macro econ exam 2

The slope of the saving schedule is:

1 minus the marginal propensity to consume

The 45-degree line in the Keynesian model represents:

AE=Y

describe the role of automatic stabilizers in the economy:

automatic stabilizers have a similar impact as discretionary fiscal policy but occur automatically, without action by the government. automatic stabilizers increase aggregate demand during recessions & reduce aggregate demand during expansions.

anada is using all its resources to their fullest extent, it can produce either 10 million iPads or 5 million HDTVs. If Mexico is using all its resources to their fullest extent, it can produce either 6 million iPads or 6 million HDTVs. Thus:

canada has a comparative advantage in producing iPads.

The total accumulation of past deficits less surpluses is called the:

public debt

The _____ is the sum of past _____.

public debt; budget deficits

One of the main purposes of a tariff is to:

raise the price of an import above the world price

The _____ lag is the time it takes for policymakers to confirm that the economy is trending in or out of a recession.

recognition

The effects of a tariff are:

reduced quantity supplied overall; increased quantity supplied by domestic producers, and a higher price

Which of the following is an example of contractionary fiscal policy?

reducing military spending

the public choice perspective on deficit spending suggests that deficit spending

shifts the costs of programs away from current taxpayers onto future generations

Firms decide how much to invest by comparing the rate of return on their projects with:

the interest rate

When nations specialize according to their comparative advantage:

total production & consumption in the world increase

If $1,000 of additional spending occurs and the marginal propensity to consume is 0.8, the total effect on the economy is an increase of _____ in income or output.

$5,000

Suppose full employment real GDP is $13 trillion, current real GDP is $13.2 trillion, and the marginal propensity to consume is 0.5. The inflationary gap is:

0.1 trillion

If the marginal propensity to consume is 0.85, the value of the spending multiplier will be:

6.67

If the marginal propensity to consume is 0.9 and income increases from $10,000 to $11,000, by how much does consumption increase?

900

Which of the following illustrates the paradox of thrift?

Consumer uncertainty causes people to save more; consumption falls; equilibrium income and production falls; savings decreases because income is lower.

The effects of a quota are similar to that of a tariff in that consumers pay _____ prices and imports _____ as a result of the quota.

HIGHER; FALL

Which of the following policies do supply-side economists believe is the best for increasing the standard of living?

INCREASING investment in capital that boosts worker productivity

If aggregate expenditures equals $7,600 and aggregate income equals $8,000, businesses will produce:

LESS, lowering both employment and income.

_____ government spending, _____ transfer payments, and _____ taxes are all examples of contractionary fiscal policy.

Reducing; reducing; raising

If the economic arguments against tariffs and quotas are that they are very costly for the macroeconomy, why are they imposed?

THE COSTs to individual consumers are small, whereas individual producers gain much from such trade barriers

Externally held debt is debt held by foreign entities and individuals. (T/F)

TRUE

________ is the change in consumption associated with a change in income.

The marginal propensity to consume. MPS

A(n) _____ on imports is a fixed amount per unit of the product assessed by a government at its border.

UNIT TAX

After the acceptance of Keynesian analysis, the government:

actions toward macroeconomic policy grew significantly

The solution to simultaneous deflation and unemployment is to shift the:

aggregate demand curve to the right

this approach was considered conventional wisdom until the advent of the Great Depression. If insisted upon, this approach would only worsen the economy during a recession

annually balanced budget

According to the crowding-out effect, if the government sells bonds to finance spending, _____ can eventually fall.

consumption & investment

Computer game cartridges produced in EconomyLand sell for $50 each. The same cartridges made in MarketLand have a price of $100. If free trade were allowed, we would expect the prices in both countries to:

converge to somewhere between $50 & $100

policymakers should reduce spending and increase taxes when the economy is growing in order to prevent "OVERHEATING"

cyclically balanced budget

If the multiplier is 2 and investment spending falls by $5 billion, then equilibrium income:

decreases by $10 billion

According to public choice economists, the federal government has expanded because:

deficit spending has REDUCED the perceived cost of current government operations.

The advantage of automatic stabilizers over discretionary fiscal policy is that automatic stabilizers:

do NOT require overt action by policymakers

If the domestic price of a good is below the prices in other countries and free trade is opened up, then in terms of pricing:

domestic consumers lose & domestic producers gain

Suppose policymakers wish to use fiscal policy to fight inflation. Which statement, then, is MOST accurate?

essentially, the way to lower the inflation rate is to DECREASE aggregate demand, causing a rise in unemployment

policymakers should focus on keeping unemployment low & providing people with the public goods and services they want. this approach IGNORES THE IMPACT OF THE BUDGET ON THE BUSINESS CYCLE

functional finance

Suppose a tariff is imposed on avocados. This has the effect of _____ the domestic price of avocados, as well as having the effect of _____ the imported price of avocados.

increasing; inceasing

Alexander Hamilton argued in the late 1700's for strong controls on imports to protect American industries from competition from more established English industries. This is an example of the _____ argument for trade restriction.

infant industry

an expansionary fiscal policy can result in:

inflation and higher GDP

Which of these is a limitation of the infant industry argument?

it is difficult to remove the protection after an industry has matured

The focus of supply-side fiscal policies is on:

long-run economic growth

Textile workers in the United States would offer which argument to restrain international trade in textiles?

low foreign wages

A country has an absolute advantage in the production of a good if it can:

produce MORE of a good than another country

Fiscal policy that focuses on shifting the long-run aggregate supply curve to the right is:

supply side fiscal policy

Which of these is a policy designed to ease the impact of expanded trade and globalization?

the TRADE ADJUSTMENT ASSISTANCE PROGRAM

If the United States can produce more of both bread and milk than Germany can, then:

the US can still benefit from trade with Germany because of comparative advantage

If a government always balances its budget:

the effect of an increase in government spending on aggregate expenditures is weakened.