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AP Econ Unit III
Sticky prices means wages are
A decline in the real interest rate
AP Econ Unit III
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Aggregate Model and Fiscal Policy
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Answers
1
A decline in the real interest rate
decrease the crowding out effect
decrease investment spending
increase investment spending
increase taxes
2
Sticky prices means wages are
inflexible in the long run
inflexible in the short run
flexible in the short run
like the floor of a movie theater
3
Natural disaster destroys factories and capital goods
Unemployment decreases
price level decreases
output increases
price level increases
4
Cost-push inflation is caused by
increase in aggregate supply
decrease in aggregate supply
decrease in aggregate demand
increase in aggregate demand
5
If the government tries to reduce inflation, which of the following will most likely happen?
UR will decrease
the real interest rate will increase
the economy will remain at the natural rate of unemployment
UR will increase
6
Components of aggregate demand
households
households, businesses, and government
households, businesses, government, foreign consumers
households and businesses
7
A decrease in taxes results in an increase in
money supply
exports
GDP
unemployment
8
Crowding-out effect occurs when
government spending is offset by a collapse in consumption
increase in government spending are offset by taxes
government spending is offset by loss of investment
restrictive monetary policy raises interest rates
9
Which would not affect aggregate demand?
income taxes
consumer confidence
foreign demand for American exports
productivity
10
Changes in the price level affects the prices of imports and exports
placebo effect
net export effect
interest rate effect
real balances effect
11
An increase in spending in an economy will cause a multiplied increase in GDP because
investment is greater than zero
government spending is greater than zero
investment increases an income decreases
consumption increases as income increases
12
Rise in worker productivity
indeterminate
increase in unemployment
decrease in output
decrease in price level
13
MPC is 0.9. What is the spending multiplier?
10
9
1
5
14
Which of the following is counted as consumption?
a new car
change in inventories
capital goods
home construction
15
I received a raise of $500. If I spend $300 of it
MPC = .4
MPS = .6
MPC = .6
MPS = 1
16
Assume your MPC is 0.8. If your income increases by $10K, your spending will increase by
$8000
$2000
$18,000
$10,000
17
Tax cuts on businesses
classical economists
supply-side economists
monetarists
Keynesian economists
18
Which of the following would cause cost-push inflation?
an increase in government deficit spending
decrease in income taxes
discovery of new sources of energy
decrease in labor productivity
19
More capital stock will
increase SRAS, decrease LRAS, shift PPC inward
increase SRAS, increase LRAS, shift PPC outward
no change in SRAS, increase LRAS, shift PPC outward
increase SRAS, decrease LRAS, no PPC shift
20
Which of the following is an example of expansionary fiscal policy?
increase government spending
increase social security taxes
increase income taxes
decrease government spending
21
Which of the following shifts SRAS to the right?
increase in government spending
rising input prices
new technology
higher wages
22
As a component of aggregate demand, investment refers to the
purchase of stocks and bonds
dividends paid out to shareholders
purchase of new equipment and additional inventories
purchase of land for later resale
23
If consumer confidence rises, then
unemployment increases
price level increases
output decreases
GDP decreases
24
Contractionary fiscal policy fights
stagflation
recession
deflation
inflation
25
Assume an economy is in long-run equilibrium. Following a decrease in AD, which of the following is true?
the UR is equal to the natural rate
the UR is greater than the natural rate
the UR is lower than the natural rate
26
A contractionary supply shock will most likely result in a decrease in
price level
employment
aggregate demand
27
Government borrows money, investment decreases
crowding out effect
net export effect
built-in stability
supply-side economics
28
Which of the following is an example of fiscal policy?
decreasing the discount rate
increasing government expenditures to build highways
increasing the money supply
decreasing the federal funds rate
29
Too much money chasing too few goods
wealth effect
cost-push inflation
income effect
demand-pull inflation
30
International value of the dollar decreases
trade deficit will increase
imports rise
Americans pay less for foreign goods
exports rise
31
When would it be wise to use expansionary fiscal policy?
stagflation
recession
inflation
Obamanation
32
If an economy is in a recession, in the long run
falling wages will shift aggregate demand to the right
rising wages will shift aggregate supply to the right
falling wages will shift aggregate supply to the right
rising wages will shift aggregate demand to the right
33
A tax reduction will increase the GDP if
the economy lacks built-in stability
the economy has a large MPC
the economy has a small MPC
the economy has a small multiplier
34
Expansionary fiscal policy
spending up, taxes down
spending down, taxes up
spending up, taxes up
spending down, taxes down
35
Outward shift of PPC
leftward shift of LRAS
rightward shift of LRAS
increase in AD
decrease in AS
36
Which of the following would lead to stagflation?
a rightward shift of SRAS
a leftward shift of aggregate demand
a leftward shift of SRAS
a rightward shift of aggregate demand
37
improvement in technology
AD increase
AS decrease
AD decrease
AS increase
38
Contractionary fiscal policy
decreasing personal income taxes
increase transfer payments
increasing personal income taxes
increase the reserve requirement
39
An increase in savings
increases aggregate demand
decreases aggregate supply
decreases aggregate demand
shifts LRAS left
40
If MPC is 0.75, then
the spending multiplier is 3
the tax multiplier is 4
there is no multiplier
the spending multiplier is 4
41
Which would shift AD left?
foreigners demand more American goods
businesses expect lower sales in the future
government increases its level of spending
increase in consumer confidence
42
The components of GDP
savings, taxes, imports, exports
consumption, investment, net exports, decpreciation
imports, exports, rents, wages
consumption, investment, government spending, net exports
43
A rightward shift of AD
no change
UR down, PL up
UR up, PL up
UR down, PL down
44
If the MPC is 0.9, what is the tax multiplier?
-9
-5
-8
-10
45
Investment demand increases as a result of
recessions in nations that trade with the US
businesses becoming more optimistic
an increase in corporate income taxes
excess productive capacity
46
If taxes increase, GDP will
increase
decrease
stay the same
47
An advantage of automatic stabilizers in fiscal policy is that they
stabilize the unemployment rate
reduce the public debt
go into effect without the passage of new legislation
increase the possibility of a balanced budget
48
Federal budget deficit
more money is spent on entitlement programs
the federal government spends more than it collects in taxes
high unemployment use up tax collections
the IRS spends more than it collects in taxes
