The real-balances effect indicates that:

A. an increase in the price level will increase the demand for money, increase interest rates, and
reduce consumption and investment spending.
B. a lower price level will decrease the real value of many financial assets and therefore reduce
spending.
C. a higher price level will increase the real value of many financial assets and therefore increase
spending.
D. a higher price level will decrease the real value of many financial assets and therefore reduce
spending.

Which of the following would most likely shift the aggregate demand curve to the right?
A. An increase in stock prices that increases consumer wealth.
B. Increased fear that a recession will cause workers to lose their jobs.
C. An increase in personal income tax rates.
D. A reduction in household borrowing because of tighter lending practices.

The immediate-short-run aggregate supply curve is:

A. downward sloping.
B. upward sloping.
C. vertical.
D. horizontal.

Other things equal, an improvement in productivity will:

A. shift the aggregate demand curve to the left.
B. shift the aggregate supply curve to the left.
C. shift the aggregate supply curve to the right.
D. increase the price level.
 Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2
are the "after" curves. Other things equal, a decline in productivity is depicted by:
A. panel (A) only.
B. panel (B) only.
C. panel (C) only.
D. panels (B) and (C).

. If the MPC in an economy is .75, government could shift the aggregate demand curve leftward
by $60 billion by:
A. reducing government expenditures by $12 billion.
B. reducing government expenditures by $60 billion.
C. increasing taxes by $15 billion.
D. increasing taxes by $20 billion.

An appropriate fiscal policy for severe demand-pull inflation is:

A. an increase in government spending.
B. depreciation of the dollar.
C. a reduction in interest rates.
D. a tax rate increase.

Refer to the above diagram where T is tax revenues and G is government expenditures. All
figures are in billions of dollars. Suppose that the economy is at the full-employment GDP level
which is $400 billion, the structural budget deficit is:
A. $200 billion.
B. $20 billion.
C. $40 billion.
D. $60 billion.
Refer to the above diagram where T is tax revenues and G is government expenditures. All
figures are in billions of dollars. If the full-employment GDP is $400 billion while the actual
GDP is $100 billion (due to a recession), the cyclically-adjusted budget deficit is:
A. $30 billion.
B. $40 billion.
C. $60 billion.
D. $20 billion.

Refer to the above diagram where T is tax revenues and G is government expenditures. All
figures are in billions of dollars. If the full-employment GDP is $400 billion while the actual
GDP is $100 billion (due to a recession), the total (structural and cyclical) budget deficit is:
A. $30 billion.
B. $40 billion.
C. $50 billion.
D. $60 billion.

Refer to the above diagram. Assume that G and T1 are the relevant curves and that the economy
is currently at B, which is its full-employment GDP. This economy has a:
A. cyclically budget surplus.
B. cyclically budget deficit.
C. structural budget surplus.
D. structural budget deficit.

Refer to the above diagram. Assume that G and T2 are the relevant curves, the economy is
currently at A, and the full-employment GDP is B. This economy has a(n):
A. cyclically budget surplus.
B. structural budget deficit.
C. cyclically budget deficit.
D. structural budget surplus.