3.7, 3.8 & 3.9 - Adjustment, Fiscal Policy and Stabilizers

In the graph above, AD denotes the aggregate demand curve, SRAS the short-run aggregate supply curve, and LRAS the long-run aggregate supply curve. If no policy action were taken, which of the following changes would move the economy to its long-run equilibrium?

• An increase in aggregate demand

• An increase in exports

• An increase in wages

• A decrease in wages

• A decrease in the expected price level

According to the graph above and starting with equilibrium point R, which of the following shifts identifies the short-run and the long-run impact of a demand-pull inflation?

• Short Run - R to N

  Long Run - M to N

• Short Run - R to M

  Long Run - R to N

• Short Run - R to Q

  Long Run - Q to N

• Short Run - R to M

  Long Run - R to Q

• Short Run - R to N

  Long Run - N to Q

Assume the economy is currently in long-run equilibrium. An increase in the money supply will affect unemployment in the short run and in the long run in which of the following ways?

• Short Run - Falls

  Long Run - Falls

• Short Run - Rises

  Long Run - Rises

• Short Run - No change

  Long Run - Remains at the natural rate

• Short Run - Rises above the natural rate

  Long Run - Falls back to the natural rate

• Short Run - Falls below the natural rate

  Long Run - Rises back to the natural rate

If there is an adverse (negative) short-run aggregate supply shock due to an increase in the price of natural resources and the government pursues no policy to address the supply shock, then which of the following will occur in the long run?

• Nominal wages will fall with no change in the natural rate of unemployment.

• Inflation will rise and nominal wages will fall.

• Deflation will worsen and nominal wages will rise.

• Aggregate demand will increase to restore full employment.

• The long-run aggregate supply curve will shift right and increase unemployment.

Which of the following will cause an increase in aggregate demand?

• An increase in the price level

• A decrease in income taxes

• An increase in the demand for money

• A decrease in the supply of money

• A decrease in government transfer payments

Which of the following statements is true about an expansionary fiscal policy?

• It decreases demand for loanable funds.

• It decreases the equilibrium price level.

• It decreases the equilibrium real interest rate.

• It increases aggregate demand.

• It increases the money supply.

Which of the following is an example of fiscal policy?

• Increasing government expenditures to build highways

• Increasing the money supply to increase income

• Decreasing the discount rate to lower unemployment and inflation

• Decreasing the federal funds rate to stimulate investment

• Decreasing the reserve ratio to increase bank reserves

Which of the following is an example of fiscal policy?

• Decreasing income tax rates

• Increasing the money supply

• Decreasing the discount rate

• Selling government bonds

• Decreasing the required reserve ratio

Recessions will most likely be less severe if tax revenues and transfer payments automatically change in which of the following ways?

• Tax revenues increase, and transfer payments increase.

• Tax revenues decrease, and transfer payments decrease.

• Tax revenues increase, and transfer payments decrease.

• Tax revenues decrease, and transfer payments increase.

• Tax revenues do not change, and transfer payments decrease.

Which of the following is an example of an automatic stabilizer?

• Discretionary fiscal policy

• Progressive income taxes

• Autonomous consumption

• The spending multiplier

• Cyclical unemployment