MACRO EXAM #2
what is the MPC equation?
change in consumption divided by the change in income.
When aggregate expenditure is equal to GDP, inventories rise, and GDP and employment decrease inventories fall, and GDP and employment increase inventories are unchanged, and the economy is in macroeconomic equilibrium there is not enough information to determine what will happen to inventories and real GDP
inventories are unchanged, and the economy is in macroeconomic equilibrium
When the value of the multiplier increases, all else equal, a change in expenditure will raise aggregate expenditure by a ______ amount.
larger
An increase in interest rates will cause a (movement up along/rightward shift of/leftward shift of) the aggregate demand curve.
leftward shift of
An increase in state income taxes will cause a (movement up along/rightward shift of/leftward shift of) the aggregate demand curve.
leftward shift of
Which of the following is a major difference between the AD-AS model and the dynamic AD-AS model? The dynamic AD-AS model assumes: the economy does not experience long-run growth, while the AD-AS model assumes there is constant inflation in the economy. potential GDP increases continually, while the AD-AS model assumes the LRAS does not change. AD only includes consumption, investment, and government purchases, while the AD-AS model assumes AD includes consumption, investment, government purchases and net exports. the SRAS is stable and will not shift, while the AD-AS model assumes the SRAS can only change with an exogenous event such as oil price changes.
potential GDP increases continually, while the AD-AS model assumes the LRAS does not change.
A faster income growth in other countries will cause a (movement up along/rightward shift of/leftward shift of) the U.S. aggregate demand curve.
rightward shift of
An increase in government purchases will cause a (movement up along/rightward shift of/leftward shift of) the aggregate demand curve.
rightward shift of
This will cause a (shift of/ movement along) China's per-worker production function.
shift of
Suppose booming economies in the BRIC nations causes net exports (NX) to rise by $50 billion in the United States. If the MPC is 0.9, the change in equilibrium GDP will be $_________
$500 BILLION
How can Gov't policy help increase the accumulation of knowledge capital? (3 ways)
1. Protecting intellectual property w/ patents and copyrights 2. Supporting research and development 3. Subsidizing education
What is the effect on real GDP of a $100 billion change in planned investment if the MPC is 0.50?
$200 billion
In a closed economy, the MPC is 0.75. Investment changes by -400. The change in equilibrium GDP is ______________.
-1,600.
Find equilibrium GDP using the following macroeconomic model: C=1,000 + 0.8Y I =500 G=600 NX=-100 Y=C + I + G + NX
10,000
Which of the following periods in U.S. economic history had the slowest growth rate, as measured by the average annual increase in real GDP per hour worked? 1950-1973 1974-1995 1900-1949 1996-2012
1974-1995
Suppose the marginal propensity to consume increases from 0.64 to 0.85. The value of the expenditure multiplier will increase from ____ to ______.
2.78 to 6.67
New growth theory LOADING... suggests that the accumulation of knowledge capital can be slowed because knowledge is both nonrival and nonexcludable. How does the federal government intervene in the market to increase the amount of knowledge capital? Public education Patents Subsidies All of the above A and B only
All of the above
An aggregate demand curve's shift to the right could be a result of a natural disaster. change in the expectations of households. change in the price level change in the cost of production.
change in the expectations of households.
A movement along (up) the short-run aggregate supply curve could be the result of a change in the price level. change in government policies. change in exports. natural disaster.
change in the price level.
An aggregate demand curve's movement along (down) the curve could be a result of a change in the cost of production natural disaster. change in government policies. change in the price level.
change in the price level.
What are the four main determinants of investment? Expectations of future profitability, interest rates, disposable income and cash flow. Disposable income, interest rates, taxes and cash flow. Expectations of future profitability, interest rates, taxes and cash flow. Expectations of future profitability, interest rates, exchange rate and cash flow.
Expectations of future profitability, interest rates, taxes and cash flow
Which of the following is a way in which governments can increase productivity through health and education? Governments can limit foreign competition by imposing tariffs and quotas on trade. Governments can promote vaccinations for children and improve access to clean water. Governments can strengthen property rights and enforce laws. Governments can create tax incentives for both businesses and individuals.
Governments can promote vaccinations for children and improve access to clean water.
If the marginal propensity to consume is 0.75, a $30 increase in disposable income will lead to a $________ increase in consumption and a $___________ increase in savings.
If the marginal propensity to consume is 0.75, a $30 increase in disposable income will lead to a $22.50 increase in consumption and a $7.50 increase in savings.
What is the effect on inventories, GDP, and employment when aggregate expenditure (total spending) exceeds GDP? Inventories increase, GDP increases, and employment decreases. Inventories decrease, GDP increases, and employment increases. Inventories increase, GDP increases, and employment increases. Inventories decrease, GDP decreases, and employment increases.
Inventories decrease, GDP increases, and employment increases.
Who developed a growth model that suggests new products unleash a "gale of creative destruction" that drives old products out of the market? Ben Bernanke Alan Greenspan Adam Smith Joseph Schumpeter
Joseph Schumpeter
Which of the following is a factor explaining why low-income countries have not experienced rapid economic growth? Low-income countries have started to grow too late and can never catch up to rich countries. Low-income countries are generally expected to grow more slowly than high-income countries. Low-income countries have governments that prefer more simple standards of living. Low-income countries often fail to enforce the rule of law.
Low-income countries often fail to enforce the rule of law.
An increase in the price level will cause a (movement up along/rightward shift of/leftward shift of) the aggregate demand curve.
Movement up along
How would an increase in interest rates affect investment? Real investment spending may increase, decrease or remain the same depending on the rate of inflation. Real investment spending declines. Real investment spending increases. Real investment spending remains unchanged.
Real investment spending declines.
Which of the following is a true statement about long-run economic growth? World economic growth has continued at a steady pace since medieval times. More countries have per capita incomes greater than $20,000 than have per capita incomes less than $2,500. Small differences in economic growth rates result in big differences in living standards over time. In general, low-income countries are catching up with high-income countries.
Small differences in economic growth rates result in big differences in living standards over time.
Consider the figure to the right. Which of the following is responsible for the upward shifts in the per-worker production function? Increases in capital Technological change Increases in labor Efficiency wages
Technological change
The economic growth model explains growth in real GDP per capita in the long run. Because of the importance of labor productivity in explaining economic growth, the economic growth model focuses on the causes of increases in long-run labor productivity. What are the key factors that determine labor productivity? (Mark all that apply.) Efficiency wages Trade Technological change Quantity of capital per hour worked
Technological change Quantity of capital per hour worked
Which of the following causes saving to increase? an increase in unemployment an increase in the price level an increase in consumption an increase in the interest rate
an increase in the interest rate
Which one of the following is not true when the economy is in macroeconomic equilibrium? When the economy is at long-run equilibrium, actual GDP=potential GDP. When the economy is at long-run equilibrium, SRAS=AD=LRAS. When the economy is at long-run equilibrium, firms will have excess capacity. When the economy is at long-run equilibrium, total unemployment=frictional unemployment+structural unemployment.
When the economy is at long-run equilibrium, firms will have excess capacity.
Which of the following is the best example of human capital? a worker gets a college degree a manager devotes more spending to research and development a worker pays less taxes a manager buys workers more personal computers
a worker gets a college degree
What is the meaning of the 45° line in the 45°-line diagram? In the 45°-line diagram, the 45° line shows real consumption spending for varying levels of real GDP. real aggregate expenditure for varying levels of real GDP. the equality of real consumption spending and real GDP. all the points where aggregate expenditure equals real GDP.
all the points where aggregate expenditure equals real GDP.
Which of the following events would cause an increase in long minus run aggregate supply? expectations that the price level will increase in the future an increase in the capital stock workers and firms adjust to a lower minus than minus expected price level an increase in the price level
an increase in the capital stock
The long-run aggregate supply curve is vertical because in the long run, changes in the price level affect potential GDP via other variables, such as the size of the labor force, capital stock, and technology. the price level does not change, but potential GDP changes its value. changes in the size of the labor force, capital stock, and technology affect the price level but not potential GDP. changes in the price level do not affect potential GDP, as potential GDP depends on the size of the labor force, capital stock, and technology.
changes in the price level do not affect potential GDP, as potential GDP depends on the size of the labor force, capital stock, and technology.
The most important determinant of consumption is current disposable income. the interest rate. the price level. household wealth.
current disposable income.
Equal increases in the quantity of capital per hour worked lead to ___________________ increases in output per hour worked.
diminishing
In a closed economy, aggregate expenditure is equal to consumption plus savings plus taxes. equal to consumption plus investment plus government spending. equal to full-employment output. equal to Gross Domestic Product (GDP).
equal to consumption plus investment plus government spending.
Most of the poor countries experience slow growth because of all the following reasons except low rates of saving and investment. excellent public health and education. the government's failure to enforce the rule of law. frequent civil disturbances such as wars and revolutions.
excellent public health and education.
The government policy that does not increase economic growth is foreign trade policy that favors imposing a high tariff on imported high-tech goods. incentives to firms in the form of investment tax credits that can take the economy out of a low saving-investment trap. policy concerning property rights and rules of law that can free the country from corruption and political instability. better health and education policies that provide free childhood vaccination, water purification, and K-12 public education.
foreign trade policy that favors imposing a high tariff on imported high-tech goods.
Property rights have been determined to be a major factor that helps countries sustain economic growth. Governments can change laws and policies in order to give individuals and firms more freedom. By doing so, government can help promote growth because greater property rights limit the interactions of workers across industries which leads to greater economies of scale. create more incentives for investors to spend money on consumption goods that lead to increased levels of demand. encourage individuals to become more concerned with the health options for everyone in the general population. give entrepreneurs more incentive to take risks that create new products, ideas, and more technology.
give entrepreneurs more incentive to take risks that create new products, ideas, and more technology.
Potential real GDP
grows over time
Some economists argue that the development of information technology (IT) caused the _______ productivity growth that began in the mid-1990s.
higher
The key idea in the aggregate expenditure model is that long run economic growth is determined by the level of aggregate expenditure. in any particular year, the level of potential real GDP is determined by the level of aggregate expenditure. in any particular year, the inflation rate is determined only by the level of aggregate expenditure. in any particular year, the level of GDP is determined mainly by the level of aggregate expenditure.
in any particular year, the level of GDP is determined mainly by the level of aggregate expenditure.
The short-run aggregate supply curve slopes upward because of all of the following reasons except in the short run, prices of final goods and services adjust slowly due to the existence of menu costs. in the short run, an unexpected change in the price of an important resource can change the cost to firms. in the short run, as prices of final goods and services increase, input prices react more slowly. in the short run, as prices of final goods and services increase, some firms are very slow to adjust their prices, thus their sales increase.
in the short run, an unexpected change in the price of an important resource can change the cost to firms.
For each of the following policies, indicate whether it will or will not increase the rate of economic growth in the United States. a. Congress passes an investment tax credit, which reduces a firm's taxes if it installs new machinery and equipment. It is likely that the rate of economic growth will __________________. . b. Congress passes a law that allows taxpayers to reduce their income taxes by the amount of state sales taxes they pay. It is likely that the rate of economic growth will ________________. . c. Congress provides more funds for low-interest loans to college students. It is likely that the rate of economic growth will ____________________ . increase.
increase increase increase
A curve showing the relationship between the price level and the level of aggregate expenditure in the economy, holding constant all other factors that affect aggregate expenditure, is called the aggregate demand curve. the price-expenditure curve. the inflation curve. the autonomous expenditure function.
the aggregate demand curve.
Which of the following does the aggregate expenditure macroeconomic model seek to explain? long-run economic growth the business cycle inflation cyclical unemployment
the business cycle
Capital can be differentiated between physical capital and human capital. Human capital is the knowledge and skills workers acquire from education and training or from their life experiences the energy use to bring together the factors of production to produce goods and services. the new developments in machinery and software. the goods manufactured to produce other goods and services.
the knowledge and skills workers acquire from education and training or from their life experiences
A movement from point A to point C could be the result of a change in the price level. household wealth. government policies. the labor force.
the labor force.
Potential real GDP is the level of GDP attained when most firms are producing at capacity and unemployment is low. the level of GDP attained when all firms have excess capacity. the level of GDP attained when only some firms have excess capacity. the level of GDP attained when all firms are producing at capacity.
the level of GDP attained when all firms are producing at capacity.
The position of the long-run aggregate supply (LRAS) curve is determined by the number of workers, the amount of capital, and the available technology. the price level, the available technology, and "sticky" prices. consumption, investment, government purchases, and net exports. the price level and aggregate demand.
the number of workers, the amount of capital, and the available technology.
Indicate what effect a decrease in each of the consumption components will have on consumption. the price level (increase/decrease) consumption. household wealth (increase/decrease) consumption. expected future income (increase/decrease) consumption. current disposable income (increase/decrease) consumption. the interest rate (increase/decrease) consumption.
the price level-increase household wealth-decrease expected future income-decrease current disposable income- decrease the interest rate-increase
The slope of the aggregate expenditure line equals equilibrium real GDP. the value of the multiplier. the slope of the 45- degree line. the slope of the consumption function.
the slope of the consumption function.
If the marginal propensity to consume (MPC) is 0.9, how much additional consumption will result from an increase of $100 billion of disposable income? $90 billion $80 billion $10 billion $9 billion
$90 billion
Use the following data to answer the question: Y =$8,000 C =$6,200 I =$1,500 G=$1,500 NX=-$500 The unplanned change in inventories is ________ and real GDP will ________. $700; decrease $700; increase -$700; increase -$700; decrease
-$700; increase
To have growth without inflation, which of the following must be true? AD must decrease to reduce inflationary pressure. AD, SRAS, and LRAS must increase by the same amount. Your answer is correct. Potential GDP must remain constant. There must be no change in SRAS.
AD, SRAS, and LRAS must increase by the same amount. Your answer is correct.
