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Module 3 Instructor's Practice/Study QuestionsPart 1: Completion1. A higher price level will cause the value of income to _________and interest rates and U.S. imports to __________.2. Decrease in taxes and/or a drop in the foreign exchange value of the dollar are likely tocause aggregate demand (AD) to _________ and _________ inflation if aggregate supply(AS) does not change.3. Higher input prices and/or depletion of raw materials are likely to cause aggregate supply to__________ and ______________ inflation if aggregate demand does not change.4. A shift in the LRAS curve to the right represents ____________.5. A diagram with AS and AD curves has _________ on the vertical axis and real_______ on the horizontal axis. 6. In the diagram described above in number 5, the short run AS curve slopes _______to the right and the AD curve slopes ________.7. A diagram (such as that described in number 5 and 6 above) with a second AD curve that is further to the right than the first one would illustrate _____________ inflation. 8. As disposable income rises, consumption and saving _____________.9. If household X buys $160,000 worth of goods and services with the use of credit cards, bank loans and past savings in a year when its disposable income is $50,000, the household is _______________.10. Supply-side inflation is shown in a graph with a down sloped AD curve and a shift of the ____________ curve to the left.For 11 - 18, remember ceteris paribus. (Chapter 1.)11. A 20 percent increase in federal spending on transportation in 2005 would likelycause a ____________ in employment and national income.12. A lower individual income tax rate will cause a rise in ___________ income.13. A reduction in federal excise taxes on gasoline, telephone and air travel would likely cause ______________ and ___________ to rise. 14. A reduction in federal government spending on income security is likely to causea fall in the ________level.15. A fall in the individual income tax rate will cause the ________ rate to fall.16. A lower corporate profit tax rate is very likely to cause a rise in _________by businesses.
17. Greater government spending on national defense and/or another federal programwill lead to a rise in ____________, ____________, and _____________.18. A lower payroll tax rate will lead to a rise in ___________.19. Suppose each month your disposable income is $1000 and each month you spend$1000. In this case, your APC is ___________ percent.20. Suppose for 5 consecutive months your disposable income rises by $200 and each month you spend $170 of the additional income. In this case, your MPC is _____percent. Part 2: MatchingDirections: *Beside each number 1- 28, write the term or word(s) from the list below that correctly completes each statement. *A word or term may be used more than once.*All words or terms are NOT to be used.