ECO 101-52 CHAPTER 25

Consumption, investment, government spending, exports, and imports are:

all components of aggregate demand.

According to the _____________________ argument, a market-oriented economy has no obvious way to implement a plan of systematic wage reductions.

coordination

If markets throughout the global economy all have flexible and continually adjusting prices, then:

each economy will always head for its natural rate of unemployment.

Refer to the graph shown below. At point B:

economic growth is low or even negative

According to the Keynesian framework, ________________________ may cause a recession, but not inflation.

a major trading partner's economic slowdown

According to the Keynesian framework, ____________________________ will not help reduce inflation, but may help a country get out of a recession.

increased spending by the government on health care

The equilibrium quantity of labor increases and the equilibrium wage decreases when:

labor supply shifts to the right, if wages are flexible,

Aggregate demand is more likely to _________________ than aggregate supply in the short run.

shift substantially

Suppose that out of the original 100 of government spending, 33 will be recycled back into purchases of domestically produced goods and services in the second round and 10.89 is spent in the third round. Following this multiplier effect, what will the value of the total aggregate expenditures be after the fourth round in the cycle is completed?

147.48

Suppose that out of the original 100 increase in government spending, 33 will be recycled back into purchases of domestically produced goods and services in the second round and 10.89 is spent in the third round. Following this multiplier effect, what value would be recycled in the fourth round of this cycle?

3.59

Suppose that out of the original 100 increase in government spending, 60 will be recycled back into purchases of domestically produced goods and services. Following this multiplier effect, what value will be recycled in the next round in the cycle?

36

Which of the following is a distinguishing characteristic of a Keynesian cross diagram?

45-degree line

When the economy is in a recession, the government will want to increase output. If the multiplier equals 2.5 and the government increases spending by 200, how much will output increase by?

500

The economy is in a recession and the government wants to increase output. If the multiplier equals 3 and the government increases spending by 250, how much will output increase by?

750

____________________ will not cause a shift of the AS curve in a Keynesian framework.

Changes in output prices

According to macroeconomic theory, evidence that high unemployment may be accompanied by low inflation, and low unemployment may be accompanied by high inflation is supported by the:

Keynesian Phillips curve tradeoff.

Refer to the graph shown below. This graph illustrates a:

Phillips Curve.

In macroeconomics, a _________________ is used to show the relationship between output and the input price level.

Phillips curve

The chart below gives the data necessary to make a Keynesian cross diagram. Assume that the tax rate is 0.4 of national income, the MPC out of after-tax income is 0.9, investment is 58, government spending is 60, exports are 40, and imports are 0.1 of after-tax income. What is the equilibrium level of national income for this economy?

Y=300

According to the Keynesian framework, which of the following will not help a country to get out of a recession, but may help that country reduce inflation?

a decrease in military spending

According to the Keynesian framework, ________________ in __________________ may cause inflation, but not a recession.

an increase; domestic investment

Which of the following will cause the multiplier to be smaller and cause changes in investor confidence to have a smaller effect in an economy?

bigger leakages

If a Keynesian expenditure-output model shows that aggregate demand for both goods and labor has shifted to the left to D1, while wages remained at w0 and prices remained at P0, what will be the result?

excess supply

Which of the following data would be analyzed to determine whether any shift in the MPI has occurred over the course of the past 5 year period?

exchange rates

If a Phillips curve shows that unemployment is high and inflation is low in the economy, then that economy:

is producing at a point where output is less than potential GDP.

If a Phillip curve shows that unemployment is low and inflation is high in the economy, then that economy:

is producing at a point where output is more than potential GDP.

The equilibrium quantity of labor and the equilibrium wage level decrease when:

labor demand shifts to the left, if wages are flexible.

The equilibrium quantity of labor and the equilibrium wage increase when:

labor demand shifts to the right, if wages are flexible.

The equilibrium quantity of labor decreases and the equilibrium wage increases when:

labor supply shifts to the left, if wages are flexible.

In macroeconomics, what name is given to the costs of changing prices that businesses must consider?

menu costs

Refer to the graph shown below. Point C in the graph represents:

moderate inflation and all of the above.

The sum of all the income received for contributing resources to GDP is called ___________________.

national income (Y)

Keynesian economics focuses on explaining why recessions and depressions occur, as well as offering a ______________________ for minimizing their effects.

policy prescription

The Keynesian economic framework is based on an assumption that:

prices and wages are sticky and do not adjust rapidly.

In a Keynesian cross diagram, what name is given to the distance between an output level that is below potential GDP and the level of potential GDP?

recessionary gap

When the consumption function ordinates MPT 0.2, MPS 0.3, MPI 0.5, and MPC 0.7 are plotted on a graph, what will their values reflect?

steeper consumption function due to high marginal propensity to consume

The onset of a trade deficit is most likely supported by a country's:

strong economic growth.

Refer to the graph shown below. At point A:

the economy has full employment.