Unit 5: Long-Run Consequences of Policy
Macro · Unit 5 · Paper 3

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 3” 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

Investment in human capital

2

When crowding out is small

3

Debt-to-GDP can fall during deficits

4

Long-run Phillips curve (LRPC)

5

Why saving matters for growth

6

Costs of a growing national debt

7

Movement along vs shift of the SRPC

8

National debt

9

Short-run Phillips curve (SRPC)

10

Real GDP growth vs an AD-driven expansion

11

Quantity theory in growth rates

12

The shape of every growth policy

Short answer 1. Define or explain: Crowding out in a recession

3 pts

Short answer 2. Define or explain: What shifts the short-run Phillips curve

3 pts

Short answer 3. Define or explain: Disinflation and its cost

3 pts

Short answer 4. Define or explain: Why productivity is the only unlimited source

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.