CH 12 and 13 ECON
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.
A Price Leve. A Real GDP 110 290 100 265 95 240 90 215 B Price Leve B Real GDP 100 215 100 240 100 265 100 290 c Price Level. c Real GDP 110 240 100 240 95 240 90 240 The short run?
The data in A
true or false: "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 increase in aggregate demand is most likely to be caused by which of the following?
a decrease in the tax rates on household income
b. A political business cycle is the idea that
politicians are more interested in reelection than in stabilizing the economy.
Changes in which of the following would not shift the aggregate demand curve?
productivity rates
In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $200 billion. To obtain full employment under these conditions, the government should
reduce tax rates and/or increase government spending.
Government's fiscal policy options for ending severe demand-pull inflation include
reducing government spending, increasing taxes, or both.
What effect would this change in per-unit production cost have on the economy's aggregate supply curve? It would cause the aggregate supply curve to shift
right
If investment increases by $25 billion and the economy's MPC is 0.8, the aggregate demand curve will shift
rightward by $125 billion at each price level.
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.
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.
The immediate-short-run aggregate supply curve is
horizontal.
a. 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.
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.
Suppose the federal government had budget deficits of $80 billion in year 1 and $50 billion in year 2 but had budget surpluses of $20 billion in year 3 and $50 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the federal government's public debt would have
increased by $60 billion.
If the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $40 billion by
increasing government spending by $4 billion.
If the MPS in an economy is 0.10, government could shift the aggregate demand curve rightward by $40 billion by
increasing government spending by $4 billion.
Assume that the input price increases from $4 to $5 with no accompanying change in productivity. What is the new per-unit cost of production?
0.94
An economy is employing 4 units of capital, 5 units of raw materials, and 4 units of labor to produce its total output of 360 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
$0.20.
Suppose that technological advancements stimulate $40 billion in additional investment spending. If the MPC = 0.6, how much will the change in investment increase aggregate demand?
$100 billion
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?
$25 billion
. Suppose that the increase in input price does not occur but, instead, that productivity increases by 50 percent. What would be the new per-unit cost of production?
0.5
b. What is the per-unit cost of production if the price of each input unit is $4?
0.75
Suppose that aggregate demand increases such that the amount of real output demanded rises by $7 billion at each price level. a. By what percentage will the price level increase? Will this inflation be demand-pull inflation, or will it be cost-push inflation? b. If potential real GDP (that is, full-employment GDP) is $510 billion, what will be the size of the positive GDP gap after the change in aggregate demand? c. If government wants to use fiscal policy to counter the resulting inflation without changing tax rates, would it increase government spending or decrease it?
12 Demand-pull inflation 3 Decrease
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decrease in resource prices is depicted by
C that looks like a tic tak
Why does the Aggregate Demand Curve slope downwards?
Exchange rate effect wealth effect Interest rate effect
A Price Leve. A Real GDP 110 290 100 265 95 240 90 215 B Price Leve B Real GDP 100 215 100 240 100 265 100 290 c Price Level. c Real GDP 110 240 100 240 95 240 90 240 a. Which set of data illustrates aggregate supply in the immediate short run in North Vaudeville?
The data in B
A Price Leve. A Real GDP 110 290 100 265 95 240 90 215 B Price Leve B Real GDP 100 215 100 240 100 265 100 290 c Price Level. c Real GDP 110 240 100 240 95 240 90 240 The long run?
The data in C
What effect would this shift of aggregate supply have on the price level and the level of real output?
The price level would decrease and real output would increase
What effect would this shift of aggregate supply have on the price level and the level of real output?
The price level would increase and real output would decrease.
In what direction would the $1 increase in input price push the economy's aggregate supply curve?
To the left
b. 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.
d. The crowding-out effect is
a reduction in investment spending caused by an increase in interest rates arising from an increase in government spending. Correct
The following factors explain the inverse relationship between the price level and the total demand for output, except
a substitution effect.
Government Expenditures, G 180 180 180 180 180 Tax Revenues, T 100 120 140 160 180 Real GDP 500 600 700 800 900 a. What is the marginal tax rate in Waxwania? b. What is the average tax rate? c. Which of the following describes the tax system: proportional, progressive, or regressive?
a.20 b.20 c. Proportional
aSuppose that South Pangean debt is $750 million and the interest rate it pays on that debt is 10 percent. That means its interest payments must be $ bIf South Pangean expenditures are $80 million without interest payments, that means its expenditures with interest payments are $
a.75 b.155
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.
Discretionary fiscal policy refers to
intentional changes in taxes and government expenditures made by Congress to stabilize the economy.
If the MPC in an economy is 0.90, government could shift the aggregate demand curve rightward by $90 billion by
decreasing taxes by $10 billion
The effect of contractionary fiscal policy is shown as a
leftward shift in the economy's aggregate demand curve.
a. Built-in (automatic) stabilizers work by changing __________ so that changes in GDP are reduced.
taxes and government payouts
In the figure, AD1 and AS1 represent the original aggregate supply and demand curves, and AD2 and AS2 show the new aggregate demand and supply curves. The change in aggregate supply from AS1 to AS2 could be caused by
the increase in productivity.
a. The downsloping aggregate demand curve can be explained by
the interest-rate effect, the real-balances effect, and the foreign purchases effect. Correct
....Correctcan be used to address a Recessionary Gap by...taxes and...tgovernment purchases.; Meanwhile,...can be used to address an Inflationary Gap by... taxes and...government purchases.
1.Expansionary Fiscal Policy 2.lowering 3.raising 4.Contractionary Fiscal Policy 5.raising 6.lowering
Fiscal Policy involves changing .... In the United States, Fiscal Policy is implemented by the...
1.taxes and government spending 2. President and Congress
Assume that a hypothetical economy with an MPC of 0.75 is experiencing a severe recession. a. By how much would government spending have to rise to shift the aggregate demand curve rightward by $40 billion? How large a tax cut would be needed to achieve the same increase in aggregate demand? b. Determine one possible combination of government spending increases and tax increases that would accomplish the same goal without changing the amount of outstanding debt. Increase government spending by $ Increase taxes by $
10 13.3 40 40
. Assuming no change in hours of work, if real output per hour of work decreases by 20 percent, what will be the new levels of real GDP in the right column of A? At a price level of 110 At a price level of 100: At a price level of 95 At a price level of 90:
232.0 212.0 192.0 172.0
a. What is the level of productivity in this economy?
5.33
c. 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.
If the MPC in an economy is 0.75, government could shift the aggregate demand curve leftward by $90 billion by
increasing taxes by $30 billion.
What type of tax system would have the most built-in stability?
rogressive tax system, because it increases at an increasing rate as incomes rise, thus having more of a dampening effect on rising (or falling) incomes.
