Unit 7

Assume an economy is operating at its potential, what would cause this economy to enter into a recessionary gap?

• lowering interest rates

• lowering the tax rate

• increasing government purchases

• increasing interest rates

When you shift an AD curve to the right it means that

• GDP is decreasing

• GNP is decreasing

• GDP is increasing

• GDP is decreasing

Which of the following is NOT a component of aggregate demand for a country?

• consumer spending

• government spending

• transfer payments

• net exports

If the USA is producing at the LRAS, which situation is true?

• there will be no cyclical unemployment

• there will be no frictional unemployment

• there will be no structural unemployment

• there will only be cyclical unemployment

Which would cause a decrease in real GDP for a country?

• AD shifts left and SRAS shifts left

• only AD shifts right

• AD shifts left and SRAS shifts right

• only SRAS shifts left

If you shift the LRAS curve then you must also shift the ____ curve

• AD

• SRAS

• SRAD

• LRAD

Because changes in the aggregate price level have no effect on aggregate output in the long run, the LRAS is

• vertical

• horizontal

• fixed

• negatively sloped

Why does the SRAS slope upward?

• less Goods and services consumed when PL rises, real wealth decreases

• as quantity increases, marginal utility for most goods decreases, consumers less willing to pay for that good or service

• costs are fixed in the short run so a firm experiences diminishing marginal returns as their output increases

• wages and resource costs are slow to adjust to inflation meaning costs become cheaper as PL rises

A negative demand shock would be which of the following?

• increase in price level

• increase in output

• decrease in unemployment

• decrease in output

The economy of Basis is currently operating below its potential output and currently experiencing a recession. What fiscal policy can be enacted to bring the economy to Yp?

• lower taxes, lower government spending

• increase taxes, lower government spending

• lower taxes, increase government spending

• increase taxes, increase government spending