MacroEconomics Exam 3 (Ch. 8-10)

The solution to simultaneous deflation and unemployment is to shift the:

aggregate demand curve to the right.

According to public choice economists, the federal government has expanded because:

deficit spending has reduced the perceived cost of current government operations.

In the Keynesian model, the principal determinant of saving is:

income.

If the amount of regulation in an economy increases, the aggregate supply curve shifts _____ and output supplied will _____.

left; decrease

The total accumulation of past deficits less surpluses is called the:

public debt.

(Figure: Consumption Spending) At point A in the graph provided:

saving is zero.

aggregate demand curve

shows the amount of real GDP that will be demanded at each possible price level.

If disposable income is $3,000 and saving is $1,200, how much is the average propensity to consume?

0.6

The 45-degree line in the Keynesian model represents:

AE = Y.

(Figure: Determining SRAS Shifts) Which statement is NOT correct?

An increase in aggregate demand would lead to deflation.

Which of the following is NOT involved with implementing fiscal policy in the United States?

the Supreme Court

Which of the following illustrates the paradox of thrift?

Consumer uncertainty causes people to save more; consumption falls; equilibrium income and production falls; savings decreases because income is lower.

_____ inflation occurs when a supply shock reduces aggregate supply.

Cost-push

The long-run aggregate supply curve is vertical because:

the economy will gravitate to the position of full employment when all variables are flexible.

Firms decide how much to invest by comparing the rate of return on their projects with:

the interest rate.

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.

The largest category of federal government spending in 2015 was:

Social Security.

Which of the following did classical economists believe would happen if the economy experienced a downturn?

The economy would self-correct.

Suppose full employment real GDP is $13 trillion, current real GDP is $13.2 trillion, and the marginal propensity to consume is 0.5. The inflationary gap is:

$0.1 trillion.

If the marginal propensity to consume is 0.9 and income increases from $10,000 to $11,000, by how much does consumption increase?

$900

The slope of the saving schedule is:

1 minus the marginal propensity to consume

If the marginal propensity to consume is 0.6, then the spending multiplier is:

2.5.

If the marginal propensity to consume is 0.85, the value of the spending multiplier will be:

6.67

(Figure: Laffer Curve 3) A supply-side economist is advocating reducing income tax rates. She is probably assuming that the economy is at point _____ in the graph.

D) d

_____ is the change in consumption associated with a change in income.

The marginal propensity to consume

Which of the following events will shift the aggregate demand curve to the right?

a new government program to eliminate poverty.

What would cause inflation and employment to increase?

a rightward shift of the AD curve

After the acceptance of Keynesian analysis, the government:

actions toward macroeconomic policy grew significantly.

Which of the following will shift the aggregate supply curve to the right?

an increase in the investment of human capital

According to the crowding-out effect, if the government sells bonds to finance spending, _____ can eventually fall.

consumption and investment

If the multiplier is 2 and investment spending falls by $5 billion, then equilibrium income:

decreases by $10 billion

The 45-degree line in the Keynesian model represents a set of points where _____ equals _____.

disposable income; consumption

The advantage of automatic stabilizers over discretionary fiscal policy is that automatic stabilizers:

do not require overt actions by policymakers.

During cost-push inflation, aggregate output _____ and the aggregate price level _____.

falls; rises

An increase in the incomes of the countries that purchase U.S.-made products will cause a(n) _____ in the _____ U.S.-made products.

increase; aggregate demand for

Which of the following policies do supply-side economists believe is the best for increasing the standard of living?

increasing investment in capital that boosts worker productivity

The largest source of federal government revenues is:

individual income taxes.

An expansionary fiscal policy can result in:

inflation and higher GDP.

If an economy is on the vertical portion of the aggregate supply curve, then it:

is at full employment.

If aggregate expenditures equals $7,600 and aggregate income equals $8,000, businesses will produce:

less, lowering both employment and income .

The _____ is vertical at full employment

long-run aggregate supply curve

The focus of supply-side fiscal policies is on:

long-run economic growth.

The _____ is the sum of past _____.

public debt; budget deficits

High taxes and/or heavy regulation:

raise costs of production so that the aggregate supply curve shifts to the left.

The _____ lag is the time it takes for policymakers to confirm that the economy is trending in or out of a recession.

recognition

Which of the following is an example of contractionary fiscal policy?

reducing military spending

Decreased interest rates will shift the aggregate demand curve to the _____ and _____ output demanded.

right; increase

Increased consumer confidence will shift the aggregate demand curve to the _____ and _____ output demanded.

right; increase

Fiscal policy that focuses on shifting the long-run aggregate supply curve to the right is:

supply-side fiscal policy.

If a government always balances its budget:

the effect of an increase in government spending on aggregate expenditures is weakened.