Unit 5: Long-Run Consequences of Policy
Macro · Unit 5 · Paper 2

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 2” 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

Debt-to-GDP can fall during deficits

2

What shifts the short-run Phillips curve

3

Why the short-run Phillips curve slopes down

4

Movement along vs shift of the SRPC

5

What moves the long-run Phillips curve

6

Rational expectations

7

Long-run Phillips curve (LRPC)

8

Why crowding out blunts the multiplier

9

Investment in human capital

10

Costs of a growing national debt

11

Central bank independence

12

Price level versus inflation rate

Short answer 1. Define or explain: National debt

3 pts

Short answer 2. Define or explain: Deficit spending in a recession vs at full employment

3 pts

Short answer 3. Define or explain: Short-run Phillips curve (SRPC)

3 pts

Short answer 4. Define or explain: Quantity theory in growth rates

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.