Question 1 of 50 1 0 1 0 Points Using the aggregate demand aggregate supply model predict what happens in the short run when the federal government enacts a cut in the personal income tax rates A The aggregate supply curve shifts right the aggregate demand curve is not affected price level decreases real GDP increases B The aggregate supply curve shifts left the aggregate demand curve is not affected price level increases real GDP decreases C The aggregate demand curve shifts right the aggregate supply curve is not affected price level and real GDP increase D The aggregate demand curve shifts left the aggregate supply curve is not affected price level and real GDP decrease Answer Key C Question 2 of 50 0 0 1 0 Points See Exhibit 2 Suppose that the economy is in long run equilibrium at point A Now suppose the stock market crashes significantly reducing household wealth What happens in the short run rhw3ex2 pdf 8 KB A Real GDP remains at Y1 but the price level falls to P3 B The quantity of real GDP demanded falls resulting in a movement from point A to point F C Real GDP decreases to Y3 and the price level falls to P3 D The economy moves to a short run equilibrium at point D Answer Key C Question 3 of 50 1 0 1 0 Points The use of government purchases transfer payments and taxes to influence the level of economic activity is called A monetary policy B fiscal policy C congressional policy D Federal Government policy Answer Key B Question 4 of 50 1 0 1 0 Points An economic analysis of the short run is useful to explain A how deviations of real GDP from potential output can and do occur B how deviations of nominal GDP from potential output can and do occur C why the long run aggregate supply curve is vertical D how an economy s maximum output is determined Answer Key A Question 5 of 50 1 0 1 0 Points Suppose the economy is initially in long run equilibrium Which of the following events leads to a decrease in the price level and real GDP in the short run A a decrease in health insurance premiums paid by firms raises the cost of employing labor B an increase in government transfer payments C an increase in the cost of a key input such as oil D a sharp fall in stock market prices Answer Key D Question 6 of 50 0 0 1 0 Points Exhibit 2 Suppose that the economy is in long run equilibrium at point A Now suppose net exports increase What happens in the short run rhw3ex2 pdf 8 KB A There will be an increase in aggregate output demanded and the economy moves from point A to point G B Real GDP increases to Y2 and the price level rises to P2 C Real GDP decreases to Y3 and the price level falls to P3 D Since the economy is already at its potential output only the price level will rise to P2 Answer Key B Question 7 of 50 0 0 1 0 Points Suppose the price of an important natural resource such as oil falls What will be the effect on the short run aggregate supply curve A There will be movement to the left along the aggregate supply curve B The aggregate supply curve will shift to the left C There will be movement to the right along the aggregate supply curve D The aggregate supply curve will shift to the right Answer Key D Question 8 of 50 1 0 1 0 Points All of the following statements is true about the short run aggregate supply curve except A it is a graphical representation of the relationship between production and the price level B it is a result of the stickiness or inflexibility of some prices and wages C it is upward sloping D it is drawn holding price level constant Answer Key D Question 9 of 50 0 0 1 0 Points The government expenditure multiplier is given by A the change in government expenditure divided by the change in investment B the change in government expenditure divided by the change in real gdp C the change in real gdp divided by the change in government expenditure D the change in consumption divided by the change in real gdp Answer Key C Question 10 of 50 1 0 1 0 Points A change in the price level all other things unchanged causes A a movement along the aggregate demand curve B a shift of the aggregate demand curve C both a movement along the aggregate demand curve and a shift in the curve D no change in the value of assets held in the form of money Answer Key A Question 11 of 50 0 0 1 0 Points Suppose the economy is initially in long run equilibrium Which of the following events leads to an increase in the price level and a decrease in real GDP in the short run A a decrease in health insurance premiums paid by firms raises the cost of employing labor B an increase in government transfer payments C an increase in the cost of a key input such as oil D a sharp fall in stock market prices Answer Key D Question 12 of 50 1 0 1 0 Points To eliminate a recessionary gap policy makers may pursue A an expansionary policy that increases aggregate demand B a contractionary policy that increases aggregate demand C a non intervention policy that leaves aggregate supply unaffected and increases aggregate demand D an intervention policy that decreases aggregate supply and increases aggregate demand Answer Key A Question 13 of 50 1 0 1 0 Points To eliminate an inflationary gap policy makers may pursue A an expansionary policy that reduces the price level B a contractionary policy that decreases aggregate demand C a non intervention policy that leaves aggregate demand unaffected and increases aggregate supply D an intervention policy that increases aggregate supply and decreases aggregate demand Answer Key B Question 14 of 50 1 0 1 0 Points In the short run all prices are flexible A True B False Answer Key False Question 15 of 50 1 0 1 0 Points According to the wealth effect if the average price level rises the value of consumers A real wealth nominal wealth and consumption spending fall B nominal wealth and consumption spending fall C real wealth and consumption spending fall D feel poorer and will save more Answer Key C Question 16 of 50 1 0 1 0 Points All other things unchanged an increase in government spending will A shift the aggregate demand curve to the right B shift the aggregate demand curve to the left C make the aggregate demand curve flatter D make the aggregate demand curve steeper Answer Key A Question 17 of 50 1 0 1 0 Points In a graph that shows the aggregate supply and aggregate demand curves what are the variables on the axes of the graph A The price level measured by the …