1. Decrease Decrease

2. Decrease Increase

3. Decrease No change

4. No change Decrease

5. No change Increase

9. Although the aggregate demand curve and the demand curve for an individual product are downward sloping, the reason for downward slops are different. Which of the following best explains this difference?

1. A change in the general price level does not mean a change in relative domestic prices, so the substitutability of goods is different.

2. There is no foreign substitution available in the aggregate as there is with a specific good

3. Monetary policy changes affect the demand for an individual good, but not aggregate demand.

4. Exchange rate changes affect aggregate demand, but not the individual demand for a good.

5. Monetary policy changes affect aggregate demand, but not the individual demand for a good.

10. The economy is necessarily in equilibrium in which of the following cases?

1. The money supply equals the money demand.

2. Government expenditures equal tax revenues.

3. Total leakages equal total injections.

4. Total investment equal total saving.

5. Total exports equal total imports.

11. According to Keynesian theory, policies intended to reduce demand-pull inflation are most likely to increase which of the following in the short run?

1. Gross domestic product

2. The labor force participation rate

3. The price level

4. Unemployment

5. Wage levels

12. Which of the following is true about changes in tax rates, changes in the level of government expenditures, and changes in money supply?

1. They are automatic stabilizers.

2. They are tools of discretionary fiscal policy.

3. They have different lag times between implementation of a policy and the effects of implementation on aggregate demand.

4. They are favored equally by both monetarists and Keynesians as methods of fine-tuning the economy.

5. All are controlled by the Federal Reserve system

13. If the federal government spends less than it collects in taxes in a given year, which of the following will most likely occur?

1. A budget deficit and an increase in public debt

2. A budget deficit and an decrease in public debt

3. A budget surplus and an increase in public debt

4. A budget surplus and a decrease in public debt

5. The temporary shutdown of the government

14. Which of the following individuals would be counted as currently unemployed?

1. A househusband caring for his two children and elderly mother

2. A data processor who has not worked for two years and has stopped looking for a job

3. A 20-year-old plumber who works part-time as a gardener

4. A recent college graduate who has been interviewing for jobs but has not taken a job

5. A farmer’s teen-ager who works on the farm but is not paid

15. If an economy is currently experiencing high unemployment and severe inflation, which of the following would most likely reduce both unemployment and inflation?

1. An increase in the price of oil

2. An increase in labor productivity

3. An increase in taxes

4. A decrease in consumer purchases

5. A decrease in government spending

16. According to the classical economists’ view of aggregate demand and aggregate supply, an increase in the money supply will affect the price level and unemployment in which of the following ways?

Price Level Unemployment