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The economy is in a recessionary gap and a Keynesian economist advocates
expansionary fiscal policy. What is a likely reason this economist advocates
expansionary fiscal policy?
a. The economist believes the economy is stuck in a recessionary gap and crowding out
will be complete.
b. The economist believes the economy is stuck in a recessionary gap and there will be
no crowding out.
c. The economist believes that wages are too flexible and that crowding out will be
incomplete.
d. The economist believes the AD curve is downward-sloping, the SRAS curve is
upward-sloping, and prices are flexible.
e. none of the above
Exhibit 10-2
If autonomous consumption increases, the TE curve will shift ____________ and the
new level of equilibrium Real GDP will be ___________ than $4,500.
a. downward; greater
b. downward; less
c. upward; less
d. upward; greater
Two candidates, Smith and Jones, are running for the same political office. Last night
they were in a debate. It is generally accepted that Smith is perceived more to the left
after the debate than before the debate. This is bad news for Jones if before the debate
Smith was perceived
a. too far right.
b. too far left.
c. as being in the middle of the political spectrum.
d. b or c
e. none of the above
The answer is: "A reduction in consumers' surplus." What is the question?
a. What is an effect of a rise in price?
b. What is an effect of a tariff?
c. What is an effect of a quota?
d. a and b
e. a, b, and c
Increased productivity in the agricultural sector in conjunction with an inelastic demand
curve for agricultural goods has caused a(n) __________ in output, a(n) __________ in
price, and __________ revenues for farmers.
a. increase; decrease; higher
b. increase; decrease; lower
c. decrease; increase; higher
d. decrease; increase; lower
e. increase; increase; higher
Suppose the AD curve and the SRAS curve intersect to the right of the LRAS curve.
Which of the following is true?
a. The economy is in a recessionary gap.
b. The economy is in an inflationary gap.
c. The economy is in a long-run equilibrium.
d. This situation is actually impossible.
A currency has depreciated in value if it takes more of a foreign currency to buy it.
a. True
b. False
In its current execution of monetary policy, the Fed does not usually have a specific
_____________ target, but rather it tries to target a specific ________________.
a. money supply; federal funds rate
b. federal funds rate; money supply
c. money supply; discount rate
d. required reserves ratio; discount rate
If the demand curve for agricultural products is elastic and farmers as a group become
more productive, then prices of agricultural goods will __________ and total revenue
earned by farmers will __________.
a. decrease; increase
b. decrease; decrease
c. increase; increase
d. increase; decrease
e. We cannot answer this question without knowing how elastic the demand curve is.
Exhibit 1-2
According to the data provided in this table, what is the slope of the line between points
C and D, if these data were graphed with X on the horizontal axis and Y on the vertical
axis?
a. -4.00
b. -0.25
c. 4.00
d. 0.25
e. none of the above
If velocity and the money supply are __________________, then when one component
of spending rises another component of spending ________________.
a. constant; must fall
b. constant; must rise
c. rising; may not necessarily fall
d. rising; must rise
