Home Chapter 7 Multiple Choice

# Multiple Choice

This activity contains 12 questions.

## An increase in the expected price level (Pe) will cause:

 the actual price level to increase by the same percentage. the real wage to fall. output to increase. employment to increase.

## If output equals the natural rate of output then:

 P = Pe P < Pe P > Pe None of the above.

## If nothing else changes an increase in the price level will shift the LM curve:

 up and inward (to the left). down and outward (to the right). The LM curve does not shift when the price level changes. up and inward (to the left) for three days. The LM curve will then begin to gradually shift down and outward (to the right).

## Suppose that equilibrium output initially equals the natural rate. The central bank begins an expansionary monetary policy. At the new medium-run equilibrium, this policy __________ output and __________ prices in the long run.

 increases, does not change. increases, decreases. does not change, increases decreases, does not change.

## Why does an aggregate demand curve slope downward?

 The aggregate demand curve slopes downward because all demand curves slope downward. The aggregate demand curve slopes downward because as the price level rises the real wage falls, causing total spending to rise. The aggregate demand curve slopes downward because as the price level rises the purchasing power of the money supply falls. This causes the LM curve to shift inward and equilibrium output to fall. The aggregate demand curve slopes downward because as the price level rises workers expect higher future inflation. Therefore they increase their purchases today, causing spending and income to rise.

## According to a 1993 study by Stanford economist John Taylor, the maximum impact on output of a change in the money supply occurs after:

 one quarter. two quarters. three quarters. four quarters (one year).

## An increase in the saving rate (the marginal propensity to save) will probably:

 decrease output in the medium and long run but increase output in the short run. increase output in the medium and long run but decrease output in the short run. increase output in the short, medium and long run. decrease output in the short, medium and long run.

## Stagflation is:

 an annual rite of passage among young male deer. a combination of low inflation and low unemployment. a combination of high inflation and high unemployment. a combination of high inflation and low unemployment.

## In the short run, expansionary fiscal policy

 causes the IS curve to shift to the right and leads to an increase in AD causing lower output and prices. causes the IS curve to shift to the left and leads to an increase in AD causing higher output and prices. causes the IS curve to shift to the right and leads to an increase in AD causing higher output and prices. causes the IS curve to shift to the left and leads to an increase in AD causing lower output and prices.

## In the short run, contractionary monetary policy

 causes the LM curve to shift down which increases AD and leads to higher output and prices. causes the LM curve to shift down which decreases AD and leads to higher output and prices. causes the LM curve to shift up which increases AD and leads to higher output and prices. causes the LM curve to shift up which decreases AD and leads to lower output and prices.

## In the medium run, expansionary fiscal policy

 lowers interest rates and increases the natural rate of output. increases interest rates and the natural rate of output. has no effect on the natural rate of output, but it raises interest rates, increases the government's share of GDP and reduces the share of GDP for consumption and investment. has no effect on the natural rate of output, but it lowers interest rates, increases the government's share of GDP and reduces the share of GDP for consumption and investment.

## Fluctuations in output that occur over time are called:

 propagation mechanisms. shocks. wage-setting relations. business cycles.

 Copyright © 1995 - 2010 Pearson Education . All rights reserved. Pearson Prentice Hall is an imprint of Pearson . Legal Notice | Privacy Policy | Permissions