Macro exam 2 study guide

increased consumer confidence will shift the aggregate demand curve to the ______ and _________ output demanded

right; increase

if oil prices decrease, the short run aggregate supply curve shifts ____________ and output supplied will be __________

right; increased

when government spending increases, the aggregate demand curve shifts to the _______ and the multiplier effect is dampened by a _______ in the aggregate price level

right; rise

when the economy is in a recession, welfare and unemployment compensation payments _______ and tax revenues ___________

rise; decline

economic growth is shown as a

shift to the right in the long run aggregate supply curve

when the economy is below full employment,expansionary fiscal policy;

shifts the aggregate demand curve to the right

Between 1929 and 1933, government spending _______ and net exports ________

stayed the same; declined

which of the following best illustrates the wealth effect

the jones family has $50,000 in a bank. Price at the stores rose dramtically, so the purchasing power represented by that $50,000 diminished

According to Keynesian analysis, if households intends to save more, the will

ultimately cause job losses

A depression economy has considerable slack, so

unemployment is high

in the history of the united states, public debt as a percentage of GDP

varies widely over time

one reason the amount of real output demanded declines when the aggregate price level rises is the resulting reduction in household wealth, called the

wealth effect

(Figure determining SRAS shifts ) If there are advances in technology, the short-run aggregate supply curve will shift from SRAS0 to _____________ and the price level will become ________

SRAS1; P1

In the simple Keynesian model, the only two things you can do with your income are:

Spend it and save it

investment is defined as spending by:

business that adds to the productive capacity of the economy

__________ occurs when a negative supply shock hits the economy, shifting the short-run aggregate supply curve leftward

cost-push inflation

contractionary fiscal policy

decreases aggregate demand

when home values collapsed in the period that began in 2008, it reduced many americans

household wealth

In the Keynesian model, the principal determinant of saving is

income

Keynes believed that saving is a function of

income

Which of the following factors is not a component of aggregate demand

income

In the simple Keynesian model, if desired investment is greater than desired saving:

income and output will rise

Policies that _________ will expand the economy but also generate price pressures

increase transfer payments

an increase in the incomes of the countries that purchase US made products will cause an ________ in the _________ US made products

increase; aggregate demand for

consumer spending is not affected by

inventories

In the simple Keynesian model, equilibrium exists when

investment spending equals saving

the interest paid on internally held debt

is paid out to one group of americans from the taxes collected from another group of americans

The marginal propensity to consume:

is the change in consumption associated with a change in income

if the economy is below full employment and the government uses an expansionary fiscal policy in an attempt to reduce unemployment

output and the price level will rise

which of the following factors in not a determinant of aggregate supply?

Income

which three US presidents implemented well-known tax cuts designed to stimulate aggregate demand?

John F. Kennedy, Ronald Reagan, and George W Bush

Who recognized the need to develop tools to analyze the macroeconomy as a whole

John Maynard Keynes

(Figure aggregate expenditures) The figure shows the aggregate expenditures line for an economy. Which is the proper sequence of events if income was originally at $100?

Total spending exceeds income; firms expand production; workers are hired; and income rise until equilibrium is reached

In the simple Keynesian model the economy is in equilibrium when:

Y= C+ I and S=I

the solution to simultaneous deflation and unemployment is to shift the

aggregate demand curve to the right

according to john maynard keynes, what determines employment and income?

aggregate expenditures

The real GDP the firms will produce at varying price levels is

aggregate supply

The balanced budget multiplier is:

equal to 1

Public debt held by foreigners is known as ________ debt

externally held

When household debt levels rise

families are less able to spend in the current period

disposable income equals

income minus taxes

supply-side fiscal policies include all of the following except

increasing transfer payments

Which country has changed from being a high-saving country to a low-saving one?

japan

A shift to the _________ of the ____________ curve would cause the price level to decrease and employment to decrease

left; aggregate demand

If AE+ $7,600 and Y= $8,000, business will produce

less, lowering both employment and income

The idea of the spending multiplier is that

one person's spending becomes another person's income, which stimulates more spending

John, a US taxpayer, buys $5,000 in US savings bonds. When he collect interest on the bonds, who ultimately pays the interest?

other taxpayers like john

Which of the following is not a determinant of investment

past stock and bond prices

in the united states,social security and medicare are examples of

pay-as-you-go programs

in the short run, the aggregate supply curve is

positively sloped

The crowding-out effect

replaces some private investment with government spending

if interest rates rise, the burden of a nation's public debt will ______ and it be _______ difficult to service its debt

rise; more

When the price of a product falls, causing consumers to purchase more of that product and less of other products, it is the

substitution effect

If $1,000 of additional pending occurs (from investment, say) and the marginal propensity to consume .8, the total effect on the economy is an increase of _____ in income or output

$5,000

if disposable income increases from $250 to $300 and saving increases from $40 to $50, how much is the average propensity to save?

.167

(TabLE) When disposable income increases from $1,000 to $1,200, what is the value of the marginal propensity to save?

.5

If income rises from $10,000 to $20,000 and savings increases from $9,000 to $16,000, then the marginal propensity to save is

.70

(Table) The table shows data on consumption at various levels of income. The value of the marginal propensity to consume is:

.9

(TABLE) the table shows data on consumption at various levels of income. The value of APS at equilibrium is:

0

(TABLE) the table shows data on consumption at various levels of income. The value of the average propensity to consume at equilibrium is:

1

The slope of the saving schedule is

1 minus the marginal propensity to consume

The factors that would shift the savings and consumption schedule include all of the following EXCEPT:

tastes and preferences from durable goods to nondurable goods

during which decade did the US public debt exceed it GDP?

the 1940s

An increase in aggregate demand can be caused by

the depreciation of the dollar

Keynes's insight during the Great Depression was that:

the economy can be in both equilibrium and high unemployment

(figure determining aggregate equilibrium levels) Equilibrium output is ____ and the equilibrium price level is _______

3,000; 100

When the government's debt is monetized

the federal reserve buys bonds from the government

Which of the following equations is not true at equilibrium in the simple Keynesian model?

AE>Y

the actual price level is determined by

the intersection of short-run aggregate supply and demand

Which of the following items does not constrain the federal budget

the mortgage interest rate

which of the following tends to make aggregate demand decrease by more than the amount that consumer spending decreases?

the multiplier effect

If aggregate expenditures are less than current output:

Business will cut back on output

a change in ________ will cause a change in the quantity demanded of real GDP

the price level

_________ is the total accumulation of past budget deficits less surpluses

the public debt

__________ are securities with a maturity period of a year or less that sell at a discount

treasury bills

the long-run supply curve is

vertical

if there is no government and no foreign sector in the economy

GDP= C + I

suppose full employment real GDP is $12 trillion, current real GDP is $11 trillion, and the marginal propensity to consume .8. The recessionary gap is:

$.2 trillion

If the amount of spending in an economy declines by $1,000 and the marginal propensity to consume .8, the effect on the economy is a change of ______ in income or output.

-$5,000

The formula for the simple spending multiplier is:

1/(1-MPC)

about what percentage of the federal debt is held internally

50%

(Figure; determining SRAS Shifts) Which statement is not correct?

An increase in aggregate demand would lead to deflation

in Productovia, aggregate demand increases and aggregate supply decreases. based on the shifts in these two curves, what is a likely outcome?

Inflation

Assume that the MPC is .75. Full employment is considered to be at a GDP level of $500 billion. The GDP is $600 Billion. What should the government do to achieve full employment?

Reduce spending by $25 billion

which of the following would not cause a shift in the aggregate demand curve

a reduction in raw material prices

personal consumption expenditures

can be found by subtracting saving from disposable income

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

demand-pull

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

demand; right

__________ is the part of the budget that works its way through congress each year; it includes such programs as national defense, transportation, medicaid and education

discretionary spending

interest on the debt as a percentage of GDP was at its highest

during the late 1980s and early 1990s

the interest paid on public debt held by _________ is a real claim on our goods and services

foreigners

of the share of the US national debt that is held by the public, ________ hold nearly _______

foreigners; the same amount as do americans

what approach to federal finance would you agree with if you were most concerned with the federal government's pursuit of fostering economic growth, stable prices, and full employment

functional finance

which of the following items is not a determinant of aggregate demand

government saving

Because the private and foreign sectors of the economy were in a deep slump during the Great Depression of the 1930s, Keynes suggested an increase:

government spending

Income rises when desired investment is:

greater than desired savings

investment tax credits and more rapid depreciation schedules are intended to __________ productivity, shifting _______ the curve to the ___________

increase; long-run aggregate supply; right

a rising aggregate price level ______ an economy's interest rates and therefore _______ output demanded

increase; reduces

in the long run, attempts to expand beyond an economy's natural rate of unemployment tend to result in

increased inflation

If the government spends $1 billion to create a wetlands preserve, taxes increase $1 billion to pay for it, and the marginal propensity to consume is .75, GDP

increases by $1 billion

demand-pull inflation is caused by

increases om aggregate demand

If an economy is producing at a level beyond full employment, using contractionary fiscal policy reduce aggregate demand means a trade off between ____ price levels and _______ output

lower; lower

if the us aggregate price level falls

net exports rise

the aggregate demand curve displays

real GDP demanded at various price levels

the paradox of thrift suggests that when households intend to save more, they will ________ consumption, which will ultimately lead to ______ actual aggregate saving

reduce; lower

which of the following fiscal policies will increase aggregate supply

reducing the depreciation period for business equipment from five years to three years

_________ are securities issued by the government with terms to maturity ranging from 1 to 10 years

treasury notes

Which of the following items is not public debt

US dollars

if the US aggregate price level rises

US imports rise

If the marginal propensity to consume is .85, how much is the spending multiplier

6.67

(FIGURE SHIFTING THE AD AND SRAS) starting in long-run equilibrium when the aggregate demand curve is AD0 and the shortrun aggregate supply curve is SRAS0 if there is a supply shock, such as a drastic increase in the of oil, this will cause _____ and a movement to a short run equilibrium at point ________

A leftward shift in SRAS2; a

which of the following events will not cause a rightward shift of the aggregate demand curve

consumers expect a contraction is on the way

Anne and charlie are discussing the best fiscal policy to bring the country out of a recession. Charlie wants to see government cut taxes by $100 billion. Anne prefers to see government spending increase by $100 billion. whose prescription would have the larger total impact on aggregate demand?

Anne's because all of the additional government spending will enter the spending stream, while part of a tax cut would be saved (and not spent)

which are determinants of short-run aggregate supply?

Changes in input prices, taxes, and business and inflationary expectations

increasing taxes to fight inflation is an example of

contractionary fiscal policy

which is not consistent with the level of output in the long run?

high inflation

if the marginal propensity to consume (MPC) rises, the multiplier

also rises

Which of the following factors will cause the aggregate demand curve to shift to the left

appreciation of the dollar

______ will automatically expand or contract in ways that help counter movements of the business cycle

automatic stabilizers

In recent years, countries such as china have been ________ US debt as a way to keep their currencies from _________ against the US dollar

buying; rising

according to public choice economists, the federal government has expanded because

deficit spending has reduced the perceived cost of current government operations

which of the following is not a reason the aggregate demand curve is negatively sloped?

income effect

if interest rates rise, the burden of a nation's public debt ______ and the probability of a default ______

rises; rises

cost-push inflation occurs when

rising resource costs reduce short run aggregate supply

when the economy is in equilibrium in the simple Keynesian model

saving is equal to investment

the laffer curve has which variables on its axes

tax rates and tax revenue

______ government spending, _____ transfer payments, and _____ taxes are all examples of expansionary fiscal policy

increasing; increasing; lowering

the largest source of federal government revenues is

individual income taxes

Aggregate supply shifts to the left when

input prices rise

decreased interest rates will shift the aggregate demand curve to the _____ and _______ output demanded

right; increase

If the marginal propensity to consume is .6, the marginal propensity to save is .4, and government spending increases by $2 billion at the same time taxes rise by $2 billion, equilibrium income will:

rise by $2 billion

the largest category of federal government spending in 2012 was

social security

automatic stabilizers are designed so that as income falls

spending does not fall as much as income

If the marginal propensity to consume is .8, by how much will total income increase after an initial $200 is spent?

$1,000

In the simple Keynesian model with no government and foreign sectors, suppose that initially the economy is in equilibrium at an output of $10 trillion with a marginal propensity to consume of .8. If investment spending increases by $.5 trillion, what is the new equilibrium output level?

$12.5 trillion

Suppose the marginal propensity to consume in Economia is .75. People feel increasing confidence in their economy and spend $5 billion more on vacations. Equilibrium income will rise by:

$20 billion

(figure determining SRAS shifts 2) which of the following might be a cause of the change in short-run aggregate supply?

Businesses are increasingly optimistic about the future

(figure predicting aggregate demand shifts) which of the following would shift the aggregate demand curve from AD1 to AD2?

a decrease in interest rates

the collapse of home values that began in 2008 led to _______ in Americans' consumption and_____ in their saving rates

a decrease: an increase

which economist promoted the idea that reducing tax rates an increase tax revenue

arthur laffer

The great Depression showed that the short-run aggregate supply and the aggregate demand curves

can intersect at output levels far below full employment

The multiplier effect shows that a change in aggregate spending:

causes output to change even more than the change in aggregate spending

according to the crowding out effect, if the government sells bonds to finace spending, ________ can eventually fall

consumption and investment

as GDP decreases, tax revenues _______, causing a _______ to aggregate demand

decline; stimulus

If the interest rate increases, investment will

decrease

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

decrease; decrease

which or the following events will shift the aggregate demand curve to the right?

decreased taxes

which of the following is not an element of expansionary fiscal policy

expanding immigration

Figure determining fiscal policy- The best discretionary fiscal policy option is

expansionary fiscal policy that leads to full employment

assume that the economy is at equilibrium at $10 trillion, with a marginal propensity to consume of .75. If exports rise by $.5 trillion and imports increase by $.7 trillion, equilibrium income will:

fall by $.8 trillion

which of the following events causes an increase in aggregate demand?

falling interest rates

in the Keynesian model, the price level is __________; in the aggregate demand and supply model, the price level is ______

fixed; flexible

when the consumption schedule lies about the 45- degree reference line, consumption spending is _____ than income and saving is _______

greater; negative

most developed countries with high deficits tend to

have high debt-to-GDP ratios

When the economy is under performing and policy makers pursue expansionary fiscal policy, they express willingness to trade off _______ output for a ______ price level

higher; higher

If the economy is producing at an output level below full employment, the government should ____________ spending and ________ taxes

increase; decrease

reducing tax rates can _____ aggregate demand and __________ aggregate supply

increase; increase

a falling aggregate price level _______ demand for a country's exports and therefore ________ output demanded

increases; increases

If the marginal propensity to consume increases, the spending multiplier _______ and the balanced budget multiplier __________

increases; remains the same

Which of the following statements does not describe a problem of balancing the budget over the business cycle

increasing taxes at the top of the cycle exacerbates inflation

______________ government spending, ___________ transfer payments, and ____________ taxes all increase aggregate demand

increasing; increasing; decreasing

the __________ effect is a reason for the negative slope of the aggregate demand curve

interest rate

The US treasury sells $2 billion in bonds to the federal reserve. The federal reserve credits treasury's account by $2 billion. This exchange is best described as

monetizing the debt

if the pound sterling appreciates against the US dollar, England buys ______ US goods, causing the US aggregate demand curve to shift to the _____

more; right

The reason business investment is sensitive to interest rates is that:

most funds used for investment are borrowed, so firms incur an interest charge

all of the following are determinants of aggregate supply except:

net exports

the ________ choice theory involves the economic analysis of public and political decision making

public

the ________ is the sum of past _______

public debt; budget deficits

which of the following factors will cause the aggregate demand curve to the right

reduction in personal income taxes

which measure is not a channel through which the government can influence aggregate demand

regulation on businesses

which of the following statements regarding the short-run aggregate supply curve is TRUE?

the short-run aggregate supply curve shifts to the right with a reduction in burdensome regulations

the implementation lag is

the time it takes for a fiscal policy change to influence the economy

when the government sells bonds to the public (domestic or foreign) in order to finance the government deficit

∆B> 0

Assume that the marginal propensity to consume is .75. John's Clean Clones builds a factory that costs $1 billion. How much does the macroeconomic equilibrium increase?

$4 billion

the following table shows data on consumption at various levels of income. Investment spending is $500 for all levels of income. If there is no government spending or net exports, the equilibrium income level is:

$4,000

If the marginal propensity to consume is .9 and income increases from $10,000 to $11,000, by how much does consumption increase?

$900

If consumption increases from $500 billion to $575 billion and income increases from $600 billion to $700 billion, the marginal propensity to save is:

.25

suppose a booming stock market encourages consumption to spending to rise dramatically. What would be the most likely long-run impact?

GDP first rises, and then falls back to long-run equilibrium

Without government spending, which of the following equations is True?

Y=C + S

the curve that shows how much GDP is demanded at various price levels is called

aggregate demand

Equilibrium in the full Keynesian model requires that:

all injections (I+G+X) must equal all withdrawals (S + T + M)

what approach to federal finance would you agree with if you wanted federal government revenues to equal federal government expenditures every year

annually balanced budget

Use the following to answer a question (figure: savings, investment, and aggregate expenditures) Savings and investment are at equilibrium at point

b