Macro exam 3
When economy is experiencing demand-pull inflation, its real GDP tends to be rising
True
Wage contracts, efficiency wages, and the minimum wage are explanations for why:
Wages tend to be inflexible downward
The real-balances effect indicates that
a higher price level will decrease the real value of many financial assets and therefore reduce spending.
A high rate of inflation is likely to cause a:
high nominal interest rate.
Generally speaking the greater the MPS, the
smaller would be the increase in income that results from an increase in consumption spending.
If Trent's MPC is .80, this means that he will:
spend eight-tenths of any increase in his disposable income
Prices and wages tend to be:
flexible upward, but inflexible downward.
Assume that MPS is 0.4. If spending increases by $8 billion, then real GDP will increase by:
$20 billion
Assume the MPC is 2/3. If investment spending increases by $2 billion, the level of GDP will increase by:
$6 billion
If disposable income increases from $912 to $927 billion and MPC = 0.6, then consumption will increase by:
$9 billion
With a MPS of .3, the MPC will be
1-.3
An $18 billion increase in spending creates $18 billion of new income in the first round of the multiplier process and $13.5 billion in the second round. The multiplier in the economy is:
4
If the MPC is 0.75 the multiplier will be
4
Is the MPC is 0.75, the multiplier will be
4
Assume a machine that has a useful life of only one year costs $2,000. Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300. The expected rate of return on this machine is
15 percent
Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return on this tool is:
20 percent
A sharp rise in the real value of stock prices, which is independent of a change in the price level, would best be an example of
A change in real value of consumer wealth
Degree of Excess Capacity
A rise in excess capacity - unused capital - will reduce the expected return on new investment and hence decrease aggregate demand.
Suppose a family's consumption exceeds its disposable income. This means that its
APC is greater than 1
The foreign purchases, interest rate, and real-balances effects explain why the
Aggregate demand curve is downward-sloping
If the dollar appreciates in value relative to foreign currencies:
Aggregate demand decreases because net exports decrease
Which combination of factors would most likely increase aggregate demand
An increase in consumer wealth and a decrease in interest rates
As disposable income decreases, the
Average propensity to consume increases
decrease in aggregate demand in the short run will reduce
Both real output and the price level
If Matt's disposable income increases from $4,000 to $4,500 and his level of saving increases from $200 to $325, it may be concluded that his marginal propensity to
Consume is .75
An increase in personal income tax rates will cause a(n):
Decrease (or shift left) in aggregate demand
If the U.S. dollar appreciates in value relative to foreign currencies, then this will:
Decrease aggregate demand and increase aggregate supply
The amount of consumption in an economy correlates:
Directly with the level of disposable income
The real-balances effect on aggregate demand suggest that a
Lower price level will increase the real value of many financial assists and therefore cause an increase in spending
1+MPS=MPC
False
If households do not spend any extra income they receive but instead save the entire extra amount, then the multiplier will be zero. T OR F
False
If the dollar appreciates in value relative to foreign currencies:
Foreign buyers will find US good become more expensive
A change in interest rates would shift the consumption schedule and the saving schedule ______; a change in taxes would shift these two schedules ______.
In opposite directions; in the same direction
A decrease in interest rates caused by a change in the price level would cause a(n)
Increase in the quantity of real output demanded (or movement down along AD)
If congress passed new laws significantly increasing the regulation of business, this action would tend to
Increase per-unit production costs and shift the aggregate supply curve to the left
The economy experiences an increase in the price level and a decrease in real domestic output. Which of the following is a likely explanation
Input prices have increased
A decrease in expected returns on investment will most likely shift the AD curve to the
Left because investment will decrease (Ig)
In an economy, for every $1600 decrease in income, spending falls by $1200. It can be concluded that the:
Marginal propensity to save is .25
The economy experiences an increase in the price level and a decrease in real domestic output. Which of the following is a likely explanation?
Net exports have increased
A firm invests in a new machine that costs $5,000 a year but which is expected to produce an increase in total revenue of $5,200 a year. The current real rate of interest is 7 percent. The firm should:
Not undertake the investment because the expected rate of return of 4 percent is less than the real rate of interest
If consumers expect prices to rise and shortages to occur in the future, then there will be a shift
Of Consumption schedule upward and the saving schedule downward
What factors best explain the downward slope of aggregate demand curve
Real-balance effect, interest-rate effect, and foreign purchases effecf
If a family's MPC is 0.7, it means that the family is:
Spending seven-tenths of any increment to its income
If there is a decrease in disposable income in an economy then
The APC rises and the APS falls
The greater the MPC, the greater the multiplier.
True
Which of the following will not tend to shift the consumption schedule forward
The expectation of a future decline in the consumer price index
real balances effect
The tendency for increases in the price level to lower the real value (or purchasing power) of financial assets with fixed money value and, as a result, to reduce total spending and real output, and conversely for decreases in the price level.
1 - MPC = MPS
True
A change in business taxes and regulation can affect production costs and aggregate supply
True
Which of the following will not cause the consumption schedule to shift
a change in consumer incomes
The multiplier effect indicates that
a change in spending will change aggregate income by a larger amount.
With cost-push inflation in the short run, there will be:
a decrease in real GDP
Which of the following would shift the saving schedule upward
a decrease in wealth
real balances effect
a higher price level reduces the real value or purchasing power of the public's accumulated savings balances
An increase in net exports will shift the
aggregate expenditures curve upward and the aggregate demand curve rightward.
An increase in net exports will shift the:
aggregate expenditures curve upward and the aggregate demand curve rightward.
Given the expected rate of return on all possible investment opportunities in the economy:
an increase in the real rate of interest will reduce the level of investment.
The fraction, or percentage, of total income which is consumed is called the:
average propensity to consume
As disposable income goes up, the:
average propensity to consume falls.
The fraction, or percentage, of total income which is saved is called the:
average propensity to save
The multiplier is useful in determining the
change in GDP resulting from a change in spending
The multiplier is defined as
change in GDP/initial change in spending.
The MPC can be defined as that fraction of a
change in income that is spent
Dissaving occurs where
consumption exceeds income.
If households in the economy save more of any extra income that they earn, then the multiplier effect will:
decrease
A decrease in government spending will cause a(n):
decrease aggregate demand
Personal saving is equal to
disposable income minus consumption
An increase in expected future income will:
increase aggregate demand
An increase in productivity will:
increase aggregate supply
A decline in the real interest rate will:
increase the amount of investment spending.
Graphically, cost-push inflation is shown as a:
leftward shift of the AS curve.
The most important determinant of consumption and saving is the
level of income
One can determine the amount of any level of total income that is consumed by:
multiplying total income by the APC.
interest rate effect
occurs when a change in the price level leads to a change in interest rates and, therefore, in the quantity of aggregate demand
If the real interest rate in the economy is i and the expected rate of return on additional investment is r, then more investment will be forthcoming when
r is greater than i.
The fear of unwanted price wars may explain why many firms are reluctant to:
reduce prices when a decline in aggregate demand occurs.
In contrast to investment, consumption is
relatively stable
Graphically, demand-pull inflation is shown as a:
rightward shift of the AD curve along an upsloping AS curve.
The greater is the marginal propensity to consume, the:
smaller is the marginal propensity to save.
A fall in labor costs will cause aggregate:
supply increase
Dissaving means:
that households are spending more than their current incomes.
The consumption schedule is such that
the MPC is constant and the APC declines as income rises.
The consumption schedule shows
the amounts households intend to consume at various possible levels of aggregate income.
The consumption schedule shows:
the amounts households intend to consume at various possible levels of aggregate income.
The investment demand curve suggests
there is an inverse relationship between the real rate of interest and the level of investment spending.
