Macro exam 3

A sharp rise in the real value of stock prices, which is independent of a change in the price level, would best be an example of:

A change in real value of consumer wealth

The public debt is the:

Accumulation of all past deficits minus all past surpluses

The foreign purchases, interest rate, and real-balances effects explain why the:

Aggregate demand curve is downward-sloping

If the dollar appreciates relative to foreign currencies, then:

Foreign buyers will find U.S. goods become more expensive

A budget surplus means that:

Government revenues are greater than expenditures in a given year

Automatic stabilizers smooth fluctuations in the economy because they produce changes in the government's budget that:

Help offset changes in GDP

The intent of contractionary fiscal policy is to:

Decrease aggregate demand

A decrease in government spending will cause a(n):

Decrease in aggregate demand

Due to automatic stabilizers, when the nation's total income rises, government transfer spending:

Decreases and tax revenues increase

Demand-pull inflation can be restrained by increasing government spending and reducing taxes.

FALSE

Minimum wage laws tend to make the price level more flexible rather than less flexible.

False

Refer to the diagram. Which of the following would shift the investment demand curve from ID1 to ID3?

Lower expected rates of return on investment.

The real-balances effect on aggregate demand suggests that a:

Lower price level will increase the real value of many financial assets and therefore cause an increase in spending

The economy experiences an increase in the price level and an increase in real domestic output. Which is a likely explanation?

Net exports have increased

A tax reduction of a specific amount will be more expansionary the:

larger is the economy's MPC.

contractionary fiscal policy is shown as a:

leftward shift in the economy's aggregate demand curve.

Graphically, cost-push inflation is shown as a:

leftward shift of the AS curve.

expansionary fiscal policy is so named because it:

is designed to expand real GDP

If disposable income increases from $912 to $927 billion and MPC = 0.6, then consumption will increase by:

$9 billion

With an MPS of 0.3, the MPC will be:

1 - 0.3

If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is:

12 percent

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:

20 percent

If the MPC is 0.75, the multiplier will be:

4

Which of the following fiscal policy changes would be the most contractionary?

A $10 billion increase in taxes and a $30 billion cut in government spending

As disposable income decreases, the:

Average propensity to consume increases

A decrease in aggregate demand in the short run will reduce:

Both real output and the price level

How is the public debt calculated?

By cumulating the annual difference between tax revenues and government spending over the years

An increase in household wealth that creates a wealth effect would shift the:

Consumption schedule upward and the saving schedule downward

An expected increase in the prices of consumer goods in the near future will:

Increase (or shift right) in aggregate demand now

An increase in expected future income will:

Increase aggregate demand

The economy experiences an increase in the price level and a decrease in real domestic output. Which of the following is a likely explanation?

Input prices have increased

A decrease in expected returns on investment will most likely shift the AD curve to the:

Left because Ig will decrease

The two reasons why bankruptcy is a false concern about the public debt are:

Refinancing and taxation

As the economy declines into recession, the collection of personal income tax revenues automatically falls. This phenomenon best illustrates how a progressive income-tax system:

Serves as an automatic stabilizer for the economy

A contractionary fiscal policy shifts the aggregate demand curve leftward.

TRUE

Expansionary fiscal policy during a recession means cutting taxes, increasing government spending, or taking both actions.

TRUE

If the government wants to reduce unemployment using fiscal policy, it may do so by increasing government spending.

TRUE

A major reason that the public debt cannot bankrupt the Federal government is because:

The public debt can be easily refinanced by issuing new bonds

The multiplier effect indicates that:

a change in spending will change aggregate income by a larger amount.

an appropriate fiscal policy for a severe recession is:

a decrease in tax rates

An increase in net exports will shift the:

aggregate expenditures curve upward and the aggregate demand curve rightward.

Given the expected rate of return on all possible investment opportunities in the economy:

an increase in the real rate of interest will reduce the level of investment.

As disposable income goes up, the:

average propensity to consume falls.

how investor spend their money and how they decide in what to invest

by comparing benefit VS cost

The MPC can be defined as that fraction of a:

change in income that is spent.

to reduce the size of government (inflation)

decrease government spending

to reduce the size of government (recession)

decrease taxes

what is the impact of higher taxes on aggregate demand?

decreases

If households do not spend any extra income they receive but instead save the entire extra amount, then the multiplier will be zero.

false

Fiscal policy is implemented primarily by

federal government

average propensity to consume

fraction of total income consumed

to expand size of government (recession)

increase government spending

To expand the size of government (inflation)

increase taxes

One can determine the amount of any level of total income that is consumed by:

multiplying total income by the APC.

the tax multiplier is always

negative

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. If the firm finds it can borrow funds at an interest rate of 10 percent, the firm should:

purchase the machine because the expected rate of return exceeds the interest rate.

a expansionary fiscal policy is shown as a:

rightward shift in the economy's aggregate demand curve.

The greater is the marginal propensity to consume, the:

smaller is the marginal propensity to save.

What does the multiplier depend on?

the MPC

average propensity to save

the fraction of total income that is saved

The greater the MPC, the greater the multiplier.

true