Question

1. Modern macroeconomists tend to believe that an increase in aggregate spending

A) increases real output, especially in a depressed economy with lots of excess capacity, but also increases the price level, especially in an economy with little excess capacity

B) always increases real output without affecting the price level as the simplest version of the "Keynesian cross" model with a fixed price level impliesalways increases real output without affecting the price level as the simplest version of the "Keynesian cross" model with a fixed price level implies

C) always increases the price level without affecting real output

2. Fill in the blanks: With exceptions like Austerians aside, modern macroeconomists tend to believe that an increase in private sector spending _____ aggregate spending and an increase in public sector spending ____ aggregate spending.

A) increases ; increases

B) increases ; decreases

C) decreases ; increases

D) decreases ; decreases

3) Modern macroeconomists tend to see the stagflation of the 1970s as a time when there was

A) not enough supply and too much demand

B) not enough demand and too much supply

4) In the early 1980s, our chief monetary policymaker Paul Volker brought down inflation by

A) raising interest rates

B) lowering interest rates

C) lowering taxes

D) raising taxes

E) cutting government spending

Answer 1

A) This is because aggregate supply is considered upward sloping and so any shift of AD to the right increases real output, especially in a depressed economy where we can raise the production but this also increases the price level.

A) increases ; increases. Consumption expenditure by private households and government expenditure on goods and services will raise aggregate expenditure

A) not enough supply and too much demand

A) raising interest rates