WGU - D089 - Principles of Economics Exam Questions with Correct Answers 100% Verified By
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How does a higher level of productivity shift the Short run Aggregate supply curve (SRAS)?
The curve shifts wit the right because with improved productivity firms can produce a higher
quantity of output at every price level.
Every time there is a shift in the long run aggregate supply (LRAS) curve what effect is there to
the short run aggregate supply (SRAS) curve? It also shifts in the same direction
What direction does the short run aggregate supply (SRAS) curve shift when input costs rise?
The curve shifts to the left
What direction does the short run aggregate supply (SRAS) curve shift when input costs fall?
The curve shifts to the right
What is shown at the intersection of the aggregate supply (AS) and aggregate demand (AD)
curve? The equilibrium level of real GDP and the equilibrium price level in the economy
In the short run, what can occur when real GDP is below potential GDP and a recessionary gap
exists? Equilibrium
In the long run what will move the economy toward the full employment equilibrium when a
recessionary gap exists? Decreases in wages
In the short run how is equilibrium achieved when an inflationary gap exists? Real GDP is
above potential GDP
In the long run what will move the economy toward the full employment equilibrium when a
inflationary gap exists? Increases in wages
,What causes short-run variations in unemployment? The business cycle as the economy
expands and contracts.
What typically hovers around 5% in the United States? The unemployment rate
When do higher inflation rates typically occur? Either during or just after an economic boom
What does a shift to the right in the aggregate demand curve indicate? A higher price level
and inflation
What does a shift to the left in the aggregate demand curve indicate? A lower price level
and unemployment
What is effected by government tax and spending decisions; consumer and business
confidence; changes in prices of key inputs like oil; and technology that brings higher levels of
productivity? Aggregate supply and aggregate demand
what is M1 money? cash, checkable deposits, and traveler's checks.
What is M2 money? All M1 money and time deposits, certificate of deposits and money
market funds
What is commodity-backed money? Money that is backed up with gold or silver
What is fiat money? Currency that is not backed by any precious metals, it has value
because users believe that it does
What does a fractional reserve system require? A percentage of money to be retained in the
bank.
,How do banks earn profits? By making loans
When a deposit is made at a bank, the bank can lend out all of the deposit except? The
required reserve ratio
How is more money created by loans that are made to individuals or firms? The money is
likely deposited in other accounts
How can the Fed change the amount of money available? By changing the reserve
requirement, changing the discount rate, changing the interest rate on reserves, or buying and
selling securities.
How does increasing the reserve requirement, increasing the discount rate, increasing the
interest rate on reserves and selling securities change the money supply? It decreases the
money supply
What are ways that the amount of money can be created? Banks may hold excess reserves;
customers may withdraw cash, and individuals and firms may not spend their entire loan
How are federal interest rates determined? By the interaction of money demand and money
supply in the money market. Rates adjust to bring the market to an equilibrium at which the
quantity of money demanded and the quantity of money supplied is balanced
How does the Fed target the rate for federal funds? By adjusting the money supply using
open market operations, changing the required reserve, and manipulating the discount rate.
What does an expansionary policy, such as a purchase of government securities by the Fed do?
Tends to push interest rates down, increasing investment and aggregate demand.
, What does a contractionary policy, such as a sale of government securities by the Fed do?
Pushes interest rates up, investment down and the aggregate demand curve to the left.
What kind of monetary policy is used during a period of recession? An expansionary policy
What kind of monetary policy is used during a period of inflation? a contractionary policy
What does an expansionary fiscal policy encourage? An increase in economic activity
What type of fiscal policy slows down economic activity as businesses decrease production and
lay off workers? A contractionary policy
How does a a change in government purchases directly affect aggregate demand? Through
government spending
How does a change in taxes affect aggregate demand? Through a change in consumer
spending or business investment
Over the last 50 years how much have government purchases fluctuated of U.S. GDP?
Around 20%
Where do the bulk of federal revenues come from? Income and payroll taxes
How is the government budget balance determined? It is the difference between
government revenues and government expenditures
What is the national debt? The sum of all past federal deficits minus any surpluses
Experts| Latest Update Guaranteed Success
How does a higher level of productivity shift the Short run Aggregate supply curve (SRAS)?
The curve shifts wit the right because with improved productivity firms can produce a higher
quantity of output at every price level.
Every time there is a shift in the long run aggregate supply (LRAS) curve what effect is there to
the short run aggregate supply (SRAS) curve? It also shifts in the same direction
What direction does the short run aggregate supply (SRAS) curve shift when input costs rise?
The curve shifts to the left
What direction does the short run aggregate supply (SRAS) curve shift when input costs fall?
The curve shifts to the right
What is shown at the intersection of the aggregate supply (AS) and aggregate demand (AD)
curve? The equilibrium level of real GDP and the equilibrium price level in the economy
In the short run, what can occur when real GDP is below potential GDP and a recessionary gap
exists? Equilibrium
In the long run what will move the economy toward the full employment equilibrium when a
recessionary gap exists? Decreases in wages
In the short run how is equilibrium achieved when an inflationary gap exists? Real GDP is
above potential GDP
In the long run what will move the economy toward the full employment equilibrium when a
inflationary gap exists? Increases in wages
,What causes short-run variations in unemployment? The business cycle as the economy
expands and contracts.
What typically hovers around 5% in the United States? The unemployment rate
When do higher inflation rates typically occur? Either during or just after an economic boom
What does a shift to the right in the aggregate demand curve indicate? A higher price level
and inflation
What does a shift to the left in the aggregate demand curve indicate? A lower price level
and unemployment
What is effected by government tax and spending decisions; consumer and business
confidence; changes in prices of key inputs like oil; and technology that brings higher levels of
productivity? Aggregate supply and aggregate demand
what is M1 money? cash, checkable deposits, and traveler's checks.
What is M2 money? All M1 money and time deposits, certificate of deposits and money
market funds
What is commodity-backed money? Money that is backed up with gold or silver
What is fiat money? Currency that is not backed by any precious metals, it has value
because users believe that it does
What does a fractional reserve system require? A percentage of money to be retained in the
bank.
,How do banks earn profits? By making loans
When a deposit is made at a bank, the bank can lend out all of the deposit except? The
required reserve ratio
How is more money created by loans that are made to individuals or firms? The money is
likely deposited in other accounts
How can the Fed change the amount of money available? By changing the reserve
requirement, changing the discount rate, changing the interest rate on reserves, or buying and
selling securities.
How does increasing the reserve requirement, increasing the discount rate, increasing the
interest rate on reserves and selling securities change the money supply? It decreases the
money supply
What are ways that the amount of money can be created? Banks may hold excess reserves;
customers may withdraw cash, and individuals and firms may not spend their entire loan
How are federal interest rates determined? By the interaction of money demand and money
supply in the money market. Rates adjust to bring the market to an equilibrium at which the
quantity of money demanded and the quantity of money supplied is balanced
How does the Fed target the rate for federal funds? By adjusting the money supply using
open market operations, changing the required reserve, and manipulating the discount rate.
What does an expansionary policy, such as a purchase of government securities by the Fed do?
Tends to push interest rates down, increasing investment and aggregate demand.
, What does a contractionary policy, such as a sale of government securities by the Fed do?
Pushes interest rates up, investment down and the aggregate demand curve to the left.
What kind of monetary policy is used during a period of recession? An expansionary policy
What kind of monetary policy is used during a period of inflation? a contractionary policy
What does an expansionary fiscal policy encourage? An increase in economic activity
What type of fiscal policy slows down economic activity as businesses decrease production and
lay off workers? A contractionary policy
How does a a change in government purchases directly affect aggregate demand? Through
government spending
How does a change in taxes affect aggregate demand? Through a change in consumer
spending or business investment
Over the last 50 years how much have government purchases fluctuated of U.S. GDP?
Around 20%
Where do the bulk of federal revenues come from? Income and payroll taxes
How is the government budget balance determined? It is the difference between
government revenues and government expenditures
What is the national debt? The sum of all past federal deficits minus any surpluses
