Econ Unit 4 Review

Which of the following best describes the aggregate demand curve?

• It is a curve that shows the relationship between consumer spending and income.

• It is a curve that shows the level of spending by consumers, businesses, the government, and the foreign sector at different price levels.

• It is a curve that shows only the level of government spending at different price levels.

• It is a curve that shows the level of spending by all factors of production at different price levels.

The government of Euroland is considering increasing government spending to avoid a recession. What is the most likely effect on aggregate demand in Euroland?

• There will be a movement along the AD curve to a lower real output

• There will be no change in the AD curve.

• There will be a leftward shift in the AD curve.

• There will be a rightward shift in the AD curve.

The imposition by the United States of a tariff on imported steel from the Europe, making it more expensive, will likely have what impact on the short-run aggregate supply (SRAS) curve in the United States?

• It will cause a movement along the (SRAS) curve to a higher real output.

• It will have no impact on the (SRAS) curve.

• It will cause the (SRAS) curve to shift leftward.

• It will cause the (SRAS) curve to shift rightward.

Which of the following is true about the equilibrium actual output in the aggregate demand-aggregate supply (AD-AS) model in the short run?

• Equilibrium actual output is always above full employment.

• Equilibrium actual output is always below full employment.

• Equilibrium actual output is always equal to full employment.

• Equilibrium actual output can be above, equal to, or below full employment.

Which of the following accurately describes the state of the macro-economy if it is operating at the intersection of the AD1 and SRAS2 curves?

• It is operating at full employment and is in both a short-run and long-run equilibrium.

• It is operating above full employment and is in both a short-run and long-run equilibrium.

• It is operating below full employment and is in a short-run but not a long-run equilibrium.

• It is in long-run equilibrium because the economy is at full employment.

Which of the following is true when an economy is operating at the intersection of the AD2 and SRAS2 curves?

• The economy is facing a recessionary gap.

• The economy is facing an inflationary gap.

• The natural rate of unemployment is less than the actual unemployment rate.

• The economy is in short-run and long-run equilibrium.

Country X is currently in long-run equilibrium. If the country’s economy experiences a significant increase in the price of energy, a major input in production, which of the following will occur in the short run?

• The aggregate demand curve will shift to the left, and the actual rate of unemployment will exceed the natural rate of unemployment.

• The short-run aggregate supply curve will shift to the left, and the actual rate of unemployment will exceed the natural rate of unemployment.

• The short-run aggregate supply curve will shift to the left, and the price level will fall.

• The short-run aggregate supply curve will shift to the left and cause an inflationary gap.

Suppose an economy is operating above full employment (inflationary). Which of the following fiscal policy actions and resulting changes in aggregate demand will move the economy back towards full employment?

• Increasing taxes, which will shift the AD curve leftward.

• Increasing government spending, which will shift the AD curve rightward.

• Decreasing government spending, which will shift the AD curve rightward.

• Decreasing taxes, which will shift the AD

  curve leftward.

Which of the following represents an appropriate fiscal policy for the given economic conditions?

• An expansionary fiscal policy is appropriate to reduce an inflationary gap.

• A contractionary fiscal policy is appropriate to reduce an inflationary gap.

• A contractionary fiscal policy is appropriate to reduce a recessionary gap.

• An expansionary fiscal policy is appropriate when at full-employment.