1) When the Congress reduces spending in order to balance the government's budget, it needs to consider a) both the short-run effects on aggregate demand and aggregate supply, and the long-run effects on saving and growth

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1) When the Congress reduces spending in order to balance the government's budget, it needs to consider

a) both the short-run effects on aggregate demand and aggregate supply, and the long-run effects on saving and growth.

b) only the short-run effects on aggregate demand and aggregate supply.

c) only the long-run effects on saving and growth.

d) only the long-run effects on aggregate demand and aggregate supply.

2. If the government reduced the minimum wage and pursued expansionary monetary policy, then in the long run

a) both the unemployment rate and the inflation rate would be higher.

b) both the unemployment rate and the inflation rate would be lower.

c) the unemployment rate would be higher and the inflation rate would be lower.

d) the unemployment rate would be lower and the inflation rate would be higher.

3. In the context of aggregate demand and aggregate supply, the wealth effect refers to the idea that, when the price level decreases, the real wealth of households

a) increases and as a result consumption spending increases. This effect contributes to the downward slope of the aggregate-demand curve.

b) decreases and as a result consumption spending increases. This effect contributes to the upward slope of the aggregate-supply curve.

c) increases and as a result households increase their money holdings; in turn, interest rates increase and investment spending decreases. This effect contributes to the downward slope of the aggregate-demand curve.

d) decreases and as a result households increase their money holdings; in turn, interest rates increase and investment spending decreases. This effect contributes to the upward slope of the aggregate-supply curve.

4. Policymakers who control monetary and fiscal policy and want to offset the effects on output of an economic contraction caused by a shift in aggregate supply could use policy to shift

a) aggregate supply to the right.

b) aggregate supply to the left.

c) aggregate demand to the right.

d) aggregate demand to the left.

5. In the last half of 1999, the U.S. unemployment rate was about 4 percent. Historical experience suggests that this is

a) above the natural rate, so real GDP growth was likely low.

b) above the natural rate, so real GDP growth was likely high.

c) below the natural rate, so real GDP growth was likely low.

d) below the natural rate, so real GDP growth was likely high.