Question 1

Because of diminishing​ returns, an economy can continue to increase real GDP per hour worked only if.....

Accepted Answer

there is technological change.

Question 2

When the economy is experiencing an expansion automatic stabilizers will​ cause:

Accepted Answer

transfer payments to decrease and tax revenues to increase.

Question 3

When actual GDP is below potential GDP the budget deficit increases because​ of:

Accepted Answer

an increase in transfer payments and a decrease in tax revenues.

Question 4

The quantity of goods and services that can be produced by one worker or by one hour of work is referred to as

Accepted Answer

labor productivity.

Question 5

Policy that is specifically designed to affect aggregate supply and increase incentives to​ work, save, and start a​ business, by reducing the tax wedge is called

Accepted Answer

supply-side economics.

Question 6

Which of the following increases labor​ productivity?

Accepted Answer

inventions of new​ machinery, equipment, or software

Question 7

When additions of input to a fixed quantity of another input lead to progressively smaller increases in​ output, we say we are facing

Accepted Answer

diminishing returns.

Question 8

Actual real GDP will be above potential GDP if

Accepted Answer

firms are producing above capacity.

Question 9

The position of the​ long-run aggregate supply​ (LRAS) curve is determined by

Accepted Answer

the number of​ workers, the amount of​ capital, and the available technology.

Question 10

Why does a​ $1 increase in government purchases lead to more than a​ $1 increase in income and​ spending?

Accepted Answer

Through the government purchases​ multiplier, the​ $1 increase in government spending will lead to an increase in aggregate demand and national​ income, which will lead to an increase in induced spending.

Question 11

What is fiscal​ policy?

Accepted Answer

Fiscal policy can be described as changes in government spending and taxes to achieve macroeconomic policy objectives.

Question 12

Who is responsible for fiscal​ policy?

Accepted Answer

The federal government controls fiscal policy.

Question 13

Creative destruction means that

Accepted Answer

firms develop new products that replace old products in the​ economy, thereby encouraging economic growth.

Question 14

Which of the following would cause a decrease in aggregate​ demand?

Accepted Answer

a decrease in government spending

Question 15

Increased government debt can lead to higher interest rates​ and, as a​ result, crowding out of private investment spending. In terms of borrowing​ (debt-spending), what will offset the effect of crowding out in the long run so that government debt poses less of a problem to the​ economy?

Accepted Answer

​Debt-spending on research and development, highways and ports, education.

Question 16

In a closed​ economy, public saving plus private saving is equal to

Accepted Answer

investment.

Question 17

Why might increasing taxes increasing taxes as a fiscal policy be a more difficult policy than the use of monetary policy to slow down an economy experiencing​ inflation?

Accepted Answer

The legislative process experiences longer delays than monetary policy.

Question 18

Government spending and taxes that increase or decrease without any actions taken by the government are referred to as

Accepted Answer

automatic stabilizers.

Question 19

What is an expansionary fiscal​ policy?

Accepted Answer

Expansionary fiscal policy includes increasing government spending and decreasing taxes to increase aggregate demand.

Question 20

What is a contractionary fiscal​ policy?

Accepted Answer

Contractionary fiscal policy includes decreasing government spending and increasing taxes to decrease aggregate demand.

Question 21

The​ long-run aggregate supply curve is vertical because in the long​ run,

Accepted Answer

changes in the price level do not affect potential​ GDP, as potential GDP depends on the size of the labor​ force, capital​ stock, and technology.

Question 22

The term​ crowding out refers to a situation​ where:

Accepted Answer

Government spending increases interest rates and decreases private investment.

Question 23

Aggregate demand​ (AD) is comprised of expenditure components that​ include:

Accepted Answer

government​ spending, consumption,​ investment, and net exports.

Question 24

According to new growth​ theory,

Accepted Answer

technological change is influenced by economic incentives.

Macroeconomics - Exam 3

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