econ review

A goal of monetary policy and fiscal policy is to

• offset shifts in aggregate demand and thereby stabilize the economy.

• offset the shifts in aggregate demand and thereby eliminate unemployment.

• enhance the shifts in aggregate demand and thereby create fluctuations in output and employment.

• enhance the shifts in aggregate demand and thereby increase economic growth

Suppose the economy is at point A. If investment spending increases in the economy, where will the eventual long run equilibrium be?

• a

• b

• c

• d

Increases in government spending will lower the long term growth rate of GDP, if it lowers ________ spending and if the government purchases ________ and not ________ goods.

• investment; consumption; investment

• net export spending; consumption; investment

• net export spending; investment; consumption

• consumption; investment; consumption

A\In the short run, an unexpected increase in aggregate demand typically causes

• the price level to increase and the unemployment rate to increase.

• the price level to increase but has no effect on the unemployment rate.

• frictional unemployment to increase but structural unemployment to decrease.

• the price level to increase and the unemployment rate to fall.

An increase in government spending

• increases the interest rate and so investment spending decreases.

• increases the interest rate and so investment spending increases.

• decreases the interest rate and so investment spending decreases.

• decreases the interest rate and so increases investment spending increases.

To keep the budget balanced during the recession when tax revenue is low and government purchase is high, the federal government must _________ government spending, or ________ taxes, and which will ________ aggregate demand.

• decrease; increase; reduce

• increase; decrease; increase

• increase; increase; reduce

• decrease; decrease; increase

In the above figure, assume the economy is in equilibrium at point d. Then the Fed decreases the money supply so that the new aggregate demand curve is AD1. In the long run, the new price level will be

• 130

• 100

• 120

• 110

Which of the points in the below graph are possible long run equilibriums?

• A nd B

• A and C

• A and D

• B and D

Suppose the price of crude oil falls substantially. Which of the following is the most likely effect of the decrease in fuel prices on the economy?

• A decrease in the equilibrium price level and a decrease in equilibrium real GDP.

• An increase in the equilibrium price level and an increase in equilibrium real GDP

• An increase in the equilibrium price level and a decrease in equilibrium real GDP.

• A decrease in the equilibrium price level and an increase in equilibrium real GDP.

Which of the following helps to explain the downward-sloping nature of the aggregate demand curve?

• Falling prices put downward pressure on nominal interest rates, causing consumption to increase.

• Falling prices put downward pressure on real interest rates, causing business investment to increase.

• Falling prices put upward pressure on real interest rates, causing business investment to increase.

• An increase in the price level induces producers to increase the aggregate output they'll offer in the domestic market for goods and services.