Effect of the contractionary policy on aggregate demand

Assignment Help Microeconomics
Reference no: EM13143664

1) Long-term economic growth is a term used to describe the

a) More rapid growth in population than of real output

b) Increasing trend in real GDP

c) Falling unemployment rates over time

d) Rising price level over time

2) which of the following is not held constant along a given aggregate supply curve?

a) The price level

b) The payment to resources in nominal terms

c) the level of technology

d) The efficiency of production

3) Suppose the real wage remained unchanged between years 1 and 2, but the nominal wage increased from $20 to $22. What is true about the price level?

a) It fell by 10 per cent

b) It fell by 22 per cent

c) It rose by 22 per cent

d) It rose by 10 per cent

4) Cost-push inflation can be caused by:

a) An increase in aggregate demand which pushes prices higher

b) An increase in aggregate supply which pushes prices higher

c) A high growth rate in real wages

d) Growth in aggregate demand not keeping up with the growth in aggregate supply

5) If the Reserve Bank of Australia sells bonds and securities in the open market, this is likely to lead to:

a) A fall in interest rates and an appreciation of the Australian dollar

b) A rise in interest rates and a depreciation of the Australian dollar

c) A fall in interest rates and a depreciation of the Australian dollar

d) A rise in interest rates and an appreciation of the Australian dollarECON102, Semester 2 2011 3

6) Workers laid off as a result of a recession would be classified as:

a) Structural unemployment

b) Frictional unemployment

c) Seasonal unemployment

d) Cyclical unemployment

7) Assume an MPC of 0.4, and that the government increases spending by $10 billion and at the same time increases net taxes by $10 billion. The effect on output will be:

a) $4 billion

b) $10 billion

c) $16 billion

d) $40 billion

8) If aggregate demand intersects short-run aggregate supply below the economy's potential output level, which of the following sets of policies would unquestionably move the economy back towards full employment?

a) Increase government purchases, increase taxes, and decrease transfer payments

b) Decrease government purchases, increase taxes, and decrease transfer payments

c) increase government purchases, decrease taxes, and increase transfer payments

d) decrease government purchases, decrease taxes, and increase transfer payments

9) If the Australian dollar increases in value relative to other currencies, how does this affect the aggregate demand curve, ceteris paribus?

a) The economy will move down along a stationary aggregate demand curve

b) The economy will move up along a stationary aggregate demand curve

c) The aggregate demand curve will shift to the right

d) The aggregate demand curve will shift to the left

10) Automatic stabilisers smooth fluctuations in:

a) Disposable income

b) Inflationary expectations

c) Interest rates

d) The government budget balanceECON102, Semester 2 2011 4

11) If the economy were in recession, we would expect:

a) Government expenditure to be high and tax revenues to be low, probably leading to a budget deficit

b) Government expenditure to be high and tax revenues to be low, probably leading to a budget surplus

c) Government expenditure to be high and tax revenues to be high, probably leading to a budget deficit

d) Government expenditure to be low and tax revenues to be low, probably leading to a budget surplus

12) Borrowing to pay for long-term capital expenditures makes sense as the benefits are received:

a) Over many years so the burden of paying for them should be spread over many years

b) In the current year so the burden of paying for them should be spread over many years

c) In the current year so the burden of paying for them should be paid in the current year

d) Over many years so the burden of paying for them should be paid in the current year

13) Which of the following is NOT included in the current account?

a) The transfer of migrants' funds

b) Income received on investments

c) An increase in holdings of overseas assets by Australians

d) Exports of goods

14) If the exchange rate changes from 46 Australian cents per euro to 56 Australian cents per euro, the Australian dollar has:

a) Appreciated, since its value has increased

b) Appreciated, since its value has decreased

c) Depreciated, since its value has increased

d) Depreciated, since its value has decreased

15) Other things being equal, the law of diminishing marginal returns states that as the quantity of capital per worker increases, other things being constant, output per worker eventually:

a) Increases at a constant rate

b) Increases at a decreasing rate

c) Increases at an increasing rate

d) Decreases

16) A problem with an active policy approach is that:

a) Wages are sticky

b) Prices are sticky

c) Potential output is unknown

d) There is a cost to unemployment

17) If a contractionary monetary policy is used, then which of the following would be most likely to enhance the effect of the contractionary policy on aggregate demand?

a) Interest rates would increase, leading to an exchange rate appreciation and a fall in net exports

b) Interest rates would decrease, leading to an exchange rate depreciation and a rise in net exports

c) Interest rates would decrease, leading to an exchange rate appreciation and a fall in net exports

d) Interest rates would increase, leading to an exchange rate depreciation and a rise in net exports

18) If borrowers and lenders anticipate that the rate of inflation will be 5 per cent, but instead it turns out to be 3 per cent, which of the following is likely to occur?

a) Borrowers wish that they had borrowed more money

b) Insufficient loans will have been made by lenders to maintain profit levels

c) The real interest rate is higher than expected

d) Lenders wish that they had made fewer loans

19) The Phillips curve illustrates that there is a:

a) long-run negative relationship between the unemployment rate and the inflation rate

b) short-run negative relationship between the unemployment rate and the inflation rate

c) long-run positive relationship between the unemployment rate and the inflation rate

d) short-run positive relationship between the unemployment rate and the inflation rate

20) According to the purchasing power parity theory, in the long run:

a) Exchange rates between any two currencies should be equal all over the world

b) Inflation rates should equalise around the world

c) Interest rates should equalise around the world

d) The exchange rate between two currencies should reflect differences in price levels between those two countriesECON102, Semester 2 2011 6

21) An increase in interest rates affects aggregate demand because it:

a) Leads to a decrease in consumption, investment and government expenditure, which decreases aggregate expenditure and hence aggregate demand

b) Leads to an increase in consumption, investment and net exports, which increases aggregate expenditure and hence aggregate demand

c) Leads to a decrease in consumption, investment and net exports, which decreases aggregate expenditure and hence aggregate demand

d) Leads to an increase in consumption, investment and government expenditure, which increases aggregate expenditure and hence aggregate demand

22) When the short-run aggregate supply curve is steep, then for a given increase in aggregate demand:

a) The increases in real GDP and the price level will be large

b) The increase in real GDP will be relatively large and the increase in the price level will relatively small

c) The increase in real GDP will be relatively small and the increase in the price level will relatively large

d) The increases in real GDP and the price level will be small

23) Demand-pull inflation is characterised by

a) Movement of aggregate supply (AS) up and to the left

b) Movement of aggregate demand (AD) down and to the left

c) Movement of AS down and to the right

d) Movement of AD up and to the right

24) Efficiency wages are paid for all of the following reasons except to:

a) Reduce worker turnover

b) Entice higher-quality workers

c) Increase productivity

d) Abide by the minimum wage legislation

25) In the long-run, how would the solution of someone who favoured an active policy approach to an expansionary gap differ from that of someone who favoured a passive approach to policy?

a) Both the price level and the level of real GDP would be higher in the long run with the activist solution

b) Both the price level and the level of real GDP would be lower in the long run with the activist solution

c) The price level would be higher in the long with the activist solution

d) The price level would be lower in the long with the activist solution

Reference no: EM13143664

Questions Cloud

Calculate test statistic for testing the null hypothesis : Calculate the test statistic for testing the null hypothesis. The slass mean will be not be signfically different from the population mean. What is your decision about the null hypothesis?"
Summarizing the lease payments and interest expense : Calculate the amount of the asset and liability of Lotus Company at the inception of the lease. (Round to the nearest dollar.) Prepare a table summarizing the lease payments and interest expense.
Explain at least two symptoms for each enzyme deficiency : Outline how thiamine is converted into the usable cofactor and what its role is in each of the three enzyme systems. 2. For each of the three enzyme systems.
Discuss the flat and segmented memory models : Discuss the flat and segmented memory models and provide an example
Effect of the contractionary policy on aggregate demand : In the long-run, how would the solution of someone who favoured an active policy approach to an expansionary gap differ from that of someone who favoured a passive approach to policy?
How to support the ceo-s claim : A random sample of 35m of the firm's accountants has a mean workday of 8.2 hours with a standard deviation of 0.5 hour. At α = 0.01, can you support the CEO's claim?
What is the amount of the distribution : May Inc., has one shareholder,Paula, whose basis in May's stock was $100,000 on 1/1/10. During 2010, May distributed $300,000 to Paula. What is the amount of the distribution that would be treated as a dividend by Paula?
Record sales and collections during the period : Prepare the entries to record sales and collections during the period. Prepare the entry to record the write-off of uncollectible accounts during the period. Prepare the entries to record the recovery of the uncollectible account during the period.
What is a project? : What is a project?What are the basic phases of the project lifecycle and their purposes?

Reviews

Write a Review

Microeconomics Questions & Answers

  Negative externalities that arise from the production

Negative externalities that arise from the production of a good;a. cause an increase in the demand for the goodb. cause a decrease in the demand for the goodc. impose costs on third partiesd. bring private costs into equality with social costs.

  Changes in price of a key commodity

How would government react to sudden, large changes in the price of a key commodity, such as gasoline, electricity, or prices on stocks on the New York Stock Exchange?

  Determining expected market price-profits

You're the manager of the firm that sells a commodity in market that resembles perfect competition, and your cost function is C(Q)=Q+2Q^2. Compute the expected market price.

  Formulate a linear programming model for problem

Use the graphical method to determine how many of each type of boot should be produced and what are the shadow prices of materials and labour?

  What is the market clearing price for market

What is the market clearing price for this market? What is the market quantity and calculate the Consumer Surplus (CS), the Producer Surplus (PS), and the Social Welfare (SW).

  Firm optimal quantity-price and profit

Find out the firm's optimal quantity, price, and profit (1) by using the profit and the marginal profit equations and (2) by setting MR equal to MC. Also provide a graph of MR and MC.

  Discuss industry concentration-demand and market conditions

Discuss industry concentration, demand and market conditions, and the pricing behavior of Kodak in the 1990s. Do you think the industry environment is significantly different today? Explain.

  Information about equilibrium price and output

The switch to the use of HFCS from sugar in soft drinks was prompted in large part by its relatively lower price. Assuming a competitive market, what effect would this change have on the equilibrium price and output for soft drinks?

  Four types of market failure

Each instance which follows is an example of one of four types of market failure (imperfect market structure; the existence of public goods; the presence of external costs and benefits; and imperfect information).

  Write an equation that describes the steady state

Describe how this change affects output both immediately and over time. Is the steady state effect on output larger or smaller than the immediate effect?

  Decision to produce or shut down

Say half of the cost of producing wheat is rental cost of land (a fixed cost) and half is cost of labor and machines (a variable cost). If the average total cost of producing wheat is $8 and price of wheat is $6, what would advise the farmer to do..

  Determine the marginal cost and cpi

Determine the marginal cost for bottle of wine and what will be the reduction in number of crashes at that intersection achieved by the mayor?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd