Economics Test 2 fr fr fr fr fr

Refer to the diagram, where T is tax revenues and G is government expenditures. All figures are in billions of dollars. If the full-employment GDP is $400 billion while the actual GDP is $200 billion, the actual budget deficit is:

$40 billion.

if disposable income is $550, we would expect the consumption to be

$46

According to the cumulative investment table `

$40 billion worth of investments have expected rates of return 20% and 22%

Assume the MPC is 2/3. If investment spending increases by $2 billion, the level of GDP will increase by:

$6 billion.

Refer to a the above data. If year 2 is the base year, then GDP in year 5 is

$60

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

The multiplier can be calculated as:

1/(1 - MPC).

The multiplier is:

1/MPS.

Refer to above data. If year 2 is the base year, then the percentage increase in real GDP from year 2 to year 4 is

100 percent

Refer to the above table. What is the GDP price index in year 1?

108.3

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

11 percent

In an economy, the total expenditures for a market basket of goods in year 1 (the base year) was $5,000 billions. In year 2 the total expenditure for the same market basket of goods was $5,500 billion. What was the GDP price index for the economy in year 2?

110

If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is:

12 percent.

Refer to above data. If year 2 is the base year, the price index for year 3 is

133

assume a machine that has a useful life of only one year costs $2,000. Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300. The expected rate of return on this machine is:

15 percent.

The break even income would be level

2

Answer the next question based on the following list of factors that are related to the aggregate demand curve. 1) Real-Balances Effect 2) Household Expectations 3) Interest-Rate Effect 4) Personal Income Tax Rates 5) Profit Expectations 6) National Income Abroad 7) Government Spending 8) Foreign Purchases Effect 9) Exchange Rates 10) Degree of Excess Capacity Changes in which two of the factors would most likely cause a shift in aggregate demand due to a change in consumer spending?

2 and 4

Answer the next question based on the following list of factors that are related to the aggregate demand curve. 1) Real-Balances Effect 2) Household Expectations 3) Interest-Rate Effect 4) Personal Income Tax Rates 5) Profit Expectations 6) National Income Abroad 7) Government Spending 8) Foreign Purchases Effect 9) Exchange Rates 10) Degree of Excess Capacity Changes in which two of the factors would most likely cause a shift in aggregate demand due to a change in consumer spending? 1 and 3 2 and 4 2 and 10 8 and 9

2 and 4 Correct

Financing wartime expenditures by increasing internally held public debt permits a nation to defer a part of the economic cost of war.

False

Fiscal policy is mainly undertaken by the Federal Reserve.

False

The greater the upward slope of the AS curve, the larger is the realized multiplier effect of a change in investment spending.

False

The portion of the public debt owed to foreigners does not represent any real economic burden to Americans because we received money from foreigners when we incurred the debt.

False

The so-called "recognition lag" associated with fiscal policy is a result of how slowly the U.S. Congress moves.

False

The price level in the United States is more flexible downward than upward.

False.

Aggregate demand decreases and real output falls but the price level remains the same. Which of the following factors most likely contributes to downward price inflexibility in the immediate short run?

Fear of price wars

when local police and fire departments buy new cars for their operations these are counted as part of

G

*Real GDP

GDP adjusted for inflation, GDP in a year divided by the GDP price index for that year, the index expressed as a decimal. Real GDP = Nominal GDP / Price Index (in hundredths)

Expenditures approach*

GDP as the sum of all the money spent in buying it. The method that adds all expenditures made for final goods and services to measure the gross domestic product.

real GDP refers to

GDP data that have been adjusted for changes in the price level

in a private closed economy, there will be an unplanned increase in inventories when

GDP exceeds aggregate expenditures

Other things constant, if domestic consumers purchase fewer foreign goods at each level of GDP in the short run GDP will rise GDP will fall Foreign countries' GDP will rise There will be no change in GDP in this country

GDP will rise

The marginal propensity to consuke is represented by

GE/AB

https://ezto.mheducation.com/extMedia/bne/econ/Asarta_2e/ch21_035a.png If the economy is initially at full employment, which of the diagrams best portrays a recession resulting from a decrease in government purchases? Graph (1) Graph (2) Graph (3) Graph (4)

Graph (4) Correct

https://ezto.mheducation.com/extMedia/bne/econ/Asarta_2e/ch21_035a.png Which of the diagrams best portrays an expansion? Graphs (1) and (2) Graphs (1) and (3) Graphs (2) and (4) Graphs (3) and (4)

Graphs (1) and (3) Correct

Refer to the figure above. A shift from AD2 shifts to AD1 would be consistent with what economic event in U.S. history?

Great Recession of 2007-2009

The more progressive the tax system, the:

Greater is the built-in stability for the economy

Net domestic product (NDP)

Gross domestic product less the part of the year's output that is needed to replace the capital goods worn out in producing the output; the nation's total output available for consumption or additions to the capital stock.

______ is a result of a very high inflation

Hyperinflation

Refer to the graph above. The ratchet effect would suggest that:

If AD1 shifts to AD2, the economy would move to point b

Dissaving occurs when:

Income is less than consumption

Refer to the graph above, which shows an aggregate demand curve. If the price level decreases from 200 to 100, the real output demanded will:

Increase by $200 billion

In the short run with predetermined prices, when output is less than planned aggregate expenditure, firms will

Increase production

In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPS is 0.25, then it could:

Increase taxes by $16 billion

In the short-run Keynesian model, to close a recessionary gap of $1 billion dollars government purchases must be

Increased by less than $1 billion

In the basic Keynesian model, a tax cut

Increases short-run equilibrium output

When the economy is at its equilibrium GDP level, all of the following will occur, except: Aggregate expenditures = GDP Inventories will be zero Saving equals planned investment There are no unplanned changes in inventories

Inventories will be zero

A decrease in expected returns on investment will most likely shift the AD curve to the left because ___ will decrease.

Investment

If the expected rate of return on investment decreases, then most likely the: a. Investment schedule will shift upward b. Investment schedule will shift downward c. Consumption schedule will shift upward d. Consumption schedule will shift downward

Investment schedule will shift downward

The crowding-out effect tends to be stronger when the economy:

Is at, or close to, full employment

Refer to the diagram. If the full-employment GDP is Y5, government should:

reduce taxes and increase government spending.

When aggregate demand declines, many firms may reduce employment rather than wages because wage reductions may:

reduce worker morale and work effort, and thus lower productivity.

In contrast to investment, consumption is:

relatively stable.

Refer to the given graph. A shift of the consumption schedule from C2 to C1 might be caused by a(n):

reverse wealth effect, caused by a decrease in stock market prices.

economic growth can best be portrayed as

rightward shift of the production possibilities curve

A tax cut will have a greater effect on equilibrium real GDP if the marginal propensity to _____ is _______.

save, smaller

An increase in net exports will have a greater effect on equilibrium real GDP if the marginal propensity to _____ is _____

save, smaller

If disposable income is $900 billion when the average prosperity to consume is .09, it can be concluded that:

saving is $90 billion

At the point where the consumption schedule intersects the 45-degree line: (s is..)

saving is zero.

If the consumption schedule is linear, then the

saving schedule will also be linear.

The saving schedule is drawn on the assumption that as income increases:

saving will increase absolutely and as a percentage of income.

The wealth effect is shown graphically as a:

shift of the consumption schedule.

The Great Recession of 2007-2009 altered the prior behavior of consumers in the economy by

shifting the consumption schedule down

https://ezto.mheducation.com/extMedia/bne/econ/Asarta_2e/ch21_image040.png It depicts an economy in the _____. current month short run current year long run

short run Correct

AE functions

shows the amounts of planned aggregate expenditure that will occur at every level of national income

The greater is the marginal propensity to consume, the:

smaller is the marginal propensity to save.

*Nominal GDP

the GDP measured in terms of the price level at the time of measurement (unadjusted for inflation)

nominal GDP is adjusted for price changes through the use of

the GDP price index

The consumption schedule is such that:

the MPC is constant and the APC declines as income rises.

The consumption schedule shows:

the amounts households intend to consume at various possible levels of aggregate income.

Since actual budget deficits surpassed 10 percent of GDP in 2009:

the deficits as a percentage of GDP have fallen, but fiscal policy has remained expansionary.

Personal income (PI)

the earned and unearned income available to resource suppliers and others before the payment of personal taxes

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.

When we draw an investment demand curve, we hold constant all of the following except: A. the expected rate of return on the investment. B. business taxes. C. the interest rate. D. the present stock of capital goods.

the interest rate.

The most important determinant of consumer spending is:

the level of income

Potential Output (Yp)

the level of real GDP an economy would produce if all prices including nominal wages were fully flexible

Value added

the market value of a firms's output less the value of the inputs the firm has bought from others.

Income approach*

the method that adds all the income generated by the production of final goods and services to measure gross domestic product.

The Multiplier Effect

the process by which an increase in AE leads to a larger increase in real GDP

which of the following do national income accountants consider to be investment?

the purchase of a new house

the slope of the consumption schedule between 2 points on the schedule is

the ratio of the change in consumption to the change in disposable income between those 2 points

The investment demand curve portrays an inverse (negative) relationship between:

the real interest rate and investment.

Aggregate Consumption Function

the relationship for the economy as a whole between aggregate consumer spending and aggregate current disposable income

The MPC for an economy is:

the slope of the consumption schedule or line.

Nominal GDP is

the sum of all monetary transactions that occur in the economy in a year

National income

the total of all sources of private income (employee compensation, rents, interest, proprietors' income, and corporate profits) plus government revenue from taxes on production and imports.

GDP tends to underestimate the productive activity in the economy because it excludes the value of output from

the underground economy

If the equation C = 20 + .6Y, where C is consumption and Y is disposable income, were graphed:

the vertical intercept would be +20 and the slope would be +.6.

The investment demand curve suggests:

there is an inverse relationship between the real rate of interest and the level of investment spending.

Which of the following is an important real consequence of the public debt of the United States?

Its consequent higher interest rates lead to fewer incentives to bear risk and innovate

The larger the mpc, the _____ the income-expenditure multiplier and the _____ the effect of a change in autonomous spending on short-run equilibrium output.

Larger; larger

When a consumption schedule is plotted as a straight line, the slope of the consumption line is:

Less than the slope of the 45 (degree) line.

The slope of the consumption function equals the ____

MPC

Which of the following is correct? A. MPC + MPS = APC + APS. B. APC + MPS = APS + MPC. C. APC + MPC = APS + MPS. D. APC - APS = MPC - MPS.

MPC + MPS = APC + APS.

Refer to the given diagram. Suppose an economy's consumption schedule shifts from C1 to C2 as shown in the diagram. We can say that its:

MPC and APC at each income level have both increased.

If the slope of linear consumption schedule increases in a private closed economy, then it can be concluded that the:

MPC has increased

if the slope of a linear consumption schedule increases in a private closed economy, then it can be concluded that the

MPC has increased

If the consumption schedule is a straight line, it can be concluded that the :

MPC is constant at various levels of income

The consumption and saving schedules reveal that the:

MPC is greater than zero but less than one.

The slope of the consumption schedule or consumption line for a given economy is 1-_____

MPS

Which of the following relations is not correct? A. 1 - MPC = MPS. B. APS + APC = 1. C. MPS = MPC + 1. D. MPC + MPS = 1.

MPS = MPC + 1.

If the saving schedule is a straight line, the:

MPS must be constant.

The ratio LM/PL would be a measure of the

Marginal propensity to consume

When the marginal propensity to consume is less than 1, the

Marginal propensity to save is positive

A tax-cut will have a greater effect on equilibrium GDP if the Marginal propensity to consume is smaller Marginal propensity to save is smaller Marginal propensity to save is larger Average propensity to consume is larger

Marginal propensity to save is smaller

If the price level decreases, then the aggregate expenditures schedule will shift and this translates into a:

Movement down along the aggregate demand curve

The economy experiences an increase in the price level and an increase in real domestic output. Which is a likely explanation? - Business taxes have increased. - Interest rates have increased. - Wage rates have fallen. -Net exports have increased.

Net exports have increased

The economy experiences an increase in the price level and an increase in real domestic output. Which is a likely explanation? Interest rates have increased. Business taxes have increased. Wage rates have fallen. Net exports have increased.

Net exports have increased. Correct

GDP measured using current price is called

Nominal GDP

Refer to above data. If year 2 is the base year, then in determining real GDP for year 1

Nominal GDP in year 1 should be inflated, and the value of real GDP is larger than nominal

the sale of a used automobile would not be included in GDP of the current year because it is a

Non production transaction

Dividends

Part of after tax profits that corporations choose to pay out to their stockholders. They flow to households; the ultimate owners of a corporation.

Disposable Income (DI)

Personal income less personal taxes; income available for personal consumption expenditures and personal saving.

C + Ip + G + NX equals

Planned aggregate expenditure

There is general agreement among economists that a proposed fiscal policy should be evaluated for its:

Potential positive and negative effects on long-run productivity growth

An aggregate supply curve represents the relationship between the:

Price level and the production of real domestic output

Durable goods*

Products (consumer good) that have expected lives of 3 years or more. ex. cars, homes, computers, furnitures, home appliances.

Intermediate goods*

Products that are purchased for resale or further processing or manufacturing.

The crowding-out effect from government borrowing to finance the public debt is reduced when:

Public investment complements private investment

The $787-billion stimulus package enacted by the Federal government in 2009 to try to deal with the Great Recession was intended to: Shift the aggregate expenditures schedule down Close an inflationary expenditures-gap Bring inflation down Push the aggregate expenditures schedule upward

Push the aggregate expenditures schedule upward

In a private closed economy, national income is$4.5 trillion and savings equals $6.4 billion. Based on this data, the marginal propensity to consume

cannot be calculated from the data given

Refer to the above information. The rate of inflation:

cannot be determined from the data

The multiplier is useful in determining the:

change in GDP resulting from a change in spending.

The multiplier is defined as:

change in GDP/initial change in spending.

The MPC can be defined as the fraction of a:

change in income that is spent.

Refer to the diagram. The degree of built-in stability in the economy could be increased by:

changing the tax system so that the tax line has a greater slope.

If Matt's disposable income increases from 4,000 to 4,500 and his levels of saving increases from $200 to $325, it may be concluded that his marginal propensity to:

consume is .75

If Carol's disposable income increases from 1200 to 1700 and her level of saving increases from minus 100 to plus 100, her marginal propensity to:

consume is 3/5ths

in national income accounting, the consumption category of expenditures includes purchases of

consumer durable goods, consumer nondurable goods, and services

If the MPC is .8 and disposable income is 200 then:

consumption and savings cannot be determined from the given information.

Dissaving occurs where:

consumption exceeds income.

An increase in household wealth that creates a wealth effect would shift the

consumption schedule upward and the saving schedule downward.

Tessa's break-even income is $10,000 and her MPC is 0.75. If her actual disposable income is $16,000, her level of:

consumption spending will be $14,500.

The consumption schedule directly relates:

consumption to the level of disposable income.

MPC = change in __ / change in __

consumption, income

GDP can be calculated by summing

consumption, investment, government purchases, and net exports

The APC is calculated as:

consumption/income.

____ ____ inflation is a decrease in aggregate supply

cost push

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

cost-push inflation

A leftward shift of aggregate supply is consistent with ________ inflation in the mid-1970s.

costpush

real GDP measures

current output at base year prices

Aggregate Supply

curve showing the relationship between the aggregate price level and economy-wide production

Aggregate Demand

curve showing the relationship between the aggregate price level and the quantity of aggregate output demanded by households, firms, government, and the rest of the world

Refer to the diagram. Assume that G and T1 are the relevant curves and that the economy is currently at B, which is its full-employment GDP. This economy has a:

cyclically adjusted budget surplus and an actual budget surplus.

A downward shift in Aggregate Demand can be caused by a ___ in consumer wealth

decrease

Cost-push inflation is characterized by a(n) _____ in aggregate supply and no change in aggregate demand.

decrease

With cost-push inflation in the short run, there will be a(n) ___ in real GDP

decrease

If disposable income decreases from 1800 to 1500 and MPC=0.75, then saving will:

decrease by $75

other things being equal, an increase in an economy's exports will

decrease domestic aggregate expenditures and the equilibrium level of GDP

as the consumption and saving schedules relate to real GDP, and increase in taxes will shift

downward both the consumption and saving schedules

Demand-pull inflation:

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

Capital goods, because their purchases can be postponed like ______ consumer goods, tend to contribute to ________ in investment spending.

durable; instability

The investment demand slopes downward and to the right because lower real interest rates:

enable more investment projects to be undertaken profitably.

saving is $25 billion at the $125 billion equilibrium level of output in a closed, private economy. Actual investment must be

equal to $25 billion

The immediate determinants of investment spending are the:

expected rate of return on capital goods and the real interest rate.

two basic determinants of investment spending are

expected returns and real interest rates

The expenditure multiplier arises because one person's additional expenditure becomes another person's additional income that will generate additional ____

expenditure

*Gross private domestic investment (Ig)

expenditures for newly produced capital goods (such as machinery, equipment, tools, and buildings) and for additions to inventories.

*Net Exports (Xn)

exports less imports.

Refer to the diagram, in which Qf is the full-employment output. If the economy's present aggregate demand curve is AD2:

government should undertake neither an expansionary nor a contractionary fiscal policy.

in the aggregate expenditures model of the economy, a downward shift in aggregate expenditures can be caused by a decrease in

government spending or an increase in taxes

in an inflationary expenditure gap, the equilibrium level of real GDP is

greater than full-employment income

The size of the MPC is assumed to be:

greater than zero but less than one.

Net Private Domestic Investment

gross private domestic investment less consumption of fixed capital; the addition to the nation's stock of capital during a year

A high rate of inflation is likely to cause a:

high nominal interest rate.

The immediate-short-run aggregate supply curve is:

horitzontal.

The investment demand curve is drawn with the amount of investment on the

horizontal axis and the expected rate of return and interest rate on the vertical axis

The equation C = 35 + .75Y, where C is consumption and Y is disposable income, shows that:

households will consume $35 if their disposable income is zero and will consume three-fourths of any increase in disposable income they receive.

The aggregate supply curve (short run):

is steeper above the full-employment output than below it.

The portion of the public debt held outside federal agencies and the Federal Reserve is:

larger than the portion held by federal agencies and the Federal Reserve.

The numerical value of the multiplier will be smaller the:

larger the slope of the saving schedule.

The annual rate of inflation can be found by subtracting:

last year's price index from this year's price index and dividing the difference by last year's price index.

A decrease in expected returns on investment will most likely shift the AD curve to the _____. right because C will increase left because C will decrease right because Ig will increase left because Ig will decrease

left because Ig will decrease Correct

If investment decreases by $20 billion and the economy's MPC is .5, the aggregate demand curve will shift:

leftward by $40 billion at each price level.

The most important determinant of consumption and saving is the:

level of income

The following are examples of final goods in national income accounting except

lumber and steel beams of purchased by construction company

The practical significance of the multiplier is that it:

magnifies initial changes in spending into larger changes in GDP.

In annual percentage terms, investment spending in the United States is:

more variable than real GDP.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in investment spending caused by the interest-rate effect of a price-level increase is depicted by the:

move from point a to point b in panel (B).

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in net exports caused by the foreign purchases effect of a price-level increase is depicted by the:

move from point a to point b in panel (B).

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

move the economy downward along its existing investment demand curve.

A change in the amount saved due to the change in income is represented by a

movement along the saving schedule

If the price level decreases, then the aggregate expenditures schedule will shift and this translates into a _____. movement down along the aggregate demand curve shift in aggregate demand to the right shift in aggregate demand to the left movement up along the aggregate demand curve

movement down along the aggregate demand curve

One can determine the amount of any level of total income that is consumed by:

multiplying total income by the APC.

in an economy that has stationary production capacity

net investment is zero

If consumption increases by $10 billion at each level of disposable income, the marginal propensity to consume will:

not change, but the average propensity to consume will change.

To avoid multiple counting in nations income accounts

only final goods and services should be counted

Refer to the given graph. A movement from b to a along C1 might be caused by a(n):

recession.

An economy characterized by high unemployment is likely to be having a ______ expenditure gap.

recessionary

The size of the multiplier is equal to the:

reciprocal of the slope of the saving schedule.

Refer to above table. What was real GDP in Year 2?

$4,911

Assume there are no prospective investment projects (I) that will yield an expected rate of return (r) of 25 percent or more, but there are $5 billion of investment opportunities with an expected rate of return between 20 and 25 percent, an additional $5 billion between 15 and 20 percent, and so on. If the real interest rate is 15 percent in this economy, the aggregate amount of investment will be:

$10.

If the MPC in an economy is 0.75 and aggregate expenditures increase by $5 billion, then equilibrium GDP will increase by: $3.75 billion $6.7 billion $8.75 billion $20 billion

$20 billion

If the real rate falls from 20% to 16% then

$30 billion of additional investments will be undertaken

Refer to the above graph. If this economy was an open economy without a government sector, the level of GDP would be: $100 billion $200 billion $300 billion $400 billion

$300 billion

Assume that the real output of a developing nation increases from $120 billion to $140 billion while its population expands from 100 to 110 million. As a result, real income per capita has increased by about

$72 per person

a nation's capital stock was valued at $300 billion at the start of the year and $350 billion at the end. Consumption of private fixed capital in the year was $25 billion. Assuming stable prices, gross investment was

$75 billion

GDP in an economy is $111,050 billion. Consumer expenditures are $7,735 billion, government purchases are $1,989 billion, and gross investment is $1,410 billion. Net exports are

$84 billion

If disposable income increases from 912 to 927 billion and MPC= 0.6, then consumption will increase by:

$9 billion

Refer to above data. In year 4 nominal GDP would be

$90

a nation's captial stock was valued at $300 billion at the start of the year and $365 billion at the end. Consumption of private fixed capital in the year was $25 billion. Assuming stable prices, gross investment was

$90 billion

△ taxes formula

(-MPC / 1-MPC) (△ T)

△ purchases formula

(1 / 1-MPC) (△ G)

△ Investment formula

(1 / 1-MPC) (△inflation)

GDP in an economy is $11,050 billion. Consumer expenditures are $7,735 billion, government purchases are $1,989 billion, and gross investment is $1,410 billion. Net exports must be

-$84 billion

At $320 billion level of disposable income, the average propensity to save is

.075

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

.1

The marginal propensity to consume is

.60

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. The slope of the aggregate expenditures model line is

.80

if the slope of the consumption schedule is 0.8, then the slope of the saving schedule is

0.20

If the slope of consumption schedule is 0.75, then the slope of the saving schedule is

0.25

an increase in spending of $20 billion increases real GDP from $600 billion to $700 billion. The marginal propensity to consume must be

0.80 and the multiplier is 5

If consumption increases by $9 when after-tax disposable income increases by $10, the marginal propensity to consume (mpc) equals

0.9

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 recognition lag of fiscal policy is reflected in events:

1 and 2.

In Macroland, autonomous consumption equals 100, the marginal propensity to consume equals 0.75, net taxes are fixed at 40, planned investment is fixed at 50, government purchases are fixed at 150, and net exports are fixed at 20. Short-run equilibrium output in this economy equals

1,000

The relationship between the MPS and the MPC is such that:

1- MPC=MPS

With marginal propensity to save of .4, the marginal propensity to consume will be:

1.0 minus .4

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

2.5.

Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return on this tool is:

20 percent.

Answer the question on the basis of the following aggregate demand and supply schedules for a hypothetical economy: Refer to the data. The equilibrium price level will be:

200

If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is:

22 percent.

Suppose that new computer software for accounting and analysis at a business has a new useful life of only one year and costs $200,000 before it needs to be upgraded to a new version. The revenue generated by this software is expected to be $250,000. The expected rate of return from this new computer software is

25%

https://ezto.mheducation.com/extMedia/bne/econ/Asarta_2e/ch21_image002ch21a.png In the diagram, the economy's short-run AS curve is line _____ and its long-run AS curve is line _____. 1; 3 2; 4 3; 4 2; 1

2; 1

The country's real GDP declined between years

3 and 4

If the MPS is only half as large as the MPC, the multiplier is:

3.

a nation's real GDP was $250 billion in 2013 and $265 billion in 2014. Its population was 122 billion in 2013 and 125 million in 2014. What is the growth rate of real GDP per capita in 2014

3.4%

In 2012, foreign ownership of the total public debt of the U.S. was about:

33%

Refer to the figure above. Based on the figure, when PAE = 200 + 0.5Y, short-run equilibrium output equals

400

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 operational lag of fiscal policy is reflected in event(s):

5

Answer the question based on the following list of items that are related to aggregate demand and/or aggregate supply. Refer to the list above. Changes in which combination of factors best explain why the aggregate supply curve would shift?

7 and 8

What percentage of the average U.S. firm's costs are accounted for by wages and salaries?

75

If Fred's annual real income rises by 8 percent each year, his annual real income will double in about:

8-9 years

If disposable income increases from $912 to $927 billion and MPC = 0.6, then consumption will increase by $_____ billion

9

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. Planned aggregate expenditure equals

900 + 0.80Y

21) Providing a constant number of workers with additional capital with which to work will ________ labor productivity at a(n) ________ rate. A) increase; decreasing B) increase; constant C) decrease; decreasing D) increase; increasing

A

8) Which of the following would be likely to increase the doubling time for an economy's real GDP? A) the rate of population growth slows B) better education increases the productivity of workers C) an increase in the technology used for producing goods and services D) government policies improve the health of the population

A

9) The gross domestic product (GDP) concept accounts for society's valuation of the relative worth of goods and services by using a ________. A) monetary measure C) measure of volume B) utility measure D) measure of physical weigh

A

A recession is a decline in A) real GDP that lasts six months or longer. B) the inflation rate that lasts six months or longer. C) potential GDP that lasts six months or longer. D) the unemployment rate that lasts six months or longer.

A

If an economy produces 100 pencils and 100 pens, and pencils sell for twice as much as pens, A. Pencils are waited twice as important in the economy compared to pens B. Nothing can be said about the relative importance of pens and pencils in the economy C. Pencils are weighted as equally important in the economy as pens D. Pens are waited twice as important in the economy compared to pencils

A

Recently a teachers' union argued that the standard of living of teachers working for the school district was falling. The negotiating team for the school board replied that this was not true because the teachers had received significant increases in nominal income through collective bargaining. Could the union statement be correct? A) yes, because real income may fall if price increases are Proportionately greater than the increases in nominal income B) No, because real income may rise if price increases are proportionately greater than declines in nominal income C) no, because real income may rise if price increases are proportionately greater than the increases in nominal income D) yes, because real income may fall if price increases are proportionately smaller than the increases in nominal income

A

The IRS will be likely to collect more tax revenue if A. There is a shift in employment from black markets to formal markets B. Businesses hire more undocumented workers C. There is an increase in household production D. There is an increase in illegal sports betting

A

Which of the following will not cause the consumption schedule to shift?

A change in consumer incomes

Refer to the graph above. Which of the following factors will shift AS1 to AS2?

A decrease in business taxes

Refer to the graph above. Which of the following factors will shift AD1 to AD3?

A decrease in consumer wealth

https://ezto.mheducation.com/extMedia/bne/econ/Asarta_2e/ch21_image008.png Which of the following factors will shift AD1 to AD3? An increase in expected returns on investment An increase in productivity A decrease in real interest rates A decrease in consumer wealth

A decrease in consumer wealth

Which one of the following will cause a movement down along an economy's consumption schedule?

A decrease in disposable income.

The saving schedule would be shifted upward by

A decrease in taxes

Which of the following would shift the saving schedule upward?

A decrease in wealth.

With cost-push inflation in the short run, there will be:

A decrease real GDP

If planned aggregate expenditure (PAE) in an economy equals 2,000 + 0.8Y and potential output (Y*) equals 11,000, then this economy has

A recessionary gap

Refer to the figure above. Based on the diagram, if potential output equals 5,000 and the real interest rate is 5 percent, then there is _____ gap and the Fed must _____ the real interest rate so that output will equal potential output.

A recessionary; reduce

Which of the following factors does not explain the inverse relationship between the price level and the total demand for output? A substitution effect A real-balances effect An interest-rate effect A foreign-purchases effect

A substitution effect Correct

Nominal GDP differs from real GDP because: A) Real GDP results from adjusting for changes in the price level B) Nominal GDP results from adjusting for changes in the price level C) Nominal GDP is based on constant prices D) Real GDP is based on current prices

A) Real GDP results from adjusting for changes in the price level

Arthur sells $100 worth of cotton to Bob. Bob turns the cotton into cloth, which he sells to Camille for $300. Camille uses the cloth to make prom dresses that she sells to Donita for $700. Donita sells the dresses for $1,200 to kids attending the prom. The total contribution to GDP of this series of transactions is: A) $1,200. B) $500. C) $2,300. D) $1,100.

A) $1,200.

Assume an economy that makes only one product and that year 3 is the base year. Output and price data for a five-year period are as follows. Answer the question on the basis of these data. (Figure 6) Refer to the data. The nominal GDP for year 4 is: A) $49. B) $55. C) $40. D) $35.

A) $49. Unit of Output * Price Per Unit

(The following national income data for an economy are in billions of dollars.) Figure 11 Refer to the above data. Which items need to be accounted for in going from National Income to GDP? A) 1, 12, and 13 B) 2, 11, and 12 C) 13 only D) 1 and 2

A) 1, 12, and 13

If nominal GDP in some year is $280 and real GDP is $160, then the GDP price index for that year is: A) 175. B) 57. C) 160. D) 280.

A) 175. Price index = nominal GDP / real GDP * 100

Which of the following is a final good or service? A) A haircut purchased by a father for his 12 year-old son. B) Fertilizer purchased by a farm supplier. C) Diesel fuel bought for a delivery truck. D) Chevrolet windows purchased by a General Motors assembly plant.

A) A haircut purchased by a father for his 12 year-old son.

That portion of corporate profits which is included in personal income is: A) Dividends B) Corporate income taxes C) Consumption of fixed capital D) Undistributed corporate profits

A) Dividends

The following are examples of final goods in national income accounting, except: A) Lumber and steel beams purchased by a construction company B) Tractor purchased by a construction company C) Laptop computer purchased by an executive for personal use D) Desktop computer purchased by an executive for business use

A) Lumber and steel beams purchased by a construction company

Business inventories increase when firms produce: A) More than they sell, and the inventory increase is added to GDP B) Less than they sell, and the inventory increase is added to GDP C) More than they sell, and the inventory increase is subtracted from GDP D) Less than they sell, and the inventory increase is subtracted from GDP

A) More than they sell, and the inventory increase is added to GDP

When gross private domestic investment exceeds depreciation, it can be concluded that: A) Net investment is positive B) Net investment is negative C) The economy is exporting more than it imports D) The economy is importing more than it exports

A) Net investment is positive

GDP measured using current prices is called: A) Nominal GDP B) Real GDP C) Constant GDP D) Deflated GDP

A) Nominal GDP

Personal income (PI) refers to all income: A) Received B) Earned C) Earned but not received D) Received but not earned

A) Received

Which of the following is included in the expenditures approach to GDP? A) Spending on meals by consumers at restaurants B) Expenditures on used clothing at garage sales C) Value of stocks and bonds bought by businessmen D) Government spending on welfare payments

A) Spending on meals by consumers at restaurants

"Net foreign factor income" in the national income accounts refers to the difference between: A) The income Americans gain from supplying resources abroad and the income that foreigners earn by supplying resources in the U.S. B) The value of products sold by Americans to other nations and the value of products bought by Americans from other nations C) The value of investments that Americans made abroad and the value of investments made by foreigners in the U.S. D) The income earned by Americans in the U.S. minus the income earned by foreigners in the U.S.

A) The income Americans gain from supplying resources abroad and the income that foreigners earn by supplying resources in the U.S.

Net exports are negative when: A) a nation's imports exceed its exports. B) the economy's stock of capital goods is declining. C) depreciation exceeds domestic investment. D) a nation's exports exceed its imports.

A) a nation's imports exceed its exports.

National income accountants define investment to include: A) any increase in business inventories. B) the addition of cash to a savings account. C) the purchase of common or preferred stock. D) the purchase of any durable good, for example, an automobile or a refrigerator.

A) any increase in business inventories.

The largest component of national income is: A) compensation of employees. B) rents. C) interest. D) corporate profits.

A) compensation of employees.

In calculating GDP, governmental transfer payments, such as Social Security or unemployment compensation, are: A) not counted. B) counted as investment spending. C) counted as government spending. D) counted as consumption spending.

A) not counted.

If intermediate goods and services were included in GDP: A) the GDP would be overstated. B) the GDP would then have to be deflated for changes in the price level. C) nominal GDP would exceed real GDP. D) the GDP would be understated.

A) the GDP would be overstated.

The so-called ratchet effect refers to the characteristic in the economy where product prices, wages, and per-unit production cost are flexible when:

AD increases but not when AD decreases

In a private closed economy, the equilibrium condition for the economy is AE = C + Ig = GDP AE = G + Ig = GDP AE = C + Ig + G = GDP C + Ig + G + NX = GDP

AE = C + Ig = GDP

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

APC is greater than 1.

which of the following is correct?

APC+APS=1.

When the U.S. economy reached full employment in 2007, the cyclically-adjusted deficit that year was -1.3% of GDP. From this information, we know that the:

Actual budget deficit must have been very close to 0% of GDP

If the dollar appreciates in value relative to foreign currencies:

Aggregate demand decreases because net exports decrease

In which of the following sets of circumstances can we confidently expect inflation?

Aggregate supply decreases and aggregate demand increases.

The investment schedule shows the Inverse relationship between the expected rate of return and the quantity of investment demanded Positive relationship between the expected rate of return and the quantity of investment demanded Amounts business firms collectively intend to invest at each possible level of GDP Rate of interest that business firms must pay when they make investments in capital goods

Amounts business firms collectively intend to invest at each possible level of GDP

Which combination of factors would most likely increase aggregate demand? An increase in household indebtedness and a decrease in net exports. An increase in consumer wealth and a decrease in interest rates. An increase in net exports and a decrease in government spending. An increase in business taxes and a decrease in profit expectations.

An increase in consumer wealth and a decrease in interest rates. Correct

Which one of the following will cause a movement up along an economy's saving schedule?

An increase in disposable income.

https://ezto.mheducation.com/extMedia/bne/econ/Asarta_2e/ch21_image008.png Which of the following factors will shift AD1 to AD2? A decrease in the general price level. An increase in real interest rates. An increase in national incomes abroad. A decrease in the value of financial assets.

An increase in national incomes abroad. Correct

*Price index

An index number that shows how the weighted average price of a "market basket" of goods changes over time. Price index (in hundredths) = nominal GDP / real GDP

The amount by which aggregate expenditures exceed those associated with the full-employment level of domestic output can best be described as: A recessionary expenditure gap An inflationary expenditure gap The multiplier The average propensity to save

An inflationary expenditure gap

The difference between the investment demand curve and the investment schedule is that the former shows: A direct relationship between investment and interest rate, while the latter shows no correlation between investment and income An inverse relationship between investment and interest rate, while the latter shows no correlation between investment and income A direct relationship between investment and income, while the latter shows no correlation between investment and interest rate An inverse relationship between investment and income, while the latter shows no correlation between investment and interest rate

An inverse relationship between investment and interest rate, while the latter shows no correlation between investment and income

Undistributed corporate profits

Any after tax profits that are not distributed to shareholders are saved, or retained, by corporations to be invested later in new plants and equipment. (retained earnings)

The fraction,or percentage of total income which is saved is called the

Average propensity to save

The fraction, or percentage of total income which is consumed is called the:

Average prospensity to consume

15) Economic growth can best be portrayed as a(n) A) movement from a point inside to a point outside of the production possibilities frontier. B) outward shift of the production possibilities frontier. C) movement from a point near the vertical axis to a point near the horizontal axis on the production possibilities frontier. D) inward shift of the production possibilities frontier.

B

16) In the year 2020, Alpha has a real GDP of $80 billion and Omega has a real GDP of $10 billion. If Alpha has a growth rate of 2% and Omega has a growth rate of 4%, in what year will Omega catch up to Alpha? A) 2092 B) 2108 C) 2024 D) 2018

B

23) Government expenditures for social security and unemployment insurance are, for GDP accounting purposes, considered ________. A) transfer payments, and are included in government spending as part of GDP B) transfer payments, and are not included in government spending as part of GDP C) government purchases, and are not included in government spending as part of GDP D) government purchases, and are included in government spending as part of GDP

B

5) GDP is $7 trillion. If consumption is $3.5 trillion, investment is $1.4 trillion, and government purchases are $2.1 trillion, then ________. A) net exports cannot be determined from the available information B) exports are equal to imports C) exports exceed imports D) imports exceed exports

B

Over a 10-year period, the Consumer Price Index doubled. On the basis of this information and using the rule of 72, we can say that the average annual rate of inflation over this period was approximately A) 10%. B) 7%. C) 5%. D) 9%.

B

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

GDP is the market value of: A) All output produced and accumulated over the years B) All final goods and services produced in an economy in a given year C) Consumption and investment spending in an economy in a given year D) Resources (land, labor, capita, and entrepreneurship) in an economy in a given year

B) All final goods and services produced in an economy in a given year

Firm A produces something that Firm B uses as an input. The product of Firm B, in turn, is purchased and used as an input by Firm C, and so on down the line through Firm E, which produces the end product. The total value added by Firms A-E from the production of the end product described here is: Figure 8 A) $3,000 B) $3,800 C) $6,500 D) $10,300

B) $3,800

Consider the following data for a firm over a period of time. The contribution of the firm to domestic output by the value-added method is: Figure 10 A) $5,000 B) $40,000 C) $45,000 D) $50,000

B) $40,000 Revenue (result) - Supplies (cost in)

Answer the question on the basis of the following data. All figures are in billions of dollars. Refer to the data (Figure 5). GDP is: A) $390. B) $417. C) $422. D) $492.

B) $417.

(GDP figures are in billions of dollars.) Figure 9 Refer to the above table. What is the GDP price index in Year 1? A) 105.2 B) 108.3 C) 109.6 D) 111.5

B) 108.3

Suppose nominal GDP in 2009 was $100 billion and in 2010 it was $260 billion. The general price index in 2009 was 100 and in 2010 it was 180. Between 2009 and 2010 the real GDP rose by approximately: A) 160 percent. B) 44 percent. C) 37 percent. D) 80 percent.

B) 44 percent.

The agency responsible for compiling the National Income Product Accounts for the U.S. economy is the: A) Council of Economic Advisers. B) Bureau of Economic Analysis. C) National Bureau of Economic Research. D) Bureau of Labor Statistics.

B) Bureau of Economic Analysis.

If prices increased, we need to adjust nominal GDP values to give us a measure of GDP for various years in constant-dollar terms. We refer to that adjustment as: A) Inflating GDP B) Deflating GDP C) Compounding GDP D) Indexing GDP

B) Deflating GDP

The value of corporate stocks and bonds traded in a given year is: A) Included in the calculation of GDP because they make a contribution to the current production of goods and services B) Excluded from the calculation of GDP because they make no contribution to current production of goods and services C) Included in the calculation of net private domestic investment D) Included in the calculation of gross private domestic investment

B) Excluded from the calculation of GDP because they make no contribution to current production of goods and services

Which of the following is included in GDP? A) Welfare payments received by some households B) Fees received by stockbrokers C) Cash gifts from relatives during the holidays D) Payments received from selling stocks in one's portfolio

B) Fees received by stockbrokers

All of the following are examples of intermediate goods, except: A) Flour bought by a bakery B) Oven bought by a bakery C) Office supplies bought by an accounting firm D) Gasoline bought by a trucking company

B) Oven bought by a bakery

The largest expenditure component of GDP is: A) Government purchases B) Personal consumption expenditures C) Gross private domestic investment D) Net exports

B) Personal consumption expenditures

Government purchases in national income accounts would include payments for: A) Social Security checks to retirees B) Salaries for current U.S. military officers C) Public assistance for welfare recipients D) Unemployment benefits

B) Salaries for current U.S. military officers

Which of the following is not economic investment? A) The purchase of a new drill press by the Ajax Manufacturing Company. B) The purchase of 100 shares of AT&T by a retired business executive. C) Construction of a suburban housing project. D) The piling up of inventories on a grocer's shelf.

B) The purchase of 100 shares of AT&T by a retired business executive.

Which of the following DO national income accountants consider to be investment? A) The purchase of an automobile for private, nonbusiness use. B) The purchase of a new house. C) The purchase of corporate bonds. D) The purchase of gold coins.

B) The purchase of a new house.

In national income accounting, the consumption category of expenditures includes purchases of: A) both new and used consumer goods. B) automobiles for personal use but not houses. C) consumer durable and nondurable goods but not services. D) consumer nondurable goods and services but not consumer durable goods.

B) automobiles for personal use but not houses.

Transfer payments are: A) excluded when calculating GDP because they only reflect inflation. B) excluded when calculating GDP because they do not reflect current production. C) included when calculating GDP because they are a category of investment spending. D) included when calculating GDP because they increase the spending of recipients.

B) excluded when calculating GDP because they do not reflect current production.

If in some year gross investment was $120 billion and net investment was $65 billion, then in that year the country's capital stock: A) may have either increased or decreased. B) increased by $65 billion. C) increased by $55 billion. D) decreased by $55 billion.

B) increased by $65 billion.

GDP is the: A) national income minus all nonincome charges against output. B) monetary value of all final goods and services produced within the borders of a nation in a particular year. C) monetary value of all economic resources used in producing a year's output. D) monetary value of all goods and services, final and intermediate, produced in a specific year.

B) monetary value of all final goods and services produced within the borders of a nation in a particular year.

National income accountants can avoid multiple counting by: A) including transfer payments in their calculations. B) only counting final goods. C) counting both intermediate and final goods. D) only counting intermediate goods.

B) only counting final goods.

The growth of GDP may understate changes in the economy's economic well-being over time if the: A) distribution of income becomes increasingly unequal. B) quality of products and services improves. C) environment deteriorates because of pollution. D) amount of leisure decreases.

B) quality of products and services improves.

If depreciation exceeds gross investment: A) the economy's stock of capital may be either growing or shrinking. B) the economy's stock of capital is shrinking. C) the economy's stock of capital is growing. D) net investment is zero.

B) the economy's stock of capital is shrinking.

Consumption shifts from A2 to Aa3 because of a change in taxes, then in figure (B) line:

B1 will shift to B3

line A2 shifts to A3 because of the so called wealth effect, then in figure (B) line

B2 will shift to B1

Refer to the graph above. When output increases from Q1 and the price level decreases from P1, this change will:

Be caused by a shift in the aggregate supply curve from AS1 to AS3

The slope of the immediate-short-run aggregate supply curve is based on the assumption that:

Both input and output prices are fixed

11) GDP measured using base year prices is called ________. A) nominal GDP C) real GDP B) constant GDP D) deflated GDP

C

12) GDP measured using current prices is called ________. A) real GDP B) deflated GDP C) nominal GDP D) constant GDP

C

14) Which of the following is not an example of a final good or service perspective of the national income accounts)? A) New lawn mowers sold to consumers by Cut-Rite Lawn Equipment & Supplies in their retail store B) A new string trimmer purchased by Green Grass Lawn Care Services, which employees will use to maintain customer's yards C) Seedlings and saplings purchased for resale by Wendy's Garden Center D) Flowers and pots purchased by homeowner Joe Smith for his garden

C

18) Society can increase its output and income by increasing its A) markets and prices. B) spending and taxes. C) resources and/or the productivity of the resources. D) private and public sectors of the economy.

C

20) To calculate real GDP, ________. A) sum the quantities of all final goods and services produced in an economy in a year B) multiply the quantities of all goods and service produced in an economy in a year by their price in that year and then total the result C) multiply the quantities of final goods and services produced in an economy in a year by their prices in a base year and then sum the values D) multiply the quantities and prices of final goods and services produced in an economy in a year by their prices in that year and then sum the values

C

24) The recurrent ups and downs in the level of economic activity extending over several years are referred to as A) noncyclical fluctuations. C) business cycles. B) business startups. D) economic phases.

C

A principle of diminishing returns to capital states that if the amount of labor and other inputs employed is held constant, then the greater the amount of capital any use the A. Les is produced B. Less production is wasted C. The less and additional unit of capital adds to production D. The more an additional unit of capital adds to production

C

17) One common measure of the "standard of living" in a nation is ________. A) population size B) the unemployment rate C) real GDP D) real GDP per capita

D

The following are national income account data for a hypothetical economy in billions of dollars: gross private domestic investment ($320); imports ($35); exports ($22); personal consumption expenditures ($2,460); and, government purchases ($470). What is GDP in this economy? A) $3,250 billion B) $3,263 billion C) $3,237 billion D) $3,290 billion

C) $3,237 billion

(The following national income data are in billions of dollars.) Figure 12 Refer to the above data. Net domestic product equals: A) $1,039 billion B) $1,044 billion C) $1,054 billion D) $1,076 billion

C) $1,054 billion GDP = C + I + G +NX NDP = GDP - Consumption of Fixed Capital (Depreciation on capital goods of country) 475 - 11 + 315 + 300 + 1079 = GDP - 25 = NDP

A business buys $5,000 worth of inputs from other firms in order to produce a product. The business makes 100 units of the product and each of them sells for $65. The value added by the business to these products is: A) $5,000 B) $6,500 C) $1,500 D) $1,000

C) $1,500

(GDP figures are in billions of dollars.) Figure 9 Refer to the above table. What was real GDP in Year 2? A) $4,820 billion B) $4,875 billion C) $4,911 billion D) $5,320 billion

C) $4,911 billion

Assume an economy that makes only one product and that year 3 is the base year. Output and price data for a five-year period are as follows. Answer the question on the basis of these data. (Figure 6) Refer to the data. Real GDP for year 5 is: A) $160. B) $49. C) $40. D) $64.

C) $40. To calculate real GDP, take nominal GDP (units of output * price per unit) / price index (price per unit of year / price per unit of base year)

Answer the question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Figure 15 Refer to the above data. If year 2 is the base year, then Real GDP in year 5 is: A) $120 B) $90 C) $60 D) $30

C) $60 Real GDP = Nominal GDP / Price Index Nominal GDP = Units of Output * Price Per Unit Price Index = Price Per Unit Year / Price Per Unit Base Year

A nation's capital stock was valued at $300 billion at the start of the year and $350 billion at the end. Consumption of private fixed capital in the year was $25 billion. Assuming stable prices, gross investment was: A) $25 billion B) $50 billion C) $75 billion D) $90 billion

C) $75 billion

GDP in an economy is $11,050 billion. Consumer expenditures are $7,735 billion, government purchases are $1,989 billion, and gross investment is $1,410 billion. Net exports must be: A) +$53 billion B) -$47 billion C) -$84 billion D) -$161 billion

C) -$84 billion

(The following national income data for an economy are in billions of dollars.) Figure 11 Refer to the above data. The national income in this economy can be estimated by adding items: A) 1 through 7 B) 8 through 11 C) 2 through 7 D) 1 through 13

C) 2 through 7

Consider the following data for a nation: Figure 1 The country's real GDP declined between years: A) 1 and 2 B) 2 and 3 C) 3 and 4 D) 4 and 5

C) 3 and 4

The following are national income account data for a hypothetical economy in billions of dollars: government purchases ($1,050); personal consumption expenditures ($4,800); imports ($370); exports ($240); gross private domestic investment ($1,130). Personal consumption expenditures are approximately what percentage of this economy? A) 60 percent B) 65 percent C) 70 percent D) 75 percent

C) 70 percent 1050 + 4800 -130 + 1130 + 6850 government purchases + personal consumption expenditures + (exports - imports) + gross private domestic investment

(The following national income data for an economy are in billions of dollars.) Figure 11 Refer to the above data. The expenditures approach to GDP calculation can be done by adding: A) 1 through 7 B) 2 through 7 C) 8 through 11 D) 8 through 13

C) 8 through 11

Answer the question based on the following price and output data over a five-year period for an economy that produces only one good. Assume that year 2 is the base year. Figure 15 Refer to the above data. If year 2 is the base year, then the percentage increase in real GDP from year 2 to year 4 is: A) 40 percent B) 60 percent C) 80 percent D) 100 percent

C) 80 percent %IncreaseGDP = (Year4GDP - Year2GDP) / Year2GDP

In an economy, the value of inventories was $75 billion in 2009 and $63 billion in 2010. In calculating total investment for 2010, national income accountants would: A) Decrease it by $75 billion B) Increase it by $63 billion C) Decrease it by $12 billion D) Increase it by $138 billion

C) Decrease it by $12 billion

When local police and fire departments buy new cars for their operations, these are counted as part of: A) C B) Ig C) G D) Xn

C) G

Gross domestic private investment, as defined in national income accounts, would include the following, except: A) Changes to business inventories B) All domestic construction done by the private sector C) Government construction of new highways and dams D) The value of all capital goods bought by business firms

C) Government construction of new highways and dams

Computation of GDP by the expenditures method would include the purchase of: A) Fertilizer by a farmer B) Cement by a construction company C) Land by the U.S. Department of Interior D) Government bonds by a commercial bank

C) Land by the U.S. Department of Interior

In an economy that has stationary production capacity: A) GDP is zero B) Capital consumption (or depreciation) is zero C) Net investment is zero D) Gross investment is zero

C) Net investment is zero

The GDP deflator or price index equals: A) Gross private domestic investment less the consumption of fixed capital B) Gross national product less net foreign factor income earned in the United States C) Nominal GDP divided by real GDP D) Real GDP divided by nominal GDP

C) Nominal GDP divided by real GDP

If the price index in year A is 130, this means that: A) Prices in year A are on average 130 percent higher than in the base year B) Prices in year A are on average 13 times that in the base year C) Prices in year A are on average 30 percent higher than in the base year D) Nominal GDP is 130 percent higher than real GDP in year A

C) Prices in year A are on average 30 percent higher than in the base year

Which of the following is not included in personal consumption expenditures? A) New furniture and appliances bought by homeowners B) Payments for cable and Internet services to homes C) Purchases of mutual funds by consumers D) Food purchased at supermarkets

C) Purchases of mutual funds by consumers

The expenditures or output approach to GDP measures it by summing up: A) Compensation of employees, rents, interest, dividends, undistributed corporate profits, proprietors' income, indirect business taxes paid, consumption of fixed capital, and net foreign factor income earned in the United States B) Compensation of employees, rents, interest, dividends, corporate profits, proprietors' income, and indirect business taxes, and subtracting the consumption of fixed capital C) The total spending for consumption, investment, net exports, and government purchases D) The total spending for consumption and government purchases, but subtracting public and private transfer payments

C) The total spending for consumption, investment, net exports, and government purchases

In national income accounting, the consumption category of expenditures includes purchases of: A) both new and used consumer goods. B) consumer durable goods and consumer nondurable goods but not services. C) consumer durable goods, consumer nondurable goods, and services. D) changes in business inventories.

C) consumer durable goods, consumer nondurable goods, and services.

The largest component of total expenditures in the United States is: A) net exports. B) government purchases. C) consumption. D) gross investment.

C) consumption.

Economy A: gross investment equals depreciation Economy B: depreciation exceeds gross investment Economy C: gross investment exceeds depreciation Refer to the information. Positive net investment is occurring in: A) economy A only. B) economy B only. C) economy C only. D) economies A and B only.

C) economy C only.

Tom Atoe grows fruits and vegetables for home consumption. This activity is: A) excluded from GDP in order to avoid double counting. B) excluded from GDP because an intermediate good is involved. C) productive but is excluded from GDP because no market transaction occurs. D) included in GDP because it reflects production.

C) productive but is excluded from GDP because no market transaction occurs.

The value of U.S. imports is: A) added to exports when calculating GDP because imports reflect spending by Americans. B) subtracted from exports when calculating GDP because imports do not constitute spending by Americans. C) subtracted from exports when calculating GDP because imports do not constitute production in the United States. D) added when calculating GDP because imports do not constitute production in the United States.

C) subtracted from exports when calculating GDP because imports do not constitute production in the United States.

In 1933, net private domestic investment was a minus $6.0 billion. This means that: A) gross private domestic investment exceeded depreciation by $6.0 billion. B) the economy was expanding in that year. C) the production of 1933's GDP used up more capital goods than were produced in that year. D) economy produced no capital goods at all in 1933.

C) the production of 1933's GDP used up more capital goods than were produced in that year.

*GDP Equation

C+Ig+G+Xn

In the Keynesian model, it is assumed that, when demand for a firm's product changes, the firm

Changes production levels to meet the demand

Menu costs are the costs of

Changing prices

Increased government spending for investments such as highways or harbors financed by increasing the public debt would most likely:

Complement private investment

The two main responsibilities of the Federal Reserve System are to _____ and to _____.

Conduct monetary policy; oversee financial markets

As income falls from level 3 to level 2, the amount of:

Consumption decreases and the amount of saving decreases

When the consumption schedule is plotted on a graph:

Consumption is on the vertical axis and disposable income is on the horizontal axis

Government policy actions intended to decrease planned spending and output are called _____ policies.

Contractionary

If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n):

Contractionary fiscal policy

https://ezto.mheducation.com/extMedia/bne/econ/Asarta_2e/ch21_042.png A shift from AS1 to AS2 would be consistent with what economic event in U.S. history? Demand-pull inflation in the late 1960s Cost-push inflation in the mid-1970s Full-employment in the late 1990s Great Recession in 2007-2009

Cost-push inflation in the mid-1970s Correct

The cyclically-adjusted surplus in the U.S. went from +1.2% of GDP in 2000 to +0.6% of GDP in 2002. This suggests that the government during that period:

Cut taxes and increased spending

10) Nominal GDP is the market value of ________. A) all consumption and investment spending in an economy in a given year B) all output produced and accumulated over the years C) resources (land, labor, capital, and entrepreneurship) in an economy in a given year D) all final goods and services produced in an economy in a given year

D

13) To increase future living standards by pursuing higher current rates of investment spending, an economy must A) reduce the current capital stock. B) decrease the amount of future research and development spending. C) allow higher rates of current consumption. D) reduce current rates of consumption spending.

D

19) Gamma has $30,000 of capital per worker, while Omega has $7,500 of capital per worker. In all other respects, the two countries are the same. According to the principle of diminishing returns to capital, an additional unit of capital will ________ in Omega compared to Gamma, holding other factors constant. A) have no effect on output C) increase output less B) increase output by the same amount D) increase output more

D

22) Environmental pollution is accounted for in ________. A) PI B) DI C) GDP D) None of these

D

25) Suppose a government wants to reduce its budget deficit. It could ________. A) decrease taxes B) encourage home production C) increase government spending D) reduce the number of activities that are considered illegal

D

Disposable income equals consumption at point:

D

Refer to the data (Figure 6) Real GDP in year 3 is: A) $100. B) $450. C) $225. D) $150.

D) $150.

The two ways of looking at GDP are the: A) Output approach and expenditures approach B) Output approach and consumption approach C) Income approach and saving approach D) Expenditures approach and income approach

D) Expenditures approach and income approach

If the price index is 130, this means that: A) Prices are .13 times that in the base year B) Nominal GDP must be inflated to determine the real GDP C) Prices are 130 percent higher than in the base year D) Prices are 30 percent higher than in the base year

D) Prices are 30 percent higher than in the base year

In year 1, nominal GDP for the United States was $2,250 billion and in year 2 it was $2,508 billion. The GDP deflator was 72 in year 1 and 79 in year 2. Between year 1 and year 2, real GDP rose by: A) 11.4 percent B) 9.7 percent C) 2.4 percent D) 1.6 percent

D) 1.6 percent``

Consumers in an economy buy only three general types of products, A, B, and C. Changes in the prices of these items over a period are shown below: Figure 14 Using year 1 as the base year, the country's price index in year 2 is: A) 100.0 B) 103.9 C) 105.2 D) 106.3

D) 106.3 (sum of year 2's average price per unit) / (sum of year 1's average price per unit) (8 + 22 + 55) / (10 + 20 + 50) * 100

If real GDP in a particular year is $80 billion and nominal GDP is $240 billion, the GDP price index for that year is: A) 100. B) 200. C) 240. D) 300.

D) 300.

Assume an economy that makes only one product and that year 3 is the base year. Output and price data for a five-year period are as follows. Answer the question on the basis of these data. (Figure 6) Refer to the data. If year 3 is chosen as the base year, the price index for year 1 is: A) 140. B) 40. C) 167. D) 60.

D) 60. To calculate the Price Index, take the price of the Market Basket of the year of interest and divide by the price of the Market Basket of the base year, then multiply by 100 3/5 * 100

Which of the following is a private transfer payment? A) Unemployment benefits received by newly laid-off workers B) The sale of used clothing at a thrift store C) The Social Security benefits paid to a retired worker D) A check for $250 sent by a parent to a daughter at college

D) A check for $250 sent by a parent to a daughter at college

Adding the market value of all final and intermediate goods and services in an economy in a given year would result in: A) The calculation of GDP for that year B) The calculation of NDP for that year C) An amount less than GDP for that year D) An amount greater than GDP for that year

D) An amount greater than GDP for that year

Economy A: gross investment equals depreciation Economy B: depreciation exceeds gross investment Economy C: gross investment exceeds depreciation Other things equal, the information suggests that the production capacity in economy: A) B is growing more rapidly than that in either economy A or C. B) A is growing more rapidly than that in either economy B or C. C) A is growing less rapidly than that in economy B. D) C is growing more rapidly than that in economy B.

D) C is growing more rapidly than that in economy B.

Real GDP refers to: A) the value of the domestic output after adjustments have been made for environmental pollution and changes in the distribution of income. B) GDP data that embody changes in the price level but not changes in physical output. C) GDP data that do not reflect changes in both physical output and the price level. D) GDP data that have been adjusted for changes in the price level.

D) GDP data that have been adjusted for changes in the price level.

Money spent on the purchase of a new house is included in the GDP as a part of: A) Household expenditures on durable goods B) Personal consumption expenditures C) Personal saving D) Gross domestic private investment

D) Gross domestic private investment

Refer to the diagram. (Figure 7). Which of the following statements is correct? A) The price index is greater than 100 for every year shown on the graph. B) Nominal GDP must be deflated in each year prior to 2000 to determine real GDP. C) Real GDP has grown in this economy, but nominal GDP has not. D) Nominal GDP must be deflated in each year since 2000 to determine real GDP.

D) Nominal GDP must be deflated in each year since 2000 to determine real GDP.

Refer to the graph above. Which of the following statements is correct on the basis of the information shown? A) Real GDP must be deflated in each year after 2000 to determine nominal GDP B) Nominal GDP must be inflated in each year since 2000 to determine real GDP C) Nominal GDP must be deflated in each year before 2000 to determine real GDP D) Nominal GDP must be inflated in each year before 2000 to determine real GDP

D) Nominal GDP must be inflated in each year before 2000 to determine real GDP

Which of the following transactions would be included in GDP? A) Mary buys a used book for $5 at a garage sale. B) Nick buys $5,000 worth of stock in Microsoft. C) Olivia receives a tax refund of $500. D) Peter buys a newly constructed house.

D) Peter buys a newly constructed house.

Disinvestment occurs when: A) Businesses sell machinery and equipment to one another B) The prices of investment goods rise faster than the prices of consumer goods C) Businesses have larger inventories at the end of the year than they had at the start D) The consumption of private fixed capital exceeds gross private domestic investment

D) The consumption of private fixed capital exceeds gross private domestic investment

Suppose Smith pays $100 to Jones. A) We can say with certainty that the GDP has increased by $100. B) We can say with certainty that the GDP has increased, but we cannot determine the amount. C) We can say with certainty that the nominal GDP has increased, but we can't say whether real GDP has increased or decreased. D) We need more information to determine whether GDP has changed.

D) We need more information to determine whether GDP has changed.

GDP understates the amount of economic production in the United States because it excludes: A) Spending for the U.S. military B) Transfer payments C) Purchases of stocks and bonds D) Work performed by people for their own benefit

D) Work performed by people for their own benefit

In 2012, Trailblazer Bicycle Company produced a mountain bike that was delivered to a retail outlet in November 2012. The bicycle was sold to E.Z. Ryder in March 2013. This bicycle is counted as: A) consumption in 2012 and as negative investment in 2013. B) negative investment in 2012 and as consumption in 2013. C) negative investment in 2012 and as investment in 2013. D) investment in 2012 and as negative investment in 2013.

D) investment in 2012 and as negative investment in 2013.

Refer to the diagram. (Figure 7). The base year used in determining the price indices for this economy: A) cannot be determined from the information given. B) is some year before 2000. C) is more recent than 2000. D) is 2000.

D) is 2000. Base year is when Nominal GDP / Real GDP = 1 Real GDP = Nominal GDP

The fact that nominal GDP has risen faster than real GDP: A) suggests that the base year of the GDP price index has been shifted. B) tells us nothing about what has happened to the price level. C) suggests that the general price level has fallen. D) suggests that the general price level has risen.

D) suggests that the general price level has risen.

If the economy adds to its inventory of goods during some year: A) gross investment will exceed net investment by the amount of the inventory increase. B) this amount should be ignored in calculating that year's GDP. C) this amount should be subtracted in calculating that year's GDP. D) this amount should be included in calculating that year's GDP.

D) this amount should be included in calculating that year's GDP.

The concept of net domestic investment refers to: A) the amount of machinery and equipment used up in producing the GDP in a specific year. B) the difference between the market value and book value of outstanding capital stock. C) gross domestic investment less net exports. D) total investment less the amount of investment goods used up in producing the year's output.

D) total investment less the amount of investment goods used up in producing the year's output.

Data on output and planned aggregate expenditure in Macroland are given below. Output : PAE 2,000 : 2,300 3,000 : 3,200 4,000 : 4,100 5,000 : 5,000 6,000 : 5,900 Based on these data, the short-run equilibrium level of output is _____. a. 2,000 b. 3,200 c. 4,100 d. 5,000

D. 5,000

*Government Purchases (G)

Expenditures by government for goods and services that government consumes in providing public goods and for public capital that has a long lifetime; the expenditures of all governments in the economy for those final goods and services.

At income level 3, the amount of saving is represented by the line segment:

FG

In the aggregate expenditures model of the economy, a downward shift in aggregate expenditures can be caused by a Decrease in government spending or an increase in taxes Decrease in taxes or an increase in government spending Decrease in interest rates or a decrease in taxes Decrease in saving or an increase in government spending

Decrease in government spending or an increase in taxes

Actions by the Federal government that decrease the progressivity of the tax system:

Decrease the effect of automatic stabilizers

In the short-run, if the Federal Reserve increases interest rates, then consumption and investment _____, planned aggregate expenditure _____, and short-run equilibrium output _____.

Decrease; decreases; decreases

From 1995 to 2001, the U.S. public debt relative to GDP:

Decreased, and increased since then

A higher real interest rate _____ investment spending and _____ consumption spending.

Decreases; decreases

Which of the following would most likely occur during the expansionary phase of the business cycle?

Demand-pull inflation

Induced expenditure is the portion of planned aggregate expenditure that

Depends on output

The amount of consumption in an economy correlates:

Directly with the level of disposable income

The saving schedule shows the relationship of saving of households to the level of:

Disposable income

Personal saving is equal to:

Disposable income minus consumption.

The two parts of the Keynesian consumption function are consumption that depends on _____ and consumption that depends on _____.

Disposable income; factors other than disposable incomes

As the consumption and saving schedules relate to real GDP, an increase in taxes will shift

Downward both the consumption and saving schedules

Short-run equilibrium output is the level of output at which actual output

Equals planned aggregate expenditure

Refer to the figure above. Based on the figure, if the economy is in short-run equilibrium with output equal to 24,000, then there is a(n) _____ gap and a(n) _____ in government spending would return the economy to potential output (Y*).

Expansionary; decrease of 1,000

Refer to the figure. Suppose that the economy is currently operating at the intersection of AS and AD2, and that the full-employment level of output is Y. If contractionary fiscal policy and accompanying multiplier effects move aggregate demand from AD2 to AD1, what will be the effect on real GDP and the price level?

Real GDP will fall to X and the price level will remain unchanged, assuming a ratchet effect occurs.

The labels for the axes of the aggregate demand graph should be:

Real domestic output on the horizontal axis and the price level on the vertical axis

14 The amount by which an aggregate expenditures schedule must shift upward to achieve the full-employment GDP is a(n) Inflationary expenditure gap Recessionary expenditure gap Expenditure multiplier gap Negative net export gap

Recessionary expenditure gap

If potential output equals 4,000 and short-run equilibrium output equals 3,500, there is a _____ gap and the Federal Reserve must _____ real interest rates in order to close the gap.

Recessionary; reduce

The two reasons why bankruptcy is a false concern about the public debt are:

Refinancing and taxation

Expansion is portrayed as a ___ shift of aggregate supply and demand,

Rightward

The foreign purchases effect on aggregate demand suggests that a:

Rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand

If the Fed wishes to increase nominal interest rates, it must engage in an open market _____ of bonds that _____ the money supply.

Sales; decreases

The Paradox of Thrift highlights the idea that

Saving more can be bad for the economy during a recession

If GDP exceeds aggregate expenditures in a private closed economy Saving will exceed planned investment Planned investment will exceed saving Planned investment will exceed actual investment Injections will exceed leakages

Saving will exceed planned investment

Leakages from the income-expenditure stream are: Consumption, saving, and transfer payments Saving, taxes, and investment Saving, taxes, and imports Imports, taxes, and transfer payments

Saving, taxes, and imports

Refer to the figure above. The massive increase in government spending during World War II moved the economy in the span of a few short years from mass unemployment and price stability to "overfull" employment. This situation can be best illustrated in the figure above as a:

Shift from AD1 to AD2, an increase in aggregate demand.

Refer to the graph above. It depicts an economy in the:

Short run

Assume that an increase in a household's disposable income from 40,000 to 48,000 leads to an increase in consumption from 35,000 to 41,000, then the:

Slope of the consumption schedule is .75

In an economy , for every $10 million increase in disposable income, saving increases by $2 million. It can be concluded that the

Slope of the consumption schedule is .8

____ is a result of high inflation and high unemployment.

Stagflation

If at a particular price level, real output from producers is greater than real output desired by purchasers, then there will be a general:

Surplus and the price level will fall

Fiscal policy is enacted through changes in:

Taxation and government spending

If there is a decrease in disposable income in an economy, then:

The APC rises and the APS Falls

One basic assumption of the aggregate expenditures model is that The economy is operating at full employment There is inflation in the economy There is no public sector in the economy The average price level in the economy is fixed

The average price level in the economy is fixed

When the price level decreases:

The demand for money falls and the interest rate falls

Which of the following will not tend to shift the consumption schedule upward? A currently small stock of durable goods in the possession of consumers. B. The expectation of a future decline in the consumer price index. C. A currently low level of household debt. D. The expectation of future shortages of essential consumer goods.

The expectation of a future decline in the consumer price index.

*Personal consumption expenditures (C)

The expenditures of households for durable and nondurable consumer goods and services

Incurring an internal debt to finance a war like World War II does not pass the true cost of the war on to future generations because:

The opportunity cost of wartime expenditures was borne by the generation that lived during the war

The slope of the consumption schedule between two points is :

The ratio of the change in consumption to the change in disposable income between those two parts

When government spending is increased, the amount of the increase in aggregate demand primarily depends on:

The size of the multiplier

National income accounting

The techniques used to measure the overall production of the economy and other related variables for the nation as a whole

The most basic premise of the aggregate expenditures model is that: The total output produced in the economy depends directly on the level of total spending The level of employment in the economy depends inversely on the real wage rate The total output produced depends mostly on the total capacity of firms to produce The unemployment level in the economy is inversely related to the inflation rate

The total output produced in the economy depends directly on the level of total spending

At the $300 level of disposable income

There is a dissaving of $10

Refer to the figure above. Based on Keynesian cross diagram, at short-run equilibrium output

There is an expansionary gap

If the real interest rate increases

There will be a movement upward along the investment demand curve.

A budget deficit causes the government to issue or sell Treasury bonds.

True

A negative GDP gap can be caused by either a decrease in aggregate demand or a decrease in aggregate supply.

True.

A firm invest in a new machine that cost 2,000......an increase in total revenue of 2,200 a year.... The current real rate is 7 percent the firm should:

Undertake the investment because the expected rate of return of 10 percent is greater than real rate of interest.

The major economic issue during the Great Depression of the 1930s that concerned John Maynard Keynes was Rising interest rates Large trade deficits Unemployment Hyperinflation

Unemployment

Classical economists held the view that in the economy: Demand creates its own supply Unemployment is temporary and is soon eliminated There is an imbalance between saving and investment It is difficult for an economy to adjust because wages and prices are inflexible

Unemployment is temporary and is soon eliminated

When aggregate expenditure is greater than GDP, then there will be an: a. Unplanned increase in inventories and GDP will increase b. Unplanned decrease in inventories and GDP will increase c. Unplanned increase in inventories and GDP will decrease d. Unplanned decrease in inventories and GDP will decrease

Unplanned decrease in inventories and GDP will increase

The multiplier effect indicates that:

a change in spending will change aggregate income by a larger amount.

a price index

a comparison of real GDP in one period relative to another

In the diagram, a shift from AS1 to AS2 might be caused by:

a decrease in the prices of domestic resources.

The relationship between consumption and disposable income is such that:

a direct and relatively stable relationship exists between consumption and income.

The consumption schedule shows: (what type of relationship)

a direct relationship between aggregate consumption and aggregate income.

Keynesian Cross

a graphical model that allows us to see the connection between aggregate expenditures and read GDP

Refer to the diagrams. A decline in aggregate expenditures from AE2 to AE1 resulting from the real-balances, interest-rate, and foreign purchases effects would be depicted as:

a movement from C to A along aggregate demand curve AD1.

Cost-push inflation may be caused by:

a negative supply shock

Transfer payments*

a payment of money (or goods or services) by a government to a household or firm for which the payer receives no good or service directly in return.

Investment Spending

a smaller potion of GDP than consumer spending, but changes in investment spending tend to drive the business cycle because C tends to follow a smooth, upward trend

A decrease in _____ _______ portrays a recession as a result of a decrease in government purchases

aggregate demand

GDP (Gross Domestic Product)*

aggregate output, the market value of all final goods and services produced within the borders of a country during a specific period of time, typically a year.

https://ezto.mheducation.com/extMedia/bne/econ/Asarta_2e/ch21_031.png If the aggregate supply curve shifted from AS0 to AS1 and the aggregate demand curve remains at AD0, we could say that _____. aggregate supply has increased, equilibrium output has decreased, and unemployment has increased aggregate supply has decreased, equilibrium output has decreased, and unemployment has increased an increase in the amount of output supplied has occurred aggregate supply has increased and the price level has risen to G

aggregate supply has decreased, equilibrium output has decreased, and unemployment has increased Correct

GDP is the market value of

all final goods and services produced in an economy in a given year

The 45-degree line on a graph relating consumption and income shows:

all points at which consumption and income are equal.

Consumption of fixed capital

allowance , an estimate of the amount of capital worn out or used up (consumed) in producing the gross domestic product; also called depreciation

Adding the market value of all final and intermediate goods and serves in an economy in a given year would result in

an amount greater than GDP for that year

adding the market value of all final and intermediate goods and services in an economy in a given year would result in

an amount greater than GDP for that year

Consumption Function

an equation showing how an individual's household's consumer spending varied with the household's current disposable income

The multiplier effect means that:

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

Assume the economy's consumption and saving schedules simultaneously shift downward. This must be the result of:

an increase in personal taxes.

The effect of a government surplus on the equilibrium level of GDP is substantially the same as:

an increase in saving.

Given the expected rate of return on all possible investment opportunities in the economy:

an increase in the real rate of interest will reduce the level of investment.

the amount by which aggregate expenditures exceed those associated with the full-employment level of domestic output can best be described as

an inflationary expenditure gap

Services

an intangible act or use for which a consumer, firm, or government is willing to pay.

If for some reason households become increasingly thrifty, we could show this by:

an upward shift of the saving schedule.

As disposable income increases, consumption: A. and saving both increase. B. and saving both decrease. C. decreases and saving increases. D. increases and saving decreases.

and saving both increase.

Refer to the diagram in which T is tax revenues and G is government expenditures. All figures are in billions. The budget will entail a deficit:

at any level of GDP below $400.

which of the following will not increase a nation's real GDP

average price level

The disposable income goes up, the:

average propensity to consume falls.

When consumption and saving are graphed relative to real GDP, an increase in personal taxes will shift:

both the consumption and saving schedules downward.

According to Congressional Budget Office (CBO) projections:

budget deficits are expected to remain large for the next several years.

Recurring upswings and downswings in an economy's real GDP over time are called:

business cycles

Stock market transactions*

buying and selling of stocks and bonds. This creates nothing in the way of current production and is not included in GDP. (services provided by the stockbroker are included in GDP because their services are currently provided)

Cost-push inflation is characterized by a(n) __. increase in aggregate supply and a decrease in aggregate demand increase in aggregate demand and no change in aggregate supply decrease in aggregate supply and no change in aggregate demand decrease in both aggregate supply and aggregate demand

decrease in aggregate supply and no change in aggregate demand Correct

Given the expected rate of return on all possible investment opportunities in the economy, a(n)

decrease in the real rate of interest will tend to increase the level of investment

Given the expected rate of return on all possible investment opportunities in the economy, a

decrease in the real rate of interest will tend to increase the level of investment.

With cost-push inflation in the short run, there will be a(n) _____. increase in real GDP leftward shift in the aggregate demand curve decrease real GDP decrease in unemployment

decrease real GDP

to close an inflationary expenditure gap of $20 billion in an economy with a marginal propensity to consume of 0.8, it would be necessary to

decrease the aggregate expenditures schedule by $20 billion

As disposable income decreases, consumption ____

decreases

A decline in disposable income:

decreases consumption by moving downward alone a specific consumption schedule.

a decrease in disposable income

decreases consumption by moving downward along a given consumption schedule

if prices increased, we need to adjust nominal GDP values to give us measure of GDP for various years in constant-dollar terms. We refer to that adjustment as

deflating GDP

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

deflation of 3.33 percent

An upward shift off aggregate _______ is caused by an increase in national incomes abroad.

demand

_____ ____ inflation is an increase in aggregate demand, and no change in supply.

demand pull

The phrase "too much money chasing too few goods" best describes:

demand-pull inflation

in an economy that is experiencing a shrinking production capacity

depreciation exceeds gross investment

Changes in government expenditures affect planned spending ________, by changing autonomous expenditures.

directly

As applied to the price level, the "rule of 70" indicates that the number of years required for the price level to double can be found by:

dividing the annual rate of inflation into "70"

If the price level decreases, then the aggregate expenditures schedule will shift and this translates into a movement ____ along the aggregate demand curve.

down

Disposable Income (Yd)

income after taxes and receiving transfers, consumer spending + savings

A leftward shift of Aggregate supply could be caused by an ___ in government regulation.

increase

The consumption schedule is drawn on the assumption that as income increases, consumption will:

increase absolutely by decline as a percentage of income.

If the MPC is .70 and investment increases by $3 billion, the equilibrium GDP will:

increase by $10 billion.

https://ezto.mheducation.com/extMedia/bne/econ/Asarta_2e/ch21_031.png Other things equal, a shift of the aggregate supply curve from AS0 to AS1 might be caused by a(n) _____. increase in government regulation decrease in aggregate demand increase in productivity decrease in nominal wages

increase in government regulation Correct

Refer to the given graph. A movement from a to b along C1 might be caused by a(n):

increase in real GDP.

Refer to the diagram. Initially assume that the investment demand curve is ID1. The crowding-out effect of a large public debt would be shown as a(n):

increase in the interest rate from 4 percent to 6 percent and a decline in investment spending of $5 billion.

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

increase in the prices of imported resources.

A decline in the real interest rate will:

increase the amount of investment spending.

A rightward shift of the AD curve in the very steep upper part of the short-run AS curve will:

increase the price level by more than real output.

Other things equal, an increase of Treasury bonds from $100 billion to $120 billion in the economy would:

increase the public debt from $460 billion to $480 billion.

Assuming that MPC is .75, equal increases in government spending and tax collections by $10 billion will _____ the equilibrium real GDP by $___ billion.

increase, 10

An ________ in consumer wealth and a ________ in interest rates would most likely increase aggregate demand

increase, decrease

suppose the GDP is in equilibrium at full employment and the MPC is .80. If government wants to increase its purchase of goods and services by $16 billion without changing equilibrium GDP, taxes should be

increased by $20 billion

The saving schedule is such that as aggregate income increases by a certain amount, saving:

increases, but by a smaller amount.

If 100 percent of any change in income is spent, the multiplier will be:

infinitely large.

The relationship between the real interest rate and investment is shown by the:

investment demand schedule.

in November 2009, Econland Motors produced an automobile that was delivered to a local dealership in 2009. The auto was then sold to Sharon Smith for personal use in Feb of 2010. Following national income accounting practices, this auto would be counted as part of

investment in 2009 and negative investment in 2010

If the real interest rate in the economy is i and the expected rate of return on additional investment is r, then other things equal:

investment will take place until i and r are equal.

The multiplier applies to:

investment, net exports, and government spending.

Discretionary fiscal policy is so named because it:

involves specific changes in T and G undertaken expressly for stabilization at the option of Congress.

Gordon James is a person who sells narcotics "on the street". This type of illegal activity

is excluded from GDP figures

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, inflation is absent in:

panels (A) and (C).

if GDP exceeds aggregate expenditures in a private closed economy

planned investment will exceed saving

Given the consumption schedule, it is possible to graph the relevant saving schedule by:

plotting the vertical differences between the consumption schedule and the 45-degree line.

https://ezto.mheducation.com/extMedia/bne/econ/Asarta_2e/ch21_tb_Figure_04.png An economy is in both short- and long-run equilibrium at _____. point A point B only point C only point B to C

point C only Correct

Marginal Propensity to Save (MPS)

portion of any disposable income that gets saved, amount by which savings increases when disposable income increases by $1

Marginal Propensity to Consume (MPC)

portion of any disposable income that gets spent, amount by which consumption increases when disposable income increases by $1

Autonomous Consumption

portion of consumer spending that doesn't depend on disposable income

Autonomous Expenditures

potion of aggregate expenditures that doesn't depend on real GDP; includes autonomous consumption as well as I, G, X, M

the aggregate expenditures model is built upon which of the following assumptions

prices are fixed

a GDP price index of 130 in year A means that

prices in year A are on average 30 percent higher than in the base year

Inflation means that:

prices on average are rising, although some particular prices may be falling.

Nondurable goods*

products (consumer good) with less than 3 years of expected life. ex. food, clothing, gasoline, etc.

Final goods*

products that are purchased by their end users. Not for resale or further processing or manufacturing

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

profits are highly variable.

A lower real interest rate typically induces consumers to

purchase more goods that are brought using credit

Assume a machine that has a useful life of only one year costs $2,000. Assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300. If the firm finds it can borrow funds at an interest rate of 10 percent, the firm should:

purchase the machine because the expected rate of return exceeds the interest rate.

for a nation's real GDP per capita to rise during a year

real GDP must increase more rapidly than population

nominal GDP differs from real GDP because

real GDP results from adjusting for changes in the price level

A recession is defined as a period in which:

real domestic output falls

The labels for the axes of the aggregate demand graph should be _____. quantity of a product on the vertical axis and the price of a product on the horizontal axis price of a product on the vertical axis and quantity of a product on the horizontal axis real domestic output on the vertical axis and the price level on the horizontal axis real domestic output on the horizontal axis and the price level on the vertical axis

real domestic output on the horizontal axis and the price level on the vertical axis Correct

Generally speaking, the greater the MPS, the ____ would be the increase in income that results from an ____ in consumption spending.

smaller, increase

Public transfer payment*

social security payments, welfare payments, and veterans' payments that the government makes directly to households. Since the recipients contribute nothing to current production in return, these aren't counted in GDP

The APC can be defined as the fraction of a:

specific level of total income that is consumed.

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

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

https://ezto.mheducation.com/extMedia/bne/econ/Asarta_2e/ch21_028.png In the figure, AD2 and AS2 represent the original aggregate supply and demand curves. If Q3 is full-employment output, then AD2 and AS1 best represent a period of _____. hyperinflation stagflation low unemployment expansion

stagflation Correct

The federal budget deficit is found by:

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

Private transfer payments*

such payments include, money that parents give children or the cash gifts given at christmas. they produce no output. They simply transfer funds from one private individual to another and do not enter GDP

If the economy has a cyclically adjusted budget surplus, this means that:

tax revenues would exceed government expenditures if full employment were achieved.

Corporate income taxes

taxes that are levied on the a corporations' profits. They flow to the government.

Spending Multiplier

tells how much real GDP changes as a result of autonomous change in aggregate expenditures

Dissaving means:

that households are spending more than their current incomes.

An upward shift of the saving schedule suggests:

that the APC has decreased and the APS has increased at each GDP level.

At the point where the consumption schedule intersects the 45-degree line:

the APC is 1.00.

GDP excludes most nonmarket transaction. Therefore, GDP tends to

underestimate the amount of production in the economy

Unplanned Inventory Investment

unplanned changes to inventories

value added by a firm is the market value of the firm's output minus the

value of inputs bought from other firms

Refer to the given graph. A shift of the consumption schedule from C1 to C2 might be caused by a(n): (an upward shift)

wealth effect of an increase in stock market prices.

In the late 1990s, the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the:

wealth effect.

If aggregate demand increases and aggregate supply decreases, the price level:

will increase, but real output may increase, decrease, or remain unchanged.

If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule:

will shift downward.

If the consumption schedule shifts downward, and the shift was not caused by a tax change , then the saving schedule

will shift upward.

which of the following is not a component of GDP in the expenditures approach

workers' wages and other compensation

Multiple counting*

wrongly including the value of intermediate goods in the gross domestic product; counting the same good or service more than once.

The labels for the axes of the aggregate demand graph should be real domestic output on the _ axis and the price level on the _ axis.

x, y

△ real GDP formula

△Exp (Exp. multiplier)