16. D. More efficient production of the traded goods will result because of specialization. Countries that specialize
will concentrate resources on the production of a specific good. This concentration will allow producers to
increase efficiency and minimize costs.- B.An increase in consumption spending will have a positive impact on GDP because consumption is one of the
components of the GDP expenditure approach. Consumption increases aggregate demand, which helps the
economy grow. - A.When aggregate supply and aggregate demand decrease, we have a decrease in output. Quantity or output
decreases because there is a decline in aggregate supply. To better understand this, draw an aggregate supply and
aggregate demand curve on your own and draw decreasing shifts. Notice what occurs with quantity or output.
Output declines to a decrease in aggregate supply. - D. A $500 million increase in spending along with a $100 million decrease in taxes will affect the economy the
greatest. When the government spends money, the impact due to the multiplier will be greater than the tax break.
However, coupled with a tax break, government spending becomes that much more effective. - A.An increase in government spending is the appropriate fiscal policy for a recession. Recessions occur because
money is not being spent and the economy is not growing. For growth, the government injects money into the
economy, producing opportunities for firms and households. The other two answer choices are examples of
monetary policy. - A.If there were an increase in taxes during a recessionary period, the effects of this decision could have a major
negative impact on the economy. Unemployment would soar because firms would have to pay higher taxes.
Higher taxes means less money for wages and resources. - B.The selling of bonds is a tool that the Federal Reserve uses often because of its subtle effects on the economy.
The Fed does not directly control all interest rates; however, it can manipulate interest rates by adjusting the
discount rate or electing to alter the money supply. An alteration of the money supply forces interest rates to rise
or fall according to the level of money banks have in reserve. - C.The value of the dollar is determined by the goods and services it will buy. Long ago, the amount of gold in
reserve determined the value of money, but the United States no longer uses that policy. - A.An increase in the consumption of goods and services occurs when national income increases. This is called
the income effect. When income increases, so does the marginal propensity to consume. - E.Over the horizontal range, any increase in demand can be facilitated by the economy without any pressure on
the price level. The price level is not influenced because the economy’s resources are underemployed. Any rise in
demand increases employment but will be in no danger of increasing the price level significantly. - C.The purchase of open-market securities and increased government spending are the appropriate combinations
of monetary and fiscal policy for an economy that is experiencing a recession. - A.The Phillips Curve illustrates the relationship between unemployment and inflation. Normal inflation (1
percent–3 percent) helps the economy grow and increases unemployment. However, high levels of inflation
decrease unemployment and growth. - D. An increase in inflationary expectations leads to a simultaneous increase in inflation and unemployment. The
price level rises because consumers are bracing for a higher price level, and the unemployment level rises because
producers are bracing for a higher price level. - B.An increase in U.S. imports will tend to cause the U.S. dollar to depreciate because of an increased supply of
dollars internationally. When U.S. consumers purchase international goods, the international supply of the dollar
increases, causing the decline of the value of the dollar. - D. An increase in the productivity of labor increases the standard of living in an economy. When workers are
more productive, costs per unit fall and more goods and services are available for consumers. - B.An increase in productivity shifts the long-run aggregate supply curve to the right. An increase in productivity
increases the economy’s capacity for production. When the capacity improves, more goods and services can be
provided without pressure on the price level.
Macroeconomics Full-Length Practice Test 2Macroeconomics Full-Length
Practice Test 2