microeconomics
Topics: Monetary policy, Supply and demand, Aggregate demand, Federal Reserve System / Pages: 21 (3367 words) / Published: Sep 20th, 2014

Practice Test # 3

Useful formulas/expressions: (1) MPC = ∆ C / ∆ DI or ∆ C / ∆ YD & MPC + MPS = 1
(2) Exp. Multiplier = 1/(1-MPC) ∆GDP = Exp Mult. * ∆AE
(3) Δ AE = Δ Income * MPC
(4) DD Multiplier = 1/rrr ∆DD = DD Mult. * ∆Reserves

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 1. Long-run full-employment equilibrium assumes:
a.
a downward-sloping production function.
b.
a downward-sloping long-run supply curve (LRAS).
c.
the CPI index price level equals the equilibrium wage rate.
d.
the CPI equals aggregate demand (AD) equals short-run aggregate supply (SRAS) equals long-run aggregate supply (LRAS).

____ 2. Which of the following would cause a decrease in the short-run aggregate supply curve (SRAS)?
a.
An increase in oil prices.
b.
An advance in technology.
c.
An increase in the CPI.
d.
An increase in the long-run aggregate supply curve (LRAS).

Exhibit 10A-1 Aggregate demand and supply model

____ 3. Beginning in Exhibit 10A-1 from long-run equilibrium at point E1, the aggregate demand curve shifts to AD2 . The economy's path to a new long-run equilibrium is represented by a movement from:
a.
E3 to E1 to E2.
b.
E1 to E3 to E2.
c.
E2 to E1 to E2.
d.
E1 to E2 to E3.

____ 4. Aggregate demand's downward-sloping character reflects three principal influences as shown in which of the following?
a.
People's desire to maintain real wealth holdings, the interest rate, and international trade.
b.
People's desire to increase the price level, the interest rate, and the economic growth effect.
c.
The interest rate, the economic growth effect, and international trade.
d.
Cost-pull inflation, demand-pull inflation, and the need to maintain real wealth holdings.
e.
Recession phases of the business cycle, upturns, and downturns.

____ 5. The interest-rate effect is the impact on real GDP caused by the ____ relationship between the price

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