During recessions declines in investment account for about , test

1. During recessions declines in investment account for about

a.   1/6 of the decline in real GDP.

b.   1/3 of the decline in real GDP.

c.    1/2 of the decline in real GDP.

d.   2/3 of the decline in real GDP.

ANS: D (YOU DON’T NEED TO KNOW THIS QUESTION J)

2. Investment is a

a.   small part of real GDP, so it accounts for a small share of the fluctuation in real GDP.

b.   small part of real GDP, yet it accounts for a large share of the fluctuation in real GDP.

c.    large part of real GDP, so it accounts for a large share of the fluctuation in real GDP.

d.   large part of real GDP, yet it accounts for a small share of the fluctuation in real GDP.

ANS: B (YOU DON’T NEED TO KNOW THIS QUESTION J)

      3.   When the dollar depreciates, U.S.

a.   exports and imports increase.

b.   exports increase, while imports decrease.

c.    exports decrease, while imports increase.

d.   exports and imports decrease.

ANS: B                 

      4.   When the dollar appreciates, U.S.

a.   exports decrease, while imports increase.

b.   exports and imports decrease.

c.    exports and imports increase.

d.   exports increase, while imports decrease.

ANS: A                 

      5.   When the dollar depreciates, each dollar buys

a.   more foreign currency, and so buys more foreign goods.

b.   more foreign currency, and so buys fewer foreign goods.

c.    less foreign currency, and so buys more foreign goods.

d.   less foreign currency, and so buys fewer foreign goods.

ANS: D

6. Suppose a stock market boom makes people feel wealthier. The increase in wealth would cause people to desire

a.   increased consumption, which shifts the aggregate demand curve right.

b.   increased consumption, which shifts the aggregate demand curve left.

c.    decreased consumption, which shifts the aggregate demand curve right.

d.   decreased consumption, which shifts the aggregate demand curve left.

ANS: A

7. The initial impact of an increase in an investment tax credit is to shift

a.   aggregate demand right.

b.   aggregate demand left.

c.    aggregate supply right.

d.   aggregate supply left.

ANS: A

8. Imagine that businesses in general believe that the economy is likely to head into recession and so they reduce capital purchases. Their reaction would initially shift

a.   aggregate demand right.

b.   aggregate demand left.

c.    aggregate supply right.

d.   aggregate supply left.

ANS: B

9. When taxes increase, consumption

a.   decreases as shown by a movement to the left along a given aggregate demand curve.

b.   decreases as shown by shifting aggregate demand to the left.

c.    increases as shown by shifting aggregate supply the left.

d.   None of the above is correct.

ANS: B

10. Other things the same, when the government spends more, the initial effect is that

a.   aggregate demand shifts right.

b.   aggregate demand shifts left.

c.    aggregate supply shifts right.

d.   aggregate supply shifts left.

ANS: A

   11.   If countries that imported goods and services from the United States went into recession, we would expect that U.S. net exports would

a.   rise, making aggregate demand shift right.

b.   rise, making aggregate demand shift left.

c.    fall, making aggregate demand shift right.

d.   fall, making aggregate demand shift left.

ANS: D

   12.   If the dollar appreciates ($ gains value), then U.S. net exports

a.   increase which shifts aggregate demand right.

b.   increase which shifts aggregate demand left.

c.    decrease which shifts aggregate demand right.

d.   decrease which shifts aggregate demand left.

ANS: D

13. The aggregate supply curve is upward sloping rather than vertical in

a.   the short and long run.

b.   neither the short nor the long run.

c.    the long run, but not the short run.

d.   the short run, but not the long run.

ANS: C

14. Which of the following is not a determinant of the long-run level of real GDP?

a.   the price level

b.   the supply of labor

c.    available natural resources

d.   available technology

ANS: A

   15.   Which of the following would shift the long-run aggregate supply curve to the right?

a.   an increase in the actual price level

b.   an increase in the money supply

c.    increased international trade

d.   None of the above is correct.

ANS: C

   16.   Which of the following, other things the same, would make the price level decrease and real GDP increase in the long run?

a.   long-run aggregate supply shifts right

b.   long-run aggregate supply shifts left

c.    aggregate demand shifts right

d.   aggregate demand shifts left

ANS: A

   17.   Which of the following shifts both the short-run and long-run aggregate supply right?

a.   an increase in the actual price level

b.   an increase in the expected price level

c.    an increase in the capital stock

d.   None of the above is correct.

ANS: C

18. Which of the following would cause prices to fall and output to rise in the short run?

a.   Short-run aggregate supply shifts right.

b.   Short-run aggregate supply shifts left.

c.    Aggregate demand shifts right.

d.   Aggregate demand shifts left.

ANS: A

   19.   If something caused resources to become more readily available, then

a.   the price level and real GDP would rise.

b.   the price level and real GDP would fall.

c.    the price level would rise and real GDP would fall.

d.   the price level would fall and real GDP would rise.

ANS: D

20. An economic contraction caused by a shift in aggregate demand causes prices to

a.   rise in the short run, and rise even more in the long run.

b.   rise in the short run, and fall back to their original level in the long run.

c.    fall in the short run, and fall even more in the long run.

d.   fall in the short run, and rise back to their original level in the long run.

ANS: C

Figure 23-1

   21.   Refer to Figure 23-1. A decrease in interest rates would move the economy from C to

a.   B in the short run and the long run.

b.   D in the short run and the long run.

c.    B in the short run and A in the long run.

d.   D in the short run and C in the long run.

ANS: C                 

                               

   23.   Refer to Figure 23-1. If the economy is at A and there is a fall in aggregate demand, in the short run the economy

a.   stays at A.

b.   moves to B.

c.    moves to C.

d.   moves to D.

ANS: D                 

   24.   Refer to Figure 23-1. If the economy starts at A and there is a fall in aggregate demand, the economy moves

a.   back to A in the long run.

b.   to B in the long run.

c.    to C in the long run.

d.   to D in the long run.

ANS: C          

25. Refer to Figure 23-1. In the short run, a favorable shift in aggregate supply would move the economy from

a.   A to B.

b.   B to C.

c.    C to D.

d.   D to A.

ANS: A          

   26.   Suppose the economy is initially in long-run equilibrium and aggregate demand rises. In the long run prices

a.   and output are higher than in the original long-run equilibrium.

b.   and output are lower than in the original long-run equilibrium.

c.    are higher and output is the same as the original long-run equilibrium.

d.   are the same and output is lower than in the original long-run equilibrium.

ANS: C

The Stock Market Boom of 2010

Imagine that in 2010 the economy is in long-run equilibrium. Then stock prices rise more than expected and stay high for some time.

   27.   Refer to Stock Market Boom 2010. Which curve shifts and in which direction?

a.   aggregate demand shifts right

b.   aggregate demand shifts left

c.    aggregate supply shifts right

d.   aggregate supply shifts left.

ANS: A                 

   28.   Refer to Stock Market Boom 2010. In the short run what happens to the price level and real GDP?

a.   both the price level and real GDP rise.

b.   both the price level and real GDP fall.

c.    the price level rises and real GDP falls.

d.   the price level falls and real GDP rises.

ANS: A                 

   29.   Refer to Stock Market Boom 2010. What happens to the expected price level and what impact does this have on wage bargaining?

a.   The expected price level falls. Bargains are struck for higher wages.

b.   The expected price level falls. Bargains are struck for lower wages.

c.    The expected price level rises. Bargains are struck for higher wages.

d.   The expected price level rises. Bargains are struck for lower wages.

ANS: C                 

   30.   Refer to Stock Market Boom 2010. In the long run, the change in price expectations created by the stock market boom shifts

a.   long-run aggregate supply right.

b.   long-run aggregate supply left.

c.    short-run aggregate supply right.

d.   short-run aggregate supply left.

ANS: D                 

   31.   Refer to Stock Market Boom 2010. How is the new long-run equilibrium different from the original one?

a.   the price level and real GDP are higher

b.   the price level and real GDP are lower.

c.    the price level is higher and real GDP is the same.

d.   the price level is the same and real GDP is higher.

ANS: C

32. An increase in the price level and a decrease in real GDP in the short run could be created by

a.   an increase in the money supply.

b.   an increase in government expenditures.

c.    a fall in stock prices.

d.   bad weather in farm states.

ANS: D

Answers

1.                  d

2.                  b

3.                  b

4.                  a

5.                  d

6.                  a

7.                  a

8.                  b

9.                  b

10.              a

11.              d

12.              d

13.              c

14.              a

15.              c

16.              a

17.              c

18.              a

19.              d

20.              c

21.              c

22.              not existing

23.              d

24.              c

25.              a

26.              c

27.              a

28.              a

29.              c

30.              d

31.              c

32.              d