Macroeconomics exam 3
At equilibrium real GDP in a private closed economy,
aggregate expenditures and real GDP are equal
The cyclically adjusted budget refers to
the size of the federal government's budgetary surplus or deficit when the economy is operating at full employment
) Possible Levels of Domestic Output and Income (GDP = DI) Consumption $320 $320 330 327 340 334 350 341 360 348 370 355 380 362 The table gives data for a private closed economy. If gross investment is $12 billion, the equilibrium level of GDP will be
$360
Refer to the diagram, in which Qf is the full-employment output. A contractionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at
AD3
The interest-rate effect suggests that
an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.
Expansionary fiscal policy is so named because it
is designed to expand real GDP
The aggregate demand curve
) shows the amount of real output that will be purchased at each possible price level
Which one of the following would not shift the aggregate demand curve?
a change in the price level
If the dollar appreciates relative to foreign currencies, we would expect
a country's net exports to fall
An upward shift of the aggregate expenditures schedule might be caused by
a decrease in imports, with no change in exports
Which of the following would most likely reduce aggregate demand (shift the AD curve to the left)?
an appreciation of the U.S. dollar
When aggregate demand declines, the price level may remain constant, at least for a time, because
firms individually may fear that their price cut may set off a price war
Graphically, demand-pull inflation is shown as a
rightward shift of the AD curve along an upsloping AS curve
If the MPC in an economy is 0.75, a $1 billion increase in taxes will ultimately reduce consumption by
If the MPC in an economy is 0.75, a $1 billion increase in taxes will ultimately reduce consumption by
An appropriate fiscal policy for a severe recession is
a decrease in tax rates
Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S
aggregate demand curve would shift to the right
Which one of the following would increase per-unit production cost and therefore shift the aggregate supply curve to the left?
an increase in the price of imported resources
If the MPC in an economy is 0.8, government could shift the aggregate demand curve rightward by $100 billion by
decreasing taxes by $25 billion
Countercyclical discretionary fiscal policy calls for
deficits during recessions and surpluses during periods of demand-pull inflation
The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the
determinants of aggregate demand
The multiplier effect demonstrates that
equal increases in government spending and taxes increase the equilibrium GDP.
A private closed economy includes
households and businesses, but not government or international trade
In the diagram, a shift from AS1 to AS3 might be caused by a(n)
increase in the prices of imported resources
An economist who favored expanded government would recommend
increases in government spending during recession and tax increases during inflation
Discretionary fiscal policy refers to
intentional changes in taxes and government expenditures made by Congress to stabilize the economy
If investment decreases by $20 billion and the economy's MPC is 0.5, the aggregate demand curve will shift
leftward by $40 billion at each price level
) If net exports decline from zero to some negative amount, the aggregate expenditures schedule would
shift downward
The aggregate supply curve
shows the various amounts of real output that businesses will produce at each price level.
GDP C S Ig $100 $100 $0 $80 200 160 40 80 300 220 80 80 400 280 120 80 500 340 160 80 600 400 200 80 700 460 240 80 Refer to the accompanying information for a closed economy. If government now spends $80 billion at each level of GDP and taxes remain at zero, the equilibrium GDP
will rise to $500
Built-in stability means that
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.
) Domestic Output (GDP=DI) Aggregate Expenditures, Closed Economy Exports Imports Net Exports Aggregate Expenditures, Open Economy $200 $230 $30 $20 $-------- $-------- 250 270 30 20 -------- -------- 300 310 30 20 -------- -------- 350 350 30 20 -------- -------- 400 390 30 20 -------- -------- 450 430 30 20 -------- -------- 500 470 30 20 -------- -------- Complete the accompanying table and answer the question on the basis of the resulting data. All figures are in billions of dollars. If the economy was closed to international trade, the equilibrium GDP and the multiplier would be
$350 and 5
Other things equal, if $100 billion of government purchases (G) is added to private spending (C + Ig + Xn ) GDP will
) increase by more than $100 billion
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. A recession is depicted by
A and B
Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, inflation is absent in
A and C
