AP Macro Unit 5 LR Consequences of Stabilization Policies

Which of the following is true regarding the short-run Phillips curve (SRPC)?

• A rightward shift in aggregate demand will cause the SRPC to shift leftward

• The SRPC is upward sloping showing the positive relationship between price and output

• The SRPC shows the inverse relationship between interest rates and unemployment

• The SRPC is vertical when the economy has no cyclical unemployment

• The SRPC shows the inverse relationship between inflation and unemployment

According to the long-run Phillips curve, which of the following is true?

• Unemployment increases with an increase in inflation.

• Unemployment decreases with an increase in inflation.

• Increased automation leads to lower levels of frictional unemployment in the long run.

• Changes in the composition of the overall labor force tend to be deflationary in the long run.

• The natural rate of unemployment is independent of inflation

The quantity theory of money suggests that

• An increase in spending will always lead to inflation

• An increase in the amount of money will lead to a proportional increase in prices

• Hyperinflation is due to increase in the cost of key resources

• Demand-pull inflation will occur as countries produce more output

• The quantity of money times the velocity of money equals the real GDP

Velocity of money is best described as:

• The number of times the average dollar is spent in a year

• Equivalent to nominal GDP

• Equivalent to Price level

• Equivalent to real GDP

• Another term for the spending multiplier

When government spending causes an increase in real interest rates, gross private domestic investment

• Will increase at the same rate as the increase in government expenditures

• Will increase the amount of capital stock and cause economic growth in the economy

• Will experience crowding-out

• Will not change

• Will decrease at the same rate as the increase in government expenditures

A decrease in government spending by a given amount accompanied by a decrease in taxes by the same amount will cause which of the following?

• Aggregate demand to increase

• Aggregate demand to decrease

• Aggregate demand to stay the same

• Aggregate supply to increase

• Aggregate supply to decrease

Which of the following is true regarding budget deficits?

• The national debt is the accumulation of budget deficits and surpluses over time

• Budget deficits occur when tax revenues are greater than government expenditures

• Budget deficits are often greater than the national debt

• Large budget surpluses can cause the crowding-out effect

• Budget deficits occur when imports are more than exports

A decrease in interest rates resulting in the increase in capital stock will likely cause which of the following in the long-run?

• Decrease in only aggregate demand

• Decrease in only aggregate supply

• Increase in only aggregate demand

• Increase in only aggregate supply

• Increase in aggregate demand, aggregate supply, and long-run aggregate supply

Which of the following will most likely result in economic growth?

• Increased wages

• Decreased savings

• Increased business taxes

• Increased labor productivity

• Decreased unemployment

Which of the following to occur in the short-run if the economy is at full employment and the central bank conducts an open market purchase of bonds?

• A. The short-run Phillips Curve will shift to the right

• B. The short-run Phillips Curve will shift to the left

• C. The long-run Phillips Curve will shift to the right

• D. There will be a movement to the right along a short-run Phillips Curve

• E. There will be a movement to the left along a short-run Phillips Curve