Econ Test II - M.C.
B. the business cycle
Which of the following does the aggregate expenditure macroeconomic model seek to explain? A. long-run economic growth B. the business cycle C. cyclical unemployment D. inflation
A. Brazil
Which of the following countries is NOT currently considered an industrial country? A. Brazil B. Canada C. Spain D. New Zealand
6.0 8.0 10.0 8.0
(Year, Real GDP, Growth Rate) 1999, 140m, n/a 2000, 148.4m, ____% 2001, 160.3m, ____% 2002, 176.3m, ____% The average annual growth rate for this period is ____%
rightward shift of
A faster income growth in other countries will cause a _______ the U.S. aggregate demand curve.
movement along shift in
A change in the price level causes a ______________ the short-run aggregate supply (SRAS) curve A change in any other factor causes a ___________ the SRAS curve.
B. the aggregate demand curve.
A curve showing the relationship between the price level and the level of aggregate expenditure in the economy, holding constant all other factors that affect aggregate expenditure, is called A. the price-expenditure curve. B. the aggregate demand curve. C. the autonomous expenditure function. D. the inflation curve.
B. change in the price level.
A movement on a SRAS curve could be the result of a A. change in government policies. B. change in the price level. C. natural disaster. D. change in exports.
A. change in the price level.
A movement on an aggregate demand curve could be the result of a A. change in the price level. B. natural disaster. C. change in government policies. D. change in the cost of production
D. the labor force.
A rightward shift on a SRAS curve could be the result of a change in A. household wealth. B. government policies. C. the price level. D. the labor force.
C. change in the expectations of households.
A rightward shift on an aggregate demand curve could be the result of a A. change in the cost of production. B. natural disaster. C. change in the expectations of households. D. change in the price level.
B. increases household wealth which in turn increases consumption and leads to an upward shift of the consumption function.
A rise in stock prices and housing prices A. increases household wealth which in turn increases consumption and leads to an upward movement along the consumption function. B. increases household wealth which in turn increases consumption and leads to an upward shift of the consumption function. C. reduces consumption due to increase in prices and causes the consumption function to shift downward. D. does not affect consumption because they do not have any direct impact on disposable income.
A. The student is incorrect because the aggregate demand curve does not shift because of the price level change.
A student was asked to draw an aggregate demand and aggregate supply graph to illustrate the effect of an increase in aggregate supply. The student drew the following graph: The student explained the graph as follows: "An increase in aggregate supply causes a shift from SRAS1 to SRAS2. Because this shift in the aggregate supply curve results in a lower price level, consumption, investment, and net exports will increase. This change causes the aggregate demand curve to shift to the right from ADl to AD2. We know that real GDP will increase, but we can't be sure whether the price level will rise or fall because that depends on whether the aggregate supply curve or the aggregate demand curve has shifted farther to the right. I assume that aggregate supply shifts out farther than aggregate demand, so I show the final price level, P3, as being lower than the initial price level, P1." Which of the following is a correct statement about the student's analysis? A. The student is incorrect because the aggregate demand curve does not shift because of the price level change. B. The student is incorrect because the price level should rise when SRAS increases. C. The student is incorrect because the aggregate demand curve should decrease, not increase. D. The student's analysis is correct.
D. a sudden increase in the price of an important natural resource, resulting in a leftward shift of the SRAS curve.
A supply shock is A. an increase in both the inflation and the unemployment rates that may sometimes result in a rightward shift of the SRAS curve. B. an increase in potential GDP caused by a government expenditure multiplier, resulting in a leftward shift of the AD curve. C. an increase in the rate of inflation as a result of expansionary fiscal policy, resulting in a leftward shift of the SRAS curve. D. a sudden increase in the price of an important natural resource, resulting in a leftward shift of the SRAS curve.
shift to the right
A technological change will cause the long-run aggregate supply curve to ____________
C. government spending, consumption, investment, and net exports.
Aggregate demand (AD) is comprised of expenditure components that include: A. consumption, government spending, exports, and labor. B. consumption, investment, exports, and taxes. C. government spending, consumption, investment, and net exports. D. government spending, taxes, exports, and labor.
B. Poorer countries should grow more quickly and will be at point A.
According to the economic concept of catch-up, which of the following is CORRECT? (point A- top left, point B- bottom right) A. Richer countries should grow more slowly and will be at point A. B. Poorer countries should grow more quickly and will be at point A. C. Richer countries should grow more quickly and will be at point B. D. Poorer countries should grow more slowly and will be at point B.
C. the amount of spending that occurs in an economy.
Aggregate expenditure represents A. the amount of output produced in the economy. B. the amount of demand for goods and services relative to savings and investment. C. the amount of spending that occurs in an economy. D. the amount of consumption in the economy.
D. incorrect since changes in the expected price level affect short run aggregate supply but not the long run aggregate supply.
An article in the Economist magazine noted that: "the economy's potential to supply goods and services [is] determined by such things as labour force and capital stock, as well as inflation expectations." This list of the determinants of potential GDP is A. correct since changes in the expected price level affect both the short run and the long run aggregate supply. B. correct since changes in the expected price level affect short run aggregate supply which in turn determines potential GDP. C. incorrect since changes in the expected price level do not affect aggregate supply. D. incorrect since changes in the expected price level affect short run aggregate supply but not the long run aggregate supply.
rightward shift
An improvement in technology is shown as a ______ in the SRAS curve
rightward shift of
An increase in government purchases will cause a ____________ the aggregate demand curve.
leftward shift of
An increase in interest rates will cause a ________the aggregate demand curve
be smaller be larger
An increase in real GDP that increases interest rates will cause the value of the multiplier to ________ . An increase in the marginal propensity to consume will cause the value of the multiplier to __________ .
leftward shift of
An increase in state income taxes will cause a __________ the aggregate demand curve.
leftward shift
An increase in the expected future price level causes a ________ in the SRAS curve
leftward shift
An increase in the expected price of an important natural resource is indicated by a ________ in the SRAS curve
decrease
An increase in the growth rate of U.S. GDP relative to other countries will _______ net exports
rightward shift
An increase in the labor force or capital stock is illustrated as a _______ in the SRAS curve
increase (shift rightward) the productive capacity of the economy
An increase in the labor force will __________- the SRAS curve because this is a change in ____________ .
not change the price level
An increase in the price level will __________ the SRAS curve because this is a change in ___________
movement up along
An increase in the price level will cause a ___________the aggregate demand curve.
decrease (shift leftward) expectations about future prices
An increase in what the price level is expected to be in the future will ____________ the SRAS curve because this is a change in ____________ .
decrease
An increase is the U.S. price level relative to other countries' price levels will ________ net exports
decrease
An increase the exchange rate between the dollar and other currencies will ______ net exports
decrease (shift leftward) the price of an important natural resource
An unexpected increase in the price of an important raw material will ___________ the SRAS curve because this is a change in ________ .
A. had a greater amount of technological change.
Between 1950 and the mid-1990s, the United States experienced a much larger increase in the standard of living than the Soviet Union. This difference can be most attributed to the fact that the U.S. A. had a greater amount of technological change. B. experienced a greater increase in the amount of population growth. C. had a much larger amount of capital accumulation. D. was more centrally planned than the Soviet Union.
D. the knowledge and skills workers acquire from education and training or from their life experiences
Capital can be differentiated between physical capital and human capital. Human capital is A. the energy use to bring together the factors of production to produce goods and services. B. the goods manufactured to produce other goods and services. C. the new developments in machinery and software. D. the knowledge and skills workers acquire from education and training or from their life experiences
B. high rates of growth in the short run by spending heavily on physical capital, infrastructure, and property but their lack of democracy can slow growth in the long run.
China has experienced A. a high long-term growth by spending 50 percent of GDP on investment, but the government may have boosted this growth at the expense of the health of the economy in the short run. B. high rates of growth in the short run by spending heavily on physical capital, infrastructure, and property but their lack of democracy can slow growth in the long run. C. slow growth in the short run but their experiment will demonstrate that the country can maintain high rates of economic growth in the long run while its citizens are denied political freedoms. D. moderate growth in the short run by spending heavily on physical capital, infrastructure, and property but their growth potential in the long run is much higher.
C. different, because consumers can substitute between individual products.
Compared to the U.S. aggregate demand curve, the reason that the demand curve for an individual product, such as bananas, slopes downward is A. the same, because individual products are also affected by macroeconomic variables. B. the same, because the consumption of individual products is also determined by wealth. C. different, because consumers can substitute between individual products. D. different, because individual products are not traded internationally.
increase decrease decrease decrease increase
Complete the following table to indicate what effect an decrease in each of the consumption components will have on consumption. An increase in the price level will ________ consumption. An increase in household wealth will ________ consumption. An increase in expected future income will ________ consumption. An increase in current disposable income will ________ consumption An increase in the interest rate will ________ consumption
decrease increase increase increase decrease
Complete the following table to indicate what effect an increase in each of the consumption components will have on consumption. An increase in the price level will ________ consumption. An increase in household wealth will ________ consumption. An increase in expected future income will ________ consumption. An increase in current disposable income will ________ consumption An increase in the interest rate will ________ consumption
increase
Congress passes a law that allows taxpayers to reduce their income taxes by the amount of state sales taxes they pay. It is likely that the rate of economic growth will ____________
increase
Congress passes an investment tax credit, which reduces a firm's taxes if it installs new machinery and equipment. It is likely that the rate of economic growth will ________
increase
Congress provides more funds for low-interest loans to college students. It is likely that the rate of economic growth will _________
D. GDP per capita fell rapidly between 1900 and 1950
Consider the choices below. All of these except one truly represent the record of productivity growth in the United States from 1800 to the present. Find the one that does not belong. A. There was a rapid rise in the growth rate of per capita GDP between 1950 and 1973. B. Growth of per capita real GDP slowed down considerably between 1974 and 1995. C. Productivity growth since 2006 has fallen to an even lower rate than during the period of slow growth from the mid-1970s to the mid-1990s. D. GDP per capita fell rapidly between 1900 and 1950
D. Technological change
Consider the figure to the right. Which of the following is responsible for the upward shifts in the per-worker production function? A. Increases in capital B. Efficiency wages C. Increases in labor D. Technological change
D. utilizing the benefits of compound growth to a greater extent then countries that began to grow later.
Countries that began to experience strong economic growth at an earlier period have the advantage of A. being able to borrow ideas and technologies from economies that have already reached a higher level of development. B. being a country with a larger population to create workers. C. starting with a larger amount of natural resources than the other economies of the world. D. utilizing the benefits of compound growth to a greater extent then countries that began to grow later.
B. the purchasing power parities (PPPs) as a currency converter.
Country 2013 2014 2015 2016 Mexico $13,468 $13,773 $14,136 $14,461 Panama 32 34 36 38 Thailand 9,146 9,230 9,501 9,808 Since each country's real GDP is measured in a different currency, before one can compare the real GDPs of different countries, it is necessary to use A. the open market operation (OMO) for international price level. B. the purchasing power parities (PPPs) as a currency converter. C. the consumer price index (PPI) for a constant price level. D. the producer price index (PPI) for a uniform price level.
Panama 5.90%
Country 2013 2014 2015 2016 Mexico $13,468 $13,773 $14,136 $14,461 Panama 32 34 36 38 Thailand 9,146 9,230 9,501 9,808 The country that experienced the highest average annual growth rate between 2014 and 2016 is _________, with an average annual growth rate of ______%. (Enter your response as a percentage rounded to two decimal places.)
Panama 6.25%
Country 2013 2014 2015 2016 Mexico $13,468 $13,773 $14,136 $14,461 Panama 32 34 36 38 Thailand 9,146 9,230 9,501 9,808 The country that experienced the highest rate of economic growth during 2014 is ______, with a growth rate of ______%
A. $90 billion
If the marginal propensity to consume (MPC) is 0.9, how much additional consumption will result from an increase of $100 billion of disposable income? A. $90 billion B. $80 billion C. $10 billion D. $9 billion
16 4
If the marginal propensity to consume is 0.80, a $20 increase in disposable income will lead to a $___ increase in consumption and a $___ increase in savings. (Enter both responses rounded to two decimal places.)
A. No. This is a normative question.
Does economics answer the question: "Is economic growth good?" A. No. This is a normative question. B. No. This is a positive question. C. Yes. We have seen that economic growth is seldom good. D. Yes. We have seen that economic growth is always good.
A. will have a healthier and more productive labor force as there is significant improvement in health, education, and civil and political liberties.
Economist Charles Kenny of the World Bank has argued that: The process technologies - institutions like laws and inventory management systems - that appear central to raising incomes per capita flow less like water and more like bricks. But ideas and inventions - the importance of ABCs and vaccines for DPT - really might flow more easily across borders and over distances. If Kenny is correct, these facts indicate that these low-income countries A. will have a healthier and more productive labor force as there is significant improvement in health, education, and civil and political liberties. B. will have a healthier and more productive labor force that will increase rapidly their rates of growth of real GDP per capita in the decades ahead. C. will remain in their phase of stagnating growth and will never be able to catch-up with the living standards with high-income countries. D. will need a much lower rate of economic growth to significantly close the gap in living standards with high-income countries.
B. housing is very sensitive to interest rate changes, which are cyclical.
Edward Leamer of UCLA has argued that "housing is the business cycle." Spending on housing is likely to fluctuate more than spending by households on consumer durables, such as automobiles or furniture, or spending by firms on plant and equipment because A. spending by firms on plant and equipment is less sensitive to interest rate changes, which are countercyclical. B. housing is very sensitive to interest rate changes, which are cyclical. C. spending by households on consumer durables is not sensitive to interest rate changes, which are cyclical. D. housing is very sensitive to spending by households on consumer durables.
diminishing
Equal increases in the quantity of capital per hour worked lead to ____________ increases in output per hour worked.
D. Potential GDP increased significantly, but actual GDP did not, and thus there is unemployment
Even though real GDP in 1970 was slightly greater than real GDP in 1969, the unemployment rate increased substantially from 1969 to 1970. Which of the following explains how unemployment could have increased even though output did not change? A. Labor productivity declined, and thus the demand for labor fell, creating unemployment. B. There must have been a decrease in aggregate demand that caused a recession. C. Because there was more inflation, there must be more unemployment. D. Potential GDP increased significantly, but actual GDP did not, and thus there is unemployment.
2.0% 8.0% 4.0% 4.7%
Fill in the growth rate for each year, and then find the average annual growth rate for the period. Year Real GDP Growth Rate (%) 1999 130 b. - 2000 132.6 b ____% 2001 143.2 b ____% 2002 148.9 b ____% The average annual growth rate for this period is ____%
$8,500
Find equilibrium GDP using the following macroeconomic model: C = 250+ 0.50Y Consumption function I = 2,000 Investment function G = 1,500 Government spending function NX = 500 Net export function Y = C + I + G + NX Equilibrium condition The equilibrium level of GDP is $______ billion
C. 10,000
Find equilibrium GDP using the following macroeconomic model: C = 1,000 + 0.8Y Consumption function I = 500 Investment function G = 600 Government spending function NX = -100 Net export function Y = C + I + G + NX Equilibrium condition A. 2,000 B. 8,000 C. 10,000 D. 20,000
D. Real investment spending declines.
How would an increase in interest rates affect investment? A. Real investment spending remains unchanged. B. Real investment spending may increase, decrease or remain the same depending on the rate of inflation. C. Real investment spending increases. D. Real investment spending declines.
upward sloping wage price stickiness and slow wage adjustment by firms
If menu costs were eliminated, the short-run aggregate supply curve will be ___________ because of ________________ .
negative supply shock an increase in aggregate demand
If the inflation rate for 1970 is greater than the inflation rate for 1969, it is likely that the recession was caused by a ______________ rather than _______________ .
A. equal to consumption plus investment plus government spending.
In a closed economy, aggregate expenditure is A. equal to consumption plus investment plus government spending. B. equal to consumption plus savings plus taxes. C. equal to full-employment output. D. equal to Gross Domestic Product (GDP).
500
In a closed economy, the MPC is 0.80. Government spending changes by 100. The change in equilibrium GDP is ______
A. When there is an unplanned decrease in inventories.
In the aggregate expenditure model, when is planned investment greater than actual investment? A. When there is an unplanned decrease in inventories. B. When there is no unplanned change in inventories. C. Planned investment always equals actual investment in the aggregate expenditure model. D. When there is an unplanned increase in inventories.
inflation
In the dynamic aggregate demand and aggregate supply model, if aggregate demand increases faster than potential real GDP, there will be __________
recession
In the dynamic aggregate demand and aggregate supply model, if aggregate demand increases slower than potential real GDP, there will be _________
D. the initial increase in income or GDP leads to a further increase in investment and aggregate expenditure
In the graph to the right, the economy is initially in equilibrium at point A. Aggregate expenditure and real GDP both equal $11.0 trillion. Suppose there is an increase in investment spending of $300 billion that increases aggregate expenditure to $11.3 trillion. All of the following are true as the economy adjusts to a new equilibrium except that A. the final increase in GDP will be larger than $300 billion. B. the economy will arrive at an equilibrium at point B. C. the initial increase in income or GDP leads to a further increase in consumption and aggregate expenditure. D. the initial increase in income or GDP leads to a further increase in investment and aggregate expenditure
D. All of the above.
In the graph to the right, the economy is initially in equilibrium at point A. Aggregate expenditure and real GDP both equal $11.0 trillion. Suppose there is an increase in investment spending of $300 billion that increases aggregate expenditure to $11.3 trillion. Which of the following best describes the initial impact of the increase in investment? A. Initially, real GDP rises by $300 billion. B. The economy is no longer in equilibrium. C. The aggregate expenditure line shifts up by $300 billion. D. All of the above.
D. All of the above
Indicate which of the following is an explanation for the productivity slowdown of 1974-1995. A. Increased production and transportation costs B. A shift from a goods-based economy to a service-based economy C. Deterioration of the U.S. educational system D. All of the above
A. Lower interest rates B. Lower taxes C. Increased consumer optimism F. Decrease in the U.S. exchange rate relative to other currencies
Indicate which of the following would cause a rightward shift in the aggregate demand curve (Mark all that apply.) A. Lower interest rates B. Lower taxes C. Increased consumer optimism D. Inflation E. Decrease in the price level F. Decrease in the U.S. exchange rate relative to other currencies
A. reduced poverty in India by increasing the growth rate of the economy and a higher rate of economic growth generally results in faster poverty reduction.
Integration into the global economy has A. reduced poverty in India by increasing the growth rate of the economy and a higher rate of economic growth generally results in faster poverty reduction. B. not been successful in the reduction of poverty in India because poverty is determined by education, training and family background. C. did not reduce poverty in India despite an increase in the growth rate of the economy because a higher rate of economic growth does not generally result in faster poverty reduction. D. had an ambiguous effect on reducing poverty because of the skewed distribution of income in India.
D. goods that have been produced but have not yet been sold
Inventories refer to A. outstanding orders that companies have for future production. B. goods that are a result of new inventions. C. goods that are kept in storage to be shipped to foreign countries. D. goods that have been produced but have not yet been sold
A. The economy can produce a level of GDP above potential GDP in the short run.
In 1969, actual real GDP was greater than potential real GDP. Which of the following best explains this? A. The economy can produce a level of GDP above potential GDP in the short run. B. There has been a supply shock that has reduced potential output. C. The economy is in a recession and thus potential GDP is less than actual GDP. D. The data reported by the Department of Commerce are incorrect.
D. Home prices in Canada have risen well above their underlying fundamental value as an asset.
In 2017, an editorial on bloomberg.com was titled: "Canada Must Deflate Its Housing Bubble." What did the editorial mean by the "housing bubble"? A. Banks are making more home loans than are allowed by Canada's central bank. B. In Canada, more houses are demanded by consumers than are supplied by builders. C. Home prices in Canada have fallen well below their underlying fundamental value as an asset. D. Home prices in Canada have risen well above their underlying fundamental value as an asset.
Look at 28 and 29 of pretest
Look at 28 and 29 of pretest
B. the costs to firms of changing prices.
Menu costs are A. the same as sunk costs. B. the costs to firms of changing prices. C. the cost of printing a restaurant menu. D. the costs incurred in the short run.
high concerned
More people in high-income countries than in low-income countries tend to believe that rapid rates of economic growth are not desirable. Recall the concept of a "normal good." Some people in _______ -income countries are _________ with certain consequences of rapid economic growth, such as deforestation.
B. excellent public health and education.
Most of the poor countries experience slow growth because of all the following reasons except A. frequent civil disturbances such as wars and revolutions. B. excellent public health and education. C. low rates of saving and investment. D. the government's failure to enforce the rule of law.
A. The economy of Northbay is expected to grow at a remarkable pace of 9 percent in the upcoming year.
Neutron Inc., is one of the leading electric car manufacturers in Northbay, a developing economy. Neutron's sales increased by more than 20 percent this year compared to the previous year, which started a debate within the company about whether the firm should increase prices. Among those in favor of a price hike is Eric Johnson, the operations head at Neutron. Eric is of the opinion that given the high demand for Neutron's cars, the firm should increase price to improve profits. Mike Wilson, the CEO of the firm, however, feels that a price increase would adversely affect the demand for Neutron's products because he thinks consumers in this industry are more price conscious than brand loyal. Which of the following, if true, will support Eric's view? A. The economy of Northbay is expected to grow at a remarkable pace of 9 percent in the upcoming year. B. A recent market research report reveals that consumer confidence is low. C. The current rate of unemployment in Northbay is high at 10 percent. D. The marginal propensity to consume is approximately 0.3 for an average household in Northbay. E. Northbay's aggregate imports decreased by 2 percent this year.
D.All of the above
New growth theory LOADING... suggests that the accumulation of knowledge capital can be slowed because knowledge is both nonrival and nonexcludable. How does the federal government intervene in the market to increase the amount of knowledge capital? A. Subsidies B. Public education C. Patents D.All of the above E. A and B only
C. the level of GDP attained when all firms are producing at capacity.
Potential real GDP is A. the level of GDP attained when most firms are producing at capacity and unemployment is low. B. the level of GDP attained when only some firms have excess capacity. C. the level of GDP attained when all firms are producing at capacity. D. the level of GDP attained when all firms have excess capacity.
D. The formula ignores the impact of an increase in GDP on consumption.
Often the multiplier formula is considered to be too simple because it ignores some real world complications. Which of the following is not such a reason? A. The formula ignores the impact of an increase in GDP on the interest rate. B. The formula ignores the impact of an increase in GDP on imports. C. The formula ignores the impact of an increase in GDP on inflation. D. The formula ignores the impact of an increase in GDP on consumption.
grows
Potential real GDP ____ over time
D. an increase in the interest rate
Which of the following causes saving to increase? A. an increase in unemployment B. an increase in consumption C. an increase in the price level D. an increase in the interest rate
D. give entrepreneurs more incentive to take risks that create new products, ideas, and more technology.
Property rights have been determined to be a major factor that helps countries sustain economic growth. Governments can change laws and policies in order to give individuals and firms more freedom. By doing so, government can help promote growth because greater property rights A. create more incentives for investors to spend money on consumption goods that lead to increased levels of demand. B. limit the interactions of workers across industries which leads to greater economies of scale. C. encourage individuals to become more concerned with the health options for everyone in the general population. D. give entrepreneurs more incentive to take risks that create new products, ideas, and more technology.
higher
Some economists argue that the development of information technology (IT) caused the ________ productivity growth that began in the mid-1990s.
combination of inflation and recession
Stagflation is a ________
a supply shock shifts the SRAS to the left, increasing the price level and decreasing actual GDP
Stagflation occurs when _____________
A. Political reform
Strong rule-of-law countries grow more rapidly than weak rule-of-law countries. What factor will most likely improve economic growth in weak rule-of-law countries? A. Political reform B. Communism C. Capitalism D. Corruption
C. There will be an increase in government purchases as the economy has more income
Suppose an economy experiences technological progress and this causes a shift in the LRAS curve. Which of the following should not occur? A. There will be reduced pressure on prices as the economy has the ability to produce more real GDP. B. There should be an increase in the amount of income which will cause an increase in AD. C. There will be an increase in government purchases as the economy has more income. D. There should be a shift to the right in the SRAS curve because the increased technology reduces the cost of producing goods in the economy.
$750
Suppose booming economies in the BRIC nations (Brazil, Russia, India, and China) causes net exports (NX) to rise by $150 billion in the United States. If the MPC is 0.8, the change in equilibrium GDP will be $_____ billion.
$15600
Suppose that autonomous consumption is 400, government purchases are 1 comma 500, planned investment spending is 2,000, net exports are 0, and the MPC is 0.75. Equilibrium GDP is equal to $_______(Enter your response as an integer.)
B. Inventories accumulate if production is not scaled back.
When planned aggregate expenditure is less than real GDP, as in the diagram to the right, what happens to firms' inventories? A. Inventories fall if production is not scaled back. B. Inventories accumulate if production is not scaled back. C. Inventories fall as firms increase output. D. Inventories accumulate as firms increase production
to the left bottom left of normal equilibrium to the right directly below original equilibrium
Suppose that initially, the economy is in long-run macroeconomic equilibrium at point A. If there is increased pessimism about the future of the economy, the AD curve will shift ___________ The new short-run macroeconomic equilibrium occurs at ________ Long-run adjustment will shift the SRAS curve _________ as workers adjust to lower-than-expected prices. The new long-run macroeconomic equilibrium occurs _______
2.71 9.09 a larger
Suppose the marginal propensity to consume increases from 0.63 to 0.89. The value of the expenditure multiplier will increase from ______ to _____ (Enter your responses rounded to two decimal places.) When the value of the multiplier increases, all else equal, a change in expenditure will raise aggregate expenditure by _________ amount.
2.78 5.26 larger
Suppose the marginal propensity to consume increases from 0.64 to 0.81. The value of the expenditure multiplier will increase from ______to _______. (Enter your responses rounded to two decimal places.) When the value of the multiplier increases, all else equal, a change in expenditure will raise aggregate expenditure by a _________ amount.
C. I am not sure I agree. Countries that allow more globalization have experienced higher rates of economic growth and typically can utilize greater levels of foreign direct investment to increase economic growth.
Suppose you are discussing global trade with a friend who insists a country would be better off by restricting trade and investment with other countries. Which of the following economic responses would be the most logical for your discussion? A. I am in agreement with you. Global trade doesn't seem to matter to growth rates and countries have greater economic growth when their growth comes from domestic investment. B. I am in agreement with you. Most low income countries allow high levels of trade with other countries. They experience high levels of trade but do not experience high rates of economic growth. C. I am not sure I agree. Countries that allow more globalization have experienced higher rates of economic growth and typically can utilize greater levels of foreign direct investment to increase economic growth. D. I am not sure I agree. Low income countries usually have high levels of foreign direct investment which means they will eventually experience high levels of economic growth.
more important
Technological change is _________ important for economic growth than additional capital
the productive capacity of the economy shift to the right
Technological change occurs. Because this is a change in ____________, the LRAS will __________
D. government-spending effect, where a change in the price level affects government purchases
The U.S. aggregate demand curve slopes downward due to all of the following reasons except the A. wealth effect, where a change in the price level affects consumption. B. international-trade effect, where a change in the price level affects net exports. C. interest-rate effect, where a change in the price level affects investment. D. government-spending effect, where a change in the price level affects government purchases
B. the price level and the quantity of real GDP demanded by households, firms, and the government.
The aggregate demand curve shows the relationship between A. the price level and the quantity of real GDP demanded by the private sector: households and firms. B. the price level and the quantity of real GDP demanded by households, firms, and the government. C. the price level and the quantity of real GDP produced by firms. D. the price level and the quantity of real GDP demanded by consumers.
D. Adelphia has a larger population than Panjim but the level of GDP in Panjim is twice as high as that of Adelphia.
The country Panjim has been growing at the rate of 8 percent annually following a series of economic reforms. Adelphia, a neighboring country, is also growing rapidly, but at a rate that is slightly lower than Panjim's. Elaine Mack and Prisca Baresi, who live in Adelphia, are discussing whether Adelphia's economy will surpass Panjim soon. Elaine is of the opinion that the high level of sales of capital goods indicates that growth in Adelphia will only increase further. Prisca however reminds Elaine that the working population in Adelphia is shrinking, which will actually reduce its growth prospects. Which of the following, if true, will weaken Elaine's view that growth in Adelphia will surpass growth in Panjim? A. The capacity utilization rate in Adelphia has improved substantially in the recent past. B. Adelphia's manufacturing exports to Panjim have increased sharply. C. The level of public investment in health care has increased in Adelphia much more than it has increased in Panjim. D. Adelphia has a larger population than Panjim but the level of GDP in Panjim is twice as high as that of Adelphia. E. In the past couple of years, most of the science and technology patents have been granted to foreign-born individuals who live and work in Adelphia.
D. the number of workers, the amount of capital, and the available technology.
The position of the long-run aggregate supply (LRAS) curve is determined by A. consumption, investment, government purchases, and net exports. B. the price level and aggregate demand. C. the price level, the available technology, and "sticky" prices. D. the number of workers, the amount of capital, and the available technology.
the price level not change
The price level increases. Because this is a change in ___________, the LRAS curve will __________ .
C. Although productivity increased, overall employment in the country fell more than the increase in output.
The country of Alcazar has been growing at an impressive pace for the last five years. With improvements in technology, many industries have recorded remarkable growth in productivity. An accountant, Lucas Eggers, however argues that people in the economy are not necessarily better off because mechanization and technology usually eliminate jobs. Toby Hartmann, who works at a bank, disagrees with Lucas. He thinks that Alcazar's high economic growth and wellbeing have been driven by this increase in productivity. Which of the following, if true, would weaken the claim that welfare in Alcazar has improved? A. Increased use of information technology improved efficiency in a lot of industries. B. Consumers in Alcazar have become more quality conscious in recent years. C. Although productivity increased, overall employment in the country fell more than the increase in output. D. The purchasing power of Alcazar's currency is higher than that of its neighboring countries. E. Newer industries absorbed most of the people who lost their jobs because of modernization of traditional industries.
A. Technological change B. Quantity of capital per hour worked
The economic growth model explains growth in real GDP per capita in the long run. Because of the importance of labor productivity in explaining economic growth, the economic growth model focuses on the causes of increases in long-run labor productivity. What are the key factors that determine labor productivity? (Mark all that apply.) A. Technological change B. Quantity of capital per hour worked C. Trade D. Efficiency wages
A. foreign trade policy that favors imposing a high tariff on imported high-tech goods.
The government policy that does not increase economic growth is A. foreign trade policy that favors imposing a high tariff on imported high-tech goods. B. better health and education policies that provide free childhood vaccination, water purification, and K-12 public education. C. policy concerning property rights and rules of law that can free the country from corruption and political instability. D. incentives to firms in the form of investment tax credits that can take the economy out of a low saving-investment trap.
A. in any particular year, the level of GDP is determined mainly by the level of aggregate expenditure.
The key idea in the aggregate expenditure model is that A. in any particular year, the level of GDP is determined mainly by the level of aggregate expenditure. B. in any particular year, the inflation rate is determined only by the level of aggregate expenditure. C. long run economic growth is determined by the level of aggregate expenditure. D. in any particular year, the level of potential real GDP is determined by the level of aggregate expenditure.
the productive capacity of the economy shift to the right
The labor force increases. Because this is a change in ____________, the LRAS will __________ .
D. will shrink its labor force, which will include mostly less educated and less healthy older workers, resulting in a slower growth in its real GDP per capita
The lower birthrate in China A. will solve its population problem leading to a rapid growth in real GDP per capita as GDP will increase more than its population. B. will result in a labor force containing more educated and healthier young workers, resulting in a rapid growth of its real GDP per capita. C. will help China to maintain its high rates of productivity growth, due to the transition from a centrally planned economy to a market economy so China's growth rate in real GDP per capita is likely to decrease. D. will shrink its labor force, which will include mostly less educated and less healthy older workers, resulting in a slower growth in its real GDP per capita
A. current disposable income.
The most important determinant of consumption is A. current disposable income. B. the interest rate. C. the price level. D. household wealth.
B. current personal disposable income.
The most important determinant of consumption spending is A. the interest rate. B. current personal disposable income. C. expected future income. D. household wealth.
B. an increase in autonomous expenditure leads to a larger increase in real GDP.
The multiplier effect is the process by which: A. an increase in aggregate expenditure leads to an increase in inflation. B. an increase in autonomous expenditure leads to a larger increase in real GDP. C. an increase in real GDP or income leads to an increase in consumption. D. an increase in real GDP leads to a larger increase in autonomous expenditure.
decrease (shift leftward) an adjustment to past errors in expectations about future prices
The price level that is currently higher than expected will ___________ the SRAS curve because this is a change in ____________ .
D. All of the above.
The relationship between the marginal propensity to consume (MPC) and the marginal propensity to save (MPS) can best be described as A. MPS = 1 - MPC. B. MPC + MPS = 1. C. MPC = 1 - MPS. D. All of the above.
A. In the new growth theory, entrepreneurs play a key role in the development and adoption of new and sometimes untried technologies.
The role of the entrepreneur becomes much more important in the new growth theory - the endogenous growth model - than in the traditional economic growth model - because A. In the new growth theory, entrepreneurs play a key role in the development and adoption of new and sometimes untried technologies. B. The traditional growth theory focuses on capital accumulation but the new growth theory does not. C. Entrepreneurs supply the funds for capital accumulation in the new growth theory. D. In the traditional growth model, economic growth is caused by an increase in the labor force growth rate.
A. the price level and the quantity of real GDP supplied by firms.
The short run aggregate supply curve shows the relationship in the short run between A. the price level and the quantity of real GDP supplied by firms. B. the price level and the quantity of capital goods: machines, factories and buildings, demanded by firms and households. C. the price level and the quantity of real GDP demanded by households, firms and the government. D. the price level and the quantity of real GDP demanded by firms
C. the slope of the consumption function.
The slope of the aggregate expenditure line equals A. the value of the multiplier. B. the slope of the 45- degree line. C. the slope of the consumption function. D. equilibrium real GDP.
D. globalization and more integration of trade.
The term "integration into the global economy" means A. becoming a part of NAFTA. B. becoming a part of a global organization. C. becoming a part of EU. D. globalization and more integration of trade.
the productive capacity of the economy shift to the right
There is an increase in the quantity of capital goods. Because this is a change in ____________, the LRAS will __________
C. changes in the price level do not affect potential GDP, as potential GDP depends on the size of the labor force, capital stock, and technology.
The long-run aggregate supply curve is vertical because in the long run, A. changes in the price level affect potential GDP via other variables, such as the size of the labor force, capital stock, and technology. B. changes in the size of the labor force, capital stock, and technology affect the price level but not potential GDP. C. changes in the price level do not affect potential GDP, as potential GDP depends on the size of the labor force, capital stock, and technology. D. the price level does not change, but potential GDP changes its value.
D. in the short run, an unexpected change in the price of an important resource can change the cost to firms.
The short-run aggregate supply curve slopes upward because of all of the following reasons except A. in the short run, as prices of final goods and services increase, input prices react more slowly. B. in the short run, prices of final goods and services adjust slowly due to the existence of menu costs. C. in the short run, as prices of final goods and services increase, some firms are very slow to adjust their prices, thus their sales increase. D. in the short run, an unexpected change in the price of an important resource can change the cost to firms.
A. inventories rise comma and GDP and employment decrease.
When aggregate expenditure is less than GDP, A. inventories rise comma and GDP and employment decrease. B. inventories fall comma and GDP and employment increase. C. inventories are unchanged, and the economy is in macroeconomic equilibrium. D. There is not enough information to determine what will happen to inventories and GDP.
C. AD, SRAS, and LRAS must increase by the same amount.
To have growth without inflation, which of the following must be true? A. There must be no change in AD. B. Potential GDP must remain constant. C. AD, SRAS, and LRAS must increase by the same amount. D. AD must decrease to reduce inflationary pressure. E. There must be no change in SRAS.
B. negative, and usually rise in recessions and fall in expansions.
U.S. real net exports are typically A. positive, and usually fall in recessions and rise in expansions. B. negative, and usually rise in recessions and fall in expansions. C. negative, and usually fall in recessions and rise in expansions. D. positive, and usually rise in recessions and fall in expansions.
rise fall
Usually at the beginning of a recession, inventories _______, but at the beginning of an expansion, inventories _______ .
E. all of the above.
We say that the economy as a whole is in macroeconomic equilibrium if A. aggregate expenditure equals GDP. B. total spending equals total production. C. aggregate expenditure equals total production. D. total spending equals GDP. E. all of the above.
A. Expectations of future profitability, interest rates, taxes and cash flow.
What are the four main determinants of investment? A. Expectations of future profitability, interest rates, taxes and cash flow. B. Expectations of future profitability, interest rates, exchange rate and cash flow. C. Disposable income, interest rates, taxes and cash flow. D. Expectations of future profitability, interest rates, disposable income and cash flow.
300 billion
What is the effect on real GDP of a $150 billion change in planned investment if the MPC is 0.50? $____ billion
A. Inventories decrease, GDP increases, and employment increases.
What is the effect on inventories, GDP, and employment when aggregate expenditure (total spending) exceeds GDP? A. Inventories decrease, GDP increases, and employment increases. B. Inventories increase, GDP increases, and employment increases. C. Inventories increase, GDP increases, and employment decreases. D. Inventories decrease, GDP decreases, and employment increases.
C. all the points where aggregate expenditure equals real GDP.
What is the meaning of the 45° line in the 45°-line diagram? In the 45°-line diagram, the 45° line shows A. the equality of real consumption spending and real GDP. B. real aggregate expenditure for varying levels of real GDP. C. all the points where aggregate expenditure equals real GDP. D. real consumption spending for varying levels of real GDP.
A. inventories are unchanged, and the economy is in macroeconomic equilibrium.
When aggregate expenditure is equal to GDP, A. inventories are unchanged, and the economy is in macroeconomic equilibrium. B. inventories rise comma and GDP and employment decrease. C. inventories fall comma and GDP and employment increase. D. There is not enough information to determine what will happen to inventories and GDP.
A. a decrease in the price level
Which of the following events would cause a movement along the short minus run aggregate supply curve? A. a decrease in the price level B. expectations that the price level will increase in the future C. an increase in the capital stock D. an increase in net exports
D. All of the above.
Which of the following factors brought on the recession of 2007-2009? A. The financial crisis. B. A rapid increase in the price of oil. C. The end of the housing bubble. D. All of the above.
A.Many low-income countries have poor public education and health.
Which of the following is a factor explaining why low-income countries have not experienced rapid economic growth? A.Many low-income countries have poor public education and health. B. Low-income countries have governments that prefer more simple standards of living. C. Low-income countries are generally expected to grow more slowly than high-income countries. D. Low-income countries have started to grow too late and can never catch up to rich countries.
A. potential GDP increases continually, while the AD-AS model assumes the LRAS does not change.
Which of the following is a major difference between the AD-AS model and the dynamic AD-AS model? The dynamic AD-AS model assumes A. potential GDP increases continually, while the AD-AS model assumes the LRAS does not change. B. AD only includes consumption, investment, and government purchases, while the AD-AS model assumes AD includes consumption, investment, government purchases and net exports. C. the economy does not experience long-run growth, while the AD-AS model assumes there is constant inflation in the economy. D. the SRAS is stable and will not shift, while the AD-AS model assumes the SRAS can only change with an exogenous event such as oil price changes.
A. The U.S. had a market economy that allowed for greater entrepreneurship to occur. E. The U.S. had a greater amount of private property rights
Which of the following is a reason the U.S. experienced larger economic growth than the Soviet Union? (Check all that apply.) A. The U.S. had a market economy that allowed for greater entrepreneurship to occur. B. The U.S. had a larger population than the Soviet Union. C. The U.S. had a greater amount of spending on physical capital. D. The U.S. had a more centrally planned economy allowing the government to direct resources to capital accumulation. E. The U.S. had a greater amount of private property rights.
A. Small differences in economic growth rates result in big differences in living standards over time.
Which of the following is a true statement about long-run economic growth? A. Small differences in economic growth rates result in big differences in living standards over time. B. More countries have per capita incomes greater than $20,000 than have per capita incomes less than $2,500. C. In general, low-income countries are catching up with high-income countries. D. World economic growth has continued at a steady pace since medieval times.
C. Governments can promote vaccinations for children and improve access to clean water.
Which of the following is a way in which governments can increase productivity through health and education? A. Governments can strengthen property rights and enforce laws. B. Governments can limit foreign competition by imposing tariffs and quotas on trade. C. Governments can promote vaccinations for children and improve access to clean water. D. Governments can create tax incentives for both businesses and individuals.
C. Because goods are produced in quantities that match the exact amounts consumers want to purchase at a given time.
Which of the following is not an explanation for why firms keep inventories? A. Inventories allow firms a place to store excess production if they incorrectly estimate the quantity that consumers wish to purchase. B. Firms keep inventories in order to provide customers with a wider selection of choices. C. Because goods are produced in quantities that match the exact amounts consumers want to purchase at a given time. D. Because customers do not purchase goods at regular intervals, inventories allow firms to have goods in stock when customers want to buy.
A. a worker gets a college degree
Which of the following is the best example of human capital? A. a worker gets a college degree B. a manager buys workers more personal computers C. a worker pays less taxes D. a manager devotes more spending to research and development
D. 1 / (1-MPC)
Which of the following is the formula for the multiplier? A. MPC B. 1 - MPC C. 1 / MPC D. 1 / (1-MPC)
C. 1974-1995
Which of the following periods in U.S. economic history had the slowest growth rate, as measured by the average annual increase in real GDP per hour worked? A. 1900-1949 B. 1996-2012 C. 1974-1995 D. 1950-1973
A. Imports to the United States fell more than the U.S. exports, leading to an increase in net exports.
Which of the following statements is correct if real GDP in the United States declined by more during the 2007-2009 recession than did real GDP in Canada, China, and other trading partners of the United States? A. Imports to the United States fell more than the U.S. exports, leading to an increase in net exports. B. Imports to the United States fell more than the U.S. exports, leading to a decrease in net exports. C. U.S. exports fell more than the imports, leading to an increase in net exports. D. U.S. exports fell more than the imports, leading to a fall in net exports.
A. Net exports are typically one of the largest components of aggregate expenditure.
Which of the following statements regarding net exports is not correct? A. Net exports are typically one of the largest components of aggregate expenditure. B. Net exports consist of exports minus imports. C. Net exports are directly impacted by decisions made by consumers outside the domestic economy. D. Net exports are the one component of aggregate expenditure that can have a negative value.
A. a decrease in government spending
Which of the following would cause a decrease in aggregate demand? A. a decrease in government spending B. a decrease in taxes C. a decrease in interest rates through monetary policy D. a depreciation in the U.S. dollar relative to foreign currencies E. All of the above.
D. The growth rate in the United States relative to the growth rates in other countries
Which one of the following is not a determinant of consumption spending? A. Current disposable income. B. Household wealth. C. The interest rate. D. The growth rate in the United States relative to the growth rates in other countries.
C. When the economy is at long-run equilibrium, firms will have excess capacity.
Which one of the following is not true when the economy is in macroeconomic equilibrium? A. When the economy is at long-run equilibrium, SRAS = AD = LRAS. B. When the economy is at long-run equilibrium, total unemployment = frictional unemployment + structural unemployment. C. When the economy is at long-run equilibrium, firms will have excess capacity. D. When the economy is at long-run equilibrium, actual GDP = potential GDP.
D. All of the above.
Why does the short-run aggregate supply curve (SRAS) slope upward? A. Contracts keep wages "sticky". B. Prices of final goods rise more quickly than the prices of inputs. C. Firms and workers fail to predict changes in the price level. D. All of the above. E. A and B only.
A. A housing bubble would deflate housing prices, which would decrease household wealth, which would decrease aggregate demand, which could cause a recession.
Why should government policymakers be worried about a housing bubble? A. A housing bubble would deflate housing prices, which would decrease household wealth, which would decrease aggregate demand, which could cause a recession. B. A housing bubble would cause a decrease in home prices, which would increase the demand for houses, which would lead to a shortage of houses. C. A housing bubble would increase employment in residential construction, which would reduce employment in other sectors, which would lead to a decrease in aggregate demand. D. Government policymakers should be worried about a housing bubble only if it reduces their chances of re-election.
D. it will be difficult to sustain high growth rates in U.S. labor productivity in the future.
Writing in 2016, economist Robert Gordon of Northwestern University stated his views of the effects of information technology on the economy: We don't eat computers or wear them or drive to work in them or let them cut our hair. We live in dwelling units that have appliances much like those of the 1950s, and we drive in motor vehicles that perform the same functions as in the 1950s, albeit with more convenience and safety....Most of the economy has already benefited from the Internet and web revolution, and in this sphere of the economic activity, methods of production have been little changed over the past decade....The revolutions in everyday life made possible by e-commerce and search engines were already well established [by 2004]. If Gordon's observations about the information revolution are correct, that implies A. that the U.S. is producing too many small, hand-held gadgets. B. that the U.S. is engaged in further innovations in information and communications technology. C. it will be easy to maintain high growth rates in U.S. labor productivity in the future. D. it will be difficult to sustain high growth rates in U.S. labor productivity in the future.
C. -$700; increase
Y = $8,000 C = $6,200 I = $1,500 G = $1,500 NX = -$500 The unplanned change in inventories is ________ and real GDP will ________. A. -$700; decrease B. $700; increase C. -$700; increase D. $700; decrease
$8,200 $-200
Y = $8,000 C = $6,400 I = $800 G = $1,200 NX = -$200 AE = _____ Unplanned change in inventories = ____
$9,000 $0
Y = $9,000 C = $7,200 I = $800 G = $1,200 NX = -$200 AE = _____ Unplanned change in inventories = ____
$1,000 $1,200 $1,400 $1,600 $1,800 MPC: 0.80 MPS: 0.20
Y C S $5,000 S4,000 $______ $6,000 $4,800 $______ $7,000 $5,600 $______ $8,000 $6,400 $______ $9,000 $7,200 $______ MPC : ________ MPS: _______
$9,500 .80 $2,000 $11,500
Y: $7,500, 8,500, 9,500, 10,500, 11,500 C:$6,500, 7,300, 8,100, 8,900, 9,700 I: $500 for all G: $1,400 for all NX: -$500 for all The equilibrium level of GDP is $______ billion. The MPC is ______ (enter your response to two decimal places). Suppose that net exports increase by $400 billion. Using the multiplier formula, determine the new level of GDP. A $400 billion increase in net exports leads to a change in spending of $______ billion, so the new level of GDP will be $_______ billion.
AE: $8,700, 10,000 inventories: $-700, -350, 0, 350, 700 $10,000
Y: $8,000, 9,000, 10,000, 11,000, 12,000 C:$6,200, 6,850, 7,500, 8,150, 8,800 I: $1,500 for all G: $1,500 for all NX: -$500 for all AE: $_____, 9,350, _______, 10,650, 11,300 Unplanned change in inventories: $_____, _____, _____, _____, _____ The equilibrium level of real GDP is $_______
D. the price level decreased.
Year, Actual Real GDP, Potential Real GDP, Price Level (1929, $1,005.6b, $1,006.3b, 9.9) (1930, $966.7b, 1,094.1b, 9.5) The information in the table is different from what we would expect to have happened in a recession in the past 50 years because A. actual real GDP decreased. B. the unemployment rate increased. C. potential GDP increased. D. the price level decreased.
