Macro test 3

Suppose that investment increases by $200 billion and that the marginal propensity to consume equals 0.80. The equilibrium level of real GDP will increase by

$1,000 billion

If disposable income is $3,000 and saving is $1,200, how much is consumption?

$1,800

When the MPC is .75, a decrease in net taxes of $100 billion will increase the equilibrium level of real GDP by

$300 billion

If the multiplier is 4, a $10 billion increase in autonomous government spending will cause a

$40 billion increase in equilibrium real GDP

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

0.25

The value of the marginal propensity to consume is:

0.9

If the marginal propensity to consume is 4/5, the simple multiplier is

5

Approximately what share of U.S. GDP is consumption?

70%

Suppose that Japan is a nation of savers with a marginal propensity to consume of 0.6 and that the United States is a nation of spenders with a marginal propensity to consume of 0.9. Which of the following statements is correct?

A small increase in spending will have a more powerful effect in starting a recovery in the United States than in Japan

If government spending increases, shifting aggregate demand from _____ to _____, aggregate output will increase from _____ to _____.

AD0; AD1; Q0; Qf

Which of the following might cause a change in short-run aggregate supply?

Businesses are increasingly optimistic about the future

_____ is the amount by which annual tax revenues exceed government expenditures.

The budget surplus

Which of the following may be an explanation for the shift in aggregate demand from line A to line B?

Interest rates fall and boost investments

A grocery store manager must decide whether to buy four rug cleaners to rent to customers. The manager estimates that the first would yield $200 a year, the second $150, the third $75, and the fourth $20. If the interest rate is 12 percent and each rug cleaner costs $500, how many should the manager buy?

Three

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 incomes rise until equilibrium is reached

If a government collects $1,400 in tax revenue and spends $1,600, it has:

a deficit of $200

A supply-side economist is advocating reducing income tax rates. She is probably assuming that the economy is at point _____ in the graph.

d (highest point on the graph)

The best discretionary fiscal policy option is:

expansionary fiscal policy that leads to full employment

A tax decrease on producers will shift the aggregate supply curve to the left.

false

One strength of the use of discretionary fiscal policy is the timing lags.

false

Which of the following items is NOT a determinant of aggregate demand?

government saving

Which of the following might be considered the most expansionary set of fiscal policies?

increase in government purchases, decrease in taxes, and increase in transfer payments

The shift in aggregate demand depicted may be due to a(n):

increase in income taxes

A(n) _____ in productivity and a(n) _____ in taxes will shift short-run aggregate supply to the right.

increase; decrease

Supply-side fiscal policies include all of the following EXCEPT:

increasing transfer payments

In Productovia, aggregate demand increases and aggregate supply decreases. Based on the shifts of these two curves, which of the following is a likely outcome?

inflation

All of the following are tools of fiscal policy except one. Which is the exception?

interest rates

A stronger dollar will shift the U.S. aggregate demand curve to the _____ and _____ output demanded.

left; decrease

Assume the economy depicted in the figure above is in long-run equilibrium, where the aggregate demand curve is AD0 and the short-run aggregate supply curve is SRAS0. If there is a supply shock, such as a drastic increase in the price of oil, this will cause a _____ and a movement to a short-run equilibrium at point _____.

leftward shift in SRAS2; a

If aggregate expenditures equals $7,600 and aggregate income equals $8,000, businesses will produce:

less, lowering both employment and income

Rising productivity will increase economic growth and raise the average standard of living, shifting the _____ curve to the _____.

long-run aggregate supply; right

If a household's income rises from $16,000 to $16,700 and its consumption spending rises from $15,800 to $16,400, then its

marginal propensity to consume is 0.86

High taxes and/or heavy regulation:

raise costs of production so that the aggregate supply curve shifts to the left

Assume that the MPC is 0.75. 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

An increase in the rate of interest, other things equal, would

reduce the amount invested because the opportunity costs of investing would be higher

Which of the following is an example of contractionary fiscal policy?

reducing military spending

Increased consumer confidence will shift the aggregate demand curve to the _____ and _____ output demanded.

right; increase

An increase in autonomous investment will

shift the aggregate expenditure line upward

An increase in the value of the U.S. dollar relative to other currencies will

shift the autonomous net export function downward

An increase in wealth will

shift the consumption function upward

Automatic stabilizers are designed so that as income falls:

spending does not fall as much as income

Fiscal policy that focuses on shifting the long-run aggregate supply curve to the right is:

supply-side fiscal policy

Firms decide how much to invest by comparing the rate of return on their projects with:

the interest rate

If an expansionary policy pushes output beyond the full employment level of GDP:

the short-run aggregate supply curve will shift to the left

Assume that initially G is $100 and equilibrium real GDP demanded is $1,000. If the multiplier is 4 and G increases to $200, real GDP demanded will increase

to $1,400

From 2008 to 2009, the falling stock market reduced the wealth of U.S. households, causing the United States:

to shift its consumption schedule downward

According to the wealth effect, as prices fall, people feel wealthier and purchase more goods and services.

true

The long-run aggregate supply curve represents the full-employment capacity of the economy.

true

The long-run supply curve is:

vertical