Macroeconomics Heriberto Test 3

The economy experiences an increase in the price level and a decrease in real domestic output. Which of the following is a likely explanation?

Input prices have increased

A budget surplus (larger than equilibrium) would be associated with GDP level:

L

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

Left because I will decrease

Built-in stability is exemplified by the fact that with a progressive tax system, net tax revenues decrease when GDP decreases.

True

An increase in net exports will shift the:

aggregate expenditures curve upward and the aggregate demand curve rightward.

MPC (marginal propensity to consume)

change in consumption/change in income

MPS (marginal propensity to save)

change in savings/change in income

APC (average propensity to consume)

consumption/income

a shift from AS3 to AS2 (to the right) might be caused by an increase in:

productivity

If the economy's current aggregate demand curve is AD3 (point above equilibrium), it would be appropriate for the government to:

reduce government expenditures or increase taxes.

APS (average propensity to save)

saving/income

When the economy is experiencing demand-pull inflation, its real GDP tends to be rising.

true

Wage contracts, efficiency wages, and the minimum wage are explanations for why:

wages tend to be inflexible downward

real balances effect

when a price increases, your buying power is decreased, causing you to buy less

A budget surplus means that:

Government revenues are greater than expenditures in a given year

The goal of expansionary fiscal policy is to increase:

Real GDP

The two reasons why bankruptcy is a false concern about the public debt are:

Refinancing and taxation

If the government wishes to increase the level of real GDP, it might reduce:

Taxes

A contractionary fiscal policy shifts the aggregate demand curve leftward.

True

Expansionary fiscal policy during a recession means cutting taxes, increasing government spending, or taking both actions.

True

If the MPC in the economy is .75, government could shift the aggregate demand curve rightward by $30 billion by cutting taxes by $10 billion.

True

If the government wants to reduce unemployment using fiscal policy, it may do so by increasing government spending.

True

A sharp rise in the real value of stock prices, which is independent of a change in the price level, would best be an example of:

a change in real value of consumer wealth

If the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion by:

increasing government spending by $4 billion.

The economy experiences an increase in the price level and a decrease in real domestic output. Which of the following is a likely explanation?

input prices have increased

Discretionary fiscal policy refers to:

intentional changes in taxes and government expenditures made by Congress to stabilize the economy.

A tax reduction of a specific amount will be more expansionary the:

larger is the economy's MPC.

A major advantage of the built-in or automatic stabilizers is that they:

require no legislative action by Congress to be made effective.

An expansionary fiscal policy is shown as a:

rightward shift in the economy's aggregate demand curve.

Graphically, demand-pull inflation is shown as a:

rightward shift of the AD curve along an upsloping AS curve.

Which combination of factors would most likely increase aggregate demand?

An increase in consumer wealth and a decrease in interest rates

A decrease in government spending and a cut in taxes would be a pair of fiscal policies that reinforce each other.

False

A decrease in taxes is one way to pursue a contractionary fiscal policy because it will make government revenues contract.

False

Demand-pull inflation can be restrained by increasing government spending and reducing taxes.

False

Minimum wage laws tend to make the price level more flexible rather than less flexible.

False

Automatic stabilizers smooth fluctuations in the economy because they produce changes in the government's budget that:

Help offset changes in GDP

An expected increase in the prices of consumer goods in the near future will:

Increase (or shift right) in aggregate demand now

Crowding out is a decrease in private investment caused by:

Increased borrowing by the government

The crowding-out effect suggests that:

Increases in government spending may reduce private investment

The real-balances effect on aggregate demand suggests that a:

Lower price level will increase the real value of many financial assets and therefore cause an increase in spending

Which of the above factors best explain the downward slope of aggregate demand curve?

Real Balances Effect, Interest Rate Effect, and Foreign Purchases Effect

Qf is the full-employment output. The shift of the aggregate demand curve from AD1 to AD2 (shift to right to equilibrium) is consistent with:

an expansionary fiscal policy.

Other things equal, a shift of the aggregate supply curve from AS0 to AS1 (to the left) might be caused by a(n):

Increase in Government Regulation

A decrease in interest rates caused by a change in the price level would cause a(n):

Increase in the quantity of real output demanded (or movement down along AD)

Graphically, cost-push inflation is shown as a:

leftward shift of the AS curve.

If the amount of real output demanded at each price level falls by $200, the equilibrium price level and equilibrium level of real domestic output will fall to: (the one after 200 because it was the output after the price level fell)

150 and $300

equilibrium price level out of 300, 250, 200, 150, 100 (table model on quiz)

200

Refer to the diagram, where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment GDP is $400 billion while the actual GDP is $200 billion, the actual budget deficit is:

40 billion

Which of the following represents the most expansionary fiscal policy?

A $10 billion increase in government spending.

Which of the following fiscal policy changes would be the most contractionary?

A $10 billion increase in taxes and a $30 billion cut in government spending

Which of the following fiscal policy changes would be the most expansionary?

A 40 billion increase in government spending

Changes in which combination of factors best explain why the aggregate supply curve would shift?

Business Taxes and Domestic Resource Availability

How is the public debt calculated?

By cumulating the annual difference between tax revenues and government spending over the years

A decrease in government spending will cause a(n):

decrease aggregate demand

An increase in expected future income will:

increase aggregate demand

An increase in productivity will:

increase aggregate supply

Qf is the full-employment output. If the economy's current aggregate demand curve is AD0, (closest to 0 on graph) it would be appropriate for the government to:

increase government expenditures or reduce taxes.

An increase in personal income tax rates will cause a(n):

Decrease (or shift left) in aggregate demand

With cost-push inflation in the short run, there will be:

A decrease in real GDP

The public debt is the:

Accumulation of all past deficits minus all past surpluses

If the dollar appreciates in value relative to foreign currencies:

Aggregate demand decreases because net exports decrease

The economy is at equilibrium at point A (highest point). What fiscal policy would be most appropriate to control demand-pull inflation?

Shift aggregate demand by increasing taxes

Which of the diagrams best portrays the effects of an increase in resource productivity? (graph)

Supply Shifting to the right

foreign purchases effect

The inverse relationship between the net exports of an economy and its price level relative to foreign price levels.

Which of the following serves as an automatic stabilizer in the economy?

The progressive income tax

A major reason that the public debt cannot bankrupt the Federal government is because:

The public debt can be easily refinanced by issuing new bonds

demand-pull inflation

aggregate demand shifts to right causing too much money and too much goods

If the aggregate supply curve shifted from AS0 to AS1 (to the left) and the aggregate demand curve remains at AD0, we could say that:

aggregate supply has decreased, equilibrium output has decreased, and the price level has increased.

during cost push inflation

aggregate supply shifts to the left causing increase in price (oil, steel)

The shift of the aggregate demand curve from AD1 (below equilibrium) to AD2 (above equilibrium) is consistent with:

an expansionary fiscal policy

interest effect

at a low price level, people will have more money than they want and will try to acquire less liquid assets, increasing the supply of savings; this decreases interest rates and causes people to borrow more; one of the reasons aggregate demand slopes downward

A decrease in aggregate demand in the short run will reduce:

both real output and the price level

In the diagram, a shift from AS2 to AS3 might be caused by a(n):

increase in business taxes and costly government regulation.

a shift from AS2 to AS3 (to the left) might be caused by a(n):

increase in business taxes and costly government regulation.

In the diagram, a shift from AS1 to AS3 (left) might be caused by a(n):

increase in the prices of imported resources.

A contractionary fiscal policy is shown as a:

leftward shift in the economy's aggregate demand curve.

The fear of unwanted price wars may explain why many firms are reluctant to:

reduce prices when a decline in aggregate demand occurs.

A specific reduction in government spending will dampen demand-pull inflation by a greater amount the:

smaller is the economy's MPS.

A fall in labor costs will cause aggregate:

supply increase