Econ 4

An increase in net export spending will result in a(n):

increase in aggregate demand.

A shift to the ________ of the __________ curve would cause the price level to decrease and employment to decrease.

left; aggregate demand

A stronger dollar will shift the U.S. aggregate demand curve to the _____ and _____ output demanded.

left;decrease

All of the following are determinants of aggregate supply EXCEPT:

net exports.

If government spending drops and taxes rise:

both will lower equilibrium income, but the effects of government spending will be larger.

Mortgage backed securities are created when large financial institutions

bundle thousands of individual mortgages together and sell shares of that pool to individual investors.

Investment is defined as spending by:

business that adds to the productive capacity of the economy.

If the marginal propensity to consume is 0.6, the marginal propensity to save is 0.4, and government spending increases by $2 billion at the same time taxes rise by $2 billion, equilibrium income will:

rise by $2 billion.

Economic growth is shown as a:

shift to the right in the long-run aggregate supply curve.

If a pill is discovered that allows people to work twice as fast as they would ordinarily work, then the aggregate supply curve will:

shift to the right.

New AI regulations are coming for businesses around the world. How would the implementation of such regulations affect the SRAS curve?

sras decreases

A decrease in regulation would cause aggregate:

supply to shift to the right.

The long-run aggregate supply curve is vertical because:

the economy will gravitate to the position of full employment when all variables are flexible.

Classical economists claim that ______ is the primary determinant of saving, and Keynes claimed that ______ is the primary determinant of saving.

the interest rate; income

A change in _____ will cause a change in the quantity demanded of real GDP.

the price level

The more time a free market economy has to adjust to price changes, the:

closer GDP gets to the natural rate of output.

Aggregate supply increases when:

there is a decrease in firms' market power.

The trade war with China negatively impacted American consumers and businesses because

they were now spending more on the goods and services that they buy.

In the Keynesian framework, the way to fight a recession is to:

cut taxes and/or increase government spending.

If the interest rate increases, investment will:

decrease

A luxury car manufacturer is contemplating investing in its assembly plants. It learns that the probability of a recession in the next few years has increased dramatically because of adverse international events. Its investment demand will:

decrease because lower investment returns are expected.

If the stock market collapses, consumption will:

decrease because people feel less wealthy.

Decreases in government spending ____ equilibrium income, and increases in taxes ____ equilibrium income.

decrease; decrease

A(n) __________ in government spending, a __________ domestic currency, and ________ interest rates will shift a country's aggregate demand to the left.

decrease; stronger; higher

The situation when aggregate demand expands so much that equilibrium output exceeds full employment output and the price level rises is known as ________ inflation.

demand-pull

A shift of the aggregate _______ curve to the ________ would cause inflation to rise and employment to increase.

demand; right

Which of the following factors is NOT a determinant of aggregate supply?

income

Disposable income equals:

income minus taxes

The Potbelly Pothole Company is undertaking some investment in its plant. Suppose interest rates fall and new technologies increase the return on its investment. What is likely to happen?

The company's demand for investment will rise.

Why were mortgage backed securities so popular leading up to the Great Recession?

They payed lower rates of interest than other forms of investments and were riskier.

A decrease in foreign income will cause aggregate demand to shift to the left.

True

If income is $22,150 and taxes are $11,000, then disposable income is $11,150.

True

If disposable income is $3,000 and saving is $1,200, how much is consumption?

$1,800

In the nation of Economia, the economy is overheating and there is danger of inflation. The chief economist estimates that current income is $50 billion, while the optimal level is $40 billion. The multiplier is 4. If government wants to close the inflationary gap, it should reduce government spending by:

$2.5 billion.

If $1,000 of additional spending occurs (from investment, say) and the marginal propensity to consume is 0.8, the total effect on the economy is an increase of _____ in income or output.

$5,000

If the marginal propensity to consume is 0.9 and income increases from $10,000 to $11,000, by how much does consumption increase?

$900

If the marginal propensity to consume is 0.65, the spending multiplier is:

2.86

According to the Census Bureau, U.S. median income fell by ________ in 2020.

2.9%

About how large was the unemployment rate during the Great Depression?

25%

In 2016, what was the estimated multiplier for spending in Effingham county?

3

During the millennium scare of 2000, Rufus reduced his monthly spending by $1,000 and buried his money in the backyard. If the marginal propensity to consume is 0.75, by how much did national income fall?

4,000 dollars

Approximately what share of U.S. GDP is consumption?

70%

Which of the following was used as an example of investment in the Power Point for this module?

ADM and InnovaFeed opening the world's largest protein facility in Decatur, IL.

Assume that the marginal propensity to consume is 0.75. John's Clean Clones builds a factory that costs $1 billion. How much does the macroeconomic equilibrium increase?

$4 bill

what is a factor that causes sras to decrease

---

In 2019, Apple issued $7 billion dollars in corporate bonds despite having $200 billion in cash on hand. What is the motivation for this debt?

Lower interest rates or "cheap" money.

According to the NBER paper examining changes in wealth during the Great Recession, why was the middle class so vulnerable?

Middle class households tend to be heavily leveraged with their homes as their primary assets unlike the rich who tend to have more diverse investments.

What would cause inflation to rise and employment to increase?

a shift of the AD curve to the right

What would cause the price level to decrease and employment to increase?

a shift to the right of the SRAS curve

According to Keynes, as income grows:

both consumption spending and saving grow.

If the marginal propensity to consume (MPC) rises, the multiplier:

also rises

If consumption decreases from $600 billion to $575 billion and the marginal propensity to consume is 0.8, then equilibrium income will:

fall by $125 billion.

A product demand curve and the aggregate demand curve are negatively sloped for the same reasons.

false

A tax decrease has more of an impact on income, employment, and output than does an equivalent increase in government spending.

false

AE is equal to C + I + G - (X + M).

false

Classical economists expected government to promote full employment, stabilize prices, and stimulate economic growth.

false

Classical economists thought that prices, wage rates, and interest rates were slow to change.

false

Expectations of large increases in income lead to lower levels of consumption.

false

The oil shock of 1973 led to demand-pull inflation.

false

Assume that the multiplier is 10. Full employment is considered to be at a GDP level of $500 billion. The current GDP is $400 billion. According to Keynesian macroeconomics, what should the government do to achieve full employment?

increase spending by $10 billion

Assume that the MPC is 0.8. Full employment is considered to be at a GDP level of $500 billion. The current GDP is $400 billion. The government is committed to a balanced budget. To achieve full employment, the government should _______ taxes by ____________ and increase government spending by ________.

increase; $100 billion; $100 billion

An increase in the incomes of the countries that purchase U.S.-made products will cause a(n) _________ in the ____________ U.S.-made products.

increase; aggregate demand for

A(n) _______ in oil prices and a(n) _______ in taxes will shift short-run aggregate supply to the left.

increase; increase

A falling aggregate price level ____ demand for a country's exports and therefore _____ output demanded.

increases; increases

Exports are ______ of spending into (from) the economy, and imports are ______ of spending into (from) the economy.

injections; withdrawals

what may be an explanation for the right shift in ag demand

interest rates fall and boost investment

A horizontal investment schedule assumes that investment spending is not related to current income.

true

A rise in real GDP is associated with increased employment.

true

A vertical aggregate supply curve represents full employment in the long run.

true

Aggregate expenditures are equal to consumption plus business investment in the simple private sector model.

true

An increase in government spending will increase aggregate demand.

true

An increase in interest rates will cause the aggregate demand curve to shift to the left.

true

If you believe that your income will soon rise, you will be more inclined to purchase something you want and go into debt.

true

The short-run aggregate supply curve is positively sloped, since many input costs are slow to change in the short run.

true

When the monopoly power of firms increases, short-run aggregate supply shifts to the left.

true

According to Keynesian analysis, if households intend to save more, they will:

ultimately cause job losses.