Question

Question 14.

In 2016, the U.S. trade deficit was $500B. In order to reduce its anticipated future trade deficit, the U.S. could implement which of the following trade policies: (Use the Mankiw framework discussed in class).

a. Import Quota.

b. Tariff.

c. Voluntary export restriction.

d. None of the above.

Using to the aggregate-demand and aggregate-supply model, a decrease in the money supply will have the following long-run effects on price level and real GDP:

a. A decrease in both price level and real GDP.

b. An increase in both price level and real GDP.

c. A decrease in price level, but no effect on real GDP.

d. No effect in both price level and real GDP.

Question 18.

If a $1,000 increase in consumer’s income leads to a $600 increase in consumption expenditures, then the marginal propensity to consume equals:

a. 0.4 and the multiplier equals 2.5.

b. 0.6 and the multiplier equals 2.5.

c. 0.4 and the multiplier equals 1.66.

d. 0.6 and the multiplier equals 1.66.

Question 19.

Suppose that the multiplier effect—a function of the marginal propensity to consume— results in a multiplier greater than 1. If there are no crowding-out or investment accelerator effects, which of the following actions would shift the aggregate-demand curve to the right by more than the initial amount?

a. An increase in government expenditures.

b. An increase in net exports.

c. An increase in investment spending.

d. All of the above.

Question 20.

The short-run aggregate supply curve shows the total number of goods and services supplied in the economy for any price level. Which of the following is a reason why the short-run aggregate-supply curve slopes upward?

a. Exchange rate effect.

b. Wealth effect.

c. Misperception theory.

d. All of the above.

Question 22.

Which of the following events would cause the Phillips curve to shift right (outward)?

a. An increase in price-level expectations.

b. A decrease in price-level expectations.

c. A decrease in world oil prices due an increase in competition.

d. None of the above.

Answer 1

Answer 14:

Option B. To reduce trade deficit in future, then the government can impose tariff on imports which will reduce the amount of imports and thus increase net exports leading to reduction in trade deficit.

Answer 15:

Option C. In the long run, the economy will move back to its initial equilibrium level at its potential real GDP level but aggregate supply shifts rightwards leading to fall in the price level in the economy. Thus, price level decreases but there is no impact on real GDP.

Answer 18:

Option B. Marginal propensity to consume = CHange in consumption / change in income =600 / 1000 = 0.60

multiplier = 1 / 1 - MPC = 2.5

Answer 19:

Option D. All the factors mentioned above will shift the aggregate demand curve of the economy rightwards.