chapter 10 11, 12, 13 econ

paying off an externally held debt

May lower the dollar exchange rate

says law says

Supply creates its own demand

for a person who thinks the public sector is too large the fiscal options for any severe demand pull inflation would include

a cut in government spending

built-in or automatic stabilizers work by changing... So that GDP changes are reduced

taxes and government payouts

the investment demand schedule shows

the level of investment spending for a given level of GDP

the real balances effect explains

the shape of the aggregate demand curve

the magnitude of the drop in Real GDP that will occur when aggregate expenditures for all depends on

the size of the marginal propensity to consume

the short run aggregate supply curve is relatively flat to the left of the Full Employment output because

there are large amounts of unused capacity and idle Human Resources

paying off an internally held debt would

not burden the economy as a whole

in 2002 the annual oil price was $24.36 as of late July 2006 the annual oil price was $62.07 the percentage increase in Real GDP from 2001 to 2005 was about to 12.6%. this indicates that

oil prices increase faster than real GDP but real GDP still grew at a healthy pace

a short run aggregate supply curve has

output prices that are flexible but input prices are fixed and an upsloping curve

a political business cycle is the concept that

politicians are more interested in reelection than in stabilizing the economy

a reduction in aggregate demand likely causes the decline in a real output rather than the price level because

prices are inflexible downward

the government's fiscal policy options for ending severe demand pull inflation include

reducing government spending increasing taxes or both

the crowding-out effect is the

reduction in investment spending caused by the increase in interest rates are rising from an increase in government spending

refinancing the public debt means

selling new bonds to retire maturing bonds

according to the "wealth effect," a change in consumer wealth causes a

shift in consumer spending and the aggregate expenditures curve

the wealth effect causes

shifts of the aggregate demand curve

the long run aggregate supply curve is vertical because the economy's potential output is determined by

the availability in productivity of real resources not by the price level

according to the "real balances effect," if prices

decline the purchasing power of assets will rise so spending at each income level should rise

what would help a government reduce an inflationary output Gap

decrease in government spending and raising taxes

the standard budget measures what the federal deficit or Surplus would be if the economy reach the... Level of GDP

full employment

the shape of the short run aggregate supply curve is

fun sloping because we just had just more slowly than the price level increasing profits and output

refinancing of the public debt might drive up real interest rates because

government borrowing to finance the debt increases demand for funds and competes with private borrowing

if the standardized budget is balanced the

government is not engaging in other expansion night or contractionary policy

a reduction in the real interest rate will increase investment spending other things being equal because firms will make an investment purchase if the expected return is

greater than or equal to real interest rate at which It can borrow

they full strength multiplier applies to a decrease in aggregate demand when the aggregate supply is

horizontal

the problem of time lags in enacting and applying fiscal policy is that

in the time it takes to identify the situation enact a policy and allowed to work economic circumstances may have changed

assuming the economy is operating below its potential output, an increase in net exports will

increase aggregate expenditures and real GDP

a downshift of the consumption schedule typically involves an equal up shift of the saving schedule except when there is a

increase in personal taxes then they both shift downward

equilibrium real GDP occurs where C+Ig=GDP in a private closed economy because

at this level of output, production creates efficient total spending to purchase that output.

and internally held that is one in which the

bondholders live in the nation having the debt

the multiplier

causes an initial change in spending to generate an even larger change in the aggregate demand curve

the difference between the MPC in the APC is that the MPC is the

change in consumption divided by change in income where is APC is total consumption divided by total income

expectations of a near-term policy reversal weaken fiscal policies because

consumers May hesitate to increase their spending because they believe the tax rates will rise again

true or false as a percentage of GDP the total US public debt is the highest among the world's Advanced industrial Nations

false

true or false if the price of oil suddenly increases by a large amount as will shift to the left but the price level will not rise thanks the price inflexibility

false

true or false in the real world decreases and AD normally lead to decreases in both output and the price level

false

true or false real GDP is more volatile than gross investment

false

true or false the total public debt is more relevant to an economy than the public debt as a percentage of GDP

false

the multiplier effect

intensifies the effect of a spending change whether it is an increase or decrease

w what shifts in aggregate demand curve to the left

interest rates rise. the government reduces personal income taxes. the government raises corporate profit taxes

Saving is called a leakage because it

is a removal from the flow of aggregate consumption.

planned investment is called an injection because it

is an addition to the flow of aggregate spending

what are the two ways to measure the public debt

it's absolute dollar size as a percentage of GDP

it is difficult, if not impossible, for a country to boost its net exports by increasing its tariffs during a global recession. This is because other countries will respond in kind by

lowering US exports and net exports

the ratchet effect makes anti-inflationary policy...

more difficult

the expenditure components of real GDP purposely excluded in a private closed economy are

net exports and the government sector

politicians have suggested that the United States enact a constitutional amendment requiring that the federal government balance its budget annually. Such an amendment, if strictly enforced, would force the government to enact a contradictory fiscal policy whenever the economy experienced the severe recession. This is because when the economy enters a recession

net tax revenue Falls and transfer payments rise. Balancing the budget would require lowering transfer payments and raising taxes

at equilibrium GDP, there will be

no unplanned inventories and no unplanned investment.

if the slope of the aggregate expenditures schedule were .8 what is the multiplier?

5 (if mpc=.8 then mps=.2 so 1/.2=5)

if a 50 billion dollar initially increase in spending leads to a 250 billion change in Real GDP how big is the multiplier?

5.0

an immediate short run aggregate supply curve has

a fixed price level and a horizontal line

in 2001 investment spending sharply declined in the United States this event caused

a leftward shift in aggregate demand and lower investment would have caused a leftward shift in aggregate supply

what will shift the aggregate supply curve right

a new networking technology increases productivity all over the economy and business taxes fall

what type of attack system would have the most built-in stability

a progressive tax because it increases at an increasing rate as incomes rise this having more of a dampening effect on rising or falling incomes

a negative GDP Gap is associated with

a recessionary expenditure Gap

the US experience of strong economic growth Full Employment and priced ability in the late 1900s in early 2000s can be explained by

a rightward shift of aggregate demand and a rightward shift of aggregate supply

a long run aggregate supply curve has t

a vertical line in a fixed output

what will happen to aggregate demand if there is a major increase in spending for Health Care by the federal government

aggregate demand will increase

other things equal, what effect will each of the following changes independently have on the equilibrium level of real GDP in the private closed economy? a. a decline in the real interest rate will cause GDP to b. an overall decrease in the expected rate of return on investment will cause GDP to c. a sizable sustained increase in stock prices will cause GDP to

a. increase b. decrease c. increase

at the current price level Producers Supply 375 billion dollars of final goods and services for consumers purchase 355 billion dollars of final goods and services the price level is

above equilibrium

what will happen to aggregate demand if a widespread fear by consumers of an impending economic depression occurs

aggregate demand will decrease

what will happen in aggregate demand if there is an increase in exports that exceeds an increase in imports not due to tariffs

aggregate demand will increase

what will happen to aggregate demand if there is a 10% across-the-board reduction in personal income tax rates

aggregate demand will increase

what will happen to aggregate demand if there is a general expectation of coming rapid inflation

aggregate demand will increase

for a person who wants to preserve the size of government the fiscal options for ending severe demand pull inflation would include

an increase in taxes

a positive GDP Gap is associated with

an inflationary expenditure Gap

Social Security and Medicare trust funds are

assets held by these programs to help pay for future projected tax revenue shortfalls

The View held by classical Economist is that the economy will operate

at full employment on the production possibilities curve

if C+Ig exceeds GDP, the economy will

drawdown inventories faster than planned, ordering will increase, and real GDP will rise.

the Council of economic advisers cea advises the president on

economic matters and provides recommendations for discretionary fiscal policy action

an inflationary expenditure Gap is the amount by which aggregate expenditures at the Full Employment GDP

exceed those required to achieve the Full Employment GDP

if MPS Rises than MPC will

fall

if the slope of the aggregate expenditures schedule were .8 and aggregate expenditures declined by $4 billion the real GDP would

fall by $20 billion

a recessionary expenditure Gap is the amount by which aggregate expenditures at the Full Employment GDP

fall short of those required to achieve the Full Employment GDP

strong negative wealth effect from say a precipitous drop in the stock market could cause a recession even though productivity is surging if aggregate demand shifts

left while aggregate supply shifts right

in the two months following late September 11th 2001 attacks on the United States consumption also declined this event caused a

leftward shift in aggregate demand and lower investment would have caused a leftward shift in aggregate supply

the distinction between the absolute and relative sizes of the public debt is important because

the absolute size doesn't tell you about an economy's capacity to repay the debt

the explanation of a downsloping aggregate demand curve differs from the explanation for the downsloping demand curve for a single product because I downsloping

single product demand curve assumes constant money income such that a lower price causes substitution of the now relatively cheaper product for those whose prices have not changed.

saving mr. equal planned investment at equilibrium GDP in the private closed economy because when this is so,

spending and production will be the same and there will be no unplanned inventory, or GDP, changes.

a decrease in the aggregate expenditures causes a decline in Real GDP that is greater than the decline in aggregate expenditures schedule because

the decrease in the aggregate expenditures is Multiplied into a larger change in the real GDP

what will shift the investment demand curve right

the expected return on Capital increase and firms are planning on increasing their inventories

if the annual interest payments on the debt shortly increased as a percentage of GDP

the government would have to use tax revenues or go deeper into debt

why does the the aggregate demand curve slopes downward?

the interest rate effect, the real balances effect, and the foreign purchases effect

true or false and internally held public debt is like a debt of the left hand owed to the right hand

true

true or false larger MPCs imply larger multipliers

true

true or false the portion of the u.s. debt held by the public and not by the government entitled was larger as a percentage of GDP in 2009 then it was in 2000

true

consider the following statement unemployment can be caused by a decrease of aggregate demand or decrease in aggregate supply true or false

true but the magnitude of unemployment depends on the economic situation

why do aggregate demand curve slope downward

when the domestic price Rises are goods and services become more expensive to foreigners when the price level rises the real value of financial assets like stocks bonds and savings account balances declines

an upsloping aggregate supply curve weakens the realized in this multiplier effect because any increase in aggregate demand

will have both of price and output effect

Keynes's view is that the economy can operate

with some unemployment inside the production possibilities curve

Irving owns a chain of movie theaters he is considering whether he should build a new theater downtown the expected rate of return is 15% per year he can borrow money at 12% interest rate to finance a project. Should I receive with this project?

yes

what will happen to aggregate supply if a new national tax on producers based on the value added between the cost of the inputs and the revenue received from their output is created

aggregate supply will decrease

what will happen to aggregate supply if there is a complete disintegration of OPEC causing oil prices to Fall by 1/2

aggregate supply will increase

what will happen to aggregate supply if there is a sizable increase in labor productivity with no change in the nominal wages

aggregate supply will increase

the sum of MPC and the MPS must equal 1 because

all additional income must be spent or saved

and you're one out of words $1,000 in savings $100 in your to Adam gets a $500 raise so that he earns a total of $1,500 out of that $1,500 he saves $200 what is Adams MPC out of his $500 raise

0.80(MPC equals change in consumption divided by change in income)

the key long-run problem of both Social Security and Medicare is the

Aging in the age distribution of the u.s. population

what will happen to aggregate demand if there is a reduction in interest rates at each price level

aggregate demand will increase