Chapter 8,10 and 11

In Exhibit 10-4 which of the following is not consistent with a shift in the aggregate demand curve from AD1 to AD2? A decrease in consumer spending. An increase in net exports. An increase in government spending. An increase in investment.

A decrease in consumer spending.

Which of the following would shift the aggregate demand curve to the left? An increase in investment. A decrease in government spending. An increase in exports. An increase in government spending.

A decrease in government spending.

Along the Keynesian range of the aggregate supply curve, an increase in the aggregate demand curve will increase: only real GDP. only the price level. real GDP and reduce the price level. both the price level and real GDP.

only real GDP.

Along the classical or vertical range of the aggregate supply curve, an increase in the aggregate demand curve will increase: only real GDP. real GDP and reduce the price level. both the price level and real GDP. only the price level.

only the price level.

In Exhibit 10-4, point E2 represents: a depression. real GDP below full-employment GDP. real GDP that equals full-employment GDP. real GDP above full-employment GDP.

real GDP below full-employment GDP.

The idea that higher prices reduce the purchasing power of financial assets and lead to less consumption is known as the: interest rate effect. real balances effect. income effect. foreign purchases effect.

real balances effect.

Assume the marginal propensity to consume (MPC) is 0.75 and the government cuts taxes by $250 billion. The aggregate demand curve will shift to the: left by $750 billion. right by $1,000 billion. right by $750 billion. left by $1,000 billion.

right by $750 billion.

Which of the following could not be expected to shift the aggregate demand curve? Consumption spending decreases. A change in the price level (P). An increase in government spending. Net exports fall.

A change in the price level (P).

Exhibit 8-3 Disposable income and consumption data Note: All amounts are in billions of dollars per year. As shown in Exhibit 8-3, autonomous consumption is: $175 billion. $100 billion. $75 billion. $275 billion.

$100 billion.

Given the consumption function C = $500 billion + 0.90Yd, an increase in disposable income from $6,000 billion to $7,000 billion will cause consumption to increase by: $100 billion. $5900 billion. $900 billion. $1000 billion.

$900 billion.

Find the tax multiplier if the MPC is 0.75. 3. -3. 0.33. -4. 4.

-3.

Exhibit 8-3 Disposable income and consumption data Note: All amounts are in billions of dollars per year. As shown in Exhibit 8-3, if disposable income rises from $100 billion to $200 billion, the marginal propensity to save (MPs) is: 0.75. 1.00. 0.25. 0.5 100

0.25.

The relationship between MPC and MPS is: MPC - MPS = 1. 1 - MPC = MPS. 1 + MPC = MPS. 1 + MPS = MPC.

1 - MPC = MPS.

Given the consumption function C = 200 + 0.75Yd , autonomous consumption and MPC are, respectively, 275 and 0.25. 200 and 0.75. 275 and 0.75. 200 and 0.25.

200 and 0.75.

If the marginal propensity to consume (MPC) is 0.96, the value of the spending multiplier is: 100. 96. 25. 40.

25.

If the economy was about to enter an inflationary boom, which of the following would be the most appropriate policy? An increase in government spending. A tax decrease. A tax increase. expansionary fiscal policy.

A tax increase.

Which of the following is (are) assumed to be autonomous (independent of income) in the Keynesian model? Government purchases All except consumption Exports Investment Consumption

All except consumption

Which of the following statements is true concerning the consumption function? It represents the direct (positive) relationship between consumption spending and the level of real disposable income. All of these. Its slope equals the MPC. It slopes upward. If the consumption function lies above the 45-degree line then saving is positive.

All of these.

Which of the following events would increase consumption, other things being equal? A decrease in autonomous consumption. A decrease in stock prices. An increase in wealth. An increase in the price level

An increase in wealth.

Which of the following helps explain why real GDP is inversely related to the price level within the framework of the AD-AS model? As prices fall, domestic consumers have an incentive to buy more of the cheaper goods and services. As prices fall, the wealth of people holding the fixed quantity of money increases, causing them to expand their purchases of goods and services. As prices fall, the monetary authorities will have to increase the money supply, which will lead to an increase in the quantity of goods and services purchased. As prices fall, the government will have to reduce taxes, which will lead to an increase in the quantity of goods and services purchased.

As prices fall, the wealth of people holding the fixed quantity of money increases, causing them to expand their purchases of goods and services.

Which of the following statements is true? Discretionary fiscal policy is the deliberate use of changes in government spending and taxes to stabilize the economy. The tax multiplier is the change in aggregate demand resulting from an initial change in government spending. A budget deficit exists when government tax revenues exceed government spending. Fiscal policy is the manipulation of the nation's money supply to influence the nation's output, employment and price level.

Discretionary fiscal policy is the deliberate use of changes in government spending and taxes to stabilize the economy.

Which of the following is an example of an automatic stabilizer? Revenues from the corporate income tax increase sharply during a business boom but decline substantially during a recession, even though no new tax legislation has been enacted. Congress legislates lower tax rates to increase consumption and investment. Tax rates are increased during a recession to maintain a balanced budget. A regressive income tax system reduces tax revenues (as a share of income) as income expands.

Revenues from the corporate income tax increase sharply during a business boom but decline substantially during a recession, even though no new tax legislation has been enacted.

Which of the following statements is true about Say's law? It states that consumption spending is the most volatile component of aggregate expenditures. It states that supply creates its own demand. It states that total output will always exceed total spending. It states that demand creates its own supply. It is a major proposition of the Keynesian model.

It states that supply creates its own demand.

Which of the following will increase investment spending and shift the investment demand curve to the right? A decrease in capacity utilization. An increase in interest rates. An increase in business taxes. More pessimistic business expectations. More optimistic business expectations.

More optimistic business expectations.

Which of the following is not a component of the aggregate demand curve? Net exports (X-M). Government spending (G). Consumption (C). Investment (I). Saving.

Saving.

Suppose an increase in government spending stimulates real GDP without affecting the price level. What is the relevant range of the aggregate supply curve in this case? The monetarist range. The Keynesian range. The intermediate range. The classical range.

The Keynesian range.

The net exports effect exists because a: lower price level will encourage Americans to import more foreign goods. higher price level will reduce interest rates and stimulate foreign investment. higher price level will reduce the purchasing power of money. lower price level will make domestically produced exports less expensive relative to foreign goods.

lower price level will make domestically produced exports less expensive relative to foreign goods.

The aggregate supply curve: shows the level of real GDP produced in the economy at different possible price levels during a period of time. is vertical in the classical range. all of these. is horizontal in the Keynesian range.

all of these.

To combat a recession, Keynesian fiscal policy recommends: a reduction in both taxes and government spending. an increase in taxes. an increase in government spending. an increase in taxes and a decrease in government purchases to balance the budget.

an increase in government spending.

Exhibit 8-4 Consumption function As shown in Exhibit 8-4, saving occurs: at a disposable income greater than $2 trillion. at $2 trillion disposable income. between $0 and $2 trillion disposable income. at 0 disposable income.

at a disposable income greater than $2 trillion.

The consumption function will shift for all of the following reasons except: expectations of price changes. a change in interest rates. changes in a household's disposable incomes. a change in a household's real assets.

changes in a household's disposable incomes.

The popular theory prior to the Great Depression that the economy will automatically adjust to achieve full employment in the long run is: mercantilism. classical economics. supply-side economics. Keynesian economics.

classical economics.

If the marginal propensity to consume (MPC) is 0.75, a $50 decrease in government spending, other things being equal, would cause equilibrium real GDP to: decrease by $50. increase by $200. increase by $50. decrease by $200.

decrease by $200.

As the marginal propensity to consume (MPC) decreases, the spending multiplier: remains constant. decreases. increases. becomes undefinable.

decreases.

The the investment demand curve is drawn as: downward sloping, reflecting an inverse relationship between investment and the interest rate. horizontal. downward sloping, reflecting a positive relationship between investment and the interest rate. downward sloping, reflecting an inverse relationship between investment and disposable income. upward sloping, reflecting a positive relationship between investment and the interest rate.

downward sloping, reflecting an inverse relationship between investment and the interest rate.

Exhibit 10-1 Aggregate supply curve In Exhibit 10-1, the segment labeled ab is: the Keynesian range, reflecting the presence of plenty of idle resources. the classical range where resources are fully employed. the intermediate range where resources are not fully employed. the Keynsian range, reflecting full employment.

he Keynesian range, reflecting the presence of plenty of idle resources.

If MPC=0.8, this means that: households on average spend $0.80 from each additional dollar of disposable income received. households on average are spending 20% of thier total income. households on average spend $0.20 for each additional dollar of disposable income received. MPS=1.

households on average spend $0.80 from each additional dollar of disposable income received.

Expansionary fiscal policy consists of: raising the minimum wage. decreasing government spending. increasing payroll taxes to finance health care. increasing government spending.

increasing government spending.

The aggregate demand curve: shifts to the left whenever there is an increase in aggregate expenditures. shows the level of real GDP produced in the economy at different possible price levels during a period of time. shows the level of real GDP purchased in the economy at different possible price levels during a period of time. slopes upward.

shows the level of real GDP purchased in the economy at different possible price levels during a period of time.

As the economy moves to the right in Exhibit 10-4 along the upward-sloping aggregate supply curve the: unemployment rate rises. inflation rate falls. unemployment rate falls. none of these.

unemployment rate falls.