Unit 5: Long-Run Consequences of Policy
Macro · Unit 5 · Paper 1

Long-Run Consequences of Policy unit test

A test on this unit alone, marked as a percentage and a letter grade — for the test your class is actually sitting, rather than for May. Answer everything, then submit once: seeing the answer to question 3 before attempting question 4 makes the final percentage meaningless.

Paper 1Paper 2Paper 3
Each paper is built from this unit’s 50 terms and is the same for everyone, so a teacher can assign “Unit 5, Paper 1” and every student sits the identical test. Multiple choice is marked objectively; the written sections you mark yourself against the model answer and rubric.
Suggested time 32 min 29 points0/17 attempted
1

Why saving matters for growth

2

Growth is an LRAS question

3

Supply-side policies

4

Movement along vs shift of the SRPC

5

Economic growth

6

Adaptive expectations

7

MV = PY is an identity

8

What shifts the short-run Phillips curve

9

Mapping AD–AS onto the Phillips curve

10

Deficit versus debt

11

Why the short-run Phillips curve slopes down

12

Investment in human capital

Short answer 1. Define or explain: Budget deficit

3 pts

Short answer 2. Define or explain: Crowding out

3 pts

Short answer 3. Define or explain: Central bank independence

3 pts

Short answer 4. Define or explain: The shape of every growth policy

3 pts

Free response

5 pts

A government finances a large permanent increase in spending by borrowing rather than by raising taxes.

A. Define crowding out.

B. Describe precisely what a correctly labeled graph of the loanable funds market would show as a result of the government borrowing, including the effect on the real interest rate and the quantity of loanable funds.

C. Indicate the effect on gross private domestic investment.

D. Indicate the effect on the economy’s rate of long-run economic growth, and explain your reasoning.

E. Identify one policy the government could adopt that would increase long-run aggregate supply, and explain how it does so.