Macro Exam 2

The tax multiplier is 5 and, as a result of a change in taxes, equilibrium real GDP changes by $200 billion. What was the initial change in taxes? $50 billion $40 billion $20 billion $200 billion

$40 billion

If an increase of $10 billion of government spending results in an increase in equilibrium real GDP of $40 billion, the multiplier equals: $10 billion × $40 billion = $400 billion. $40 billion - $10 billion = $30 billion. $40 billion ÷ $10 billion = 4. $10 billion ÷ $40 billion = 0.25

$40 billion ÷ $10 billion = 4.

In a small nation to the South, labor productivity last year was $25 per hour and total labor hours were 300 hours. Hence, real GDP was: $12. $27,500. $7,500. $900,000.

$7,500

formula to find gdp growth rate

(current year - previous year) / previous year x 100

If real GDP was $16 billion last year and $18 billion this year, what is the growth rate? -11.1 percent $2 billion -12.5 percent 12. 5 percent

12.5 percent

If real GDP is $6,460 billion, the population is 184.6 million people, and total labor hours are 170 billion, labor productivity is $2.86 an hour. 920 hours. $2.63 an hour. $38.00 an hour.

38 an hour

In an economy with no income taxes or imports, the marginal propensity to consume is 0.80. The expenditure multiplier is: 0.20. 0.80. 1.25. 5.00.

5.00

Suppose the economy was initially at potential GDP. Then the world economy expands so that foreign incomes rise. Which of the following is true? -Aggregate demand within the U.S. increases and in the long-run, money wage rate will fall. -Aggregate demand within the U.S. increases and in the long-run, money wage rates will rise. -Aggregate demand within the U.S. decreases and in the long-run, money wage rates will fall. -Aggregate demand within the U.S. decreases and in the long-run, money wage rates will rise.

Aggregate demand within the U.S. increases and in the long-run, money wage rates will rise.

Which of the following is true? -Aggregate supply is another name for potential GDP. -Potential GDP increases as the price level increases. -At full employment, aggregate supply is equal to potential GDP. -Potential GDP decreases as the price level increases.

At full employment, aggregate supply is equal to potential GDP.

New growth theory asserts that i. human capital grows because of choices. ii. discoveries result from choices. iii. competition brings profits. Both i and iii. Both i and ii. ii only. iii only.

Both I and ii

Which of the following scenarios will result in an increase in both equilibrium real GDP and the equilibrium aggregate price level? -A strong dollar reduces U.S. exports. -The latest round of WTO talks significantly increases trade barriers which reduces imports. -Interest rates increase a full percentage point. -The government decides to cut back on unemployment benefits doled out to the jobless.

The latest round of WTO talks significantly increases trade barriers which reduces imports.

The potential GDP line shows the level of real GDP: -equal to potential GDP. -produced when the labor market is in equilibrium. -when there is full employment. -all of the above answers are correct.

all answers are correct

Which of the following policies would you recommend if an economy has an inflationary gap? -An increase in the income tax rate. -An increase in government spending on highway projects. -A decrease in the interest rate. -An increase in the money supply.

an increase in the income tax rate

Moving along the aggregate demand curve, a decrease in the quantity of real GDP demanded is a result of: -an increase in the price level. -a decrease in the price level. -an increase in income. -a decrease in income.

an increase in the price level.

In an expansion, federal tax receipts increase proportionally more than real GDP without the need for any government policy. This increase is an example of: -automatic fiscal policy. -the effect of deficit spending. -automatic monetary policy. -discretionary fiscal policy.

automatic fiscal policy

In the labor market, the income tax creates a tax wedge which raises the ________ wage rate, reduces the ________ wage rate, and ________ employment. before-tax; after-tax; does not affect before-tax; after-tax; increases after-tax; before-tax; does not affect. before-tax; after-tax; decreases

before-tax; after-tax; decreases

A change in the full-employment quantity of labor shifts: -the aggregate supply curve but not the potential GDP line. -potential GDP line but not the aggregate supply curve. -both the aggregate supply curve and the potential GDP line -neither the aggregate supply curve nor the potential GDP line

both the aggregate supply curve and the potential GDP line

Which growth theory predicts that even when technology advances, real GDP per person always returns to a subsistence level of income? Classical growth theory Keynesian growth theory Monetary theory New growth theory

classical growth theory

Which of the following policies encourages economic growth? -High tariffs and strict import quotas on foreign-made products. -Increased taxes on income and business profits. -Limiting the years people spend in education so that they can start productive work. -Creation of tax free savings accounts.

creation of tax free savings accounts

In 2001, U.S. real GDP decreased by 3 percent and the population grew by 1 percent. Thus, real GDP per person: increased 2 percent. increased 4 percent. decreased 3 percent. decreased 4 percent.

decreased 4 percent

In Brazil last year, the growth rate of real GDP was 3.5 percent and the population grew from 1,000 million people to 1,100 million. Real GDP per person: increased by 13.5 percent. decreased by 6.5 percent. increased by 6.5 percent. decreased by 13.5 percent

decreased by 6.5 percent

If capital per hour of labor decreases, real GDP per hour of labor: decreases because the level of technology decreases. increases because the level of technology increases. increases for a given level of technology. decreases for a given level of technology.

decreases for a given level of technology

The government collects tax revenues of $100 million and has $105 million in outlays. The budget balance is a: surplus of $5 million. deficit of $5 million. surplus of $105 million. deficit of $105 million.

deficit of $5 million

Once supply side effects are taken into account, tax cuts for labor income can change: i. the supply of labor. ii. potential GDP. iii. the growth rate of potential GDP. i only i and ii iii only ii only

i and ii

Automatic stabilizers decrease the impact of a recession on the level of economic activity because they: -reduce the interest rate and so allow firms to increase their level of investment. -increase taxes so the budget is always balanced. -raise the exchange rate so U.S. exports become more attractive to foreigners. -imply that disposable income does not change by as much as real GDP.

imply that disposable income does not change by as much as real GDP.

A rise in the expected future inflation rate: -increases aggregate demand. -increases the aggregate quantity demanded. -decreases the aggregate quantity demanded. -decreases aggregate demand.

increases aggregate demand.

The supply-side effects show that a tax cut on labor income ________ the supply of labor and ________ employment: increases; increases increases; does not change increases; decreases decreases; increases

increases;increases

The government could increase aggregate demand by $1 trillion by: increasing its purchases by exactly $1 trillion increasing its purchases by more than $1 trillion increasing its purchases by less than $1 trillion increasing its taxes by less than $1 trillion

increasing its purchases by less than $1 trillion

A recessionary gap means that short-run macroeconomic equilibrium GDP: -is less than full-employment GDP. -equals full-employment GDP. -is more than full-employment GDP. -may be less than, more than, or the same as full-employment GDP depending on the level of potential GDP.

is less than full-employment GDP.

If the stock of physical capital (that is machinery, equipment, etc.) and human capital remain the same and the population increases, then -labor productivity will increase. -labor productivity will decrease. -the standard of living will increase. -the new labor will be more productive

labor productivity will decrease

Classical growth theory predicts that increases in real GDP per person will -not last because higher income leads to a population explosion. -last because higher growth leads to new technology. -last only if the government directs firms to make more investments in capital and new technology. -last because people make choices in the pursuit of higher profits.

not last because higher income leads to a population explosion.

One reason that the aggregate demand curve has a negative slope is because: -firms supply more when prices rise. -people buy more foreign goods when the domestic price level rises. -the amount of money in the economy increases when the price level rises. -firms supply less when prices rise.

people buy more foreign goods when the domestic price level rises.

If the economy is in the expansion phase of a business cycle and investment increases, when the multiplier effect kicks in, the expansion: -picks up speed. -slows down. -peaks. -is not effected.

picks up speed

Which of the following events will result in an increase in equilibrium -real GDP but a decrease in the equilibrium price level? -Investors expect a higher rate of return. -Prices of crude oil decrease. -Population growth becomes negative.

prices of crude oil decrease

Population growth directly brings growth in ____ because aggregate hours increase labor productivity average hours per worker capital per hour of work real GDP

real GDP

The productivity curve is a relationship between ________ and ________ real GDP; hours of labor real GDP; capital real GDP per hour of labor; capital real GDP per hour of labor; capital per hour of labor

real GDP per hour of labor; capital per hour of labor

labor productivity formula

real GDP/labor hours

Needs-tested spending is defined as: -spending by Congress on its own perks of office. -taxes paid by those qualified by their income. -spending on programs for people qualified to receive benefits. -spending by the President on the White House.

spending on programs for people qualified to receive benefits.

A change in money wages shifts -the aggregate supply curve but not the potential GDP line. -the potential GDP line but not the aggregate supply curve. -both the aggregate supply curve and the potential GDP line -neither the aggregate supply curve nor the potential GDP line

the aggregate supply curve but not the potential GDP line.

The national debt can only be reduced if: -the federal budget is in deficit. -the federal budget is in surplus. -there are no tax multiplier effects. -the economy has an inflationary gap.

the federal budget is in surplus

Although ________ initially proposes and ultimately approves the budget, the discussion and amendment process rests with ________ -Congress; the President -the Senate; the President -Congress; the Federal Reserve -the President; Congress

the president, congress

If workers are successful in obtaining 6 weeks of paid vacation where 2 weeks used to be the norm, then most likely: -aggregate demand will increase. -aggregate supply will increase. -real GDP will increase. -the price level will increase.

the price level will increase

Moving along a aggregate supply curve, as the price level falls: -the money wage rate decreases. -the money wage rate increases. -the real wage rate decreases. -the real wage rate increases

the real wage rate increases