Chapter 5, 14,15,16 (Mid-Term), Chapter 12 Macro Review Questions, Economics Homework, Macro Test 2, ch 17, Chapter 17 Macroeconomics - Long / Short Run Phillips Curve, ECO 2013 Chapter 26 Homework, Macroeconomics-Ch 25-27, Chapter 12 Review - Econ 1...
Inventories refer to
goods that have been produced but not yet sold
If inventories decline by more than analysts predict they will decline, this implies that
actual investment spending was less than planned investment spending.
An unplanned decrease in inventories results in
actual investment that is less than planned investment.
If an increase in investment spending of $20 million results in a $200 million increase in equilibrium real GDP, then
the multiplier is 10.
If an increase in investment spending of $50 million results in a $400 million increase in equilibrium real GDP, then
the multiplier is 8.
All of the following are true statements about the multiplier except
the multiplier is a value between zero and one.
the two key factors that cause labor productivity to increase over time are:
the quantity of capital per hour worked and the level of technology
In the Expenditure Approach Real GDP equals
the sum of Consumption, Investment, Government Spending, and Net Exports: Y = C + I + G + NX
In a business cycle, the low point of economic activity is called
a trough
GDP deflator =
(Nominal GDP/Real GDP) x 100
Consumption spending is $5 million, planned investment spending is $8 million, unplanned investment spending is $2 million, government purchases are $10 million, and net export spending is $2 million. What is aggregate expenditure?
$25 million
If the consumption function is defined asC = 5,500 + 0.9Y, what is the autonomous level of consumption expenditure?
$5,500
Given the equations forC,I, G, andNX below, what is the equilibrium level of GDP?
$79,000
Inflation Rate=
(Current deflator value- Previous deflator value)/Previous value))*100
Table 12-3 Consumption (dollars) *Disposable Income (dollars)* $1,200 *$3,000* 2,100 *4,000* 3,000 *5,000* Refer to Table 12-3. Given the consumption schedule in the table above, the marginal propensity to save is
0.1.
Equations forC,I, G, andNX are given below. If the equilibrium level of GDP is $21,500, what is the marginal propensity to consume?
0.8
If disposable income increases by $100 million, and consumption increases by $90 million, then the marginal propensity to consume is
0.9.
MPC +MPS =
1.
3 ways to measure GDP
1. expenditure approach 2. income approach 3. value-added (production) approach
A general formula for the multiplier is
1/MPS
If the consumption function is defined asC = 5,500 + 0.9Y, what is the value of the multiplier?
10
The National Restaurant Association states that the restaurant industry has economic effect of more than $1.7 trillion annually in the United States, with every dollar spent in restaurants generating an estimated total of $2.05 in spending in the economy. This indicates that the spending multiplier for the restaurant industry is equal to
2.05
Real GDP per capita in the United States, as mentioned in the chapter, grew from about $5,600 in 1900 to about $43,700 in 2008, which represents an annual growth rate of 1.9 percent. if the United States continues to grow at this rate, how long will it take for real GDP per capita to double?
36.84 years
Number of years it takes to double standard of living=
70/growth rate of gdp
Real GDP per capita
= output per person = average consumption = standard of living = Real GDP/Population
Income Approach
A method of computing GDP that measures the income-wages, rents, interest, and profits-received by all factors of production in producing final goods and services.
Expenditure Approach
A method of computing GDP that measures the total amount spent on all final goods and services during a given period.
Production Approach
A method of computing GDP that measures total retail value of the final goods/services produced in a nation in a given year.
16) The figure above illustrates the effect of an increased rate of money supply growth at time period T0. From the figure, one can conclude that the A) Fisher effect is dominated by the liquidity effect and interest rates adjust slowly to changes in expected inflation. B) liquidity effect is dominated by the Fisher effect and interest rates adjust slowly to changes in expected inflation. C) liquidity effect is dominated by the Fisher effect and interest rates adjust quickly to changes in expected inflation. D) Fisher effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.
A) Fisher effect is dominated by the liquidity effect and interest rates adjust slowly to changes in expected inflation
14) When the price level falls, the ________ curve for nominal money ________, and interest rates ________, everything else held constant. A) demand; decreases; fall B) demand; increases; rise C) supply; increases; rise D) supply; decreases; fall
A) demand; decreases; fall
Which of the following will decrease aggregate expenditure in the United States?
a decrease in government purchases
6) When the growth rate of the money supply increases, interest rates end up being permanently lower if A) the liquidity effect is larger than the other effects. B) there is fast adjustment of expected inflation. C) there is slow adjustment of expected inflation. D) the expected inflation effect is larger than the liquidity effect.
A) the liquidity effect is larger than the other effects
Consumption spending is $22 million, planned investment spending is $7 million, actual investment spending is $7 million, government purchases are $9 million, and net export spending is $3 million. Based on this information, which of the following is true?
Aggregate expenditure is equal to GDP.
GDP is
An indicator of economic performance
________ consumption is consumption that does not depend upon the level of GDP.
Autonomous
Which of the following leads to an increase in real GDP?
a decrease in interest rates
46) A factor that could cause the demand for bonds to decrease (shift to the left) is A) an increase in the expected return on bonds relative to other assets. B) a decrease in the expected return on bonds relative to other assets. C) an increase in wealth. D) a reduction in the riskiness of bonds relative to other assets.
B) a decrease in the expected return on bonds relative to other assets
9) A decline in the expected inflation rate causes the demand for money to ________ and the demand curve to shift to the ________, everything else held constant. A) decrease; right B) decrease; left C) increase; right D) increase; left
B) decrease; left
27) When the economy slips into a recession, normally the demand for bonds ________, the supply of bonds ________, and the interest rate ________, everything else held constant. A) increases; increases; rises B) decreases; decreases; falls C) increases; decreases; falls D) decreases; increases; rises
B) decreases; decreases; falls
7) In Keynes's liquidity preference framework, as the expected return on bonds increases (holding everything else unchanged), the expected return on money ________, causing the demand for ________ to fall. A) falls; bonds B) falls; money C) rises; bonds D) rises; money
B) falls; money
5) In the Keynesian liquidity preference framework, a rise in the price level causes the demand for money to ________ and the demand curve to shift to the ________, everything else held constant. A) increase; left B) increase; right C) decrease; left D) decrease; right
B) increase; right
Which of the following does NOT lead to long-run economic growth A. Improved labor productivity B. Increase in average wages C. Increase in the capital stock D. Technological change
B. Increase in average wages
49) A factor that could cause the demand for bonds to shift to the right is A) an increase in the riskiness of bonds relative to other assets. B) an increase in the expected rate of inflation. C) expectations of lower interest rates in the future. D) a decrease in wealth.
C) expectations of lower interest rates in the future
48) A factor that could cause the supply of bonds to increase (shift to the right) is A) a decrease in government budget deficits. B) a decrease in expected inflation. C) expectations of more profitable investment opportunities. D) a business cycle recession
C) expectations of more profitable investment opportunities
9) If the liquidity effect is smaller than the other effects, and the adjustment to expected inflation is slow, then the A) interest rate will fall. B) interest rate will rise. C) interest rate will initially fall but eventually climb above the initial level in response to an increase in money growth. D) interest rate will initially rise but eventually fall below the initial level in response to an increase in money growth.
C) interest rate will initially fall but eventually climb above the initial level in response to an increase in money growth
3) During business cycle expansions when income and wealth are rising, the demand for bonds ________ and the demand curve shifts to the ________, everything else held constant. A) falls; right B) falls; left C) rises; right D) rises; left
C) rises; right
Which of the following is most likely to lead to sustained economic growth: A. Increases in human capital B. Increases in labor force C. Technological change D. Increases in the capital stock
C. Technological change
The following shows the effect of the business cycle on the inflation rate and the unemployment rate: A. The unemployment rate increases and the inflation rate increases during expansion B. The unemployment rate increases and the inflation rate falls during expansions C. The unemployment rate increases and the inflation rate falls during recessions D. The unemployment rate falls and the inflation rate falls during recessions
C. The unemployment rate increases and the inflation rate falls during recessions
National income =
Consumption + Saving +Taxes
45) A factor that could cause the supply of bonds to shift to the right is A) a decrease in government budget deficits. B) a decrease in expected inflation. C) a recession. D) a business cycle expansion.
D) a business cycle expansion
15) Factors that decrease the demand for bonds include A) an increase in the volatility of stock prices. B) a decrease in the expected returns on stocks. C) a decrease in the inflation rate. D) a decrease in the riskiness of stocks.
D) a decrease in the riskiness of stocks
23) When the expected inflation rate increases, the demand for bonds ________, the supply of bonds ________, and the interest rate ________, everything else held constant. A) increases; increases; rises B) decreases; decreases; falls C) increases; decreases; falls D) decreases; increases; rises
D) decreases; increases; rises
10) Everything else held constant, when stock prices become less volatile, the demand curve for bonds shifts to the ________ and the interest rate ________. A) right; rises B) right; falls C) left; falls D) left; rises
D) left; rises
15) The figure above illustrates the effect of an increased rate of money supply growth at time period T0. From the figure, one can conclude that the A) liquidity effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation. B) liquidity effect is larger than the expected inflation effect and interest rates adjust quickly to changes in expected inflation. C) liquidity effect is larger than the expected inflation effect and interest rates adjust slowly to changes in expected inflation. D) liquidity effect is smaller than the expected inflation effect and interest rates adjust slowly to changes in expected inflation
D) liquidity effect is smaller than the expected inflation effect and interest rates adjust slowly to changes in expected inflation
Net Exports =
Exports - Imports
In a small economy in 2013, aggregate expenditure was $800 million while GDP that year was $850 million. Which of the following can explain the difference between aggregate expenditure and GDP that year?
Firm investment in inventories was greater than anticipated in 2013.
The key idea of the aggregate expenditure model is that in any particular year, the level of ________ is determined mainly by the level of aggregate expenditure.
GDP
Which of the following does the aggregate expenditure macroeconomic model seek to explain?
The business cycle
In a business cycle, the high point of economic activity is called
a peak
In a business cycle, the period between the high point of economic activity and the following low point is called
a recession
How does a decrease in government spending affect the aggregate expenditure line?
It shifts the aggregate expenditure line downward.
Economic Growth =
Percent change in GDP = [(GDP(year2) - GDP(year1)) / GDP(year1)] x 100
Inflation Rate =
Percent change in price level = [(Price Level(year2) - Price Level (year1)) / Price Level (year1)] x 100
Market Value =
Price x Quantity
Real GDP =
Prices(base year) x Quantity(current year)
GNP counts
Production by American firms no matter where they are located. Doesn't include foreign companies on American soil
Profit =
Revenue-Cost
Value Added =
Sales Price - cost of intermediate goods
S public=
T-G-TR
Which of the following is a true statement about the multiplier?
The formula for the multiplier overstates the real world multiplier when we take into account the impact of changes in GDP on imports, inflation and the interest rate.
Which of the following is a true statement about the multiplier?
The multiplier rises as the MPC rises
S private=
Y+TR-C-T
S=I=
Y-C-G
Firms in a small economy planned that inventories would grow over the past year by $300,000. Over that year, inventories actually grew by $400,000. This implies that
aggregate expenditure that year was less than GDP that year.
If firms sell exactly what they expected to sell, all of the following will be trueexcept
aggregate expenditure will be greater than GDP.
A decrease in consumer confidence can put your job at risk if
aggregate expenditures fall.
In a business cycle, the period between the low point of economic activity and the following high point is called
an expansion
Equilibrium GDP is equal to
autonomous expenditure times the multiplier.
Inventory Investment =
change in value of all firms' inventories = (Number of items produced - number of items sold) x Sales price
In the aggregate expenditure model, ________ has both an autonomous component and an induced component
consumption spending
during the recession phase of the business cycle, production, employment, and income ___________ increase/ decrease
decrease
The ratio of the increase in ________ to the increase in ________ is called the multiplier.
equilibrium real GDP; autonomous expenditure
Consumer spending ________ and investment spending ________.
follows a smooth trend; is more volatile and subject to fluctuations
Refer to the Article Summary. The increase in consumer spending discussed in the article summary was due in part to an improving housing market. This reason for the increase in consumer spending is most closely related to which of the following variables that determine the level of consumption?
household wealth
What is the key idea in the aggregate expenditure macroeconomic model? The key idea in the aggregate expenditure model is that
in any particular year, the level of GDP is determined mainly by the level of aggregate expenditure.
During the expansion phase of the business cycle, production, employment, and income ________ increase / decrease
increase
Potential GDP...
increases over time as the labor force grows, and increases over time as technological change occurs
GDP Deflator
indicates the average price level on all goods and services
When aggregate expenditure = GDP,
macroeconomic equilibrium occurs.
Technological change is _____________ for economic growth than additional capital
more important
Refer to the Article Summary. The increase in consumer spending discussed in the article summary was due in part to lower debt payments which have resulted in an increase in disposable income. The increase in consumption resulting from
movement up along
Disposable income is defined as
national income + transfers - taxes.
On the 45 -degree line diagram, for points that lie below the 45-degree line,
planned aggregate expenditure is less than GDP.
Actual investment spending does not include
spending on consumer durable goods.
If an increase in autonomous consumption spending of $25 million results in a $100 million increase in equilibrium real GDP, then
the MPC is 0.75.
If planned aggregate expenditure is below potential GDP and planned aggregate expenditure equals GDP, then
the economy is in a recession.
U.S. net export spending falls when
the growth rate of U.S. GDP is faster than the growth rate of GDP in other countries.
Potential real GDP is
the level of GDP attained when all firms are producing at capacity
John Maynard Keynes argued that if many households decide at the same time to increase saving and reduce spending
they may make themselves worse off by causing aggregate expenditure to fall, thereby pushing the economy into a recession.
The aggregate expenditure model focuses on the relationship between ________ and ________ in the short run, assuming ________ is constant.
total spending; real GDP; the price level