EXAM 4 (2 semester)
10) The components of aggregate expenditure include I. imports. II. consumption. III. government transfer payments
*A) I and II* B) II only C) II and III D) I, II and III
47) In 2009, just after taking office, President Obama approved an $800 billion stimulus package of tax cuts and increased government spending to combat the recession brought on by the financial crisis of 2007. Which group of economists most approved of President Obama's actions?
*A) Keynesian economists* B) monetarists C) classical economists D) free market economists
30) In the above figure, at the equilibrium, induced expenditure is
A) $10 trillion. B) $5 trillion. C) $15 trillion. *D) some amount not given in the above answers.*
45) The table above gives the aggregate demand and aggregate supply schedules in Lotus Land. The short-run macroeconomic equilibrium is a price level of ________ and a real GDP of ________.
A) 120; $400 B) 90; $400 C) 100; $400 *D) 110; $500*
31) In the above figure, as the economy adjusts toward equilibrium, the
A) AD curve will shift rightward. B) AD curve will shift leftward. C) SAS curve will shift rightward. *D) SAS curve will shift leftward.*
32) Which of the following does NOT occur as the economy moves from an expansion to a recession?
A) An initial decrease in autonomous spending is the trigger that creates the business cycle turning point. B) Incomes fall during recessions as firms cut production in response to unplanned increases in inventories. *C) The change in planned spending exceeds the change in real GDP.* D) The multiplier process reinforces any decrease in spending and pushes the economy into recession.
53) What could Keynes have meant by his now famous statement, "in the long run we are all dead?"
A) Government intervention in the economy is useless because it takes too long to take effect. B) Government intervention is destabilizing, will lead to slower growth in the long run, and will prevent an economy from self regulating. *C) Government intervention in the economy is necessary in times of recession because an economy rarely restores itself to full employment.* D) Government intervention in the economy is only effective if it is not erratic.
10) If the full-employment quantity of labor increases, then the
A) LAS curve shifts rightward and the SAS curve does not shift. B) SAS curve shifts rightward and the LAS curve does shifts leftward. *C) SAS curve shifts rightward and the LAS curve shifts rightward.* D) SAS curve shifts rightward and the LAS curve does not shift.
46) Which school of thought believes that real GDP always equals potential GDP?
A) Monetarist *B) only classical* C) only Keynesian D) both Keynesian and classical
3) If the money wage rate rises, then the
A) SAS curve shifts rightward. B) LAS curve shifts rightward. *C) SAS curve shifts leftward.* D) LAS curve shifts leftward.
36) In the above figure, if the economy is at point A, which of the following is TRUE?
A) The economy is in a recession. B) Money wages can be expected to fall. C) Point A is the long-run equilibrium point. *D) The economy might be at point A as a result of a recent cut in the tax rate.*
6) All of the following shift the short-run aggregate supply curve EXCEPT
A) a change in the price of a raw material. B) technological progress. *C) a change in the price level.* D) a change in the money wage rate.
22) A change in imports caused by rising U.S. incomes is
A) a decrease in autonomous expenditure. *B) a change in induced expenditure.* C) an increase in induced exports. D) an increase in autonomous expenditure.
29) When real GDP exceeds aggregate planned expenditure
A) actual inventories decrease below their target. B) a higher level of equilibrium income will prevail. *C) GDP will decrease.* D) the circular flow will increase.
20) An increase in U.S. exports because of increasing foreign incomes represents ________ in the United States.
A) an increase in induced expenditure *B) an increase in autonomous expenditure* C) a decrease in autonomous expenditure D) a decrease in induced expenditure
25) The U.S. fiscal policy implemented in 2008 was an attempt to
A) decrease the exchange rate in order to boost net exports, and thereby increasing AD. B) give billions of dollars to businesses and low- and middle-income Americans in order to stimulate business investment and consumption expenditure, and thereby increasing SAS. C) decrease interest rates in order to stimulate business investment and consumption expenditure, and thereby increasing AD. *D) give billions of dollars to businesses and low- and middle-income Americans in order to stimulate business investment and consumption expenditure, and thereby increasing AD.*
4) In the very short term, planned investment ________ when GDP changes and planned consumption expenditure ________ when GDP changes.
A) does not change; does not change B) changes; does not change *C) does not change; changes* D) changes; changes.
41) In the short-run, real GDP can be greater than or less than potential GDP because in the short run the
A) full-employment level of employment is fixed. B) price level is fixed. C) quantity of capital is fixed. *D) money wage rate is fixed.*
27) In the above figure, point d represents the point where planned expenditures are ________ real GDP.
A) greater than *B) less than* C) equal to D) There is not enough information to answer the question.
7) An aggregate supply curve depicts the relationship between
A) household expenditures and household income. B) the price level and the quantity of nominal GDP supplied. C) the money wage rate and the quantity of real GDP supplied. *D) the price level and the quantity of real GDP supplied.*
7) Real GDP
A) is always greater then aggregate income. *B) is equal to aggregate income.* C) is always less than aggregate income. D) might be less than or more than aggregate income depending on consumption.
In the above figure, the economy is currently at point A. Suppose that the money wage rate and the price level both fall by 10 percent. Firms will be willing to supply output equal to
A) less than $16.0 trillion. *B) $16.0 trillion.* C) more than $16.0 trillion. D) Without more information, it is impossible to determine which of the above answers is correct.
40) In a short-run macroeconomic equilibrium, potential GDP exceeds real GDP. If aggregate demand does not change, then the
A) long-run aggregate supply curve will shift leftward as the money wage rate falls. B) long-run aggregate supply curve will shift leftward as the money wage rate rises. C) short-run aggregate supply curve will shift leftward as the money wage rate rises. *D) short-run aggregate supply curve will shift rightward as the money wage rate falls.*
23) Aggregate demand is the relationship between the quantity of real GDP demanded and the ________.
A) money wage rate *B) price level* C) real wage rate D) nominal GDP demanded
32) The data in the above table show that when the price level is 120, the economy
A) will have falling money wage rates sometime in the future. B) is in a long-run macroeconomic equilibrium. C) has an inflationary gap. *D) has a recessionary gap.*
19) In the above figure, equilibrium expenditure is
*A) $16 trillion.* B) more than $16 trillion. C) less than $16 trillion. D) some amount that cannot be determined without more information.
23) In the above figure, equilibrium real GDP is equal to
*A) $16 trillion.* B) $12 trillion. C) $14 trillion. D) $18 trillion.
9) When disposable income equals $800 billion, planned consumption expenditure equals $600 billion, and when disposable income equals $1,000 billion, planned consumption expenditure equals $640 billion. What is planned saving when disposable income is $800 billion?
*A) $200 billion* B) $1,400 billion C) $360 billion D) $560 billion
54) ________ economists believe that the economy is self-regulating and always at full employment
*A) Classical* B) All C) Keynesian D) Monetarist
52) Which school of thought believes that recessions are the result of inappropriate monetary policy?
*A) Monetarist* B) only classical C) only Keynesian D) both Keynesian and classical
1) Which of the following occurs while moving along a short-run aggregate supply curve?
*A) The price level changes and the money wage rate is constant.* B) Neither the price level nor the money wage rate changes. C) The money wage rate and the price level change by the same percentage. D) The money wage rate changes and the price level is constan
14) The MPC is the fraction of
*A) a change in disposable income that is consumed.* B) a change in disposable income that is saved. C) total disposable income that is consumed. D) total disposable income that is not consumed.
5) Which of the following changes does NOT shift the short-run aggregate supply curve?
*A) an increase in the price level* B) an increase in the money wage rate C) an increase in technology D) an increase in the quantity of capital
29) An increase in government expenditure on goods and services
*A) increases aggregate demand.* B) increases the aggregate quantity demanded. C) decreases the aggregate quantity demanded. D) decreases aggregate demand.
26) When aggregate planned expenditure is less than real GDP, unplanned
*A) investment occurs.* B) consumption expenditure occurs. C) government expenditures are made. D) exports are made.
24) The intertemporal substitution effect of the price level on aggregate demand
*A) is one reason that the aggregate demand curve has a negative slope.* B) is one reason that the aggregate demand curve has a positive slope. C) is the same as the real wealth effect. D) explains why aggregate demand increases when the amount of money increases.
31) If the marginal propensity to import increases, then the
*A) multiplier will decrease in value.* B) effect on the multiplier will depend on what happens to exports. C) multiplier will increase in value. D) multiplier will not change in value.
39) In the short run, an increase in aggregate demand
*A) raises the price level and increases real GDP.* B) lowers the price level and decreases real GDP. C) lowers the price level and increases real GDP. D) raises the price level and decreases real GDP.
35) In the above figure the economy is initially at point A on the aggregate expenditure curve AE0. Suppose firms expect profits to increase and decide to increase investment. As a result
*A) the AE curve shifts upward to a curve such as AE2.* B) there is a movement along AE1 to a point such as B. C) the AE curve shifts downward to a curve such as AE1. D) there is a movement along AE1 to a point such as C.
4) An increase in the quantity of capital increases ________ and increase in the full-employment quantity of labor increases
*A) the SAS and the LAS; the SAS and the LAS* B) the SAS and the LAS; only the SAS C) only the LAS; the SAS and the LAS D) the SAS and the LAS; only the LAS
49) A classical economist believes that
*A) the economy is self-regulating and always at full employment.* B) the economy is self-regulating and will normally, though not always, operate at full employment if monetary policy is not erratic. C) if the economy was left alone, it would rarely operate at full employment. D) the economy is self-regulating and will normally, though not always, operate at full employment if fiscal policy is not erratic
37) When an increase in aggregate demand exceeds the increase in aggregate supply
*A) the economy will experience inflation as the price level rises.* B) nominal GDP decreases and real GDP decreases. C) real GDP decreases while nominal GDP increases. D) the price level falls while real GDP increases.
17) In the above figure, autonomous expenditure is equal to
A) $12 trillion. *B) $14 trillion.* C) $0. D) $16 trillion.
15) In the above figure, autonomous consumption equals
A) $12 trillion. B) 0. *C) $4 trillion.* D) -$4 trillion.
35) In the above figure, the aggregate demand curve is AD2, so the short-run equilibrium level of real GDP is
A) $16 trillion. *B) $16.5 trillion.* C) more than $16 and less than $16.5 trillion. D) None of the above answers is correct.
22) The quantity of real GDP demanded equals $16.2 trillion when the price level is 90. If the price level rises to 95, the quantity of real GDP demanded equals
A) $16.2 trillion. *B) less than $16.2 trillion.* C) more than $16.2 trillion. D) more information is needed to determine if the quantity of real GDP demanded increases, decreases, or does not change.
16) In the above table, C is consumption expenditure, I is investment, G is government expenditure, and X - M is net exports. All entries are in dollars. The equilibrium level of real GDP is
A) $2,200. B) $2,500. *C) $2,400.* D) $2,300.
33) If the price level is constant and the slope of the AE curve is 0.75, a decrease in government expenditures of $100 leads to a decrease in real GDP of
A) $800. B) $100. *C) $400.* D) $25.
5) The slope of the saving function is equal to
A) 1- MPS. B) the MPS. C) the MPC. D) None of the above answers is correct.
42) In the above figure, when the economy is in a long-run equilibrium, the price level will be
A) 110. B) 90. C) 100. *D) 120.*
55) Which of the following statements is INCORRECT?
A) A new classical macroeconomist believes the business cycle is the efficient response to the uneven pace of technological change. B) A monetarist believes that recessions are the result of erratic monetary policy. *C) A classical macroeconomist believes that the money wage rate adjusts slowly.* D) A Keynesian believes the business cycle is mainly influenced by changes in people's expectations.
18) Read the two statements below and indicate if they are true or false I. Autonomous expenditures change when GDP changes. II. Aggregate planned expenditure is the sum of planned consumption expenditure, investment, government expenditure, and net exports.
A) I and II are both true. B) I and II are both false. C) I is true and II is false *D) I is false and II is true.*
34) Changes in which of the following will affect the size of the multiplier? I. marginal propensity to import II. marginal propensity to consume III. marginal income tax rate
A) I only B) II only C) I and II only *D) I, II, and III*
34) Suppose the economy is at point B. If firms expect profits will be higher in the future, to what point might the economy's move in the short run?
A) It shifts to a point such as A. B) It stays at point B. *C) It shifts to a point such as C.* D) None of the above answers are correct because it is the SAS curve that shifts, not the AD curve.
50) ________ economists believe that active help from fiscal and monetary policy is needed to insure that the economy is operating at full employment.
A) Monetarist B) All *C) Keynesian* D) Classical
44) In the above figure, if the economy is at point A, which of the following is TRUE?
A) Point A is the long-run equilibrium point. *B) There is an inflationary gap.* C) There is a recessionary gap. D) None of the above answers are correct.
20) If higher inflation is expected in the future, then the
A) SAS curve shifts rightward. B) LAS curve shifts rightward. *C) AD curve shifts rightward.* D) None of the above answers is correct.
2) If the marginal propensity to consume is 0.8, every $10 increase in disposable income increases
A) consumption expenditure by $80.00. B) saving by $0.20. *C) consumption expenditure by $8.00.* D) consumption expenditure by $0.80.
8) Which of the following does NOT shift the short-run aggregate supply curve?
A) a change in the money wage rate *B) a change in the price level* C) technological progress D) a reduction in the price of a raw material
19) In the above figure, the economy is initially at point B. If taxes increase, there is
A) a movement to point C. B) a movement to point A. C) a shift to AD2. D) a shift to AD1.
38) When real GDP exceeds potential GDP, then the economy has
A) a recessionary gap. B) a below-full-employment equilibrium. *C) an inflationary gap.* D) None of the above answers are correct.
1) The consumption function shows how much
A) all households plan to consume at each level of savings. B) all households plan to consume at each possible real interest rate. *C) all households plan to consume at each level of real disposable income.* D) real disposable income people will earn at each income tax bracket
21) Which of the following events shifts the aggregate demand curve leftward?
A) an increase in net exports of goods and services B) an increase in consumption expenditures C) a decrease in taxes *D) a decrease in government expenditures on goods and services*
16) Which of the following increases aggregate demand?
A) an increase in the exchange rate B) a decrease in government expenditures *C) an increase in the quantity of money* D) an increase in taxes
11) In the above figure, the short-run aggregate supply curve is SAS1. If the money wage rate increases, there is
A) an upward movement along SAS1. B) a downward movement along SAS1. *C) a shift to SAS0.* D) a shift to SAS2.
13) The SAS curve and the LAS curve
A) are perpendicular to one another at potential GDP. *B) intersect at potential GDP.* C) are parallel at potential GDP. D) None of the above answers is correct.
12) In the figure above, negative saving occurs
A) at all levels of disposable income. B) when disposable income is $15 trillion. C) when disposable income is $20 trillion. *D) when disposable income is $10 trillion.*
12) The short-run aggregate supply curve
A) becomes vertical if there is excess production capacity within the economy. B) shows what each producer is willing and able to produce at each level of income holding constant potential GDP and all resource prices. C) shows a negative relationship between the price level and real national income holding constant potential GDP and all resource prices. *D) shows the relationship between aggregate production and the price level holding constant potential GDP and all resource prices.*
24) In the above figure, if real GDP is greater than $15 trillion, inventories will be
A) below target levels so firms will decrease production. *B) above target levels so firms will decrease production.* C) below target levels so firms will increase production. D) above target levels so firms will increase production.
26) The AD curve shows the sum of
A) consumption expenditure, investment, the price level, and real GDP. B) consumption expenditure, investment, and real GDP. *C) consumption expenditure, investment, government expenditures on goods and services, and net exports.* D) the price level, employment, and real GDP.
21) In the above table, C is consumption expenditure, I is investment, G is government expenditure, X is exports, and M is imports. All entries are in dollars. If investment increased by $26 to $51 then equilibrium expenditure will
A) decrease by $100. B) decrease by $50. *C) increase by $100.* D) increase by $25.
43) Suppose the economy was initially in a long-run equilibrium. Then the world economy expands so that foreign incomes rise. U.S. aggregate demand ________ and eventually the money wage rate ________.
A) decreases; falls B) increases; falls C) decreases; rises *D) increases; rises*
25) All else being constant, autonomous expenditure
A) increases as real GDP increases. B) is assumed to be zero. C) increases as real GDP decreases. *D) does not change with changes in real GDP.*
28) Which of the following is NOT an autonomous expenditure in the aggregate expenditures model?
A) investment B) government expenditures C) exports *D) imports*
17) The aggregate demand curve shows that, if other factors are held constant, a
A) lower price level results in a higher interest rate. B) higher price level results in an increase in the quantity of real GDP demanded. C) higher price level results in a lower interest rate. *D) higher price level results in a decrease in the quantity of real GDP demanded.*
11) According to the Keynesian theory, the typical firm
A) lowers its prices if sales exceed production. B) lowers its prices when inventories are decreasing. *C) does not change its prices immediately when aggregate demand fluctuates.* D) changes its prices frequently in response to fluctuations in aggregate demand.
18) According to the intertemporal substitution effect, a higher price level
A) makes it less costly for people to buy houses and cars. B) increases the quantity of real GDP demanded. C) lowers the costs of building new plants and equipment. *D) decreases the quantity of real GDP demanded.*
28) If you have $1,000 of money in the bank and the price level rises by 5 percent, your
A) money is worth the same in terms of what it can purchase. *B) money is worth less in terms of what it can purchase.* C) purchasing power has increased. D) money is worth more in terms of what it can purchase.
27) In the above figure, the economy initially is at point B. Then price level rises by 10. The wealth effect will help
A) move the economy to point A. B) move the economy to point D. *C) move the economy to point C.* D) keep the economy to point B.
14) The supply of real GDP is a function of
A) only the state of technology. *B) the quantities of labor, capital and the state of technology.* C) the total expenditures of consumers, investors and government. D) the sum of wages, salaries, corporate profits, rents and interest.
33) In the short-run macroeconomic equilibrium
A) real GDP equals potential GDP and aggregate demand determines the price level. *B) real GDP and the price level are determined by short-run aggregate supply and aggregate demand.* C) the price level is fixed and short-run aggregate supply determines real GDP. D) real GDP is always less than potential GDP.
15) The SAS curve shifts if there is a change in
A) real GDP. B) the price level. *C) potential GDP.* D) nominal GDP.
3) In a diagram with the consumption function, the ________ shows all points where disposable income equals consumption expenditures.
A) saving function B) aggregate demand curve *C) 45-degree line* D) consumption function
6) When disposable income equals consumption expenditure, then
A) saving is zero. *B) the MPS = zero.* C) the MPC = zero. D) None of the above is correct.
13) The MPS equals the ratio of
A) saving to real GDP. B) saving to consumption expenditure. C) the change in saving to the change in consumption expenditure. *D) None of the above answers is correct.*
8) If firms set prices and then keep them fixed for a period of time, their fixed prices imply that
A) the aggregate price level adjusts continuously. B) the aggregate price level is fixed and that aggregate supply determines the quantity of goods and services sold. C) prices are set by aggregate demand and supply. *D) the aggregate price level is fixed and that aggregate demand determines the quantity of goods and services sold.*
51) A monetarist economist believes that
A) the economy is self-regulating and always at full employment. *B) the economy is self-regulating and will normally, though not always, operate at full employment if monetary policy is not erratic.* C) if the economy was left alone, it would rarely operate at full employment. D) the economy is self-regulating and will normally, though not always, operate at full employment if fiscal policy is not erratic.
48) A Keynesian economist believes that
A) the economy is self-regulating and always at full employment. B) the economy is self-regulating and will normally, though not always, operate at full employment if monetary policy is not erratic. C) the economy is self-regulating and will normally, though not always, operate at full employment if fiscal policy is not erratic. *D) if the economy was left alone, it would rarely operate at full employment.*
9) If the money prices of resources changes
A) the macroeconomic equilibrium is unaffected. B) the AD curve shifts. C) the LAS curve shifts. *D) the SAS curve shifts.*
30) The AD curve slopes
A) upward due to the wealth and substitution effects. *B) downward due to the wealth and substitution effects.** C) downward due to the wealth and price effects. D) upward due to the price and substitution effects
