more macro 2

If the MPS is .05, the MPC is

.95

The formula for the government spending multiplier is A) 1/(1 + MPC). B) 1/MPS. C) 1/MPC. D) 1/(1 + MPS).

1/MPS

Assuming there is no government or foreign sector, if the multiplier is 10, the MPC is A) 0.9. B) 0.8. C) 0.5. D) 0.1.

A) 0.9. [1/(1-MPC)] = 10 1 = 10(1-MPC) 1= 10 - 10 MPC -9 = -10 MPC -9/-10 = MPC .90 = MPC

Assuming there is no government or foreign sector, the formula for the multiplier is A) 1/(1 - MPC). B) 1/MPC. C) 1/(1 + MPC). D) 1 - MPC.

A) 1/(1 - MPC).

Using the saving/investment approach to equilibrium, the equilibrium condition can be written as A) C + I = C + S. B) C = S + I. C) C - S = I. D) C + S = I.

A) C + I = C + S.

In a business cycle, a peak represents the end of ________ and a trough represents the end of ________. A) an expansion; a recession B) a depression; an expansion C) a trough; a peak D) a recession; an expansion

A) an expansion; a recession

In a closed economy with no government, aggregate expenditure is A) consumption plus investment. B) saving plus investment. C) consumption plus the MPC. D) MPC + MPS.

A) consumption plus investment.

Government policies regarding taxes and expenditures are called A) fiscal policy. B) income policies. C) supply-side policy. D) monetary policy.

A) fiscal policy.

Government spending increases by $40 billion and the equilibrium level of output increases by $200 billion. The government spending multiplier A) is 5. B) is 4. C) is 6. D) cannot be determined from this information, because the MPC is not given.

A) is 5. 200/40 output/govt spendign

The presence of automatic stabilizers means that the federal deficit is ________ than it otherwise would be in a recession and ________ than it otherwise would be in an expansion. A) larger; smaller B) smaller; larger C)smaller; smaller D) larger; larger

A) larger; smaller

If the central bank decreases the money supply, it is conducting A) monetary policy. B) supply-side policy. C) fiscal policy. D) incomes policy.

A) monetary policy.

Consumption is A) positively related to household income and wealth and households' expectations about the future, but negatively related to interest rates. B) negatively related to household income and wealth, interest rates, and households' expectations about the future. C) determined only by income. D) positively related to household income and wealth, interest rates, and households' expectations about the future.

A) positively related to household income and wealth and households' expectations about the future, but negatively related to interest rates.

Rapid increases in the price level during periods of recession or high unemployment are known as A) stagflation. B)stagnation. C) depression. D) inflation.

A) stagflation.

The demand for massage therapists declined in the spring of 2007, but the starting wages paid to massage therapists was still the same at the end of 2007. This is an example of a A) sticky price. B) flexible price. C) highly regulated market. D) price control.

A) sticky price.

The MPC is A) the change in consumption divided by the change in income B) consumption divided by income. C) the change in consumption divided by the change in saving. D) the change in saving divided by the change in income

A) the change in consumption divided by the change in income

The MPS is A) the change in saving divided by the change in income. B) 1 + MPC C) income divided by saving. D) total saving divided by total income.

A) the change in saving divided by the change in income.

An example of an automatic stabilizer is A) the food stamp program. B) changing the tax laws to increase the marginal tax rates. C) the indexation of social security benefits to the consumer price index. D) the interest the government pays on loans.

A) the food stamp program.

Which of the following is an investment? A) the purchase of a new printing press by a business B) the purchase of a corporate bond by a household C) the purchase of a share of stock by a household D) a leveraged buyout of one corporation by another

A) the purchase of a new printing press by a business

In a business cycle, a peak represents the end of A)an expansion. B)a depression. C) trough. D) a recession

A)an expansion.

If the government spending multiplier is 2 and government purchases increase by $200 billion, output will increase by A) $100 billion. B) $400 billion. C) $1,600 billion. D) $500 billion.

B) $400 billion. 2*200=400

If the MPS is .22, the MPC is A) -0.22. B) 0.78. C) 1.22. D) 0.66

B) 0.78.

Assuming no government or foreign sector, the formula for the multiplier is A) 1/MPC. B) 1/MPS. C) 1/(1 + MPC). D)1 - MPC.

B) 1/MPS.

Assume there is no government or foreign sector. If the MPS is .05, the multiplier is A) .95. B) 20. C) 10. D) 50.

B) 20. 1/.05=20

The ________ can change the quantity of money in the economy. A) Treasury Department B) Federal Reserve C) Congress D) Office of the Comptroller of the Currency

B) Federal Reserve

Which of the following is NOT considered investment? A) The acquisition of capital goods B) The purchase of government bonds C) The increase in planned inventories D)The construction of a new factory

B) The purchase of government bonds

A transfer payment is A) a bonus to get a worker to accept a transfer. B) a cash payment made by the government to people who do not supply goods, services or labor in exchange for the payment. C) a cash payment for transferring a good from one person to another. D) an in kind payment for working "off the books."

B) a cash payment made by the government to people who do not supply goods, services or labor in exchange for the payment.

According to the Classical model, unemployment A) could not persist because wages would rise to eliminate the excess supply of labor. B) could not persist because wages would fall to eliminate the excess supply of labor. C) could be eliminated through fiscal and monetary policies. D) could be eliminated only through government intervention.

B) could not persist because wages would fall to eliminate the excess supply of labor.

If the tax multiplier is -12 and taxes are increased by $6 billion, output A) falls by $2 billion. B) falls by $72 billion. C) increases by $2 billion. D) increases by $72 billion.

B) falls by $72 billion. -12*6 billion

The total amount owed by the federal government to the public is the A) federal budget deficit. B) federal debt. C) net tax revenue. D) fiscal drag.

B) federal debt.

During recessions, government spending usually A) dereases because unemployment payments decrease. B) increases because unemployment payments increase. C) decrease because unemployment payments increase. D) increases because unemployment payments decrease.

B) increases because unemployment payments increase.

Disposable income A) increases when net taxes increase. B) increases when income increases. C) decreases when saving increases. D) increases when saving decreases.

B) increases when income increases.

Firms react to unplanned inventory reductions by A) reducing output. B) increasing output. C) reducing planned investment. D) increasing consumption.

B) increasing output.

The Federal Reserve affecting the supply of money is known as A) fiscal policy. B) monetary policy. C) growth policy. D) supply side policy

B) monetary policy.

The ratio of the change in the equilibrium level of output to a change in some autonomous variable is the A) elasticity coefficient. B) multiplier. C) automatic stabilizer. D) marginal propensity of the autonomous variable.

B) multiplier.

In macroeconomics, equilibrium is defined as that point at which A) saving equals consumption. B) planned aggregate expenditure equals aggregate output. C) planned aggregate expenditure equals consumption. D) aggregate output equals consumption minus investment.

B) planned aggregate expenditure equals aggregate output.

According to Classical models, the level of employment is determined primarily by A) the level of aggregate demand for goods and services. B) prices and wages. C) government taxation. D) government spending.

B) prices and wages.

Prices that do not always adjust rapidly to maintain equality between quantity supplied and quantity demanded are A) administered prices. B) sticky prices. C) regulatory prices. D) market prices.

B) sticky prices.

If you earn additional $500 in disposable income one week for painting your neighbors house, A) the total of your consumption and saving will increase by more than $500. B) the total of your consumption and saving will increase by $500. C) the total of your consumption and saving will increase by less than $500. D) your consumption will increase by more than $500, even if your MPS is 0.1.

B) the total of your consumption and saving will increase by $500.

What is the largest expenditure source in the government's budget? A) consumption B) transfer payments C) net interest payments D) net subsidies

B) transfer payments

It has become conventional to classify an economic downturn as a recession when aggregate output declines for A) three consecutive quarters. B) two consecutive quarters. C) a year. D) six consecutive quarters.

B) two consecutive quarters.

Which of the following is a CORRECT sequence of events during a recession? A) unemployment falls, income falls, tax revenue falls, unemployment benefits rise, and the budget deficit rises B) unemployment rises, income falls, tax revenue falls, unemployment benefits rise, and the budget deficit rises C) unemployment rises, income falls, tax revenue rises, unemployment benefits fall, and the budget deficit falls D) unemployment rises, income rises, tax revenue rises, unemployment benefits rise, and the budget deficit rises

B) unemployment rises, income falls, tax revenue falls, unemployment benefits rise, and the budget deficit rises

If you save $80 when you experience a $400 rise in your income, A) your MPS is 0.25. B) your MPC is 0.80. C) your MPC is 0.85. D) your MPS is 0.40

B) your MPC is 0.80. 400-80 = 320 400(.80)= 320

If the MPS is 0.4, the tax multiplier is A) -2.5. B) -1.67. C) -1.5. D) -2.33.

C) -1.5. 1-.4 = .6 = MPC -.6/.4

If the MPC is 0.7, the tax multiplier is A) -2.22. B) -1.22. C) -2.33. D)-3.33.

C) -2.33. -.7/(1-.7) = -2.33

If consumption is $10,000 when income is $10,000, and consumption increases to $11,000 when income increases to $12,000, the MPS is A) 0.10. B) 0.25. C) 0.50. D)0.90.

C) 0.50. (11-10)/(12-10)

If the consumption function is of the form C = 80 + 0.4Y, the MPS equals A) -0.4. B) 0.4. C) 0.6. D) -0.6.

C) 0.6.

If consumption is $30,000 when income is $35,000, and consumption increases to $36,000 when income increases to $43,000, the MPC is A) 0.65. B) 0.80. C) 0.75. D) 0.95.

C) 0.75. (36-30)/(43-35)= .75

If the saving function is of the form S = -20 + 0.3Y, consumption at an income level of 200 is A) 80. B) 120. C) 160. D) 180.

C) 160. 1-.3 - 70 s=20+.7(200) = 160

If Logan received a $2,500 bonus and his MPS is 0.20, his consumption rises by $________ and his saving rises by $________. A) 500; 100 B) 2,500; 200 C) 2,000; 500 D) 2,500; 20

C) 2,000; 500 2500*.20 = 500=MPS 2500-500=2000=MPC

Promissory notes issued by the federal government when it borrows money are known as A) Treasury shares. B) Treasury stocks. C) Treasury bonds. D) none of the above

C) Treasury bonds.

When the government sector is included in the income-expenditure model, the equation for aggregate income is A) Y = C + S - T. B) Y = C + I. C) Y = C + I + G. D) Y = C + S + I.

C) Y = C + I + G.

Uncertainty about the future is likely to A) increase current spending. B) have no impact on current spending. C) decrease current spending. D) either increase or decrease current spending.

C) decrease current spending.

Between a trough and a peak, the economy goes through a(n) A) recession. B) bust. C) expansion. D) hyperinflation.

C) expansion.

If Congress increases government spending, it is using A) monetary policy. B) supply-side policy. C) fiscal policy. D) incomes policy.

C) fiscal policy.

Which of the following is NOT a category of fiscal policy? A) government policies regarding the purchase of goods and services B) government policies regarding taxation C) government policies regarding money supply in the economy D) government policies regarding transfer payments and welfare benefits

C) government policies regarding money supply in the economy

To bring the economy out of an inflationary period, Keynes argued that the government should A)cut both taxes and government spending. B) increase both taxes and government spending. C) increase taxes and/or decrease government spending. D) decrease taxes and/or increase government spending.

C) increase taxes and/or decrease government spending.

An increase in the overall price level is known as A)deflation. B) recession. C) inflation. D) stagflation.

C) inflation.

If the MPS is .60, MPC A) is 1.60. B) is .30. C) is .40. D)cannot be determined by the given information

C) is .40.

As the size of the MPC increases, the value of the balanced-budget multiplier A) increases. B) decreases. C) remains constant. D) could either increase or decrease.

C) remains constant.

Unemployment generally ________ during recessions and ________ during expansions. A) falls; rises. B) falls; falls. C) rises; falls. D) rises; rises.

C) rises; falls.

According to Classical economists, if the quantity of labor demanded exceeds the quantity supplied, there is a A) surplus of labor and wages will rise. B) shortage of labor and wages will fall. C) shortage of labor and wages will rise. D) surplus of labor and wages will fall.

C) shortage of labor and wages will rise.

The demand for corn has increased in May without any change in supply. Eight months later there still has been no change in corn prices. This is an example of a A) price floor. B) price control. C) sticky price. D) macroeconomic price.

C) sticky price.

The government implements fiscal policy when it changes A) spending and/or interest rate. B) money supply and/or taxes. C) taxes and/or spending. D) taxes and/or interest rate

C) taxes and/or spending.

Aggregate behavior is A) the behavior of each household and firm. B) the behavior of each individual. C) the behavior of all households and firms together. D) none of the above.

C) the behavior of all households and firms together.

The difference between what a government spends and what it collects in taxes in a year is A) net revenue. B) net taxes. C) the government budget deficit or surplus. D) the government debt.

C) the government budget deficit or surplus.

The fraction of a change in income that is consumed or spent is called A) the marginal propensity of income. B) the marginal propensity to save. C) the marginal propensity to consume. D) average consumption

C) the marginal propensity to consume.

Fiscal policy refers to A) the techniques used by a business firm to reduce its tax liability. B) the behavior of the nation's central bank, the Federal Reserve, regarding the nation's money supply. C) the spending and taxing policies used by the government to influence the economy. D) the government's ability to regulate a firm's behavior in the financial markets.

C) the spending and taxing policies used by the government to influence the economy.

Assume there is no government or foreign sector. If the MPS is 0.2, a $40 billion decrease in planned investment will cause aggregate output to decrease by A) $20 billion. B)$50 billion. C) $80 billion. D) $200 billion.

D) $200 billion. 40 billion/,2 = 200 billion

Assume there is no government or foreign sector. If the multiplier is 4, a $20 billion increase in investment will cause aggregate output to increase by A) $5 billion. B) $20 billion. C) $40 billion. D) $80 billion.

D) $80 billion. 20*4 = 80 billion

Assuming no government or foreign sector, if the MPC is 0.9, the multiplier is A) 0.1. B) 5. C) 9. D) 10.

D) 10. 1/(1-.9) = 10

Which of the following is an assumption used by Classical economists? A) Wages adjust downward but not upward. B) Wages adjust upward but not downward. C) Wages are inflexible. D) Wages adjust both upward and downward.

D) Wages adjust both upward and downward.

In a business cycle, a trough represents the end of A)an expansion. B)a depression. C) a peak. D) a recession

D) a recession

To get the economy out of a slump, Keynes believed that the government should A) cut both taxes and government spending. B) increase both taxes and government spending. C) increase taxes and/or decrease government spending. D) decrease taxes and/or increase government spending.

D) decrease taxes and/or increase government spending.

A period during which aggregate output rises is known as a(n) A) recession. B) inflation. C) hyperinflation. D) expansion.

D) expansion.

During a recession, automatic stabilizers cause the federal deficit to A) decrease. B) either increase or decrease. C) remain unchanged. D) increase.

D) increase.

If the government wants to reduce unemployment, government purchases should be ________ and/or taxes should be ________. A) increased; increased B) decreased; decreased C) decreased; increased D) increased; decreased

D) increased; decreased

Discouraged workers are A)considered cyclically unemployed. B) considered structurally unemployed. C)considered frictionally unemployed. D) not considered as part of the labor force.

D) not considered as part of the labor force.

What is the largest source of revenue in the government's budget? A) social insurance B) indirect business taxes C) corporate taxes D) personal taxes

D) personal taxes

A government's debt is reduced when it A) balances is budget. B) sells more bonds. C) runs a deficit. D) runs a surplus.

D) runs a surplus.

According to Keynes, the level of employment is determined by A) flexible wages and prices. B) interest rates. C) price and wages. D) the level of aggregate demand for goods and services.

D) the level of aggregate demand for goods and services.

Which of the following is a CORRECT sequence of events during an expansion? A) unemployment falls, income falls, tax revenue falls, unemployment benefits rise, and the budget deficit falls B) unemployment rises, income falls, tax revenue falls, unemployment benefits rise, and the budget deficit rises C) unemployment rises, income falls, tax revenue rises, unemployment benefits fall, and the budget deficit falls D) unemployment falls, income rises, tax revenue rises, unemployment benefits fall, and the budget deficit falls

D) unemployment falls, income rises, tax revenue rises, unemployment benefits fall, and the budget deficit falls

T/F: As interest rates fall, spending decreases.

FALSE

T/F: If autonomous spending increases, the aggregate expenditure function becomes steeper.

FALSE

T/F: Uncertainty about the future is likely to increase current spending.

FALSE

t/f: Keynes believed that expansionary fiscal policy could help get an economy out of an inflation.

FALSE

T/F: According to Keynes, the government's role during periods when private demand is low is to stimulate aggregate demand and, by so doing, lift the economy out of recession.

TRUE

T/F:A tax cut of $12 billion will have less effect on the economy than an increase in government purchases of $12 billion.

TRUE

tax multiplier =

tax multiplier = -MPC/(1-MPC)