Macro Final

In a certain economy, when income is $100, consumer spending is $60. The value of the multiplier for this economy is 4. It follows that, when income is $101, consumer spending is

$60.75.

Scenario. Take the following information as given for a small economy:• When income is $10,000, consumption spending is $6,500.• When income is $11,000, consumption spending is $7,250. Refer to the scenario above. The marginal propensity to consume for this economy is

0.75

Imagine that in the current year the economy is in long-run equilibrium. Then the federal government reduces its purchases of goods by 50%.Which curve shifts and in which direction?

Aggregate demand shifts left.

Which of the following would cause stagflation?

Aggregate supply shifts left.

Which of the following is an example of crowding out?

An increase in government spending increases interest rates, causing investment to fall.

People had been expecting the price level to be 120 but it turns out to be 122. In response Robinson Tire Company increases the number of workers it employs. What could explain this?

Both sticky price theory and sticky wage theory

In 2008, the United States was in recession. Which of the following things would you not expect to have happened?

Increased real GDP

Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets. What would happen to the dollar?

It would appreciate in foreign exchange markets making U.S. goods more expensive compared to foreign goods.

For the U.S. economy, which of the following is the most important reason for the downward slope of the aggregate-demand curve?

The interest-rate effect

Which of the following is not a determinant of the long-run level of real GDP?

The price level

Which of the following shifts aggregate demand to the left?

a decrease in the money supply

If the stock market crashes, then

aggregate demand decreases, which the Fed could offset by purchasing bonds.

Economic expansions (boom) in Canada would cause the U.S. price level

and real GDP rise

From 2001 to 2005 there was a dramatic rise in the value of houses. If this rise made homeowners feel wealthier, then it would have shifted aggregate

demand right

In recent years, the Federal Reserve has conducted policy by setting a target for the

federal funds rate

The economic boom of the early 1940s resulted mostly from

increased government expenditures.

When the Fed buys bonds the supply of money

increases and so aggregate demand shifts right.

When the interest rate increase, the opportunity cost of holding money

increases, so the quantity of money demanded decreases

The sticky-price theory of the short-run aggregate supply curve says that if the price level rises by 5% while firms were expecting it to rise by 2%, then some firms with high menu costs will have

lower than desired prices, which leads to an increase in the aggregate quantity of goods and services supplied.

A goal of monetary policy and fiscal policy is to

offset shifts in aggregate demand and thereby stabilize the economy

Other things the same, if technology increases, then in the long run

output is higher and prices are lower.

In which of the following cases would the quantity of money demanded be smallest?

r = 0.06, P = 1.0

Assume the MPC is 0.80. Assume there is a multiplier effect and that the total crowding-out effect is $14 billion. An increase in government purchases of $90 billion will shift aggregate demand to the

right by $436 billion

Suppose that foreigners had reduced confidence in U.S. financial institutions and believed that privately issued U.S. bonds were more likely to be defaulted on. U.S. net exports would

rise which by itself would increase aggregate demand.

If the Federal Reserve decided to raise interest rates, it could

sell bonds to lower the money supply.

Using the liquidity-preference model, when the Federal Reserve decreases the money supply,

the equilibrium interest rate increases

If the Fed increases the money supply,

the interest rate decreases, which tends to increase investment and therefore the aggregate demand.

The wealth effect, interest-rate effect, and exchange-rate effect are all explanations for

the slope of the aggregate-demand curve.

An example of an automatic stabilizer is

unemployment benefits

According to liquidity preference theory, the money-supply curve is

vertical

The Federal Open Market Committee is

​the group at the Federal Reserve that sets monetary policy.