EC 202 final University of Oregon

During a cost-push inflation spiral, the money wage rate ________ and the quantity of money ________.

increases; increases

To eliminate the fiscal imbalance the government could

lower benefits and increase tax rates

A consumption function shows a

positive (direct) relationship between consumption expenditure and disposable income

In the short-run, an increase in the price of raw materials will ________ the price level and ________ real GDP

raise; decrease

The gross public debt was approximately $6 trillion in 2002 and approximately $16 trillion in 2012. These numbers definitely indicate that in the 10 years between 2002 and 2012

the government had budget deficits that totaled about $10 trillion

Which of the following are limitations of fiscal policy? I. There is a lag between recognizing that fiscal policy might be needed and when it actually takes effect. II. Economic forecasts might be incorrect. III. Monetary policy might counter fiscal policy. A) I only B) I and II C) I and III D) I, II and III

C) I and III

The government begins year 1 with $25 billion of debt. Based on the information in the above table, what is the amount of debt following year 2? A) $245 billion B) $250 billion C) $20 billion D) $5 billion

C) $20 billion

If a $75 billion increase in autonomous expenditure increases equilibrium expenditure by $150 billion, then the multiplier must be A) $75 billion. B) $225 billion. C) 2. D) 0.5.

C) 2.

The aggregate expenditure curve shows

how planned aggregate expenditure and real GDP are related

In January 2013 the Social Security payroll tax increased by 2 percentage points. This rise in the Social Security payroll tax ________ the U.S tax wedge

increased

The data below show data for Germany including real GDP (in billions of euros) and the price level. In which of the following year(s) did Germany experience inflation?

2003, 2004, 2005 and 2006

When disposable income is 0, consumption is $2,000. Then A) saving = $2,000. B) saving =-$2,000. C) the MPC = 0.2. D) saving = $0.

B) saving =-$2,000.

Disposable income(billions of dollars): 400 600 800 1,000 1,200 Consumption expenditure(billions of dollars): 450 600 750 900 1,050 Based upon the above table, the MPS is equal to A) 0.25. B) 0.75. C) 1. D) Cannot be determined from the information given.

A) 0.25.

If consumption expenditures for a household increase from $1,000 to $1,800 when disposable income rises from$1,000 to $2,000, the marginal propensity to consume is A) 0.8. B) 0.2. C) 80. D) 1.25.

A) 0.8.

The use of the U.S. federal budget to help stabilize the economy grew in reaction to the ________ and is known as ________. A) Great Depression of the 1930s; fiscal policy B) Great Depression of the 1930s; monetary policy C) stagflation of the 1970s; fiscal policy D) stagflation of the 1970s; government policy

A) Great Depression of the 1930s; fiscal policy

A higher price for oil shifts the A) SAS curve leftward. B) SAS curve rightward. C) LAS curve leftward. D) AD curve rightward.

A) SAS curve leftward.

Equilibrium expenditure is defined as the level of aggregate expenditure where A) aggregate planned expenditure equals real GDP. B) spending equals output. C) total inventories equal zero. D) actual aggregate expenditure equals real GDP.

A) aggregate planned expenditure equals real GDP.

In a demand-pull inflation, money wage rates rise because A) an increase in aggregate demand creates a labor shortage. B) a decrease in aggregate demand creates a labor surplus. C) a decrease in aggregate demand creates a labor shortage. D) an increase in aggregate demand creates a labor surplus.

A) an increase in aggregate demand creates a labor shortage.

In the above figure, the shift from AE0 to AE1 might have been caused by A) an increase in government expenditures. B) an increase in the real interest rate. C) an increase in the price level. D) All of the above answers are correct.

A) an increase in government expenditures.

Tax revenues A) are autonomous. B) vary with real GDP. C) are fixed over time. D) are independent of real GDP.

A) are autonomous.

Suppose that the government increases taxes. One effect of this change is that it decreases A) disposable income which then decreases aggregate supply. B) the size of the government expenditure multiplier. C) government expenditure, which decreases aggregate demand. D) disposable income, which decreases consumption expenditure and aggregate demand.

A) disposable income which then decreases aggregate supply.

For a household, the marginal propensity to save plus the marginal propensity to consume A) equals 1. B) equals 0. C) equals the household's disposable income. D) equals a number that is larger the larger the household's disposable income.

A) equals 1.

Disposable income is A) income minus taxes plus transfer payments. B) income plus transfer payments minus consumption expenditure. C) total income divided by the price level. D) income minus saving.

A) income minus taxes plus transfer payments.

Needs-tested spending ________ during recessions and ________ during expansions. A) increases; decreases B) increases; increases C) decreases; decreases D) decreases; increases

A) increases; decreases

In the above figure, an increase in autonomous expenditure is depicted by the movement from point E to A) point F. B) point G. C) point H. D) point I.

A) point F.

When autonomous expenditure decreases, A) the AE curve shifts downward. B) the AE curve shifts upward. C) the AE curve becomes less steep. D) there is a movement down along the AE curve.

A) the AE curve shifts downward.

A one-time rise in the price level can turn into a demand-pull inflation when A) the quantity of money persistently increases. B) the money wage rate continues to increase. C) taxes consistently increase. D) the quantity of money persistently decreases.

A) the quantity of money persistently increases.

The most direct way in which money eliminates the need for a double coincidence of wants is through its use as a A) unit of account. B) medium of exchange. C) store of value. D) standard of deferred payment.

A) unit of account.

Demand-pull inflation starts with a shift of the

AD curve rightward

The supply side effects of a cut in tax rates include ________ in the supply of labor and ________ in the supply of loanable funds. A) an increase; a decrease B) an increase; an increase C) a decrease; an increase D) a decrease; a decrease

B) an increase; an increase

Controlling the quantity of money and interest rates to influence aggregate economic activity is called A) fiscal policy. B) bank antitrust policy. C) foreign policy. D) monetary policy.

B) bank antitrust policy.

If real GDP is $19 trillion and planned aggregate expenditure is $19.5 trillion, inventories will be A) above their target and real GDP will increase. B) below their target and real GDP will increase. C) above their target and real GDP will decrease. D) below their target and real GDP will decrease.

B) below their target and real GDP will increase.

-Which of the following is a potential monetary policy instrument for the Fed? A) income tax rates B) federal funds rate C) government budget deficit D) profit rates 16-35 wrong

B) federal funds rate

Generational accounting shows that the present value of the government's commitments to pay benefits are________ the present value of its taxes. A) equal to B) greater than C) not comparable to D) less than

B) greater than

Demand-pull inflation is an inflation that results from an initial A) increase in wage rates. B) increase in aggregate demand. C) decrease in aggregate demand. D) increase in natural resource prices.

B) increase in aggregate demand.

The government budget deficit tends to decrease during the expansion phase of a business cycle because tax revenues ________ and government transfer payments ________. A) decrease; decrease B) increase; decrease C) increase; increase D) decrease; increase

B) increase; decrease

A cost-push inflation spiral results if the Fed's response to stagflation is to keep A) increasing aggregate supply. B) increasing aggregate demand. C) decreasing aggregate demand. D) decreasing aggregate supply.

B) increasing aggregate demand.

The Federal Open Market Committee A) is headed by the president of the New York Federal Reserve Bank. B) is the main policy-making organ of the Federal Reserve. C) consists of the Fed chairman and the 12 regional bank presidents. D) meets every week to review the state of the economy.

B) is the main policy-making organ of the Federal Reserve.

The main sources of cost-push inflation are increases in A) aggregate demand and real wage rates. B) money wage rates and the cost of raw materials. C) money wage rates and aggregate demand. D) real wage rates and the cost of raw materials.

B) money wage rates and the cost of raw materials.

The figure above illustrates the aggregate demand, short-run aggregate supply, and long-run aggregate supply in Lotus Land. The economy is currently at point D and the government increases its expenditure on goods and services. The economy will move to ________. The price level will ________, and the change in real GDP will be ________ the increase in aggregate demand. A) point C; rise; less than B) point A; fall; less than C) point D; rise; less than D) point B; remain constant; the same as

B) point A; fall; less than

A discretionary fiscal policy is a fiscal policy that A) involves a change in corporate tax rates. B) requires action by the Congress. C) involves a change in government defense spending. D) is triggered by the state of the economy.

B) requires action by the Congress.

The government's budget deficit or surplus equals the A) average outlay divided by average revenue. B) total tax revenue minus total government outlays. C) change in revenue minus change in outlays. D) change in outlays divided by change in revenue.

B) total tax revenue minus total government outlays.

Social Security benefits and expenditures on Medicare and Medicaid are classified as A) production of goods and services. B) transfer payments. C) purchases of goods and services. D) debt interest.

B) transfer payments.

In the above figure, at a disposable income level of $2 trillion, saving equals A) disposable income. B) zero. C) consumption expenditure. D) $4 trillion.

B) zero.

An increase in real GDP leads to A) a change in aggregate planned expenditure but whether the change is an increase or a decrease depends on whether nominal GDP increases or decreases. B) a decrease in aggregate planned expenditure. C) an increase in aggregate planned expenditure. D) no change in aggregate planned expenditure.

C) an increase in aggregate planned expenditure.

The output gap is the A) percentage increase in the economic growth rate of real GDP. B) percentage deviation of real GDP from potential GDP. C) difference between actual inflation and core inflation. D) difference in graduation levels between high school and college.

C) difference between actual inflation and core inflation.

If real disposable income increases by $1,500, consumption expenditures will A) decrease by less than $1,500. B) stay constant. C) increase by less than $1,500. D) increase by more than $1,500.

C) increase by less than $1,500.

Taking account of the supply-side effects, a tax cut on labor income ________ employment and ________potential GDP. A) decreases; decreases B) decreases; increases C) increases; increases D) increases; decreases

C) increases; increases

In the above figure, which fiscal policy could help move the economy to potential GDP? A) decreasing autonomous taxes B) decreasing government expenditure C) increasing government expenditure D) Both answers A and B are correct.

C) increasing government expenditure

An increase in government expenditure shifts the AD curve ________ and an increase in taxes shifts the AD curve ________. A) leftward; rightward B) rightward; leftward C) leftward; leftward D) rightward; rightward

C) leftward; leftward

In the above figure, point d represents the point where planned expenditures are ________ real GDP. A) equal to B) greater than C) less than D) There is not enough information to answer the question.

C) less than

When there is unplanned inventory investment, aggregate planned expenditure is ________ real GDP and actual investment is ________ planned investment. A) greater than; less than B) less than; less than C) less than; greater than D) greater than; greater than

C) less than; greater than

The multiplier effect A) generates instability in autonomous expenditure. B) promotes stability of the general price level. C) magnifies small changes in spending into larger changes in real GDP. D) increases the MPC.

C) magnifies small changes in spending into larger changes in real GDP.

During a deflation, the inflation rate is A) positive and falling. B) positive and rising. C) negative. D) positive and not changing.

C) negative.

The key goal of monetary policy is to A) maintain low inflation. B) keep the budget deficit small and/or the budget surplus large. C) reverse the productivity growth slowdown. D) lower taxes.

C) reverse the productivity growth slowdown.

Stagflation occurs when the price level ________ and real GDP ________. A) rises; increases B) falls; increases C) rises; decreases D) falls; decreases

C) rises; decreases

If the MPC increases from 0.75 to 0.80 and there are no income taxes or imports A) the slope of the savings function becomes larger. B) the slope of the consumption function becomes smaller. C) the multiplier becomes larger. D) the multiplier becomes smaller.

C) the multiplier becomes larger.

If people CORRECTLY anticipate an increase in aggregate demand, a result is A) an increase in the real value of outstanding government debt. B) there are no predictable results associated with an anticipated increase in aggregate demand. C) workers demanding higher money wages to keep the real wage unchanged. D) a lower rate of inflation in the current time period.

C) workers demanding higher money wages to keep the real wage unchanged.

Real GDP: 2500, 2400, 2300, 2200, 2100 C: 1430, 1360, 1290, 1220, 1150 I: 540, 540, 540, 540, 540 G: 400, 400, 400, 400, 400 X-M: 90, 100, 110, 120, 130 In the above table, C is consumption expenditure, I is investment, G is government expenditure, and X - M is net exports. All entries are in dollars. The equilibrium level of real GDP is A) $2,500. B) $2,200. C) $2,300. D) $2,400.

D) $2,400.

If there are no taxes or imports and MPC= 0.5, the multiplier equals A) 0.5. B) 6.0. C) 5.0. D) 2.0.

D) 2.0.

Which of the following can start an inflation? A) a decrease in aggregate supply B) an increase in aggregate supply C) an increase in aggregate demand D) Both answers A and C are correct.

D) Both answers A and C are correct.

The Federal Reserve's monetary policy goals of maximum employment mean A) that cyclical unemployment should not necessarily be minimized. B) a zero percent natural unemployment rate. C) keeping the unemployment rate close to the natural unemployment rate. D) a zero percent unemployment rate.

D) a zero percent unemployment rate.

-Taxes and government expenditures that change in response to changes in the level of economic activity, without need for additional government action, are examples of A) built-in monetary stabilizers. B) cyclically balanced budgets. C) discretionary fiscal variables. D) automatic fiscal policy. 16-35 wrong

D) automatic fiscal policy.

The Federal Reserve System is the A) insurance agency that insures deposits. B) federal government agency that undertakes deregulation for depository institutions. C) law enforcement agency that tracks counterfeit money. D) central bank of the United States.

D) central bank of the United States.

The positive slope of the consumption function indicates that A) the amount of household wealth is subject to change. B) consumers spend less out of each extra dollar of income. C) when prices fall consumers spend more. D) consumers increase their total consumption expenditure when disposable income increases.

D) consumers increase their total consumption expenditure when disposable income increases.

Consumers divide disposable income into A) saving and taxes. B) consumption and taxes. C) consumption, saving, and taxes. D) consumption and saving.

D) consumption and saving.

Suppose that the slope of the AE curve is 0.75. Then a $100 decrease in autonomous spending means equilibrium expenditure will A) decrease by $750. B) increase by $750. C) increase by $400. D) decrease by $400.

D) decrease by $400.

Autonomous consumption is that portion of consumption expenditure that is not influenced by A) the legal authorities. B) preferences. C) prices. D) income.

D) income.

To end a deflation, the Fed must A) increase the quantity of money. B) decrease the growth rate of the money stock. C) increase taxes. D) increase the growth rate of the money stock.

D) increase the growth rate of the money stock.

Fiscal policy A) is enacted by the Federal Reserve. B) involves changing the money supply. C) involves changing interest rates. D) involves changing taxes and government spending.

D) involves changing taxes and government spending.

Money A) requires a double coincidence of wants. B) loses its value as it becomes older. C) is any commodity that is generally acceptable as a means of payment. D) is always composed of coins and paper.

D) is always composed of coins and paper.

The part of aggregate planned expenditure that does not vary with real GDP A) equals equilibrium expenditure. B) equals zero. C) is induced expenditure. D) is autonomous expenditure.

D) is autonomous expenditure.

According to the Laffer curve, raising the tax rate A) always decreases the amount of tax revenue. B) always increases the amount of tax revenue. C) does not change the amount of tax revenue. D) might increase, decrease, or not change the amount of tax revenue.

D) might increase, decrease, or not change the amount of tax revenue.

Dissaving A) is equal to taxation when disposable income is zero. B) is equal to consumption expenditure when disposable income is greater than zero. C) is equal to the amount of saving when consumption is less than disposable income. D) occurs when consumption is greater than disposable income.

D) occurs when consumption is greater than disposable income.

Aside from being a means of payment, the other functions of money are A) medium of exchange, unit of account, and means of lending. B) medium of exchange, unit of account, and store of value. C) medium of exchange and the ability to buy goods and services. D) pricing, contracts, and store of value.

D) pricing, contracts, and store of value.

Which of the following government bodies does NOT participate directly in formulating U.S. fiscal policy? A) the Senate B) the House of Representatives C) the President and his cabinet D) the Federal Reserve Board

D) the Federal Reserve Board

The sum of past budget deficits minus the sum of past budget surpluses refers to A) the structural national debt. B) the federal government net worth. C) the cyclically unbalanced budget. D) the national debt.

D) the national debt.

The price level falls if

aggregate demand increases more slowly than aggregate supply

Which of the following is NOT a potential start of a demand-pull inflation?

an increase in the money wage rate

The supply side effects of a change in taxes on labor income means that ________ in taxes on labor income will shift the ________

an increase; labor supply curve leftward

If prices are fixed, an increase in aggregate expenditures results in an increase in equilibrium GDP that

is greater than the change in aggregate expenditure

In the above figure, which path represents a cost-push inflation?

point A to B to D to E to G

In the above figure the economy is initially at point A on the aggregate expenditure curve AE0. Suppose firms expect profits to increase and decide to increase investment. As a result

the AE curve shifts upward to a curve such as AE2