1. If the short-run aggregate supply curve is horizontal and the long-run aggregate supply
curve is vertical, then a change in the money supply will change ______ in the short run
and change ______ in the long run.
A. only output; only prices
B. both prices and output; both prices and output
C. only prices; only output
D. both prices and output; only prices
2. If a short-run equilibrium occurs at a level of output above the natural rate, then in the
transition to the long run, prices will ______, and output will ______.
A. increase; decrease
B. decrease; increase
C. decrease; decrease
D. increase; increase
3. Stabilization policy refers to policy actions aimed at:
A. maintaining constant shares of output going to labor and capital.
B. reducing the severity of short-run economic uctuations.
C. preventing increases in the poverty rate.
D. equalizing incomes of households in the economy.
4. If the short-run aggregate supply curve is horizontal, and each member of the general
public chooses to hold a larger fraction of his or her income as cash balances, then:
A. prices will increase in the short run.
B. output and employment will increase in the short run.
C. prices will decrease in the short run.
D. output and employment will decrease in the short run.
5. In the Keynesian-cross model, if the MPC equals 0.75, then a $3 billion decrease in taxes
increases planned expenditures by ______ and increases the equilibrium level of income
by ______.
A. $3 billion; $3 billion
B. $2.25 billion; $2.25 billion
C. $3 billion; $9 billion
D. $2.25 billion; $9 billion
6. An increase in income raises money ______ and ______ the equilibrium interest rate.
A. supply; raises
B. supply; lowers
C. demand; lowers
D. demand; raises
fl
, 7. The IS curve shifts when any of the following economic variables change except:
A. government spending.
B. the marginal propensity to consume.
C. the interest rate.
D. taxes.
8. An increase in taxes shifts the IS curve:
A. downward and to the right.
B. downward and to the left.
C. upward and to the right.
D. upward and to the left.
9. Along an IS curve all of the following are always true except:
A. there are no unplanned changes in inventories.
B. planned expenditures equal actual expenditures.
C. planned expenditures equal income.
D. the demand for real balances equals the supply of real balances.
10. A decrease in the real money supply, other things being equal, will shift the LM curve:
A. downward and to the right.
B. upward and to the right.
C. upward and to the left.
D. downward and to the left.
11. In the short run, a favorable supply shock causes:
A. both prices and output to fall.
B. both prices and output to rise.
C. prices to rise and output to fall.
D. prices to fall and output to rise.
12. If the Fed reduces the money supply by 5 percent, then the real interest rate will:
A. rise in the short run but return to its original equilibrium level in the long run.
B. rise in the short run but fall below its original equilibrium level in the long run.
C. be unaffected in both the short run and the long run.
D. rise in both the short run and the long run.
curve is vertical, then a change in the money supply will change ______ in the short run
and change ______ in the long run.
A. only output; only prices
B. both prices and output; both prices and output
C. only prices; only output
D. both prices and output; only prices
2. If a short-run equilibrium occurs at a level of output above the natural rate, then in the
transition to the long run, prices will ______, and output will ______.
A. increase; decrease
B. decrease; increase
C. decrease; decrease
D. increase; increase
3. Stabilization policy refers to policy actions aimed at:
A. maintaining constant shares of output going to labor and capital.
B. reducing the severity of short-run economic uctuations.
C. preventing increases in the poverty rate.
D. equalizing incomes of households in the economy.
4. If the short-run aggregate supply curve is horizontal, and each member of the general
public chooses to hold a larger fraction of his or her income as cash balances, then:
A. prices will increase in the short run.
B. output and employment will increase in the short run.
C. prices will decrease in the short run.
D. output and employment will decrease in the short run.
5. In the Keynesian-cross model, if the MPC equals 0.75, then a $3 billion decrease in taxes
increases planned expenditures by ______ and increases the equilibrium level of income
by ______.
A. $3 billion; $3 billion
B. $2.25 billion; $2.25 billion
C. $3 billion; $9 billion
D. $2.25 billion; $9 billion
6. An increase in income raises money ______ and ______ the equilibrium interest rate.
A. supply; raises
B. supply; lowers
C. demand; lowers
D. demand; raises
fl
, 7. The IS curve shifts when any of the following economic variables change except:
A. government spending.
B. the marginal propensity to consume.
C. the interest rate.
D. taxes.
8. An increase in taxes shifts the IS curve:
A. downward and to the right.
B. downward and to the left.
C. upward and to the right.
D. upward and to the left.
9. Along an IS curve all of the following are always true except:
A. there are no unplanned changes in inventories.
B. planned expenditures equal actual expenditures.
C. planned expenditures equal income.
D. the demand for real balances equals the supply of real balances.
10. A decrease in the real money supply, other things being equal, will shift the LM curve:
A. downward and to the right.
B. upward and to the right.
C. upward and to the left.
D. downward and to the left.
11. In the short run, a favorable supply shock causes:
A. both prices and output to fall.
B. both prices and output to rise.
C. prices to rise and output to fall.
D. prices to fall and output to rise.
12. If the Fed reduces the money supply by 5 percent, then the real interest rate will:
A. rise in the short run but return to its original equilibrium level in the long run.
B. rise in the short run but fall below its original equilibrium level in the long run.
C. be unaffected in both the short run and the long run.
D. rise in both the short run and the long run.
