Unit Three: Test Review

II. AD/AS 7. What is the interest rate effect?

I. Economic Theories 1. Describe Say’s Law and state which theory lays its foundation on it.

III. The Multiplier/Consumption Function 1. Calculate the Multiplier if the Marginal Propensity to Consume is .73.

IV. Fiscal Policy 9. What kind of effect does government spending have on the economy according to the Crowding Out effect?

IV. Fiscal Policy 1. What is the difference between LRPC and SRPC?

I. Economic Theories 4. What do Classical Economists argue is the reason for unemployment?

IV. Fiscal Policy 10. Illustrate and explain the theory of rational expectations using an aggregate demand and aggregate supply graph.

IV. Fiscal Policy 8. What kind of fiscal policies should be used to combat stagflation?

II. AD/AS 1. Illustrate a change in quantity of aggregate demand and a change in aggregate demand.

IV. Fiscal Policy 7. Draw a correctly labeled Phillips Curve.

IV. Fiscal Policy 2. What are contractionary and expansionary policies for government spending and taxation?

III. The Multiplier/Consumption Function 2. Calculate the total change in GDP is the initial investment is $20 billion and the MPC is 0.4

II. AD/AS 4. Why is the short-run aggregate supply curve upward sloping?

II. AD/AS 2. What are two of the three determinates of short-run aggregate supply?

I. Economic Theories 3. When/from where did Keynesian theory derive from?

I. Economic Theories 2. Which economic theory calls for government intervention in the economy?

I. Economic Theories 5. Which economic theory is The Chicago School based off of?

II. AD/AS 3. What is the “knock-on” effect?

II. AD/AS 9. What are three of the five determinants of aggregate demand?

II. AD/AS 5. Why is the long-run aggregate supply curve vertical?

II. AD/AS 6. Name two of the three reasons for a shift in long-run aggregate supply.

II. AD/AS 8. What is the wealth effect?

II. AD/AS 13. Draw an economy at full employment.

II. AD/AS 10. What shift must occur at full employment, for stagflation to occur?

II. AD/AS 11. Draw an economy with a recessionary gap.

II. AD/AS 12. Draw an economy with an inflationary gap.

III. The Multiplier/Consumption Function 3. What is the equation for the consumption function?

III. The Multiplier/Consumption Function 4. The slope of the consumption function is….

III. The Multiplier/Consumption Function 5. What three components do economists watch to track investment spending and the health of the economy?

IV. Fiscal Policy 3. What is the purpose of automatic stabilizers?

IV. Fiscal Policy 4. Provide an example of a progressive, proportional, and regressive tax.

IV. Fiscal Policy 5. Draw a correctly labeled Laffer Curve.

IV. Fiscal Policy 6. If there is a balanced budget move, government spending and taxation have what kind of impact on GDP?