Macroeconomics- FINAL EXAM Review

increase D, increase P, and increase Q.

In the following question you are asked to determine, other things equal, the effects of a given change in a determinant of demand or supply for product X upon (1) the demand (D) for, or supply (S) of, X; (2) the equilibrium price (P) of X; and (3) the equilibrium quantity (Q) of X. Consumer expectations that the price of X will rise sharply in the future will

increase output and employment.

In the aggregate-expenditures model, an increase in government spending may

a decrease in the prices of domestic resources.

In the diagram, a shift from AS1 to AS2 might be caused by

investment demand schedule.

The relationship between the real interest rate and investment is shown by the

rising real GDP.

The economy described in the table has experienced a

rightward shift in the economy's aggregate demand curve.

The effect of expansionary fiscal policy is shown as a

no unintended changes in inventories.

The equilibrium level of GDP is associated with

a change in the price of independent good J (The demand curve shifts because of changes in: consumer tastes; the number of buyers in the market; consumer income; the prices of substitute or complementary goods; and consumer expectations.)

Which of the following will not cause the demand for product M to change?

excluded when calculating GDP because they do not reflect current production.

Transfer payments are

structural unemployment.

Unemployment involving workers whose skills and experience have become obsolete or unneeded is called

both the consumption and saving schedules downward.

When consumption and saving are graphed relative to real GDP, an increase in personal taxes will shift

A only

Which of the diagrams illustrate(s) the effect of a decrease in incomes on the market for second-hand clothing?

MPC + MPS = APC + APS.

Which of the following is correct?

an increase in supply

Which of the following will cause a decrease in market equilibrium price and an increase in equilibrium quantity?

price and quantity demanded are inversely related.

The law of demand states that, other things equal,

increases product supply.

A government subsidy to the producers of a product

what is

A positive statement is concerned primarily with

study of the large aggregates of the economy or the economy as a whole.

Macroeconomics can best be described as the

expand investment and shift the AD curve to the right.

Other things equal, a decrease in the real interest rate will

all of the above (send out tax rebate checks, increase government spending, increase transfer payments)

An appropriate fiscal policy for a recession is to

5.

Answer the question based on the following sequence of events involving fiscal policy: 1. The composite index of leading indicators turns downward for three consecutive months, suggesting the possibility of a recession. 2. Economists reach agreement that the economy is moving into a recession. 3. A tax cut is proposed in Congress. 4. The tax cut is passed by Congress and signed by the president. 5. Consumption spending begins to rise, aggregate demand increases, and the economy begins to recover. The operational lag of fiscal policy is reflected in event(s)

decrease, quantity demanded will increase, and quantity supplied will decrease.

Assume in a competitive market that price is initially above the equilibrium level. We can predict that price will

frictionally unemployed.

Assume that Kyle is temporarily unemployed because he has voluntarily quit his job with company A and to begin a better job in two weeks with company B. Kyle will be considered

5 percent. (Okun's law states for every one percent the actual rate of unemployment exceeds the natural rate of unemployment, a GDP gap of 2 percent occurs. GDP gap = (12 − 9.5) × 2 = 5 percent.)

Assume the natural rate of unemployment in the U.S. economy is 9.5 percent and the actual rate of unemployment is 12 percent. According to Okun's law, the negative GDP gap as a percentage of potential GDP is

is aimed at reducing aggregate demand and thus achieving price stability.

Contractionary fiscal policy is so named because it

that households are spending more than their current incomes.

Dissaving means

increase

Going into a recession the marginal propensity to consume (MPC) often increases as individuals decrease precautionary savings, what would happen to the Keynesian Multiplier as the MPC increases?

sellers in the resource and product markets respectively.

Households and businesses are

decreasing taxes by $40 billion. (Find the multiplier using the formula, 1 ÷ 1 − MPC, so the Multiplier = 1 ÷ 1 − 0.90 = 10. Then begin a process of elimination by first using the multiplier to find how much government expenditures need to increase to get an increase in aggregate demand of $360; so, $360 ÷ 10 =$ 36. And then determine how much taxes need to decrease to get a right shift in aggregate demand using the multiplier of 10. So, $360 ÷ 10 = $36. But households use their income to both consume and save, so divide that amount by the MPC, $36 ÷ 0.90.)

If the MPC in an economy is 0.90, government could shift the aggregate demand curve rightward by $360 billion by

shift to the left. (An increase in the price of complement A will cause the demand curve for product B to shift left.)

If the price of product A increases, the demand curve for complementary product B will

remain unchanged. (A decrease in the price of an independent (unrelated) goods will not shift the demand curve for the other good.)

If the price of product M decreases, the demand curve for independent product N will

shift to the right.

If the price of product S decreases, the demand curve for complementary product T will

Ca + Ig + Xn + G = GDP.

In a mixed open economy, the equilibrium GDP exists where

shift the aggregate supply curve to the right.

Other things equal, an improvement in productivity will

flexible upward but inflexible downward.

Prices and wages tend to be

current output at base-year prices.

Real GDP measures

business cycles

Recurring increases and decreases in an economy's real GDP over periods of years are called

$432 (GDP = personal consumption expenditures, gross private domestic investment, government purchases, exports - imports)

Refer to the accompanying data (all figures in billions of dollars). GDP is

$477 (GDP = personal consumption expenditures, gross private domestic investment, government purchases, exports - imports)

Refer to the accompanying data (all figures in billions of dollars). GDP is

$535 (GDP = compensation of employees, consumption of fixed capital, rents, interest, proprietors' income, corporate profits, taxes on productions and imports - net foreign factor income)

Refer to the accompanying data. All figures are in billions of dollars. Gross domestic product is

move from point y to point x.

Refer to the diagram. An increase in quantity supplied is depicted by a

$40 and 150, respectively.

Refer to the diagram. If this is a competitive market, price and quantity will move toward

it chooses point A.

Refer to the diagram. Other things equal, this economy will shift its production possibilities curve outward the most if

A

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Other things equal, a decline in net exports caused by a change in incomes abroad is depicted by

a to point b.

Refer to the production possibilities curve. At the onset of the Second World War, the United States had large amounts of idle human and property resources. Its economic adjustment from peacetime to wartime can best be described by the movement from point

decrease real GDP by $15.

Refer to the table. A decrease in government purchases of $5 would

larger and larger amounts of capital goods must be sacrificed to get additional units of consumer goods.

Refer to the table. For these data, the law of increasing opportunity costs is reflected in the fact that

1/5 of a unit of capital goods. (To find the opportunity cost of the "nth" unit (e.g. the first unit) of consumer goods, divide one (the change in capital goods between the two alternatives) by the difference between the two alternatives for consumer goods either side of this unit. For the first unit, the alternatives on either side are 0 and 5 units of consumer goods; their difference is 5 (= 5 − 0). So for the first unit of consumer goods, the opportunity cost = 1 ÷ 5 of a unit of capital goods.)

Refer to the table. If the economy is producing at production alternative A, the opportunity cost of the first unit of consumer goods will be approximately

the MPC is constant and the APC declines as income rises.

The consumption schedule is such that

decrease the demand for Z. (A decrease in the price of X will decrease the demand for Z.)

Suppose product X is an input in the production of product Y. Product Y in turn is a substitute for product Z. A decrease in the price of X can be expected to

$50 billion (The multiplier is 2.5 [1 ÷ (1 − MPC)]. Multiply the increase in investment times the multiplier to find how much the AD curve will shift. It will shift rightward (an increase) by $50 billion ($20 × 2.5).)

Suppose that technological advancements stimulate $20 billion in additional investment spending. If the MPC = 0.6, how much will the change in investment increase aggregate demand?

downward-sloping because of the interest-rate, real-balances, and foreign purchases effects.

The aggregate demand curve is

disposable income.

The amount of after-tax income received by households is measured by