Macro Exam II

If you were told the MPC was = 0.75 and the government engaged in a tax decrease of $400B, then the initial change in GDP would be:

-.75/1-.75 (400B) -.75/.25 (400B) = $1200B

If the MCP = 0.8, then the spending multiplier must be:

1/1-.8 1/.2 = 5

We can estimate hat if a country grows at 7 percent per year, it will double its real GDP per capita in:

10 years

If the MPC=0.75 and a household obtains $25,000 more dollars than how much would the household spend of the additional $25,000?

25,000 (.75) = $18,750

Planned investment is the:

Amount that the firm decides to allocate to new capital resources and inventory

Which of the following would likely aggregate demand to shift to the right?

Consumer confidence regarding future income increases, a tax credit for small businesses is issued, the government builds new highways (ALL OF THESE ARE LIKELY TO CAUSE AD TO SHIFT TO THE RIGHT)

Which of the following is a component of aggregate demand

Consumption, investment, net exports (ALL OF THESE ARE COMPONENTS OF AD)

2. When we compare PAE and actual output (y), and PAE is less than Y we expect:

Eventually production will decrease

Net exports are defined to be:

Exports-Imports

Fiscal policy is:

Government decisions about the level of taxation and public spending

When the economy is in an economic boom, discretionary fiscal policy would call for ___________ and the automatic stabilizers would __________

Increase tax rates, increase tax revenues

Which three macroeconomic variables together best describe health of the economy

Output, prices, employment

The total amount of money that a government owes at a point in time is called:

Public debt

Which of the following is not a primary determinant of consumption spending?

Rate of return on capital

Which of the following could be a direct cause of investment spending decreasing?

Real interest rates increasing

If the government were to increase income taxes, we would predict:

a shift in aggregate demand to the left

When the economy is operating at a point where aggregate demand equals long-run aggregate supply, it must be true that:

aggregate demand also equals short-run aggregate supply, the economy is in long-run equilibrium, prices and expected prices are the same (ALL OF THESE ARE TRUE)

If the government were to increase its spending, it would expect:

aggregate demand to shift to the right

Natural Resources:

are production inputs that come from the earth

Taxes and government spending that effect the fiscal policy without specific action from policy makers are called:

automatic stabilizers

The growth rate of real GDP per capita is best captured by subtracting the percentage changes in:

both prices and population from the nominal GDP growth rate

The four components of aggregate expenditure are:

consumption, investment, government purchases, and net exports

Higher interest rates motivate:

firms to invest less into new factories and working capital

During a recession, government deficits can grow because:

government spending often increases as part of an expansionary fiscal policy, income tax revenues tend to decrease because people are earning less, sales tax revenues tend to decrease because people are spending less (ALL OF THESE ARE TRUE)

1. When we compare PAE and actual output (y), and PAE is less than Y we expect:

inventories to increases

The long-run aggregate supply curve represents the level of output possible if the economy:

is operating at full capacity

Productivity is generally measured as:

output per worker

The equilibrium between aggregate supply and aggregate demand represents the:

overall state of national economy, total of all goods and services in the major sectors of the economy, general price level of the economy with respect to goods and services households purchase (ALL OF THESE ARE TRUE)

When we say investment in macro economics we are talking about:

physical capital

Which of the following is not an example of a transfer payment?

sales tax

Human Capital is:

skills, experiences, and natural talent that determines the productivity of the workers

The wealth effect explains the:

the negative relationship between consumer spending and overall price

Physical Capital is:

the stock of equipment and structures that allow for the production of goods and services

If U.S. prices increase relative to the rest of the world, we would expect imports:

to increase and exports to fall

Because the prices of final goods and services tend to increase more quickly than the prices of inputs, the short run aggregate supply curve is:

upward sloping

Using public policy to promote health can contribute to growth because:

workers who are in good health will be more productive and less likely to miss work days