Macroeconomics
b
"Production cutbacks have been much greater than expected. Those cuts have weakened the industrial sector considerably." As a result, the US govt. lowered its estimate of 4th quarter growth in read GDP. The article suggests that: a) planned expenditures exceeded real GDP b) real GDP exceeded planned expenditures c) the AE curve shifted upward d) the AD curve shifted rightward
b
A movement along the consumption function is the result of changes in a) the real interest rate b) disposable income c) expected future income d) the price level
a
Aggregate expenditure equals a) C+I+G+X-M b) C+I+G+X+M c) C+I+G d) C+I+G+X
d
If a $74 billion increase in autonomous expenditure increases equilibrium expenditure by $150 billion, then the multiplier must be a) $225 billion b) 0.5 c) $75 billion d) 2
a
If consumption expenditures for a household increase from $1000 to $1800 when disposable income rises from $1000 to $2000, the marginal propensity to consume is a) 0.8 b) 80 c) 1.25 d) 0.2
b
If planned expenditures equal $19 trillion when real GDP is $19.5 trillion, then a) inventories will decrease by $0.5 trillion b) actual investment will exceed planned investment c) there will be excess demand for most goods d) the economy must have a trade surplus to sell the excess goods and services
c
If real GDP is less that potential GDP, which of the following fiscal policies would increase real GDP? a) only a decrease in government expenditure b) only an increase in taxes c) an increase in government expenditure and/or a decrease in taxes d) a decrease in government expenditure and/or an increase in taxes
d
If the multiplier is 6 and exports decrease by $30, what impact will that have on aggregate expenditure? Aggregate expenditure will a) increase by $30 b) increase by $180 c) decrease by $30 d) decrease by $180
c
Suppose real GDP exceeds potential GDP. If the government decreases its expenditures on goods and services, then real GDP __________ and the price level __________. a) decreases; rises b) increases; falls c) decreases; falls d) increases; rises
c
When investment exceeds planned investment, aggregate planned expenditure is __________ than actual aggregate expenditure and inventories are __________ than planned a) greater; greater b) greater; less c) less; greater d) less; less
b
Which of the following is TRUE? a) MPS = MPC b) MPS + MPC = 1 c) MPS + MPC = 0 d) MPS - MPC = 1
b
"The global financial crisis has had a considerable impact on China's export growth, which will continue to show weakness with recession in the US and Europe," said a report by JP Morgan & Co. If Chinese exports continue to decline, the AE curve will shift __________, the price level will __________ in the short run and real GDP will __________ in the short run. a) upward; decrease; decrease b) downward; decrease; decrease c) upward; decrease; not change d) downward; decrease; not change
c
A reason the government expenditure multiplier is larger than 1 is because a) investment increases when government expenditure increases b) government expenditure always increases c) government expenditure changes generate changes in consumption expenditure d) taxes are left unchanged
b
According to the story, if __________ in the software and related services sector increases by $15 billion, real GDP will increase by __________ a) investment; $30 billion b) consumption; $30 billion c) consumption; $2 billion d) investment; $2 billion
d
Aggregate planned expenditure... a) always equals actual aggregate expenditure b) is always less than actual aggregate expenditure c) is always greater than actual aggregate expenditure d) equals actual aggregate expenditure at the equilibrium level of real GDP
c
An estimate of the MPC in the US is 0.9. Paul Krugman, the 2008 Nobel Prize winner in economics, stated, "...you'd be hard pressed to argue for an overall multiplier as high as 2." What factors could explain the difference between the MPC and Krugman's estimate of the multiplier? a) exports and investment b) investment and imports c) imports and taxes d) taxes and investment
b
An increase in government expenditure shifts the AD curve __________ and an increase in taxes shifts the AD curve __________ a) rightward; rightward b) rightward; leftward c) leftward; rightward d) leftward; rightward
a
An increase in investment by US firms that is intended to maintain US competitiveness in world markets represents __________ in the US a) an increase in autonomous expenditure b) a decrease in autonomous expenditure c) an increase in induced expenditure d) a decrease in induced expenditure
d
Assume there are no taxes or imports. The government estimates that between 2012 and 2013 disposable income decreased by $400 billion and consumption expenditure decreased by $280 billion. Based on this data, the multiplier equals: a) 0.33 b) 0.7 c) 1.42 d) 3.33
c
At equilibrium expenditure... a) consumers' expenditures on goods and services equal firms' purchases of investment goods b) firms hold no inventories of raw materials or final goods c) aggregate planned expenditure equals real GDP d) aggregate planned expenditure equals real GDP minus net exports
b
Autonomous consumption is equal to a) saving when consumption equals disposable income b) consumption when disposable income is zero c) consumption caused by an increase in disposable income d) dissaving when disposable income is greater than zero
c
Autonomous expenditure is not influenced by a) the price level b) the interest rate c) real GDP d) any other variable
c
Between 2015 and 2016 the government reported that disposable income decreased by $400 billion. If the MPC equals 0.8, then consumption expenditure a) decreases by $400 billion b) decreases by $3200 billion c) decreases by $320 billion d) decreases by $32 billion
d
Because of the multiplier, a one-time change in expenditure will... a) have little secondary effect on real GDP b) expand real GDP by an infinite amount c) generate more additional real GDP than the initial change in expenditure d) decrease saving and investment activity and thereby decrease future real GDP
b
Between 2013 and 2014, the government estimates that disposable income in the US decreased. Consequently, as a result of this change, consumption expenditure a) remained constant b) decreased c) increased d) more information is needed about how taxes changed between 2013 and 2014
c
Equilibrium expenditure is defined as the level of aggregate expenditure where... a) actual aggregate expenditure equals real GDP b) total inventories equal zero c) aggregate planned expenditure equals real GDP d) spending equals output
d
Equilibrium real GDP is $500 billion, government expenditures are $80 billion, the MPC=0.9 , and there are no income taxes or imports. Suppose that government expenditures increase to $100 billion. If the price level is constant, after the increase in government expenditures, equilibrium real GDP will be a) $520 billion b) $580 billion c) $600 billion d) $700 billion
a
If the MPC increases from 0.75 to 0.8 and there are no income taxes or imports... a) the multiplier becomes larger b) the multiplier becomes smaller c) the slope of he consumption function becomes smaller d) the slope of the savings function becomes larger
c
If the government wants to engage in fiscal policy to increase real GDP, it could a) increase government expenditure in order to increase short-run aggregate supply b) decrease government expenditure in order to increase short-run aggregate supply c) increase government expenditure in order to increase aggregate demand d) decrease government expenditure in order to decrease aggregate demand
d
If the marginal propensity to consume is 0.8, every $10 increase in disposable income increases a) consumption expenditure by $0.80 b) consumption expenditure by $80 c) saving by $0.20 d) consumption expenditure by $8
b
In 2007, investment in France increased by 7 billion euros, consumption increased by 4 billion euros and government spending increased by 1.5 billion euros. Assume the price level was constant and the economy was at full employment. As a result, suppose that equilibrium expenditure increased by 21 billion euros. In this example, __________ is the induced expenditure and __________ is autonomous expenditure. a) consumption; government spending b) investment; consumption c) investment; government spending d) government spending; equilibrium expenditure
a
In 2007, investment in France increased by 7 billion euros. Assume the price level was constant, the multiplier was 5 and the economy was at full employment. As a result, equilibrium expenditure: a) Increased by 35 billion euros b) Increased by 1.4 billion euros c) decreased by 35 billion euros d) decreased by .71 billion euros
c
In 2007, investment in France increased by 7 billion euros. Which of the following occurs? I. an upward shift in the AE curve II. a leftward shift in the AD curve III. an increase in the price level and real GDP in the short run IV. an increase in the price level and no change in real GDP in the long run. a) I, II, III, & IV b) I & III only c) I, II, & IV only d) III & IV only
b
In January 2013 certain tax rates increased, which were predicted to increase the federal government's tax revenue. An increase in tax revenue __________ the government's budget deficit and over time thereby __________ the amount of government debt. a) increases; decreases b) decreases; decreases c) decreases; increases d) increases; increases
b
In an article regarding Bangladesh's economy, the author suggests that the government give tax breaks on investment dollars, research and development, and donations to educational institutions. As a result of enacting the policies, the AE curve will shift __________ and the AD curve will shift __________. a) upward; leftward b) upward; rightward c) downward; rightward d) downward; leftward
b
In an article regarding Bangladesh's economy, the author suggests that the government give tax breaks on investment dollars, research and development, and donations to educational institutions. Suppose the multiplier in Bangladesh is 2. As a result of enacting the proposed policies, which of the following describe possible outcomes in the short run? I. A $20 billion increase in investment will increase aggregate expenditure by $40 billion II. the AE curve will shift upward III. there will be and unplanned increase in inventories a) I, II, & III b) I & II only c) I & III only d) II & III only
d
In an article regarding Bangladesh's economy, the author suggests that the government give tax breaks on investment dollars, research and development, and donations to educational institutions. Suppose the multiplier in Bangladesh is 2. If the government enacts the proposed policies and __________, aggregate expenditure __________ in the short run. a) induced expenditure increases by $5 billion; increases by $10 billion b) autonomous expenditure decreases by $10 billion; decreases by $5 billion c) equilibrium expenditure increases by $8 billion; increases by $16 billion d) autonomous expenditure increases by $10 billion; increases by $20 billion
b
In an article regarding Bangladesh's economy, the author suggests that the government give tax breaks on investment dollars, research and development, and donations to educational institutions. The increase in investment is considered __________ and will generate a larger increase in __________. a) equilibrium spending; autonomous expenditure b) autonomous expenditure; induced expenditure c) induced expenditure; autonomous expenditure d) autonomous expenditure; multiplier spending
b
In the Keynesian model of aggregate expenditure, real GDP is determined by the a) price level b) level of aggregate demand c) level of aggregate supply d) level of taxes
c
In the short run with fixed prices, an increase in investment of $100 billion... a) increases real GDP by $100 billion b) increases real GDP by less than $100 billion c) increases real GDP by more than $100 billion d) decreases real GDP by $100 billion because of the decrease in induced expenditures
a
In the short run, an increase in government expenditure will... I. shift the aggregate demand curve rightward II. increase real GDP III. increase the government expenditure multiplier IV. increase the tax multiplier a) I & II b) I & III c) I, II, & III d) III & IV
d
In the third quarter of 2008, investment in the US totaled $1.4 trillion and in 2007, investment was $1.3 trillion. In addition, third quarter real GDP was $11 trillion. Suppose the MPC in the US is 0.8. ignoring the effects of imports and taxes, the multiplier is __________ and the change in investment will decrease equilibrium expenditure by __________. a) 2; $1 trillion b) 5; $1 trillion c) 2; $200 million d) 5; $500 million
a
In the third quarter of 2008, investment in the US totaled $1.4 trillion and in 2007, investment was $1.3 trillion. The change in investment: a) is a change in autonomous expenditure b) is a change in equilibrium expenditure c) is a change in induced expenditure d) will increase the multiplier
c
MPC is equal to a) delta C / delta S b) delta S / delta C c) delta C / delta YD d) delta S / delta YD
b
Mauritius, an island off the coast of Africa, competes with other countries producing goods with low-skilled labor. In 2006, it was reported that its "...factories have been exposed to ... competition from China, India, and other Asian mass producers." As a result, "the main export industry has seen a 30% reduction in volume..." Suppose real GDP is $14 billion, exports total $2 billion and the multiplier is 4. If exports decline by $600,000,000, real GDP in Mauritius will: a) increase by $2.4 billion b) decrease by $2.4 billion c) decrease by $8 billion d) increase by $4 billion
a
The multiplier is larger if the a) marginal propensity to consume is larger b) marginal propensity to save is larger c) income tax rate is higher d) marginal propensity to import is larger
a
The multiplier is the ratio of the a) change in real GDP to the change in autonomous expenditures b) equilibrium level of real GDP to the change in induced expenditures c) change in induced expenditures to the change in autonomous expenditures d) change in autonomous expenditures to the change in real GDP
b
Mauritius, an island off the coast of Africa, competes with other countries producing goods with low-skilled labor. In 2006, it was reported that its "...factories have been exposed to ... competition from China, India, and other Asian mass producers." As a result, "the main export industry has seen a 30% reduction in volume..." The decrease in exports represents a change in __________ expenditure and will cause __________. a) induced; a downward shift in AE and a leftward shift in the AD curve b) autonomous; a downward shift in the AE curve and a leftward shift in the AD curve c) induced; an upward shift in the AE curve and a leftward shift in the AD curve d) autonomous; a downward shift in the AE curve and a rightward shift in the AD curve
c
Mauritius, an island off the coast of Africa, competes with other countries producing goods with low-skilled labor. In 2006, it was reported that its "...factories have been exposed to ... competition from China, India, and other Asian mass producers." As a result, "the main export industry has seen a 30% reduction in volume..." The decrease in exports will cause __________ and the price level will __________. a) a downward shift in the AE curve; decrease as the AD curve shifts leftward in the short run b) an upward shift in the AE curve; increase as the AD curve shifts rightward in the long run c) a leftward shift in the AD curve; fall in the short run and rise in the long run d) a leftward shift in the AD curve; rise in the long run as goods become more scarce.
a
Mauritius, an island off the coast of Africa, competes with other countries producing goods with low-skilled labor. In 2006, it was reported that its "...factories have been exposed to ... competition from China, India, and other Asian mass producers." As a result, "the main export industry has seen a 30% reduction in volume..." The story describes: a) a decrease in autonomous expenditure b) a decrease in induced expenditure c) an unplanned decrease in inventories d) an increase in equilibrium expenditure
a
Suppose that last year the slope of the AE curve was 0.67 and this year the slope of the AE curve changed to 0.8. Which of the following best describes what happens to the multiplier? a) it rises from 3 to 5 b) it falls from 5 to 3 c) it rises from 1.25 to 1.49 d) it falls from 1.49 to 1.25
d
Suppose that the government decreases its expenditures on goods and services. Within the AS-AD model, the result will be __________ in real GDP and __________ in the price level. a) an increase; an increase b) an increase; a decrease c) a decrease; and increase d) a decrease; a decrease
c
Suppose that the government increases taxes. One effect of this change is that it decreases a) disposable income, which decreases consumption expenditure and aggregate demand b) government expenditure, which decreases aggregate demand c) the size of the government expenditure multiplier d) disposable income which then decreases aggregate supply
c
Suppose the economy is at a short-run equilibrium with real GDP greater than potential GDP. Which of the following fiscal policies would decrease real GDP and the price level? a) an increase in government expenditure b) a decrease in taxes c) an increase in taxes d) none of the above is correct
a
Suppose the government of Japan increases its expenditure on goods and services. In the short run, this increase will a) shift the AD curve in Japan rightward b) shift the AD curve in Japan leftward c) cause the price level in Japan to fall d) none of the above is correct
c
The Keynesian model of aggregate expenditure assumes that a) individual firms' prices are flexible but the price level is fixed b) both individual firms' prices and the price level are flexible c) both individual firms' prices and the price level are fixed d) individual firms' prices are fixed but the price level is flexible
d
The aggregate demand curve shifts rightward if there is... a) an increase in tax rates b) a decreases in government expenditure c) an increase in the federal budget surplus d) an increase in government expenditure
d
The government's budget deficit or surplus equals the... a) change in outlays divided by change in revenue b) average outlay divided by average revenue c) change in revenue minus change in outlays d) total tax revenue minus total government outlays
a
The larger the slope of the AE curve, the a) larger the value of the multiplier b) smaller the value of the multiplier c) less likely that the multiplier will be affected d) more likely the multiplier will be inconsequential
d
The largest source of revenue for the federal government is __________ and the largest outlay is for __________. a) corporate taxes; Social Security b) personal income taxes; expenditure on goods and services c) corporate taxes; interest on national debt d) personal income taxes; transfer payments
c
The multiplier shows that as __________ changes, real GDP changes by a __________ amount a) induced expenditure; larger b) induced expenditure; smaller c) autonomous expenditure; larger d) autonomous expenditure; smaller
b
The part of aggregate planned expenditure that does not vary with real GDP a) equals equilibrium expenditure b) is autonomous expenditure c) is induced expenditure d) equals zero
d
The positive slope of the consumption function indicates that a) consumers spend less out of each extra dollar of income b) the amount of household wealth is subject to change c) when prices fall consumers spend more d) consumers increase their total consumption expenditure when disposable income increases
a
The slope of the aggregate expenditure curve equals the change in a) planned expenditure divided by the change in real GDP b) autonomous expenditure divided by the change in real GDP c) government expenditure divided by the change in real GDP d) real GDP divided by the change in planned expenditure
a
The software and related services sector has a multiplier effect on the Indian economy with every one rupee input spent by the "information technology sector" producing an increase in real GDP by two rupees. According to the story, if __________ in the software and related services sector increases by $15 billion, real GDP will increase by __________. a) investment; $30 billion b) consumption; $30 billion c) consumption; $2 billion d) investment; $2 billion
a
The sum of the components of aggregate expenditure that vary with real GDP equal a) induced expenditures b) the MPC c) autonomous expenditures d) autonomous consumption
a
The value of the marginal propensity to consume is a) between 0 and 1 b) between 1 and 10 c) between -1 and 1 d) between 1% and 100%
b
Using fiscal policy, to increase real GDP and employment the government could __________ government expenditure on goods and services or __________ taxes a) increase; increase b) increase; decrease c) decrease; increase d) decrease; decrease
c
Using the AD-AS model, an increase in government expenditure... a) has no impact on real GDP b) has no impact on real GDP, but will increase potential GDP c) increases both real and the price level d) has a full multiplier effect on real GDP, leaving the price level unchanged in the long run
d
When disposable income equals $800 billion, planned consumption expenditure equals $600 billion, and when disposable income equals $1000 billion, planned consumption expenditure equals $760 billion. What is the marginal propensity to save? a) 0.8 b) 0.64 c) 0.25 d) 0.2
d
When disposable income increases from $7 trillion to $7.5 trillion, consumption expenditure increases from $6.5 trillion to $6.9 trillion. The MPS equals a) 0.75 b) 0.76 c) 0.8 d) 0.2
a
When real GDP is less than potential GDP, an increase in government expenditures will __________ real GDP and __________ the price level a) increase; raise b) increase; lower c) decrease; raise d) decrease; lower
c
When there is unplanned inventory investment, aggregate planned expenditure is __________ real GDP and actual investment is __________ planned investment a) greater than; greater than b) greater than; less than c) less than; greater than d) less than; less than
d
Which of the following statement is FALSE? a) disposable income - saving = consumption expenditure b) consumption expenditure + saving = disposable income c) saving = disposable income - consumption expenditure d) consumption expenditure = saving - disposable income
d
Which of the following statements is CORRECT? a) actual aggregate expenditures does not always equal real GDP b) planned investment exceeds actual investment when real GDP is greater than aggregate planned expenditures c) actual investment exceeds planned investment when real GDP is less than aggregate planned expenditures d) none of the above is correct
b
With consumption expenditure on the vertical axis and disposable income on the horizontal axis, the consumption function intersects the 45 degree line at $8 trillion. This result indicates that a) autonomous consumption spending is $8 trillion b) consumption spending is $8 trillion when disposable income is $8 trillion c) consumption spending is less than $8 trillion because taxes must be paid d) consumption spending is more than $8 trillion because taxes have been paid
c
__________ consumption expenditure is greater than disposable income a) It is always the case that b) Saving is positive whenever c) Dissaving occurs whenever d) None of the above answers is correct because it is impossible for consumption expenditure to be greater than disposable income