macro exam 2 (6,7,8,9)
The marginal propensity to save is 0.2. Equilibrium GDP will decrease by $50 billion if aggregate expenditures schedule decrease by: a. $10 billion b. $15 billion c. $16 billion d. $40 billion
a. $10 billion
The so-called wealth effect will result in households: a. Spending more and saving less b. Spending less and saving more c. Spending less and saving less d. Spending more and saving more
a. Spending more and saving less
Refer to the above graph. What combination would most likely cause a shift from AD1 to AD2? a. An increase in taxes and an increase in government spending b. A decrease in taxes and an increase in government spending c. An increase in taxes and no change in government spending d. A decrease in taxes and a decrease in government spending
b. A decrease in taxes and an increase in government spending
Refer to the graph above. Which of the following factors will shift AS1 to AS3? a. An increase in productivity b. An increase in input prices c. A decrease in business taxes d. A decrease in household indebtedness
b. An increase in input prices
The short-run aggregate supply curve: a. Becomes flatter at output levels above the full-employment output b. Becomes steep at output levels above the full-employment output c. Is upward-sloping with a constant slope d. Is horizontal
b. Becomes steep at output levels above the full-employment output
If Sara Thomas' disposable income increases from $4,000 to $4,500 and her level of saving increases from $200 to $325, it may be concluded that her marginal propensity to: a. Consume is .80 b. Consume is .75 c. Consume is .60 d. Save is .30
b. Consume is .75
The amount of consumption in an economy correlates: a. Inversely with the level of disposable income b. Directly with the level of disposable income c. Directly with the level of saving d. Directly with the rate of interest
b. Directly with the level of disposable income
Automatic stabilizers smooth fluctuations in the economy because they produce changes in the government's budget that: a. Reinforce changes in GDP b. Help offset changes in GDP c. Produce a cyclically-adjusted budget d. Produce a standardized budget
b. Help offset changes in GDP
An increase in productivity will: a. Increase aggregate demand b. Increase aggregate supply c. Increase aggregate supply and aggregate demand d. Decrease aggregate supply and aggregate demand
b. Increase aggregate supply
Refer to the graph above, which shows an aggregate demand curve. If the price level decreases from 200 to 100, the real output demanded will: a. Increase by $800 billion b. Increase by $200 billion c. Decrease by $600 billion d. Decrease by $200 billion
b. Increase by $200 billion
Assuming that MPC is .75, equal increases in government spending and tax collections by $10 billion will: a. Leave the equilibrium GDP unchanged b. Increase the equilibrium GDP by $10 billion c. Increase the equilibrium GDP by $2.5 billion d. Reduce the equilibrium GDP by $10 billion
b. Increase the equilibrium GDP by $10 billion
If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be: a. Increased government spending or increased taxation, or a combination of the two actions b. Increased government spending or decreased taxation, or a combination of the two actions c. Increased government spending or increased taxation, but not a combination of the two actions d. Decreased government spending or decreased taxation, or a combination of the two actions
b. Increased government spending or decreased taxation, or a combination of the two actions
The expenditure multiplier concept of the aggregate-expenditures model: a. Is not at all relevant in the AD-AS model b. Magnifies the shifts of the aggregate demand curve c. Explains movement up or down the aggregate demand curve d. Reverses the shift of the aggregate demand curve
b. Magnifies the shifts of the aggregate demand curve
Refer to the consumption schedule above. At income level 1, the amount of saving is: a. Positive b. Negative c. Zero d. Not measurable
b. Negative
Refer to the figure above. If AD1 shifts to AD2, the full multiplier effect would be an increase in real GDP from: a. Q1 to Q2 b. Q1 to Q3 c. Q2 to Q3 d. Q2 to more than Q3
b. Q1 to Q3
Refer to the figure above. The massive increase in government spending during World War II moved the economy in the span of a few short years from mass unemployment and price stability to "overfull" employment. This situation can be best illustrated in the figure above as a: a. Shift from AD2 to AD1 b. Shift from AD1 to AD2 c. Movement along AD1 from Q4 to Q1 d. Movement along AD2 from Q2 to Q3
b. Shift from AD1 to AD2
In an economy, for every $10 million increase in disposable income, saving increases by $2 million. It can be concluded that the: a. Slope of the saving schedule is 2 b. Slope of the consumption schedule is .8 c. Marginal propensity to consume is .2 d. Average propensity to save is 0.2
b. Slope of the consumption schedule is .8
If a family's MPC is .7, it means that the family is: a. Operating at the break-even point b. Spending seven-tenths of any increment to its income c. Necessarily dissaving d. Spending 70 percent of its disposable income
b. Spending seven-tenths of any increment to its income
An increase in disposable income: a. Increases consumption because it shifts the consumption schedule upward b. Decreases consumption because it shifts the consumption schedule downward c. Increases consumption by moving upward along a given consumption schedule d. Decreases consumption by moving downward along a given consumption schedule
c. Increases consumption by moving upward along a given consumption schedule
The American Recovery and Reinvestment Act of 2009 included mostly: a. Increases in taxes and in government spending b. Decreases in taxes and in government spending c. Increases in government spending and decreases in taxes d. Decreases in government spending and increases in taxes
c. Increases in government spending and decreases in taxes
The real-balances effect on aggregate demand suggests that a: a. Lower price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending b. Lower price level will decrease the real value of many financial assets and therefore cause an increase in spending c. Lower price level will increase the real value of many financial assets and therefore cause an increase in spending d. Higher price level will increase the real value of many financial assets and therefore cause an increase in spending
c. Lower price level will increase the real value of many financial assets and therefore cause an increase in spending
Refer to the graph above. Assume that the economy is in a recession with a price level of P1 and output level Q1. The government then adopts an appropriate discretionary fiscal policy. What will be the most likely new equilibrium price level and output? a. P2 and Q4 b. P1 and Q1 c. P2 and Q2 d. P1 and Q3
c. P2 and Q2
The goal of expansionary fiscal policy is to increase: a. The price level b. Aggregate supply c. Real GDP d. Unemployment
c. Real GDP
The graph above shows the relationship between consumption and income. Which of the following statements is correct? a. The marginal propensity to consume in the economy shown is greater than 1 b. The marginal propensity to consume varies across income levels c. The average propensity to consume at income level K is given by KM divided by KN d. The marginal propensity to consume can be calculated by dividing LM by 0K
c. The average propensity to consume at income level K is given by KM divided by KN
Disinflation refers to a situation where: a. Price level falls, but the rate inflation does not b. Price level rises, but the rate of inflation does not c. The rate of inflation falls, but the price level does not d. The rate of inflation rises, but the price level does not
c. The rate of inflation falls, but the price level does not
The disposable income (DI) and consumption (C) schedules are for a private, closed economy. All figures are in billions of dollars. Refer to the above data. If plotted on a graph, the slope of the consumption schedule would be: Select one: a. .6 b. .7 c. .8 d. .9
d. .9
Refer to the graph above. Which of the following factors will shift AD1 to AD3? a. An increase in expected returns on investment b. An increase in productivity c. A decrease in real interest rates d. A decrease in consumer wealth
d. A decrease in consumer wealth
Refer to the above figures with consumption schedules in figure (A) and saving schedules in figure (B), which correspond to each other across different levels of disposable income. If, in figure (A), consumption increases along line Á then in figure (B) there would be: a. A shift from line B2 to B3 b. A shift from line B2 to B1 c. A movement down along line B2 d. A movement up along line B2
d. A movement up along line B2
In a private closed economy, there will be an unplanned increase in inventories when: a. Aggregate expenditures exceed GDP b. Aggregate expenditures exceed (C + Ig) c. (C + Ig) exceeds aggregate expenditures d. GDP exceeds aggregate expenditures
d. GDP exceeds aggregate expenditures
An increase in expected future income will: a. Increase aggregate demand and aggregate supply b. Decrease aggregate demand and aggregate supply c. Increase aggregate supply d. Increase aggregate demand
d. Increase aggregate demand
You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $400 billion; (2) investment = $40 billion; (3) government purchases = $90 billion; and (4) net export = $25 billion. If the full-employment level of GDP for this economy is $600 billion, then what combination of actions would be most consistent with closing the GDP-gap here? a. Increase government spending and taxes b. Decrease government spending and taxes c. Decrease government spending and increase taxes d. Increase government spending and decrease taxes
d. Increase government spending and decrease taxes
Refer to the graph above. A budget surplus would be associated with GDP level: a. H b. J c. K d. L
d. L
A decrease in expected returns on investment will most likely shift the AD curve to the: a. Right because C will increase b. Left because C will decrease c. Right because Ig will increase d. Left because Ig will decrease
d. Left because Ig will decrease
If you are told that the government had an actual budget deficit of $50 billion, then you would: a. Know that fiscal policy was expansionary b. Know that fiscal policy was contractionary c. Know that fiscal policy was producing a cyclical deficit d. Not be able to determine the direction of fiscal policy from the information given
d. Not be able to determine the direction of fiscal policy from the information given
Refer to the graph above. Assume that the economy initially has a price level of P1 and output level Q1. If the government implements expansionary fiscal policy, and the full multiplier effect was felt, it would bring the economy to: a. P2 and Q4 b. P1 and Q1 c. P2 and Q2 d. P1 and Q3
d. P1 and Q3
Inflation tends to: a. Increase productivity b. Decrease input prices c. Increase the strength of the multiplier d. Reduce the strength of the multiplier
d. Reduce the strength of the multiplier
If disposable income is $900 billion when the average propensity to consume is 0.9, it can be concluded that: a. The marginal propensity to consume is also 0.9 b. The marginal propensity to save is 0.1 c. Consumption is $900 billion d. Saving is $90 billion
d. Saving is $90 billion (900 x .9 = 810 consumed and 900 - 810 = 90 saved)
Consumption is $141 billion, planned investment is $15 billion, and saving is $15 billion in a private, closed economy. At this level: a. Actual investment does not equal planned investment b. There will be unplanned increases in inventories c. There will be unplanned decreases in inventories d. The economy is in equilibrium
d. The economy is in equilibrium
One timing problem in using fiscal policy to counter a recession is the "administrative lag" that occurs between the: a. Start of the recession and the time it takes to recognize that the recession has started b. Start of a predicted recession and the actual start of the recession c. Time fiscal action is taken and the time that the action has its effect on the economy d. Time the need for the fiscal action is recognized and the time that the action is taken
d. Time the need for the fiscal action is recognized and the time that the action is taken
Assume that the marginal propensity to consume in an economy is 0.9. If the economy's full-employment real GDP is $500 billion and its equilibrium real GDP is $550 billion, there is an inflationary expenditure gap of: a. $5 billion b. $50 billion c. $100 billion d. $500 billion
a. $5 billion
In a private closed economy where MPC = 0.8, if consumers reduce their spending by $10 billion and firms cut investments by $5 billion, then equilibrium GDP will decrease by: a. $75 billion b. $25 billion c. $18.8 billion d. $15 billion
a. $75 billion
With an MPS of .3, the MPC will be: a. 1 - .3 b. .3 - 1 c. 1/.3 d. .3
a. 1 - .3
Refer to the graph above. Which of the following changes will shift AD1 to AD2? a. A cut in personal and business taxes b. An increase in the value of the dollar relative to other currencies c. A shrinkage in the value of stocks and other financial assets d. An increase in real interest rates
a. A cut in personal and business taxes
An increase in personal income tax rates will cause a(n): a. Decrease (or shift left) in aggregate demand b. Increase (or shift right) in aggregate demand c. Decrease in the quantity of real output demanded (or movement up along AD) d. Increase in the quantity of real output demanded (or movement down along AD)
a. Decrease (or shift left) in aggregate demand
In the graph above, tax revenues vary: a. Directly with the level of GDP b. Inversely with the level of GDP c. Directly with the level of government spending d. Inversely with the level of government spending
a. Directly with the level of GDP
Refer to the graph above. If the price level is initially at P1, then the economy will adjust by: a. Increasing output produced b. Decreasing the GDP produced c. Reducing the price level d. Increasing the total output demanded
a. Increasing output produced
Deflation refers to a situation where: a. Price level falls, and could be caused by a shift of AD to the left b. Price level falls, and could be caused by a decrease in aggregate supply c. The rate of inflation falls, and could be caused by a shift of AS to the right d. The rate of inflation rises, and could be caused by an decrease in aggregate demand
a. Price level falls, and could be caused by a shift of AD to the left
Assume that an increase in a household's disposable income from $40,000 to $48,000 leads to an increase in consumption from $35,000 to $41,000, then the: a. Slope of the consumption schedule is .75 b. Average propensity to consume is .75 c. Marginal propensity to save is .20 d. Marginal propensity to consume is .6
a. Slope of the consumption schedule is .75
One important reason why the United States government is not likely to go bankrupt even with a large public debt is that it has: a. The power to print money to finance the debt b. A strong military to protect it from creditors c. The capacity to pay off its outstanding debt with gold d. The ability to decrease interest rates and increase investment spending
a. The power to print money to finance the debt
In an inflationary expenditure gap, the equilibrium level of real GDP would be: a. Greater than planned investment b. Equal to full-employment GDP c. Greater than full-employment GDP d. Less than full-employment GDP
c. Greater than full-employment GDP
The following is budget information for a hypothetical economy. All data are in billions of dollars. Refer to the above table. In which year is there a budget surplus? a. Year 1 b. Year 2 c. Year 4 d. Year 5
a. Year 1
Refer to the above graph for a private closed economy. At the equilibrium level of GDP, saving will be: a. $50 billion b. $100 billion c. $150 billion d. Cannot be determined from the information given
b. $100 billion
Refer to the above graph for a private closed economy. In this economy, investment is: a. $50 billion b. $100 billion c. $150 billion d. $200 billion
b. $100 billion
Refer to the above graph for a private closed economy. In this economy, investment is: a. $50 billion b. $100 billion c. $150 billion d. $200 billion
b. $100 billion (150-50)
In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPS is 0.4, then it could increase government spending by: a. $10 billion b. $20 billion c. $31.25 billion d. $40.50 billion
b. $20 billion
In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPS is 0.4, then it could increase government spending by: a. $10 billion b. $20 billion c. $31.25 billion d. $40.50 billion
b. $20 billion (50 x .6 = 30 consumption by public, 50 - 30 = 20)
All figures in the table below are in billions. Refer to the above data. The equilibrium level of GDP in a private, open economy is: a. $550 billion b. $600 billion c. $650 billion d. $700 billion
b. $600 billion
All figures in the table below are in billions. Refer to the above data. The equilibrium level of GDP in a private, open economy is: a. $550 billion b. $600 billion c. $650 billion d. $700 billion
b. $600 billion (15-10=5, 5+595 = 600 = 600 ~ equilibrium)
The data below are for a private (no government) closed economy. All figures are in billions of dollars. Refer to the above table. The MPC and multiplier are, respectively: a. .80 and 5 b. .75 and 4 c. .75 and 1.33 d. .80 and 1.25
b. .75 and 4
If aggregate expenditures increase by $12 billion and equilibrium GDP consequently increases by $48 billion, then the marginal propensity to save in the economy must be: a. 0.75 b. 0.25 c. 0.8 d. 0.2
b. 0.25
If disposable income increases from $912 to $927 billion and MPC = 0.6, then consumption will increase by: a. 6 b. 9 c. 54 d. 56
b. 9
A firm invests in a new machine that costs $2,000 a year but which is expected to produce an increase in total revenue of $2,200 a year. The current real rate of interest is 8 percent. The firm should: a. Undertake the investment because the expected rate of return of 12 percent is greater than the real rate of interest b. Undertake the investment because the expected rate of return of 10 percent is greater than the real rate of interest c. Undertake the investment because the expected rate of return of 9 percent is greater than the real rate of interest d. Not undertake the investment because the expected rate of return of 7 percent is less than the real rate of interest
b. Undertake the investment because the expected rate of return of 10 percent is greater than the real rate of interest
Recently, the level of GDP has declined by $60 billion in an economy where the marginal propensity to consume is 0.75. Aggregate expenditures must have fallen by: a. $45 billion b. $30 billion c. $15 billion d. $60 billion
c. $15 billion
According to the cumulative investment table above: a. $150 billion worth of investments have expected rates of return exactly equal to 20% b. $150 billion worth of investments have expected rates of return of 20% or lower c. $40 billion worth of investments have expected rates of return between 20% and 22% d. $260 billion worth of investments have expected rates of return higher than 20%
c. $40 billion worth of investments have expected rates of return between 20% and 22%
The table shows a consumption schedule. All figures are in billions of dollars. Refer to the above information. If planned investment was $20 billion, government purchases of goods and services were $20 billion, and taxes and net exports were zero, then the equilibrium level of GDP would be: a. $600 billion b. $640 billion c. $680 billion d. $720 billion
c. $680 billion
The table shows a consumption schedule. Refer to the above data. The marginal propensity to consume is: a. .80 b. .75 c. .60 d. .40
c. .60
Suppose that new computer software for accounting and analysis at a business has a useful life of only one year and costs $200,000 before it needs to be upgraded to a new version. The revenue generated by this software is expected to be $250,000. The expected rate of return from this new computer software is: a. 11 percent b. 20 percent c. 25 percent d. 80 percent
c. 25 percent
Refer to the above graph. The size of the multiplier associated with changes in government spending in this economy is: a. 2.00 b. 3.50 c. 5.00 d. 6.67
c. 5.00
Refer to the above graph. The size of the multiplier associated with changes in government spending in this economy is: a. 2.00 b. 3.50 c. 5.00 d. 6.67
c. 5.00 (100/20)
The public debt is the: a. Amount of U.S. paper currency in circulation b. Ratio of all past deficits to all past surpluses c. Accumulation of all past deficits minus all past surpluses d. Difference between current government expenditures and current tax revenues
c. Accumulation of all past deficits minus all past surpluses
Refer to the above graph. What combination would most likely cause a shift from AD1 to AD3? a. An increase in taxes and an increase in government spending b. A decrease in taxes and an increase in government spending c. An increase in taxes and a decrease in government spending d. A decrease in taxes and a decrease in government spending
c. An increase in taxes and a decrease in government spending
The long-run aggregate supply analysis assumes that: a. Input prices are fixed while product prices are variable b. Input prices are variable while product prices are fixed c. Both input and product prices are variable d. Both input and product prices are fixed
c. Both input and product prices are variable
An increase in household wealth that creates a wealth effect shifts the: a. Consumption schedule and the saving schedule upward b. Consumption schedule and the saving schedule downward c. Consumption schedule upward and the saving schedule downward d. Consumption schedule downward and the saving schedule upward
c. Consumption schedule upward and the saving schedule downward
Cost-push inflation is characterized by a(n): a. Increase in aggregate supply and a decrease in aggregate demand b. Increase in aggregate demand and no change in aggregate supply c. Decrease in aggregate supply and no change in aggregate demand d. Decrease in both aggregate supply and aggregate demand
c. Decrease in aggregate supply and no change in aggregate demand
The crowding-out effect works through interest rates and it tends to: a. Increase the effectiveness of a tax increase b. Decrease the effectiveness of a tax increase c. Decrease the effectiveness of an increase in government spending d. Increase the effectiveness of an increase in government spending
c. Decrease the effectiveness of an increase in government spending
The table shows a private closed economy. All figures are in billions of dollars. Refer to the above table. An increase in the real interest rate from 2% to 6% will: a. Decrease the equilibrium level of GDP by $200 billion b. Decrease the equilibrium level of GDP by $300 billion c. Decrease the equilibrium level of GDP by $400 billion d. Increase the equilibrium level of GDP by $400 billion
c. Decrease the equilibrium level of GDP by $400 billion
Demand-pull inflation is illustrated in the short run aggregate supply-aggregate demand model as a shift of the aggregate: a. Supply to the right b. Supply to the left c. Demand to the right d. Demand to the left
c. Demand to the right
The nominal rate of interest is 8.5 percent and the real rate is 5 percent. The expected rate of return on an investment is 8 percent. The firm should: a. Not undertake the investment because the expected rate of return of 8 percent is less than the nominal interest rate b. Not undertake the investment because the expected rate of return of 8 percent is less than the nominal plus the real interest rate c. Undertake the investment because the expected rate of return of 8 percent is greater than the difference between the nominal and real interest rates d. Undertake the investment because the expected rate of return of 8 percent is greater than the real rate of interest
d. Undertake the investment because the expected rate of return of 8 percent is greater than the real rate of interest
Refer to the above graph for a private closed economy. When output or income is $350 billion there will be: a. Equilibrium GDP b. Saving exceeding planned investment c. Unplanned increases in inventories d. Unplanned decreases in inventories
d. Unplanned decreases in inventories
The following is budget information for a hypothetical economy. All data are in billions of dollars. Refer to the above table. The budget deficit was $75 billion in: a. Year 2 b. Year 3 c. Year 4 d. Year 5
d. Year 5
