macro unit 3

6. Whichofthefollowingisafiscalpolicythat would increase aggregate demand in the Keyne- sian model? (A) A decrease in personal income taxes (B) A decrease in government spending (C) An increase in corporate income taxes (D) A purchase of government bonds by the Federal Reserve (E) A sale of government bonds by the Federal Reserve

a

Anincreaseinpersonalincometaxeswillmost likely result in which of the following changes in real GDP and the price level in the short- run? 168 Advanced Placement Economics Macroeconomics: Student Activities © National Council on Economic Education, New York, N.Y. (A) (B) (C) (D) (E) Real GDP Decrease Decrease Increase Increase Increase Price Level Decrease Increase No change Increase No change

a

IfMariaEscalera'sdisposableincomeincreases from $600 to $650 and her level of personal- consumption expenditures increase from $480 to $520, you may conclude that her marginal propensity to (A) consume is 0.8. (B) consume is 0.4. (C) consume is 0.25. (D) save is 0.8. (E) save is 0.25.

a

2. Achangeinwhichofthefollowingwillcause the aggregate demand curve to shift? (A)Energyprices (B) Productivity rates (C) Consumer wealth (D) Prices of inputs (E) Prices of consumer goods

c

Adecreaseinlump-sumpersonalincometaxes will most likely result in an increase in real GDP because which of the following occurs? I. Government spending decreases to main- tain a balanced budget. II. Consumption spending increases because disposable personal income increases. III. Investment spending decreases because disposable personal income increases. (A) I only (B) II only (C) III only (D) I and III only (E) I, II and III

b

In which of the following ways will increases in short-run aggregate supply change the price level and unemployment? Price Level (A) Increase (B) Decrease (C) Decrease (D) Decrease (E) No change Unemployment No change Decrease Increase No change Increase

b

IntheKeynesianaggregate-expendituremodel, the simple spending multiplier can be calculat- ed by dividing (A) the initial change in spending by the change in real gross domestic product (GDP). (B) the change in real gross domestic product by the initial change in spending. (C) one by one minus the marginal propensity to save. (D) one by one plus the marginal propensity to consume. (E) the propensity to save by the propensity to consume.

b

Thebalanced-budgetmultiplierindicatesthat (A) equal increases in government spending and taxation will make a recession worse. (B) equal increases in government spending and taxation will increase total spending. (C) government deficits might have a contrac- tionary impact on the economy. (D) supply will necessarily create its own demand. (E) the level of gross domestic product is never less than the level of disposable income.

b

3. Theshort-runaggregatesupplycurvewillshift to the right when (A) energy prices increase. (B) government regulation increases. (C) prices of inputs decrease. (D) investment spending decreases. (E) productivity rates decrease.

c

4. Arightwardshiftintheaggregatedemandcurve with a horizontal aggregate supply curve will causeemploymentandthepriceleveltochange in which of the following ways? Advanced Placement Economics Macroeconomics: Student Activities © National Council on Economic Education, New York, N.Y. 163 Employment (A) Increase (B) Increase (C) Increase (D) Decrease (E) No change Price Level Increase Decrease No change No change No change

c

Inthegraph,iffull-employmentGDPis$800 billion, the minimum increase in autonomous expenditures that would be required to move total income to full employment income is (A) $200 billion. (B) $100 billion. (C) $50 billion. (D) $25 billion. (E) zero because total income is already at full employment.

c

Inthegraph,thevaluesoftheMPC,MPSand simple-expenditure multiplier are MPC MPS Multiplier (A) 0.5 0.5 2.0 (B) 0.6 0.4 2.5 (C) 0.75 0.25 4.0 (D) 0.8 0.2 5.0 (E) 0.9 0.1 10.0

c

Theinvestmentdemandcurvewillshifttothe right as the result of (A) excess productive capacity. (B) an increase in corporate business taxes. (C) businesses becoming more optimistic with respect to future business conditions. (D) recessions in foreign nations that trade with the United States, causing a lower demand for U.S. products. (E) a decrease in the real interest rate.

c

5. Anincreaseinthecapitalstockwillcausethe (A) aggregate demand curve to shift leftward. (B) production possibilities curve to shift in. (C) Phillips curve to shift out. (D) long-run aggregate supply curve to shift rightward.

d

Astheaveragepriceleveldecreases,thepur- chasing power of people's cash balances increases. This results in an increase in spend- ing. This effect is called (A) the Laffer effect. (B) the Keynesian effect. (C) the money illusion effect. (D) the real-balance effect. (E) the neutrality of money

d

Automatic stabilizers in the economy include which of the following? I. A progressive personal income tax II. Unemployment compensation III. Congressional action that increases tax rates (A) I only (B) II only (C) III only (D) I and II only (E) I and III only

d

If the marginal propensity to consume is two- thirds, then an increase in personal income taxes of $100 will most likely result in (A) a decrease in consumption of $100. (B) a decrease in autonomous investment of $100. (C) a decrease in consumption of $67 and an increase in savings of $33. (D) a decrease in consumption of $67 and a decrease in savings of $33. (E) an increase in government spending of more than $100.

d

If the primary goal is to reduce inflation, which of the following fiscal policy actions would be appropriate during a period of a rap- idly increasing consumer price index? I. Reduce government expenditures for defense and space research. II. Increase transfer payments to those most severely affected by the rising price index. III. Increase personal income tax rates. (A) I only (B) II only (C) III only (D) I and III only (E) II and III only

d

In the Keynesian aggregate-expenditure model, if the MPC is 0.75 and gross investment increases by $6 billion, equilibrium GDP will increase by (A) $6 billion. (B) $8 billion. (C) $12 billion. (D) $24 billion. (E) $42 billion.

d

Which of the following will cause the consumption schedule to shift upward? (A) An increase in the amount of consumer indebtedness (B) A reduction in the wealth or assets held by consumers (C) An expectation of future declines in the consumer price index (D) An expectation of future shortages of essential consumer goods (E) A growing belief that personal income will decline in the future

d

if there is a decrease in the short-run aggregate supply curve and no changes in monetary and fiscal policies are implemented, the economy over time will (A) remain at the new price and output level. (B) continue to have rising prices and decreas- ing real GDP. (C) experience increasing nominal wages. (D) return to the original output and price level. (E) experience a leftward shift in the aggregate demand curve.

d

1. Whichofthefollowingbestdescribesaggregate supply? (A) The amount buyers plan to spend on output (B) A schedule showing the relationship between inputs and outputs (C) A schedule showing the trade-off between inflation and unemployment (D) A schedule indicating the level of real out- put that will be purchased at each possible price level (E) A schedule indicating the level of real out- put that will be produced at each possible price level

e

Arapidincreaseinsuccessfulresearchanddevel- 29. opment projects for the nation will most likely result in which of the following changes in the short-run and the long-run aggregate supply curves and the production possibilities curve? Short-Run Aggregate Supply Curve (A) Decrease (B) Decrease (C) Increase (D) Increase (E) Increase Long-Run Aggregate Supply Curve No change Decrease No change Increase Increase Production Possibilities Curve No change Shift inward Shift inward No change Shift outward

e

Oneofthereasonstheaggregatedemand curve is downward sloping is that as the value of cash balances decreases, aggregate spending decreases. This is called (A) a positive externality. (B) a negative spillover. (C) the Pareto effect. (D) the substitution effect. (E) the real-balance effect.

e

Which of the following are true statements about total income? I. II. III. (A) (B) (C) (D) (E) Equilibrium total income is $800 billion. Planned investment is $50 billion. Equilibrium aggregate expenditure is $600 billion. I only II only III only I and III only II and III only

e