Macro exam 2 study guide
increased consumer confidence will shift the aggregate demand curve to the ______ and _________ output demanded
right; increase
if oil prices decrease, the short run aggregate supply curve shifts ____________ and output supplied will be __________
right; increased
when government spending increases, the aggregate demand curve shifts to the _______ and the multiplier effect is dampened by a _______ in the aggregate price level
right; rise
when the economy is in a recession, welfare and unemployment compensation payments _______ and tax revenues ___________
rise; decline
economic growth is shown as a
shift to the right in the long run aggregate supply curve
when the economy is below full employment,expansionary fiscal policy;
shifts the aggregate demand curve to the right
Between 1929 and 1933, government spending _______ and net exports ________
stayed the same; declined
which of the following best illustrates the wealth effect
the jones family has $50,000 in a bank. Price at the stores rose dramtically, so the purchasing power represented by that $50,000 diminished
According to Keynesian analysis, if households intends to save more, the will
ultimately cause job losses
A depression economy has considerable slack, so
unemployment is high
in the history of the united states, public debt as a percentage of GDP
varies widely over time
one reason the amount of real output demanded declines when the aggregate price level rises is the resulting reduction in household wealth, called the
wealth effect
(Figure determining SRAS shifts ) If there are advances in technology, the short-run aggregate supply curve will shift from SRAS0 to _____________ and the price level will become ________
SRAS1; P1
In the simple Keynesian model, the only two things you can do with your income are:
Spend it and save it
investment is defined as spending by:
business that adds to the productive capacity of the economy
__________ occurs when a negative supply shock hits the economy, shifting the short-run aggregate supply curve leftward
cost-push inflation
contractionary fiscal policy
decreases aggregate demand
when home values collapsed in the period that began in 2008, it reduced many americans
household wealth
In the Keynesian model, the principal determinant of saving is
income
Keynes believed that saving is a function of
income
Which of the following factors is not a component of aggregate demand
income
In the simple Keynesian model, if desired investment is greater than desired saving:
income and output will rise
Policies that _________ will expand the economy but also generate price pressures
increase transfer payments
an increase in the incomes of the countries that purchase US made products will cause an ________ in the _________ US made products
increase; aggregate demand for
consumer spending is not affected by
inventories
In the simple Keynesian model, equilibrium exists when
investment spending equals saving
the interest paid on internally held debt
is paid out to one group of americans from the taxes collected from another group of americans
The marginal propensity to consume:
is the change in consumption associated with a change in income
if the economy is below full employment and the government uses an expansionary fiscal policy in an attempt to reduce unemployment
output and the price level will rise
which of the following factors in not a determinant of aggregate supply?
Income
which three US presidents implemented well-known tax cuts designed to stimulate aggregate demand?
John F. Kennedy, Ronald Reagan, and George W Bush
Who recognized the need to develop tools to analyze the macroeconomy as a whole
John Maynard Keynes
(Figure aggregate expenditures) The figure shows the aggregate expenditures line for an economy. Which is the proper sequence of events if income was originally at $100?
Total spending exceeds income; firms expand production; workers are hired; and income rise until equilibrium is reached
In the simple Keynesian model the economy is in equilibrium when:
Y= C+ I and S=I
the solution to simultaneous deflation and unemployment is to shift the
aggregate demand curve to the right
according to john maynard keynes, what determines employment and income?
aggregate expenditures
The real GDP the firms will produce at varying price levels is
aggregate supply
The balanced budget multiplier is:
equal to 1
Public debt held by foreigners is known as ________ debt
externally held
When household debt levels rise
families are less able to spend in the current period
disposable income equals
income minus taxes
supply-side fiscal policies include all of the following except
increasing transfer payments
Which country has changed from being a high-saving country to a low-saving one?
japan
A shift to the _________ of the ____________ curve would cause the price level to decrease and employment to decrease
left; aggregate demand
If AE+ $7,600 and Y= $8,000, business will produce
less, lowering both employment and income
The idea of the spending multiplier is that
one person's spending becomes another person's income, which stimulates more spending
John, a US taxpayer, buys $5,000 in US savings bonds. When he collect interest on the bonds, who ultimately pays the interest?
other taxpayers like john
Which of the following is not a determinant of investment
past stock and bond prices
in the united states,social security and medicare are examples of
pay-as-you-go programs
in the short run, the aggregate supply curve is
positively sloped
The crowding-out effect
replaces some private investment with government spending
if interest rates rise, the burden of a nation's public debt will ______ and it be _______ difficult to service its debt
rise; more
When the price of a product falls, causing consumers to purchase more of that product and less of other products, it is the
substitution effect
If $1,000 of additional pending occurs (from investment, say) and the marginal propensity to consume .8, the total effect on the economy is an increase of _____ in income or output
$5,000
if disposable income increases from $250 to $300 and saving increases from $40 to $50, how much is the average propensity to save?
.167
(TabLE) When disposable income increases from $1,000 to $1,200, what is the value of the marginal propensity to save?
.5
If income rises from $10,000 to $20,000 and savings increases from $9,000 to $16,000, then the marginal propensity to save is
.70
(Table) The table shows data on consumption at various levels of income. The value of the marginal propensity to consume is:
.9
(TABLE) the table shows data on consumption at various levels of income. The value of APS at equilibrium is:
0
(TABLE) the table shows data on consumption at various levels of income. The value of the average propensity to consume at equilibrium is:
1
The slope of the saving schedule is
1 minus the marginal propensity to consume
The factors that would shift the savings and consumption schedule include all of the following EXCEPT:
tastes and preferences from durable goods to nondurable goods
during which decade did the US public debt exceed it GDP?
the 1940s
An increase in aggregate demand can be caused by
the depreciation of the dollar
Keynes's insight during the Great Depression was that:
the economy can be in both equilibrium and high unemployment
(figure determining aggregate equilibrium levels) Equilibrium output is ____ and the equilibrium price level is _______
3,000; 100
When the government's debt is monetized
the federal reserve buys bonds from the government
Which of the following equations is not true at equilibrium in the simple Keynesian model?
AE>Y
the actual price level is determined by
the intersection of short-run aggregate supply and demand
Which of the following items does not constrain the federal budget
the mortgage interest rate
which of the following tends to make aggregate demand decrease by more than the amount that consumer spending decreases?
the multiplier effect
If aggregate expenditures are less than current output:
Business will cut back on output
a change in ________ will cause a change in the quantity demanded of real GDP
the price level
_________ is the total accumulation of past budget deficits less surpluses
the public debt
__________ are securities with a maturity period of a year or less that sell at a discount
treasury bills
the long-run supply curve is
vertical
if there is no government and no foreign sector in the economy
GDP= C + I
suppose full employment real GDP is $12 trillion, current real GDP is $11 trillion, and the marginal propensity to consume .8. The recessionary gap is:
$.2 trillion
If the amount of spending in an economy declines by $1,000 and the marginal propensity to consume .8, the effect on the economy is a change of ______ in income or output.
-$5,000
The formula for the simple spending multiplier is:
1/(1-MPC)
about what percentage of the federal debt is held internally
50%
(Figure; determining SRAS Shifts) Which statement is not correct?
An increase in aggregate demand would lead to deflation
in Productovia, aggregate demand increases and aggregate supply decreases. based on the shifts in these two curves, what is a likely outcome?
Inflation
Assume that the MPC is .75. Full employment is considered to be at a GDP level of $500 billion. The GDP is $600 Billion. What should the government do to achieve full employment?
Reduce spending by $25 billion
which of the following would not cause a shift in the aggregate demand curve
a reduction in raw material prices
personal consumption expenditures
can be found by subtracting saving from disposable income
the situation when aggregate demand expands so much that equilibrium output exceeds full employment output and the price level rises is known as __________ inflation
demand-pull
A shift of the aggregate _______ curve to the _______ would cause inflation to rise and employment to increase
demand; right
__________ is the part of the budget that works its way through congress each year; it includes such programs as national defense, transportation, medicaid and education
discretionary spending
interest on the debt as a percentage of GDP was at its highest
during the late 1980s and early 1990s
the interest paid on public debt held by _________ is a real claim on our goods and services
foreigners
of the share of the US national debt that is held by the public, ________ hold nearly _______
foreigners; the same amount as do americans
what approach to federal finance would you agree with if you were most concerned with the federal government's pursuit of fostering economic growth, stable prices, and full employment
functional finance
which of the following items is not a determinant of aggregate demand
government saving
Because the private and foreign sectors of the economy were in a deep slump during the Great Depression of the 1930s, Keynes suggested an increase:
government spending
Income rises when desired investment is:
greater than desired savings
investment tax credits and more rapid depreciation schedules are intended to __________ productivity, shifting _______ the curve to the ___________
increase; long-run aggregate supply; right
a rising aggregate price level ______ an economy's interest rates and therefore _______ output demanded
increase; reduces
in the long run, attempts to expand beyond an economy's natural rate of unemployment tend to result in
increased inflation
If the government spends $1 billion to create a wetlands preserve, taxes increase $1 billion to pay for it, and the marginal propensity to consume is .75, GDP
increases by $1 billion
demand-pull inflation is caused by
increases om aggregate demand
If an economy is producing at a level beyond full employment, using contractionary fiscal policy reduce aggregate demand means a trade off between ____ price levels and _______ output
lower; lower
if the us aggregate price level falls
net exports rise
the aggregate demand curve displays
real GDP demanded at various price levels
the paradox of thrift suggests that when households intend to save more, they will ________ consumption, which will ultimately lead to ______ actual aggregate saving
reduce; lower
which of the following fiscal policies will increase aggregate supply
reducing the depreciation period for business equipment from five years to three years
_________ are securities issued by the government with terms to maturity ranging from 1 to 10 years
treasury notes
Which of the following items is not public debt
US dollars
if the US aggregate price level rises
US imports rise
If the marginal propensity to consume is .85, how much is the spending multiplier
6.67
(FIGURE SHIFTING THE AD AND SRAS) starting in long-run equilibrium when the aggregate demand curve is AD0 and the shortrun aggregate supply curve is SRAS0 if there is a supply shock, such as a drastic increase in the of oil, this will cause _____ and a movement to a short run equilibrium at point ________
A leftward shift in SRAS2; a
which of the following events will not cause a rightward shift of the aggregate demand curve
consumers expect a contraction is on the way
Anne and charlie are discussing the best fiscal policy to bring the country out of a recession. Charlie wants to see government cut taxes by $100 billion. Anne prefers to see government spending increase by $100 billion. whose prescription would have the larger total impact on aggregate demand?
Anne's because all of the additional government spending will enter the spending stream, while part of a tax cut would be saved (and not spent)
which are determinants of short-run aggregate supply?
Changes in input prices, taxes, and business and inflationary expectations
increasing taxes to fight inflation is an example of
contractionary fiscal policy
which is not consistent with the level of output in the long run?
high inflation
if the marginal propensity to consume (MPC) rises, the multiplier
also rises
Which of the following factors will cause the aggregate demand curve to shift to the left
appreciation of the dollar
______ will automatically expand or contract in ways that help counter movements of the business cycle
automatic stabilizers
In recent years, countries such as china have been ________ US debt as a way to keep their currencies from _________ against the US dollar
buying; rising
according to public choice economists, the federal government has expanded because
deficit spending has reduced the perceived cost of current government operations
which of the following is not a reason the aggregate demand curve is negatively sloped?
income effect
if interest rates rise, the burden of a nation's public debt ______ and the probability of a default ______
rises; rises
cost-push inflation occurs when
rising resource costs reduce short run aggregate supply
when the economy is in equilibrium in the simple Keynesian model
saving is equal to investment
the laffer curve has which variables on its axes
tax rates and tax revenue
______ government spending, _____ transfer payments, and _____ taxes are all examples of expansionary fiscal policy
increasing; increasing; lowering
the largest source of federal government revenues is
individual income taxes
Aggregate supply shifts to the left when
input prices rise
decreased interest rates will shift the aggregate demand curve to the _____ and _______ output demanded
right; increase
If the marginal propensity to consume is .6, the marginal propensity to save is .4, and government spending increases by $2 billion at the same time taxes rise by $2 billion, equilibrium income will:
rise by $2 billion
the largest category of federal government spending in 2012 was
social security
automatic stabilizers are designed so that as income falls
spending does not fall as much as income
If the marginal propensity to consume is .8, by how much will total income increase after an initial $200 is spent?
$1,000
In the simple Keynesian model with no government and foreign sectors, suppose that initially the economy is in equilibrium at an output of $10 trillion with a marginal propensity to consume of .8. If investment spending increases by $.5 trillion, what is the new equilibrium output level?
$12.5 trillion
Suppose the marginal propensity to consume in Economia is .75. People feel increasing confidence in their economy and spend $5 billion more on vacations. Equilibrium income will rise by:
$20 billion
(figure determining SRAS shifts 2) which of the following might be a cause of the change in short-run aggregate supply?
Businesses are increasingly optimistic about the future
(figure predicting aggregate demand shifts) which of the following would shift the aggregate demand curve from AD1 to AD2?
a decrease in interest rates
the collapse of home values that began in 2008 led to _______ in Americans' consumption and_____ in their saving rates
a decrease: an increase
which economist promoted the idea that reducing tax rates an increase tax revenue
arthur laffer
The great Depression showed that the short-run aggregate supply and the aggregate demand curves
can intersect at output levels far below full employment
The multiplier effect shows that a change in aggregate spending:
causes output to change even more than the change in aggregate spending
according to the crowding out effect, if the government sells bonds to finace spending, ________ can eventually fall
consumption and investment
as GDP decreases, tax revenues _______, causing a _______ to aggregate demand
decline; stimulus
If the interest rate increases, investment will
decrease
Decreases in government spending ____ equilibrium income, and increases in taxes _____ equilibrium income
decrease; decrease
which or the following events will shift the aggregate demand curve to the right?
decreased taxes
which of the following is not an element of expansionary fiscal policy
expanding immigration
Figure determining fiscal policy- The best discretionary fiscal policy option is
expansionary fiscal policy that leads to full employment
assume that the economy is at equilibrium at $10 trillion, with a marginal propensity to consume of .75. If exports rise by $.5 trillion and imports increase by $.7 trillion, equilibrium income will:
fall by $.8 trillion
which of the following events causes an increase in aggregate demand?
falling interest rates
in the Keynesian model, the price level is __________; in the aggregate demand and supply model, the price level is ______
fixed; flexible
when the consumption schedule lies about the 45- degree reference line, consumption spending is _____ than income and saving is _______
greater; negative
most developed countries with high deficits tend to
have high debt-to-GDP ratios
When the economy is under performing and policy makers pursue expansionary fiscal policy, they express willingness to trade off _______ output for a ______ price level
higher; higher
If the economy is producing at an output level below full employment, the government should ____________ spending and ________ taxes
increase; decrease
reducing tax rates can _____ aggregate demand and __________ aggregate supply
increase; increase
a falling aggregate price level _______ demand for a country's exports and therefore ________ output demanded
increases; increases
If the marginal propensity to consume increases, the spending multiplier _______ and the balanced budget multiplier __________
increases; remains the same
Which of the following statements does not describe a problem of balancing the budget over the business cycle
increasing taxes at the top of the cycle exacerbates inflation
______________ government spending, ___________ transfer payments, and ____________ taxes all increase aggregate demand
increasing; increasing; decreasing
the __________ effect is a reason for the negative slope of the aggregate demand curve
interest rate
The US treasury sells $2 billion in bonds to the federal reserve. The federal reserve credits treasury's account by $2 billion. This exchange is best described as
monetizing the debt
if the pound sterling appreciates against the US dollar, England buys ______ US goods, causing the US aggregate demand curve to shift to the _____
more; right
The reason business investment is sensitive to interest rates is that:
most funds used for investment are borrowed, so firms incur an interest charge
all of the following are determinants of aggregate supply except:
net exports
the ________ choice theory involves the economic analysis of public and political decision making
public
the ________ is the sum of past _______
public debt; budget deficits
which of the following factors will cause the aggregate demand curve to the right
reduction in personal income taxes
which measure is not a channel through which the government can influence aggregate demand
regulation on businesses
which of the following statements regarding the short-run aggregate supply curve is TRUE?
the short-run aggregate supply curve shifts to the right with a reduction in burdensome regulations
the implementation lag is
the time it takes for a fiscal policy change to influence the economy
when the government sells bonds to the public (domestic or foreign) in order to finance the government deficit
∆B> 0
Assume that the marginal propensity to consume is .75. John's Clean Clones builds a factory that costs $1 billion. How much does the macroeconomic equilibrium increase?
$4 billion
the following table shows data on consumption at various levels of income. Investment spending is $500 for all levels of income. If there is no government spending or net exports, the equilibrium income level is:
$4,000
If the marginal propensity to consume is .9 and income increases from $10,000 to $11,000, by how much does consumption increase?
$900
If consumption increases from $500 billion to $575 billion and income increases from $600 billion to $700 billion, the marginal propensity to save is:
.25
suppose a booming stock market encourages consumption to spending to rise dramatically. What would be the most likely long-run impact?
GDP first rises, and then falls back to long-run equilibrium
Without government spending, which of the following equations is True?
Y=C + S
the curve that shows how much GDP is demanded at various price levels is called
aggregate demand
Equilibrium in the full Keynesian model requires that:
all injections (I+G+X) must equal all withdrawals (S + T + M)
what approach to federal finance would you agree with if you wanted federal government revenues to equal federal government expenditures every year
annually balanced budget
Use the following to answer a question (figure: savings, investment, and aggregate expenditures) Savings and investment are at equilibrium at point
b
