Economics Questions
If income increases from $5 million to $6 million and saving increases from $750,000 to $1 million, what is the marginal propensity to consume?
0.75
If the marginal propensity to consume is 0.8, by how much will total income increase after an initial $200 is spent?
1,000
If the marginal propensity to consume is 0.9, what is the size of the multiplier?
10
If MPC = 0.6, what is the spending multiplier?
2.5
If government spending increases, shifting aggregate demand from _____ to _____, aggregate output will increase from _____ to _____.
AD0; AD1; Q0; Qf
The 45-degree line in the Keynesian model represents
AE = Y.
_____ inflation occurs when aggregate demand expands so much that equilibrium output exceeds full employment output.
Demand-pull
Consumption expenditures play a minor role in the U.S. economy.
False
Cost-push inflation occurs when aggregate supply shifts to the right, causing the price level to increase along with rising unemployment.
False
Negative saving, by definition, is impossible.
False
Rising confidence in the economy shifts the aggregate demand curve to the left.
False
_____ marginal tax rates and _____ are commonly used to increase aggregate supply.
Lowering; offering investment tax credits
If there are advancements in technology, the short-run aggregate supply curve will shift from SRAS0 to _____, and the price level will shift to _____.
SRAS1; P1
If the government raises taxes or increases regulations, the short-run aggregate supply curve will shift from SRAS0 to _____, and the price level will be at _____.
SRAS2; P2
Which of these will increase aggregate supply?
The president asks Congress for $200 billion for rebuilding roads and bridges.
The balanced budget multiplier equals 1.
True
Under a cyclically balanced budget, a government should raise taxes when the economy is growing and reduce taxes when GDP is declining.
True
Consider the shift in aggregate supply shown in the accompanying figure. Which of these might cause this change in short-run aggregate supply?
Unions successfully negotiate higher wages.
The Great Depression was primarily the result of
a decrease in aggregate demand.
Which variables are on the Laffer curve's axes?
average tax rate and tax revenue
A tax increase has a smaller impact on the economy than does a decrease in government spending of the same magnitude because
consumers pay for part of the tax increase by reducing their savings.
Reducing government spending, reducing transfer payments, or raising taxes describes which policy?
contractionary fiscal
Which of these requires the government to balance its budget over the business cycle?
cyclically balanced budget
Simultaneous recession and deflation can be explained by a(n)
decrease in aggregate demand.
A(n) _____ in government spending, a _____ domestic currency, and _____ interest rates will shift the aggregate demand curve to the left.
decrease; stronger; higher
A solution to the simultaneous emergence of deflation and unemployment is to use policies that shift the aggregate
demand curve to the right.
When household debt levels rise
families are less able to spend in the current period.
Income rises when desired investment is
greater than desired savings.
Public choice theory is used extensively to analyze each issue EXCEPT
how competition has increased as a result of international trade.
Increases in government spending _____ equilibrium income, and increases in taxes _____ equilibrium income.
increase; decrease
Which event causes a decrease in aggregate demand?
increases in taxes
In Productovia, aggregate demand increases and aggregate supply decreases. Based on the shifts of these two curves, which of these is a likely outcome?
inflation
What occurs when spending is above the full employment level?
inflationary gap
If the marginal propensity to consume is 0.6; full employment income is $500; and the current equilibrium is $750, a(n) _____ gap exists, such that a(n) _____ in spending equal to _____ is needed to close the gap.
inflationary; decrease; $100
Crowding out
is driven by higher interest rates generated by government borrowing.
When withdrawals equal injections, the economy
is in equilibrium.
When the consumption schedule lies below the 45-degree reference line, saving
is positive.
Which curve is vertical?
long-run aggregate supply
Federal spending that is authorized by permanent laws and does not go through the annual appropriation process is called _____ spending.
mandatory
If the British pound sterling appreciates against the U.S. dollar, England buys _____ U.S. goods, causing the U.S. aggregate demand curve to shift to the _____.
more; right
With respect to income, the investment schedule in the short run is
perfectly elastic.
If the marginal propensity to consume is 0.6; full employment income is $1,000; and the current equilibrium is $750, a(n) _____ gap exists, such that a(n) _____ in spending equal to _____ is needed to close the gap.
recessionary; increase; $100
After the government collects the necessary macroeconomic data, it takes time for policymakers to confirm whether a recession or a recovery has started. This situation is called the _____ lag.
recognition
Assume initially the economy is at full employment. If aggregate demand increases, the aggregate price level and costs will _____, and ultimately, the short run aggregate supply curve shifts to the _____.
rise; left
If an economy is currently at point a, this figure depicts the economy in
short-run equilibrium only.
Classical economists claim that _____ is the primary determinant of saving, and Keynes claimed that _____ is the primary determinant of saving.
the interest rate; income
A change in _____ will cause a change in the quantity demanded of real GDP.
the price level
Consider the shift in aggregate supply shown in the accompanying figure. Which of these might cause this change in short-run aggregate supply? (arrow pointing to the right)
Businesses are increasingly optimistic about the future.
Discretionary fiscal policy allows Congress to respond more quickly to changes in the economy than automatic stabilizers would.
False
For country A, the present value of all projected future revenues is $400 million and the present value of all projected future spending is $412 million. Country A's fiscal policy is sustainable.
False
Spending by the government (federal, state, and local) is more than 60% of GDP today.
False
Tax decreases do not inject money into the economy.
False
The long-run aggregate supply curve is vertical because of the assumption that all variables are fixed in the long run.
False
The multiplier works for increases in spending but not for cuts in spending.
False
If the economy is above long-run equilibrium output, what will happen in the long run if SRAS adjusts?
Prices rise and output decreases.
_____ government spending, _____ transfer payments, and _____ taxes are all examples of contractionary fiscal policy.
Reducing; reducing; raising
Demand-pull inflation is due to excessive spending on goods and services.
True
Functional finance emphasizes economic growth and price level stability with full employment.
True
Hypothetically speaking, if the Organization of the Petroleum Exporting Countries (OPEC) stopped exporting oil, a decrease in production would lead to a decrease in aggregate supply.
True
One argument against using taxation to pay off the public debt is that it will redistribute wealth from people who do not hold bonds to bondholders.
True
The recessionary gap is equal to the GDP gap divided by the multiplier.
True
When the economy booms, tax revenues rise faster than income.
True
The budget philosophy that states the government should be MOST concerned with economic growth, stable prices, and keeping the economy at full employment is
functional finance.
Which action is an example of a supply-side fiscal policy?
giving tax breaks to firms that undertake research and development
The nearly $800 billion stimulus package passed in the United States in 2009 focused more on spending than on taxes partly because
increased spending leads to a larger increase in GDP than does the same reduction in taxes.
