Unit 3: National Income and Price Determination

The aggregate demand curve is downward sloping because of all of the following effects EXCEPT the

An increase in aggregate demand will cause the greatest increase in real GDP when

An increase in short-run aggregate supply could be caused by

If the marginal propensity to consume (MPC) is 0.8, the maximum change in aggregate demand from a $100 billion increase in government spending is

Assume that the marginal propensity to consume is 0.75. If the government wants to close a recessionary gap of $60 billion, by how much should it increase government spending?

With an MPC of 0.75, the government wants to close a recessionary gap of $60 billion using only tax cuts. The tax cut must be

Stagflation is best described as

Assume the economy is in long-run equilibrium. A sudden increase in oil prices would most likely cause

The long-run aggregate supply curve is vertical because

In the Keynesian aggregate expenditure model, if planned investment exceeds actual investment,

If the economy is operating at a level of real GDP above full employment, which of the following will occur in the long run?

Fiscal policy refers to

Which of the following is an example of an automatic stabilizer?

Consider an economy with an MPC of 0.9. If taxes are increased by [math]10 billion, what is the net effect on GDP?

During a recession, which of the following combinations of fiscal policy actions would be most appropriate?

If the government decreases personal income taxes, the immediate effect is to shift

The multiplier effect means that

In the AD-AS model, if the economy is in a recessionary gap and no policy action is taken, the long-run self-correction mechanism works through

Which of the following would shift the aggregate demand curve to the left?

If the MPC is 0.8, the spending multiplier is 5. If the government increases spending by [math]20 billion, what is the net change in GDP?

If consumers and businesses become pessimistic about the future, this will most likely cause

The tax multiplier is smaller in absolute value than the spending multiplier because

If the government wants to reduce an inflationary gap, it should

An increase in net exports will cause

Which of the following will shift both aggregate demand to the right AND long-run aggregate supply to the right?

An increase in labor productivity will shift

The wealth effect explains why

If the economy is in a recessionary gap, which of the following correctly describes BOTH an appropriate fiscal policy response AND what would happen without any policy intervention?

Assume the economy is in long-run equilibrium. The government enacts an infrastructure spending bill. In the SHORT run, assuming all other things remain equal, what will happen to the price level, real GDP, and unemployment?

An economy can experience demand-pull inflation when

The interest rate effect as it relates to the downward-sloping aggregate demand curve suggests that

Cost-push inflation differs from demand-pull inflation in that cost-push inflation

In the Keynesian model, an economy can be in equilibrium

In the AD-AS framework, what is the result of a negative supply shock combined with expansionary fiscal policy?

The wealth effect, interest rate effect, and exchange rate effect explain why the

An increase in consumer confidence would cause the aggregate demand curve to

The short-run aggregate supply (SRAS) curve is upward sloping because

The long-run aggregate supply (LRAS) curve is vertical because

The spending multiplier effect means that

If the marginal propensity to consume (MPC) is 0.8, the spending multiplier is

If the government increases spending by $20 billion, what is the maximum change in GDP?

Expansionary fiscal policy involves

Contractionary fiscal policy is appropriate when the economy is experiencing

The tax multiplier is smaller than the spending multiplier because

A recessionary gap exists when

Crowding out occurs when

A decrease in input costs (such as oil prices) would cause the SRAS curve to

Stagflation refers to a period of

What is the tax multiplier?

Automatic stabilizers are government policies that

An increase in government spending shifts the AD curve to the

The balanced-budget multiplier is equal to

In the long run, if the economy is in a recessionary gap, the self-correction mechanism works through

Demand-pull inflation is caused by

The marginal propensity to consume (MPC) represents

To close this recessionary gap using government spending alone, how much should the government spend?

A negative supply shock (such as a sudden increase in oil prices) will cause

The economy is in short-run equilibrium below full employment. If the marginal propensity to consume (MPC) is 0.8, what is the minimum increase in government spending needed to close a $200 billion recessionary gap?

If the government simultaneously increases spending by [math]100 billion, what is the net effect on aggregate demand?

An economy experiences a negative supply shock (such as a sudden oil price increase). Using the AD-AS model, which of the following correctly describes the short-run effect?

The MPC in an economy is 0.8. The government increases spending by $50 billion. Assuming no crowding out or changes in the price level, what is the maximum change in real GDP?

An economy is in a recessionary gap. Using the AD-AS model, which of the following correctly describes both an appropriate fiscal policy AND the long-run self-correction mechanism?

Both a decrease in taxes and an increase in government spending shift AD to the right. However, a [math]100 billion tax cut because: