Explain how automatic stabilizers work.
What will be an ideal response?
Taxes and transfer payments are automatic stabilizers for the economy. When income is high, the government collects more taxes and pays out less transfer payments, thus reducing consumer spending, which in turn reduces output. When output is low, such as during a recession, the government collects less in taxes and pays out more in transfer payments, increasing consumer spending and therefore increasing output. Note that this occurs without any decisions from Congress or the White House.
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Short-run equilibrium occurs at the intersection of
A) the SAS and AD curves. B) the SAS, LAS, and AD curves. C) the SAS and LAS curves. D) the LAS and AD curves.
An increase in the price level reduces net exports because
A) it leads indirectly to a higher exchange rate. B) it leads indirectly to a lower exchange rate. C) it leads indirectly to a lower real interest rate. D) it leads directly to higher real money balances.
The accompanying graph depicts demand. 
The slope of the demand curve (ignoring the negative sign) is:
A. 1. B. 1.5. C. 0.5. D. 2.
If an economy produces 2,000 units of output with a price level of $2 and the money supply (M) is $1,000, velocity is:
A. 1. B. 2. C. 4. D. 500.