Chapter 9-13 Macroeconomics

In the diagram, a shift from AS3 to AS2 might be caused by an increase in:

productivity.

Use the following diagrams for the U.S. economy to answer the following question. Which of the diagrams best portrays an improvement in expected rates of return on investment?

C.

Dissaving means:

that households are spending more than their current incomes.

The equilibrium price level and level of real output occur where:

the aggregate demand and supply curves intersect.

Demand-pull inflation:

occurs when total spending exceeds the economy's ability to provide output at the existing price level.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. A recession is depicted by:

panels (A) and (B).

Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth?

Reductions in federal tax rates on personal and corporate income.

Answer the question using the following budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. Refer to the data. The budget deficit in year 3 is:

$100 billion.

An effective expansionary fiscal policy will:

increase the cyclically adjusted deficit but reduce the actual deficit.

If the marginal propensity to consume is .9, then the marginal propensity to save must be:

0.1

The consumer price index was 177.1 in 2001 and 179.9 in 2002. Therefore, the rate of inflation in 2002 was about:

1.6 percent

If the Consumer Price Index rises from 300 to 333 in a particular year, the rate of inflation in that year is:

11 percent.

If the MPC is .6, the multiplier will be:

2.5

Answer the question on the basis of the following sequence of events involving fiscal policy: (1) The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession. (2) Economists reach agreement that the economy is moving into a recession. (3) A tax cut is proposed in Congress. (4) The tax cut is passed by Congress and signed by the president. (5) Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. Refer to the information. The administrative lag of fiscal policy is reflected in events:

3 and 4.

Answer the question using the following budget information for a hypothetical economy. Assume that all budget surpluses are used to pay down the public debt. Refer to the data. A budget surplus occurred in year:

6.

Suppose a family's consumption exceeds its disposable income. This means that its:

APC is greater than 1.

Which of the following would most likely reduce aggregate demand (shift the AD curve to the left)?

An appreciation of the U.S. dollar.

Which of the following fiscal policy actions is most likely to increase aggregate supply?

An increase in government spending on infrastructure that increases private sector productivity.

Which of the following would most likely shift the aggregate demand curve to the right?

An increase in stock prices that increases consumer wealth.

Which of the following would not shift the aggregate supply curve?

An increase in the price level.

Which one of the following would increase per-unit production cost and therefore shift the aggregate supply curve to the left?

An increase in the price of imported resources.

Which of the following is incorrect?

As the price level falls, the demand for money declines, the interest rate declines, and interest-rate-sensitive spending increases.

Use the following diagrams for the U.S. economy to answer the following question. Which of the diagrams best portrays the effects of a dramatic increase in energy prices?

B.

Refer to the diagram. If the initial aggregate demand and supply curves are AD0 and AS0, the equilibrium price level and level of real domestic output will be:

F and C, respectively.

Refer to the diagram. Which of the following would shift the investment demand curve from ID1 to ID2?

Higher expected rates of return on investment.

Refer to the diagram. Which of the following would shift the investment demand curve from ID1 to ID3?

Lower expected rates of return on investment.

Recently a labor union argued that the standard of living of its members was falling. A critic of the union argued that this could not possibly be true because the union had been acquiring increases in the nominal incomes of its members through collective bargaining. Is the critic correct?

No, because real income may fall if prices increase more proportionately than the increase in nominal income.

Under which of the following circumstances would we observe the greatest increase in real income?

Nominal income falls by 2 percent and the price level falls by 10 percent.

The immediate-short-run aggregate supply curve represents circumstances where:

The immediate-short-run aggregate supply curve represents circumstances where:

The amount by which government expenditures exceed revenues during a particular year is the:

budget deficit.

The public debt is held as:

Treasury bills, Treasury notes, Treasury bonds, and U.S. savings bonds.

An appropriate fiscal policy for severe demand-pull inflation is:

a tax rate increase.

The investment demand curve will shift to the right as the result of:

businesses becoming more optimistic about future business conditions.

Efficiency wages are:

above-market wages that bring forth so much added work effort that per-unit production costs are lower than at market wages.

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S.

aggregate demand curve would shift to the right.

Inflation means that:

all prices are rising and at the same rate.

The multiplier effect means that:

an increase in investment can cause GDP to change by a larger amount

The investment demand curve will shift to the left as a result of:

an increase in the excess production capacity available in industry.

Inflation initiated by increases in wages or other resource prices is labeled:

cost-push inflation.

A decrease in consumption is caused by a(n):

decrease in borrowing.

Suppose the federal government had budget surpluses of $80 billion in year 1 and $120 billion in year 2 but had budget deficits of $10 billion in year 3 and $40 billion in year 4. Also assume that it used its budget surpluses to pay down the public debt. At the end of these four years, the federal government's public debt would have:

decreased by $150 billion.

If the consumer price index falls from 120 to 116 in a particular year, the economy has experienced:

deflation of 3.33 percent.

Other things equal, a decrease in the real interest rate will:

expand investment and shift the AD curve to the right.

An increase in savings is caused by a(n):

expectation of higher future prices.

Investment spending in the United States tends to be unstable because:

expected profits are highly variable, capital goods are durable, innovation occurs at an irregular pace. all of these contribute to the instability.

In the diagram, a shift from AS2 to AS3 might be caused by a(n):

increase in business taxes and costly government regulation.

In the diagram, a shift from AS1 to AS3 might be caused by a(n):

increase in the prices of imported resources.

The short-run aggregate supply curve represents circumstances where:

input prices are fixed, but output prices are flexible.

Discretionary fiscal policy refers to:

intentional changes in taxes and government expenditures made by Congress to stabilize the economy.

Expansionary fiscal policy is so named because it:

is designed to expand real GDP.

The economy's long-run aggregate supply curve:

is vertical.

A contractionary fiscal policy is shown as a:

leftward shift in the economy's aggregate demand curve.

Graphically, cost-push inflation is shown as a:

leftward shift of the AS curve.

An increase in input productivity will:

reduce the equilibrium price level, assuming downward flexible prices.

The most likely way the public debt burdens future generations, if at all, is by:

reducing the current level of investment.

The U.S. public debt:

refers to the debts of all units of government—federal, state, and local.

The greater is the marginal propensity to consume, the:

smaller is the marginal propensity to save.

If Trent's MPC is .80, this means that he will:

spend eight-tenths of any increase in his disposable income.

The federal budget deficit is found by:

subtracting government tax revenues from government spending in a particular year.

The investment demand curve will shift to the right as a result of:

technological progress.

The public debt is the amount of money that:

the federal government owes to holders of U.S. securities.

If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes:

the foreign purchases effect.

An increase in consumption might be caused by a(n):

wealth effect of an increase in stock market prices.

Built-in stability means that:

with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus.