Macro Final

The GDP gap measures the difference between:

Actual GDP and potential GDP

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.:

Aggregate demand curve would shift to the right

An inflationary expenditure gap is the amount by which:

Aggregate expenditures exceed the full-employment level of GDP

Other things equal, if the U.S. dollar were to depreciate, the:

Aggregate supply curve would shift to the left

What is not seen by economists as an underlying cause of business cycle fluctuations?

All of these are identified as causes of business cycle changes

The multiplier effect means that:

An increase in investment can cause GDP to change by a larger amount

What would not shift the aggregate supply curve?

An increase in the price level

The interest-rate effect suggests that:

An increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending

Assume the current equilibrium level of income is $200 billion as compared to the full-employment income level of $240 billion. If the MPC is .625, what change in aggregate expenditures is needed to achieve full employment?

An increase of $15 billion

Who is least likely to be hurt by unanticipated inflation?

An owner of a small business

Most economists agree that the immediate cause of most business cycle variation is:

An unexpected change in the level of total spending

As disposable income increases, consumption:

And saving both increase

If the economy is in equilibrium at $400 billion of GDP and the full-employment GDP is $500 billion:

GDP will remain at $400 billion unless aggregate expenditures change

A private closed economy includes:

Households and businesses, but not government or international trade

If the equation for the consumption schedule is C = 20 + 0.8Y, where C is consumption and Y is disposable income, then the average propensity to consume is 1 when disposable income is:

$100

If the MPC in an economy is .75, a $1 billion increase in taxes will ultimately reduce consumption by:

$3 billion

C = 20 +.9Y, where C is consumption and Y is disposable income. At an $800 level for disposable income, the level of saving is:

$60

If the marginal propensity to consume in an economy is 0.8, net exports are zero, and government spending is $33 billion at each level of real GDP, the slope of the economy's aggregate expenditures schedule will be:

.8

C = 20 +.9Y, where C is consumption and Y is disposable income. The MPC is:

.90

The multiplier is:

1 / MPS

With an MPS of .4, the MPC will be:

1.0 minus .4

The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about:

1.6 percent

If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is:

22 percent

If the nominal interest rate is 5 percent and the real interest rate is 2 percent, then the inflation premium is:

3 percent

Between 1980 and 2000 the price level approximately doubled. The average annual rate of inflation over this 20-year period was about:

3.5 percent

Assuming the total population is 100 million, the civilian labor force is 50 million, and 47 million workers are employed, the unemployment rate is:

6 percent

Suppose that lenders want to receive a real rate of interest of 5 percent, and that they expect inflation to remain steady at 2 percent in the coming years. Based on this, lenders should charge a nominal interest rate of:

7 percent

What would not shift the aggregate demand curve?

A change in the price level

A large negative GDP gap implies:

A high rate of unemployment

The real-balances effect indicates that:

A higher price level will decrease the real value of many financial assets and therefore reduce spending

Cost-push inflation may be caused by:

A negative supply shock

The immediate-short-run aggregate supply curve represents circumstances where:

Both input and output prices are fixed

Inflation affects:

Both the level and the distribution of income

The industries or sectors of the economy in which business cycle fluctuations tend to affect output most are:

Capital goods and durable consumer goods

If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to:

Consume is three-fifths

If the MPC is .8 and disposable income is $200, then:

Consumption and saving cannot be determined from the information given

Other things equal, appreciation of the dollar:

Decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources

If the consumer price index falls from 120 to 116 in a particular year, the conomy has experienced:

Deflation of 3.33 percent

What is most likely to occur during the expansionary phase of the business cycle?

Demand-pull inflation

As applied to the price level, the "rule of 70" indicates that the number of years required for the price level to double can be found by:

Dividing the annual rate of inflation into "70"

Changes in stock market prices:

Do not greatly impact the macroeconomy and used alone are not reliable predictors of the future health of the economy

In the aggregate expenditures model, it is assumed that investment:

Does not change when real GDP changes

If at some level of GDP the economy is experiencing an unintended decrease in inventories:

Domestic output will increase

The aggregate demand curve is:

Down-sloping because of the interest-rate, real-balances, and foreign purchases effects

If a lump-sum tax of $40 billion is imposed and the MPC is 0.6, the saving schedule will shift:

Downward by $16 billion

If an increase in aggregate expenditures results in no increase in real GDP we can surmise that the:

Economy is already operating at full employment

The economy's long-run AS curve assumes that wages and other resource prices:

Eventually rise and fall to match upward or downward changes in the price level

Other things equal, a decrease in the real interest rate will:

Expand investment and shift the AD curve to the right

The determinants of aggregate demand:

Explain shifts in the aggregate demand curve

Kara voluntarily quit her job as an insurance agent to return to school full-time to earn an MBA degree. With degree in hand she is now searching for a position in management. Kara presently is:

Frictionally unemployed

If MPC = .5, a simultaneous increase in both taxes and government spending of $20 will:

Increase GDP by $20

In an effort to avoid recession, the government implements a tax rebate program, effectively curing taxes for households. We would expect this to:

Increase aggregate demand

If government increases its purchases by $15 billion and the MPC is 2/3, then we would expect the equilibrium GDP to:

Increase by 45 billion

Equal increases in government purchases and taxes will:

Increase the equilibrium GDP and the size of that increase is independent of the size of the MPC

If the MPC is .7 and investment increases by $3 billion, the equilibrium GDP will:

Increases by $10 billion

All else equal, a large decline in the real interest rate will shift the:

Investment schedule upward

The economy's long-run aggregate supply curve:

Is vertical

An interest rate decrease will:

Leave investment demand in place but shift the investment schedule upward

If investment decreases by $20 billion and the economy's MPC is .5, the aggregate demand curve will shift:

Leftward by $40 billion at each price level

The most important determinant of consumption and saving is the:

Level of income

Demand-pull inflation:

Occurs when total spending exceeds the economy's ability to provide output at the existing price level

For every 1 percentage point that the actual unemployment rate exceeds the natural rate, a 2 percentage point negative GDP gap occurs. This is a statement of:

Okun's law

During a period of hyperinflation:

People tend to hold goods rather than money

The appreciate supply curve (short-run) is upsloping because:

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:

Planned investment equals saving

The aggregate expenditures model is built upon which of the following assumptions?

Prices are fixed

What is the primary reason that changes in total spending lead to cyclical changes in output and employment?

Prices are sticky in the short run

A rightward shift in the aggregate supply curve is best explained by an increase in:

Productivity

Productivity measures:

Real output per unit of input

An increase in net exports will shift the AD curve to the:

Right by a multiple of the change in investment

In the United States, business cycles have occurred against a backdrop of a long-run tren of:

Rising real GDP

In 2005, Tatum's nominal income rose by 4.6 percent and the price level rose by 1.6 percent. We can conclude that Tatum's real income:

Rose by 3 percent

The aggregate demand curve:

Shows the amount of real output that will be purchased at each possible price level

The aggregate supply curve:

Shows the various amounts of real output that businesses will produce at each price level

Unemployment involving a mismatch of the skills of unemployed workers and the skills required for available jobs is called:

Structural unemployment

Suppose that nominal wages fall and productivity rises in a particular economy

Supply curve will shift rightward

The natural rate of unemployment is:

That rate of unemployment occurring when the economy is at its potential output

A recessionary expenditure gap is:

The amount by which the full-employment GDP exceeds the level of aggregate expenditures

Assume in a private closed economy that the equilibrium level of income is $380 and the MPS is .25. Now suppose government collects taxes of $50 and spends the entire amount. As a result:

The equilibrium level of income will rise to $430

As it relates to economic growth, the term long-run trend refers to:

The long-term expansion of business activity that occurs over 50 or 100 years

The phase of the business cycle in which real GDP is at a minimum is called:

The trough

Per-unit production cost is:

Total input cost divided by units of output

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:

Unplanned decreases in inventories of $10 billion will occur.

If an unintended increase in business inventories occurs:

We can expect businesses to lower the level of production

Inflation initiated by increases in wages or other resource prices is labeled:

cost-push inflation

The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will:

increase U.S. imports and decrease U.S. exports.

Inflation means that:

prices on average are rising, although some particular prices may be falling

If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, it is most likely that:

the price level is inflexible downward and a recession has occurred