102.
Refer to the figure below. Suppose the economy is in a short-run equilibrium at output Y3 and
inflation rate π2. The economy is currently experiencing ______, and the correct fiscal policy response to this situation, to return the economy to potential GDP, is to ______.
A. a recessionary gap; increase government spending
B. an expansionary gap; decrease government spending
C. a recessionary gap; increase taxes
D. an expansionary gap; decrease taxes
Chapter 13 Key
1.
The economy is in long-run equilibrium:
A. when the AD and AS curves intersect at potential output, Y*.
B.
when the AD and AS curves intersect, regardless of the level of output.
C. when the AD and AS curves become vertical.
D. only when the business cycle is eliminated.
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy Frank - Chapter 13 #1 Learning Objective: 13-01 Learning Objective: 13-02
Topic: The Aggregate Demand-Aggregate Supply Model: A Brief Overview
2. The economy is in short-run equilibrium:
A. when the AD and AS curves intersect at potential output Y*.
B. when the AD and AS curves intersect at a level of real GDP that is above or below Y*.
C. when the AD and AS curves become vertical.
D. at the peak of the business cycle.
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy Frank - Chapter 13 #2 Learning Objective: 13-01 Learning Objective: 13-02
Topic: The Aggregate Demand-Aggregate Supply Model: A Brief Overview
3. Shifts in ______ can push the economy out of long-run equilibrium.
A. the AD curve only
B. the AS curve only
C. either the AD curve or the AS curve
D. the PAE line only
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium Frank - Chapter 13 #3 Learning Objective: 13-01 Learning Objective: 13-02
Topic: The Aggregate Demand-Aggregate Supply Model: A Brief Overview
4. Shifts in ______ can return the economy to long-run equilibrium.
A. the AD curve only
B. the AS curve only
C. either the AD curve or the AS curve
D. the PAE line only
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Understand Difficulty: 02 Medium Frank - Chapter 13 #4 Learning Objective: 13-01 Learning Objective: 13-02
Topic: The Aggregate Demand-Aggregate Supply Model: A Brief Overview
5. The aggregate demand curve shows the relationship between planned spending and the:
A. nominal interest rate.
B. real interest rate.
C. unemployment rate.
D. inflation rate.
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 01 Easy Frank - Chapter 13 #5 Learning Objective: 13-01
Topic: The Aggregate Demand Curve
6. The AD curve ______ because, holding all else constant, an increase in ______ causes C, IP and NX to fall.
A. slopes downward; real GDP
B. slopes downward; the inflation rate
C. slopes upward; real GDP
D. is horizontal; the inflation rate
AACSB: Reflective Thinking Accessibility: Keyboard Navigation
Blooms: Remember Difficulty: 02 Medium Frank - Chapter 13 #6 Learning Objective: 13-01
Topic: The Aggregate Demand Curve
7. When the inflation rate increases, PAE ______, which in turn causes Y to ______ because of ______.
A. falls; fall; the income-expenditure multiplier
B. falls; rise; the income-expenditure multiplier
C. rises; rise; the wealth effect
D. rises; fall; the wealth effect
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply Difficulty: 03 Hard Frank - Chapter 13 #7 Learning Objective: 13-01
Topic: The Aggregate Demand Curve
8. When the inflation rate decreases, PAE ______, which in turn causes Y to ______ because of ______.
A. rises; rise; the income-expenditure multiplier
B. rises; fall; the income-expenditure multiplier
C. falls; rise; the wealth effect
D. falls; fall; the wealth effect
AACSB: Analytic
Accessibility: Keyboard Navigation
Blooms: Apply Difficulty: 03 Hard Frank - Chapter 13 #8 Learning Objective: 13-01
Topic: The Aggregate Demand Curve