1.	The phase of the business cycle in which real domestic output declines is called: A. the peak. B. a recovery. C. a recession. D. the trough.

2.

The aggregate demand curve is: A. vertical if full employment exists. B. horizontal when there is considerable unemployment in the economy. C. downsloping because of the interest-rate, wealth or real balances, and foreign purchases effects. D. downsloping because production costs decrease as real output increases.

4.	R-1 F11025 Refer to the above diagram of an economy's aggregate supply curve. This economy would experience less than full-employment output in: A. range 1 only. B. range 1 and part of range 2. C. part of range 2 and all of range 3. D. range 3 only.

5.	A rightward shift in the aggregate supply curve might best be explained by: A. an increase in business taxes. B. a decrease in productivity. C. an increase in nominal wages. D. a decrease in the price of imported resources.

6.	Productivity measures: A. real output per unit of input. B. per unit production costs. C. the changes in real wealth caused by price level changes. D. the amount of capital goods used per worker.

7.

Answer the next question(s) on the basis of the following aggregate demand and supply schedules for a hypothetical economy: Amount of real output demanded Price level Amount of real output supplied $200 300 $500 300 250 500 400 200 400 500 150 300 500 150 200 R-2 REF11055 Refer to the above data. The vertical range of the aggregate supply curve is associated with price levels: A. 150 and 200. B. 150 and 300. C. 200 and 250. D. 250 and 300.

8.

Answer the next question(s) on the basis of the following aggregate demand and supply schedules for a hypothetical economy: Amount of real output demanded Price level Amount of real output supplied $200 300 $500 300 250 500 400 200 400 500 150 300 500 150 200 R-2 REF11055 Refer to the above data. The equilibrium price level will be: A. 150. B. 200. C. 250. D. 300.

9.

If aggregate demand increases and, as a result, real output and employment increase but the price level remains unchanged, we can assume that: A. the money supply has declined. B. aggregate demand intersects aggregate supply in the horizontal range of the aggregate supply curve. C. aggregate demand intersects aggregate supply in the intermediate range of the aggregate supply curve. D. aggregate demand intersects aggregate supply in the vertical range of the aggregate supply curve.

10.

If aggregate demand intersects the aggregate supply curve in the latter's intermediate range, a leftward shift in the aggregate supply curve will cause: A. higher prices and no change in employment. B. a higher price level and lower employment. C. lower prices and higher employment. D. higher prices and higher employment.

11.	R-3 F11088 Which of the above diagrams best portrays the effects of a decrease in the availability of key natural resources? A. A B. B C. C D. D

12.	R-3 F11088 Which of the above diagrams best portrays the effects of an increase in foreign spending on our products? A. A B. B C. C D. D

13.	R-3 F11088 Which of the above diagrams best portrays an improvement in business profit expectations? A. A B. B C. C D. D

14.

The ratchet effect indicates that: A. firms and resource suppliers generally find it easier to reduce prices than to raise them. B. as the price level increases, interest rates will rise and therefore consumption and investment spending will fall. C. an initial increase in aggregate demand may cause a further increase in aggregate demand because higher prices mean higher incomes. D. a decline in aggregate demand will have its impact primarily on real output and employment because prices are inflexible downward.

15.

Assume that aggregate demand in the economy is excessive, causing demand-pull inflation. Which of the following would be most in accord with appropriate government fiscal policy? A. an increase in Federal income tax rates B. an increase in the size of income tax exemptions for each dependent C. passage of legislation providing for the construction of 8,000 new post office buildings D. an increase in soil conservation subsidies to farmers

16.	R-4 REF 12-33 Refer to the above diagram. A contractionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at: A. AD0 B. AD1 C. AD2 D. AD3

17.

Which of the following best describes the cause-effect chain of a tight money policy? A. A decrease in the money supply will lower the interest rate, increase investment spending, and increase aggregate demand and GDP. B. A decrease in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. C. An increase in the money supply will raise the interest rate, decrease investment spending, and decrease aggregate demand and GDP. D. An increase in the money supply will lower the interest rate, decrease investment spending, and increase aggregate demand and GDP.

18.

Supply-side economists say that: A. deregulation of business will shift the aggregate supply curve rightward. B. demand creates its own supply. C. tariffs should be imposed on imports to shift the American aggregate supply curve rightward. D. the Federal budget deficit should be eliminated through increases in taxes.

This is the end of the test. When you have completed all the questions and reviewed your answers, press the button below to grade the test.