Unit 3: National Income and Price Determination

Front

The intersection of the aggregate demand and aggregate supply curve occurs at the economy’s equilibrium level of

Back

Real domestic output and the price level

Answer explanation

The intersection of the aggregate demand and aggregate supply curves indicates the economy's equilibrium, which is defined by the level of real domestic output and the corresponding price level.

Front

An increase in consumer spending will most likely cause the price level and real GDP to change in which of the following ways in the short-run? Price Level / Real GDP Increase / increase, Price Level / Real GDP Increase /decrease, Price Level / Real GDP Increase/ not change, Price Level / Real GDP Decrease / increase, Price Level / Real GDP Decrease / decrease

Back

Increase / increase

Answer explanation

An increase in consumer spending boosts demand, leading to higher prices and increased production. This results in both the price level and real GDP rising in the short run, making 'Increase / increase' the correct choice.

Front

An decrease in the wages and production cost will most likely cause the price level and real GDP to change in which of the following ways in the short-run? Price Level / Real GDP Increase / increase, Price Level / Real GDP Increase /decrease, Price Level / Real GDP Increase/ not change, Price Level / Real GDP Decrease / increase, Price Level / Real GDP Decrease / decrease

Back

Price Level / Real GDP Decrease / increase

Answer explanation

A decrease in wages and production costs lowers production expenses, leading to increased supply. This typically results in a decrease in the price level while real GDP increases due to higher output.

Front

A negative supply shock would most likely result in

Back

A decrease in national income

Answer explanation

A negative supply shock reduces production capacity, leading to lower national income as output declines. This results in decreased economic activity, making 'A decrease in national income' the correct choice.

Front

A positive supply shock, such as a decrease in the price of oil, is most likely to have which of the following short-run effects on the price level and output? Price Level / Output Decrease / Increase

Back

Decrease / Increase

Answer explanation

A positive supply shock, like a decrease in oil prices, reduces production costs, leading to an increase in output. This increased supply typically lowers the price level, resulting in a decrease in prices and an increase in output.

Front

If exports from the United States increased, what would most likely happen to real gross domestic product and price level?

Back

Real GDP would increase and the price level would increase.

Answer explanation

An increase in exports boosts demand for U.S. goods, leading to higher production and income, which raises real GDP. This increased demand can also push up the price level due to higher spending, making 'Increase/Increase' the correct choice.

Front

Stagflation might be caused by: Increase in technology, Decrease in the price of raw materials, Increase in the price of raw materials, Decrease in the money supply, Increase in the money supply

Back

Increase in the price of raw materials

Answer explanation

Stagflation occurs when inflation and unemployment rise simultaneously. An increase in the price of raw materials raises production costs, leading to higher prices and potentially lower output, causing stagflation.

Front

Which of the following would cause a leftward shift in aggregate demand? I. Congress increases personal income taxes II. An increase in government spending on public goods III. A recession in another country that is a close trading partner

Back

I and III only

Answer explanation

A leftward shift in aggregate demand occurs when demand decreases. I (higher taxes) and III (recession in a trading partner) reduce demand, while II (increased government spending) increases it. Thus, the correct answer is I and III only.

Front

Which of the following would cause a rightward shift of the aggregate supply curve? Options: An increase in the costs for production, A tax cut for consumers, An across-the-board reduction of wages in the manufacturing sector, Inflationary expectations, The shutdown of plants and movement of production of goods abroad

Back

An across-the-board reduction of wages in the manufacturing sector

Answer explanation

An across-the-board reduction of wages in the manufacturing sector lowers production costs, leading to an increase in aggregate supply, which shifts the curve to the right.

Front

The formula to calculate the expenditures or simple multiplier is

Back

1/1-MPC

Answer explanation

The correct formula for the simple multiplier is 1/(1-MPC). This reflects how changes in spending affect overall economic output, where MPC is the marginal propensity to consume.