Macro Exam II
If you were told the MPC was = 0.75 and the government engaged in a tax decrease of $400B, then the initial change in GDP would be:
-.75/1-.75 (400B) -.75/.25 (400B) = $1200B
If the MCP = 0.8, then the spending multiplier must be:
1/1-.8 1/.2 = 5
We can estimate hat if a country grows at 7 percent per year, it will double its real GDP per capita in:
10 years
If the MPC=0.75 and a household obtains $25,000 more dollars than how much would the household spend of the additional $25,000?
25,000 (.75) = $18,750
Planned investment is the:
Amount that the firm decides to allocate to new capital resources and inventory
Which of the following would likely aggregate demand to shift to the right?
Consumer confidence regarding future income increases, a tax credit for small businesses is issued, the government builds new highways (ALL OF THESE ARE LIKELY TO CAUSE AD TO SHIFT TO THE RIGHT)
Which of the following is a component of aggregate demand
Consumption, investment, net exports (ALL OF THESE ARE COMPONENTS OF AD)
2. When we compare PAE and actual output (y), and PAE is less than Y we expect:
Eventually production will decrease
Net exports are defined to be:
Exports-Imports
Fiscal policy is:
Government decisions about the level of taxation and public spending
When the economy is in an economic boom, discretionary fiscal policy would call for ___________ and the automatic stabilizers would __________
Increase tax rates, increase tax revenues
Which three macroeconomic variables together best describe health of the economy
Output, prices, employment
The total amount of money that a government owes at a point in time is called:
Public debt
Which of the following is not a primary determinant of consumption spending?
Rate of return on capital
Which of the following could be a direct cause of investment spending decreasing?
Real interest rates increasing
If the government were to increase income taxes, we would predict:
a shift in aggregate demand to the left
When the economy is operating at a point where aggregate demand equals long-run aggregate supply, it must be true that:
aggregate demand also equals short-run aggregate supply, the economy is in long-run equilibrium, prices and expected prices are the same (ALL OF THESE ARE TRUE)
If the government were to increase its spending, it would expect:
aggregate demand to shift to the right
Natural Resources:
are production inputs that come from the earth
Taxes and government spending that effect the fiscal policy without specific action from policy makers are called:
automatic stabilizers
The growth rate of real GDP per capita is best captured by subtracting the percentage changes in:
both prices and population from the nominal GDP growth rate
The four components of aggregate expenditure are:
consumption, investment, government purchases, and net exports
Higher interest rates motivate:
firms to invest less into new factories and working capital
During a recession, government deficits can grow because:
government spending often increases as part of an expansionary fiscal policy, income tax revenues tend to decrease because people are earning less, sales tax revenues tend to decrease because people are spending less (ALL OF THESE ARE TRUE)
1. When we compare PAE and actual output (y), and PAE is less than Y we expect:
inventories to increases
The long-run aggregate supply curve represents the level of output possible if the economy:
is operating at full capacity
Productivity is generally measured as:
output per worker
The equilibrium between aggregate supply and aggregate demand represents the:
overall state of national economy, total of all goods and services in the major sectors of the economy, general price level of the economy with respect to goods and services households purchase (ALL OF THESE ARE TRUE)
When we say investment in macro economics we are talking about:
physical capital
Which of the following is not an example of a transfer payment?
sales tax
Human Capital is:
skills, experiences, and natural talent that determines the productivity of the workers
The wealth effect explains the:
the negative relationship between consumer spending and overall price
Physical Capital is:
the stock of equipment and structures that allow for the production of goods and services
If U.S. prices increase relative to the rest of the world, we would expect imports:
to increase and exports to fall
Because the prices of final goods and services tend to increase more quickly than the prices of inputs, the short run aggregate supply curve is:
upward sloping
Using public policy to promote health can contribute to growth because:
workers who are in good health will be more productive and less likely to miss work days