3rd Economic Exam

If the MPC in an economy is 0.75, government could shift the aggregate demand curve leftward by $90 billion by

Find Mps than divide 90 by 4 (mps) than divide mps by multiplier

Finding Level of Productivity in an Economy

Gdp/Input Quantity

Which of the two will cause a shift in aggregate demand due to change in consumer spending

House Hold Expectations and Personal Income Change

Would a rightward shift of the ad curve in the very flat part of the short-run AS curve increase or decrease real output by more than the price level?

Increase

If you get a negative number does the debt increase or decrease

Increase, postive

Price Level Stays Same, Real GDP goes up

Intermediate Short run

Price goes down, Real GDP stays the same

Long Run

Which of the following will not tend to happen if the U.S. dollar depreciates against the euro?

Many Europeans will switch and buy their own products instead of imports from the U.S.

An economy is experiencing a high rate of inflation. The government wants to reduce consumption by $15 billion to reduce inflationary pressure. The MPC is 0.60. By how much should the government raise taxes to achieve its objective?

Money invested/ mpc

Deficit

Negative

What type of tax system would have the most built-in stability

Progressive tax system, because it increases at an increasing rate as incomes rise, thus having more of a dampening effect on rising (or falling) incomes.

Assume Increase of Input price 4 to 5 $

Same Formula but change number

Real Gdp going down and Price going down

Short Run

The Aggregate Demand Curve shows the amount of real output that will be purchased at each possible price level

TRUE

Why does the Aggregate Demand Curve slope downwards?

The Wealth Effect The Interest Rate Effect The Exchange Rate

"Unemployment can be caused by a decrease of aggregate demand or a decrease of aggregate supply."

True, but the magnitude of the effect on unemployment depends on the economic situation. Correct

An economy is employing 1 units of capital, 5 units of raw materials, and 4 units of labor to produce its total output of 840 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. The per-unit cost of production in this economy is

[(1 × $10) + (5 × $4) + (4 × $3)]/840 = $0.05.

Suppose that technological advancements stimulate $10 billion in additional investment spending. If the MPC = 0.6, how much will the change in investment increase aggregate demand?

[1/(1 − 0.6)] × $10 = $25.

An increase in aggregate demand is most likely to be caused by which of the following?

a decrease in the tax rates on household income

Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward

an excess of government expenditures over tax receipts.Correct

A political business cycle is the idea that

politicians are more interested in reelection than in stabilizing the economy. Correct

Surplus

positive extra

Changes in which of the following would not shift the aggregate demand curve?

productivity rates

Government's fiscal policy options for ending severe demand-pull inflation include

reducing government spending, increasing taxes, or both. Correct

If investment increases by $5 billion and the economy's MPC is 0.75, the aggregate demand curve will shift

rightward by $20 billion at each price level.

The immediate-short-run aggregate supply curve is

horizontal.

The problem of time lags in enacting and applying fiscal policy is

in the time it takes to identify the situation, enact a policy, and allow it to work, economic circumstances may have changed.

what causes aggregate demand to shift right

increase in government spending, decrese in taxes

A rightward shift of the AD curve in the very flat part of the short-run AS curve will

increase real output by more than the price level.Correct

The aggregate demand curve is upsloping because a higher price level is necessary to make production profitable as production cost rises

False

Finding Mps

1 _ MPS THAN DIVIDE BY MONEY AMOUNT

FInding Per Unit Cost

( Money Given x Input Quantity) / Real GDP

Suppose that South Pangean debt is $200 million and the interest rate it pays on that debt is 6 percent.

(interest rate) × (debt in that year). In this case, that is 6% × $200 million = $12 million

The Real Balances effect indicates that a higher price will increase the real valeue of financial assets and therefore increase spending

False

The aggregate demand curve is down sloping because production costs decline as real output increases

False

The downsloping aggregate demand curve can be explained by

The interest-rate effect, the real-balances effect, and the foreign purchases effect. Correct

The Real Balances effect indicates that a higher price level will decrease the real value of many financial assets and therefore reduce spending

True

The explanation for a downsloping aggregate demand curve differs from the explanation for the downsloping demand curve for a single product because

a downsloping, single-product demand curve assumes constant money income such that a lower price causes a substitution of the now relatively cheaper product for those whose prices have not changed. Correct

The crowding-out effect is

a reduction in investment spending caused by an increase in interest rates arising from an increase in government spending.

The following factors explain the inverse relationship between the price level and the total demand for output, except

a substitution effect.

Which of the following effects best explains the downward slope of the aggregate demand curve?

an interest-rate effect

The multiplier

causes an initial change in spending to generate an even larger change in the aggregate demand curve

Which one shows decrease on resource prices

chart that shows as going down

Expectations of a near-term policy reversal weaken fiscal policy because

consumers may hesitate to increase their spending because they believe that tax rates will rise again.

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.Correct

If you get a positive number does the debt increase or decrease

degrease, negative

If the MPS in an economy is 0.25, government could shift the aggregate demand curve rightward by $60 billion by

find mpc 1/.25 = 4 than divide by amount given 60/4 = 15

How much of a change in GDP will result if firms increase their level of investment by $8 billion and the MPC is 0.80?

find mps than mulitply by number given

The effect of contractionary fiscal policy is shown as a

leftward shift in the economy's aggregate demand curve.

Built-in (automatic) stabilizers work by changing __________ so that changes in GDP are reduced.

taxes and government payouts Correct

The change in aggregate supply from AS1 to AS2 could be caused by

the increase in productivity.

A decrease in the aggregate demand in the short run will reduce both out put and the price level

true