Econ Exam

Refer to the given data. At the $200 level of disposable income: A) the marginal propensity to save is 2 1/2 percent. B) the average propensity to save is 0.20. C) dissaving is $5. D) the average propensity to consume is 0.80.

C) dissaving is $5.

If the marginal propensity to consume is .9, then the marginal propensity to save must be: A) 0.1 B) 1.0 C) 1.1 D) 0.9

A) 0.1

Assume a machine that has a useful life of only one year costs $2,000. Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300. The expected rate of return on this: A) 15 percent B) 20 percent C) 7.5 percent D) 10 percent

A) 15 percent

Which aggregate expenditure schedule AE in the diagram for a private closed economy implies the largest MPC, assuming investment on the same at each level of income?: A) AE4 B) AE3 C) AE2 D) AE1

A) AE4

The table gives aggregate demand and supply schedules for a hypothetical economy. If the price level is 250 and producers supply $450 of real output: A) a surplus of real output of $150 will occur B) a shortage of real output of $150 will occur C) a shortage of real output of $100 will occur D) neither a shortage nor a surplus of real output will occur

A) a surplus of real output of $150 will occur

Refer to the diagram. Which of the following would shift the investment demand curve from ID1 to ID2?: A) higher expected rates of return on investment B) a higher interest rate C) lower expected rates of return on investment D) a lower interest rate

A) higher expected rates of return on investment

In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to: A) increase aggregate demand B) reduce aggregate supply C) reduce aggregate demand D) affect neither aggregate supply nor aggregate demand

A) increase aggregate demand

Refer to the diagram for a private closed economy. The equilibrium level of GDP is: A. $300. B. $100. C. $200. D. $400.

A. $300.

The multiplier can be calculated as: A. 1/(1 − MPC). B. 1 − MPC = MPS. C. MPC/MPS. D. 1/(MPS + MPC)

A. 1/(1 − MPC).

If the dollar appreciates relative to foreign currencies, we would expect: A. a country's net exports to fall. B. a country's exports and imports to both fall. C. a country's net exports to rise. D. the multiplier to decrease.

A. a country's net exports to fall.

The real-balances effect indicates that A. a higher price level will decrease the real value of many financial assets and therefore reduce spending. B. a higher price level will increase the real value of many financial assets and therefore increase spending. C. a lower price level will decrease the real value of many financial assets and therefore reduce spending. D. an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending.

A. a higher price level will decrease the real value of many financial assets and therefore reduce spending.

For a private closed economy, an unintended decline in inventories suggests that: A. aggregate expenditures exceed production. B. planned investment is greater than consumption. C. aggregate expenditures are less than the business sector expected them to be. D. actual investment exceeds saving.

A. aggregate expenditures exceed production.

An inflationary expenditure gap is an amount by which: A. aggregate expenditures exceed the full-employment level of GDP. B. aggregate expenditures exceed any given level of GDP. C. saving exceeds investment at the full-employment GDP. D. equilibrium GDP falls short of the full-employment GDP

A. aggregate expenditures exceed the full-employment level of GDP.

The 45-degree line on a graph relating consumption and income shows: A. all the points at which consumption and income are equal. B. all the points at which saving and income are equal. C. all the points where the MPC is constant. D. the amounts households will plan to save at each possible level of income.

A. all the points at which consumption and income are equal.

The immediate-short-run aggregate supply curve is A. horizontal. B. upsloping. C. downsloping. D. vertical.

A. horizontal.

In the diagram, a shift from AS1 to AS3 might be caused by a(n) A. increase in the prices of imported resources. B. decrease in business taxes. C. decrease in the prices of domestic resources. D. increase in productivity.

A. increase in the prices of imported resources.

If the price level decreases, then the aggregate expenditures schedule will shift. This translates into a A. movement down along the aggregate demand curve. B. movement up along the aggregate demand curve. C. shift in aggregate demand to the right. D. shift in aggregate demand to the left.

A. movement down along the aggregate demand curve.

If investment increases by $10 billion and the economy's MPC is 0.8, the aggregate demand curve will shift A. rightward by $50 billion at each price level. B. leftward by $50 billion at each price level. C. rightward by $10 billion at each price level. D. leftward by $40 billion at each price level.

A. rightward by $50 billion at each price level.

One of the most important views expressed by classical macroeconomists was that: A. supply creates its own demand. B. wages and prices are always rising. C. wages and prices are inflexible. D. demand creates its own supply.

A. supply creates its own demand.

The most important determinant of consumer spending is: A. the level of income B. the stock of wealth C. consumer expectations D. the level of household borrowing

A. the level of income

The investment demand curve portrays an inverse (negative) relationship between: A. the real interest rate and investment. B. investment and real GDP. C. the price level and investment. D. the nominal interest rate and investment.

A. the real interest rate and investment.

The table illustrates the multiplier process resulting from an autonomous increase in investment by $5. The total change in income resulting from initial change in investment will be: A) $10 B) $20 C) $15 D) $5

B) $20

Assume the MPC is .8. If the government were to impose $50 billion of new taxes on household income, consumption spending would initially decrease by: A) $90 billion B) $40 billion C)$50 billion D) $100 billion

B) $40 billion

In the diagram, a shift from AS1 to AS2 might be caused by: A) stricter government regulations B) a decrease in the prices of domestic resources. C) an increase in business taxes. D) an increase in the prices of imported resources.

B) a decrease in the prices of domestic resources.

As disposable income increases, consumption: A) increase and saving decreases B) and saving both increase C) decreases and saving increases D) and saving both decrease

B) and saving both increase

The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will: A) increase both US imports and US exports B) increase US imports and decrease US exports C) decrease both US imports and US exports. D) increase the amount of US real output purchased.

B) increase US imports and decrease US exports

Refer to the diagrams. Assuming a constant price level, an increase in aggregate expenditures from AE 1 to AE 2 would A) move the economy from A to C along AD1. B) increase aggregate demand from AD1 to AD2. C) decrease aggregate demand from AD2 to AD1. D) move the economy from C to A along AD1.

B) increase aggregate demand from AD1 to AD2.

Refer to the diagram for a private closed economy. In this economy, investment: A) is $60 billion at all levels of GDP B) is $40 billion at all levels of GDP C) increases as GDP increases D) decreases as GDP increases

B) is $40 billion at all levels of GDP

In a recessionary expenditure gap, the equilibrium level of real GDP is: A) greater than planned aggregate expenditures. B) less than full-employment GDP. C) less than planned aggregate expenditures. D) greater than full-employment GDP.

B) less than full-employment GDP.

An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the: A) real-balances effect B) multiplier effect C) wealth effect D) net export effect

B) multiplier effect

Complete the accompanying table and answer the question on the basis of the resulting data. All figures are in billions of dollars. For the open economy, the equilibrium GDP and the multiplier are: A. $400 and 4. B. $400 and 5. C. $300 and 2.5. D. $450 and 5.

B. $400 and 5.

Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return on this tool is: A. 2 percent. B. 20 percent. C. 8 percent. D. 80 percent.

B. 20 percent.

The table gives aggregate demand and supply schedules for a hypothetical economy. The equilibrium price level will be A. 300. B. 200. C. 250. D. 150.

B. 200.

In the diagram, the economy's relevant aggregate demand and immediate-short-run aggregate supply curves, respectively, are lines A. 2 and 3. B. 4 and 3. C. 2 and 4. D. 4 and 1.

B. 4 and 3.

In a mixed open economy, the equilibrium GDP exists where: A. Ca + Ig + Xn = Sa + T. B. Ca + Ig + Xn + G = GDP. C. Ca + Ig = Sa + T + X. D. Ca + Ig + Xn intersects the 45-degree line

B. Ca + Ig + Xn + G = GDP.

An increase in investment and government spending can be expected to shift the A. aggregate expenditures curve upward and the aggregate demand curve leftward. B. aggregate expenditures curve upward and the aggregate demand curve rightward. C. aggregate expenditures curve downward and the aggregate demand curve leftward. D. aggregate expenditures curve downward and the aggregate demand curve rightward.

B. aggregate expenditures curve upward and the aggregate demand curve rightward.

A decline in disposable income: A. increases consumption by moving upward along a specific consumption schedule. B. decreases consumption by moving downward along a specific consumption schedule. C. increases consumption because it shifts the consumption schedule upward. D. decreases consumption because it shifts the consumption schedule downward.

B. decreases consumption by moving downward along a specific consumption schedule.

Other things equal, a decrease in the real interest rate will A. reduce investment and shift the AD curve to the left. B. expand investment and shift the AD curve to the right. C. reduce investment and shift the AD curve to the right. D. expand investment and shift the AD curve to the left.

B. expand investment and shift the AD curve to the right.

The level of aggregate expenditures in the private closed economy is determined by the: A. intersection of the saving and consumption schedules. B. expenditures of consumers and businesses. C. equality of the MPC and MPS. D. the intersection of the saving schedule and the 45-degree line.

B. expenditures of consumers and businesses.

The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will A. shift the aggregate demand curve leftward. B. increase U.S. exports and decrease U.S. imports. C. shift the aggregate supply curve leftward. D. decrease U.S. exports and increase U.S. imports.

B. increase U.S. exports and decrease U.S. imports.

Investment and saving are, respectively: A. stocks and flows. B. injections and leakages. C. income and wealth. D. leakages and injections.

B. injections and leakages.

Refer to the diagram for a private closed economy. Gross investment: A. must be subtracted from consumption to determine aggregate expenditures. B. is independent of the level of GDP. C. is positively related to the level of GDP. D. is negatively related to the level of GDP.

B. is independent of the level of GDP.

If Trent's MPC is 0.80, this means that he will: A. save two-tenths of any level of disposable income. B. spend eight-tenths of any increase in his disposable income. C. break even when his disposable income is $8,000. D. spend eight-tenths of any level of disposable income.

B. spend eight-tenths of any increase in his disposable income.

Refer to the accompanying information for a closed economy. If both government spending and taxes are zero, the equilibrium level of GDP is: A) $500 B) $400 C) $300 D) $200

C) $300

Refer to the diagram. If aggregate expenditures in this economy are (C + Lg + Xn2) then the equilibrium levels of GDP and aggregate expenditures will be: A) 0A and AH respectively B) 0A 0E respectively C) 0D and DJ respectively D) 0B and 0F respectively

C) 0D and DJ respectively

In the diagram, the economy's immediate-short-run AS curve is line ____, its short-run AS curve is ___, and its long-run AS curve is line _____: A) 1;2;3 B) 2;3;4 C) 3;2;1 D) 1;2;4

C) 3;2;1

Which of the diagrams for the US economy best portrays the effects of an increase in foreign spending on US products?: A) A B) B C) C D) D

C) C

Suppose the economy's saving schedule shifts from S1 to S2, as shown in the given diagram. We can say that its: A) MPC has increased B) APS has increased at all levels of disposable income. C) MPS has increased. D) APS has decreased at all levels of disposable income.

C) MPS has increased.

The multiplier is useful in determining the: A) change in the rate of inflation from a change in the interest rate. B) level of business inventories. C) change in GDP resulting from a change in spending. D) full-employment unemployment rate.

C) change in GDP resulting from a change in spending.

If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to: A) save is three-fifths B) consume is one-half C) consume is three-fifths D) consume is two-fifths

C) consume is three-fifths

A private closed economy includes: A) households, business, and government, but not international trade. B) households, business, and international trade, but not government. C) households and business, but not government or international trade. D) households only.

C) households and business, but not government or international trade.

Refer to the diagram. The level of government spending: A) is equal to tax collections at each level of GDP. B) varies inversely with the level of GDP. C) is the same at all levels of GDP. D) varies directly with the level of GDP.

C) is the same at all levels of GDP.

If net exports decline from zero to some negative amount. the aggregate expenditures schedule would: A) become steeper B) shift upward C) shift downward D) not move (net exports do not affect aggregate expenditures)

C) shift downward

Refer to the diagram for a private closed economy. The $400 level of GDP is: A) that output at which saving is zero B) unstable because aggregate expenditures exceed GDP C) unstable because aggregate expenditures are less than GDP D) too high because consumption exceeds investment

C) unstable because aggregate expenditures are less than GDP

Refer to the given table, which illustrates the multiplier process. The change in income in round two will be A. $24 B. $4 C. $16 D. $20

C. $16

Which of the diagrams for the U.S. economy best portrays the effects of an increase in resource productivity? A. B B. C C. A D. D

C. A

Refer to the diagram for a private closed economy. The multiplier is A. GF / GB. B. GF / DE. C. AB / GF. D. FE / GF

C. AB / GF.

Refer to the given diagram. At income level F, the volume of saving is: A. CF − BF. B. BD. C. CD. D. AB.

C. CD.

Refer to the diagram, which applies to a private closed economy. If aggregate expenditures are C + Ig2, the amount of saving at income level J is: A. LK. B. KD. C. KN. D. JD.

C. KN.

Refer to the given diagram, which shows consumption schedules for economies A and B. We can say that the: A. MPS is smaller in B than in A. B. APC at any given income level is greater in B than in A. C. MPC is greater in A than in B. D. MPC is greater in B than in A.

C. MPC is greater in A than in B.

The aggregate expenditures model is built upon which of the following assumptions? A. Prices are fully flexible. B. Government spending policy has no ability to affect the level of output. C. Prices are fixed. D. The economy is at full employment

C. Prices are fixed.

Dissaving occurs where: A. income exceeds consumption. B. saving exceeds consumption. C. consumption exceeds income. D. saving exceeds income.

C. consumption exceeds income.

The labels for the axes of an aggregate supply curve should be A. aggregate demand for the vertical axis and real national output for the horizontal axis. B. real domestic output for the vertical axis and price level for the horizontal axis. C. real domestic output for the horizontal axis and price level for the vertical axis. D. real employment for the vertical axis and price level for the horizontal axis.

C. real domestic output for the horizontal axis and price level for the vertical axis.

Graphically, demand-pull inflation is shown as a A. leftward shift of the AD curve. B. rightward shift of the AS curve. C. rightward shift of the AD curve. D. leftward shift of the AS curve.

C. rightward shift of the AD curve.

If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule: A. may shift either upward or downward. B. will not shift. C. will shift downward. D. will also shift upward.

C. will shift downward.

Refer to the diagram for a private closed economy. The marginal propensity to consume is: A) GF/GB B) FB/0B C) DA/GB D) FE/DE

D) FE/DE

Which of the following is correct?: A) APC + MPS = APS + MPC B) APC + MPC = APS + MPS C) APC - APS = MPC - MPS D) MPC + MPS = APC + APS

D) MPC + MPS = APC + APS

Other things equal, if the US dollar were to depreciate, the: A) aggregate supply curve would shift to the right. B) aggregate demand curve would shift to the left. C) aggregate demand curve would remain fixed in place. D) aggregate supply curve would shift to the left.

D) aggregate supply curve would shift to the left.

Refer to the given diagram. Consumption will be equal to income at: A) point C B) an income of F. C) point D D) an income of E.

D) an income of E.

If the multiplier in an economy is 5, a $20 billion increase in net exports will: A) decrease GDP by $100 billion B) increase GDP by $20 billion C) reduce GDP by $4 billion D) increase GDP by $100 billion

D) increase GDP by $100 billion

The most important determinant of consumption and saving is the: A) level of bank credit B) interest rate C) price level D) level of income

D) level of income

The equilibrium price level and level of real output occur where: A) real output is at its highest possible level. B) the price level is at its lowest level. C) exports equal imports. D) the aggregate demand and supply curves intersect.

D) the aggregate demand and supply curves intersect.

The real-balances, interest rate, and foreign purchases effects all help explain: A) shifts in the aggregate demand curve B) why the aggregate supply curve is upsloping C) shifts in the aggregate supply curve D) why the aggregate demand curve is downsloping

D) why the aggregate demand curve is downsloping

Refer to the given table, which illustrates the multiplier process. The total change in income resulting from the initial change in investment will be: A. $20 B. $200 C. $80 D. $100

D. $100

f the MPC in an economy is 0.9, a $1 billion increase in government spending will ultimately increase consumption by: A. $0.9 billion. B. $10 billion. C. $1 billion. D. $9 billion.

D. $9 billion.

Refer to the given data. The marginal propensity to consume is: A. 0.25 B. 0.20 C. 0.75 D. 0.8

D. 0.8

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 changes in aggregate demand and supply in the diagram produce A. a higher price level. B. a decline in real output and a stable price level. C. an expansion of real output and a higher price level. D. an expansion of real output and a stable price level.

D. an expansion of real output and a stable price level.

Other things equal, the slope of the aggregate expenditures schedule will increase as a result of: A. a decline in the general price level. B. an increase in the MPS. C. a decline in the size of the inflationary gap. D. an increase in the MPC.

D. an increase in the MPC.

The consumption schedule directly relates: A. saving to the level of disposable income. B. disposable income to domestic income. C. consumption to saving. D. consumption to the level of disposable income.

D. consumption to the level of disposable income.

The aggregate demand curve A. is upsloping because a higher price level is necessary to make production profitable as production costs rise. B. shows the amount of expenditures required to induce the production of each possible level of real output. C. is downsloping because production costs decline as real output increases. D. shows the amount of real output that will be purchased at each possible price level.

D. shows the amount of real output that will be purchased at each possible price level.