Macroeconomics Unit 2 Exam

Refer to the consumption schedule shown in the graph. The break-even level of income would be at income level 0. 1. 2. 3.

2

Refer to the diagram for a private closed economy. The marginal propensity to consume is a. FB/0B. b. DA/GB. c. GF/GB. d. FE/DE.

D

If personal income taxes and business taxes increase, then this will decrease aggregate demand and aggregate supply. increase aggregate demand and aggregate supply. decrease aggregate demand and increase aggregate supply. increase aggregate demand and decrease aggregate supply.

a

The U.S. public debt refers to the debts of all units of government—federal, state, and local. consists of the historical accumulation of all past federal deficits and surpluses. refers to the collective amount that U.S. citizens and businesses owe to foreigners. consists of the total debt of U.S. households, businesses, and government.

b

Refer to the graph. Assume that the economy initially has a price level of P 1 and output level Q 1. If the government implements expansionary fiscal policy, and the full multiplier effect is felt, it will bring the economy to P2 and Q2. P1 and Q1. P2 and Q4. P1 and Q3.

d

Refer to the diagram for a private closed economy. The upward shift of the aggregate expenditures schedule from ( C + Ig) 1 to (C + Ig) 2 reflects a decrease in consumption expenditures. an increase in the APS. an increase in the MPC. an increase in investment expenditures.

d.

Refer to the diagram, in which T is tax revenues and G is government expenditures. All figures are in billions. The equilibrium level of GDP in this economy a. is less than $400. b. is greater than $400. c. is $400. d. cannot be determined from the information given.

d.

The most important determinant of consumer spending is the level of household borrowing. consumer expectations. the stock of wealth. the level of income.

d.

A production possibilities curve illustrates a. the distribution of income. b. market prices. c. consumer preferences. d. scarcity.

d. scarcity

Assume there are no prospective investment projects (I) that will yield an expected rate of return (r) of 25 percent or more, but there are $5 billion of investment opportunities with an expected rate of return between 20 and 25 percent, an additional $5 billion between 15 and 20 percent, and so on. The investment demand curve for this economy is shown in which table?

r I 25. 0 20. 5 15. 10 10. 15 5. 20 0. 25

The figure shows the saving schedules for economies 1, 2, 3, and 4. Which economy has the largest multiplier? 1 2 3 4

4

Refer to the diagram. Suppose that aggregate demand increased from AD 1 to AD 2. For the price level to stay constant, the aggregate supply curve would have to shift rightward. the aggregate supply curve would have to be vertical. real domestic output would have to remain constant. the aggregate supply curve would have to shift leftward.

a

Refer to the diagrams. Assuming a constant price level, an increase in aggregate expenditures from AE 1 to AE 2 would increase aggregate demand from AD1 to AD2. move the economy from C to A along AD1. decrease aggregate demand from AD2 to AD1. move the economy from A to C along AD1.

a

The aggregate demand curve is downsloping because of the interest-rate, real-balances, and foreign purchases effects. vertical under conditions of full employment. downsloping because production costs decrease as real output rises. horizontal when there is considerable unemployment in the economy.

a

The investment demand curve will shift to the right as the result of businesses becoming more optimistic about future business conditions. an increase in the real interest rate. the availability of excess production capacity. an increase in business taxes.

a

If the price of crude oil decreased, then this would most likely increase aggregate supply in the U.S. increase aggregate demand in the U.S. decrease aggregate demand in the U.S. decrease aggregate supply in the U.S.

a

In the accompanying figure, a shift from AD 2 to AD 1 would be consistent with what economic event in U.S. history? the Great Recession of 2007-2009 World War II in the 1940s demand-pull inflation in the late 1960s cost-push inflation in the mid

a

John Maynard Keynes created the aggregate expenditures model based primarily on what historical event? a. Great Depression b. economic expansion of the 1920s c. spectacular economic growth during World War II d. bank panic of 1907

a.

Refer to the diagram. The value of the multiplier for this economy is a. ed/di. b. df/BC. c. BC/hg. d. BC/AB

c

A constitutional amendment is passed that requires the government to have an annually balanced budget in the sense that changes in spending should be matched by equivalent changes in taxes. Should the government desire to increase GDP by $25 billion and meet the provisions of the law, it a. cannot possibly reach its objective without breaking the law. b. could increase spending by $25 billion and reduce taxes by $25 billion. c. could increase spending by $25 billion and increase taxes by $25 billion. d. could increase spending by $30 billion and increase taxes by $25 billion.

c.

1. Real-Balances Effect 2. Household Expectations 3. Interest-Rate Effect 4. Personal Income Tax Rates 5. Profit Expectations 6. National Incomes Abroad 7. Government Spending 8. Foreign Purchases Effect 9. Exchange Rates 10. Degree of Excess Capacity Answer the question based on the accompanying list of factors that are related to the aggregate demand curve. Investment spending would most likely be influenced by changes in a. 8 and 9. b. 5 and 10. c. 1 and 3. d. 4 and 6.

b

If a $10 billion decrease in lump-sum taxes increases equilibrium GDP by $40 billion, then a. the multiplier is 4. b. the MPC for this economy is 0.8. c.the multiplier is 3. d. the MPC for this economy is 0.6.

b

Refer to the diagram. Assume that for the entire business sector of a private closed economy there is $0 worth of investment projects that will yield an expected rate of return of 25 percent or more. But there are $15 worth of investments that will yield an expected rate of return of 20-25 percent; another $15 with an expected rate of return of 15-20 percent; and an additional $15 of investment projects in each successive rate of return range down to and including the 0-5 percent range. Which of the lines on the diagram represents these data?

b

Refer to the diagram. If the full-employment level of GDP is D, then it would be appropriate fiscal policy for government to decrease spending and decrease taxes. increase spending and decrease taxes.term-0 decrease spending and increase taxes. increase spending and increase taxes.

b

Refer to the diagram. The change in aggregate expenditures as shown from ( C + Ig + Xn 2) to ( C + Ig + Xn 1) might be caused by a depreciation of this nation's currency relative to the currencies of its trading partners. an appreciation of this nation's currency relative to the currencies of its trading partners. a rightward shift in this nation's 45-degree line. a decrease in this nation's price level relative to price levels abroad.

b

Refer to the diagrams. Suppose that government undertakes fiscal policy designed to increase aggregate demand from AD 1 to AD 2 and thereby to increase GDP from X to Z. In terms of graph B, which of the following might explain why GDP increases to Y rather than to Z? depreciation of the dollar crowding-out effect reduction in tariffs imposed by our trading partners decrease in the saving schedule

b

The table illustrates the multiplier process resulting from an autonomous increase in investment by $5. The marginal propensity to consume is 0.5. 0.75. 0.9. 0.8.

b

Fiscal policy refers to the deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level. altering of the interest rate to change aggregate demand. deliberate changes in government spending and taxes to achieve greater equality in the distribution of income. fact that equal increases in government spending and taxation will be contractionary.

c

Refer to the figure. The economy is at equilibrium at point C, which is below potential output . What fiscal policy would increase real GDP? shift aggregate demand by increasing taxes shift aggregate demand by decreasing government spending shift aggregate demand by increasing transfer payments shift aggregate demand by decreasing transfer payments

c

Since 2002, the United States has had modest trade surpluses. a rising natural rate of unemployment. large federal budget deficits. large federal budget surpluses.

c

Suppose that the level of GDP increased by $100 billion in a private closed economy where the marginal propensity to consume is 0.5. Aggregate expenditures must have increased by $500 billion. $5 billion. $50 billion. $100 billion.

c

Suppose the government purposely changes the economy's cyclically adjusted budget from a deficit of 3 percent of real GDP to a surplus of 1 percent of real GDP. The government is engaging in a(n) high-interest-rate policy. expansionary fiscal policy. contractionary fiscal policy. neutral fiscal policy.

c

The investment demand slopes downward and to the right because lower real interest rates enable more investment projects to be undertaken profitably. create tax incentives to invest. expand consumer borrowing, making investments more profitable. boost expected rates of returns on investment.

c

The table gives aggregate demand and supply schedules for a hypothetical economy. If the amount of real output demanded at each price level falls by $200, the equilibrium price level and equilibrium level of real domestic output will fall to 250 and $200, respectively. 200 and $300, respectively. 150 and $300, respectively. 150 and $200, respectively.

c

Refer to the diagrams, in which AD 1 and AS 1 are the "before" curves and AD 2 and AS 2 are the "after" curves. Other things equal, a decline in productivity is depicted by

c only

To say that "the U.S. public debt is mostly held internally" is to say that a. the public debt is equal to the land and building assets owned by the federal government. b. only interest payments on the public debt are an economic burden. c. the bulk of the public debt is owned by U.S. citizens and institutions. d. official figures understate the size of the public debt.

c.

Refer to the diagram. If the full-employment level of GDP is B and aggregate expenditures are at AE 3, the a. recessionary expenditure gap is ed. b. inflationary expenditure gap is BC. c. inflationary expenditure gap is ed. d. recessionary expenditure gap is BC.

c?

In the accompanying figure, if AD 1 shifts to AD 2, the full multiplier effect would be an increase in real GDP from Q2 to more than Q3. Q2 to Q3. Q1 to Q2. Q1 to Q3.

d

In the diagram, the economy's immediate-short-run AS curve is line ________, its short-run AS curve is ________, and its long-run AS curve is line ________. 2; 3; 4 1; 2; 4 1; 2; 3 3; 2; 1

d

In the graph, it is assumed that investment, net exports, and government expenditures are all increasing. are independent of GDP. vary inversely with GDP. vary directly with GDP.

d

Recessions have contributed to the public debt by increasing national saving. increasing the international value of the dollar. increasing real interest rates. reducing national income and therefore tax revenues.

d

Refer to the accompanying information for a closed economy. The introduction of $80 billion of government spending would a. increase the multiplier from 2.0 to 2.5. b. lower the multiplier from 2.5 to 2.0. c. increase the multiplier from 2.5 to 3.0. d. have no effect on the size of the multiplier.

d

Refer to the diagram. Which of the following would shift the investment demand curve from ID 1 to ID 3? a. a higher interest rate b. higher expected rates of return on investment c. lower expected rates of return on investment d. a lower interest rate

d

Refer to the given graph. A movement from a to b along C 1 might be caused by a(n) wealth effect of an increase in stock market prices. increase in real GDP. increase in income tax rates. recession.

d

Refer to the given graph. A shift of the consumption schedule from C 2 to C 1 might be caused by a(n) increase in real GDP. decrease in saving. decrease in income tax rates. reverse wealth effect, caused by a decrease in stock market prices.

d