Macroeconomics 201 Final

When disposable personal income is $300, what is the amount of personal saving?

0

The Phillips phase of the inflation-unemployment cycle emerges because wages are flexible and adjust more quickly than anticipated.

False

The Phillips phase of the inflation-unemployment cycle occurs when both inflation and unemployment increase.

False

Free-floating exchange rates are determined by the

forces of demand and supply in the foreign exchange market.

Economists are generally in support of:

free international trade.

Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption,IP = Planned Investment, G = Government Purchases. Further, IP and G are autonomous. What is the marginal propensity to consume?

0.5

Calculate the marginal propensity to consume based on the information in the table.

0.8

If an economy spends 90% of any increase in real GDP, then an increase in autonomous investment of $1 billion would result ultimately in an increase in equilibrium real GDP of

$10 billion.

Let Y = real GDP, AE = Aggregate Expenditures, C = Consumption,IP = Planned Investment. Suppose AE = C + IP. IPis autonomous and the consumption function is C = $1,000 billion + 0.5Y. If real GDP = $5,000 billion, what is the amount of aggregate expenditures?

$5,500 billion

A feature that distinguishes economists' approach to making choices is (are):

all of the above

Which of the following will shift the investment demand curve to the left?

an increase in the capital gains tax rate

An increase in interest rate will cause a(n)

movement up along the investment demand curve.

The key signals that send messages to buyers and sellers to buy or not to buy or to sell or not to sell are, all other things unchanged:

prices

In the aggregate expenditures model, if aggregate expenditures are greater than real GDP,

there will be unplanned decreases in inventories.

Any factor of production is capital if it:

was produced and can be used to produce other goods and services..

A nation engages in a managed float exchange rate system to ensure that its currency will fluctuate freely with market forces.

False

Which of the following is classified as investment? existing homes business spending on new equipment purchase of corporate stock taking out a loan to build an office building

II only

Suppose that the exchange rate between the British pound and gold was £20 per ounce of gold and the exchange rate between the U.S. dollar and gold was $80 per ounce of gold. What is the U.S. dollar exchange rate with respect to the British pound?

$1 exchanges for £0.25.

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. If the consumption function is C = $500 + 0.8Y, planned investment = $200, government purchases = $300, net exports = $100, and real GDP = $1,000, what is the amount of aggregate expenditures?

$1,900

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following events causes the aggregate expenditures curve to shift upwards? If government purchases increases by $200 billion, the aggregate expenditures curve will shift up by

$200 billion.

Suppose the slope of the aggregate expenditures curve is 0.75. An increase in autonomous investment expenditure of $6 billion would produce an ultimate increase in equilibrium real GDP of

$24 billion.

Let AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment,G = Government Purchases. Consider a simple aggregate expenditures model, whereAE = C + IP + G and all components of aggregate expenditures except consumption are autonomous. The MPC is 0.6. If investment expenditures rise by $100 billion, the equilibrium level of real GDP of rises by

$250 billion.

If the economy spends 80% of any increase in real GDP, then an increase in autonomous investment of $1 billion would result ultimately in an increase in equilibrium real GDP of

$5.0 billion.

If C = $400 billion + 0.75(Yd) and if real GDP is $1,000 billion, then for any positive tax rate, C =$1,150 billion.

True

Economists in general agree that rent controls are:

an inefficient and ineffective way to help low-income families.

Given the equilibrium after a change in supply from S1 to S2:

at the old price of $2.50, there will be pressure for the price to fall.

An increase in the price level, all other things unchanged, will

cause a movement to the right along the consumption function

A recession in foreign countries will

decrease exports of the United States.

In the short run, the most important consequence of a decrease in investment is a(n)

decrease in aggregate demand.

Consider point B where unemployment is relatively high and inflation is relatively low. In order to move up the curve toward point A, what fiscal policy measures should the policymakers undertake?

decrease taxes and increase government spending

The recessionary gap at point 4 was created

during the stagflation phase that occurred when the economy moved from point 3 to point 4.

If the economy were experiencing a recessionary gap, it would be operating at

either point a or point b

In general, an increase in the income tax rate will make the aggregate expenditures curve

flatter and the multiplier smaller.

Frictional unemployment exists because

it takes time for people seeking jobs and employers seeking workers to find each other.

The ratio of the change in equilibrium real GDP to the change in autonomous aggregate expenditures that produced it is the:

multiplier.

Most economists' disagreements are a result of:

normative considerations.

Suppose that your annual income has averaged $20,000 for the past 10 years and that you expect it will average $20,000 over the next 10 years. If your income this year increases to $30,000 but your consumption expenditures don't change, then you are most likely acting according to the

permanent income hypothesis.

Investment equals

planned investment plus unplanned investment.

Government's role of providing national defense is considered:

providing certain goods and services.

One source of high health care costs is the:

relatively large fraction of health care expenditures paid by third-party payers.

In a command socialist economy:

resources are privately owned and individuals make decisions over their use.

A price below the equilibrium price will:

result in pressure for price to rise.

The recovery phase of the inflation-unemployment cycle is explained by

rightward shifts of the aggregate demand curve in response to expansionary policies.

As the economy moves from point A towards, say, point D, it will find that the opportunity cost of each additional submarine:

rises.

The movement from point 4 to point 5 in the "Inflation-Unemployment cycle" (noted in the textbook) is consistent with which segment in the diagram below?

segment C to D

An increase in the wealth of households, all other things unchanged, will

shift the consumption function upward.

Let AE = Aggregate Expenditures, C = Consumption, IP = Planned Investment, G = Government Purchases. Consider a simple aggregate expenditures model, where AE = C + IP + G and all components of aggregate expenditures except consumption are autonomous. All other things unchanged, an increase in the price level,

shifts the aggregate expenditures curve downwards and lowers the equilibrium real GDP.

In the simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption, the size of the multiplier depends on the

slope of the aggregate expenditures curve.

Most firms in the United States today are:

sole proprietorships and partnerships

A decrease in supply is caused by:

suppliers' expectations of higher prices in the future.

Structural unemployment exists because

technological changes make the skills of the workers incompatible with the skills used on the job.

The consumption function shows

the amount of consumption at each level of disposable income, holding all other determinants constant.

The marginal propensity to save is given by

the change in saving divided by the change in disposable personal income.

In graph that shows disposable income on the horizontal axis and consumption on the vertical axis, at every point on the 45-degree line,

the value of disposable income equals consumption

The slope of the aggregate expenditures curve is given by

△aggregate expenditures ÷ △real GDP.

A good is scarce if we must sacrifice something to obtain it.

True

If real GDP were $12 trillion, consumption equals

7 Trillion

Which of the following is an advantage of a free-floating exchange rate system?

A free-floating exchange rate acts as a buffer to insulate an economy from the impact of international events.

An important short-run consequence of a lower interest rate is an increase in aggregate demand.

True

An increase in wealth is likely to shift the consumption function curve upward.

True

An increase in net exports shifts the aggregate demand curve to the left.

False

Which of the following statements is true of the U.S. experience with regards to the Phillips curve hypothesis? I. Values of inflation and unemployment rates during the 1960s are atypical in that they generally conformed to the tradeoff implied by the Phillips curve. II. Annual observations of inflation and unemployment from 1961 to 2008 do not seem consistent with a Phillips curve. III. Annual observations of inflation and unemployment from 1961 to 2008 seem consistent with a Phillips curve.

I and II only

Which of the following is a reason why a greater capital stock can increase investment? A greater capital stock is likely to lead to more investment because further increases in the demand for investment tend to lower the cost of capital. A greater capital stock is likely to lead to more investment since there will be more capital to replace. A higher level of capital stock encourages investment in new capital because capital becomes obsolete at a faster rate.

II only

In the 1960s and early 70s, economists believed that the Phillips curve indicated that policymakers could choose the mix of inflation and unemployment they were willing to accept and achieved this with appropriate fiscal and monetary policies.

True

In the aggregate expenditures model, if a $40 billion increase in autonomous investment leads to an increase in equilibrium real GDP of $100 billion at the initial price level, then the multiplier is 2.5.

True

Personal saving is disposable personal income not spent on consumption.

True

Which of the following statements is false?

Two individuals who have the same current income but different permanent incomes are likely to make very similar savings decisions.

The multiplier effect indicates that

a change in any autonomous component of aggregate expenditure brings about a magnified change in income.

In the short run, a decrease in net exports causes

a decrease in real GDP and the price level.

A proposition about the relationship between two variables that can be proven false is called:

a hypothesis.

A substantial increase in the price of oranges (a normal good) is likely to result from:

a prolonged freeze in Florida.

At point 4, the economy is experiencing

a recessionary gap.

Under a system of free-floating exchange rates, a nation will experience

a tendency toward equilibrium in its balance of payments.

What is a tariff?

a unit tax placed on a product

If two countries participate in free trade:

both countries as a whole will gain from the trade.

Which of the following is not a determinant of investment demand?

changing consumers' tastes and preferences

According to the permanent income hypothesis,

consumption in any period depends on the average annual income people expect to receive for the rest of their lives.

In the long run, monetary growth

cannot affect the factors that determine the economy's unemployment rate.

A statement of spending flows into and out of the country during a particular period for purchases of assets is called a

capital account.

A movement from point s to point t on curve B is likely to cause the economy to shift from

curve B to curve C.

Between 1965 and 2007, world exports have

increased at a faster rate than the growth of world output.

According to the real wealth effect, if you are living in a period of rising price levels, the cost of the goods and services you buy ______ and your real income ___________.

increases; decreases

Which of the following would be a part of macroeconomics? A study of:

inflation.

A source of economic growth is:

more factors of production.

The aggregate demand traces

the locus of equilibrium real GDP associated with each price level in the aggregate expenditures model.

The lowest wage that a worker would accept, if offered a job, is called

the reservation wage.

A systematic set of procedures through which knowledge is created is:

the scientific method.

Suppose Grovner's exports equal $950 billion, its imports equal $1,000 billion, and purchases of foreign assets by its citizens equals $900 billion. What is the value of Grovner's assets purchased by foreigners?

$850 billion

Which of the following is true in the United States, based on the experience of the past two decades (1990-2007)?

Depreciation is greater than net private domestic investment.

Autonomous aggregate expenditures are those that automatically vary with real GDP, whereas induced expenditures only change in response to a change in an external factor.

False

Changes in the interest rate will lead to shifts in the investment demand curve.

False

Disposable personal income is the total income households spend on consumption.

False

If two goods are substitutes, a decrease in the price of one will result in an increase in demand for the other.

False

In the recovery phase of the inflation-unemployment cycle, a falling rate of inflation implies a falling price level.

False

The textbook analysis of international finance makes some simplifying assumptions. What are they? I. International transfer payments are ignored because they account for a relatively small portion of international transactions. II. International transfer payments are ignored because they account for a relatively small portion of international transactions but inter-government transfer payments, such as foreign aid, are included. III. Payments to foreign owners of factors of production used in the domestic country are treated as imports and payments received by domestic owners of factors of production used in foreign countries are treated as exports. IV. Payments to foreign owners of factors of production used in the domestic country are treated as foreign purchases of domestic assets, and payments received by domestic owners of factors of production used in foreign countries are treated as domestic purchases of foreign assets.

I and III.

If the market interest rate declines from 15% to 13%, what happens to the quantity of investment demanded?

It increases by $200 because investment is now more profitable.

What is the international trade effect?

It is the tendency for exports to rise and imports to fall when the domestic price level falls relative to the foreign price level.

Which of the following statements is true?

Most of world trade is conducted in dollars.

If the market interest rate is 15%, the last project undertaken is

Project Hattrick.

Which of the following is a reason why a greater capital stock can reduce investment?

Since businesses undertake investment to adjust their stock of capital to its desired level, the amount of investment needed to reach the desired level will be lower when the current capital stock is higher.

Consider a simple aggregate expenditure model where all components of aggregate expenditure are autonomous except consumption. Which of the following events causes the aggregate expenditures curve to shift downwards?

The government cuts spending on education.

Suppose economic agents expect an increase in the level of economic activity. How will this affect investment demand?

The investment demand curve shifts right.

An example of a positive statement is:

The rate of unemployment is 4 percent.

For investment to occur, saving must also occur.

True

The sum of planned levels of consumption, investment, government purchases, and net exports, at a given price level, is called

aggregate expenditures.

Which of the following has contributed most to the significant increase in world trade since 1960?

advances in communication and transportation that have lowered transportation costs

In the aggregate expenditures model, in equilibrium,

aggregate expenditures equal real GDP produced.