Principles of Macroeconomics Chapters 10, 11, & 13

Refer to the diagram. The break-even level of income is:

$150.

In the above example, autonomous consumption is:

$200

Automatic, or non-discretionary, fiscal policy is so named because it:

(d) both (a) and (b).

If government decreases its tax revenues by $5 billion and the MPC is 0.8, then we can expect the equilibrium GDP to:

increase by $20 billion.

Contractionary fiscal policy is so named because it:

is designed to contract real GDP and shift the Aggregate Demand curve to the left.

According to Keynes, the most important determinant of consumption and saving is the:

level of income.

If the MPC in an economy is 0.75, a $1 billion increase in taxes will ultimately reduce equilibrium GDP by:

$3 billion.

If the MPC in an economy is 0.8, a $1 billion increase in government spending will ultimately increase equilibrium GDP by:

$5 billion.

(Advanced analysis) Answer the question on the basis of the following information for a mixed open economy. The letters Y, Ca, Ig, Xn, G, and T stand for GDP, consumption, gross investment, net exports, government purchases, and net taxes respectively. Figures are in billions of dollars. Refer to the information. The equilibrium level of GDP for this economy is:

$530.

(Advanced analysis) Answer the question on the basis of the following consumption schedule: C = 20 + .9Y, where C is consumption and Y is disposable income. Refer to the given data. At an $800 level of disposable income, the level of saving is:

$60.

(Advanced analysis) Answer the question on the basis of the following consumption schedule: C = 20 + .9Y, where C is consumption and Y is disposable income. Refer to the given data. At an $800 level of disposable income, the level of consumption is:

$740.

Discretionary fiscal policy is so named because it:

(d) both (a) and (b).

An appropriate contractionary fiscal policy for severe demand-pull inflation is:

(d) both (b) and (c).

An appropriate expansionary fiscal policy for a severe recession is:

(d) both (b) and (c).

Refer to the given data. The marginal propensity to consume is:

.80.

Answer the question on the basis of 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. Refer to the information. The recognition lag of fiscal policy is reflected in events:

1 and 2.

The spending multiplier is:

1/MPS.

At equilibrium GDP in a private closed economy:

all of the above.

Supply-side economics suggests focusing fiscal policy on the short-run aggregate supply curve to stimulate economic growth by:

all of the above.

The equilibrium level of GDP occurs where:

all of the above.

Compared to consumption, investment spending in the United States tends to be unstable because:

all of these contribute to the instability.

If unintended decreases in business inventories occur, we can expect:

an increase in GDP and falling unemployment.

Assume the economy's consumption and saving schedules simultaneously shift downward. This must be the result of:

an increase in personal taxes.

If for some reason households become increasingly thrifty, we could show this by:

an upward shift of the saving schedule.

Refer to the given diagram. The economy is dissaving:

at income level H.

The immediate-short-run aggregate supply curve represents circumstances where:

both input and output prices are fixed.

The amount by which federal tax revenues exceed federal government expenditures during a particular year is the:

budget surplus.

In a private closed economy, when aggregate expenditures exceed GDP:

business inventories will fall.

In a private closed economy, when aggregate expenditures are less than GDP:

business inventories will rise.

The U.S. public debt:

consists of the historical accumulation of all past federal deficits and surpluses.

The spending multiplier applies to:

consumer, investment, net exports, and government spending.

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.

If MPC = .5, a simultaneous decrease in both taxes and government spending of $20 will:

decrease GDP by $20.

If government decreases its purchases by $5 billion and the MPC is 0.75, then we would expect the equilibrium GDP to:

decrease by $20 billion.

Automatic and Discretionary fiscal policy will both stabilize the economy most when:

deficits are incurred during recessions and surpluses during inflations.

Refer to the diagram. Consumption equals disposable income when:

disposable income is B.

It is true that:

equal increases in government spending and taxes increase the equilibrium GDP.

Refer to the given diagram. At income level F, the volume of saving is:

CD.

At equilibrium GDP in a mixed open economy:

all of the above.

(Advanced analysis) Answer the question on the basis of the following information for a mixed open economy. The letters Y, Ca, Ig, Xn, G, and T stand for GDP, consumption, gross investment, net exports, government purchases, and net taxes respectively. Figures are in billions of dollars. Refer to the information. If government desired to raise the equilibrium GDP to $650, it could:

raise G by $30 or reduce T by $40.

The most likely way the public debt burdens future generations is by:

reducing the current level of investment.

If investment increases by $20 billion and the economy's MPC is .5, the aggregate demand curve will shift:

rightward by $40 billion at each price level.

Imports have the same effect on the current size of GDP as:

saving.

If government increases its tax revenues by $15 billion and the MPC is 2/3, then we can expect the equilibrium GDP to:

decrease by $30 billion.

Refer to the given graph. A movement from b to a along C1 might be caused by a(n)

decrease in disposable income.

A decrease in disposable income:

decreases the amount of both consumption and saving by moving downward to the left along both the consumption and saving schedules.

In the diagram, the economy's relevant aggregate demand and immediate-short-run aggregate supply curves, respectively, are lines:

4 and 3.

(Advanced analysis) Answer the question on the basis of the following information for a mixed open economy. The letters Y, Ca, Ig, Xn, G, and T stand for GDP, consumption, gross investment, net exports, government purchases, and net taxes respectively. Figures are in billions of dollars. Refer to the information. The spending multiplier for this economy is:

4.

(Advanced analysis) Answer the question on the basis of the following information for a mixed open economy. The letters Y, Ca, Ig, Xn, G, and T stand for GDP, consumption, gross investment, net exports, government purchases, and net taxes respectively. Figures are in billions of dollars. Refer to the information. The equilibrium level of GDP for this economy is:

530.

Which of the following would increase GDP by the greatest amount?

A $20 billion increase in government spending

Assume the current equilibrium level of income is $200 billion as compared to the full-employment income level of $240 billion. If the MPC is 0.625, what change in taxes is needed to achieve full employment?

A decrease of $24 billion.

Assume the current equilibrium level of income is $4,625 billion as compared to the full-employment income level of $4,750 billion. If the MPC is 0.8, what change in taxes is needed to achieve full employment?

A decrease of $31.25 billion.

Assume the current equilibrium level of income is $3,000 billion as compared to the full-employment income level of $4,000 billion. If the MPC is 0.75, what change in taxes is needed to achieve full employment?

A decrease of $333.3 billion.

Assume the current equilibrium level of income is $200 billion as compared to the full-employment income level of $240 billion. If the MPC is 0.625, what change in government spending is needed to achieve full employment?

An increase of $15 billion.

Assume the current equilibrium level of income is $4,625 billion as compared to the full-employment income level of $4,750 billion. If the MPC is 0.8, what change in government spending is needed to achieve full employment?

An increase of $25 billion.

Assume the current equilibrium level of income is $3,000 billion as compared to the full-employment income level of $4,000 billion. If the MPC is 0.75, what change in government spending is needed to achieve full employment?

An increase of $250 billion.

(Advanced analysis) Answer the question on the basis of the following data: Which of the following equations correctly represents the given data?

C = 40 + .6Yd.

Other things being equal, a decrease in an economy's exports will:

Decrease domestic aggregate expenditures and the equilibrium level of GDP

Due to automatic stabilizers, when the nation's total income rises, government transfer spending:

Decreases and tax revenues increase

John Maynard Keynes created the aggregate expenditures model based primarily on what historical event?

Great Depression.

Refer to the diagram. Which of the following would shift the investment demand curve from ID1 to ID2?

Higher expected rates of return on investment.

Ceteris paribus, a decrease in the real interest rate will result in a(n):

Increase in the quantity-demanded of investment.

One advantage of automatic fiscal policy over discretionary fiscal policy is that automatic fiscal policy:

Is not subject to the timing problems of discretionary policy

Refer to the figure. The consumption schedule indicates that:

up to a point consumption exceeds income but then falls below income.

The aggregate expenditures model is built upon which of the following assumptions?

Prices are fixed.

(Advanced analysis) The equation for the given saving schedule is:

S = -20 + .2Yd.

Which of the following will not tend to shift the consumption schedule upward?

The expectation of a future decline in the consumer price index.

The total amount of debt owed by the Federal government is represented by the total value of the outstanding:

U.S. government securities

Refer to the given graph. A shift of the consumption schedule from C1 to C2 might be caused by a(n):

wealth effect of an increase in stock market prices.

If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule:

will shift downward.

An inflationary expenditure gap is the amount by which

aggregate expenditures exceed the full-employment level of GDP.

If unintended increases in business inventories occur, we can expect:

a decline in GDP and rising unemployment.

Taxes represent:

a leakage of purchasing power, like saving.

A $1 increase in government spending on goods and services will have a greater impact on the equilibrium GDP than will a $1 decline in taxes because:

a portion of a tax cut will be saved.

The immediate determinants of investment spending are the:

expected rate of return on capital goods and the real interest rate.

The level of aggregate expenditures in the private closed economy is determined by the:

expenditures of consumers and businesses.

If government increases its purchases by $15 billion and the MPC is 2/3, then we would expect the equilibrium GDP to:

increase by $45 billion.

The crowding-out effect of expansionary fiscal policy suggests that:

increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

An increase in disposable income:

increases the amount of both consumption and saving by moving upward to the right along both the consumption and saving schedules.

Investment and saving are, respectively:

injections and leakages.

Viewed through the aggregate expenditures model, the U.S. recession of 2007-2009 resulted mainly from:

insufficient aggregate expenditures.

Expansionary fiscal policy is so named because it:

is designed to expand real GDP and shift the Aggregate Demand curve to the right.

If investment decreases by $10 billion and the economy's MPC is .8, the aggregate demand curve will shift:

leftward by $50 billion at each price level.

An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the:

multiplier effect.

A ____________ income tax system is one in which taxes as a percentage of income increase as income increases.

progressive

Other things equal, an increase in both business taxes and operating costs will:

shift the investment-demand curve to the left.

The Laffer curve suggests that:

tax rates that are too high will actually lead to less tax revenue for government.

A recessionary expenditure gap is

the amount by which the full-employment GDP exceeds the level of aggregate expenditures.

When current government expenditures exceed current tax revenues and the economy is achieving full employment:

the cyclically adjusted budget has a deficit.

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.