Answer Page--Unit Three

Rachel Williams (1-10)

1) Which of these trends is incorrectly matched with the effect it would have on aggregate demand?

d. increase in household debt – increase in AD


2) Which of these economic scenarios represents an automatic stabilizer during a expansionary fiscal policy?

e. More families qualify for welfare benefits due to a recessionary slump in the economy.


3) If a country’s marginal propensity to consume is .8, what would their decrease in GDP be if taxes were raised by $400?

b. $1600


4) Which of the following is NOT true of the Phillips curve?

b. A contractionary period would shift the Philips curve to the right


5) If a country’s marginal propensity to save is .4, which of the following is NOT true?

c. The investment multiplier would be 1.67


6) Based on cost-benefit analysis, which of the following projects is incorrectly matched with the smart investment decision?

a. Invest - A $75 return is acquired from a project that cost $85.


7) Which of these descriptions of an AD/AS graph would NOT signify the need for expansionary efforts?

d. An artificial increase in aggregate demand causes cost-push inflation, moving the AD curve to the right.


8) Which of the following is not true about the economic issue of “crowding-out”?

e. It occurs when an expansionary monetary policy is implemented without an expansionary fiscal policy.


9) Which of the following is NOT true of the above graph?

c. An increase in taxes always leads to an increase in revenue.


10) Which of these economic situations would NOT cause the shift in the graph shown above?

a. A large amount of nonrenewable resources are discovered in Indonesia, causing input prices to decrease.


David Hurst (11-20)

11. In which of the following ways does the real-balance effect influence price level and real GDP?

e. Interest rates: Decrease, Quantity of Money: Decrease


12) The relationship between inflation rate and unemployment rate is shown in the

c. Phillips curve


13) In which of the following ways does the crowding-out effect influence interest rates and quantity of money?

c. Interest rates: Increase, Quantity of Money: No change


14) The market price of bonds can vary depending on

a. I only


15. The following graph best shows which of the following economic cycle conditions?
d. Recession

16. The term monetary policy can be most accurately explained as:

c. III only


17. A decline in the aggregate demand will primarily affect real output and employment only if prices are:

b. inflexible downward


18. A change in domestic resource prices, prices of imported resources, and market power are all factors that can primarily shift the:

b. aggregate supply curve


19. Which of the following are factors that cause aggregate demand down-slopping?

e. I, II, and III


20. According to the graph, in which the AD is the “before” curves and AD1, AD2, and AD3 are the “after curves. Other things equal, a decline in net exports caused by a change in comes abroad is depicted by which curve?

a. AD1



Susan Speaker (21-30)

21. What is the size of the labor force? (Use above information)

d) 840


22. What is the unemployment rate? (Use above information)

c) 4.7%


23. GDP is $12 million, consumer spending is $8 million, government spending is $4 million, exports are $3 million, and imports are $4. How much is spent for investments?

a) $ 2 million


24. Which of the following would cause this shift?

c) Prices of inputs increase


25. What is a fiscal policy action that would be appropriate during a period of rapidly increasing CPI?

b) Increase personal income taxes


26. When combating a recession, which of the following fiscal policy actions should be taken?

b) Taxes: decrease government spending: increase


27. When the change in the graph above occurs, what fiscal policy should be taken?

c) Increase personal income taxes


28. If a government increases expenditures, how will it affect output, price level and employment?

e) Output: Increase Price level: Increase employment: Increase


29. How will an increase in personal income taxes affect output, price level and employment?

c) Output: Decrease Price level: Decrease employment: Decrease


30. How will a decrease in business taxes and regulations affect output, price level and employment?

b) Output: Increase Price level: Decrease employment: Increase


Anthony Farber (31-40)
31. A leftward shift in aggregate demand will cause employment and price level change in which ways?
d) Decrease/ Decrease

32. The economies automatic stabilizers include:
d) 1 and 11 only

33. What is the size of the labor force?
d) 3,000

34.
What is the unemployment rate?
e) Not given

35. If Susan's disposable income increases from $550 to $600 and her level of personal consusmption expenditures increase from $430 to $480, you may conclude that her marginal propensity to
b) consume is 0.8

36. Which of the following is NOT an aggregate demand shifter?
d) government regulations

37. The investment demand curve:
e) shows a inverse (negative) relationship between interest rate and investment

38. Which of the following is NOT an aggregate supply shifter?
b) household debt

39. What fiscal policy actions would be effective in fighting a recession?
b) $10 billion decrease/ $10 billion increase

40.What would cause the change in the graph?
c) Government spending increase

Azeem Feroz (41-50)
41. Which of the following is NOT a reason why product prices tend to be "sticky" or inflexible in a downward direction?
c) Inflexible GDP


42. Contractionary fiscal policy includes:

I. Decreased government spending
II. Increased taxes
III.Selling bonds on the open market

d) I and II only

43. Tax revenues automatically increasing during a economic expansions and decreasing during recessions is referred to as:
b) Built-in Stability

44. Several problems of timing may arise in connection with fiscal policy, these include:

I. Recognition Lag
II. Administrative Lag
III. Operational Lag

e) I, II, and III

45. Refer to the diagram above. If the economy's tax rate is set at c, a decrease to a tax rate of b will:
c) Increase total tax revenue

46. Refer to the diagram. Suppose the price level is P1 and GDP is at its full employment potential Qf . Given time to fully adjust to the change in the price level, a shift in aggregate demand from AD1 to AD2 would move the economy to:
a) Point a

47. What is one of the central ideas behind the Laffer Curve?
e) A cut in the tax rate may increase tax revenue.

48. A simultaneous increase in government spending and taxes would:
b) Increase GDP

49. All else equal, the government spending multiplier:
b) = the investment multiplier

50. A decrease in the money supply would:
a) Raise interest rates, reducing investment and GDP