Directions: Your eyes are to be forward at all times-there will be one and only

Question

Directions: Your eyes are to be forward at all times-there will be one and only one warning in this regard. A second violation will result in an automatic zero on this test. Please put your name on both the answer sheet and this test. Put A in the box for period on the answer sheet and make sure that your answer to question 40 is a. True - False (2.5 points each) Put an A for true and a B for False. An inflationary gap exists when real GDP is less than potential GDP. The aggregate supply curve is the relationship between the amount, of real GDP that firms wish to produce and the price level. A rise in the nominal wage shifts the aggregate supply curve to the left. The nominal wage decreases when the there is an inflationary gap. An adverse supply shock shifts the aggregate supply curve shifts to the left. The nominal wage decreases when the there is an inflationary gap. An adverse supply shock shifts the aggregate supply curve shifts to the left. If inventories are less then desired, businesses cut output and real GDP declines. The total spending line shifts up when real wealth increases. The simple multiplier formula equals 1/(1 - GDP) fiscal policy can be used to reduce output and lower the inflation rate. Expansionary fiscal policy calls for tax increases or spending cuts. Increases in transfer payments result in a shift up of the total spending line. supply-side tax cuts were intended to increase how fast potential Gap grow. If there is an inflationary gap. the Fed will lower the interest rate. The Federal funds rate false when the Fed adds reserves to the banking system. The Fed can close on inflationary gap by changing the interest rate in a way that increases the value of the dollar. The goals of monetary policy are set by the Board of Governor of the Federal Reserve System. triple Choice (2.5 points each) A rise in the value of the dollar causes net exports to and total spending line to shift rise, up fall, up rise, down fall, down Which one of the following would cause the total spending line up? A Decrease in expected future income. A decrease in the price level.

Explanation / Answer

1. False: Inflationary gap occurs when real GDP is more than the potential GDP.

2. True

3. True

4. False: Nominal wage increases when there is inflationary gap.

5. True

6. True

7. True

8. False: Simple multiplier = 1/ (1- MPC)

9. True

10. False: Expansionary Fiscal policy increases spending and cuts tax.

11. False

13. Fed increments interest rate in case of inflationary gap.

14. True

16. True

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