ECN 151 Exam 3 SP23

Which of the following would be most likely to cause an increase in current aggregate demand in the United States?

• A recession in Canada, Mexico, and Western Europe

• An increase in the real interest rate

• Sharp increase in the value of stocks owned by Americans

• Increased fear that the US economy was going into a recession

Which of the following would be most likely to cause an increase in current aggregate demand in the United States?

• A recession in Canada, Mexico, and Western Europe

• An increase in the real interest rate

• Sharp increase in the value of stocks owned by Americans

• Increased fear that the US economy was going into a recession

Which of the following will most likely accompany an unanticipated increase in aggregate demand?

• A decrease in real GDP

• An increase in real output

• An increase in unemployment

• A decrease in the demand for resources

Which of the following will most likely result from an unanticipated decrease in aggregate supply due to unfavorable weather conditions in agricultural areas?

• An increase in the natural rate of unemployment

• An increase in the general level of prices

• A decrease in unemployment

• A decrease in inflation

An increase in the long-run aggregate supply curve indicates that

• Potential real GDP has increased

• The natural rate of unemployment has increased

• The general level of prices has increased

• Unemployment has increased

When output is less than the economy’s long-run capacity, which of the following is most likely to occur?

• A sharp increase in imports

• An abnormally low rate of unemployment

• A government budget surplus

• Reductions in real interest rates and resource prices

Which of the following would a Keynesian economist be most likely to stress?

• You cannot spend your way out of a recession

• Supply creates its own demand

• When the unemployment rate is high, wages will fall

• Businesses will not produce goods and services if they do not think people will buy them.

Which of the following is a problem with discretionary fiscal policy as an economic stabilization tool?

• Discretionary fiscal policy is only effective during a recession

• Discretionary changes in fiscal policy can be easily anticipated by private decision makers

• It is difficult to properly time discretionary changes in fiscal policy

• Discretionary fiscal policy is only effective during an economic boom

The crowding-out effect suggests that

• A tax reduction financed by borrowing will increase the disposable income of households and therefore lead to a strong expansion in aggregate demand

• Restrictive fiscal policy is an effective weapon against inflation

• A reduction in private spending that results from higher interest rates caused by a budget deficit will largely offset the expansionary effects of the deficit

• Expansionary fiscal policy causes inflation

Keynesians and non-Keynesians would largely agree on which of the following statements?

• The use of discretionary fiscal policy is an important stabilization tool

• Market forces will automatically direct the economy toward full employment

• Expansionary fiscal policy will tend to substantially increase current real output

• Proper timing of discretionary fiscal policy is difficult to achieve