Econ 102 - Principles of Macroeconomics » Spring 2020 » iVAT Chapter 9 Part 1

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Question #1
The paradox of thrift occurs when:
A.   The increase in the total amount of savings leads to an increase in investment.
B.   Individuals at the micro level attempt to increase their total savings, but at the macro level this reduces income in the economy, which reduces total savings for these individuals.
C.   Individuals at the micro level attempt to decrease their total savings, but at the macro level this increases income in the economy, which increases total savings for these individuals.
D.   The fallacy of composition is not present and savings increases total income.
Question #2
The aggregate demand (AD) curve is:
A.   Downward sloping
B.   Upward sloping
C.   Horizontal
D.   Vertical
Question #3
Why would we intuitively expect the AD curve to be vertical?
A.   Because as the price level drops, and goods and services become less expensive, wages are also declining. This decrease in wages cancels out the decrease in the prices of goods and services.
B.   Because potential output is vertical, which means the AD curve should be vertical.
C.   Because as the price level increases, and goods and services become less expensive, wages are also increasing. This increase in wages cancels out the decrease in the prices of goods and services.
D.   All of the available answers are correct.
Question #4
The interest rate effect occurs because:
A.   None of the available answers
B.   As the price level increases people have extra money, which is removed from banks and this leads to a drop in interest rates.  The drop in interest rates leads to an increase in investment.
C.   As the price level drops people have less money, which is deposited into banks and this leads to an increase in interest rates.  The increase in interest rates leads to an increase in investment.
D.   As the price level drops people have extra money, which is deposited into banks and this leads to a drop in interest rates.  The drop in interest rates leads to an increase in investment.
Question #5
If the price level drops in the U.S. we would expect:
A.   Net exports to increase because U.S. produced goods and services have become less expensive for rest of the world.
B.   Net exports to increase because U.S. produced goods and services have become more expensive for rest of the world.
C.   Net exports to decrease because U.S. produced goods and services have become less expensive for rest of the world.
D.   Wages to increase because domestic industries are less competitive.
Question #6
The money wealth effect, the interest rate effect, and the international effect cause the AD curve to:
A.   Shift to the right
B.   Slope downward
C.   Shift upwards
D.   Shift to the left
Question #7
An initial increase in net exports and aggregate expenditures brought on by a decrease in the price level can be amplified by or multiplied:
A.   Because an increase in the price level will cause people to feel poorer, which will decrease aggregate expenditures.
B.   Because a decrease in the price level will cause people to feel poorer, which will increase aggregate expenditures.
C.   Because the profits for firms that export goods and services can increase, which can increase employment and investment.
D.   Because the profits for firms that export goods and services can decrease, which can decrease employment and investment.
Question #8
An example of a feedback effect is:
A.   When the price level drops, which causes people to expect further increases in the prices of goods and services.  This expectation causes people to increase their consumption.
B.   When the price level drops the prices of assets can increase.  This can increase present day consumption and investment.
C.   When the price level drops, which causes people to expect further decreases in the prices of goods and services.  This expectation causes people to reduce their consumption in order to purchase goods and services at a later date and at a lower price.
D.   When the price level increases, which causes people to reduce consumption and expect further increases in the prices of goods and services. This expectation creates a negative feedback effect and can cause dramatic recessions.
Question #9
If the AD curve shifts right:
A.   Aggregate expenditures will stay constant at any given price level.
B.   Aggregate expenditures will decrease at any given price level.
C.   The AD curve will become steeper.
D.   Aggregate expenditures will increase at any given price level.
Question #10
Policies that lead to increased Chinese growth would increase U.S. exports and
A.   Cause the U.S. to move down its aggregate demand curve.
B.   Cause the U.S. to move up its aggregate demand curve.
C.   Shift the U.S. aggregate demand curve to the left.
D.   Shift the U.S. aggregate demand curve to the right.
Question #11
If people expect a recession to occur in the immediate future the AD curve would:
A.   Shift right
B.   Become steeper
C.   Shift left
D.   Become horizontal
Question #12
If the Federal Reserve decides to increase the money supply, the AD curve would:
A.   Shift to the left
B.   Shift to the right
C.   Become flatter
D.   Become steeper
Question #13
There can a multiplier effect from government fiscal policy because:
A.   The recipients of the government spending will in turn spend that money in the economy, which will cause a multiplier effect to occur.
B.   An increase in government spending will cause the AD curve to become steeper.
C.   An increase in government spending will cause the AD curve to shift left.
D.   The recipients of the government spending will in turn save that money, which will cause a multiplier effect to occur.
Question #14
A movement along the short-run aggregate supply (SAS) curve assumes that:
A.   Input prices decrease.
B.   Input prices increase.
C.   The SAS curve becomes steeper.
D.   Input prices are held constant.
Question #15
The SAS curve is most likely to shift up and to the left if:
A.   Oil prices fall.
B.   Wages increase
C.   Input prices decline
D.   Productivity increases
Question #16
The SAS curve is most likely to shift down and to the right if:
A.   Input prices increase
B.   Wages increase
C.   Productivity declines
D.   Wages decrease
Question #17
The long-run aggregate supply curve is:
A.   Vertical because it shows that in the long run a higher price level will not bring about higher output.
B.   Horizontal because it shows that in the long run higher output will not bring about a higher price level.
C.   Vertical because it shows that in the long run higher output will not bring about a higher price level.
D.   Horizontal because it shows that in the long run a higher price level will not bring about higher output.

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