Unit 4 - Review Day

Which of the following will occur if the federal government reduces defense spending?

• Aggregate demand will increase

• Aggregate demand will decrease

• There will be no change in aggregate demand or supply

• Aggregate supply will increase

• Aggregate supply will decrease

Which of the following is true about the long-run aggregate supply curve

• It is horizontal

• It is upward sloping

• It is downward sloping

• It is vertical

• It does not exist

Short-run equilibrium aggregate output is the quantity of aggregate output produced when

• the aggregate demand curve and the short-run aggregate supply curve are identical

• the quantity of aggregate output supplied is equal to the quantity demanded

• the economy reaches its potential output

• the short-run aggregate supply curve is vertical

• all prices, including nominal wages, are fully flexible

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Which of the following is an example of a positive demand shift?

• a large increase in defense spending

• the discovery of a large, previously unknown oil field

• an increase in nominal wages

• the stock market crash of 1929

• a reduction in the aggregate price level

Which of the following is an example of a negative supply shift?

• Production costs decrease

• The Bitcoin collapses

• World oil supplies are disrupted

• Information technologies lead to productivity gains

• The government runs a budget deficit

Which of the following is true when the economy is experiencing a recessionary gap?

• Potential output is below aggregate output

• Aggregate demand is below aggregate supply

• There is high unemployment

• The aggregate price level is rising

• The economy has self-corrected

Which of the following leads to self-correction when the economy is experiencing a recessionary gap?

• Nominal wages and prices rise

• The short-run aggregate supply curve decreases

• The long-run aggregate supply curve decreases

• The short-run aggregate supply curve shifts to the right

• Unemployment leads to an increase in aggregate demand

Which type of policy can be used to address a decrease in aggregate output to below potential output?

• expansionary

• contractionary

• indiscretionary

• recessionary

• inflationary

If the marginal propensity to consume is equal to 0.80, the spending multiplier is

• 0.80`

• 1.25

• 4.00

• -4.00

• 5.00

If the marginal propensity to consume is 0.75, an initial increase in aggregate spending of $1,000 will lead to a total change in real GDP equal to

• $750

• $1,000

• $1,333

• $4,000

• $7,500