Macro CH 10/11 unit 3

AE

C+I

An increase in personal taxes will shift the consumption schedule (upward, downward) and the saving schedule (upward, downward).

Downwards, Downwards

T/F The durability of capital goods is one of the major reasons for the stability of investment spending.

F

UAI/UDI

GDP-AE

If the value of the dollar drops in currency markets, net exports will likely (increase, decrease).

Increase

List three factors that would shift the consumption schedule downward

Taxes, price level increase, and

An increase in taxes will have a greater effect on the equilibrium GDP

The larger the MPC

As disposable income increases, ceteris paribus: a. both consumption and saving increase b. consumption increases and saving decreases c. consumption decreases and saving decreases d. consumption decreases and saving increases

a

Exports have the same effect on the current size of GDP as: A. investment. C. saving. B. imports. D. taxes.

a

Cyclical unemployment in the United States is essentially the consequence of: A) overspending by the government C) rapid technological progress. B) a deficient level of aggregate expenditures. D) the geographic immobility of the labor force.

b

If Mark's MPC is .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. spend eight-tenths of any level of disposable income. D. break even when his disposable income is $8,000.

b

If unintended increases in business inventories occur, we can expect: A. an offsetting increase in planned investment. C. inflation. B. a decline in GDP and rising unemployment. D. an increase in consumption.

b

In contrast to the investment schedule, the consumption schedule is: A. relatively unstable. C. horizontal B.relatively stable. D.downsloping

b

Which of the following statements concerning the equilibrium level of GDP is incorrect? A) there will be no tendency for businesses to alter the aggregate rate of production B) full employment will necessarily be attained C) no unintended changes in inventories will occur D) leakages equal injections

b

Other things equal, if a change in the tastes of American causes them to purchase more foreign goods at each level of U.S. GDP, then a. unemployment will decrease b. U.S. real GDP will fall c. inflation will occur domestically d. U.S. real GDP will rise

b. U.S. real GDP will fall

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

c

The investment-demand curve suggests: A. there is a direct relationship between the real rate of interest and the level of investment spending. B. that changes in the real interest will not affect the amount invested. C. there is an inverse relationship between the real rate of interest and the level of investment spending. D. that an increase in business taxes will tend to stimulate investment spending.

c

The multiplier effect indicates that: A. a small increase in total income will generate a large change in aggregate expenditures. B. a decline in the interest rate will cause a proportionately larger increase in investment. C. a change in aggregate expenditures will change aggregate income by a larger amount. D. a change in aggregate expenditures will increase aggregate income by the same amount.

c

Which is an injection of spending into the income expenditures stream? a. imports b. saving c. investment d. taxes

c

MPC

change in consumption/change in income (∆C/∆DI)

MPS

change in savings/change in income (∆S/∆DI)

unplanned changes in inventories

changes in unsold goods caused by un-expected changes in aggregate expenditures

All else equal, which would increase an economy's real GDP and employment? a. an increase in the exchange rate for foreign currencies b. higher tariffs on goods imported from abroad c. an appreciation of the dollar relative to foreign currencies d. an increase in the level of national income among the trading partners for this economy

d

balanced budget multiplier

equal changes in government spending and taxes change GDP

other things equal, the multiplier effect associated with a change in government spending is

equal to that associated with a change in investment or consumption

consumption schedule shifters

expectations, wealth, credit, taxes, price level

Suppose the economy's multiplier is 2. Other things equal, a $50 billion increase in Government expenditures plus a $50 billion dollar tax increase will cause equilibrium GDP to

increase by $50 billion

Other things equal, if $100 billion of Government purchases is added to private spending, GDP will

increase by more than $100 billion

List three factors that would shift the consumption schedule upward

increase in wealth, decrease in taxes, and

Exports have the same effect on the current size of GDP as

investment

investment demand curve

investment spending is inversely related to real interest rates

wealth effect

tendency for consumption to rise when people's assets rise in value

expected rate of return

the profit rate to be earned by the purchase of capital

paradox of thrift

the result is that consumption falls and hence GDP falls, thus hurting the economy

45 degree line

value of GDP = value of AE