Econ test 3

Assume the MPC is 0.8. If the government were to impose $50 billion of new taxes on household income, consumption spending would initially decrease by

$40 billion

If the MPC in an economy is 0.9, a $1 billion increase in government spending will ultimately increase consumption by

$9 billion

If the marginal propensity to consume is .9, then the marginal propensity to save must be:

0.1

The most important determinant of consumption and saving is the

level of income

An inflationary expenditure gap is the amount by which:

aggregate expenditures exceed the full-employment level of GDP.

The multiplier can be calculated as

1/(1-MPC)

An increase in investment and government spending can be expected to shift the

Aggregate expenditures curve upward and the aggregate demand curve rightward

Other things equal, if the U.S. dollar were to depreciate, the

aggregate supply curve would shift to the left.

In a mixed open economy, the equilibrium GDP exists where

Ca + Ig + Xn + G = GDP.

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

Consume is three-fifths

In a recessionary expenditure gap, the equilibrium level of real GDP is

Less than full-employment GDP

Which of the following is correct ?

MPC + MPS = APC + APS

An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the

Multiplier effect

The labels for the axes of an aggregate supply curve should be:

Real domestic output for the horizontal axis and price level for the vertical axis

The labels for the axes of the aggregate demand graph should be:

Real domestic output on the horizontal axis and the price level on the vertical axis

Graphically, demand-pull inflation is shown as a:

Rightward shift of the AD curve

If Trent's MPC is 0.80, this means that he will

Spend eight-tenths of any increase in his disposable income

One of the most important views expressed by classical macroeconomists was that

Supply creates its own demand

If the dollar appreciates relative to foreign currencies, we would expect:

a country's net exports to fall.

The real-balances effect indicates that

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

If the price level decreases, then the aggregate expenditures schedule will shift. This translates into a

a movement down along the aggregate demand curve

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.

aggregate demand curve would shift to the right.

For a private closed economy, an unintended decline in inventories suggests that:

aggregate expenditures exceed production.

The 45-degree line on a graph relating consumption and income shows:

all the points at which consumption and income are equal.

Other things equal, the slope of the aggregate expenditures schedule will increase as a result of

an increase in the MPC

As disposable income increases, consumption:

and saving both increase

The multiplier is useful in determining the:

change in GDP resulting from a change in spending

Dissaving occurs where

consumption exceeds income.

The consumption schedule directly relates

consumption to the level of disposable income.

A decline in disposable income

decreases consumption by moving downward along a specific consumption schedule.

Other things equal, a decrease in the real interest rate will

expand investment and shift the AD curve to the right.

The level of aggregate expenditures in the private closed economy is determined by the:

expenditures of consumers and businesses.

immediate-short-run aggregate supply curve is

horizontal

A private closed economy includes

households and businesses, but not government or international trade.

If the multiplier in an economy is 5, a $20 billion increase in net exports will:

increase GDP by $100 billion.

The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will

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

The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will:

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

An increase in expected future income will

increase aggregate demand

In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to:

increase aggregate demand

A decline in the real interest rate will

increase the amount of investment spending.

Investment and saving are, respectively:

injections and leakages

The aggregate expenditures model is built upon which of the following assumptions?

prices are fixed

If investment increases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift:

rightward by $50 billion at each price level.

If net exports decline from zero to some negative amount, the aggregate expenditures schedule would

shift downward

The aggregate demand curve

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

The equilibrium price level and level of real output occur where

the aggregate demand and supply curves intersect.

The consumption schedule shows

the amounts households intend to consume at various possible levels of aggregate income.

The investment demand curve portrays an inverse ( negative ) relationship between

the real interest rate and investment.

If an unintended increase in business inventories occurs:

we can expect businesses to lower the level of production.

The real-balances, interest-rate, and foreign purchases effects all help explain

why the aggregate demand curve is downsloping.

If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule:

will shift downward