Unit Four Review National Income and Price Determination

1. AP Macroeconomics MR. Graham Unit Four Review National Income and Price Determination

2. Changes in which of the following leads to a shift of the aggregate consumption function? I. expected future disposable income II. aggregate wealth III. current disposable income • I only • II only • III only • I and II only • I, II and III

3. The slope of a family’s consumption function is equal to • the real interest rate • the inflation rate • the marginal propensity to consume • the rate of increase in household current disposable income • the tax rate

4. Given the consumption function c = $16,000 + 0.5 yd, if individual household current disposable income is $20,000, individual household consumer spending will equal • $36,000 • $26,000 • $20,000 • $16,000 • $6,000

5. The level of planned investment spending is negatively related to the • rate of return on investment • level of consumer spending • level of actual investment spending • interest rate • all of the above

6. Actual investment spending in any period is equal to • planned investment spending + unplanned inventory investment • planned investment spending − unplanned inventory investment • planned investment spending + inventory decreases • unplanned inventory investment + inventory increases • unplanned inventory investment − inventory increases

7. Which of the following explains the slope of the aggregate demand curve? I. the wealth effect of a change in the aggregate price level II. the interest rate effect of a change in the aggregate price level III. the product-substitution effect of a change in the aggregate price level • I only • II only • III only • I and II only • I, II and III

8. Which of the following will shift the aggregate demand curve to the right? • a decrease in wealth • pessimistic consumer expectations • a decrease in the existing stock of capital • contractionary fiscal policy • a decrease in the quantity of money

9. The Consumer Confidence Index is used to measure which of the following? • the level of consumer spending • the rate of return on investments • consumer expectations • planned investment spending • the level of current disposable income

10. Decreases in the stock market decrease aggregate demand by decreasing which of the following? • consumer wealth • the price level • the stock of existing physical capital • interest rates • tax revenues

11. Which of the following government policies will shift the aggregate demand curve to the left? • a decrease in the quantity of money • an increase in government purchases of goods and services • a decrease in taxes • a decrease in interest rates • an increase in government transfers

12. Which of the following will shift the short-run aggregate supply curve? A change in • profit per unit at any given price level • commodity prices • nominal wages • productivity • all of the above

13. Because changes in the aggregate price level have no effect on aggregate output in the long run, the long-run aggregate supply curve is • vertical • horizontal • fixed • negatively sloped • positively sloped

14. The horizontal intercept of the long-run aggregate supply curve is • at the origin • negative • at potential output • equal to the vertical intercept • always the same as the horizontal intercept of the short-run aggregate supply curve

15. A decrease in which of the following will cause the short-run aggregate supply curve to shift to the left? • commodity prices • the cost of health care insurance premiums paid by employers • nominal wages • productivity • the use of cost-of-living allowances in labor contracts

16. That employers are reluctant to decrease nominal wages during economic downturns and raise nominal wages during economic expansions leads nominal wages to be described as • long-run • unyielding • flexible • real • sticky

17. Which of the following causes a negative supply shock? I. a technological advance II. increasing productivity III. an increase in oil prices • I only • II only • III only • I and III only • I, II and III

18. Which of the following causes a positive demand shock? • an increase in wealth • pessimistic consumer expectations • a decrease in government spending • an increase in taxes • an increase in the existing stock of capital

19. During stagflation, what happens to the aggregate price level and real GDP?Aggregate price level Real GDP • decreases increases • decreases decreases • increases increases • increases decreases • stays the same stays the same

20. Which of the following statements is true if this economy is operating at P1 and Y1? I. The level of aggregate output equals potential output. II. It is in short-run macroeconomic equilibrium. III. It is in long-run macroeconomic equilibrium. • I only • II only • III only • II and III only • I and III only

21. The economy depicted in the graph is experiencing a(n) • contractionary gap. • recessionary gap. • inflationary gap. • demand gap. • supply gap.

22. Which of the following contributes to the lag in implementing fiscal policy? I. It takes time for Congress and the President to pass spending and tax changes. II. Current economic data take time to collect and analyze.III. It takes time to realize an output gap exists. • I only • II only • III only • I and III only • I, II, and III

23. Which of the following is a government transfer program? • Social Security • Medicare/Medicaid • unemployment insurance • food stamps • all of the above

24. Which of the following is an example of expansionary fiscal policy? • increasing taxes • increasing government spending • decreasing government transfers • decreasing interest rates • increasing the money supply

25. Which of the following is a fiscal policy that is appropriate to combat inflation? • decreasing taxes • decreasing government spending • increasing government transfers • increasing interest rates • expansionary fiscal policy

26. An income tax rebate is an example of • an expansionary fiscal policy. • a contractionary fiscal policy. • an expansionary monetary policy. • a contractionary monetary policy. • none of the above.

27. The marginal propensity to consume I. has a negative relationship to the multiplier II. is equal to 1 III. Represents the proportion of a change in consumers’ disposable income that is spent • I only • II only • III only • I and III only • I, II and III

28. Assume that taxes and interest rates remain unchanged when government spending increases, and that both savings and consumer spending increase when income increases. The ultimate effect on real GDP of a $100 million increase in government purchases of goods and services will be • An increase of $100 million. • An increase of more than $100 million. • An increase of less than $100 million. • An increase of either more than or less than $100 million, depending on the MPC. • A decrease of $100 million .

29. The presence of taxes has what effect on the multiplier? They • increase it. • decrease it. • destabilize it. • negate it. • have no effect on it.

30. A lump-sum tax is • higher as income increases. • lower as income increases. • independent of income. • the most common form of tax. • a type of business tax.

31. Which of the following is NOT an automatic stabilizer? • Income taxes • unemployment insurance • Medicaid • food stamps • monetary policy