Macro test unit III

Refer to the above diagram for a private closed economy. The equilibrium GDP is:

180 billion

A decline in investment will shift the AD curve to the: A. Left by a multiple of the change in investment B. Left by the same amount as the change in investment C. right by the same amount as the change in investment D. Right by a multiple of the change in investment

A. Left by a multiple of the change in investment

The greater is the marginal propensity to consume, the: A. smaller is the marginal propensity to save B. higher is the interest rate C. lower is the average propensity to consume D. lower is the price level

A. Smaller is the marginal propensity to save

Fiscal policy is carried out primarily by: A. the federal government B. state and local governments working together C. state governments alone D. local governments alone

A. federal government

A decline in the real interest rate will: A. increase the amount of investment spending B. shift the investment schedule downward C. shift the investment demand curve to the right D. shift the investment demand curve to the left

A. increase the amount of investment spending.

The MPC for an economy is A. the slope of the consumption schedule or line B. the slope of the savings schedule or line C. 1 derided by the slope of the consumption schedule or line D. 1 divided by the slope of the savings schedule or line

A. the slope of the consumption schedule or line.

If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the multiplier in the economy is: A. 4 B. 5 C. 3.33 D. 2.5

B. 5

An appropriate fiscal policy for a severe recession is A. a decrease in government spending B. a decrease in tax rates C. appreciation of the dollar D. an increase in interest rates

B. A decrease in tax rates

The economy's long run aggregate supply curve: A. slopes upward and to the right B. is vertical C. is horizontal D. slopes downward and to the right

B. Is vertical

Refer to the above diagram that applies to a private closed economy. If aggregate expenditures are C+I(g2), the amount of saving at income level J is: A. LK B. KN C. KD D. JD

B. KN

A tax reduction of a specific amount will be more expansionary, the A. smaller is the economy's MPC B. larger is the economy's MPC C. smaller is the economy's multiplier D. less the economy's built in stability

B. Larger is the economy's MPC

Refer to the above diagram that applies to a private closed economy. The slope of the consumption schedule in this figure reveals that the: A. MPC rises as in come rises B. MPC is constant C. APC is constant D. APC increasers as income increases

B. MPC is constant

If the economy has a full employment budget surplus, this means that: A. the public sector is exerting an expansionary impact on the economy B. tax revenues would exceed government expenditures if full employment were achieved C. the actual budget is necessary also in surplus D. the economy is actually operating at full employment

B. Tax revenues would exceed government expenditures of full employment were achieved

The real interest rate is: A. the percentage increase in money that the lender receives on the loan B. the percentage increase in purchasing power that the lender receives on a loan. C. also called the after tax interest rate D. usually higher than the normal interest rate

B. the percentage increase in purchasing power that the lender receives on a loan.

Built-in stability means that: A. An annually balanced budget will offset the pro cyclical tendencies created by state and local finance and thereby stabilize the economy B. with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus. C. Congress will automatically change the tax structure and expenditure programs to correct upswings and downswings in business activity D. Government expenditures and tax receipts automatically balance over the business cycle, though they may be out of balance in any single year

B. with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus while a decline in income will result in a deficit or a lower budget surplus.

The multiplier can be calculated as: A. 1/(MPS + MPC) B. MPC/MPS C. 1/(1-MPC) D. 1-MPC=MPS

C. 1/(1-MPC)

Refer to the above diagram for a private closed economy. Aggregate saving in this economy will be zero when A. C +Ig cuts the 45 degree line B. GDP is $180 billion C. GDP is $60 billion D. GDP is also 0

C. GDP is $60 billion

The relationship between investment and GDP is shown by the: A. consumption of fixed capital schedule B. saving schedule C. investment schedule D. consumption schedule

C. Investment schedule

Contractionary fiscal policy is so named because it: A. involves a contraction of the nation's money supply B, necessarily reduces the size of government C. Is aimed at reducing aggregate demand and thus achieving price stability D. is expressly designed to contract real GDP

C. Is aimed at reducing aggregate demand and thus achieving price stability

In a private closed economy, when aggregate expenditures equal GDP: A. Consumption equals investment B. Consumption equals aggregate expenditures C. planned investment equals saving D. Disposable income equals consumption minus saving

C. Planned investment equals saving

If an unintended increase in business inventories occurs: A. we can expect agree production to be unaffected B. We can expect businesses to increase the level of production C. We can expect businesses to lower the level of production D. aggregate expenditures must exceed the domestic output

C. We can expect businesses to lower the level of production

The multiplier effect means that A. consumption is typically several times as large as savings B. a change in consumption can cause a larger increaser in investment C. an increase in investment can cause GDP to change by a larger amount D. a decline in the MPC can cause GDP to rise by several times that amount

C. an increase in investment can cause GDP to change by a larger amount

The aggregate supply curve: A. is explained by the interest rate, real balances, and foreign purchase effects B. gets steeper as the company moves from the top of the curve to the bottom C. shows the various amounts of real output that businesses will produce at each price level. D. is downscoping because real purchasing power increases as the price level falls

C. shows the various amounts of real output that businesses will produce at each price level.

If the inflation rate 10 percent and the real interest rate is 12 percent, the nominal interest rate is: A. 2 percent B. 0 percent C. 10 percent D. 22 percent

D. 22 percent

The equilibrium level of GDP in a private closed economy is where: A. MPC=APC B. unemployment is about 3% of the labor force C. consumption equals savings D. Aggregate expenditures equal GDP

D. Aggregate expenditures equal GDP

Which of the following will not shift the aggregate supply curve A. an increase in labor productivity B. A decline in the price of imported oil C. a decline in business taxes D. An increase in price level

D. An increase in price level

If the marginal propensity to save is 0.2 in an economy, a $20 billion rise in investment spending will increase: A. GDP by $120 billion B. GDP by $20 billion C. Savin g by $25 billion D. Consumption by $80 billion

D. Consumption by $80 billion

Refer to the above diagram that applies to a private closed economy. The APC is equal to 1 at income level A. J B. M C. H D. G

D. G

Refer to the above diagram that applies to a private closed economy. If gross investment is I(gl), the equilibrium GDP and the level of consumption will be: A. H and HB respectively B. K and JI respectively C. J and JK respectively D. H and HF respectively

D. H and HF respectively

The most important determinant of consumer spending is A. the level of household debt B. consumer expectations C. the stock of wealth D. the level of income

D. The level of income

Expansionary fiscal policy is so named because it: A. involves an expansion ion the nation's money supply B. necessarily expands the size of government C. is aimed at achieving greater price stability D. is design ed to expand real GDP

D. is designed to expand real GDP

The consumption schedule shows A. the the MPC increases in proportion to the GDP B. that households consume more when interest rates are low C. that consumption depends primarily on the level of business investment D. the amounts households plan or intend to consume at various possible levels of aggregate income.

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

Refer to the above diagram for a private closed economy. In this economy investment: A. decreases as GDP increases B. increases as GDP increases C. is $40 billion at all levels of GDP D. is $60 billion at all levels of GDP

Is 40 billion at all levels of GDP

If bens MPC is .80, this means that he will

Spend eight tenths of any increase in his disposable income

Discretionary fiscal policy is so named because it: A. is undertaken at the option of the nation's central bank B. occurs automatically as the nation's level of GDP changes C. involves specific changes in T and G undertaken expressly for stabilization at the option of Congress. D. is invoked secretly by the Council of Economic Advisors

involves specific changes in T and G undertaken expressly for stabilization at the option of Congress.