The Long-Run Aggregate Supply Analysis Assumes That

Question: The real-balances effect on aggregate demand suggests that a: a. Lower price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spendingb. Higher price level will increase the real value of many financial assets and therefore cause an increase in spendingc. Lower price level will increase the real value of many financial assets and therefore cause an increase in spendingd. Lower price level will decrease the real value of many financial assets and therefore cause an increase in spending

Answer: c. Lower price level will increase the real value of many financial assets and therefore cause an increase in spending

Question: The long-run aggregate supply analysis assumes that: a. Both input and product prices are variableb. Input prices are fixed while product prices are variablec. Both input and product prices are fixedd. Input prices are variable while product prices are fixed

Answer: a. Both input and product prices are variable

Question: Cost-push inflation is characterized by a(n): a. Decrease in aggregate supply and no change in aggregate demandb. Increase in aggregate supply and a decrease in aggregate demandc. Increase in aggregate demand and no change in aggregate supplyd. Decrease in both aggregate supply and aggregate demand

Answer: a. Decrease in aggregate supply and no change in aggregate demand

Question: The lag between the time that the need for fiscal action is recognized and the time action is actually taken is referred to as the: a. Operational lagb. Crowding-out lagc. Recognition lagd. Administrative lag

Answer: d. Administrative lag

Question: The foreign purchases effect on aggregate demand suggests that a:a. Rise in our domestic price level will decrease our imports and increase our exports, thereby reducing the net exports component of aggregate demandb. Fall in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demandc. Rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demandd. Fall in our domestic price level will decrease our imports and increase our exports, thereby reducing the net exports component of aggregate demand

Answer: c. Rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand

Question: Which of the following events would most likely reduce aggregate demand? a. A reduction in business and personal tax ratesb. An increase in real interest ratesc. A reduction in the amount of existing capital stockd. An increase in expected returns on investment

Answer: b. An increase in real interest rates

Question: The time which elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is referred to as a(n): a. Operational lagb. Budget lagc. Recognition lagd. Administrative lag

Answer: c. Recognition lag

Question: A fall in labor costs will cause aggregate: a. Supply to increaseb. Demand to decreasec. Supply to decreased. Demand to increase

Answer: a. Supply to increase

Question: A decrease in expected returns on investment will most likely shift the AD curve to the: a. Right because C will increaseb. Left because Ig will decreasec. Left because C will decreased. Right because Ig will increase

Answer: b. Left because Ig will decrease

Question: One of the potential consequences of the public debt is that it may: a. Decrease interest rates and increase investment spendingb. Make income distribution more equitablec. Increase the debt burden of foreign creditorsd. Lead to additional future taxes that reduce economic incentives

Answer: d. Lead to additional future taxes that reduce economic incentives

Question: When national income in other nations decreases, aggregate demand in our economy: a. Increases because our imports will decreaseb. Decreases because our imports will increasec. Decreases because our exports will decreased. Increases because our exports will increase

Answer: c. Decreases because our exports will decrease

Question: The crowding-out effect suggests that: a. High taxes reduce both consumption and savingb. Increases in government spending may reduce private investmentc. Increases in consumption are always at the expense of savingd. Increases in government spending will close a recessionary expenditure gap

Answer: b. Increases in government spending may reduce private investment

Question: Which of the following is a major source of tax revenue for state and local governments a. corporate income taxb. payroll taxesc. sales and excise taxesd. income tax

Answer: c. sales and excise taxes

Question: The immediate-short-run aggregate supply curve is: a. Horizontalb. Downward-slopingc. Verticald. Upward-sloping

Answer: a. Horizontal

Question: Menu costs will: a. Increase the legal minimum wageb. Make prices inflexible downwardc. Increase the amount of training of workersd. Result in price wars between businesses

Answer: b. Make prices inflexible downward

Question: The aggregate demand curve shows the: a. Inverse relationship between the price level and the quantity of real GDP purchasedb. Direct relationship between real-balances and the quantity of real GDP purchasedc. Direct relationship between the price level and the quantity of real GDP producedd. Inverse relationship between interest rates and the quantity of real GDP produced

Answer: a. Inverse relationship between the price level and the quantity of real GDP purchased

Question: A Federal budget deficit is financed by the: a. Government purchase of Treasury securitiesb. Nation's exportsc. Private sector's investment spendingd. Government issuance or sale of Treasury securities

Answer: d. Government issuance or sale of Treasury securities

Question: The US government deficit as a percentage of GDP between 1945 and 2010 has a. droppedb. remained the samec. increasedd. increased the first 10 years then dropped

Answer: a. dropped

Question: An increase in personal income taxes would shift AD to the: a. Left because G will decreaseb. Right because C will increasec. Right because G will increased. Left because C will decrease

Answer: d. Left because C will decrease

Question: Federal income taxes are considered progressive because a. average taxes paid increases when income increasesb. average taxes paid decreases when income increasesc. marginal tax rate increases when income increasesd. average taxes paid remain the same when income increases

Answer: a. average taxes paid increases when income increases