macro exam #3

when changes in taxes and government purchases occur in the economy without explicit action by Congress, such changes are referred to as

automatic stabilizers

C+I+G+NX equals

consumption

an increase in personal income tax rates would tend to reduce

consumption

the largest component of aggregate expenditure

consumption

when the consumption schedule is plotted on a graph

consumption is on the vertical axis and disposable income is on the horizontal axis

the four components of of aggregate expenditure are

consumption, government spending, investment, and net exports

If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n):

contractionary fiscal policy

fiscal policy is usually initiated on the advice of the presidents

council of economic advisers (CEA)

the process by which an increase in government borrowing results in less borrowing by businesses and consumers for private investment is called

crowding out

when the federal government cuts taxes and increases purchases to stimulate the economy during a period of recession such actions are designed to be

expansionary

If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n):

expansionary fiscal policy

refer to the graph above. if aggregate supply shifts from AS1 to AS2, then the price level will

increase and real domestic output will decrease

if the price level decreases from 200 to 100, the real output demanded will

increase by $200 billion

what would most likely increase aggregate supply

increase in productivity

as disposable income increases, consumption

increases

the labels for the axes of an aggregate supply curve should be

real domestic output for the horizontal axis and price level for the vertical axis

the amount by which an aggregate expenditures schedule must shift upward to achieve the full employment real Gdp is an

recessionary expenditures gap

the time that elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is

recognition lag

the MPC can be defined as the

the change in consumption divided by the change in income

the multiplier can be calculated by dividing

the change in real GDP by the initial change in spending

in the aggregate demand-aggregate supply model, the economy's price level is assumed to be

variable, unlike in the aggregate expenditures model

the long run aggregate supply curve is

vertical

the relationship between the MPS and the MPC is such that

1-MPC=MPS

refer to the graph above in the diagram, the economy's short run AS curve is line ___ and its long run AS curve is line____

2;1

the aggregate demand curve shows the

Inverse relationship between the price level and the quantity of real GDP purchased

refer to the graph above if AD1 shifts to AD2, then the equilibrium output increases to

Q1 to Q2 while the price level rises from P1 to P2

fiscal policy is enacted through changes in

Taxation and government purchases

the foreign purchases, interest rate, and real balances effects explains why the

aggregate demand curve is downward sloping

the intent of contractionary fiscal policy is to

decrease aggregate demand

as disposable income decreases, consumption

decreases

when the federal government changes purchases and/or taxes to stimulate the economy or rein inflation, such policy is

discretionary fiscal policy

the consumption function is the relationship between consumption and

disposable income

the slope of the consumption function

equals the MPC.

the level of output (real gdp) that equals aggregate expenditure is called the ___ level of of real gdp

equilibrium

John Maynard Keynes developed the aggregate expenditures model in order to understand the

great depression

refer to the graph above a shift from AD2 shifts from AD1 would be consistent with what economic event in US history?

great recession of 2007-2009

in an inflationary expenditure gap, the equilibrium level of real Gdp is

greater than full-employment gdp

automatic stabilizers smooth fluctuations in the economy because they produce changes in the governments budget that

help offset changes in GDP

when crowding out occurs, interest rates typically

increase

an increase in expected future income will

increase aggregate demand

an increase in productivity will

increase aggregate supply

in the aggregate expenditure model, which of the following variables is assumed to be independent of real Gdp

investment

a decrease in expected returns on investment will most likely shift the AD curve to the

left because Ig will decrease

the lag between the time that the need for fiscal action is recognized and the time action is actually referred to as the

legislative lag

in a recessionary expenditure gap, the equilibrium level of real gdp

less than full-employment gdp

refer to the graph above the economy is at point C and the price level increases by 100, then the real balances, interest rate foreign purchases effect will

move the economy to point A

one of the potential downsides of expansionary fiscal policy is that it often increases

national debt

refer to the graph above the short-run equilibrium for this economy is at

point g

which of the following would not shift the aggregate demand curve

productivity rate

One timing problem with fiscal policy to counter a recession is a "recognition lag" that occurs between the:

start of the recession and the time it takes to recognize that the recession has started

a decrease in labor costs will cause aggregate ___

supply to increase

if at a particular price level, real output from producers is greater than real output desired by purchasers, then there will be a general

surplus and the price level will fall

refer to the graph above. Which of the following factors does not explain a movement along the AD curve

the expenditure multiplier effect

which of the following is graphed as a horizontal line across levels of real Gdp in the aggregate expenditures model

the investment schedule

An investment demand curve shows the varying amounts of investment that would be undertaken at various levels of

the real interest rate

Using fiscal policy to stabilize the economy is difficult because:

there are time lags in fiscal policy

One timing problem with fiscal policy to counter a recession is a "implementation lag" that occurs between the:

time fiscal action is taken and the time that the action has its effect on the economy

one timing problem in using fiscal policy to counter a recession is the "legislative lag" that occurs between the

time the need for the fiscal action is recognized and the time that the action is taken