Unit 3 Macro Review

Long-run economic growth can be defined as

• increase in real national income

• a change in output

• a rise in output up to the production possibilities frontier

Real GDP may decrease in the short-run when

• there is a recession in overseas markets

• tax revenue is less than government spending

Answer explanation

a recession in overseas markets could decrease exports in the short-term until new markets are utilized.

Inflation is most likely to rise if the economy is

• in a recession

• in a boom

Deflation has the effect of

• reducing the value of money

• reducing saving levels

• reducing consumption

• penalizing those on fixed incomes

Answer explanation

When prices are falling, many consumers will expect them to keep falling. This will lead to them waiting to make many larger purchases.

Monetary policy includes tools to

• manage the government's budget

• manage prices and incomes

• manage unemployment

• control the money supply

Which of the following situation is most likely to cause the central bank to reduce interest rates

• GDP growth is increasing

• unemployment is falling and the economy is booming

• inflation is stable and net exports are increasing

• Growth is below trend and retail sales are not increasing

A regressive tax is a tax in which

• The percentage paid by individuals falls as incomes rise

• The percentage paid by individuals rises as incomes rise

The goal of supply-side policies is typically to

• lowering inflation

• managing the exchange rate

• raise long-run economic growth

Real GDP is Nominal GDP after adjusting for

• unemployment

• inflation

• taxes

• exchange rate

In the circular flow model

• investments and exports are injections

• leakages equal injections into and out of the model

• taxes and investments are injections