43. After the Korean War ended in 1953, U.S Government spending on defense decre

Question

43. After the Korean War ended in 1953, U.S Government spending on defense decreased dramatically, most likely causing: A. a movement up the AD Curve for the U.S. B. the AD Curve for the U.S. to shift to the right. C. a movement down the AD Curve for the U.S. D. the AD Curve for the U.S. to shift to the left.

44. According to the expenditures function, what happens to total aggregate expenditures as income falls? A. They stay the same. B. They increase. C. They decrease by the same amount as income. D. They decrease by less than the decrease in income.

45. For levels of income/output to the right of the point where the AE Curve intersects with the AP Curve, it is likely that: A. inventories are falling. B. inventories are constant. C. inventories are rising. D. the economy is in equilibrium.

46. Equilibrium in the Multiplier Model occurs at the income level at which the aggregate expenditures function intersects the: A. horizontal axis. B. vertical axis. C. Aggregate Supply Curve. D. Aggregate Production Curve.

47. If productivity increases by 4% but wages increase by 5%, then it is most likely that: A. the SAS Curve will shift up. B. the SAS Curve will shift down. C. the SAS Curve will not shift at all. D. the AD Curve will shift to the right.

48. If the mpe is 0.9 and autonomous expenditures are $2,000, then the equilibrium income level in the economy will be: A. $1,800 B. $2,000 C. $20,000 D. $32,000

49. According to the Multiplier Equation, a decrease in the marginal propensity to expend: A. increases equilibrium income/output by decreasing the multiplier. B. increases equilibrium income/output by increasing the multiplier. C. decreases equilibrium income/output by increasing the multiplier. D. decreases equilibrium income/output by decreasing the multiplier.

50. If the majority of economists are forecasting a recession and are publicly announcing it to the media, this is likely to: A. make the AD Curve flatter. B. make the AD Curve steeper. C. shift the AD Curve to the left. D. shift the AD Curve to the right.

51. As the marginal propensity to expend rises, the multiplier: A. decreases. B. remains constant. C. increases. D. is impossible to determine

52. The economy is in a short run equilibrium: A. at the intersection of the Short Run Aggregate Supply Curve and the Long Run Aggregate Supply Curve. B. at the intersection of the Short Run Aggregate Supply Curve and the Aggregate Demand Curve. C. at the intersection of the Long Run Aggregate Supply Curve and

53. For levels of income to the left of the point where the Aggregate Expenditures Curve intersects with the Aggregate Production Curve: A. production exceeds planned aggregate expenditures and businesses increase production. B. production exceeds planned aggregate expenditures and businesses decrease production. C. planned aggregate expenditures exceed production and businesses increase production. D. planned aggregate expenditures exceed production and businesses decrease production.

54. Suppose the economy is initially in equilibrium, but then exports fall relative to imports. Based on the Multiplier Model, and assuming no other changes occur: A. a shortage will develop. B. a surplus will develop. C. equilibrium will still exist. D. withdrawals from the spending stream will be less than injections.

55. According to Classical economists of the 1930's, an excess supply of labor will end when: A. government creates enough jobs for people to earn enough income to buy the surplus of product. B. taxes are cut enough to stimulate private spending. C. wages fall enough to eliminate unemployment. D. government supports labor unions that keeping wages high enough for workers to afford to buy goods and services.

56. According to the Multiplier Model, if firms cannot supply the level of output demanded at existing prices, they will: A. cut production until the excess supply is eliminated. B. raise production until the excess demand is eliminated. C. cut prices until the excess supply is eliminated. D. raise prices until the excess demand is eliminated.

57. Assuming all other shift factors remain constant, if productivity and wages both rise by 3%, then the SAS Curve does not shift. True False

58. In the Multiplier Model, if the mpe is 0.75 and autonomous investment increased by $30 billion, equilibrium income would increase by: A. $100 Billion. B. $120 Billion. C. $140 Billion. D. $160 Billion.

59. If the marginal propensity to expend is 0.8 and a decline in household wealth reduces autonomous expenditures by $75 billion, equilibrium real GDP will: A. decrease by $60 billion. B. decrease by $300 billion. C. decrease by $375 billion. D. increase by $60 billion.

60. The short run aggregate supply curve is vertical because firms adjust both prices and output as aggregate demand changes in the short run. True False

61. According to Classical economists: A. aggregate demand may not be large enough to take the entire supply of goods and services off the market. B. if inflation occurs it will cure itself because prices, wages, and interest rates will fall. C. if unemployment occurs it will cure itself because wages and prices will fall. D. a market economy will not experience unemployment.

62. According to Say's Law, the income people receive from supplying goods is __________________ demand goods of equal value. A. sufficient to B. insufficient to C. more than sufficient to D. much too high to

63. What best characterizes Keynes's belief about market forces? A. The government could not aid market forces to push the economy to its potential income/output. B. Market forces pushing the economy into cumulative spirals up or down were weak. C. Market forces pushing the economy to potential income/output were weak. D. Market forces should be left alone both in the short run and the long run.

64. Which group of economists place the greatest emphasis on the short run? A. Marxian economists. B. Libertarian economists. C. Classical economists. D. Keynesian economists.

65. Assume that the AS/AD Model and the Multiplier Model are "stacked" together. If the AE Curve is represented by AE = $300 + 0.75Y, a shift up in the AE Curve of $50 will be depicted as a shift in the AD Curve of: A. $50 B. $100 C. $150 D. $200

Explanation / Answer

Answer )

43.) D. the AD Curve for the U.S. to shift to the left.

since Government expenditure (G) is a part of aggregate demand(AD) function, reduction in G would also reduce AD.

44.) D. They decrease by less than the decrease in income.

since only a part of the income is spent, reduction in income leads to less decrease in AE function.

45.) C. inventories are rising.

At levels above the intersection of the AP and AE curves, the AP curve is above the AE curve. This implies that planned expenditures are less than production at these income levels.

46.) D. Aggregate Production Curve.

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