Unit 3 Practice 2

What is the vertical line called on the AD/AS Model?

• short-run aggregate supply
• aggregate demand
• long run aggregate supply
• r GDP

What is a recessionary gap?

• when ouput falls below potential
• when output exceeds potentional
• when output increases
• when unemployment decreases

What is an inflationary gap?

• when output goes beyond full employment
• when output falls below full employment
• when unemployment increases
• when deflation is present in an economy

What would cause AD to decrease?

• an increase in taxes
• a decrease taxes
• an increase in government spending
• keeping government spending constant

The business cycle depicts:

• the phases a business goes through from when it first opens to when it finally closes.

• the evolution of technology over time.

• short-run fluctuations in output and employment.

• fluctuations in the general price level.

Fiscal policy refers to the:

• fact that equal increases in government spending and taxation will be contractionary.

• deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.

• deliberate changes in government spending and taxes to achieve greater equality in the distribution of income.

• altering of the interest rate to change aggregate demand.

Alice's disposable income increases by $1,000, and she spends $600 of this increase in disposable income. For Alice, her:

• MPS is 0.40 and she saves $400.

• MPC is 0.40 and she saves $400.

• MPS is 0.40 and she saves $600

• MPC is 0.60 and she consumes $400.

• MPC is 0.60 and she consumes $1,000

A government might want to increase aggregate demand to:

• close an inflationary gap.

• close a recessionary gap.

• lower prices in the economy.

• lower employment in the economy.

• decrease nominal interest rates.

Which of the following is always true of an
economy operating on its production possibilities
frontier?

• Its resources are fully employed.
• It is allocatively efficient.
• It cannot trade with other nations because it
  is the most efficient producer of tradeable
  goods.
• It will necessarily operate on the same frontier the following year.

Given the aggregate demand and aggregate supply curves shown above, if policy makers want to increase real output without causing inflation, they can pursue a policy that will

• increase aggregate demand and decrease
  aggregate supply by equal amounts
• decrease aggregate demand only
• increase aggregate demand only
• increase aggregate supply only