Macro exam 3

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When economy is experiencing demand-pull inflation, its real GDP tends to be rising

True

Wage contracts, efficiency wages, and the minimum wage are explanations for why:

Wages tend to be inflexible downward

The real-balances effect indicates that

a higher price level will decrease the real value of many financial assets and therefore reduce spending.

A high rate of inflation is likely to cause a:

high nominal interest rate.

Generally speaking the greater the MPS, the

smaller would be the increase in income that results from an increase in consumption spending.

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

spend eight-tenths of any increase in his disposable income

Prices and wages tend to be:

flexible upward, but inflexible downward.

Assume that MPS is 0.4. If spending increases by $8 billion, then real GDP will increase by:

$20 billion

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

$6 billion

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

$9 billion

With a MPS of .3, the MPC will be

1-.3

An $18 billion increase in spending creates $18 billion of new income in the first round of the multiplier process and $13.5 billion in the second round. The multiplier in the economy is:

4

If the MPC is 0.75 the multiplier will be

4

Is the MPC is 0.75, the multiplier will be

4

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

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

A sharp rise in the real value of stock prices, which is independent of a change in the price level, would best be an example of

A change in real value of consumer wealth

Degree of Excess Capacity

A rise in excess capacity - unused capital - will reduce the expected return on new investment and hence decrease aggregate demand.

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

APC is greater than 1

The foreign purchases, interest rate, and real-balances effects explain why the

Aggregate demand curve is downward-sloping

If the dollar appreciates in value relative to foreign currencies:

Aggregate demand decreases because net exports decrease

Which combination of factors would most likely increase aggregate demand

An increase in consumer wealth and a decrease in interest rates

As disposable income decreases, the

Average propensity to consume increases

decrease in aggregate demand in the short run will reduce

Both real output and the price level

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

Consume is .75

An increase in personal income tax rates will cause a(n):

Decrease (or shift left) in aggregate demand

If the U.S. dollar appreciates in value relative to foreign currencies, then this will:

Decrease aggregate demand and increase aggregate supply

The amount of consumption in an economy correlates:

Directly with the level of disposable income

The real-balances effect on aggregate demand suggest that a

Lower price level will increase the real value of many financial assists and therefore cause an increase in spending

1+MPS=MPC

False

If households do not spend any extra income they receive but instead save the entire extra amount, then the multiplier will be zero. T OR F

False

If the dollar appreciates in value relative to foreign currencies:

Foreign buyers will find US good become more expensive

A change in interest rates would shift the consumption schedule and the saving schedule ______; a change in taxes would shift these two schedules ______.

In opposite directions; in the same direction

A decrease in interest rates caused by a change in the price level would cause a(n)

Increase in the quantity of real output demanded (or movement down along AD)

If congress passed new laws significantly increasing the regulation of business, this action would tend to

Increase per-unit production costs and shift the aggregate supply curve to the left

The economy experiences an increase in the price level and a decrease in real domestic output. Which of the following is a likely explanation

Input prices have increased

A decrease in expected returns on investment will most likely shift the AD curve to the

Left because investment will decrease (Ig)

In an economy, for every $1600 decrease in income, spending falls by $1200. It can be concluded that the:

Marginal propensity to save is .25

The economy experiences an increase in the price level and a decrease in real domestic output. Which of the following is a likely explanation?

Net exports have increased

A firm invests in a new machine that costs $5,000 a year but which is expected to produce an increase in total revenue of $5,200 a year. The current real rate of interest is 7 percent. The firm should:

Not undertake the investment because the expected rate of return of 4 percent is less than the real rate of interest

If consumers expect prices to rise and shortages to occur in the future, then there will be a shift

Of Consumption schedule upward and the saving schedule downward

What factors best explain the downward slope of aggregate demand curve

Real-balance effect, interest-rate effect, and foreign purchases effecf

If a family's MPC is 0.7, it means that the family is:

Spending seven-tenths of any increment to its income

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

The APC rises and the APS falls

The greater the MPC, the greater the multiplier.

True

Which of the following will not tend to shift the consumption schedule forward

The expectation of a future decline in the consumer price index

real balances effect

The tendency for increases in the price level to lower the real value (or purchasing power) of financial assets with fixed money value and, as a result, to reduce total spending and real output, and conversely for decreases in the price level.

1 - MPC = MPS

True

A change in business taxes and regulation can affect production costs and aggregate supply

True

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

a change in consumer incomes

The multiplier effect indicates that

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

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

a decrease in real GDP

Which of the following would shift the saving schedule upward

a decrease in wealth

real balances effect

a higher price level reduces the real value or purchasing power of the public's accumulated savings balances

An increase in net exports will shift the

aggregate expenditures curve upward and the aggregate demand curve rightward.

An increase in net exports will shift the:

aggregate expenditures curve upward and the aggregate demand curve rightward.

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

average propensity to consume

As disposable income goes up, the:

average propensity to consume falls.

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

average propensity to save

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 that fraction of a

change in income that is spent

Dissaving occurs where

consumption exceeds income.

If households in the economy save more of any extra income that they earn, then the multiplier effect will:

decrease

A decrease in government spending will cause a(n):

decrease aggregate demand

Personal saving is equal to

disposable income minus consumption

An increase in expected future income will:

increase aggregate demand

An increase in productivity will:

increase aggregate supply

A decline in the real interest rate will:

increase the amount of investment spending.

Graphically, cost-push inflation is shown as a:

leftward shift of the AS curve.

The most important determinant of consumption and saving is the

level of income

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

multiplying total income by the APC.

interest rate effect

occurs when a change in the price level leads to a change in interest rates and, therefore, in the quantity of aggregate demand

If the real interest rate in the economy is i and the expected rate of return on additional investment is r, then more investment will be forthcoming when

r is greater than i.

The fear of unwanted price wars may explain why many firms are reluctant to:

reduce prices when a decline in aggregate demand occurs.

In contrast to investment, consumption is

relatively stable

Graphically, demand-pull inflation is shown as a:

rightward shift of the AD curve along an upsloping AS curve.

The greater is the marginal propensity to consume, the:

smaller is the marginal propensity to save.

A fall in labor costs will cause aggregate:

supply increase

Dissaving means:

that households are spending more than their current incomes.

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.

The consumption schedule shows:

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

The investment demand curve suggests

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


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