility of inflation or unemployment. 33. The aggregate demand curve a. slopes upward. b. slopes downward. c. is perfectly horizontal. d. is perfectly vertical. ID: A 34. The rate of interest written on a loan contract between a borrower and a bank is the a. implied interest rate. b. expected interest rate. c. nominal interest rate. d. real interest rate. 35. For most firms in the economy, the largest part of factor costs is the cost of a. property and machinery. b. labor. c. capital. d. land and natural resources. 36. In a market economy, the decisions about what to produce and how much of each good or service to produce are made by a. economic planners. b. consumers and producers. c. central bankers. d. government officials. 37. Equilibrium GDP below potential GDP will cause the aggregate a. demand curve to shift outward. b. supply curve to shift outward. c. demand curve to become flatter. d. supply curve to shift inward. 38. In a capitalist market economy, the decision to save is made by the same people who make the major investment decisions. 39. A price level lower than equilibrium will cause quantity supplied to exceed quantity demanded. 40. The large recessionary gap of the 2007-2009 crisis led to a decrease in the price level in the U.S. 4 ID: A Test 2 Answer Section 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. C B T B A F A T C D B C D A B D A F C C D D T B A A T B D B C F B C B B B F F T 1 ... View Full Document

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