Chapter 5, 14,15,16 (Mid-Term), Chapter 12 Macro Review Questions, Economics Homework, Macro Test 2, ch 17, Chapter 17 Macroeconomics - Long / Short Run Phillips Curve, ECO 2013 Chapter 26 Homework, Macroeconomics-Ch 25-27, Chapter 12 Review - Econ 1...

Inventories refer to

goods that have been produced but not yet sold

If inventories decline by more than analysts predict they will decline, this implies that

actual investment spending was less than planned investment spending.

An unplanned decrease in inventories results in

actual investment that is less than planned investment.

If an increase in investment spending of $20 million results in a $200 million increase in equilibrium real GDP, then

the multiplier is 10.

If an increase in investment spending of $50 million results in a $400 million increase in equilibrium real GDP, then

the multiplier is 8.

All of the following are true statements about the multiplier except

the multiplier is a value between zero and one.

the two key factors that cause labor productivity to increase over time are:

the quantity of capital per hour worked and the level of technology

In the Expenditure Approach Real GDP equals

the sum of Consumption, Investment, Government Spending, and Net Exports: Y = C + I + G + NX

In a business cycle, the low point of economic activity is called

a trough

GDP deflator =

(Nominal GDP/Real GDP) x 100

Consumption spending is $5 million, planned investment spending is $8 million, unplanned investment spending is $2 million, government purchases are $10 million, and net export spending is $2 million. What is aggregate expenditure?

$25 million

If the consumption function is defined asC = 5,500 + 0.9Y, what is the autonomous level of consumption expenditure?

$5,500

Given the equations forC,I, G, andNX below, what is the equilibrium level of GDP?

$79,000

Inflation Rate=

(Current deflator value- Previous deflator value)/Previous value))*100

Table 12-3 Consumption (dollars) *Disposable Income (dollars)* $1,200 *$3,000* 2,100 *4,000* 3,000 *5,000* Refer to Table 12-3. Given the consumption schedule in the table above, the marginal propensity to save is

0.1.

Equations forC,I, G, andNX are given below. If the equilibrium level of GDP is $21,500, what is the marginal propensity to consume?

0.8

If disposable income increases by $100 million, and consumption increases by $90 million, then the marginal propensity to consume is

0.9.

MPC +MPS =

1.

3 ways to measure GDP

1. expenditure approach 2. income approach 3. value-added (production) approach

A general formula for the multiplier is

1/MPS

If the consumption function is defined asC = 5,500 + 0.9Y, what is the value of the multiplier?

10

The National Restaurant Association states that the restaurant industry has economic effect of more than $1.7 trillion annually in the United States, with every dollar spent in restaurants generating an estimated total of $2.05 in spending in the economy. This indicates that the spending multiplier for the restaurant industry is equal to

2.05

Real GDP per capita in the United States, as mentioned in the chapter, grew from about $5,600 in 1900 to about $43,700 in 2008, which represents an annual growth rate of 1.9 percent. if the United States continues to grow at this rate, how long will it take for real GDP per capita to double?

36.84 years

Number of years it takes to double standard of living=

70/growth rate of gdp

Real GDP per capita

= output per person = average consumption = standard of living = Real GDP/Population

Income Approach

A method of computing GDP that measures the income-wages, rents, interest, and profits-received by all factors of production in producing final goods and services.

Expenditure Approach

A method of computing GDP that measures the total amount spent on all final goods and services during a given period.

Production Approach

A method of computing GDP that measures total retail value of the final goods/services produced in a nation in a given year.

16) The figure above illustrates the effect of an increased rate of money supply growth at time period T0. From the figure, one can conclude that the A) Fisher effect is dominated by the liquidity effect and interest rates adjust slowly to changes in expected inflation. B) liquidity effect is dominated by the Fisher effect and interest rates adjust slowly to changes in expected inflation. C) liquidity effect is dominated by the Fisher effect and interest rates adjust quickly to changes in expected inflation. D) Fisher effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation.

A) Fisher effect is dominated by the liquidity effect and interest rates adjust slowly to changes in expected inflation

14) When the price level falls, the ________ curve for nominal money ________, and interest rates ________, everything else held constant. A) demand; decreases; fall B) demand; increases; rise C) supply; increases; rise D) supply; decreases; fall

A) demand; decreases; fall

Which of the following will decrease aggregate expenditure in the United States?

a decrease in government purchases

6) When the growth rate of the money supply increases, interest rates end up being permanently lower if A) the liquidity effect is larger than the other effects. B) there is fast adjustment of expected inflation. C) there is slow adjustment of expected inflation. D) the expected inflation effect is larger than the liquidity effect.

A) the liquidity effect is larger than the other effects

Consumption spending is $22 million, planned investment spending is $7 million, actual investment spending is $7 million, government purchases are $9 million, and net export spending is $3 million. Based on this information, which of the following is true?

Aggregate expenditure is equal to GDP.

GDP is

An indicator of economic performance

________ consumption is consumption that does not depend upon the level of GDP.

Autonomous

Which of the following leads to an increase in real GDP?

a decrease in interest rates

46) A factor that could cause the demand for bonds to decrease (shift to the left) is A) an increase in the expected return on bonds relative to other assets. B) a decrease in the expected return on bonds relative to other assets. C) an increase in wealth. D) a reduction in the riskiness of bonds relative to other assets.

B) a decrease in the expected return on bonds relative to other assets

9) A decline in the expected inflation rate causes the demand for money to ________ and the demand curve to shift to the ________, everything else held constant. A) decrease; right B) decrease; left C) increase; right D) increase; left

B) decrease; left

27) When the economy slips into a recession, normally the demand for bonds ________, the supply of bonds ________, and the interest rate ________, everything else held constant. A) increases; increases; rises B) decreases; decreases; falls C) increases; decreases; falls D) decreases; increases; rises

B) decreases; decreases; falls

7) In Keynes's liquidity preference framework, as the expected return on bonds increases (holding everything else unchanged), the expected return on money ________, causing the demand for ________ to fall. A) falls; bonds B) falls; money C) rises; bonds D) rises; money

B) falls; money

5) In the Keynesian liquidity preference framework, a rise in the price level causes the demand for money to ________ and the demand curve to shift to the ________, everything else held constant. A) increase; left B) increase; right C) decrease; left D) decrease; right

B) increase; right

Which of the following does NOT lead to long-run economic growth A. Improved labor productivity B. Increase in average wages C. Increase in the capital stock D. Technological change

B. Increase in average wages

49) A factor that could cause the demand for bonds to shift to the right is A) an increase in the riskiness of bonds relative to other assets. B) an increase in the expected rate of inflation. C) expectations of lower interest rates in the future. D) a decrease in wealth.

C) expectations of lower interest rates in the future

48) A factor that could cause the supply of bonds to increase (shift to the right) is A) a decrease in government budget deficits. B) a decrease in expected inflation. C) expectations of more profitable investment opportunities. D) a business cycle recession

C) expectations of more profitable investment opportunities

9) If the liquidity effect is smaller than the other effects, and the adjustment to expected inflation is slow, then the A) interest rate will fall. B) interest rate will rise. C) interest rate will initially fall but eventually climb above the initial level in response to an increase in money growth. D) interest rate will initially rise but eventually fall below the initial level in response to an increase in money growth.

C) interest rate will initially fall but eventually climb above the initial level in response to an increase in money growth

3) During business cycle expansions when income and wealth are rising, the demand for bonds ________ and the demand curve shifts to the ________, everything else held constant. A) falls; right B) falls; left C) rises; right D) rises; left

C) rises; right

Which of the following is most likely to lead to sustained economic growth: A. Increases in human capital B. Increases in labor force C. Technological change D. Increases in the capital stock

C. Technological change

The following shows the effect of the business cycle on the inflation rate and the unemployment rate: A. The unemployment rate increases and the inflation rate increases during expansion B. The unemployment rate increases and the inflation rate falls during expansions C. The unemployment rate increases and the inflation rate falls during recessions D. The unemployment rate falls and the inflation rate falls during recessions

C. The unemployment rate increases and the inflation rate falls during recessions

National income =

Consumption + Saving +Taxes

45) A factor that could cause the supply of bonds to shift to the right is A) a decrease in government budget deficits. B) a decrease in expected inflation. C) a recession. D) a business cycle expansion.

D) a business cycle expansion

15) Factors that decrease the demand for bonds include A) an increase in the volatility of stock prices. B) a decrease in the expected returns on stocks. C) a decrease in the inflation rate. D) a decrease in the riskiness of stocks.

D) a decrease in the riskiness of stocks

23) When the expected inflation rate increases, the demand for bonds ________, the supply of bonds ________, and the interest rate ________, everything else held constant. A) increases; increases; rises B) decreases; decreases; falls C) increases; decreases; falls D) decreases; increases; rises

D) decreases; increases; rises

10) Everything else held constant, when stock prices become less volatile, the demand curve for bonds shifts to the ________ and the interest rate ________. A) right; rises B) right; falls C) left; falls D) left; rises

D) left; rises

15) The figure above illustrates the effect of an increased rate of money supply growth at time period T0. From the figure, one can conclude that the A) liquidity effect is smaller than the expected inflation effect and interest rates adjust quickly to changes in expected inflation. B) liquidity effect is larger than the expected inflation effect and interest rates adjust quickly to changes in expected inflation. C) liquidity effect is larger than the expected inflation effect and interest rates adjust slowly to changes in expected inflation. D) liquidity effect is smaller than the expected inflation effect and interest rates adjust slowly to changes in expected inflation

D) liquidity effect is smaller than the expected inflation effect and interest rates adjust slowly to changes in expected inflation

Net Exports =

Exports - Imports

In a small economy in 2013, aggregate expenditure was $800 million while GDP that year was $850 million. Which of the following can explain the difference between aggregate expenditure and GDP that year?

Firm investment in inventories was greater than anticipated in 2013.

The key idea of the aggregate expenditure model is that in any particular year, the level of ________ is determined mainly by the level of aggregate expenditure.

GDP

Which of the following does the aggregate expenditure macroeconomic model seek to​ explain?

The business cycle

In a business cycle, the high point of economic activity is called

a peak

In a business cycle, the period between the high point of economic activity and the following low point is called

a recession

How does a decrease in government spending affect the aggregate expenditure line?

It shifts the aggregate expenditure line downward.

Economic Growth =

Percent change in GDP = [(GDP(year2) - GDP(year1)) / GDP(year1)] x 100

Inflation Rate =

Percent change in price level = [(Price Level(year2) - Price Level (year1)) / Price Level (year1)] x 100

Market Value =

Price x Quantity

Real GDP =

Prices(base year) x Quantity(current year)

GNP counts

Production by American firms no matter where they are located. Doesn't include foreign companies on American soil

Profit =

Revenue-Cost

Value Added =

Sales Price - cost of intermediate goods

S public=

T-G-TR

Which of the following is a true statement about the multiplier?

The formula for the multiplier overstates the real world multiplier when we take into account the impact of changes in GDP on imports, inflation and the interest rate.

Which of the following is a true statement about the multiplier?

The multiplier rises as the MPC rises

S private=

Y+TR-C-T

S=I=

Y-C-G

Firms in a small economy planned that inventories would grow over the past year by $300,000. Over that year, inventories actually grew by $400,000. This implies that

aggregate expenditure that year was less than GDP that year.

If firms sell exactly what they expected to sell, all of the following will be trueexcept

aggregate expenditure will be greater than GDP.

A decrease in consumer confidence can put your job at risk if

aggregate expenditures fall.

In a business cycle, the period between the low point of economic activity and the following high point is called

an expansion

Equilibrium GDP is equal to

autonomous expenditure times the multiplier.

Inventory Investment =

change in value of all firms' inventories = (Number of items produced - number of items sold) x Sales price

In the aggregate expenditure model, ________ has both an autonomous component and an induced component

consumption spending

during the recession phase of the business cycle, production, employment, and income ___________ increase/ decrease

decrease

The ratio of the increase in ________ to the increase in ________ is called the multiplier.

equilibrium real GDP; autonomous expenditure

Consumer spending ________ and investment spending ________.

follows a smooth trend; is more volatile and subject to fluctuations

Refer to the Article Summary. The increase in consumer spending discussed in the article summary was due in part to an improving housing market. This reason for the increase in consumer spending is most closely related to which of the following variables that determine the level of consumption?

household wealth

What is the key idea in the aggregate expenditure macroeconomic​ model? The key idea in the aggregate expenditure model is that

in any particular​ year, the level of GDP is determined mainly by the level of aggregate expenditure.

During the expansion phase of the business cycle, production, employment, and income ________ increase / decrease

increase

Potential GDP...

increases over time as the labor force grows, and increases over time as technological change occurs

GDP Deflator

indicates the average price level on all goods and services

When aggregate expenditure = GDP,

macroeconomic equilibrium occurs.

Technological change is _____________ for economic growth than additional capital

more important

Refer to the Article Summary. The increase in consumer spending discussed in the article summary was due in part to lower debt payments which have resulted in an increase in disposable income. The increase in consumption resulting from

movement up along

Disposable income is defined as

national income + transfers - taxes.

On the 45 -degree line diagram, for points that lie below the 45-degree line,

planned aggregate expenditure is less than GDP.

Actual investment spending does not include

spending on consumer durable goods.

If an increase in autonomous consumption spending of $25 million results in a $100 million increase in equilibrium real GDP, then

the MPC is 0.75.

If planned aggregate expenditure is below potential GDP and planned aggregate expenditure equals GDP, then

the economy is in a recession.

U.S. net export spending falls when

the growth rate of U.S. GDP is faster than the growth rate of GDP in other countries.

Potential real GDP is

the level of GDP attained when all firms are producing at capacity

John Maynard Keynes argued that if many households decide at the same time to increase saving and reduce spending

they may make themselves worse off by causing aggregate expenditure to fall, thereby pushing the economy into a recession.

The aggregate expenditure model focuses on the relationship between ________ and ________ in the short run, assuming ________ is constant.

total spending; real GDP; the price level