Suppose the Congress enacts a 5 percent decrease in annual military expenditures. Other things equal, this can be associated with:
a. a change in the slope of the aggregate demand curve.
b. a leftward shift of the aggregate demand curve.
c. a rightward shift of the aggregate demand curve.
d. a movement down along the aggregate demand curve.
e. a movement up along the aggregate demand curve.
Question 2Rhonda views movie tickets and DVD rentals to be substitute forms of entertainment. An increase in the price of a DVD rental will probably result in an increase in the:
a. supply of movie tickets.
b. quantity of movie tickets demanded.
c. quantity of DVD rentals demanded.
d. demand for movie tickets.
Question 3Demand-pull inflation is caused by:
a. an increase in aggregate demand.
b. a decrease in aggregate demand.
c. an increase in short-run aggregate supply.
d. a decrease in short-run aggregate supply.
Question 4Which of the following statements about taxation is incorrect?
a. A tax cut affects aggregate demand indirectly.
b. A tax cut raises income and expenditures.
c. Cutting taxes by 20 is not the same as increasing government spending by 20.
d. A change in taxes does not affect consumption.
e. An increase in taxes decreases income and expenditures.
Question 5Today's demand curve for gasoline could shift in response to
a. a change in today's price of gasoline.
b. a change in the expected future price of gasoline.
c. a change in the number of sellers of gasoline.
d. All of the above are correct.
Question 6Which of the following would lead to stagflation?
a. demand-pull inflation
b. cost-push inflation
c. both of the above
d. none of the above
Question 7Suppose the equilibrium level of income exceeds the full employment level of income and there is high inflation. Hence, the government decides to implement a fiscal policy that will act to reduce national output and prices. This can be accomplished by:
a. increasing government spending such that aggregate expenditures are increased.
b. raising taxes and government spending by the same amount such that aggregate supply is decreased and aggregate demand is increased.
c. decreasing government spending such that aggregate demand is reduced.
d. lowering average tax rates such that aggregate supply is increased.
e. increasing transfer payments such that aggregate expenditures decline.
Question 8Skippy loves peanut butter. Skippy reads on the internet that 75 percent of the peanut crop in the South has been wiped out by drought, and that this will cause the price of peanuts to more than double by the end of the year. As a result,
a. Skippy's demand for peanut butter will increase, but not until the end of the year.
b. Skippy's demand for peanut butter increases today.
c. Skippy's demand for peanut butter decreases as he considers buying almond butter.
d. Skippy's demand for peanut butter shifts left today.
Question 9The SRAS curve is ____ with real output levels that ____.
a. upward sloping; vary positively with the price level
b. upward sloping; vary negatively with the price level
c. vertical; are equal to the natural level of real output at all price levels
d. vertical; can be either greater than or less than the natural level of real output
Question 10If aggregate demand intersects aggregate supply in the horizontal range of the aggregate supply curve, then, other things equal, an increase in government spending will:
a. raise real GDP by the amount indicated by the government spending multiplier and leave the price level unchanged.
b. lower real GDP by an amount equal to the increased spending and reduce inflation.
c. raise the price level and leave real GDP unchanged.
d. raise both real GDP and the price level by a multiple of the initial spending increase.
e. have no effect on real GDP or the price level, because all private investment will be crowded out.
Question 11If Bill expects to earn a higher income next month, he may choose to
a. save more now and spend less of his current income on goods and services.
b. save less now and spend more of his current income on goods and services.
c. decrease his current demand for goods and services.
d. move along his current demand curve for goods and services.
Question 12The LRAS curve is ____ with real output levels that ____.
a. upward sloping; vary positively with the price level
b. upward sloping; vary negatively with the price level
c. vertical; are equal to the natural level of real output at all price levels
d. vertical; can be either greater than or less than the natural level of real output
Question 13If the government wants to close a GDP gap, it should:
a. borrow funds from the public by issuing bonds.
b. lower taxes and raise government spending.
c. lower government spending on social security.
d. raise both direct and indirect tax rates.
e. adopt contractionary fiscal policies to control inflation.
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