QUESTION 3

If a reduction in aggregate supply is followed by an increase in aggregate demand, which of the following will definitely occur?

	A.	Output will decrease
	B.	Output will increase
	C.	The price level will increase
	D.	The price level will decrease

2 points

QUESTION 4

If we estimate that the output gap in an economy is $19.5 billion, if we wish to return to full-employment, how much should we raise government spending by if the government spending multiplier is 1.54?

	A.	$10.53 billion
	B.	$12.66 billion
	C.	$30.03 billion
	D.	none of the above

2 points

QUESTION 5

In classical theory, expansionary fiscal policy is likely to be inflationary because:

	A.	The economy is assumed to be operating at the full employment level of output
	B.	The aggregate supply curve is vertical
	C.	The economy is operating at a point on the production possibility frontier
	D.	All of the above

2 points

QUESTION 6

The positive theory of policy making focuses on how policy makers:

	A.	deceive the public
	B.	use policies early in a government's term that reduce unemployment to raise inflation
	C.	actually behave
	D.	can never make up their minds

2 points

QUESTION 7

The output gap:

	A.	depicts variation of economic activity (GDP) around the path of trend growth
	B.	is the difference between actual and potential output
	C.	is a permanent feature of economic activity
	D.	does not exist in reality

2 points

QUESTION 8

Nominal GDP changes when:

	A.	only output changes
	B.	only prices change
	C.	output and/ or prices change
	D.	both output and prices remain stable

2 points

QUESTION 9

The statement 'money is neutral' means money:

	A.	does not matter
	B.	is the root of all evil
	C.	only influences interest rates
	D.	has no real effect on output or employment

2 points

QUESTION 10

The three broad types of shock to economic activity are:

	A.	interest rate, unemployment and fiscal shocks
	B.	political economic and social shocks
	C.	natural, artificial and public shocks
	D.	policy, supply and private (or demand) shocks