TEST#2
Changes that increases the Aggregate Supply
1. Discoveries of new raw materials 2. Decreased in marginal tax rates 3. An increase in the supple of labor 4. Increased in training and education 5. Increased in competition 6. decreased in input prices
Changes that increase Aggregate Demand
1. Improvements in economic conditions in. other countries 2. A reduction in the foreign exchange rate of the dollar 3. Increased security about jobs and future income 4. Tax decreases 5. Increased the amount of money in circulation
13) Using the above table, the National Income (NI) for the country is
318
10) In the traditional Keynesian model, an increase in government spending raises total planned real 10) expenditures by more than the original increase in government spending because A) consumption spending depends positively on real GDP. B) consumption spending is not related to real GDP. C) of the crowding-out effect on consumption spending. D) consumption spending depends negatively on real GDP.
A
10. Economic growth can be shown by________ A) a rightward shift in the aggregate supply curve. B) a leftward shift in the aggregate supply curve. C) a leftward shift in the production possibilities curve. D) no change in the aggregate supply curve.
A
12. According to Keynesian theory, the most important determinant of saving and consumption is A) the level of real disposable income. B) the stock of durable goods in the consumer's possession. C) the level of consumer indebtedness. D) the stock of liquid assets.
A
20) Automatic stabilizers are designed to A) moderate changes in disposable income. C) simplify the tax system. B) stabilize the bi-partisan budget process. D) promote global trade.
A
20) When the value of the dollar decreases, the net effect on the economy A) will be decrease in short-run aggregate supply and an increase in aggregate demand. B) will be an increase in short-run aggregate supply and a decrease in aggregate demand. C) will be a decrease in both aggregate demand and aggregate supply. D) will be an increase in both aggregate demand and aggregate supply.
A
21) By definition, a direct expenditure offset will occur whenever A) the government increases spending in an area that competes with the private sector. B) the interest rate falls. C) the interest rate rises. D) the government increases spending for the military.
A
21) In the short run, an increase in the price level induces firms to expand production because A) prices of inputs are held constant, so the higher prices for firms' products imply that it is profitable to expand production. B) higher prices allow firms to hire more inputs by offering higher prices for inputs, which increases productivity and profits. C) each firm must keep its production level up to the level of its rivals, and some firms will expand production as the price level increases. D) they can increase profits by increasing maintenance costs.
A
21) Refer to the above figure. The figure represents the consumption function for a consumer. Point B represents A) negative saving. B) autonomous consumption. C) positive saving. D) zero saving.
A
21) When economists refer to investment expenditures they mean the 21) A) use of today's resources to expand tomorrow's production or consumption. B) purchase of a consumer nondurable goods. C) production of intermediate goods. D) purchase of stocks or bonds.
A
22. All of the following would shift the LRAS curve to the right EXCEPT A) an increase in the overall price level. B) an increase in the size of the labor force. C) an improvement in technology. D) a net inflow of human capital.
A
32) Refer to Table 11.5. If both G and T decrease by 100, equilibrium output will: A) decrease by 100. B) increase by 100. C) decrease by 200. D) stay the same.
A
4) The expenditure approach to deriving gross domestic product sums the following categories of 4) spending: A) consumption, investment, government spending, and net exports. B) consumption, government spending, transfer payments, and net exports. C) consumption, income, government spending, and net exports. D) consumption, savings, investment, and government spending.
A
A decrease in aggregate demand will cause A) prices to fall according to classical economists, and unemployment to increase according to Keynes. B) aggregate supply to fall according to classical economists, and prices to fall according to Keynes. C) prices to fall and unemployment to increase according to both classical economists and Keynes. D) aggregate supply to fall according to Keynes, and unemployment to increase according to classical economists.
A
An example of an increase in gross private domestic investment spending that also increases Gross 9) Domestic Product (GDP) is when A) inventories of new cars accumulate on the lots of car dealers. B) a farmer buys a used tractor. C) a family sells its home because of a transfer. D) government increases spending on infrastructure.
A
An increase in the price level results in a A) downward shift in the AE curve and a movement up along the AD curve. B) leftward movement along both the AE and AD curves. C) downward shift in both the AE and AD curves. D) downward shift in the AD curve and a movement down along the AE curve.
A
Because of crowding out, 7) A) the effect of expansionary fiscal policy is partially offset by the decline in investment spending caused by higher interest rates. B) expansionary fiscal policy is completely achieved even with a decline in investment spending. C) expansionary fiscal policy during a recession must involve a tax increase. D) expansionary fiscal policy during a recession is reinforced by private investment spending.
A
Consider the above figure. If the aggregate demand went from AD2 to AD3, our nation would have gone from A) a recessionary gap to an inflationary gap. B) a recessionary gap to full-employment real GDP. C) full-employment real GDP to an inflationary gap. D) an inflationary gap to full-employment GDP.
A
If there is persistent inflation, A) long-run aggregate supply is growing at a slower rate than aggregate demand. B) long-run aggregate supply is growing at a faster rate than aggregate demand. C) long-run aggregate supply is constant. D) there is an excess of total planned expenditures.
A
In the Keynesian model, whenever planned saving exceeds planned investment, A) there will be unplanned inventory accumulation. B) real GDP will not be influenced. C) there will be unplanned inventory depletion. D) the interest rate will remain unchanged.
A
In the classical model, how do shifts in aggregate demand affect real GDP? A) Real GDP will remain unchanged. B) Increases in aggregate demand decrease real GDP. C) Decreases in aggregate demand increase real GDP. D) Increases in aggregate demand increase real GDP.
A
Non-income expense items included in the Gross Domestic Product (GDP) calculation and not 11) National Income include A) depreciation and indirect business taxes. B) indirect business taxes and corporate profits. C) corporate profits tax and indirect business taxes. D) depreciation and corporate profits.
A
Other things being equal, a reduction in taxes will 3) A) cause an increase in aggregate demand due to increases in consumption, investment, or net exports. B) lead to a reduction in the long run aggregate supply curve as businesses enjoy greater profits. C) influence the short run aggregate supply curve but not the aggregate demand curve. D) lead to a corresponding reduction in interest rates increasing the crowding out effect.
A
Refer to the above figure. A movement from B to D would be a result of A) an increase in labor productivity. B) an increase in the quantity of money in circulation. C) an increase in government expenditures. D) an increase in the marginal income tax rate.
A
Refer to the above figure. Point B A) equals autonomous consumption plus planned investment (treated similar to autonomous in model i.e. constant) plus autonomous government spending plus autonomous net exports. B) has no special significance. C) equals autonomous consumption. D) equals government expenditures.
A
The amount of time that it takes between recognizing an economic problem and implementing 12) policy to solve it is A) the action time lag. B) fiscal policy. C) the effect time lag. D) the recognition time lag.
A
The components of GDP using the income method (excluding indirect business taxes and 19) depreciation) are A) wages, interest, rents, and profits. B) wages and interest. C) consumption expenditures, investment expenditures, and government expenditures. D) consumption expenditures, investment expenditures, government expenditures, and net exports.
A
The consumption function shifts upward when A) the real wealth of the average household increases. B) population decreases. C) saving increases. D) real income increases.
A
The full-employment rate of output can A) be surpassed only in the short run. B) be surpassed in the long run only if input prices are flexible. C) be surpassed only when firms are not yet producing at full capacity. D) not be surpassed in either the short run or the long run.
A
The idea that creating tax incentives for individuals and firms to increase productivity leading to 11) an increase in long-run aggregate supply is A) supply-side economics. B) demand-side economics. C) consistent with crowding out. D) the Ricardian equivalence theorem.
A
The interest rate effect shows that if the price level increases, A) consumers and businesses will decrease their spending as the interest rate increases, thereby pushing up the cost of acquiring funds. B) U.S. exports and imports will both decrease. C) the real value of financial assets will increase. D) consumers and businesses will increase their spending to buy the same amount of goods as before to make up for the higher interest rates.
A
The long-run aggregate supply curve assumes that A) all factors of production are fully employed. B) there is no government purchasing of goods and services. C) only laborers are fully employed. D) the unemployment rate is more than 9 percent.
A
When the investment is graphed as a function of real GDP, A) it graphs as a horizontal straight line at the level of investment. B) it graphs as a 45-degree line starting at the indicated level of investment. C) it graphs as a negatively sloped line indicating the inverse relationship between interest rates and investment. D) it graphs as a vertical straight line.
A
Why is the long-run aggregate supply curve a vertical line? A) At that level of real GDP, production costs have fully adjusted to price changes. B) At that level of real GDP, the unemployment rate is 0 percent. C) At that level of real GDP, the inflation rate is 0 percent. D) At that level of real GDP, the production costs are at their lowest level.
A
13. Discretionary fiscal policy is A) changes in support for research and education in order to achieve certain national economic goals. B) deliberate changes in government expenditures or taxes in order to achieve certain national economic goals. C) automatic changes in government expenditures and interest rates that achieve certain national economic goals. D) used to achieve full employment by changing monetary growth targets.
B
20) In the above figure, if real GDP is below $12 trillion, inventories will be A) above target levels, so firms increase production. B) below target levels, so firms increase production. C) above target levels, so firms decrease production. D) below target levels, so firms decrease production.
B
23) Based upon the above table, if disposable income is $400 billion, saving equals A) $100 billion. B) -$50 billion. C) $50 billion.
B
8. 2) Intermediate goods are goods that are used up entirely in the production of final goods. As such, 2) intermediate goods A) make up only a small portion of Gross Domestic Product (GDP). B) are excluded in calculating Gross Domestic Product (GDP) because to do so would be to double count them. C) are included in Gross Domestic Product (GDP) only if produced within the borders of the United States. D) are excluded in calculating Gross Domestic Product (GDP) because they are not valuable.
B
Actual aggregate expenditure is A) never less than real GDP but can be greater than real GDP. B) always equal to real GDP. C) never greater than real GDP but can be less than real GDP. D) only equal to real GDP at the equilibrium level of aggregate planned expenditure.
B
An appreciation of the U.S. dollar ________ the price of U.S. imports, and ________ the price of U.S. exports. A) increases, increases B) lowers, increases C) increases, lowers D) lowers, lowers
B
An increase in ________ shifts the AE curve ________ and an increase in ________ shifts the aggregate demand curve ________. A) the price level; upward; autonomous expenditure; leftward B) the price level; downward; autonomous expenditure; rightward C) autonomous expenditure; upward; the price level; leftward D) autonomous expenditure; upward; the price level; rightward
B
Demand-pull inflation is A) inflation caused by reductions in long-run aggregate supply. B) inflation caused by increases in aggregate demand that are not matched by increases in aggregate supply. C) inflation caused by reductions in short-run aggregate supply. D) inflation caused by increases in aggregate demand that generate an even larger increase in aggregate supply.
B
Expansionary fiscal policy is used to A) make businesses more efficient. C) encourage private saving. B) combat recessions.
B
If equilibrium level of real Gross Domestic Product (GDP) is less than the full-employment real Gross Domestic Product (GDP) consistent with the position of the economy's long-run aggregate supply (LRAS) curve, then the difference between full-employment real Gross Domestic Product (GDP) and current equilibrium real Gross Domestic Product (GDP) is A) an inflationary gap. B) a recessionary gap. C) an aggregate demand shock. D) an aggregate supply shock.
B
If other factors are held constant, what happens when the federal government finances a growing 8) budget deficit by increasing the amount it borrows from the private sector? A) There will be an increase in net exports. B) There will be an increase in the interest rate. C) There will be a decrease in the interest rate. D) The crowding out effect will be cancelled out.
B
If your income stays the same and the price level increases, you will buy fewer goods and services due to the A) interest rate effect. B) real-balance effect. C) aggregate balances effect. D) open economy effect.
B
In economics, investment is defined as A) the spending by households on human capital and durable goods. B) the spending by businesses on capital goods and inventories. C) disposable income minus consumption. D) disposable income plus consumption.
B
In the classical model, changes in interest rates will always ensure that A) consumption equals income. B) saving equals investment. C) consumption equals production. D) consumption equals investment.
B
In the long run, an increase in government spending, other things equal, generates A) a lower real GDP in the short run. B) a higher price level. C) a higher real GDP in the long run. D) both a higher real GDP and a lower price level.
B
Keynesian economics predicts that if government policy makers deem current equilibrium real Gross Domestic Product (GDP) to be "too low," then an appropriate policy action could be to A) reduce the money stock, thereby causing aggregate demand to decrease and inducing a rise in fall in the price level that generates an increase in total planned expenditures. B) raise government spending, thereby increasing aggregate demand and pushing up real Gross Domestic Product (GDP) with little or no inflationary consequences. C) do nothing, because the economy is self-adjusting. D) increase taxes, thereby causing aggregate demand to increase and inducing a rise in real Gross Domestic Product (GDP) with little or no inflationary consequences.
B
Suppose the U.S. dollar gains strength against the euro (and against other major currencies). This strengthening of the dollar will cause which of the following to occur? A) The aggregate demand curve will shift to the right and the short-run aggregate supply will shift to the left. B) The aggregate demand curve will shift to the left and the short-run aggregate supply will shift to the right. C) the aggregate demand curve will shift to the left and the short-run aggregate supply will shift to the left. D) The aggregate demand curve will shift to the right and the short-run aggregate supply will shift to the right.
B
Suppose the marginal propensity to consume (MPC) equals 0.80, an increase in autonomous investment of $100 will lead to an increase in real Gross Domestic Product (GDP) by A) $800. B) $500. C) $100. D) $400
B
The aggregate supply curve shows A) what an economy can produce if resource prices are constant. B) the total of all planned production for an economy. C) that real GDP can only increase when the price level increases. D) the various quantities of goods consumers will purchase.
B
The curve that displays total planned real spending on goods and services at each price level by households, businesses, the government, and foreign residents is called A) the employment curve. B) the aggregate demand curve. C) the aggregate supply curve. D) the price level curve.
B
The larger the multiplier, the ________ the AE curve and the ________ the AD curve from an increase in investment. A) flatter; smaller the movement along B) steeper; larger the shift in C) steeper; smaller the shift in D) flatter; larger the movement along
B
The long-run aggregate supply when resources are fully employed A) has no relationship with the production possibilities curve. B) will always be associated with a point on the production possibilities curve. C) is determined by demand. D) will always be associated with a point outside the production possibilities curve.
B
The time that elapses between the implementation of a policy and its intended result is referred to 13) as A) the action time lag. C) the data lag. B) the effect time lag. D) the recognition time lag.
B
When investors buy more capital goods because the interest rates have fallen, the aggregate demand curve A) shifts left. B) shifts right. C) stays the same. D) does not shift
B
Which of the following would likely result in a shift of the aggregate demand curve to the right? A) a decrease in job security B) a tax cut C) a decrease in the quantity of money in circulation D) a rise in the real interest rate
B
Which one of the following is an example of discretionary fiscal policy used to correct an 5) inflationary gap? A) an agreement among major banks to lower interest rates B) a tax increase passed into law by Congress C) an increase in government expenditures approved by Congress D) decrease in the money supply by the Federal Reserve
B
You observe that unplanned inventories are increasing. You predict that there will be ________. A) an expansion B) a recession C) a business cycle D) a trough
B
25) Refer to the above figure. Suppose the original long-run equilibrium was at point B. What could have caused the move to the current equilibrium? A) Aggregate demand must have decreased. B) A temporary reduction in production due to bad weather. C) Input prices must have increased, causing long-run aggregate supply to increase. D) Decreases in the price level caused short-run aggregate supply to fall.
B->A
10. If you have $1,000 and the Gross Domestic Product (GDP) deflator increases from 100 to 120, then A) the $1,000 will buy 20 percent more of the goods and services produced by society. B) the value of the $1,000 increases. C) the $1,000 will buy 20 percent less of the goods and services produced by society. D) you will be able to buy fewer goods, but the real value of those goods will increase.
C
11. 1) Real GDP is ________ determined in the classical model and primarily ________ determined in the Keynesian model. A) supply; supply B) demand; demand C) supply; demand D) demand; supply
C
14) Suppose there are two policy options facing a vote in the Senate. In the first, government spending 14) will increase $50 billion, while the second option is to cut taxes by $50 billion. A Keynesian economist would argue for A) the tax option because it is easier to pass. The effects on total spending would be identical. B) the spending option because it won't affect the deficit the way the tax cut would. C) the spending option because it has a bigger impact on total spending. The spending directly raises total spending plus it works through the multiplier, while the tax cut only works through the multiplier. D) the tax option because it also affects the incentives workers face. Long-run aggregate supply will increase with the tax cut, but not with the spending increase.
C
18) Households receive a total income of $5 million. Of this, $3.5 million are wages received for labor 18) services, $1 million are rental payments, and $250,000 are interest payments received. What are the costs of production and profits equal to respectively? A) $5 million; $500,000 B) $4.75 million; $250,000 C) $5 million; $250,000 D) $4.75 million; 0
C
18) Refer to the above figure. Suppose the U.S. economy is currently operating at point C. Which of the 18) following actions would you recommend to the president of the United States? A) Increase government spending while holding taxes constant. B) Reduce taxes to stimulate investment, consumption and net exports. C) Engage in contractionary fiscal policy by reducing government spending. D) Reduce the interest rate to stimulate investment minimizing the crowding out effect.
C
23. An increase in the amount of physical capital will cause A) an increase in both aggregate supply and real GDP, but have no effect on the price level. B) aggregate demand and aggregate supply to increase by the same amounts, causing real GDP to increase and the price level to remain constant. C) an increase in both aggregate supply and real GDP and a reduction in the price level. D) an increase in both aggregate demand and real GDP, but have no effect on the price level.
C
24) Assume that the nominal GDP for a given year is equal to $12,400 billion and the GDP deflator 24) equals 112. Real GDP for that year is approximately A) $12,228.1 billion. C) $11,071.4 billion. B) $13,888.0 billion. D) $12,512.0 billion.
C
A stronger dollar leads to cheaper input prices for U.S. firms because A) U.S. producers of intermediate goods lower prices in order to benefit from the stronger dollar. B) U.S. workers are willing to work for less pay because of the stronger dollar. C) imports of raw materials and intermediate goods are cheaper. D) exports of raw materials and intermediate goods are cheaper.
C
An increase in U.S. prices relative to Japanese prices will A) increase total planned spending on U.S. goods and services B) decrease U.S. imports and increase U.S. exports C) increase U.S. imports and decrease U.S. exports D) decrease both U.S. exports and imports.
C
Assume a simple economy with only C and I. The consumption function is C = 200 billion + 0.8Y. 30) When equilibrium real GDP (Y) equals $200 billion, then Saving equals ________ billion. A) $0 B) $140 C) $-160 D) $-100
C
At tax rates higher than the tax rate that maximizes tax revenues along a Laffer curve, 16) A) a reduction in tax rates reduces tax revenues. B) an increase in tax rates increases tax revenues. C) a reduction in tax rates increases tax revenues. D) any variation in tax rates has no effect on tax revenues.
C
Economic growth will be associated with a constant price level when A) the increase in aggregate demand is less than the increase in long-run aggregate supply. B) the increase in aggregate demand is accompanied by a reduction in short-run aggregate supply. C) the increase in aggregate demand exactly equals the increase in long-run aggregate supply. D) the increase in aggregate demand is more than the increase in long-run aggregate supply.
C
How much people plan to consume at various levels of disposable income is known as A) inventory investment. B) investment. C) the consumption function. D) dissaving.
C
If the marginal propensity to consume (MPC) is 0.75 and government purchases increase by $200 12) billion, then A) equilibrium real Gross Domestic Product (GDP) will increase by $50 billion. B) the effect on equilibrium real Gross Domestic Product (GDP) cannot be determined from the given information. C) equilibrium real Gross Domestic Product (GDP) will increase by $800 billion. D) equilibrium real Gross Domestic Product (GDP) will increase by $200 billion.
C
If the marginal propensity to save (MPS) is 0.5 and net exports falls by $100 million, then 11) A) real Gross Domestic Product (GDP) will increase by $100 million. B) the effect on real Gross Domestic Product (GDP) cannot be determined from the given information. C) real Gross Domestic Product (GDP) will fall by $200 million. D) real Gross Domestic Product (GDP) will not change.
C
If the price level kept increasing, the short-run aggregate supply (SRAS) curve would get steeper because A) the long-run aggregate supply curve is horizontal. B) the rate at which capacity can be expanded increases indefinitely. C) there are limits to how long workers can work long hours and capital can go without proper maintenance. D) all the unemployed would eventually be hired.
C
In the short run, real GDP can increase beyond a level consistent with the long-run aggregate supply (LRAS) if A) the price level decreases accordingly. B) there is an increase in marginal tax rates. C) existing capital and labor are used more intensely. D) we measure in nominal terms instead of real terms.
C
In the traditional Keynesian model, if the government increases spending, then 9) A) both real Gross Domestic Product (GDP) and the price level will rise. B) real Gross Domestic Product (GDP) will remain constant and the price level will rise. C) real Gross Domestic Product (GDP) will rise and the price level will remain constant. D) real Gross Domestic Product (GDP) will increase and the price level will fall.
C
Real GDP equals $20 billion and aggregate planned expenditure is $30 billion. There is an unplanned ________ in inventories of ________ and real GDP will ________. A) increase; $50 billion; decrease B) increase; $10 billion; increase C) decrease; $10 billion; increase D) decrease; $10 billion; decrease
C
Refer to Table 11.5. The equilibrium real GDP (Y) in this economy is: A) 1600. B) 2400. C) 1500. D) 2000
C
Suppose that in 2013, the total value of all final services produced in a nation was $300 billion; the 29) total value of all final goods produced in that nation was $400 billion; and the total value of all final goods and services produced by that nation's firms in other countries was $200 billion. Gross domestic product was A) $900 billion. B) $500 billion. C) $700 billion. D) $600 billion.
C
The following would cause an upward shift in the C + I + G + X curve EXCEPT A) an increase in export spending. B) an increase in household wealth. C) an increase in disposable income. D) a decrease in import spending
C
The theory that government borrowing may function like an increase in taxes, that is, reducing 6) current consumption and business expenditures, was formulated by A) Adam Smith. C) David Ricardo. B) Jean Baptiste Say. D) John Maynard Keynes
C
What determines the total value of aggregate demand for U.S. real GDP? A) the Congressional Budget Office B) Wall Street C) the spending decisions of consumers, firms, and governments D) the Federal Reserve Board
C
When the price level falls, A) imports increase, and exports decrease, which causes a movement up along the aggregate demand curve. B) imports decrease and exports increase, which cause a movement up along the aggregate demand curve. C) imports decrease and exports increase, which cause a movement down along the aggregate demand curve. D) there is no impact on imports or exports, so there is no associated movement along the aggregate demand curve.
C
Which of the following factors could cause the economy to experience supply-side inflation? A) Increased security about jobs and future income. B) Increase the number of immigrants allowed into the country. C) Government laws which say that the average work week must be reduced by one hour every year. D) Develop new technology to increase productivity.
C
Which of the following is NOT a reason for the slope of the aggregate demand curve? A) The open-economy effect B) The interest rate effect C) The substitution effect D) The real balance effect
C
Which of the following is NOT an event that causes BOTH the short-run aggregate supply (SRAS) curve and the long-run aggregate supply (LRAS) curve to shift? A) Technological changes B) A change in an economy's labor supply C) A temporary change in the price of a key input D) A change in an economy's endowments of the factors of production
C
Which of the following shifts the aggregate expenditure curve AND shifts the aggregate demand curve? I. a decrease in investment II. a change in the price level III. an increase in exports A) III only B) I and II C) I and III D) II and III
C
Which of the following statements is true about the long-run and short-run aggregate supply curve in the classical model? A) The long-run aggregate supply curve is not defined, and the short run curve is vertical. B) The long-run aggregate supply curve is vertical, and the short-run curve is horizontal. C) The long-run curve is vertical, and there is no short-run curve since all adjustments occur quickly. D) The long-run and short-run curves start out horizontal and eventually become vertical.
C
12) Indirect business taxes include all of the following EXCEPT 12) A) sales taxes. C) taxes on business equipment. B) taxes on business property. D) taxes on corporate profits.
D
14) According to the above table, national income is A) $10,646 billion. B) $11,917 billion. C) $10,770 billion. D) $13,271 billion.
D
15) Consider the above figure. This curve suggests that as the government raises the tax rate, a point 15) will eventually be reached at which the revenues that are collected will A) approach infinity. B) increase. C) become negative. D) decline.
D
16) Refer to the above figure. If the aggregate demand curve shifts beyond AD5, then the economy will experience A) structural inflation. B) stagflation. C) cost-push inflation. D) demand-pull inflation.
D
19) Which one of the following is NOT an automatic stabilizer? 19) A) unemployment compensation programs B) the income tax system C) the system of welfare payments D) the system of national defense procurement
D
20) Which of the following is included in Gross Domestic Product (GDP)? 20) A) Sales of financial assets to foreign firms B) Purchases of stocks and bonds by individuals C) Purchases of stocks and bonds by firms D) Investment spending on capital goods
D
22) In the consumption function model, the 45-degree line represents where A) planned real consumption spending is equal to zero. B) planned real saving is greater than actual real savings. C) the real disposable income is equal to zero. D) planned real saving is equal to zero.
D
3) The income approach to measuring GDP A) excludes durable consumer goods since they last more than a year. B) excludes profits since profits are a cost of production. C) adds the dollar value of final goods and services. D) adds the income received by all factors of production.
D
A rightward shift of long-run aggregate supply without any change in aggregate demand A) increases the price level along with an increase in real GDP. B) will leave real GDP unchanged. C) increases the price level without any change in real GDP. D) results in a lower price level or secular deflation.
D
A short-lived increase in oil prices caused by destruction of oil-producing and oil-refining 7) facilities by a large hurricane will A) shift the LRAS curve to the right. B) shift the AD curve to the right. C) shift the SRAS curve to the right. D) shift the SRAS curve to the left.
D
A stronger U.S. dollar leads to ________ in SRAS and ________ in AD simultaneously. A) a leftward shift ; a rightward shift B) a rightward shift; a rightward shift C) a leftward shift; a leftward shift D) a rightward shift; a leftward shift
D
According to Keynes, the "stickiness" of wage rates could best be explained by A) short-term labor contracts. B) government interference. C) minimum wage laws. D) unions and long-term labor contracts.
D
According to the classical model, investment A) is a function of the nominal GDP. B) is influenced by the money illusion at low income levels. C) is a function of real GDP. D) is inversely related to the interest rate.
D
Along a short-run aggregate supply curve, which of the following is (are) held constant? A) profits B) aggregate demand C) real GDP D) input prices.
D
An increase in the amount of money in circulation would cause a A) shift of the aggregate demand curve to the left. B) movement down the aggregate demand curve. C) movement up the aggregate demand curve. D) shift of the aggregate demand curve to the right.
D
Cost-push inflation is A) inflation caused by increases in aggregate demand that are not matched by increases in aggregate supply. B) inflation caused by increases in aggregate demand that generate an even larger increase in aggregate supply. C) inflation caused by decreases in aggregate supply that generate an even larger decrease in aggregate demand. D) inflation caused by decreases in aggregate supply that are not matched by decreases in aggregate demand.
D
Given the following data, calculate the GDP. 8) wages = $500 rent= $100 A) GDP = $11,400 government spending= $2,500 consumer spending= $7,800 B) GDP = $13,000 private investment = $2,100 net exports = $-400 C) GDP = $12,400 D) GDP = $12,000
D
If real Gross Domestic Product (GDP) is above its equilibrium level, A) planned investment is greater than planned saving. B) firms are not maximizing their profits. C) planned consumption is less than actual consumption. D) firms accumulate unplanned inventories.
D
If real disposable income increases, the average propensity to consume will A) initially increase, and then decrease. B) increase. C) remain constant. D) decrease.
D
If the dollar appreciates and foreign goods become less expensive, the total planned expenditures on domestic goods and services will A) increase due to the open economy effect. B) increase due to the interest rate effect. C) fall due to the interest rate effect. D) fall due to the open economy effect.
D
If the economy is operating on the long-run aggregate supply curve, then expansionary fiscal 17) policy will A) generate an increase in real GDP and higher prices in both the short run and the long run. B) generate an increase in real GDP without higher prices in the short run, but then real GDP will return to its long-run level, and the price level will increase. C) generate higher prices in the short run, but will induce aggregate supply to increase in the long run. D) generate an increase in real GDP and higher prices in the short run, but then real GDP will decrease to its long-run level, and the price level will increase some more.
D
In the circular flow, ________ provide the factor services. A) producers C) businesses B) businesses and households D) households
D
In the simple circular flow model, total income in the United States must equal 7) A) the total monetary value of all final goods and services. B) wages + rents + interest + profits. C) the yearly amount earned by our nation's resources. D) All of the above are correct.
D
Keynes argued that because of sticky prices and wages, A) the aggregate demand curve is vertical. B) the long-run aggregate supply curve slopes downward. C) the short-run aggregate supply curve is probably vertical. D) the short-run aggregate supply curve could be horizontal.
D
Refer to the above figure. If the price level is 80, A) the total planned real expenditures by individuals, businesses, and the government are less than total planned production by firms. B) the aggregate demand curve will automatically shift leading to a stable equilibrium. C) the economy will have economic growth and the new equilibrium price level will be 80. D) the total planned real expenditures by individuals, businesses, and the government exceed total planned production by firms.
D
Refer to the above figures. Which panel(s) represent the effect of a decrease in labor productivity? A) Panel D only. B) Panel A only. C) Panels A and C only. D) Panels B and D only.
D
Refer to the above table. When real GDP equals $10 trillion, A) unplanned inventories will increase. B) government expenditures will increase. C) the economy is in equilibrium. D) unplanned inventories will decrease.
D
Suppose total planned expenditures equal $14.4 trillion when the value of the price level is 95. If the price level dropped to 90, total planned real expenditures will equal A) less than $14.4 trillion. B) $14.4 trillion. C) less than $14.4 trillion but more than $1 trillion. D) more than $14.4 trillion.
D
The average propensity to consume is the A) rate at which real disposable income changes as planned consumption changes. B) ratio of changes in planned consumption to changes in real disposable income. C) slope of the consumption function. D) percentage of total disposable income consumed.
D
The break-even point refers to A) the maximum amount of dissaving a person can experience. B) the amount of autonomous consumption. C) a point at which planned real consumption is for greater than real disposable in D) the point at which planned real consumption equals real disposable income.
D
The investment function will shift when there is a change in A) the opportunity cost of retained earnings. B) the interest rate. C) the cost of borrowing. D) firms' profit expectations.
D
The value of the multiplier in the economy illustrated in the figure above is A) 2.5. B) 4.0. C) 10.0. D) 2.0.
D
When the price level is below the level at which the aggregate demand curve crosses the long run aggregate supply curve A) total planned real expenditure will be lower than actual real GDP, and the price level will increase. B) there will be no price level change. C) there will be pressures that will lead to a shift of either the aggregate demand or the long run aggregate supply curves. D) total planned real expenditures will exceed actual real GDP, and the price level will increase.
D
Which of the following actions could be undertaken if the government wants to close a recessionary gap? A) Increase taxes and increase government spending. B) Reduce taxes and reduce government spending. C) Increase taxes and reduce government spending. D) Reduce taxes and increase government spending.
D
________ consumption is consumption that will occur ________ the level of GDP and disposable income. A) Induced; independent of B) None of the above answers is correct. C) Autonomous; depending on D) Autonomous; independent of
D