Exam 3

Suppose when consumers get a $100 increase in income, their consumption spending increases by $90 and there is no change in imports. What is the expenditure multiplier?

10

Suppose the MPC is 90% and the marginal propensity to import is 15%. What is the expenditure multiplier?

4

Suppose the money demand curve shifted to the left. What is the impact on the market for money?

Decrease in interest rate

Suppose there is an unexpected increase in business inventories. What is the impact on inventory investment spending?

Decrease in inventory investment spending

Suppose there is an increase in the interest rate. What is the impact on investment spending plans?

Decrease in investment

Which of the following results in a leftward shift in real money demand?

Improvement in financial technology

Suppose an increase in housing prices leads to an increase in consumer wealth. What impact will this have on consumption decisions?

Increase in consumer spending

Suppose there is an improvement in businesses' economic outlook. What will be the impact on expenditure demand?

Increase in investment spending

Which of the following would cause an increase in equilibrium interest rates?

Increase in money demand

Which of the following results in a rightward shift in real money demand?

Increase in real GDP

Suppose the money supply shifts to the left. What is the impact on the market for money?

Increase in the equilibrium interest rate

Which of the following increases the opportunity cost of holding money?

Increase in the interest rate

If the central bank wanted to stimulate the economy in order to increase real GDP, which policy should it take?

Increase the money supply

Suppose the inflation rate is very low. The central bank desires to maintain a slightly higher predictable rate of inflation. What policy should it choose?

Increase the money supply

Which of the following is one explanation as to why the aggregate demand curve slopes downward?

Increases in the price level reduce real wealth, reducing consumption spending, and therefore reducing the quantity demanded of all final goods and services.

Which of the following is true of the money supply curve?

It is a vertical line at the quantity of money that the central bank decides to supply.

Suppose there is an improvement in financial technology. What is the impact on the market for money?

Leftward shift in money demand

Suppose when consumers receive an additional $150 of income, on average they increase their spending by $120. What is the marginal propensity to save?

MPS =.2

Which of the following monetary policies lead to a rightward shift in the aggregate supply curve?

No monetary policy can affect the aggregate supply curve.

Which of the following is true following an increase in the interest rate

The consumption demand component of aggregate demand decreases.

When the marginal propensity to consume decreases, what happens to the expenditure multiplier?

The expenditure multiplier decreases

When the marginal propensity to import increases, what happens to the expenditure multiplier?

The expenditure multiplier decreases

How does a cut in government spending on education affect the aggregate demand curve?

A decrease in government spending causes the aggregate demand curve to shift to the left.

Suppose the government decreases the sales tax rate. What would be the impact on aggregate demand?

A decrease in the sales tax makes consumption less expensive, causing aggregate demand to shift to the right.

Which of the following can lead to an increase in real GDP and a decrease in the aggregate price level in the short run?

A rightward shift in aggregate supply

Suppose there is a decrease in the interest rate? What is the impact on the market for final goods and services?

Aggregate demand shifts to the right, leading to an increase in real GDP and an increase in the price level in the short run.

Which of the following would cause aggregate demand to shift to the right?

An improvement in the economic outlook of businesses, leading to an increase in investment demand.

Suppose business confidence improves, leading to an increase in investment spending. What is the short-run equilibrium impact on real GDP and price level?

An increase in investment spending leads to a rightward shift in aggregate demand. In the short run, there is an increase in real GDP and an increase in the price level.

How do increases in military spending affect the aggregate demand curve?

An increase in military spending is an increase in government spending, which causes the aggregate demand curve to shift to the right.

Which of the following would cause the short-run aggregate supply to the left?

An increase in the cost of hiring workers.

Which of the following describes the nature of the short-run aggregate supply curve?

As the aggregate price level increases, the total quantity of all final goods and services supplied in the short-run in an economy increases.

If consumers expect an increase in income in the future, what would be the impact on consumer spending decisions today?

Consumers increase spending today

If the U.S. dollar depreciates relative to its major trading partners, what will be the impact on the aggregate demand curve?

Exports will increase and imports will decrease, both leading to an increase / rightward shift in aggregate demand.