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    Unit 3: National Income and Price Determination Exam

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    QUIZ

    Unit 3: National Income and Price D...

    Unit 3: National Income and Price D... 55%

    74 12th 12th Social Studies kristin gutierrez 2 years

    10 Qs

    1. Multiple-choice 30 seconds Q.

    An increase in which of the following will most likely promote economic growth?

    answer choices Taxes on investment The price level Human Capital

    Consumption of non-durable goods

    Interest rates 2. Multiple-choice 1 minute Q.

    Which of the following will cause aggregate supply to increase in Country X?

    answer choices

    An increase in personal income taxes

    The discovery of low-cost alternative sources of energy

    A decrease in labor productivity with no change in nominal wages

    Depreciation of country X's currency on the foreign exchange market

    An increase in the price level

    3. Multiple-choice 45 seconds Q.

    An increase in the price of oil, an important input to production, will result in which of the following in the short run?

    answer choices

    A decrease in the price level

    A decrease in short-run aggregate supply

    A decrease in unemployment

    An increase in real wages

    An increase in aggregate demand

    4. Multiple-choice 30 seconds Q.

    An economy is currently operating at the full-employment level of output. Which of the following would result in a recessionary gap in the short-run?

    answer choices

    An increase in the costs of production

    An improvement in the productivity of labor

    An increase in the money supply

    A positive supply shock

    A decrease in income tax rates

    5. Multiple-choice 1 minute Q.

    Thailand and Malaysia are trading partners. If the price level in Thailand decreases relative to the price level in Malaysia, what will happen to Thailand's exports to Malaysia and Thailand's aggregate demand?

    answer choices

    Thailand's exports increase and Thailand's aggregate demand decrease

    Thailand's exports increase and Thailand's aggregate demand increase

    Thailand's exports increase and Thailand's aggregate demand indeterminate

    Thailand's exports decrease and Thailand's aggregate demand decrease

    Thailand's exports decrease and Thailand's aggregate demand increase

    6. Multiple-choice 45 seconds Q.

    Which of the following is a fiscal policy action aimed at reducing unemployment?

    answer choices

    Decreasing government expenditures

    Decreasing income taxes

    Decreasing tax credits

    Increasing nominal interest rates

    7. Multiple-choice 1 minute Q.

    The marginal propensity to save is .25, a $15 billion increase in government spending will lead to an increase in national income by a maximum of

    answer choices $60 billion $45 billion $15 billion $11.25 billion $3.75 billion 8. Multiple-choice 1 minute Q.

    During a period of stagflation, a nation is most likely experiencing

    answer choices

    high unemployment and low inflation

    low unemployment and high inflation

    low inflationary expectations

    a decrease in short-run aggregate supply

    an increase in taxes and government spending

    9. Multiple-choice 1 minute Q.

    An economy is in short-run equilibrium at a level of output that it greater than potential output. If there were no active fiscal or monetary policy intervention, which of the following changes would occur in the long run?

    answer choices

    Output: Increase PL: Decrease

    Output: Increase PL: Increase

    Output: Decrease PL: Decrease

    Output: Decrease PL: Increase

    Output: No Change PL: No change

    10. Multiple-choice 45 seconds Q.

    An increase in which of the following will most likely cause an increase in aggregate demand and inflation in the short run?

    answer choices income tax rates input prices government spending real interest rates savings

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    AP Econ Questions Flashcards

    Study with Quizlet and memorize flashcards terms like With a constant money supply, if the demand for money decreases, the equilibrium interest rate and quantity of money will change in which of the following ways? Interest Rate.......Quantity of Money a) increase.......decrease b) increase......not change c) decrease......decrease d) decrease......increase e) decrease......not change, An increase in aggregate supply will most likely cause income and employment to change in which of the following ways? Income......Employment a) decrease......decrease b) decrease......increase c) no change......increase d) increase......decrease e) increase......increase, **If an economy is operating with significant unemployment, an increase in which of the following will most likely cause employment to increase and the interest rate to decrease? a) purchase of government bonds by the central bank b) transfer payments c) reserve requirements d) government expenditures e) investment in basic infrastructure and more.

    AP Econ Questions

    4.3 3 Reviews

    With a constant money supply, if the demand for money decreases, the equilibrium interest rate and quantity of money will change in which of the following ways?

    Interest Rate.......Quantity of Money

    a) increase.......decrease

    b) increase......not change

    c) decrease......decrease

    d) decrease......increase

    e) decrease......not change

    Click card to see definition 👆

    e) decrease......not change

    Click again to see term 👆

    An increase in aggregate supply will most likely cause income and employment to change in which of the following ways?

    Income......Employment

    a) decrease......decrease

    b) decrease......increase

    c) no change......increase

    d) increase......decrease

    e) increase......increase

    Click card to see definition 👆

    e) increase......increase

    Click again to see term 👆

    1/12 Created by askYc3

    Terms in this set (12)

    With a constant money supply, if the demand for money decreases, the equilibrium interest rate and quantity of money will change in which of the following ways?

    Interest Rate.......Quantity of Money

    a) increase.......decrease

    b) increase......not change

    c) decrease......decrease

    d) decrease......increase

    e) decrease......not change

    e) decrease......not change

    An increase in aggregate supply will most likely cause income and employment to change in which of the following ways?

    Income......Employment

    a) decrease......decrease

    b) decrease......increase

    c) no change......increase

    d) increase......decrease

    e) increase......increase

    e) increase......increase

    **If an economy is operating with significant unemployment, an increase in which of the following will most likely cause employment to increase and the interest rate to decrease?

    a) purchase of government bonds by the central bank

    b) transfer payments

    c) reserve requirements

    d) government expenditures

    e) investment in basic infrastructure

    a) purchase of government bonds by the central bank

    **An increase in which of the following is most likely to promote economic growth?

    a) consumption spending

    b) investment tax credits

    c) the natural rate of employment

    d) the trade deficit

    e) real interest rates

    b) investment tax credits

    Which of the following is most likely to occur if the Federal Reserve engages in open market operations to reduce inflation?

    a) a decrease in interest rates

    b) a decrease in reserves in the banking system

    c) a decrease in the government deficit

    d) an increase in the money supply

    e) an increase in exports

    b) a decrease in reserves in the banking system

    If the real interest rate in the US increases relative to that of the rest of the world, capital should flow

    a) into the US and the dollar will appreciate

    b) into the US and the dollar will appreciate

    c) out of the US and the dollar will depreciate

    d) out of the US and the dollar will appreciate

    e) out of the US and the value of the dollar will not change

    b) into the US and the dollar will appreciate

    When the average price level increases by 10 percent in a given year, which of the following must increase by 10 percent for real output to remain constant?

    a) real national income

    b) nominal national income

    c) the international value of the currency

    d) real interest rates

    e) nominal interest rates

    b) nominal national income

    The Federal Reserve decreases the federal funds rate by

    a) decreasing the reserve requirement

    b) decreasing the discount rate

    c) increasing the discount rate

    d) selling government bonds on the open market

    e) buying government bonds on the open market

    e) buying government bonds on the open market

    Which of the following is NOT a function of fiat money?

    a) a standard of deferred payment

    b) a unit of account

    c) a source of intrinsic value

    d) a store of value

    e) a medium of exchange

    c) a source of intrinsic value

    In the long run, if aggregate demand decreases, real gross domestic product (GDP) and the price level will change in which of the following ways?

    Real GDP......Price Level

    a) decrease......decrease

    b) decrease......increase

    c) no change......decrease

    d) increase......decrease

    e) no chnage......increase

    c) no change......decrease

    Because it is LONG RUN, real GDP does not chnage

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    How the AD/AS model incorporates growth, unemployment, and inflation (article)

    Changes in the AD-AS model in the short run

    How the AD/AS model incorporates growth, unemployment, and inflation

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    Key points

    The aggregate demand/aggregate supply, or AD/AS, model is one of the fundamental tools in economics because it provides an overall framework for bringing economic factors together in one diagram.

    We can examine long-run economic growth using the AD/AS model, but the factors that determine the speed of this long-term economic growth rate do not appear directly in the AD/AS diagram.

    Cyclical unemployment is relatively large in the AD/AS framework when the equilibrium is substantially below potential GDP and relatively small when the equilibrium is near potential GDP.

    The natural rate of unemployment—as determined by the labor market institutions of the economy—is built into potential GDP, but does not otherwise appear in an AD/AS diagram.

    Pressures for inflation to rise or fall are shown in the AD/AS framework when the movement from one equilibrium to another causes the price level to rise or to fall.

    The AD/AS model allows economists to analyze multiple economic factors.

    Macroeconomics takes an overall view of the economy, which means that it needs to juggle many different concepts including the three macroeconomic goals of growth, low inflation, and low unemployment; the elements of aggregate demand; aggregate supply; and a wide array of economic events and policy decisions.

    The aggregate demand/aggregate supply, or AD/AS, model is one of the fundamental tools in economics because it provides an overall framework for bringing these factors together in one diagram. In addition, the AD/AS framework is flexible enough to accommodate both the Keynes’ law approach—focusing on aggregate demand and the short run—while also including the Say’s law approach—focusing on aggregate supply and the long run.

    Growth and recession in the AD/AS model

    We can examine both long-term and short-term changes in gross domestic product, or GDP, using the AD/AS model. In an AD/AS diagram, long-run economic growth due to productivity increases over time is represented by a gradual rightward shift of aggregate supply. The vertical line representing potential GDP—the full-employment level of gross domestic product—gradually shifts to the right over time as well. You can see this effect in AD/AS diagram A below, which shows a pattern of economic growth over three years.

    However, the factors that determine the speed of this long-term economic growth rate—like investment in physical and human capital, technology, and whether an economy can take advantage of catch-up growth—do not appear directly in an AD/AS diagram.

    AD/AS diagram A, on the left, shows how productivity increases will shift aggregate supply to the right.

    Image credit: Figure 1 in "Shifts in Aggregate Supply" by OpenStaxCollege, CC BY 4.0

    In the short run, GDP, falls and rises in every economy as the economy dips into recession or expands out of recession. When an AD/AS diagram shows an equilibrium level of real GDP substantially below potential GDP—as is shown in the diagram below at equilibrium point

    \text{E0} E0

    start text, E, 0, end text

    —it indicates a recession. On the other hand, in years of resurgent economic growth the equilibrium will typically be close to potential GDP—as it is at equilibrium point

    \text{E1} E1

    start text, E, 1, end text

    .

    The higher of the two aggregate demand curves in this AD/AS diagram is closer to the vertical potential GDP line and hence represents an economy with a low unemployment. In contrast, the lower aggregate demand curve is much farther from the potential GDP line and hence represents an economy that may be struggling with a recession.

    Image credit: Figure 2 in "Shifts in Aggregate Demand" by OpenStaxCollege, CC BY 4.0

    Unemployment in the AD/AS diagram

    We can examine two different types of unemployment using an AD/AS diagram—cyclical unemployment and the natural rate of unemployment. Cyclical unemployment bounces up and down according to the short-run movements of GDP. The long-term, baseline level of unemployment that occurs year in and year out, however, is called the natural rate of unemployment.

    The natural rate of unemployment is determined by how well the structures of market and government institutions in the economy lead to a matching of workers and employers in the labor market. Potential GDP can imply different unemployment rates in different economies, depending on the natural rate of unemployment for that economy.

    In an AD/AS diagram, cyclical unemployment is shown by how close the economy is to the potential or full-employment level of GDP. Take another look at the AD/AS diagram above. Relatively low cyclical unemployment for an economy occurs when the level of output is close to potential GDP, as at the equilibrium point

    \text{E1} E1

    start text, E, 1, end text

    . On the other hand, high cyclical unemployment arises when the output is substantially to the left of potential GDP on the AD/AS diagram, as at the equilibrium point

    Source : www.khanacademy.org

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