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In 2015, interest payments on the public debt, as a percentage of GDP, were about

2.2 percent

In 2015, the Federal Reserve and other U.S. (federal) government agencies held about what percentage of U.S. federal debt?

The slope of the immediate-short-run aggregate supply curve is based on the assumption that:

Both input and output prices are fixed

A decrease in aggregate demand will decrease:

Both real output and the price level

The foreign purchases effect suggests that a:

Rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand

T/F? When cash is deposited at a bank, the composition of the money supply is changed but the total supply of money is not.

The average tax rate required to service the public debt is roughly measured by

interest on the debt as a percentage of the GDP.

If personal income taxes and business taxes decrease, then this will:

increase aggregate demand and aggregate supply.

A decrease in business taxes will tend to:

increase aggregate demand and increase aggregate supply.

An increase in expected future income will:

increase aggregate demand.

36. Refer to the table above. The size of the M2 money supply is:

D $5899 billion

The price level in the United States is more flexible downward than upward.

False

A Federal budget deficit exists when:

A Federal gov't spending exceeds tax revenues in a given year

Refer to the graph above. Which of the following factors will shift AS1 to AS2?

A decrease in business taxes

Refer to the graph above. Which of the following factors will shift AD1 to AD3?

A decrease in consumer wealth

If the prices of imported resources increase, then aggregate supply will decrease.

True

Refer to the diagram. The equilibrium level of GDP is:

The MPC can be defined as the fraction of a:

change in income that is spent.

Deficit

the amount by which outlays exceed receipts in a fiscal year. may be "off budget", "on budget" or unified budget deficit

The consumption schedule shows:

the amounts households intend to consume at various possible levels of aggregate income.

Which one of the following will cause a movement up along an economy's saving schedule?

An increase in disposable income.

Refer to the above graph. Which factor will shift AS1 to AS3?

An increase in input prices

The long-run aggregate supply curve slope is horizontal.

False

The so-called "recognition lag" associated with fiscal policy is a result of how slowly the U.S. Congress moves.

False

The passage of new legislation requiring more extensive government regulation of business will most likely:

decrease aggregate supply.

A decrease in net exports will cause a(n):

decrease in aggregate demand.

The wealth effect is shown graphically as a:

shift of the consumption schedule.

Graphically, cost-push inflation is shown as a:

leftward shift of the AS curve.

A decrease in aggregate demand will cause a greater decline in real output the

less flexible is the economy's price level.

if the amount of money in circulation is $8 billion and the value of total output os $40 billion in an economy, then the

velocity of money is 5

LRAS curve is?

veritical

Refer to the diagram, where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment GDP is $400 billion while the actual GDP is $200 billion, the actual budget deficit is:

$40 billion.

Answer the question on the basis of the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession. (2) Economists reach agreement that the economy is moving into a recession. (3) A tax cut is proposed in Congress. (4) The tax cut is passed by Congress and signed by the president. (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. Refer to the information. The operational lag of fiscal policy is reflected in event(s):

Aggregate demand curve

A curve showing real GDP as the sum of all spending at various price levels, all other things helf constant

If the standardized budget shows a deficit of about 100 billion$$ and the actual budget shows a deficit of about 150$ billion, it can be concluded that there is:

A cyclical deficit

A decrease in aggregate demand will cause a greater decline in real output the: A. Less flexible is the economy's price level. B. more flexible is the economy's price level. C. steeper is the economy's AS curve. D. larger is the economy's marginal propensity to save.

Discretionary fiscal policy is so named because it:

involves specific changes in T and G undertaken expressly for stabilization at the option of Congress.

If the multiplier is 4 and the desired increase in real GDP is $200 billion, the initial change in spending required to achieve that goal:

is $50 billion.

The so-called ratchet effect refers to the characteristic in the economy where product prices, wages, and per-unit production cost are flexible when:

AD increases but not when AD decreases

The so-called ratchet effect refers to the characteristic in the economy where product prices, wages, and per-unit production cost are flexible when

AD increases but not when AD decreases.

The amount of real domestic output that will be purchased at each possible price level is best shown by the:

Aggregate demand curve

Which of the following will cause the aggregate demand curve to shift to the left?

An appreciation in the value of the U.S. dollar

Refer to the above diagram. A shift from AS1 to AS2 would be consistent with what economic event in U.S. history?

Cost-push inflation in the mid-1970s.

Discretionary fiscal policy is often initiated on the advice of the:

Council of Economic Advisers

discretionary fiscal policy is often initiated on the advice of the

Council of Economic Advisers

which of the following is considered a legitimate concern of a large public debt?

Crowding-out of private investment

The cyclically-adjusted surplus in the U.S. went from +1.2% of GDP in 2000 to +0.6% of GDP in 2002. This suggests that the government during that period:

Cut taxes and increased spending

Which of the following is correct? A. MPC + MPS = APC + APS. B. APC + MPS = APS + MPC. C. APC + MPC = APS + MPS. D. APC - APS = MPC - MPS.

MPC + MPS = APC + APS.

Which of the following relations is not correct? A. 1 - MPC = MPS. B. APS + APC = 1. C. MPS = MPC + 1. D. MPC + MPS = 1.

MPS = MPC + 1.

Fiscal policy refers to the

Manipulation of government spending and taxes to stabilize domestic output, employment and price level

Aggregate demand decreases and real output falls but the price level remains the same. Which factor would most likely contribute to downward price inflexibility?

Menu cost

An increase in the public debt and its subsequent repayment will tend to:

Mildly increase the income inequality in the U.S.

One important reason why the United States government is not likely to go bankrupt even with a large public debt is that is has: A. The power to print money to finance the debt. B. A strong military to protect it from creditors. C. The capacity to pay off its outstanding debt with gold. D. The ability to decrease interest rates and increase investment spending.

Prices and wages tend to be: A. flexible both upward and downward. B. inflexible both upward and downward. C. flexible downward, but inflexible upward. D. Flexible upward, but inflexible downward

Prices and wages tend to be: A. flexible both upward and downward. B. Inflexible both upward and downward. C. Flexible downward, but inflexible upward. D. Flexible upward, but inflexible downward.

The U.S. economy was able to achieve full employment with relative price level stability between 1996 and 2000 because

aggregate demand increased and aggregate supply increased.

When the price level decreases, firms in imperfectly competitive markets will:

decrease output and decrease the price.

A decline in disposable income:

decreases consumption by moving downward alone a specific consumption schedule.

Contractionary fiscal policy

is a decrease in government spending and increase in taxes or come combination of the two for the purpose of decreasing aggregate demand and halting inflation

Cyclical deficit

is a federal deficit that is caused by a recession and the consequent decline in tax revenue

The standardized budget

is a measure of what the federal budget deficit surplus would be with existing tax rates and government spending programs if the economy had achieved its full employment GDP in the year

Contractionary fiscal policy is so named because it:

is aimed at reducing aggregate demand and thus achieving price stability

Other things equal, a decrease in the real interest rate will:

move the economy downward along its existing investment demand curve.

One can determine the amount of any level of total income that is consumed by:

multiplying total income by the APC.

The saving schedule is drawn on the assumption that as income increases:

saving will increase absolutely and as a percentage of income.

Refer to the above diagram. Cost-push inflation can be illustrated by a:

shift in the aggregate supply curve from AS1 to AS2.

The consumption schedule is such that:

the MPC is constant and the APC declines as income rises.

most monetarists would say that

the MV = PQ equation provides a better understanding of the macroeconomy than does the Ca + Ig + Xn + G = GDP equation

The equilibrium price level and level of real output occur where

the aggregate demand and supply curves intersect.

Built-in stability means that

with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus, while a decline in income will result in a deficit or a lower budget surplus.

The investment demand curve portrays an inverse (negative) relationship between:

the real interest rate and investment.

The cyclically adjusted budget refers to

the size of the federal government's budgetary surplus or deficit when the economy is operating at full employment.

The MPC for an economy is:

the slope of the consumption schedule or line.

If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule:

will shift downward.

answer the question on the basis of the following info for a hypothetical economy. all values are in nominal terms: M=$100 V=2 Ca=$160 Xn=$10 G=$10 In equilibrium Ig is

$20

Refer to the above graph. If the economy was initially in equilibrium at point 3 and a government deficit makes interest rates increase by 4 percentage points, then the crowding-out effect would be a reduction of:

$20 billion in investment

Assume the MPC is 2/3. If investment spending increases by $2 billion, the level of GDP will increase by:

$6 billion.

Refer to the above graph, which shows an aggregate demand curve for a hypothetical economy. If the price level is 200, the quantity of real GDP demanded is:

$600 billion

Refer to the above graph, which shows an aggregate demand curve for a hypothetical economy. If the price level is 200, the quantity of real GDP demanded is:

$600 billion.

Most economists believe that fiscal policy is: Question options: A) Not very good at pushing the economy in a particular direction B) Better than monetary policy for month-to-month stabilization C) Not as good as monetary policy for month-to-month stabilization D) Better than monetary policy for "fine-tuning" the economy

**NOT: Not very good at pushing the economy in a particular direction OR Better than monetary policy for month-to-month stabilization

If the marginal propensity to consume is .9, then the marginal propensity to save must be:

The following list contains factors that are related to the aggregate demand curve. 1) Household expectations 2) Profit expectations 3) Degree of excess capacity 4) Personal income tax rates 5) Exchange rates 6) National income abroad 7) Government spending 8) Household wealth Changes in which three of the above factors would most likely cause a change in consumer spending?

1, 4, and 8

The 3 "effects"

1. real balance effect - as price level falls, consumers real balances are worth more and they spend more 2. interest rate effect- price levels fall, interest rates also fall, this increases business spending 3. foreign trade effect- as price levels fall, us goods are more attractive to foreign buyers and so net exports will increase

With marginal propensity to save of .4, the marginal propensity to consume will be:

1.0 minus .4

The multiplier can be calculated as:

1/(1 - MPC).

The multiplier is:

1/MPS.

If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is:

12 percent.

if money supply is $800 billion and nominal GDP is $2 trillion, then the average number of times that money is spend and changes hands is

2.5 times per year

If the MPC is .6, the multiplier will be:

2.5.

If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is:

22 percent.

The table shows the aggregate demand and aggregate supply schedule for a hypothetical economy. Real Domestic Output Demanded (in Billions) Price Level (Index Value) Real Domestic Output Supplied (in Billions) $3,000 350 $9,000 4,000 300 8,000 5,000 250 7,000 6,000 200 6,000 7,000 150 5,000 8,000 100 4,000 Refer to the above table. If the quantity of real domestic output demanded increased by $2000 at each price level, the new equilibrium price level and quantity of real domestic output would be`

250 and $7000.

If the MPS is only half as large as the MPC, the multiplier is:

In 2012, foreign ownership of the total public debt of the U.S. was about:

33%

Refer to the above graph. As the price level changes, real domestic output remains constant with which line?

Refer to the above graph. The long-run aggregate supply curve would be represented by which line?

Refer to the above graph. Which line shows the full-employment output for the economy?

if a certain household earns and spends $24000 per year and, on average, holds a money balance of $6000, then the velocity of money for this household is

Suppose that real domestic output in an economy is 2400 units, the quantity of inputs is 60, and the price of each input is $30. The level of productivity in this economy is:

40.

About what percentage of the public debt is held by US government agencies and the federal reserve?

53%

(Last Word) In 1960 the ratio of workers to Social Security and Medicare beneficiaries was ______; by 2040 it is projected to be _________.

5:1; 2:1

Which of the following fiscal policy changes would be the most contractionary?

A $10 billion increase in taxes and a $30 billion cut in government spending

The Federal Reserve System is divided into:

A 12 districts

Which one of the following will cause a movement down along an economy's consumption schedule?

A decrease in disposable income.

Which set of fiscal policies would tend to offset each other

A decrease in government spending and taxes

Which set of fiscal policies would tend to offset each other?

A decrease in government spending and taxes

A major advantage of the built-in or automatic stabilizers is that they: A. Simultaneously stabilize the economy and reduce the absolute size of the public debt. B. Automatically produce surpluses during recessions and deficits during inflations. C. Require no legislative action by Congress to be made effective. D. Guarantee that the Federal budget will be balanced over the course of the business cycle.

The following factors explain the inverse relationship between the price level and the total demand for output, except:

A substitution effect

Suppose a family's consumption exceeds its disposable income. This means that its:

APC is greater than 1.

which of the following is correct?

APC+APS=1.

The public debt is the

Accumulation of federal budget surpluses and deficits over time

When the U.S. economy reached full employment in 2007, the cyclically-adjusted deficit that year was -1.3% of GDP. From this information, we know that the:

Actual budget deficit must have been very close to 0% of GDP

The lag between the time that the need for fiscal action is recognized and the time action is actually taken is referred to as the:

Administrative lag

As of 2015, most of the U.S. federal debt was owed to

Americans

Which would increase aggregate supply?

An increase in business subsidies

Which of the following effects best explains the downward slope of the aggregate demand curve?

An interest-rate effect

Assume that the economy is in a recession and there is a budget deficit. A strict balanced-budget amendment that would require the Federal government to balance its budget during a recession would be: A. Expansionary and worsen the effect of the recession. B. Contractionary and worsen then effects of the recession. C. Contractionary and counter the effects of the recession. D. Expansionary and counter the effects of the recession.

The standardized deficit is the difference between annual government expenditures and tax revenues that would be occurred if the economy was:

At full employment

Use the following diagrams for the U.S. economy to answer the following question. Which of the diagrams best portrays the effects of a dramatic increase in energy prices?

35. Use the following table to answer the question about the money supply given the following hypothetical data for an economy. Refer to the table above. The size of the M1 money supply is:

B $2080

Refer to the graph above. When output increases from Q1 and the price level decreases from P1, this change will:

Be caused by a shift in the aggregate supply curve from AS1 to AS3

Aggregate demand

C+I+G+X

The long run in macroeconomics is a period in which nominal wages:

Change as the price level changes

What shifts the short run aggregate supply?

Changes in cost of production, regulations, technology, productivity, marginal tax rates, external shocks (oil embargo, natural disasters, epidemics)

Increased government spending for investments such as highways or harbors financed by increasing the public debt would most likely:

Complement private investment

How is the public debt calculated?

Computing the difference between annual government tax revenue and annual government spending and cumulating the differences over the years of the nation

A decrease in business taxes will tend to:

Decrease aggregate supply and decrease aggregate demand

Assume that the economy is in a recession and there is a budget deficit. A strict balanced budget amendment that would require the federal government to balance during a recession would be

Contractionary and worsen the effects of the recession

Assume that the economy is in a recession and there is a budget deficit. A strict balanced-budget rule that would require the Federal government to balance its budget during a recession would be:

Contractionary and worsen the effects of the recession

The intent of contractionary fiscal policy is to:

Decrease aggregate demand

The American Recovery and Reinvestment Act of 2009 is a clear example of:

Discretionary fiscal policy that made the cyclically-adjusted budget become more negative

An increase in real interest rates will increase aggregate demand.

False

A fall in real interest rates will reduce aggregate demand.

False

Expansionary fiscal policy will tend to reduce the budget deficit.

False

The standardized budget is also called the:

Full-employment budget

The economy is ALWAYS producing some level of :

GDP

The crowding-out effect arises when:

Government borrows in the money market, thus causing an increase in interest rates

Graphically, cost-push inflation is shown as a: A. Leftward shift of the AD curve. B. Rightward shift of the AS curve. C. Leftward shift of the AS curve. D. Rightward shift of the AD curve.

Graphically, demand-pull inflation is shown as a: A. Rightward shift of the AD curve along an upsloping AS curve. B. leftward shift of the AS curve along a downsloping AD curve. C. leftward shift of AS curve along an upsloping AD curve. D. rightward shift of the AD curve along a downsloping AS curve.

The more progressive the tax system, the:

Greater is the built-in stability for the economy

In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPS is 0.4, then it could increase government spending by: A. $10 billion B. $20 billion C. $31.25 billion D. $40.50 billion

In the above diagram, a shift from AS1 to AS2 might be caused by a: A. stricter government regulations. B. increase in the prices of imported resources. C. Decrease in the prices of domestic resources. D. increase in business taxes.

An expected increase in the prices of consumer goods in the near future will:

Increase (or shift right) in aggregate demand now

An expected rise in the rate of inflation for consumer goods will:

Increase aggregate demand

An increase in expected future income will:

Increase aggregate demand

A decrease in business taxes will tend to:

Increase aggregate demand and increase aggregate supply

An increase in productivity will:

Increase aggregate supply

In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPS is 0.25, then it could:

Increase taxes by $16 billion

Increased government spending for investments such as highways or harbors financed by increasing the public debt would most likely

Increase the amount of public capital stock in the future.

The economy experiences an increase in the price level and a decrease in real domestic output.

Input prices have increased

The economy experiences an increase in the price level and a decrease in real domestic output. Which of the following is a likely explanation?

Input prices have increased

The economy experiences an increase in the price level and a decrease in real domestic output. Which is a likely explanation?

Input prices have increased.

The aggregate demand curve shows the:

Inverse relationship between the price level and the quantity of real GDP purchased

Which is an important consequence of the public debt of the United States

It leads to fewer incentives to bear risk and innovate

One of the potential problems with the public debt is that it may:

Lead to added taxes that reduce economic incentives

One of the potential consequences of the public debt is that it may:

Lead to additional future taxes that reduce economic incentives

In an aggregate demand and aggregate supply graph, a contractionary fiscal policy can be illustrated by a :

Leftward shift in the aggregate demand curve

The real-balances effect on aggregate demand suggests that a:

Lower price level will increase the real value of many financial assets and therefore cause an increase in spending

The real-balances effect suggests that a:

Lower price level will increase the real value of many financial assets and therefore cause an increase in spending

The foreign purchases effect provides an explanation why the:

Lower the price level, the higher the level of domestic output purchased

The consumption and saving schedules reveal that the:

MPC is greater than zero but less than one.

Refer to the above graph, which shows an aggregate demand curve for a hypothetical economy. If the economy is at point C and the price level increases by 100 points, the wealth, interest-rate, and foreign purchases effects will:

Move the economy to point A

If the price level decreases, then the aggregate expenditures schedule will shift and this translates into a:

Movement down along the aggregate demand curve

The economy experiences an increase in the price level and an increase in real domestic output. Which is a likely explanation?

Net exports have increased

The economy experiences an increase in the price level and an increase in real domestic output. Which is a likely explanation?

Net exports have increased.

Other things equal, a decrease in the real interest rate will: A. expand investment and shift the AD curve to the left. B. Expand investment and shift the AD curve to the right. C. Reduce investment and shift the AD curve to the left. D. Reduce investment and shift the AD curve to the right.

Other things equal, an improvement in productivity will: A. shift the aggregate demand curve to the left. B. shift the aggregate supply curve to the left. C. Shift the aggregate supply curve to the right. D. increase the price level.

Refer to the above diagram. If AD1 shifts to AD2, then the equilibrium output and price level will be:

P2Q2.

One reason why the aggregate supply curve might shift to the left is that:

Per unit production costs have increased

There is general agreement among economists that a proposed fiscal policy should be evaluated for its:

Potential positive and negative effects on long-run productivity growth

The council of economic advisers gives economic advice to the:

President

When aggregate demand decreases, product prices, wage rates, and per-unit production costs are inflexible downward because of a:

Ratchet effect

The goal of expansionary fiscal policy is to increase:

Real GDP

Refer to the figure. Suppose that the economy is currently operating at the intersection of AS and AD2, and that the full-employment level of output is Y. If contractionary fiscal policy and accompanying multiplier effects move aggregate demand from AD2 to AD1, what will be the effect on real GDP and the price level?

Real GDP will fall to X and the price level will remain unchanged, assuming a ratchet effect occurs.

The labels for the axes of the aggregate demand graph should be:

Real domestic output on the horizontal axis and the price level on the vertical axis

Surpluses from social sercurity

Reduce the size of the actual budget deficit

Refer to the above data. The budget deficit was $75 billion in: A. Year 2 B. Year 3 C. Year 4 D. Year 5

Refer to the figure. The economy is at equilibrium at point A. What fiscal policy would be most appropriate to control demand-pull inflation?

Shift aggregate demand by increasing taxes

Refer to the graph above. It depicts an economy in the:

Short run

Another term for full employment budget is the

Standardized budget

One timing problem in using fiscal policy to counter a recession is the "recognition lag" that occurs between the:

Start of the recession and the time it takes to recognize that the recession has started

A fall in the prices of inputs will shift the aggregate:

Supply curve rightward

A fall in labor costs will cause aggregate:

Supply to increase

If at a particular price level, real domestic output from producers is greater than real domestic output desired by purchasers, there will be a:

Surplus and the price level will fall

If at a particular price level, real output from producers is greater than real output desired by purchasers, then there will be a general:

Surplus and the price level will fall

If the economy is to have automatic stabilizers, when real GDP rises:

Tax revenues should rise

Fiscal policy is enacted through changes in

Taxation and government spending

Fiscal policy is enacted through changes in:

Taxation and government spending

Why does the short run aggregate supply curve have that shape?

The SRAS is upsloping because in the short run prices may increase by wages DONT . and profit margins rise, and production rises, Rising prices and rising production results in an upsloping SRAS curve.

The aggregate demand curve is the relationship between the total demand for output and the: A. Income Level B. Interest Rate C. Price Level D. Real GDP

The aggregate demand curve is: A. vertical under conditions of full employment. B. horizontal when there is considerable unemployment in the economy. C. Downsloping because of the interest-rate, real-balances, and foreign purchases effects. D. downsloping because production costs decrease as real output rises.

The aggregate supply curve: A. Is explained by the interest rate, real-balances, and foreign purchases effect. B. Gets steeper as the economy moves from the top of the curve to the bottom of the curve. C. Shows the various amounts of real output that businesses will produce at each price level. D. Is downsloping because real purchasing power increases as the price level falls.

The aggregate supply curve: A. Is explained by the interest rate, real-balances, and foreign purchases effects. B. gets steeper as the economy moves from the top of the curve to the bottom of the curve. C. Shows the various amounts of real output that businesses will produce at each price level. D. is downsloping because real purchasing power increases as the price level falls.

Which of the following is TRUE with respect to short-run and long-run aggregate supply?

The economy can be on both curves simultaneously.

Short run Equilibrium

The economy is ALWAYS producing some level of GDP. This level of GDP is the short run equilibrium. If it is full employment no policy is needed

Which would tend to reduce to crowding-out effect that occurs when the federal government increases its borrowing to finance a deficit:

The economy is operating at less than full employment

The economy's long-run aggregate supply curve: A. slopes upward and to the right. B. Is vertical C. Is horizontal D. slopes downward and to the right.

The foreign purchases effect suggests that a: A. Fall in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand B. Fall in our domestic price level will decrease our imports and increase our exports, thereby reducing the net exports component of aggregate demand C. Rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand. D. Rise in our domestic price level will decrease our imports and increase our exports, thereby reducing the net exports component of aggregate demand.

What is one likely reason the level of domestic output purchased will be higher when the price level is lower?

The interest-rate effect

The long-run aggregate supply curve is: A. Upward-sloping and becomes steeper at output levels above the full-employment output. B. Upward-sloping and becomes flatter at output levels above the full-employment output. C. Horizontal D. Vertical

Incurring an internal debt to finance a war like World War II does not pass the true cost of the war on to future generations because:

The opportunity cost of wartime expenditures was borne by the generation that lived during the war

A major reason that a public debt cannot bankrupt the federal government is beacuse

The public debt can be easily refinanced

A major reason that the public debt cannot bankrupt the Federal government is because:

The public debt can be easily refinanced by issuing new bonds

The public debt is the: A. Amount of U.S. paper currency in circulation. B. Ratio of all past deficits to all past surpluses. C. Total of all past deficits minus all past surpluses. D. Difference between current government expenditures and revenues.

When the general price level in our economy increases, the following effects occur except:

The purchasing power of people's savings will increase

Aggregate Demand

The total of all spending in the economy

The two reasons why bankruptcy is a false concern regarding the public debt are: A. Government spending and taxation. B. Refinancing and taxation C. Investment and refinancing. D. Savings and investment

The upward slope of the short-run aggregate supply curve is based on the assumption that: A. Wages and other resource prices do not respond to price level changes. B. Wages and other resource prices do not respond to price level changes. C. Prices of output do not respond to price level changes. D. Prices of inputs are flexible while prices of outputs are fixed.

One timing problem in using fiscal policy to counter a recession is the "operational lag" that occurs between the:

Time fiscal action is taken and the time that the action has its effect on the economy

If the government wants to reduce unemployment using fiscal policy, it may do so by increasing government spending.

True

Through the start of 2009, Social Security revenues exceeded payouts, and the excess inflow was used to buy:

Treasury Securities

A budget deficit causes the government to issue or sell Treasury bonds.

True

A change in business taxes and regulation can affect input prices and aggregate supply.

True

A change in business taxes and regulation can affect production costs and aggregate supply.(true/false)

True

A contractionary fiscal policy shifts the aggregate demand curve leftward.

True

The concept of a "political business cycle" implies a misuse of fiscal policy making it a source of economic instability.

True

The crowding-out effect of the public debt may be dampened if the investment-demand curve is shifting to the right.

True

The equilibrium price level and equilibrium level of real GDP occur at the intersection of the aggregate demand curve and the aggregate supply curve.

True

The shape of a short-run aggregate supply curve basically depends on what happens to production costs and, therefore, to the prices that businesses must receive to cover costs and make a profit as real domestic output expands.

True

What shape does the Short run aggregate supply curve have?

Upsloping

if M is $800, P is $2, and Q is 1200, then

V must be 3

The long-run aggregate supply curve is:

Vertical

What is the long run aggregate supply curve shape?

Vertical because wages have had a chance to change with price change

A graph of the long-run aggregate supply curve is:

Vertical, and a graph of the short-run aggregate supply is upsloping

If people expected that a fiscal policy in the form of a tax cut was temporary, then this policy's effect on the economy will tend to be:

Weaker

When aggregate demand declines, many firms may reduce employment rather than wages because wage reductions may: A. Reduce per unit production costs. B. Reduce worker morale and work effort, and thus lower productivity. C. Increase the firms' cost of raising financial capital. D. Reduce the demands for their products.

Which of the above diagrams best portrays the effects of a substantial reduction in government spending? A. A B. B C. C D. D

Which of the above diagrams best portrays the effects of an increase in resource productivity? A. A B. B C. C D. D

Which of the following is an example of built-in stability? As real GDP decreases, income tax revenues: A. Increase and transfer payments decrease. B. Decrease and transfer payments increase C. And transfer payments both decrease D. And transfer payments both increase.

The foreign purchases, interest rate, and real-balances effects explain:

Why the aggregate demand curve is downsloping

The following is budget information for a hypothetical economy. All data are in billions of dollars. Refer to the table. In which year is there a budget surplus? Government Tax Spending Revenue GDP Year 1 $800 $825 $4,000 Year 2 $850 $850 $4,200 Year 3 $900 $875 $4,350 Year 4 $950 $900 $4,500 Year 5 $1,000 $925 $4,600

Year 1

The following is budget information for a hypothetical economy. All data are in billions of dollars. Refer to the table. The budget deficit was $75 billion in: Government Spending Tax Revenues GDP Year 1 $800 $825 $4,000 Year 2 $850 $850 $4,200 Year 3 $900 $875 $4,350 Year 4 $950 $900 $4,500 Year 5 $1,000 $925 $4,600

Year 5

The multiplier effect indicates that:

a change in spending will change aggregate income by a larger amount.

if the cyclically adjusted budget shows a deficit of zero and the actual budget shows a deficit of about $150 billion, it can be concluded that there is

a cyclical deficit

Cost-push inflation arises from:

a decrease in aggregate supply.

An appropriate fiscal policy for a severe recession is

a decrease in tax rates.

(Figure: The Multiplier) Look at the figure The Multiplier. If this economy is at Y1 and the price level decreases:

a downward movement along the AD1 will take place, reflecting a decrease in the price level.

economist Milton Friedman compared the economy to a car needing

a monetary rule to prevent a "backseat diver" from making it go off course

Refer to the diagrams. A decline in aggregate expenditures from AE2 to AE1 resulting from the real-balances, interest-rate, and foreign purchases effects would be depicted as:

a movement from C to A along aggregate demand curve AD1.

Collective bargaining agreements that prohibit wage cuts for the duration of the contract contribute to

a price level that is inflexible downward.

in the rational expectations theory, a temporary change in real output could result from

a price-level surprise

(Figure: Inflationary and Recessionary Gaps) Look at the figure Inflationary and Recessionary Gaps. The intersection of AD with SRAS in panel (b) indicates:

a short-run equilibrium.

Monetarists base their assessment of the speep of adjustment for self-correction in the economy on

adaptive expectations

Major increases in oil prices in the mid-1970s and in the late 1970s created:

adverse aggregate supply shocks.

The amount of real domestic output that will be purchased at each possible price level is best shown by the:

aggregate demand curve.

short run equilibrium is where we ?

are

Given the expected rate of return on all possible investment opportunities in the economy:

an increase in the real rate of interest will reduce the level of investment.

An increase in aggregate demand will generate _____ in real GDP and _____ in the price level in the short run.

an increase; an increase

If for some reason households become increasingly thrifty, we could show this by:

an upward shift of the saving schedule.

why is the LRAS verticle ?

because when prices increase wages also increase, profit margins stay the same and real gdp stays the same

Off budget

by law, social security and the postal service are accounted for separetly from all other programs

in new classical economics, a "price-level surprise"

causes a temporary change in real output

with inflation targeting, the federal reserve would be required to announce its targeted band for

changed in price level

Non discretionary fiscal policy

changes in expenditures and/or taxes that AUTOMATICALLY occur when GDP changes. Without deliberate action of congress. called "AUTOMATIC STABILIZERS"

If the MPC is .8 and disposable income is 200 then:

consumption and savings cannot be determined from the given information.

Dissaving occurs where:

consumption exceeds income.

Tessa's break-even income is $10,000 and her MPC is 0.75. If her actual disposable income is $16,000, her level of:

consumption spending will be $14,500.

Aggregate supply

curves is a schedule that shows the total quantity of goods and services supplied at different price levels. The aggregate supply curve in the short run and in the long run vary by the degree of wage adjustment

If personal income taxes and business taxes increase, then this will:

decrease aggregate demand and aggregate supply.

from 2010 to 2015, the actual as well as the cyclically adjusted federal budget deficits as % of GDP in the U.S. have

decreased

Countercyclical discretionary fiscal policy calls for

deficits during recessions and surpluses during periods of demand-pull inflation.

Fiscal policy refers to the

deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.

The excess capacity of business rises due to:

demand decreases.

When national income in other nations decreases, aggregate:

demand decreases.

Refer to the diagram, in which Qf is the full-employment output. If aggregate demand curve AD2 describes the current situation, appropriate fiscal policy would be to:

do nothing since the economy appears to be achieving full-employment real output.

The short-run aggregate supply curve shows the:

direct relationship between the price level and real GDP produced.

The short run in macroeconomics is a period in which nominal wages:

do not respond as the price level changes.

how does the aggregate demand curve slope?

downward

The aggregate demand curve slopes:

downward in part because as the price level falls, the ability of households and firms to borrow cheaply increases.

Capital goods, because their purchases can be postponed like ______ consumer goods, tend to contribute to ________ in investment spending.

durable; instability

In Year 1, the actual budget deficit was $200 billion and the cyclically adjusted deficit was $150 billion. In Year 2, the actual budget deficit was $225 billion and the cyclically adjusted deficit was $175 billion. It can be concluded that fiscal policy from Year 1 to Year 2 became more

expansionary.

Prices and wages tend to be:

flexible upward, but inflexible downward.

Aggregate demand will shift to the RIGHT if:

government purchases increase.

Refer to the diagram, in which Qf is the full-employment output. If the economy's present aggregate demand curve is AD2:

government should undertake neither an expansionary nor a contractionary fiscal policy.

The size of the MPC is assumed to be:

greater than zero but less than one.

the view that excessive growth of the money supply over long period leads to inflation

had been absorbed into the mainstream of macroeconomics

automatic stabilizers smooth fluctuations in the economy because they produce change in the government's budget that

help offset changes in GDP

A high rate of inflation is likely to cause a:

high nominal interest rate.

A positive demand shock leads to:

higher prices and higher employment.

The immediate-short-run aggregate supply curve is:

horitzontal.

The immediate-short-run aggregate supply curve is:

horizontal.

Refer to the above graph. The ratchet effect would suggest that:

if AD1 moves to AD2, the new equilibrium would be at b.

Nondiscretionary fiscal policy

includes changes in taxes and government spendingn that occur automatically independent of congressional action

The consumption schedule is drawn on the assumption that as income increases, consumption will:

increase absolutely by decline as a percentage of income.

If Congress raised taxes on businesses, this action would:

increase per-unit production costs and thus decrease aggregate supply.

The crowding-out effect of expansionary fiscal policy suggests that

increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

The saving schedule is such that as aggregate income increases by a certain amount, saving:

increases, but by a smaller amount.

If the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $40 billion by

increasing government spending by $4 billion

If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion by:

increasing government spending by $4 billion.

If 100 percent of any change in income is spent, the multiplier will be:

infinitely large.

A change in aggregate supply would be caused by a change in:

input prices.

The average tax rate required to service the public debt is roughly measured by:

interest on the debt as a percentage of the GDP.

The aggregate demand curve shows the:

inverse relationship between the price level and real GDP purchased.

The relationship between the real interest rate and investment is shown by the:

investment demand schedule.

If the real interest rate in the economy is i and the expected rate of return on additional investment is r, then other things equal:

investment will take place until i and r are equal.

The multiplier applies to:

investment, net exports, and government spending.

The aggregate supply curve (short run):

is steeper above the full-employment output than below it.

Potential output:

is the level of output that the economy would produce if all prices, including nominal wages, were fully flexible.

The most important determinant of consumption and saving is the:

level of income

rational expectations theory implies that the

long-run aggregate supply curve is vertical

The practical significance of the multiplier is that it:

magnifies initial changes in spending into larger changes in GDP.

which economic perspective would be most closely associated with the view that discretionary monetary policy is an effective force for stabilizing the economy?

mainstream economics

Menu costs will:

make prices inflexible downward.

In annual percentage terms, investment spending in the United States is:

more variable than real GDP.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in investment spending caused by the interest-rate effect of a price-level increase is depicted by the:

move from point a to point b in panel (B).

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in net exports caused by the foreign purchases effect of a price-level increase is depicted by the:

move from point a to point b in panel (B).

recession

occurs when aggregate demand falls (aggregate demand curve shifts to the left and prices are sticky downwards)

Demand Pull inflation

occurs when aggregate demand increases (aggregrate demand curve shifts to the right)

Cost push inflation

occurs when the costs of production rise (aggregate supply curve shifts to the right)

The aggregate supply curve shows the relationship between the aggregate price level and the aggregate:

output supplied.

The political business cycle refers to the possibility that:

politicians will manipulate the economy to enhance their chances of being reelected.

An aggregate supply curve represents the relationship between the:

price level and the production of real domestic output.

Investment spending in the United States tends to be unstable because:

profits are highly variable.

which of the following serves as an automatic stabilizer in the economy?

progressive income tax

(last word) market monetarists advocate that the fed "target the forecast" (of the predicted nominal GDP growth rate), claiming primarily that it will

promote economic stability by ensuring that total spending will grow at a predictable rate each year

in year 1, the actual budget was $150 billion and the cyclically adjusted deficit was $125 billion. in year 2, the actual budget deficit was $130 billion and the cyclically adjusted deficit was $125 billion. it can be concluded that from year 1 to year 2

real GDP increased

The size of the multiplier is equal to the:

reciprocal of the slope of the saving schedule.

An expansionary fiscal policy is shown as a

rightward shift in the economy's aggregate demand curve.

an expansionary fiscal policy is shown as a

rightward shift in the economy's aggregate demand curve.

At the point where the consumption schedule intersects the 45-degree line: (s is..)

saving is zero.

mainstream economics views monetary policy as a

stabilizing factor, while monetarism views it as a source of instability

monetarists believe the private economy is inherently

stable and that the government sector should be small.

One timing problem in using fiscal policy to counter a recession is the "recognition lag" that occurs between the

start of the recession and the time it takes to recognize that the recession has started.

The American Recovery and Reinvestment Act of 2009 was implemented primarily to:

stimulate aggregate demand and employment.

If the economy has a cyclically adjusted budget surplus, this means that:

tax revenues would exceed government expenditures if full employment were achieved.

Dissaving means:

that households are spending more than their current incomes.

An upward shift of the saving schedule suggests:

that the APC has decreased and the APS has increased at each GDP level.

The multiplier can be calculated by dividing:

the change in real GDP by the initial change in spending.

When current tax revenues exceed current government expenditures and the economy is achieving full employment:

the cyclically adjusted budget has a surplus.

If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes:

the foreign purchases effect.

The change in real GDP resulting from an initial change in spending equals:

the initial change in spending times the multiplier.

The most important determinant of consumer spending is:

the level of income

The short-run aggregate supply curve illustrates:

the positive relationship between the aggregate price level and aggregate output supplied.

Deflation refers to a situation where

the price level falls; it could be caused by a shift of AD to the left.

An increase in aggregate demand would be most likely caused by a decrease in:

the tax rates on household income.

Effect time lag

the time it takes for fiscal policy to affect the economy

Action time lag

the time required between recognizing an economic problem and putting policy into effect. Particularly long for fiscal policy

Recognition time lag

the time required to gather information about the current state of the economy

Aggregate supply - short run

the total of all production in the economy when WAGES and COSTS are UNCHANGED

Public debt

the total value of all accumlated deficits

The investment demand curve suggests:

there is an inverse relationship between the real rate of interest and the level of investment spending.

tax revenues automatically increase during economic expansions and decrease during recessions (T/F)

true

mainstream economists contend that a policy rule based on the equation of exchange breaks down because

velocity is more variable and unpredictable than expected

dividing nominal gross domestic product (GDP) by the money supply (M) is a way to obtain the

velocity of money

which of the following is a component of the equation of exchange?

velocity of money

An increase in aggregate demand is most likely to be caused by:

A decrease in the tax rates on household income

Per-unit production cost is determined by dividing output by total input cost.

False

Menu costs will:

Make prices inflexible downward

Refer to the above graph. This economy is at equilibrium:

at price level P2 and output Q2.

On budget

those programs not legally designated as off budget

LRAS CAN move but not from any policy strategy. true/false

true

"Full employment" refers to the situation where there is: A. 100% employment of the labor force. B. 0% unemployment rate. C. No frictional or structural unemployment. D. No cyclical unemployment.

Suppose that an economy produces 500 units of output. It takes 10 units of labor at $15 a unit and 4 units of capital at $50 a unit to produce this output. The per-unit cost of production is:

$0.70.

In an economy it costs $1500 to produce 2000 units of output. If the costs increase to $2500, then the per-unit cost of production will have increased from:

$0.75 to $1.25.

Suppose that real domestic output in an economy is 2400 units, the quantity of inputs is 60, and the price of each input is $30. The per-unit cost of production is:

$0.75.

The following is budget information for a hypothetical economy. All data are in billions of dollars. Refer to the table. Assume that Year 1 is the first year for this economy and Year 5 is the current year. What is the public debt in this economy at Year 5? Government Spending Tax Revenues GDP Year 1 $800 $825 $4,000 Year 2 $850 $850 $4,200 Year 3 $900 $875 $4,350 Year 4 $950 $900 $4,500 Year 5 $1,000 $925 $4,600

$125 billion

assume that M is $200 billion and V is 6. if V increases by 15%, then, according to the monetarist equation, nominal GDP will have increase by

$180 billion

answer the question on the basis of the following info for a hypothetical economy. all values are in nominal terms: M=$100 V=2 Ca=$160 Xn=$10 G=$10 nominal GDP is

$200

assume monetary equilibrium exists-that is, the desired and the actual supply of money are equal-when nominal GDP equals $480 billion and the money supply is $160 billion. according to a strict monetarist view, an increase in the money supply of $10 billion will increase the nominal GDP by

$30 billion

If the saving schedule is a straight line, the:

MPS must be constant.

In which of the following sets of circumstances can we confidently expect inflation?

Aggregate supply decreases and aggregate demand increases.

Which of the following will not cause the consumption schedule to shift?

A change in consumer incomes

If the dollar appreciates in value relative to foreign currencies:

Aggregate demand decreases because net exports decrease

When national income in other nations increases:

Aggregate demand increases

In 2007 the public debt was about

9.01$ trillion

Balanced budget

A balanced budget occurs when total receipts equal total outlays (spending ) for a fiscal year

A budget surplus means that: A. Government expenditures are greater than revenues in a given year. B. Government revenues are greater than expenditures in a given year. C. A nation's exports are greater than its imports. D. A nation's imports are greater than its exports.

Answer the question on the basis of the following sequence of events involving fiscal policy: 1 The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession; 2 Economists reach agreement that the economy is moving into a recession. 3 A tax cut is proposed in Congress; 4 The tax cut is passed by Congress and signed by the President; 5 Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. Refer to the above information. The recognition lag of fiscal policy is reflected in events. A. 1 and 2. B. 2 and 3 C. 3 and 4 D. 4 and 5

The short-run aggregate supply curve:

Becomes steep at output levels above the full-employment output

A decrease in aggregate demand in the short run will reduce:

Both real output and the price level

which of the following did not contribute directly to the Great Recession?

Bursting of the dot.com stock market bubble.

The economy experiences a decrease in the price level and an increase in real domestic output. Which is a likely explanation?

Business costs and wage rates have decreased

The economy experiences a decrease in the price level and an increase in real domestic output. Which is a likely explanation?

Business costs and wage rates have decreased.

How is the public debt calculated?

By cumulating the annual difference between tax revenues and government spending over the years

If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n):

Contractionary fiscal policy

In the mid-1970s, changes in oil prices greatly affected U.S. inflation. When oil prices rose, the U.S. would experience:

Cost-push inflation and falling output

A federal budget deficit exists when

Federal government spending exceeds tax revenues

Wage contracts, efficiency wages, and the minimum wage are explanations for why:

Wages tend to be inflexible downward

The multiplier is defined as:

change in GDP/initial change in spending.

An increase in business taxes would tend to:

decrease aggregate demand and decrease aggregate supply.

If households expect prices of consumer goods to decline, this will:

decrease aggregate demand.

An increase in personal income tax rates will cause a(n):

decrease in aggregate demand.

Approximately what percentage of the U.S. public debt is held by foreign individuals and institutions (2015)?

Answer the question on the basis of the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession. (2) Economists reach agreement that the economy is moving into a recession. (3) A tax cut is proposed in Congress. (4) The tax cut is passed by Congress and signed by the president. (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. Refer to the information. The recognition lag of fiscal policy is reflected in events:

1 and 2.

Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return on this tool is:

20 percent.

Answer the question on the basis of the following aggregate demand and supply schedules for a hypothetical economy: Refer to the data. The equilibrium price level will be:

200

The table shows the aggregate demand and aggregate supply schedule for a hypothetical economy. Real Domestic Output Demanded (in Billions) Price Level (Index Value) Real Domestic Output Supplied (in Billions) $3,000 350 $9,000 4,000 300 8,000 5,000 250 7,000 6,000 200 6,000 7,000 150 5,000 8,000 100 4,000 Refer to the above table. The equilibrium price level and quantity of real domestic output will be:

200 and $6000.

Refer to the data in the table above. The direction of fiscal policy became more contractionary from:

2003 to 2004

Answer the question based on the following list of items that are related to aggregate demand and/or aggregate supply. Refer to the list above. Changes in which combination of factors best explain why the aggregate supply curve would shift?

7 and 8

The following list contains items that are related to aggregate demand and/or aggregate supply. 1) Government Spending 2) Consumer Expectations 3) Degree of Excess capacity 4) Personal Income Tax Rates 5) Productivity 6) National Income Abroad 7) Business Taxes 8) Domestic Resource Availability 9) Price of Imported Products 10) Profit Expectations on Investments Refer to the above list. Changes in which combination of factors best explain why the aggregate supply curve would shift?

7 and 8

What percentage of the average U.S. firm's costs are accounted for by wages and salaries?

A sharp rise in the real value of stock prices, which is independent of a change in the price level, would best be an example of:

A change in real value of consumer wealth

A decrease in aggregate demand will cause a greater decline in real output the: A. Less flexible is the economy's price level. B. More flexible is the economy's price level. C. Steeper is the economy's AS curve. D. Larger is the economy's marginal propensity to save.

Refer to the above graph. Which factor will shift AS1 to AS2?

A decrease in business taxes

Refer to the graph. What combination would most likely cause a shift from AD1 to AD2?

A decrease in taxes and an increase in government spending

Which would most likely increase aggregate supply?

A decrease in the prices of resources

With cost-push inflation in the short run, there will be:

A decrease real GDP

A high unemployment rate most likely means that there is a: A. High rate of inflation in the economy. B. Low rate of interest in the economy. C. Large GDP gap in the economy. D. Small GDP gap in the economy.

Proponents of the notion of a "political business cycle" suggest that:

A possible cause of economic fluctuations is the use of fiscal policy by policy-makers for political purposes and goals

Collective bargaining agreements that prohibit wage cuts for the duration of the contract contribute to:

A price level that is inflexible downward

Which of the following fiscal policy actions is most likely to increase aggregate supply?

A reduction in interest rates that encourages consumers to purchase more durable goods.

An economy is experiencing a high rate of inflation. The government wants to reduce consumption by $36 billion to reduce inflationary pressure. The MPC is 0.75. By how much should the government raise taxes to achieve its objective? A. $6 billion B. $9 billion C. $12 billion D. $16 billion

Crowding out is a decrease in private investment caused by

An expansionary fiscal policy

Which combination of factors would most likely increase aggregate demand?

An increase in consumer wealth and a decrease in interest rates

Which of the following fiscal policy actions is most likely to increase aggregate supply?

An increase in government spending on infrastructure that increases private sector productivity.

Which set of events would most likely increase aggregate demand?

An increase in incomes in foreign nations and a depreciation of the dollar

Which of the following will lead to an increase in aggregate demand?

An increase in national incomes abroad

Which set of events would most likely decrease aggregate demand?

An increase in personal income tax rates

An increase in productivity will: A. Increase aggregate demand B. Increase aggregate supply. C. Increase aggregate supply and aggregate demand D. Decrease aggregate supply and aggregate demand

Which would most likely increase aggregate supply?

An increase in productivity.

Which one of the following might offset a crowding-out effect of financing a large public debt?

An increase in public investment.

Which of the following events would most likely reduce aggregate demand?

An increase in real interest rates

Refer to the above graph. What combination would most likely cause a shift from AD1 to AD3?

An increase in taxes and a decrease in government spending

Other things being equal, an expansion of commercial bank lending:

D Increases the money supply

The basic purpose of imposing legal reserve requirements of commercial banks is to:

D Provide a device through which the credit-creating activities of banks can be controlled

When a bank's loans are written off, it means that the bank's:

D Reserves shrink, whereas debt remains the same.

53. Refer to the figure above. The economy is at equilibrium at point C which is below potential output. What fiscal policy would increase real GDP?

D Shift aggregate demand by increasing taxes

A public debt which is owed to foreigners can be burdensome because:

D The payment of interest reduces the volume of goods and services available for domestic uses

An increase in personal income tax rates will cause a(n):

Decrease (or shift left) in aggregate demand

An expected decline in the prices of consumer goods will:

Decrease aggregate demand

If personal income taxes and business taxes increase, then this will:

Decrease aggregate demand and aggregate supply

Suppose that real domestic output in an economy is 2400 units, the quantity of inputs is 60, and the price of each input is $30.An increase in business taxes would tend to:

Decrease aggregate demand and decrease aggregate supply

A decrease in government spending will cause a(n):

Decrease in aggregate demand

Cost-push inflation is characterized by a(n):

Decrease in aggregate supply and no change in aggregate demand

The set of fiscal policies that would be most contractionary would be a(n):

Decrease in government spending and an increase in taxes

The interest rate effect on aggregate demand indicates that a(n):

Decrease in the price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending

Actions by the Federal government that decrease the progressivity of the tax system:

Decrease the effect of automatic stabilizers

From 1995 to 2001, the U.S. public debt relative to GDP:

Decreased, and increased since then

When the excess capacity of business rises, aggregate:

Demand decreases

The U.S. economy was able to achieve full employment with relative price level stability between 1996 and 2000 because aggregate

Demand increased and aggregate supply increased

The U.S. economy was able to achieve full employment with relative price level stability between 1996 and 2000 because aggregate:

Demand increased and aggregate supply increased

If the dollar depreciates in value relative to foreign currencies, aggregate:

Demand increases

Demand-pull inflation is illustrated in the short run aggregate supply-aggregate demand model as a shift of the aggregate:

Demand to the right

Refer to the above diagram. A shift from AD1 to AD2 would be consistent with what economic event in U.S. history?

Demand-pull inflation in the late 1960s

Which of the following is an important real consequence of the public debt of the United States?

Its consequent higher interest rates lead to fewer incentives to bear risk and innovate

The intersection of the aggregate demand and aggregate supply curves determines the:

Equilibrium level of real domestic output and prices

If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n):

Expansionary fiscal policy

If the congress passes legislation to increase government spending to counter the effects of the recession, then this would be an example of a(n):

Expansionary fiscal policy

T/F? If all depositors of a bank were to try withdrawing all their deposits at the same time, a good solid bank should be able to meet all the withdrawals.

Aggregate demand is a schedule that shows the various amounts of goods and services that only consumers and businesses desire to purchase at each possible price level.

False

An increase in consumer wealth will decrease aggregate demand.

False

An increase in the cyclical deficits will automatically increase the cyclically adjusted budget deficit.

False

As measured by the cyclically adjusted budget, the U.S. government engaged in a contractionary fiscal policy in 2005 and 2006.

False

Financing wartime expenditures by increasing internally held public debt permits a nation to defer a part of the economic cost of war.

False

Fiscal policy is mainly undertaken by the Federal Reserve.

False

Minimum wage laws tend to make the price level more flexible rather than less flexible.(true/false)

False

The greater the upward slope of the AS curve, the larger is the realized multiplier effect of a change in investment spending.

False

The portion of the public debt owed to foreigners does not represent any real economic burden to Americans because we received money from foreigners when we incurred the debt.

False

When there is an increase in aggregate demand in the short run, there will be an increase in the price level but not in the level of output or employment.

False

As of 2012, more than half of the total debt of the U.S. government was owed to foreigners.

False.

The portion of the public debt owed to foreigners does not represent any real economic burden to Americans because we received money from foreigners when we incurred the debt.

False.

The price level in the United States is more flexible downward than upward.

False.

Aggregate demand decreases and real output falls but the price level remains the same. Which of the following factors most likely contributes to downward price inflexibility in the immediate short run?

Fear of price wars

Aggregate demand decreases and real output falls, but the price level remains the same. Which factor most likely contributes to downward price inflexibility?

Fear of price wars

A Federal budget deficit exists when:

Federal government spending exceeds tax revenues in a given year

a federal budget deficit exists when

Federal government spending exceeds tax revenues in a given year

When the Federal government uses taxation and spending actions to stimulate the economy it is conducting:

Fiscal Policy

When the federal government uses taxation and spending actions to stimulate the economy it is conducting :

Fiscal Policy

When the Federal government uses taxation and spending actions to stimulate the economy it is conducting:

Fiscal policy

If the dollar appreciates relative to foreign currencies, then:

Foreign buyers will find U.S. goods become more expensive

Which would be considered to be one of the factors that shift the aggregate supply curve in the short run? A change in:

Government regulation

Graphically, demand-pull inflation is shown as a: A. Rightward shift of the AD curve along an upsloping AS curve. B. Leftward shift of the AS curve along a downsloping AD curve. C. Leftward shift of AS curve along an upsloping AD curve. D. Rightward shift of the AD curve along a downsloping AS curve.

Refer to the figure above. A shift from AD2 shifts to AD1 would be consistent with what economic event in U.S. history?

Great Recession of 2007-2009

Automatic stabilizers smooth fluctuations in the economy because they produce changes in government's deficit that

Help offset changes in GDP

The immediate-short-run aggregate supply curve is:

Horizontal

Refer to the graph above. The ratchet effect would suggest that:

If AD1 shifts to AD2, the economy would move to point b

In an economy, the government wants to increase aggregate demand by $60 billion at each price level to increase real GDP and reduce unemployment. If the MPC is 0.9, then it could: A. Decrease taxes by $6 billion B. Decrease taxes by $12 billion C. Increase government spending by $6 billion D. Increase government spending by $12 billion

In the above diagram, a shift from AS1 to AS3 might be caused by a: A. increase in productivity B. Increase in the prices of imported resources. C. Decrease in the prices of domestic resources. D. Decrease in business taxes.

In the above diagram, a shift from AS3 to AS2 might be caused by an increase in: A. Business taxes and government regulation. B. The prices of imported resources. C. The prices of domestic resources. D. Productivity

The long run aggregate supply curve

In the long run wages have had a chance to change. Peop,e have full information and wages have adjusted to any price changes

If the price of crude oil decreases, then this would most likely:

Increase aggregate supply in the U.S.

If the price per barrel of Crude decreases in the international market, then this event would most likely:

Increase aggregate supply in the United States

Refer to the graph above, which shows an aggregate demand curve. If the price level decreases from 200 to 100, the real output demanded will:

Increase by $200 billion

An expansionary fiscal policy can be illustrated by an

Increase in aggregate demand

An increase in government spending will cause a(n):

Increase in aggregate demand

Demand-pull inflation is associated with a(n):

Increase in aggregate demand

A decrease in business taxes will most likely result in a(n):

Increase in aggregate demand and aggregate supply

The combination of fiscal policies that would reinforce each other and be most expansionary would be a(n):

Increase in government spending and a decrease in taxes

A decrease in interest rates caused by a change in the price level would cause a(n):

Increase in the quantity of real domestic output demanded

If Congress passed new laws significantly increasing the regulation of business, this action would tend to:

Increase per-unit production costs and shift the aggregate supply curve to the left

Which combination of fiscal policy actions would be most likely be offsetting

Increase taxes and government spending

Which combination of fiscal policy actions would most likely offset each other?

Increase taxes and government spending

Inflation caused by a rise in the prices of inputs is referred to as: A. Cost-push inflation B. Demand-pull inflation C. Unanticipated inflation D. Hyperinflation

The crowding-out effect tends to be stronger when the economy:

Is at, or close to, full employment

Other things being equal, a reorganization of the OPEC cartel to permit it to increase world oil prices by 70 percent would most likely have which effect?

It would shift the aggregate supply curve left

The crowding- out effect from government borrowing to finance the public debt is reduced when

Public investment complements private investment

The crowding-out effect from government borrowing to finance the public debt is reduced when:

Public investment complements private investment

Refer to the above diagram. A shift of the aggregate demand curve from AD1 to AD0 might be caused by a(n): A. decrease in aggregate supply. B. decrease in the amount of output supplied. C. Increase in investment spending. D. decrease in net export spending.

Refer to the above diagram. A shift of the aggregate demand curve from AD1 to AD0 might be caused by a: A. Decrease in aggregate supply B. Decrease in amount of output supplied. C. Increase in investment spending. D. Decrease in export spending.

Refer to the above diagram. If the aggregate supply curve shifted from AS0 to AS1, and the aggregate demand curve remains at AD0 we could say that: A. aggregate supply has increased, equilibrium output has decreased, and the price level has increased. B. Aggregate supply has decreased, equilibrium output has decreased, and the price level has increased. C. an increase in the amount of output supplied has occurred. D. aggregate supply has increased and the price level has risen to G.

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. A recession is depicted by: A. Panel A only. B. Panel B only. C. Panel C only D. Panels A and B.

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Cost-push inflation is depicted by: A. Panel A only B. Panel B only C. Panel C only D. Panels B and C.

Refer to the above diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Growth, full-employment and price stability is depicted by: A. Panel A only B. Panel B only C. Panel C only D. Panels B and C.

Refer to the above graph. Assume that the economy is in a recession with a price level of P1 and output level Q1. The government then adopts an appropriate discretionary fiscal policy. What will be the most likely new equilibrium price level and output? A. P2 and Q4. B. P1 and Q1 C. P2 and Q2 D. P1 and Q3

Refer to the above graph. Private investments are initially at point 5 on curve B. The crowding-out effect would be illustrated by a movement from point 5 to point: A. 2 B. 3 C. 4 D. 6

Refer to the above graph. What combination would most likely cause a shift from AD1 to AD2? A. An increase in taxes and an increase in government spending. B. A decrease in taxes and an increase in government spending. C. An increase in taxes and no change in government spending. D. A decrease in taxes and a decrease in government spending.

Refer to the above graph. Which of the following factors will shift AS1 to AS3? A. An increase in productivity. B. An increase in input prices. C. A decrease in business taxes. D. A decrease in household indebtedness.

Refer to the figure above. If the economy is operating at full employment when its aggregate demand curve is AD2, then a further increase in consumption and investment spending will cause: A. Cost-push inflation, and the new equilibrium output will be less than Q2. B. Demand-pull inflation, and the new equilibrium output will be less than Q2. C. Demand-pull inflation, and the new equilibrium output will be more than Q2. D. Cost-push inflation, and the new equilibrium output will be more than Q2.

The two reasons why bankruptcy is a false concern about the public debt are:

Refinancing and taxation

The foreign purchases effect on aggregate demand suggests that a:

Rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand

Refer to the figure above. The massive increase in government spending during World War II moved the economy in the span of a few short years from mass unemployment and price stability to "overfull" employment. This situation can be best illustrated in the figure above as a:

Shift from AD1 to AD2, an increase in aggregate demand.

The crowding-out effect of expansionary fiscal policy suggest that: A. Tax increases are paid primarily out of saving and therefore are not an effective fiscal device. B. Increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment. C. It is very difficult to have excessive aggregate spending in the U.S. economy. D. Consumer and investment spending always vary inversely.

When the price level decreases:

The demand for money falls and the interest rate falls

The economy starts out with a balanced Federal budget. If the government then implements expansionary fiscal policy, then there will be a: A. Trade deficit B. Trade surplus C. Budget deficit D. Budget surplus

The equilibrium price level and level of real output occur where: A. Real output is at its highest possible level. B. Exports equal imports. C. The price level is at its lowest level. D. The aggregate demand and supply curve intersect.

Which of the following will not tend to shift the consumption schedule upward? A currently small stock of durable goods in the possession of consumers. B. The expectation of a future decline in the consumer price index. C. A currently low level of household debt. D. The expectation of future shortages of essential consumer goods.

The expectation of a future decline in the consumer price index.

The foreign purchases effect suggests that: A. Fall in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand. B. Fall in our domestic price level will decrease our imports and increase our exports, there reducing the net exports component of aggregate demand. C. Rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand. D. Rise in our domestic price level will decrease our imports and increase our exports, thereby reducing the net exports component of aggregate demand.

Which of the following statements about the multiplier is most accurate?

The multiplier applies to both increases and decreases in initial spending.

A decrease in aggregate supply means:

The real domestic output would decrease and the price level would rise

The real-balances effect suggests that a: A. Lower price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending. B. Lower price level will decrease the real value of many financial assets and therefore cause an increase in spending. C. Lower price level will increase the real value of many financial assets and therefore cause an increase in spending. D. Higher price level will increase the real value of many financial assets and therefore cause an increase in spending.

Refer to the diagram. Discretionary fiscal policy designed to slow the economy is illustrated by:

The shift of the curve from T2 to T1.

When government spending is increased, the amount of the increase in aggregate demand primarily depends on:

The size of the multiplier

A rightward shift of the aggregate demand curve will increase real domestic output and the price level in the short run.

True

An increase in aggregate supply increases the real domestic output and reduces the price level effects from an increase in aggregate demand.

True

Depreciation of the dollar relative to foreign currencies will tend to increase net exports and aggregate demand.

True

When the economy is experiencing demand-pull inflation, its real GDP tends to be rising.(true/false)

True

A negative GDP gap can be caused by either a decrease in aggregate demand or a decrease in aggregate supply.

True.

Built-in stability is exemplified by the fact that with a progressive tax system, net tax revenues decrease when GDP decreases.

True.

It is possible for an increase in government spending to encourage, instead of crowding out, private investment.

True.

The United States has experienced both budget surpluses and deficits since 2000.

True.

The so-called crowding-out effect refers to government spending crowding out private investment spending.

True.

When Social Security contributions have exceeded payouts in the past, the excess amounts were used to help finance the Federal government's budget deficits.

True.

Wage contracts, efficiency wages, and minimum wage are explanations for why? A. Competition results in price wars. B. Wages tend to be inflexible downward. C. The aggregate demand curve slopes downward. D. There is little support for the existence of real-balances effect.

Which of the following is an important real consequence of the public debt of the United States? A. It will threaten to bankrupt the Federal government. B. It discourages saving among the general public. C. It decreases the inequality in the distribution of income in the U.S. D. Its consequent higher interest rates lead to fewer incentives to bear risk and innovate.

Which of the following represents the most expansionary fiscal policy? A. a $10 billion tax cut B. a $10 billion increase in government spending C. A $10 billion tax increase D. A $10 billion decrease in government spending

Which of the following would most likely shift the aggregate demand curve to the right? A. An increase in stock prices that increases consumer wealth. B. Increased fear that a recession will cause workers to lose their jobs. C. An increase in personal income tax rates. D. A reduction in household borrowing because of tighter lending practices.

Which of the following would not shift the aggregate demand curve? A. A change in the price level. B. Depreciation of the international value of the dollar. C. A decline in the interest rate at each possible price level. D. An increase in personal income tax rates.

Which of the following would not shift the aggregate supply curve? A. An increase in labor productivity. B. A decline in the price of imported oil. C. A decline in business taxes. D. An increase in the price level.

A sharp rise in the real value of stock prices, which is independent of a change in the price level, would affect aggregate demand due to:

a change in real value of consumer wealth.

Refer to the accompanying graph. What combination would most likely cause a shift from AD1 to AD2? **price level vs. real domestic output (gdp) ad1 shift to the upright to ad2**

a decrease in taxes and an increase in government spending

In the diagram, a shift from AS1 to AS2 might be caused by:

a decrease in the prices of domestic resources.

The relationship between consumption and disposable income is such that:

a direct and relatively stable relationship exists between consumption and income.

The consumption schedule shows: (what type of relationship)

a direct relationship between aggregate consumption and aggregate income.

An increase in net exports will shift the:

aggregate expenditures curve upward and the aggregate demand curve rightward.

in the mainstream view, the economic instability brought about by "oil shocks" works through changes in

aggregate supply

The 45-degree line on a graph relating consumption and income shows:

all points at which consumption and income are equal.

Refer to the table for a fictional economy. The changes in the budget conditions between 2000 and 2001 best reflect:

an expansion of real GDP and an automatic increase in tax revenues.

The massive increase in government spending during World War II moved the economy in the span of a few short years from mass unemployment and price stability to "overfull" employment and severe demand-pull inflation. This situation can be best characterized by:

an increase in aggregate demand.

The multiplier effect means that:

an increase in investment can cause GDP to change by a larger amount.

Assume the economy's consumption and saving schedules simultaneously shift downward. This must be the result of:

an increase in personal taxes.

The effect of a government surplus on the equilibrium level of GDP is substantially the same as:

an increase in saving.

As disposable income increases, consumption: A. and saving both increase. B. and saving both decrease. C. decreases and saving increases. D. increases and saving decreases.

and saving both increase.

At the point where the consumption schedule intersects the 45-degree line:

the APC is 1.00.

Refer to the diagram in which T is tax revenues and G is government expenditures. All figures are in billions. The budget will entail a deficit:

at any level of GDP below $400.

The disposable income goes up, the:

average propensity to consume falls.

Refer to the data. The 10 percent proportional tax on income would cause:

both consumption and saving to increase by smaller and smaller absolute amounts as GDP rises

The slope of the immediate-short-run aggregate supply curve is based on the assumption that:

both input and output prices are fixed.

In the short run, a decrease in aggregate demand will decrease:

both real output and the price level.

When consumption and saving are graphed relative to real GDP, an increase in personal taxes will shift:

both the consumption and saving schedules downward.

According to Congressional Budget Office (CBO) projections:

budget deficits are expected to remain large for the next several years.

The long run in macroeconomics is a period in which nominal wages:

change as the price level changes.

The multiplier is useful in determining the:

change in GDP resulting from a change in spending.

what shifts SRAS?

changes in production, natural disasters, changes in productivity, changes in taxes

Refer to the diagram. The degree of built-in stability in the economy could be increased by:

changing the tax system so that the tax line has a greater slope.

A change in _____ would cause a shift in the short-run aggregate supply curve.

commodity prices

Discretionary fiscal policy

consists of deliberate changes in government spending and tax collections desgined to achieve full employment control inflation and encourage economic growth

The U.S. public debt:

consists of the historical accumulation of all past federal deficits and surpluses.

state and local governments are limited in their ability to respond to recessions because of

constitutional and other requirements to balance their budgets

If Carol's disposable income increases from 1200 to 1700 and her level of saving increases from minus 100 to plus 100, her marginal propensity to:

consume is 3/5ths

The consumption schedule directly relates:

consumption to the level of disposable income.

The APC is calculated as:

consumption/income.

If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n):

contractionary fiscal policy

the cyclically adjusted surplus in the U.S. went from +1.2% of GDP in 2000 to .6% of GDP in 2002. this suggests that the government during that period

cut taxes and/or increased spending

Refer to the diagram. Assume that G and T1 are the relevant curves and that the economy is currently at B, which is its full-employment GDP. This economy has a:

cyclically adjusted budget surplus and an actual budget surplus.

which of the following contributes to the downward inflexibility of wages, according to mainstream economists?

efficiency wages

The investment demand slopes downward and to the right because lower real interest rates:

enable more investment projects to be undertaken profitably.

If a $100 billion increase in government spending results in a $500 billion increase in real GDP, then the value of the multiplier:

equals 5.

The intersection of the aggregate demand and aggregate supply curves determines the:

equilibrium level of real domestic output and prices.

Refer to the above diagram. When AD1 shifts to AD2, then at P1Q3 output demanded will:

exceed output supplied.

according to rational expectations theory, instantaneous market adjustments make

expansionary economic policy ineffective in increasing output

if congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n)

expansionary fiscal policy

The immediate determinants of investment spending are the:

expected rate of return on capital goods and the real interest rate.

A decline in the quantity of real output demanded along the aggregate demand curve is a result of a(n):

increase in the price level.

as of 2015, more than 1/2 of the total debt of the U.S. government was owed to foreigners (T/F)

false

expansionary fiscal policy is so named because it involves an expansion of the nation's money supply (T/F)

false

in the theory of coordination failures, shifts of the nations' long-run aggregate supply curve are the main cause of the business cycle (T/F)

false

mainstream economists contend that monetary policy tends to be destabilizing, in contrasts to monetarists who believe that monetary policy is a stabilizing factor (T/F)

false

monetarists say the velocity of money if highly variable and there is no close link between the money supply and the level of economic activity (T/F)

false

the goal of expansionary fiscal policy is to rein in inflation (T/F)

false

The equation C = 35 + .75Y, where C is consumption and Y is disposable income, shows that:

households will consume $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive.

In the diagram, a shift from AS1 to AS3 might be caused by a(n):

increase in the prices of imported resources.

If the U.S. dollar depreciates in value relative to foreign currencies, then this will:

increase aggregate demand

An increase in productivity will:

increase aggregate supply.

If the U.S. dollar appreciates in value relative to foreign currencies, then this will:

increase aggregate supply.

If the prices of imported resources decrease, then this event would most likely:

increase aggregate supply.

Refer to the above diagram. If aggregate supply shifts from AS1 to AS3, then real domestic output will:

increase and the price level will decrease.

Which combination of fiscal policy actions would most likely offset each other?

increase both taxes and government spending

which combination of fiscal policy actions would most likely offset each other?

increase both taxes and government spending

If the MPC is .70 and investment increases by $3 billion, the equilibrium GDP will:

increase by $10 billion.

Suppose the price level is fixed, the MPC is .5, and the GDP gap is a negative $100 billion. To achieve full-employment output (exactly), government should:

increase government expenditures by $50 billion.

An increase in government spending will cause a(n):

increase in aggregate demand.

Refer to the diagram. Initially assume that the investment demand curve is ID1. The crowding-out effect of a large public debt would be shown as a(n):

increase in the interest rate from 4 percent to 6 percent and a decline in investment spending of $5 billion.

(Figure: Shift of the Aggregate Demand Curve) Look at the figure Shift of the Aggregate Demand Curve. A movement from point A on AD1 to point C on AD2 could have resulted from a(n):

increase in the total quantity of consumer goods and services demanded.

If Congress passed new laws significantly increasing the regulation of business, this action would tend to:

increase per-unit production costs and shift the aggregate supply curve to the left.

Refer to the diagram, in which Qf is the full-employment output. If aggregate demand curve AD3 describes the current situation, appropriate fiscal policy would be to:

increase taxes and reduce government spending to shift the aggregate demand curve leftward from AD3 to AD2, assuming downward price flexibility.

A decline in the real interest rate will:

increase the amount of investment spending.

A rightward shift of the AD curve in the very steep upper part of the short-run AS curve will:

increase the price level by more than real output.

Other things equal, an increase of Treasury bonds from $100 billion to $120 billion in the economy would:

increase the public debt from $460 billion to $480 billion.

Expansionary fiscal policy

is an increase in government spending, a decrease in taxes or some combination of the two for the purpose of increasing aggregate demand and real output

Built in stabilizers

is anything that increases the government budget deficit during a recession and increases its budget surplus during an expansion without requiring explicit action by policy makers

The portion of the public debt held outside federal agencies and the Federal Reserve is:

larger than the portion held by federal agencies and the Federal Reserve.

The numerical value of the multiplier will be smaller the:

larger the slope of the saving schedule.

The short-run aggregate supply curve will shift to the:

left if nominal wages increase.

If investment decreases by $20 billion and the economy's MPC is .5, the aggregate demand curve will shift:

leftward by $40 billion at each price level.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, inflation is absent in:

panels (A) and (C).

One reason why the aggregate supply curve might shift to the left is that:

per-unit production costs have increased.

The aggregate supply curve (short run) is upsloping because

per-unit production costs rise as the economy moves toward and beyond its full-employment real output.

Given the consumption schedule, it is possible to graph the relevant saving schedule by:

plotting the vertical differences between the consumption schedule and the 45-degree line.

Mandatory spending

provided by permanent law rather than annual appropriations . An example is social security. The president and the congress can change the law to revise the eligibility criteria or the payment formula and thus change the level of spending on mandatory programs, but they dont have to take annual action to ensure the continuation of spending

The aggregate demand curve shows the relationship between the aggregate price level and (the) aggregate:

quantity of output demanded by households, businesses, the government, and the rest of the world.

When aggregate demand decreases, product prices, wage rates, and per-unit production costs are inflexible downward because of a:

ratchet effect.

the idea that business fluctuations are primarily cause d by factors affecting aggregate supply rather than aggregate demand is a central tenet of

real-business-cycle theory

The fear of unwanted price wars may explain why many firms are reluctant to:

reduce prices when a decline in aggregate demand occurs.

In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $200 billion. To obtain price level stability under these conditions the government should:

reduce tax rates and/or increase government spending

Refer to the diagram. If the full-employment GDP is Y5, government should:

reduce taxes and increase government spending.

Refer to the data. A 10 percent proportional tax on income would:

reduce the size of the multiplier and make the economy more stable.

When aggregate demand declines, many firms may reduce employment rather than wages because wage reductions may:

reduce worker morale and work effort, and thus lower productivity.

if the MPS in an economy is 0.4, government could shift the aggregate demand curve leftward by $50 billion by

reducing government expenditures by $20 billion.

In contrast to investment, consumption is:

relatively stable.

Suppose that real domestic output in an economy is 2400 units, the quantity of inputs is 60, and the price of each input is $30. All else equal, if the price of each input decreased from $30 to $20, productivity would:

remain unchanged and aggregate supply would increase.

Graphically, demand-pull inflation is shown as a

rightward shift of the AD curve along an upsloping AS curve.

Graphically, demand-pull inflation is shown as a:

rightward shift of the AD curve along an upsloping AS curve.

In the long run, as the economy self-corrects, an increase in aggregate demand will cause the price level to _____ and potential output to _____.

rise; remain stable

If the consumption schedule is linear, then the

saving schedule will also be linear.

Assuming that prices remain constant, suppose that consumer assets and wealth lose value. The aggregate demand curve will undergo a:

shift to the left.

The aggregate supply curve

shows the various amounts of real output that businesses will produce at each price level.

The greater is the marginal propensity to consume, the:

smaller is the marginal propensity to save.

The APC can be defined as the fraction of a:

specific level of total income that is consumed.

If Trent's MPC is .80, this means that he will:

spend eight-tenths of any increase in his disposable income.

The federal budget deficit is found by

subtracting government tax revenues from government spending in a particular year

The federal budget deficit is found by:

subtracting government tax revenues from government spending in a particular year.

A fall in the price of domestic resources will shift the aggregate:

supply curve rightward.

A rise in prices of imported resources will cause aggregate:

supply to decrease.

A fall in prices of imported resources will cause aggregate:

supply to increase.

An economist who favors smaller government would recommend

tax cuts during recession and reductions in government spending during inflation.

An economist who favors smaller government would recommend:

tax cuts during recession and reductions in government spending during inflation.

If the economy has a cyclically adjusted budget surplus, this means that

tax revenues would exceed government expenditures if full employment were achieved.

Since actual budget deficits surpassed 10 percent of GDP in 2009:

the deficits as a percentage of GDP have fallen, but fiscal policy has remained expansionary.

Discretionary fiscal policy

the discretioary changes in government expenditures and/or taxes in order to achieve certain national economic goals

Suppose that an economy is in an inflationary gap in the short run. In the long run:

the economy's self-correcting mechanism will restore GDP to its potential level.

When we draw an investment demand curve, we hold constant all of the following except: A. the expected rate of return on the investment. B. business taxes. C. the interest rate. D. the present stock of capital goods.

the interest rate.

The magnification of small changes in spending into larger changes in output and income is produced by:

the multiplier effect.

(Consider This) The ratchet effect is the tendency of

the price level to increase but not to decrease.

A major reason that a public debt cannot bankrupt the federal government is because:

the public debt can be easily refinanced

Refer to the above graph. At price level P1:

the quantity of output supplied is less than the quantity of output demanded.

A decrease in aggregate supply means:

the real domestic output would decrease and the price level would rise.

If the equation C = 20 + .6Y, where C is consumption and Y is disposable income, were graphed:

the vertical intercept would be +20 and the slope would be +.6.

appropriate discretionary fiscal policy

to smooth out the business cycle is the government should increase its spending or/and reduce taxes (run a deficit), or increase government taxes and spending by the same amount to combat a recession.

us government securities

treasury bills, notes, bonds, and I bonds issued by the federal government to finance expenditures that exceed tax revenues

Tax revenues automatically increase during economic expansions and decrease during recessions. (T/F)

true

the "real" factors in the real-business-cycle theory include resource availability and technology (T/F)

true

SRAS curve is slopping ? why?

upsloping because as price increase wages do NOT. profit margin will increase and production will also increase

A graph of the long-run aggregate supply curve is:

vertical, and a graph of the short-run aggregate supply is upsloping.

mainstream economists question the new classical assumption that

wages and prices are equally flexible upward and downward

Wage contracts, efficiency wages, and the minimum wage are explanations for why

wages tend to be inflexible downward.

Wage contracts, menu costs, and the minimum wage are explanations for why:

wages tend to be inflexible downward.

long run equilibrium is where ?

we want to be

In the late 1990s, the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the:

wealth effect.

Discretionary spending

what the president and the congress DECIDE to spend through annual appropriations bills. examples include money for such activities as the coast guard, FBI, foreign aid

If aggregate demand increases and aggregate supply decreases, the price level

will increase, but real output may increase, decrease, or remain unchanged.

If aggregate demand increases and aggregate supply decreases, the price level:

will increase, but real output may increase, decrease, or remain unchanged.

a procyclical fiscal policy, like those of many state and local governments in the U.S. tend to

worsen recessions or inflation

The required-reserve ratio is equal to:

A A commercial bank's required reserves divided by its checkable-deposit liabilities

A commercial bank has no excess reserves until a depositor places $2,000 in cash in the bank. The reserve ratio is 10%. The bank then lends $1,500 to a borrower. As a consequence of these transactions the bank's excess reserves are:

A Increased by $300

43. The following is budget information for a hypothetical economy. All data are in billions of dollars. Refer to the above table. In which year is there a budget surplus?

A Year 1

Which would most likely increase aggregate supply?

A decrease in net exports

Which event would most likely increase aggregate demand?

A depreciation of the dollar

One explanation for the downward slope of the aggregate demand curve is that a change in the

A real-balances effect

Which effect best explains the downward slope of the aggregate demand curve?

A real-balances effect

A change in aggregate supply would be caused by a change in:

An aggregate supply determinant

28. The figures in the table below are for a single commercial bank. All figures are in thousands of dollars. Refer to the data given above. If the required reserve ratio is 10 percent, the bank has excess reserves of:

B $22,000

29. The figures in the table below are for a single commercial bank. All figures are in thousands of dollars. Refer to the data given above. This bank has total assets of:

B $580 million

54. Refer to the data above. This bank has liabilities and net worth totaling:

B $580 million

Refer to the data in the table above. The direction of fiscal policy became more expansionary from:

B 2002 to 2003

United States currency has value primarily because it:

B Is relatively scarce, is legal tender, and is generally acceptable in exchange for goods and services

The use of a debit card is most similar to:

B Paying with a check

Refer to the figure above. The economy is at equilibrium at point C which is below potential output. What fiscal policy would increase GDP?

B Shift aggregate demand by decreasing transfer payments

What "backs" the money supply of the U.S.?

B The gov'ts ability to keep the value of money relatively stable

Which of the following serves as an automatic stabilizer in the economy?

B the progressive income tax

An asset's liquidity refers to its ability to be:

C A means of payment

As of 2012, most of the U.S. Federal debt was owed to:

C Americans

As of February 2013, more than half of the money supply (M1) was in the form of:

C Checkable deposits

If there is a constitutional requirement to maintain a balanced budget, then during a recession when tax revenues are shrinking, the government will have to implement:

C Contractionary fiscal policy

if there is a constitutional requirement to maintain a balanced budget, then during a recession when tax revenues are shrinking, the government will have to implement:

C Contractionary fiscal policy

In the later part of 2009, something historic happened relative to Social Security, in that for the first time:

C SS contributions fell short of payouts

The cyclically-adjusted budget estimates the Federal budget deficit or surplus if:

C The economy were at full employment

Suppose the Northwestern Bank has excess reserves of $12,000 and checkable deposits of $125,000. If the reserve requirement is 20 percent, what are the bank's actual reserves?

D $37,000

Refer to the table above. The value of the money included in M2 but not counted in M1

D $4,663 billion

When a check is cleared against a bank, the bank will lose:

D Checkable deposits and reserves

Banks can lend their excess reserves to other banks in the:

D Federal funds market

The cyclically-adjusted deficit as a percentage of GDP is 2 percent in Year 1. This cyclically-adjusted deficit becomes 1 percent of GDP in Year 2. It can be concluded from Year 1 to Year 2 that:

D Fiscal policy was more contractionary

If the U.S. dollar appreciates in value relative to foreign currencies, then this will:

Decrease aggregate demand

If the U.S. dollar appreciates in value relative to foreign currencies, then this will:

Decrease aggregate demand and increase aggregate supply

T/F? The impact of an expansionary fiscal policy may be strengthened if it crowds out some private investment spending.

Suppose that real domestic output in an economy is 2400 units, the quantity of inputs is 60, and the price of each input is $30.If Congress raised taxes on businesses, this action would:

Increase per-unit production costs and thus decrease aggregate supply

The economy experiences a decrease in the price level and an increase in real domestic output. Which is a likely explanation?

Interest rates and wage rates have decreased

The upward slope of the short-run aggregate supply curve is based on the assumption that:

Nominal wages and other resource costs do not respond to price level changes

An aggregate supply curve represents the relationship between the:

Price level and the production of real domestic output

The aggregate demand curve is the relationship between the:

Price level and the purchasing of real domestic output

Which would most likely shift the aggregate supply curve? A change in:

Prices of imported resources

Disinflation refers to a situation where:

The rate of inflation falls, but the price level does not

The table contains budget information for a hypothetical economy. All data are in billions of dollars. In which year is there a balanced budget?

When government spending and tax revenues are equal

Which of the following historically has not been a significant contributor to the U.S. public debt?

demand-pull inflation

When current government expenditures equal current tax revenues and the economy is achieving full employment,

CRIM CRAM

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