Econ - Chapter 10 - 13
Suppose the government purposely changes the economy's cyclically-adjusted budget from a deficit of 0 percent of real GDP to a deficit of 3 percent of real GDP. The government is engaging in a(n) a) expansionary fiscal policy. b) contractionary fiscal policy. c) neutral fiscal policy. d) low-interest-rate policy.
a) expansionary fiscal policy.
Net exports are a) exports minus imports. b) imports minus exports. c) exports plus imports. d) always some positive amount.
a) exports minus imports.
If households expect the current economic boom will continue far into the future and real interest rates are staying very low, then we can expect a) household consumption to increase, shifting the consumption schedule up and the saving schedule down. b) households to begin to be concerned about excessive spending and start cutting back on nonessential purchases. c) household saving to increase so to be ready for the recession that will eventually occur. d) the "reverse" wealth effect to occur.
a) household consumption to increase, shifting the consumption schedule up and the saving schedule down.
If the multiplier in an economy is 5, a $20 billion increase in net exports will a) increase GDP by $100 billion. b) reduce GDP by $4 billion. c) decrease GDP by $100 billion. d) increase GDP by $20 billion.
a) increase GDP by $100 billion.
a) increase tax rates and/or reduce government spending. b) discourage personal saving by reducing the interest rate on government bonds. c) increase government expenditures. d) encourage private investment by reducing corporate income taxes.
a) increase tax rates and/or reduce government spending.
A decline in the real interest rate will a) increase the amount of investment spending. b) shift the investment schedule downward. c) shift the investment-demand curve to the right. d) shift the investment-demand curve to the left.
a) increase the amount of investment spending.
If the MPC in an economy is 0.80, government could shift the aggregate demand curve leftward by $32 billion by a) increasing taxes by $8 billion. b) increasing taxes by $6.4 billion. c) reducing government expenditures by $32 billion. d) reducing government expenditures by $4 billion.
a) increasing taxes by $8 billion.
An input whose price is often fixed in both the immediate-short-run and short-run is a) labor, due to labor contracts. b) gasoline, due to supply issues. c) both A and B. d) neither A nor B.
a) labor, due to labor contracts.
The amount of real output that could be purchased at current prices if all of our assets were liquidated (turned to cash) and the money used to purchase goods and services is the a) real-balances effect. b) interest-rate effect. c) foreign-purchases effect. d) liquidation effect.
a) real-balances effect.
The cyclically-adjusted budget deficit for the United States a) rose to −7.5 percent of potential GDP in 2009. b) was zero in 2009, but the cyclical deficit created by the recession was −2.0 percent of potential GDP. c) changed to a surplus in 2009. d) rose to −4.0 percent of potential GDP in 2009 but has since decreased.
a) rose to −7.5 percent of potential GDP in 2009.
If the consumption schedule is linear, then the a) saving schedule will also be linear. b) MPS will decline as income rises. c) MPC will decline as income rises. d) APC will be constant at all levels of income.
a) saving schedule will also be linear.
If Trent's MPC is 0.80, this means that he will a) spend eight-tenths of any increase in his disposable income. b) spend eight-tenths of any level of disposable income. c) break even when his disposable income is $8,000. d) save two-tenths of any level of disposable income.
a) spend eight-tenths of any increase in his disposable income.
The crowding-out effect is a) strongest when the economy is at full employment. b) strongest when the economy is in a deep recession. c) weakest when there is demand-pull inflation. d) equally strong, regardless of the state of the macroeconomy.
a) strongest when the economy is at full employment.
If consumers expect their future real income to rise, they will a) tend to spend more of their current incomes now. b) tend to spend less of their current incomes now. c) not change their current spending plans. d) tend to save more money now.
a) tend to spend more of their current incomes now.
If a $25 billion increase in government expenditures increases equilibrium GDP by $100 billion, then a) the MPS is 0.25 for this economy. b) the MPC is 1.0 in this economy. c) none of the above. d) the multiplier is 2.5.
a) the MPS is 0.25 for this economy.
C = 40 + 0.8Y Ig = 40 X = 20 M = 30 (Advanced analysis) The equations give information for a private open economy. The letters Y, C, Ig, X, and M stand for GDP, consumption, gross investment, exports, and imports, respectively. Figures are in billions of dollars. In equilibrium, saving is a) $20. b) $30. c) $40. d) $50.
b) $30.
If the marginal propensity to consume is 0.9, then the marginal propensity to save must be a) 1.0 b) 0.1. c) 1.1. d) 0.9.
b) 0.1.
If the marginal propensity to consume is 0.7, then the marginal propensity to save must be a) 1.3. b) 0.3. c) 0.7. d) 1.0
b) 0.3.
An economy is employing 4 units of capital, 7 units of raw materials, and 10 units of labor to produce its total output of 670 units. Each unit of capital costs $12; each unit of raw materials, $6; and each unit of labor, $3. If the per-unit price of raw materials rises from $6 to $10 and all else remains constant, the per-unit cost of production will rise by about a) 52 percent. b) 10 percent. c) 42 percent. d) 100.1 percent.
b) 10 percent.
The table gives aggregate demand-and-supply schedules for a hypothetical economy. The equilibrium price level will be a) 150. b) 200. c) 250. d) 300.
b) 200.
John Maynard Keynes created the aggregate-expenditures model based primarily on what historical event? a) Bank panic of 1907 b) Great Depression c) spectacular economic growth during World War 2 d) economic expansion of the 1920s
b) Great Depression
An upward shift of the aggregate-expenditures schedule might be caused by a) a decrease in exports, with no change in imports. b) a decrease in imports, with no change in exports. c) an increase in exports, with an equal decrease in investment spending. d) an increase in imports, with no change in exports.
b) a decrease in imports, with no change in exports.
The consumption schedule shows a) a direct relationship between aggregate consumption and accumulated wealth. b) a direct relationship between aggregate consumption and aggregate income. c) an inverse relationship between aggregate consumption and accumulated financial wealth. d) an inverse relationship between aggregate consumption and the price level.
b) a direct relationship between aggregate consumption and aggregate income.
Saving is always equal to a) planned investment less unintended increases in inventories. b) actual investment. c) planned investment. d) unintended changes in inventories.
b) actual investment.
The long-run begins a) before the immediate short-run ends. b) after the short-run ends. c) after the immediate short-run ends. d) before the short-run ends.
b) after the short-run ends.
For a private closed economy, an unintended decline in inventories suggests that a) aggregate expenditures are less than the business sector expected them to be. b) aggregate expenditures exceed production. c) actual investment exceeds saving. d) planned investment is greater than consumption.
b) aggregate expenditures exceed production.
The immediate short-run lasts a) exactly 4 weeks. b) as long as both input prices and output prices stay fixed. c) for one week or less. d) as long as input prices but not output prices stay fixed.
b) as long as both input prices and output prices stay fixed.
The amount by which government expenditures exceed revenues during a particular year is the a) public debt. b) budget deficit. c) full employment. d) GDP gap.
b) budget deficit.
The APC is calculated as a) change in consumption ÷ change in income. b) consumption ÷ income. c) change in income ÷ change in consumption. d) income ÷ consumption.
b) consumption ÷ income.
Contractionary fiscal policy a) will cause Xn to change, but not Ig. b) if successful, will reduce demand-pull inflation. c) if successful, will lift the economy out of a recession. d) will increase the price level and the level of GDP.
b) if successful, will reduce demand-pull inflation.
The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will a) increase the amount of U.S. real output purchased. b) increase U.S. imports and decrease U.S. exports. c) increase both U.S. imports and U.S. exports. d) decrease both U.S. imports and U.S. exports.
b) increase U.S. imports and decrease U.S. exports.
In an effort to avoid a recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to a) affect neither aggregate supply nor aggregate demand. b) increase aggregate demand. c) reduce aggregate demand. d) reduce aggregate supply.
b) increase aggregate demand.
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 a) do nothing since the economy appears to be achieving full-employment real output. b) increase taxes and reduce government spending to shift the aggregate demand curve leftward from AD3 to AD2, assuming downward price flexibility. c) increase taxes on businesses to shift the aggregate supply curve rightward to reduce the price level. d) increase taxes and reduce government spending to shift the aggregate demand curve from AD3 to AD1.
b) increase taxes and reduce government spending to shift the aggregate demand curve leftward from AD3 to AD2, assuming downward price flexibility.
The crowding-out effect of expansionary fiscal policy suggests 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.
b) increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.
Exports have the same effect on the current size of GDP as a) imports. b) investment. c) taxes. d) saving.
b) investment.
Refer to the diagrams. Curve A a) is an investment schedule, and curve B is a consumption of fixed capital schedule. b) is an investment demand curve, and curve B is an investment schedule. c) and curve B are totally unrelated. d) shifts to the left when curve B shifts upward.
b) is an investment demand curve, and curve B is an investment schedule.
A tax reduction of a specific amount will be more expansionary the a) smaller is the economy's MPC. b) larger is the economy's MPC. c) smaller is the economy's multiplier. d) less is the economy's built-in stability.
b) larger is the economy's MPC.
A withdrawal of potential spending from the income-expenditures stream via saving, tax payments, or imports is a(n) a) injection. b) leakage. c) expenditure gap. d) tariff.
b) leakage.
If investment decreases by $21 billion and the economy's MPC is 0.5, the aggregate demand curve will shift a) leftward by $105 billion at each price level. b) leftward by $42 billion at each price level.. c) rightward by 42 billion at each price level.. d) rightward by $21 billion at each price level.
b) leftward by $42 billion at each price level..
An increase in input productivity will a) shift the aggregate supply curve leftward. b) reduce the equilibrium price level, assuming downward flexible prices. c) reduce the equilibrium real output. d) reduce aggregate demand.
b) reduce the equilibrium price level, assuming downward flexible prices.
In contrast to investment, consumption is a) relatively unstable. b) relatively stable. c) measurable. d) unmeasurable.
b) relatively stable.
The federal budget deficit is found by a) subtracting government tax revenues plus government borrowing from government spending in a particular year. b) subtracting government tax revenues from government spending in a particular year. c) cumulating the differences between government spending and tax revenues over all years since the nation's founding. d) subtracting government revenues from the noninvestment-type government spending in a particular year.
b) subtracting government tax revenues from government spending in a particular year.
In a mixed open economy, the equilibrium GDP is determined at that point where a) Sa + M + T = Ig + X + G. b) the 45-degree line and the saving schedule intersect. c) Sa + X + G = Ig + T. d) Sa + Ig + X = G + T.
a) Sa + M + T = Ig + X + G.
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.
a) and saving both increase.
Actual investment equals saving a) at all levels of GDP. b) at all below-equilibrium levels of GDP. c) at all above-equilibrium levels of GDP. d) only at the equilibrium GDP.
a) at all levels of GDP.
As disposable income goes up, the a) average propensity to consume falls. b) average propensity to save falls. c) volume of consumption declines absolutely. d) volume of investment diminishes.
a) average propensity to consume falls.
The immediate-short-run aggregate supply curve represents circumstances where a) both input and output prices are fixed. b) both input and output prices are flexible. c) input prices are fixed, but output prices are flexible. d) input prices are flexible, but output prices are fixed.
a) both input and output prices are fixed.
If the MPC is 0.8 and disposable income is $200, then a) consumption and saving cannot be determined from the information given. b) saving will be $20. c) personal consumption expenditures must be $160. d) saving will be $40.
a) consumption and saving cannot be determined from the information given.
The interest-rate effect suggests that a) a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending. b) an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending. c) an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending. d) an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending.
c) an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.
Which one of the following would increase per-unit production cost and therefore shift the aggregate supply curve to the left? a) a reduction in business taxes b) production bottlenecks occurring when producers near full plant capacity c) an increase in the price of imported resources d) deregulation of industry
c) an increase in the price of imported resources
If government increases the size of its cyclically-adjusted surplus, we can a) assume that government is causing interest rates to rise. b) not determine government's impact on the economy without also knowing the status of the actual budget. c) assume that government is having a contractionary effect on the economy. d) assume that government is having an expansionary effect on the economy.
c) assume that government is having a contractionary effect on the economy.
The amount by which federal tax revenues exceed federal government expenditures during a particular year is the a) Federal Reserve. b) budget deficit. c) budget surplus. d) public debt.
c) budget surplus.
Dissaving occurs when a) income exceeds consumption. b) saving exceeds consumption. c) consumption exceeds income. d) saving exceeds income.
c) consumption exceeds income.
A decline in disposable income a) increases consumption by moving upward along a specific consumption schedule. b) decreases consumption because it shifts the consumption schedule downward. c) decreases consumption by moving downward along a specific consumption schedule. d) increases consumption because it shifts the consumption schedule upward.
c) decreases consumption by moving downward along a specific consumption schedule.
With the expenditures programs and the tax system shown in the diagram, a) the public budget will be expansionary at all GDP levels above K and contractionary at all GDP levels below K. b) the public budget will be a destabilizing force at all levels of GDP. c) deficits will occur at income levels below K, and surpluses above K. d) deficits will occur at income levels below H, and surpluses above H.
c) deficits will occur at income levels below K, and surpluses above K.
The size of the MPC is assumed to be a) less than zero. b) greater than one. c) greater than zero but less than one. d) two or more.
c) greater than zero but less than one.
A private closed economy includes a) households, businesses, and government, but not international trade. b) households, businesses, and international trade, but not government. c) households and businesses, but not government or international trade. d) households only.
c) households and businesses, but not government or international trade.
An effective expansionary fiscal policy will a) reduce a cyclical deficit but necessarily increase the actual deficit. b) reduce the cyclically-adjusted deficit. c) increase the cyclically-adjusted deficit but reduce the actual deficit. d) always result in a balanced actual budget once full employment is achieved.
c) increase the cyclically-adjusted deficit but reduce the actual deficit.
The aggregate supply curve (short-run) is upsloping because a) wages and other resource prices match changes in the price level. b) the price level is flexible upward but inflexible downward. c) per-unit production costs rise as the economy moves toward and beyond its full-employment real output. d) wages and other resource prices are flexible upward but inflexible downward.
c) per-unit production costs rise as the economy moves toward and beyond its full-employment real output.
In a private closed economy, when aggregate expenditures equal GDP, a) consumption equals investment. b) consumption equals aggregate expenditures. c) planned investment equals saving. d) disposable income equals consumption minus saving.
c) planned investment equals saving.
If the real interest rate in the economy is i and the expected rate of return from additional investment is r, then more investment will be forthcoming when a) r falls. b) i is greater than r. c) r is greater than i. d) i rises.
c) r is greater than i.
A lump-sum tax will a) lower aggregate expenditures and GDP by the amount of the tax. b) lower consumption and saving by the amount of the tax. c) reduce disposable income by the amount of the tax. d) reduce imports by the amount of the tax.
c) reduce disposable income by the amount of the tax.
If investment increases by $10 billion and the economy's MPC is 0.8, the aggregate demand curve will shift a) leftward by $40 billion at each price level. b) leftward by $50 billion at each price level. c) rightward by $50 billion at each price level. d) rightward by $10 billion at each price level.
c) rightward by $50 billion at each price level.
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.
c) shift the aggregate supply curve to the right.
Other things equal, a 10 percent decrease in corporate income taxes will a) decrease the market price of real capital goods. b) have no effect on the location of the investment demand curve. c) shift the investment-demand curve to the right. d) shift the investment-demand curve to the left.
c) shift the investment-demand curve to the right.
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 downward-sloping because real purchasing power increases as the price level falls.
c) shows the various amounts of real output that businesses will produce at each price level.
A specific reduction in government spending will dampen demand-pull inflation by a greater amount the a) smaller is the economy's MPC. b) flatter is the economy's aggregate supply curve. c) smaller is the economy's MPS. d) less is the economy's built-in stability.
c) smaller is the economy's MPS.
The public debt is the amount of money that a) state and local governments owe to the federal government. b) Americans owe to foreigners. c) the federal government owes to holders of U.S. securities. d) the federal government owes to taxpayers.
c) the federal government owes to holders of U.S. securities.
In the late 1990s, the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the a) Keynes effect. b) interest-rate effect. c) wealth effect. d) multiplier effect.
c) wealth effect.
The cyclically-adjusted budget tells us a) that in a full-employment economy, the federal budget should be in balance. b) that tax revenues should vary inversely with GDP. c) what the size of the federal budget deficit or surplus would be if the economy was at full employment. d) the actual budget deficit or surplus realized in any given year.
c) what the size of the federal budget deficit or surplus would be if the economy was at full employment.
The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will a) shift the aggregate demand curve leftward. b) shift the aggregate supply curve leftward. c) decrease U.S. exports and increase U.S. imports. d) increase U.S. exports and decrease U.S. imports.
d) increase U.S. exports and decrease U.S. imports.
Other things equal, an increase in an economy's exports will a) lower the marginal propensity to import. b) have no effect on domestic GDP because imports will change by an offsetting amount. c) decrease its domestic aggregate expenditures and therefore decrease its equilibrium GDP. d) increase its domestic aggregate expenditures and therefore increase its equilibrium GDP.
d) increase its domestic aggregate expenditures and therefore increase its equilibrium GDP.
If an unintended increase in business inventories occurs at some level of GDP, then GDP a) entails a rate of aggregate expenditures in excess of the rate of aggregate production. b) may be either above or below the equilibrium output. c) is too low for equilibrium. d) is too high for equilibrium.
d) is too high for equilibrium.
When a household borrows money today, a) it can increase current consumption beyond its disposable income. b) it shifts the current consumption schedule upward. c) decreases household debt (liabilities). d) it can increase current consumption beyond its disposable income and it shifts the current consumption schedule upward.
d) it can increase current consumption beyond its disposable income and it shifts the current consumption schedule upward.
The foreign purchases effect a) shifts the aggregate demand curve rightward. b) shifts the aggregate demand curve leftward. c) shifts the aggregate supply curve rightward. d) moves the economy along a fixed aggregate demand curve.
d) moves the economy along a fixed aggregate demand curve.
Suppose the price level is fixed, the MPC is 0.5, and the GDP gap is a negative $80 billion. To achieve full-employment output (exactly), government should a) increase government expenditures by $80 billion. b) reduce government expenditures by $40 billion. c) reduce taxes by $40 billion. d) reduce taxes by $80 billion.
d) reduce taxes by $80 billion.
When the economy is at full employment, a) one cannot generalize in comparing the actual and the cyclically-adjusted budgets. b) the cyclically-adjusted budget will show a surplus and the actual budget will show a deficit. c) the actual budget will show a surplus and the cyclically-adjusted budget will show a deficit. d) the actual and the cyclically-adjusted budgets will be equal.
d) the actual and the cyclically-adjusted budgets will be equal.
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 aggregate supply curves intersect.
d) the aggregate demand and aggregate supply curves intersect.
The consumption schedule shows a) that the MPC increases in proportion to GDP. b) that households consume more when interest rates are low. c) that consumption depends primarily on the level of business investment. d) the amounts households intend to consume at various possible levels of aggregate income.
d) the amounts households intend to consume at various possible levels of aggregate income.
An aggregate-expenditures schedule is a a) curve or schedule that shows the amounts that firms plan to invest at various possible values of real gross domestic product (real GDP). b) table of numbers showing the total amount spent on final goods and final services at different levels of real gross domestic product (real GDP). c) table of numbers showing the total sales tax revenue generated on purchases of final goods and services. d) none of the above.
b) table of numbers showing the total amount spent on final goods and final services at different levels of real gross domestic product (real GDP).
The investment-demand curve suggests that a) changes in the real interest rate will not affect the amount invested. b) there is an inverse relationship between the real rate of interest and the level of investment spending. c) an increase in business taxes will tend to stimulate investment spending. d) there is a direct relationship between the real rate of interest and the level of investment spending.
b) there is an inverse relationship between the real rate of interest and the level of investment spending.
What was unusual about the policy response to the COVID pandemic lockdowns in 2020? a) there was an extremely long operational lag b) there was zero administrative lag c) the amount of money involved was less than usual d) there was nothing unusual, it was a normal response to an ordinary event
b) there was zero administrative lag
A private closed economy will expand when a) actual GDP is less than potential GDP. b) unplanned decreases in inventories occur. c) aggregate expenditures are less than GDP. d) unplanned increases in inventories occur.
b) unplanned decreases in inventories occur.
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, a) saving is $10 billion. b) unplanned decreases in inventories of $10 billion will occur. c) the MPC is 0.80. d) unplanned increases in inventories of $10 billion will occur.
b) unplanned decreases in inventories of $10 billion will occur.
Refer to the figure. The consumption schedule indicates that a) consumers will maximize their satisfaction where the consumption schedule and 45° line intersect. b) up to a point, consumption exceeds income but then falls below income. c) the MPC falls as income increases. d) households consume as much as they earn.
b) up to a point, consumption exceeds income but then falls below income.
If today, prospective car buyers expect a surge in the supply of cars on the market next week that will cause the price of cars to substantially decline, they will a) wait for the price of cars to go down before buying, shifting aggregate demand to the right. b) wait for the price of cars to go down before buying, shifting aggregate demand to the left. c) go ahead and buy now, shifting aggregate demand to the left. d) go ahead and buy now, which will not affect aggregate demand at all.
b) wait for the price of cars to go down before buying, shifting aggregate demand to the left.
Which of the following statements about the real balances effect is not correct? a) When the price level rises, real balances fall, purchasing power declines, and people demand less output. b) When the price level falls, real balances increase, purchasing power rises, and people demand more output. c) A higher price level means more consumption spending while a lower price level means less consumer spending. d) Real balances (the purchasing power of nominal balances) vary inversely with the price level.
c) A higher price level means more consumption spending while a lower price level means less consumer spending.
The definition of a lump-sum tax is a) A tax that is levied only on imports, a lump-sum tax is never levied on exports. b) A tax that generates revenues all at one time and only once; it does not reoccur. c) A tax that collects a constant amount (the tax revenue of government is the same) at all levels of GDP. d) A tax that varies with GDP; the higher the GDP, the higher the tax.
c) A tax that collects a constant amount (the tax revenue of government is the same) at all levels of GDP.
If the equilibrium level of GDP in a private open economy is $1,400 billion and consumption is $950 billion at that level of GDP, then a) saving must be $450 billion. b) S + C must equal $450 billion. c) Ig + Xn must equal $450 billion. d) net exports must be $450 billion.
c) Ig + Xn must equal $450 billion.
In the diagram, a shift from AS1 to AS2 might be caused by a) stricter government regulations. b) an increase in the prices of imported resources. c) a decrease in the prices of domestic resources. d) an increase in business taxes.
c) a decrease in the prices of domestic resources.
The relationship between consumption and disposable income is such that a) an inverse and stable relationship exists between consumption and income. b) a direct, but very volatile, relationship exists between consumption and income. c) a direct and relatively stable relationship exists between consumption and income. d) the two are usually equal.
c) a direct and relatively stable relationship exists between consumption and income.
he short-run aggregate supply curve has a) a constant slope. b) a negative slope. c) a slope that is not constant. d) the same slope as the long-run aggregate supply curve.
c) a slope that is not constant.
The short-run begins a) before the immediate short-run ends. b) after the long run ends. c) after the immediate short run ends. d) before the long run ends.
c) after the immediate short run ends.
At equilibrium real GDP in a private closed economy, a) the MPC must equal the APC. b) the slope of the aggregate-expenditures schedule equals the MPS. c) aggregate-expenditures and real GDP are equal. d) planned saving and consumption are equal.
c) aggregate-expenditures and real GDP are equal.
The 45-degree line on a graph relating consumption and income shows a) all the points where the MPC is constant. b) all the points at which saving and income are equal. c) all the points at which consumption and income are equal. d) the amounts households will plan to save at each possible level of income.
c) all the points at which consumption and income are equal.
Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward a) an equality of tax receipts and government expenditures. b) an excess of tax receipts over government expenditures. c) an excess of government expenditures over tax receipts. d) a reduction of subsidies and transfer payments and an increase in tax rates.
c) an excess of government expenditures over tax receipts.
An appropriate fiscal policy for a severe recession is a) an increase in payroll taxes. b) a decrease in government spending. c) an increase in government spending. d) an increase in interest rates.
c) an increase in government spending.
Assume the economy's consumption and saving schedules simultaneously shift downward. This must be the result of a) an increase in disposable income. b) an increase in household wealth. c) an increase in personal taxes. d) the expectation of a recession.
c) an increase in personal taxes.
Assume there are no prospective investment projects (I) that will yield an expected rate of return (r) of 25 percent or more, but there are $5 billion of investment opportunities with an expected rate of return between 20 and 25 percent, an additional $5 billion between 15 and 20 percent, and so on. If the real interest rate is 15 percent in this economy, the aggregate amount of investment will be a) $25 billion. b) $20 billion. c) $15 billion. d) $10 billion.
d) $10 billion.
If disposable income increases by $50 billion and there is an MPS of 0.20, the increase in saving will be a) $20 billion. b) $50 billion. c) $100 billion. d) $10 billion.
d) $10 billion.
C = 40 + 0.8Y Ig = 40 X = 20 M = 30 (Advanced analysis) The equations give information for a private open economy. The letters Y, C, Ig, X, and M stand for GDP, consumption, gross investment, exports, and imports, respectively. Figures are in billions of dollars. The equilibrium GDP (=Y) in the economy is a) $200. b) $245. c) $320. d) $350.
d) $350.
Suppose that technological advancements stimulate $20 billion in additional investment spending. If the MPC = 0.6, how much will the change in investment increase aggregate demand? a) $12 billion b) $20 billion c) $33.3 billion d) $50 billion
d) $50 billion
If the marginal propensity to consume is 0.65 then the marginal propensity to save must be a) 1.35. b) 0.65. c) 1. d) 0.35.
d) 0.35.
Refer to the given data. The marginal propensity to consume is a) 0.25. b) 0.75. c) 0.20. d) 0.80.
d) 0.80.
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. If the per-unit price of raw materials rises from $4 to $8 and all else remains constant, the per-unit cost of production will rise by about a) 100 percent. b) 50 percent. c) 40 percent. d) 30 percent.
d) 30 percent.
The reason a major tax change affects both the consumption schedule and saving schedule is a) an increase in taxes reduces both household consumption and household saving. b) any decrease in taxes will be partly consumed and partly saved by households. c) taxes are paid partly at the expense of consumption and partly at the expense of saving. Correct Answer d) All of the answers are correct.
d) All of the answers are correct.
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? a) A congressional proposal to incur a federal surplus to be used for the retirement of public debt. b) Reductions in agricultural subsidies and veterans' benefits. c) Postponement of a highway construction program. d) Reductions in federal tax rates on personal and corporate income.
d) Reductions in federal tax rates on personal and corporate income.
Which of the following represents the most contractionary fiscal policy? a) a $30 billion tax cut b) a $30 billion increase in government spending c) a $30 billion tax increase d) a $30 billion decrease in government spending
d) a $30 billion decrease in government spending
The real-balances effect indicates that a) an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending. b) a lower price level will decrease the real value of many financial assets and therefore reduce spending. c) a higher price level will increase the real value of many financial assets and therefore increase spending. d) a higher price level will decrease the real value of many financial assets and therefore reduce spending.
d) a higher price level will decrease the real value of many financial assets and therefore reduce spending.
An appropriate fiscal policy for severe demand-pull inflation is a) an increase in government spending. b) depreciation of the dollar. c) a reduction in interest rates. d) a tax rate increase.
d) a tax rate increase.
As it relates to the aggregate-expenditures model, a leakage is a) an addition of spending into the income-expenditure stream: any increment to consumption, investment, government purchases, or net exports. b) a withdrawal of spending through taxes, government purchases, and exports. c) when someone other than the intended recipient intercepts and cashes a government stimulus check. d) a withdrawal of potential spending from the income-expenditures stream via saving, tax payments, or imports.
d) a withdrawal of potential spending from the income-expenditures stream via saving, tax payments, or imports.
Higher interest rates may cause a) consumers to decide not to purchase a new house or new automobile. b) businesses to postpone a potential purchase of capital. c) an increase in the amount of investment spending. d) both A and B.
d) both A and B.
In a private closed economy, when aggregate expenditures exceed GDP, a) GDP will decline. b) business inventories will rise. c) saving will decline. d) business inventories will fall.
d) business inventories will fall.
The U.S. public debt a) refers to the debts of all units of government—federal, state, and local. b) consists of the total debt of U.S. households, businesses, and government. c) refers to the collective amount that U.S. citizens and businesses owe to foreigners. d) consists of the historical accumulation of all past federal deficits and surpluses.
d) consists of the historical accumulation of all past federal deficits and surpluses.
If the full-employment GDP for the economy is at L, then we can say with certainty that the a) actual budget will have a deficit. b) cyclically-adjusted budget will have a deficit. c) actual budget will have a surplus. d) cyclically-adjusted budget will have a surplus.
d) cyclically-adjusted budget will have a surplus.
If the United States wants to increase its net exports, it might take steps to a) increase its GDP. b) reduce existing tariffs and import quotas. c) appreciate the dollar compared to foreign currencies. d) depreciate the dollar compared to foreign currencies.
d) depreciate the dollar compared to foreign currencies.
If at some level of GDP the economy is experiencing an unintended decrease in inventories, a) the aggregate level of saving will decline. b) the price level will fall. c) the business sector will lay off workers. d) domestic output will increase.
d) domestic output will increase.
If Congress adjusted the U.S. tax system so that taxes were more progressive, the a) economy would become more inflation prone. b) economy would become less stable. c) stability of the economy would be unaffected. d) economy would become more stable.
d) economy would become more stable.
If the multiplier in an economy is 5, a $10 billion increase in net exports will a) reduce GDP by $2 billion. b) decrease GDP by $50 billion. c) increase GDP by $10 billion. d) increase GDP by $50 billion.
d) increase GDP by $50 billion.
Built-in stability means that a) an annually balanced budget will offset the procyclical tendencies created by state and local finance and thereby stabilize the economy. b) 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. c) Congress will automatically change the tax structure and expenditure programs to correct upswings and downswings in business activity. d) government expenditures and tax receipts automatically balance over the business cycle, though they may be out of balance in any single year.
b) 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.
