ECO231 Chapter 9 -12

If the marginal propensity to consume is equal to 0.70 and income rises by $20 billion in an economy, then consumption spending will increase by:​

$14 billion

The table given below shows the disposable income and consumption of a household. In the table below, the level of saving at a disposable income of $1,200 is:

$240

For the aggregate demand and aggregate supply listed in schedule #2 of the table given below, the equilibrium output level and price level are:

$6.5 and 120, respectively.

Which of the following best describes aggregate expenditure?​

C + I + G + (X − M)

Which of the following best illustrates the use of discretionary fiscal policy?​

Congress passing a bill authorizing $2 billion in additional spending when it receives news of a deepening recession

​Which of the following macroeconomic variables would likely be affected by a fiscal policy?

Employment

_____ is the reward savers earn for deferring consumption.​

Interest

Which of the following is true of the short-run aggregate supply curve?​

It shows the relation between the price level and the quantity of aggregate output firms supply, other things constant.​

Which of the following countries hold the most U.S. Treasury securities?

Japan and China

A decrease in disposable income will:​

cause a downward movement along the consumption function.​

An expansionary gap in the short-run results in:

cost-push inflation in the long run

When an economy produces its potential output, _____ is zero.

cyclical unemployment

Stagflation is defined as:​

decreased output accompanied by a higher price level.

The consumption function relates consumption spending to _____.​

disposable income​

A(n) _____ provides guaranteed benefits for those who qualify under government transfer programs such as Social Security or Medicare.

entitlement program

The difference between consumption spending and disposable income _____.​

equals saving

If the spending multiplier is greater than 1.0, a $200 billion increase in autonomous investment will cause:​

equilibrium real GDP demanded to increase by more than $200 billion

The potential output of an economy is the level of output produced when the:​

expected price level equals the actual price level.​

The consumption function assumes that:​

factors other than disposable income affect consumption, but those are held constant along the consumption function.

Suppose the real wage of a worker remains unchanged between Year 1 and Year 2 but the nominal wage decreases from $20 in Year 1 to $18 in Year 2. This implies that the price level has:​

fallen by 10 percent.​

A federal budget deficit occurs when:

federal government purchases exceed net taxes

The budget of an economy is said to be in deficit when:

federal outlays exceed revenues.

If the price level in the current year is much higher than the expected price level in an economy, _____.

firms will increase production beyond the economy's potential level

A budget philosophy using fiscal policy to achieve the economy's potential GDP, rather than balancing budgets either annually or over the business cycle, is termed:

functional finance.

The U.S. federal income tax is progressive, which means that _____.

high-income individuals are taxed at a higher rate than low-income individuals

An increase in net wealth will:​

increase consumption and decrease saving at each level of income.​

The figure below shows equilibrium in an aggregate demand-aggregate supply model. The shift from AS to AS' in this figure represents a(n):

increase in short-run aggregate supply

​A tax is considered to be independent of:

real GDP

An increase in the market interest rate, other things equal, will _____.​

reduce the amount invested because the opportunity costs of investing will be higher​

Historically, consumption spending in the United States has _____.​

remained approximately constant as a percentage of income​

The short run is a period of time during which:​

resource buyers and sellers cannot adjust fully to changes in the price level.​

A higher interest rate will:​

shift the consumption function downward

A possible budget reform involves:

simplifying the budget document by concentrating only on major groupings and eliminating line items.

Supply-side economics emphasized government policies to:

stimulate real GDP by improving incentives to work.

The federal budget is:

submitted by the President to Congress and contains spending proposals.

Net taxes are:​

taxes minus transfer payments.

Increasing U.S. trade deficits result in:

the accumulation of dollars overseas.

The fraction of a change in disposable income that is consumed is called _____.​

the marginal propensity to consume

When the economy's actual price level exceeds the expected price level in the short run, __________.

the real wages of workers decline

The effectiveness of any stimulus program depends on:

the size of the tax and spending multipliers

Government outlays equal:​

the sum of government purchases and transfer payments.​

The natural rate of unemployment is:

the unemployment rate at which the economy is producing its potential GDP.

The real wage is equal to the:​

wage measured in terms of the quantity of goods and services it buys.

​A biennial budget:

would encourage cabinet members to focus more on running their agencies rather than being involved in budget deliberations.

_____ is contrary to a laissez-faire economic system.​

​Active government intervention in all economic decisions

​Which of the following components of aggregate expenditure is most subject to crowding out?

​Investment spending

​The U.S. government's fiscal year extends from:

​October of one year to September of the next year.

Which of the following is a component of aggregate demand?​

​Purchases by government

Which of the following is true of the federal budget?​

​The federal budget is a plan for federal government outlays and revenues for a specified period, usually a year.

Which of the following was a successful application of fiscal policy in the United States?​

​The tax cut of 1964

The debt ceiling is:​

​a limit on the total amount of money the federal government can legally borrow.

​ A(n) _____ is a budget philosophy that was followed prior to the Great Depression that aimed at matching annual revenues with outlays, except during war time.

​annually balanced budget

​A _____ is a congressional agreement about total outlays, spending by major category, and expected revenues, which guides spending and revenue decisions by the many congressional committees and subcommittees.

​budget resolution

A technological change that positively affects business expectations will:​

​cause a rightward shift of the investment demand curve

One lesson of the Great Depression was that potential GDP could _____.​

​exceed equilibrium GDP

Political business cycles result:​

​from the economic fluctuations that occur when discretionary policy is manipulated for political gain.

​Fiscal policy is concerned with _____.

​government spending and taxation

If incomes in the United States increase, other things equal, then U.S. _____.​

​imports increase and exports remain constant

If the marginal propensity to consume, MPC, is less than 1 and a household's disposable income increases by $2,000, the household's consumption will _____.​

​increase by less than $2,000

The fact that some resource prices are fixed by contracts help explain why firms:​

​increase output in the short run when the price level increases.

A decrease in net taxes

​increases GDP less than an equal increase in government purchases.

A decrease in net taxes:​​

​increases GDP less than an equal increase in government purchases.

The national debt:​

​is a stock variable measuring the net accumulation of past deficits.

The short-run aggregate supply curve:​

​is positively sloped.

The most important determinant of a household's consumption spending is:​

​its disposable income

​The federal budget deficit becomes _____ during recessions because _____.

​larger; transfer payments increase and tax revenues decline

The effect of automatic stabilizers on the business cycle is to:​

​make both upswings and downswings smaller.

The fraction of an increase in income that is saved is referred to as the _____.​

​marginal propensity to save

If government purchases increase and net taxes decrease, _____.​

​output and employment will increase

A decrease in the price level will _____.​

​shift the consumption function upward

The passage of the Employment Act of 1946 assigned:​

​the federal government the responsibility for promoting full employment and price stability.

The amount by which actual output falls short of potential output is called:

an recessionary gap.

The Budget of the United States Government is officially submitted by:

: the President to Congress and contains spending and revenue proposals for the upcoming fiscal year.

Which of the following will not shift the consumption function?

A change in household disposable income

Which of the following is least likely to cause a shift of the consumption function?​

A change in investment spending​

Which of the following would increase aggregate demand?​

A deficit in the government budget

Which of the following is most likely to cause the long-run aggregate supply curve to shift rightward?​

A technological breakthrough with widespread practical applications​

The figure given below depicts the long-run equilibrium in an aggregate demand-aggregate supply model. Which of the following is indicated by the arrow given in this figure?

An increase in long-run aggregate supply

The rate of unemployment that occurs when the economy is producing its potential GDP _____.

b. is called the natural rate of unemployment

When a budget is not approved in time, _____.

agencies operate on the basis of continuing resolutions

Fiscal policy focuses on manipulating _____.​

aggregate demand to smooth out business fluctuations

Given the desire of politicians to get reelected, they might try in the short run to use _____.

an expansionary fiscal policy

An increase in aggregate demand in the long run will most likely result in:

an increase in the price level but no change in the output level.

Discretionary fiscal policy is a policy that _____.

is an intentional change in taxation or government spending

The marginal propensity to consume:​

is the change in consumption relative to a change in disposable income.

If a household's income rises from $46,000 to $46,700 and its consumption spending rises from $35,800 to $36,400, then its:​

marginal propensity to consume is 0.86.

If a household's income falls from $20,000 to $17,000 and its consumption spending falls from $18,000 to $15,000, then its:​

marginal propensity to save is 0.​

The nominal wage is:

measured in current dollars rather than in constant dollars

Suppose the government expenditure increases by $200 and the simple spending multiplier equals 5. The final increase in output will be:

more than $200

Problems with the federal government budget process include:

most of the expenditures being for entitlement programs.

​If a government runs a cyclically balanced budget, its revenue will equal its expenditure:

over the course of the business cycle.

When actual output exceeds potential output, _____.

prices tend to increase.