ECON 2020 TEST 3

Change in Income Change in Consumption Change in Saving Assumed Increase in Investment $ 20 $ $ 4.00 Second Round $ $ 12.80 $ All Other Rounds $ $ 51.20 $ Totals $ $ $ 20.00 Refer to the given table, which illustrates the multiplier process. The change in income in round two will be

16

) Refer to the diagram. If the aggregate supply curve shifted from AS0 to AS1 and the aggregate demand curve remains at AD0, we could say that

aggregate supply has decreased, equilibrium output has decreased, and the price level has increased.

An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. The per-unit cost of production in this economy is

B) $0.10.

) If the public debt in some country is $600 billion, and 74 percent is held by the citizens in that country, and the rest held by citizens of foreign countries, how much is owned by each respectively?

B) $444 held by citizens of the country and $156 held by citizens of foreign countries.

Real GDP Consumption (after taxes) Gross Investment Net Exports Government Purchases $ 0 −$ 20 $ 10 $ +5 $ 15 10 0 10 +5 15 40 20 10 +5 15 70 40 10 +5 15 100 60 10 +5 15 130 80 10 +5 15 160 100 10 +5 15

B) $70.

Possible Levels of Domestic Output and Income (GDP = DI) Consumption $ 320 $ 320 330 327 340 334 350 341 360 348 370 355 380 362 The table gives data for a private closed economy. The MPS is

B) 0.3.

Refer to the diagram. The marginal propensity to consume is

B) 0.6.

) In a private closed economy, _________ investment is equal to saving at all levels of GDP and equilibrium occurs only at that level of GDP where _________ investment is equal to saving

B) actual; planned

Disposable Income Consumption $ 200 $ 205 225 225 250 245 275 265 300 285

B) dissaving is $5.

Suppose the price level is fixed, the MPC is 0.5, and the GDP gap is a negative $100 billion. To achieve full-employment output (exactly), government should

B) increase government expenditures by $50 billion.

) Suppose the federal government had budget deficits of $5 billion in year 1 and $8 billion in year 2 but had budget surpluses of $2 billion in year 3 and $6 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the federal government's public debt would have

B) increased by $5 billion.

Refer to the diagram. The level of government spending

B) is the same at all levels of GDP.

49) A tax reduction of a specific amount will be more expansionary the

B) larger is the economy's MPC.

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

B) reducing government expenditures by $20 billion.

) 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

B) the foreign purchases effect.

Assume that in a private closed economy, consumption is $240 billion and investment is $50 billion, both at the $280 billion level of domestic output. Thus,

B) unplanned decreases in inventories of $10 billion will occur.

Refer to the given graph. A shift of the consumption schedule from C1 to C2 might be caused by a(n)

B) wealth effect of an increase in stock market prices.

Price Level C Ig G X M Real GDP 128 $ 18 $ 2 $ 3 $ 1 $ 5 125 20 4 3 2 4 122 22 6 3 3 3 119 24 8 3 4 2 116 26 10 3 5 1

A

Which of the diagrams for the U.S. economy best portrays the effects of an increase in resource productivity?

A

Year Government Spending Tax Revenues GDP 1 $ 450 $ 425 $ 2,000 2 500 450 3,000 3 600 500 4,000 4 640 620 5,000 5 680 580 4,800 6 600 620 5,000 The accompanying table gives budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. If year 1 is the first year of this nation's existence and year 6 is the present year, this nation's public debt is

A) $275 billion.

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.

A) aggregate demand curve would shift to the right.

43) If the dollar price of foreign currencies falls (that is, the dollar appreciates), we would expect

A) aggregate demand to decrease and aggregate supply to increase.

60) Which of the following is not considered a legitimate concern of a large public debt?

A) bankruptcy of the federal government

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

A) both the consumption and saving schedules downward.

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

A) consumption spending will be $14,500.

12) If the MPC is 0.70 and investment increases by $3 billion, the equilibrium GDP will

A) increase by $10 billion.

41) A rightward shift of the AD curve in the very flat part of the short-run AS curve will

A) increase real output by more than the price level.

31) An input whose price is often fixed in both the immediate-short-run and short-run is

A) labor, due to labor contracts.

The short-run aggregate supply curve is flatter at outputs below the full-employment output. This is because below full-employment, there are

A) large amounts of idle capital resources that can be put back to work with little upward pressure on per-unit production costs. B) large numbers of unemployed workers can go back to work with little upward pressure on per-unit production costs.

39) Graphically, demand-pull inflation is shown as a

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

) Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. Given an increase in input price from $4 to $6, we would expect

A) supply curve to shift to the left.

29) If consumers expect their future real income to rise, they will

A) tend to spend more of their current incomes now.

Refer to the diagram. Suppose that aggregate demand increased from AD1 to AD2. For the price level to stay constant

A) the aggregate supply curve would have to shift rightward.

) Refer to the diagram, in which Qf is the full-employment output. Expansionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at

AD0

Possible Levels of Domestic Output and Income (GDP = DI) Consumption $ 320 $ 320 330 327 340 334 350 341 360 348 370 355 380 362 The table gives data for a private closed economy. If gross investment is $12 billion, the equilibrium level of GDP will be

C) $360.

53) Answer the question based on the following sequence of events involving fiscal policy: 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. The administrative lag of fiscal policy is reflected in events

C) 3 and 4.

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

C) a decrease in the prices of domestic resources.

Amount of Real Output Demanded Price Level (Index Value) Amount of Real Output Supplied $ 200 300 $ 500 300 250 450 400 200 400 500 150 300 600 100 200 The table gives aggregate demand and supply schedules for a hypothetical economy. If the price level is 250 and producers supply $450 of real output,

C) a surplus of real output of $150 will occur.

) Which of the following would most likely reduce aggregate demand (shift the AD curve to the left)

C) an appreciation of the U.S. dollar

Which one of the following would increase per-unit production cost and therefore shift the aggregate supply curve to the left?

C) an increase in the price of imported resources

9) A rightward shift of the investment-demand curve might be caused by

C) businesses planning to increase their stock of inventories.

If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to

C) consume is three-fifths.

) Refer to the diagram, in which Qf is the full-employment output. The shift of the aggregate demand curve from AD3 to AD2 is consistent with

C) contractionary fiscal policy.

The purchase of capital goods, like _________ consumer goods, can be postponed; it tends to contribute to _________ in investment spending.

C) durable; instability

Refer to the diagram for a private closed economy. In this economy, investment

C) is $40 billion at all levels of GDP.

Refer to the diagram. If the full-employment level of GDP is B and aggregate expenditures are at AE3, the

C) recessionary expenditure gap is ed.

GDP C S Ig $ 100 $ 100 $ 0 $ 80 200 160 40 80 300 220 80 80 400 280 120 80 500 340 160 80 600 400 200 80 700 460 240 80

C) will rise to $500.

Refer to the given diagram. At income level F, the volume of saving is

CD

54) 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

32) The reason the long-run aggregate supply curve is vertical is

when both input prices and output prices are flexible, profit levels always adjust to give firms exactly the right profit incentive to produce the full-employment output level.

Domestic Output (GDP = DI) Aggregate Expenditures, Closed Economy Exports Imports Net Exports Aggregate Expenditures, Open Economy $ 200 $ 230 $ 30 $ 20 $ ------ -- $ -------- 250 270 30 20 -------- -------- 300 310 30 20 -------- -------- 350 350 30 20 -------- -------- 400 390 30 20 -------- -------- 450 430 30 20 -------- -------- 500 470 30 20 -------- -------- Complete the accompanying table and answer the question based on the resulting data. All figures are in billions of dollars. For the open economy, the equilibrium GDP and the

D) $400 and 5.

Security Amount (in Billions) Treasury Bills $ 220 Corporate Bonds 140 Treasury Notes 80 Corporate Stock 200 US Savings Bonds 60 Treasury Bonds 100 The public debt for the economy is

D) $460 billion.

) Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. The level of productivity is

D) 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

D) 20 percent.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. A recession is depicted by

D) A and B.

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?

D) Reductions in federal tax rates on personal and corporate income.

) If the marginal propensity to save is 0.2 in an economy, a $20 billion rise in investment spending will increase

D) consumption by $80 billion.

Refer to the diagram. Which of the following would shift the investment-demand curve from ID1 to ID2?

D) higher expected rates of return on investment

17) If an unintended increase in business inventories occurs at some level of GDP, then GDP

D) is too high for equilibrium.

Refer to the diagrams. Suppose that government undertakes fiscal policy designed to increase aggregate demand from AD1 to AD2 and thereby to increase GDP from X to Z. In terms of graph B, which of the following might explain why GDP increases to Y rather than to Z?

D) the crowding-out effect