Econ Final Answers – Flashcards

If the price level in the current period is higher then what buyers and sellers anticipate then what will happen to profit margins and outputs?

In the context of Aggregate Supply, the long run us defined as the period in which

The potential output of an economy is the level of output produced when the a. real wage equals the nominal wage. b. price level is constant. c. expected real wage equals the inflation rate. d. expected price level equals the unemployment rate. e. expected price level equals the actual price level.

Which of the following would be most likely to cause an increase in AD? a. increased fear that the U.S. economy was going into a recession b. an increase in the real interest rate c. sharp increase in the value of stocks owned by Americans d. a recession in Canada, Mexico, and Western Europe

how does an adverse supply shock effect the Aggregate demand market? (LRAS, SRAS, or AD?)

Automatic stabilizers are government programs that tend to a. reduce the ups and downs in aggregate demand without legislative action. b. bring expenditures and revenues automatically into balance without legislative action. c. signal Congress that legislative changes are needed. d. increase tax collections automatically during a recession.

The National Industrial Recovery Act, passed in 1933, was an attempt to a. break monopolies and cartels, and introduce competition into several different industries. b. fix prices, wages, and quotas for several industries in an effort to keep prices high. c. lower corporate taxes and remove collusive behavior in an effort to keep U.S. firms competitive with foreign manufacturers. d. create a stable economic environment that would encourage investment and expansion in the industrial sector of the economy.

The Supply-side effects of reduction in taxes are the result of a. increases in the disposable income of households accompanying reductions in taxes b. The stimulus effects of increases in government expenditures c. increased attractiveness of productivity relative to leisure and tax avoidance d. reductions in interest rates that generally accompany expansionary fiscal policy.

According to the crowding-out effect, expansionary fiscal policy will lead to a. higher interest rates, an appreciated dollar, and reduced net exports. b. higher interest rates, an appreciated dollar, and increased net exports. c. reduced interest rates, an appreciated dollar, and reduced net exports. d. reduced interest rates, an appreciated dollar, and increased net exports.

Crowding out refers to the situation in which a. borrowing by the federal government raises interest rates and causes firms to invest less. b. foreigners sell their bonds and purchase U.S. goods and services. c. borrowing by the federal government causes state and local governments to lower their taxes. d. increased federal taxes to balance the budget causes interest rates to increase and consumer credit to decrease.

New classical economists believe that an increase in deficit financing by the government will a. reduce government spending. b. increase consumption. c. reduce future taxes. d. increase savings.

Supply-side economics stresses that a. aggregate demand is the major determinant of real output. b. marginal tax rates exert important incentive effects that influence real output. c. an increase in government expenditures and tax rates will cause real income to rise. d. expansionary monetary policy will cause real output to expand without accelerating inflation.

Supply-side economics stresses that a. budget deficits will stimulate demand, output, and employment. b. budget deficits will lead to higher interest rates, which will weaken their expansionary impact. c. an increase in government expenditures financed by higher tax rates will cause real income to rise. d. changes in marginal tax rates exert important effects on real output and employment.

The new classical model implies that the effect of government increasing expenditures by debt financing a. has the same effect as if it was financed by raising current taxes. b. is highly expansionary on aggregate demand and the economy. c. will result in higher real interest rates. d. will result in lower personal savings.

According to the traditional (crowding-out) view, large budget deficits during normal times will lead to a. bank failures in the future. b. a smaller capital stock in the future. c. lower interest rates in the future. d. a bankrupt government in the future.