Test 2 macro

In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPS is 0.4, then it could increase government spending by:

$20 billion

Assume that the marginal propensity to consume in an economy is 0.9. If the economy's full-employment real GDP is $500 billion and its equilibrium real GDP is $550 billion, there is an inflationary expenditure gap of:

$5 billion

The marginal propensity to consume is 0.8. Equilibrium GDP will increase by $30 billion if aggregate expenditures rise by:

$6 billion

In a private closed economy where MPC = 0.8, if consumers reduce their spending by $10 billion and firms cut investments by $5 billion, then equilibrium GDP will decrease by:

$75 billion

The table shows a consumption schedule. 300 310 350 340 400 370 450 400 500 430 Refer to the above data. The marginal propensity to consume is:

.60

The disposable income (DI) and consumption (C) schedules are for a private, closed economy. All figures are in billions of dollars. 0 8 80 80 160 152 240 224 320 296 400 368 Refer to the above data. If plotted on a graph, the slope of the consumption schedule would be:

.9

With an MPS of .3, the MPC will be:

1- .3

Refer to the data in the table above. The direction of fiscal policy became more contractionary from:

2003 to 2004

Refer to to the data in the table above. In which year was the cycle deficit the largest?

2004

If disposable income increases from $912 to $927 billion and MPC = 0.6, then consumption will increase by:

9

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

Refer to the graph above. Which of the following changes will shift AD1 to AD2?

A cut in personal and business taxes

Refer to the graph above. Which of the following factors will shift AD1 to AD3?

A decrease in consumer wealth

Refer to the above graph. What combination would most likely cause a shift from AD1 to AD2?

A decrease in taxes and an increase in government spending

Refer to the above figures with consumption schedules in figure (A) and saving schedules in figure (B), which correspond to each other across different levels of disposable income. If, in figure (A), consumption increases along line A2 then in figure (B) there would be:

A movement up along line B2

The investment schedule shows the:

Amounts business firms collectively intend to invest at each possible level of GDP

Which of the following statements is correct?

An increase in exports will tend to increase, and an increase in imports will tend to decrease, the equilibrium GDP

Refer to the above graph. What combination would most likely cause a shift from AD1 to AD3?

An increase in taxes and a decrease in government spending

Refer to the above figures with consumption schedules in figure (A) and saving schedules in figure (B), which correspond to each other across different levels of disposable income. If, in figure (A), line A2 shifts to A3 because of the so-called wealth effect, then in figure (B), line:

B2 will shift to B1

The short-run aggregate supply curve:

Becomes steep at output levels above the full-employment output

The long-run aggregate supply analysis assumes that:

Both input and product prices are variable

If Sara Thomas' disposable income increases from $4,000 to $4,500 and her level of saving increases from $200 to $325, it may be concluded that her marginal propensity to:

Consume is .75

An increase in household wealth that creates a wealth effect would shift the:

Consumption schedule upward and the saving schedule downward

In the mid-1970s, changes in oil prices greatly affected U.S. inflation. When oil prices rose, the U.S. would experience:

Cost-push inflation and falling output

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

Decrease (or shift left) in aggregate demand

Cost-push inflation is characterized by a(n)

Decrease in aggregate supply and no change in aggregate demand

The interest rate effect on aggregate demand indicates that a(n):

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

To close an inflationary expenditure gap of $20 billion in an economy with a marginal propensity to consume of 0.8, it would be necessary to:

Decrease the aggregate expenditures schedule by $20 billion

In the graph above, tax revenues vary:

Directly with the level of GDP

In year 1, the actual budget deficit was $200 billion and the cyclically-adjusted deficit was $150 billion. In year 2, the actual budget deficit was $225 billion and the cyclically-adjusted deficit was $175 billion. It can be concluded that fiscal policy from year 1 to year 2 became more:

Expansionary

A personal tax cut of $50 billion will affect income differently than an increase in government spending by $50 billion because:

Households may save part of the additional income from the tax cut

You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $400 billion; (2) investment = $40 billion; (3) government purchases = $90 billion, and (4) net export = $25 billion. If the full-employment level of GDP for this economy is $600 billion, then what combination of actions would be most consistent with closing the GDP-gap here?

Increase government spending and decrease taxes

Assuming that MPC is .75, equal increases in government spending and tax collections by $10 billion will:

Increase the equilibrium GDP BY $10 billion

If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be:

Increased government spending or decreased taxation, or a combination of the two actions

An increase in disposable income:

Increases consumption by moving upward along a given consumption schedule

Refer to the figure above. If AD1 shifts to AD2, then the equilibrium output:

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

The American Recovery and Reinvestment Act of 2009 included mostly:

Increases in government spending and decreases in taxes

Refer to the graph above. A budget surplus would be associated with GDP level:

L

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

Left because (I)g will decrease

The expenditure multiplier concept of the aggregate-expenditures model:

Magnifies the shifts of the aggregate demand curve

Refer to the figure above. The economy is at equilibrium at point B. What would expansionary fiscal policy do?

Move the economy from point B towards point A

Refer to the consumption schedule above. At income level 1, the amount of saving is:

Negative

Refer to the graph above. Assume that the economy initially has a price level of P1 and output level of Q1. If the government implements expansionary fiscal policy, and the full multiplier effect was felt, it would bring the economy to:

P1 and Q3

Refer to the figure above. If AD1 shifts to AD2, the full multiplier effect would be an increase in real GDP from:

Q1 to Q3

The goal of expansionary fiscal policy is to increase:

Real GDP

Inflation tends to

Reduce the strength of the multiplier

The foreign purchases effect on aggregate demand suggests that a:

Rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand

Refer to the saving schedule above. As income falls from level 3 to level 2, the amount of:

Saving decreases

If disposable income is $900 billion when the average propensity to consume is 0.9, it can be concluded that:

Saving is $90 billion

Refer to the figure above. The economy is at equilibrium at point A. What fiscal policy would be most appropriate to control demand-pull inflation?

Shift aggregate demand by increasing taxes

Refer to the figure above. The massive increase in government spending during World War 2 moved the economy in the span of a few short years from mass unemployment and price stability to "overfull" employment. This situation can be best illustrated in the figure above as a:

Shift from AD1 to AD2

The table below shows the aggregate demand and aggregate supply schedules for a hypothetical economy 3000 350 9000 4000 300 8000 5000 250 7000 6000 200 6000 7000 150 5000 8000 100 4000 Refer to the table above. At the price level of 150, there will be a general:

Shortage in the economy, and output demanded will decrease as the price level rises

Assume that an increase in a household's disposable income from $40,000 to $48,000 leads to an increase in consumption from $35,000 to $41,000 then the:

Slope of the consumption schedule is .75

In an economy, for every $10 million increase in disposable income, saving increases by $2million. It can be concluded that the:

Slope of the consumption schedule is .8

The so-called wealth effect will result in households:

Spending more and saving less

If a family's MPC is .7, it means that the family is:

Spending seven-tenths if any increment to its income

Consumption is $141 billion, planned investment is $15 billion, and saving is $15 billion in a private, closed economy. At this level

The economy is in equilibrium

The cyclically-adjusted budget estimates the federal budget deficit or surplus if:

The economy were at full employment

Disinflation refers to a situation where:

The rate of inflation falls, but the price level does not

When government spending is increased, the amount of the increase in aggregate demand primarily depends on:

The size of the multiplier

If the real interest rate increases:

There will be a movement upward along the investment demand curve

A firm invests in a new machine that costs $2,000 a year but which is expected to produce an increase in total revenue of $2,200 a year. The current real rate of interest is 8 percent. The firm should:

Undertake the investment because the expected rate of return of 10 percent is greater than the real rate of interest

The following is budget information for a hypothetical economy. All data are in billions of dollars. 800 825 4000 850 850 4200 Refer to the above table. In which year is there a budget surplus?

Year 1

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

Net exports are negative when:

imports exceed exports

An increase in expected future income will:

increase aggregate demand

An increase in productivity will:

increase aggregate supply

Refer to the graph above, which shows an aggregate demand curve. If the price level decreases from 200 to 100, the real output demanded will:

increase by $200 billion

If businesses feel more optimistic about the state of the economy, then this change is likely to:

shift the investment demand curve to the right

The nominal rate of interest is 8.5 percent and the real rate is 5 percent. The expected rate of return on an investment is 8 percent. The firm should:

undertake the investment because the expected rate of return of 8 percent is greater than the real rate of interest.

The marginal propensity to save is 0.2. Equilibrium GDP will decrease by $50 billion if aggregate expenditures schedule decrease by:

$10 billion