Question

Use the following diagram and your intuition to answer the next fivequestions.  

40.  The government removes a tariff on imported consumer goods.  What is the most likely short-run effect on the aggregate price level and the level of unemployment?
A.   Price level increases, unemployment increases.
B.    Price level increases, unemployment decreases.
C.    Price level decreases, unemployment increases.
D.   Price level decreases, unemployment decreases.

41.  The level of aggregate output demanded decreases as the aggregate price level increases because
A.   higher prices make market interest rates decrease.
B.    as prices increase, producers will sell more output.
C.    higher prices decrease the value of household wealth.
D.   as prices increase, producers withhold output in anticipation of even higher prices.

42.  There is an increase in government spending.  Aggregate output will __________ and the aggregate price level will ___________.
A.   increase; increase
B.    increase; decrease
C.    decrease; increase
D.   decrease; decrease

43.  There is an increase in saving by households.  Unemployment will ___________ and inflation will ___________.
A.   increase; increase
B.    increase; decrease
C.    decrease; increase
D.   decrease; decrease

44.  In an aggregate demand/aggregate supply diagram, ____________ is plotted on the vertical axis and _____________ is plotted on the horizontal axis.
A.   price; quantity
B.    aggregate price level; aggregate output
C.    quantity; price
D.   aggregate output; aggregate price level

45.  In a closed economy, with no government sector, when planned saving is less than planned investment
A.   actual investment will exceed actual saving.
B.    actual saving will exceed actual investment.
C.    unplanned inventory investment will be positive.
D.   unplanned inventory investment will be negative.

46.  In the short run, if private investment increases we could correctly state that
A.   the aggregate demand curve will shift to the right.
B.    private saving will increase because investment and saving must be equal.
C.    private saving will decrease because investment is the opposite of saving.
D.   the aggregate demand curve will shift to the left.

47.  Which of the following is included in GDP but not in national income?
A.   Capital consumption allowance.
B.    Undistributed corporate profits.
C.    Personal income taxes.
D.   Dividends.

48.  In Arbez, between 2008 and 2009, nominal GDP rose by 3.6% while real GDP fell by 1.2%. We can conclude that, between 2008 and 2009, the aggregate price level
A.   rose by about 4.8%.
B.    rose by about 2,4%.
C.    fell by about 2.4%.
D.   fell by about 4.8%.

49.  GDP is 1,200, consumption is 900, planned gross private investment is 150, exports are 50, imports are 125.  Government spending is 300.  Inventories will
A.   rise by 75.
B.    rise by 325.
C.    fall by 75.
D.   fall by 325.

50.  The value of GDP can be found by adding together
A.   wages, investment, government spending, and depreciation.
B.    consumption, government spending, transfer payments, and net exports.
C.    wages, consumption, investment, and imports.
D.   consumption, investment, government spending, and net exports.

Answer 1

40)C) A tariff is a tax imposed on imported goods resulting in a higher price on the consumers end. There are various range of tariffs imposed on the imported goods. Tariffs actually reduces the interest of a foreign countries to import their goods.The potential benefit is that domestic sales of goods increases leads to higher domestic sales and more jobs will come. But if we removes tariff,then imports will increases. price of goods decreases and unempolyment increases.

41) b) As price level increases,producers will sell more outputs. So aggregate supply increases and aggregate demand decreases.

42) a) We know that Y = C + I + G + X - M

So if G increases Y also increases and price level also increases.

43) d) As aggregate output and income are always equal and consumption is identical in both places, the rest of the equation must also be equal or Y = C + I and Q = GNP = C + S and if Y = Q, C + S = C + I or S = I. So Y increases which leads toh lower unemployment and inflation also decreases.

44)A) Aggregate output is a curve that shows the negative relationship between the aggregate output and price level.

45) D) unplanned inventory investment will be negative. In this case, AD (or consumption expenditure) is more than AS. Production will have to be increased to meet the excess demand.

47) B)  Undistributed corporate profits.