Question 1

A decrease in government expenditure would shift the:
A)aggregate demand curve rightward.
B)aggregate demand curve leftward.
C)aggregate supply curve rightward.
D)aggregate supply curve leftward.

Accepted Answer

A decrease in government expenditure would mean a decrease in government spending, and thus a decrease in aggregate demand. A shift in aggregate demand curve to the left will occur because of a decrease in government expenditure.

Question 2

The curve that shows alternative combinations of the price level and real income that result in equilibrium in both the real goods and the money markets is called the:
A)aggregate demand curve.
B)short-run aggregate supply curve.
C)long-run aggregate supply curve.
D)none of the above.

Accepted Answer

The definition given matches the definition of the aggregate demand curve. The short-run aggregate supply curve shows the relationship between the price level and the quantity of output firms are willing to supply in the short run, while the long-run aggregate supply curve shows the relationship between the price level and the potential output in the long run. None of these curves show the equilibrium in both the real goods and the money markets.

Question 3

A decrease in consumer confidence would shift the:
A)aggregate demand curve rightward.
B)aggregate demand curve leftward.
C)aggregate supply curve rightward.
D)aggregate supply curve leftward.

Accepted Answer

A decrease in consumer confidence implies that consumers are less willing to spend money, which leads to a decrease in consumption spending. This, in turn, leads to a decrease in aggregate demand and shifts the AD curve leftward.

Question 4

Unemployment compensation is an example of:
A)non-discretionary expenditures.
B)discretionary expenditures.
C)taxes.
D)none of the above.

Accepted Answer

Unemployment compensation is considered a non-discretionary expenditure because it is mandated by law and not subject to annual appropriations by Congress. The government is required to provide this benefit to eligible individuals who have lost their job through no fault of their own.

Question 5

If there is an autonomous decrease in spending (a leftward shift in the aggregate demand curve)and the Fed wishes to hold real income constant, then the Fed would:
A)decrease the money supply yielding a leftward shift in the aggregate demand curve.
B)increase the money supply yielding a rightward shift in the aggregate demand curve.
C)hold the money supply constant.
D)none of the above.

Accepted Answer

If there is an autonomous decrease in spending, the aggregate demand curve shifts leftward which causes a decrease in real income. If the Fed wishes to hold real income constant, they must counteract the leftward shift by causing a rightward shift in the aggregate demand curve. This can be achieved by increasing the money supply, which would provide more funds for spending and increase aggregate demand. Therefore, the correct choice is B, increase the money supply yielding a rightward shift in the aggregate demand curve.

Question 6

A decrease in taxes would shift the:
A)aggregate demand curve rightward.
B)aggregate demand curve leftward.
C)aggregate supply curve rightward.
D)aggregate supply curve leftward.

Accepted Answer

Decrease in taxes would increase disposable income and encourage consumers to spend more, leading to an increase in aggregate demand. Therefore, it would shift the aggregate demand curve rightward.

Question 7

If there is an autonomous increase in spending (a rightward shift in the aggregate demand curve)and the Fed wishes to hold real income constant, then the Fed would:
A)decrease the money supply yielding a leftward shift in the aggregate demand curve.
B)increase the money supply yielding a rightward shift in the aggregate demand curve.
C)hold the money supply constant.
D)none of the above.

Accepted Answer

If there is an autonomous increase in spending, it will cause a rightward shift in the aggregate demand curve. If the Fed wishes to hold real income constant, then it needs to counteract the increase in spending. This can be achieved by decreasing the money supply, which will cause a leftward shift in the aggregate demand curve, thereby offsetting the autonomous increase in spending. Therefore, the correct choice is A.

Question 8

An income tax system where higher tax rates are applied to increased amounts of income is called:
A)a regressive tax system.
B)a proportional tax system.
C)a progressive tax system.
D)a flat rate tax system.

Accepted Answer

A progressive tax system is one where the tax rate increases as the income of the taxpayer increases. This means that those who earn more pay a higher percentage of their income in taxes, while those who earn less pay a lower percentage. This is often seen as a fairer system as it ensures that those who can afford to pay more, do so.

Question 9

An increase in foreign real income would shift the:
A)aggregate demand curve rightward.
B)aggregate demand curve leftward.
C)aggregate supply curve rightward.
D)aggregate supply curve leftward.

Accepted Answer

An increase in foreign real income would lead to an increase in the demand for domestic goods and services, resulting in a rightward shift of the aggregate demand curve. This is because foreigners would have more income to spend on goods and services produced domestically.

Question 10

An increase in consumer confidence would shift the:
A)aggregate demand curve rightward.
B)aggregate demand curve leftward.
C)aggregate supply curve rightward.
D)aggregate supply curve leftward.

Accepted Answer

An increase in consumer confidence means that consumers are more willing to spend money, leading to an increase in consumption. This will result in a shift of the aggregate demand curve rightward.

Question 11

A depreciation of the U.S.dollar would shift the:
A)aggregate demand curve rightward.
B)aggregate demand curve leftward.
C)aggregate supply curve rightward.
D)aggregate supply curve leftward.

Accepted Answer

A depreciation of the U.S. dollar would make imports more expensive and exports cheaper, which would increase exports and decrease imports. This, in turn, would increase net exports and thus shift the aggregate demand curve rightward.

Question 12

A decrease in foreign real income would shift the:
A)aggregate demand curve rightward.
B)aggregate demand curve leftward.
C)aggregate supply curve rightward.
D)aggregate supply curve leftward.

Accepted Answer

A decrease in foreign real income would lead to a decrease in exports, which would reduce the overall demand for goods and services in the economy. This would shift the aggregate demand curve leftward.

Question 13

An increase in government expenditure would shift the:
A)aggregate demand curve rightward.
B)aggregate demand curve leftward.
C)aggregate supply curve rightward.
D)aggregate supply curve leftward.

Accepted Answer

An increase in government expenditure would increase the overall spending in the economy and lead to an increase in aggregate demand. This shift would result in a rightward movement of the aggregate demand curve.

Question 14

An appreciation of the U.S.dollar would shift the:
A)aggregate demand curve rightward.
B)aggregate demand curve leftward.
C)aggregate supply curve rightward.
D)aggregate supply curve leftward.

Accepted Answer

An appreciation of the U.S. dollar makes U.S. exports more expensive and less attractive to foreign buyers, reducing net exports and shifting the aggregate demand curve leftward.

Question 15

A decrease in the nominal money supply would shift the:
A)aggregate demand curve rightward.
B)aggregate demand curve leftward.
C)aggregate supply curve rightward.
D)aggregate supply curve leftward.

Accepted Answer

A decrease in the nominal money supply would increase the purchasing power of each unit of money, leading to a decrease in aggregate demand. This would shift the aggregate demand curve leftward.

Question 16

An increase in the nominal money supply would shift the:
A)aggregate demand curve rightward.
B)aggregate demand curve leftward.
C)aggregate supply curve rightward.
D)aggregate supply curve leftward.

Accepted Answer

An increase in the nominal money supply causes an increase in spending, leading to an increase in aggregate demand. As a result, the aggregate demand curve would shift rightward.

Question 17

Features of the U.S.federal government expenditure and taxation programs that tend to automatically slow the economy during times of high economic activity and boost the economy during periods of recession are called:
A)discretionary expenditures.
B)automatic stabilizers.
C)non-automatic stabilizers.
D)none of the above.

Accepted Answer

Automatic stabilizers are features of the federal government's expenditure and taxation programs that automatically adjust themselves to stabilize the economy during periods of high economic activity or recession. For example, during a recession, the government may increase transfer payments like unemployment benefits, which puts more money in the hands of consumers and boosts demand, thereby stimulating the economy. On the other hand, during periods of high economic activity, the government may decrease transfer payments or increase taxes, which helps to slow down the economy and curb inflation.

Question 18

A decrease in wealth would shift the:
A)aggregate demand curve rightward.
B)aggregate demand curve leftward.
C)aggregate supply curve rightward.
D)aggregate supply curve leftward.

Accepted Answer

A decrease in wealth means that consumers will have less money to spend, resulting in a decrease in consumption and a shift of the aggregate demand curve leftward.

Question 19

An increase in wealth would shift the:
A)aggregate demand curve rightward.
B)aggregate demand curve leftward.
C)aggregate supply curve rightward.
D)aggregate supply curve leftward.

Accepted Answer

An increase in wealth would lead to higher consumption expenditure, which would lead to an increase in aggregate demand. As a result, the aggregate demand curve would shift rightward.

Question 20

An increase in taxes would shift the:
A)aggregate demand curve rightward.
B)aggregate demand curve leftward.
C)aggregate supply curve rightward.
D)aggregate supply curve leftward.

Accepted Answer

An increase in taxes would reduce the disposable income and spending power of households, resulting in a decrease in consumption spending. This decrease in consumption spending would lead to a decrease in aggregate demand, shifting the aggregate demand curve leftward.

Quiz 14: The Aggregate Model of the Macro Economy

A decrease in government expenditure would shift the:

The curve that shows alternative combinations of the price level and real income that result in equilibrium in both the real goods and the money markets is called the:

A decrease in consumer confidence would shift the:

Unemployment compensation is an example of:

If there is an autonomous decrease in spending (a leftward shift in the aggregate demand curve) and the Fed wishes to hold real income constant, then the Fed would:

A decrease in taxes would shift the:

If there is an autonomous increase in spending (a rightward shift in the aggregate demand curve) and the Fed wishes to hold real income constant, then the Fed would:

An income tax system where higher tax rates are applied to increased amounts of income is called:

An increase in foreign real income would shift the:

An increase in consumer confidence would shift the:

A depreciation of the U.S.dollar would shift the:

A decrease in foreign real income would shift the:

An increase in government expenditure would shift the:

An appreciation of the U.S.dollar would shift the:

A decrease in the nominal money supply would shift the:

An increase in the nominal money supply would shift the:

Features of the U.S.federal government expenditure and taxation programs that tend to automatically slow the economy during times of high economic activity and boost the economy during periods of recession are called:

A decrease in wealth would shift the:

An increase in wealth would shift the:

An increase in taxes would shift the: