Multiple choice questions:
Question 1
The marginal __________ is the fraction of a change in real GDP that is paid in income tax.
A. tax rate
B. income
C. GDP
D. tax revenue
Question 2
When the Federal Reserve changes the quantity of money and the interest rate, it influences aggregate demand by using __________.
A. the world economy
B. consumer expectations
C. monetary policy
D. fiscal policy
Question 3
The __________ is the amount by which a change in autonomous expenditures is multiplied in order to determine the change in equilibrium expenditure that it generates.
A. marginal tax rate
B. marginal multiplier
C. expenditure reducer
D. expenditure multiplier
Question 4
What is the total amount of final goods and service that firms in a country plan to produce, depending on the labor, capital, technology, natural resources, and entrepreneurial talent in the market?
A. the supply-demand model
B. the quantity of real gross domestic product (GDP. supplied
C. the quantity of potential GDP
D. the quantity of real GDP demanded
Question 5
When the price level increases, the real interest rate __________.
A. is not affected
B. falls
C. rises
D. will rise or fall depending on demand
Question 6
If home prices are falling, consumers purchasing a home will find their purchasing power of money has increased. This benefit to consumers is called the __________.
A. inflation effect
B. wealth effect
C. home equity effect
D. multiplier effect
Question 7
When the real GDP increases, disposable income and consumption expenditure __________.
A. do not change
B. become inverted
C. decrease
D. increase
Question 8
The __________ curve summarizes the relationship between aggregate planned expenditure and the real GDP.
A. AES
B. AE
C. AD
D. APE
Question 9
When governments change taxes, their transfer payments, and expenditure on goods and service, they influence aggregate demand through __________.
A. the world economy
B. consumer expectations
C. monetary policy
D. fiscal policy
Question 10
Which of the following would cause an increase in aggregate demand in the short run?
A. an increase in the supply of money
B. a decrease in the price level
C. an increase in taxes
D. a crop failure
Question 11
To determine the equilibrium price level and equilibrium level of real GDP, the aggregate demand and aggregate supply must __________.
A. be considered separately
B. intersect
C. be disregarded
D. be considered as a multiplier
Question 12
Aggregate __________ is the sum of planned consumption expenditure, investment, government expenditure on goods and services, and exports minus imports.
A. planned expenditure
B. supply
C. demand
D. expenditure schedule
Question 13
Adjustments in __________ take the economy from the short-run equilibrium to the long-run equilibrium.
A. imports and exports
B. interest rates
C. wages and prices
D. the multiplier
Question 14
All other things remaining the same, the lower the price level, the __________ the quantity of real GDP demanded.
A. smaller
B. greater
C. more constant
D. less constant
Question 15
What is the total amount of final goods and service produced in a country that people, businesses, governments, and foreigners plan to buy?
A. the supply-demand model
B. the quantity of real GDP supplied
C. the quantity of potential GDP
D. the quantity of real GDP demanded
Question 16
What represents the relationship between the quantity of real GDP supplied and the price level when all other influences on production plans remain the same?
A. aggregate demand
B. aggregate supply
C. the money wage rate
D. the money price index
Question 17
A rise in the price level __________ the buying power of money.
A. does not affect
B. increases
C. decreases
D. inverts
Question 18
When the U.S. price level rises and other things remain the same, the prices in other countries __________.
A. rise
B. fall
C. do not change
D. will rise or fall depending on demand
Question 19
__________ occurs when aggregate planned expenditure equals real GDP.
A. Price-fixing
B. Stable economic leveling
C. Unplanned inventory change
D. Equilibrium expenditure
Question 20
Why does the quantity of real GDP supplied change when the price level changes?
A. movement along the AS curve brings a change in the price of resources
B. movement along the AS curve brings a change in the potential GDP
C. movement along the AS curve brings a change in the GDP price index
D. movement along the AS curve brings a change in the real wage rate
Question 21
What policy action by the Fed describes an unexpected rise in interest rates and deceleration in money growth in order to slow inflation at the cost of recession?
A. rational reduction
B. surprise inflation reduction
C. credible announced inflation reduction
D. statistical model of reduction
Question 22
Say's law from a classical economic perspective __________.
A. states that supply creates its own demand
B. explains the classical idea that the value of GDP will equal the demand for goods and services
C. supports economists belief that neither surplus nor shortage would ever exist when production and demand are equal for goods and services
D. all of the above
Question 23
Classical economics refers to a body of work initially developed by __________.
A. Keynes
B. Malthus
C. Say
D. Smith
Question 24
The short-run Phillips curve is another way at looking at the __________.
A. equilibrium expenditure
B. AD curve
C. aggregate supply (AS. curve
D. potential GDP
Question 25
The Federal Reserve can use monetary policy to __________.
A. change output in the long run, but not the short run
B. change output in the short run, but not the long run
C. change output in both the short run and the long run
D. Monetary policy has no effect on output
Question 26
To lower the expected inflation rate, the Fed must take actions that will __________ the actual inflation rate.
A. decelerate
B. accelerate
C. increase
D. decrease
Question 27
A necessary condition for the classical model to work is that __________.
A. wages and prices are fully flexible
B. prices, but not wages, are fully flexible
C. wages and prices are not fully flexible
D. wages, but not prices, are fully flexible
Question 28
Suppose GDP __________ the level of potential output. We would expect to see __________ unemployment, rising wages, and rising prices.
A. exceeds; high
B. exceeds; low
C. is below; high
D. is below; low
Question 29
What is the proposition that when the inflation rate changes, the unemployment rate changes temporarily and then turns to the natural unemployment rate?
A. the trade-off theory
B. the natural rate hypothesis
C. Okun's law
D. Phillip's monetary policy
Question 30
The __________ shows the relationship between inflation and unemployment when the economy is at full employment.
A. AS curve
B. short-run Phillips curve
C. long-run Phillips curve
D. AE curve
Question 31
In the short run, increases in the money supply increase the level of output because __________.
A. prices and wages are sticky
B. prices and wages are flexible
C. interest rates are sticky
D. demand is fixed
Question 32
What is the name for the inflation rate that people forecast and use to set the money wage rate and other money prices?
A. the equilibrium inflation rate
B. the fixed-money inflation rate
C. the potential inflation rate
D. the expected inflation rate
Question 33
What is the forecast for inflation that results from the analysis of all the relevant data and economic science?
A. rational expectation
B. surprise inflation expectation
C. credible announced inflation expectation
D. statistical model of expectation
Question 34
The __________ is a curve that shows the relationship between the inflation rate and the unemployment rate when the natural unemployment rate and the expected inflation rate remain constant.
A. aggregate demand (AD. curve
B. short-run Phillips curve
C. long-run Phillips curve
D. aggregate expenditure (AE. curve
Question 35
The trade-off between inflation and unemployment occurs when a lower unemployment rate brings a __________.
A. lower inflation rate
B. higher inflation rate
C. lower aggregate supply
D. higher aggregate supply
Question 36
The Keynesian view that demand could fall short of production is more likely to hold true if __________.
A. wages and prices are fully flexible
B. prices, but not wages, are fully flexible
C. wages and prices are not fully flexible
D. wages, but not prices, are fully flexible
Question 37
What policy action by the Fed describes when people believe that the Fed will lower the inflation rate, and the expected inflation rate falls in order to slow the inflation rate without any accompanying loss of output or increase in unemployment?
A. rational reduction
B. surprise inflation reduction
C. credible announced inflation reduction
D. statistical model of reduction
Question 38
At full employment, the unemployment rate equals the __________.
A. equilibrium expenditure
B. consumer price level
C. natural unemployment rate
D. inflation rate
Question 39
How does change in the expected inflation rate affect the short-run tradeoff between inflation and unemployment?
A. Immediately, because the money wage rate is sensitive to change in the expected inflation rate.
B. Immediately, because unemployment and job production respond quickly to change in the expected inflation rate.
C. Gradually, because the money wage rate responds only gradually to change in the expected inflation rate.
D. Gradually, because the natural unemployment rate rarely changes.
Question 40
Since the long-run Phillips curve is vertical at the natural unemployment rate, what type of trade-off is there between employment and inflation?
A. There is no trade-off between employment and inflation.
B. There is a constant trade-off between employment and inflation.
C. There is a linear trade-off between employment and inflation.
D. Employment and inflation are indirectly proportional (the one goes up, the other goes down.