AP MACRO
a household pays $5,000 in taxes and has an autonomous consumption of $10,000 and a marginal propensity to consume of .8. How much will that household consume if its income is $80,000?
$70,000
the government debt had been steadily growing since 1980. By 1996, it had grown to:
5 trillion
which equation shows how the actual reserve ratio is calculated
ARR= RRR+ERR
Legal changes that weaken the bargaining power of labor unions are made in the US. What happens to the AD/AS model in the short term
AS shifts to the right
One justification for a personal income tax cut is to increase the labor supply. Given that this policy will increase aggregate demand and supply, there will be an inflationary pressure if
Aggregate demand grows more rapidly than aggregate supply
When finding the Keynesian equilibrium, we began by drawing a 45-degree line. What does this line represent?
All points where aggregate expenditures equal GDP
Fiscal policy that increased RGDP is called
Expansionary
If the quantity of capital goods unused by firms decreases, what will happen to the amount of new investment that firms will undertake?
It will increase
What model of the economy most accurately reflects what happened during the Great Depression?
Keynesian
Keynes asserted that as disposable income rises, people are more likely to increase their consumption expenditures:
Less than the increase in their income
which equation shows how the money multiplier is calculated when banks hold no excess reserves
M = 1/RRR
Which of the following does not characterize the classical view of the economy
Prices and wages do not automatically adjust in the short run
Legal changes that weaken the bargaining power of labor unions are made in the US. Which of these takes place when wages are reduced?
RGDP increases and price levels fall
If government spending is increases by 100$ billion and taxes are raised by the same amount, the Keynesian model predicts that:
RGDP will increase by the amount of the government spending increase
Aggregate expenditures include expenditures from each of the 4 sectors the economy. Which of the following is not one of these expenditures?
Savings
The MPC represents the:
Share of any additional disposable income spent on consumption
according to Keynes:
Wages and prices are not flexible and do not adjust easily to changes in the economy.
Legal changes that weaken the bargaining power of labor unions are made in the US. What is the short term effect of these legal changes?
Wages are reduced
which of the following assets is the most liquid
a 20$ bill
which of these is a short run effect of contractionary monetary policy
a decrease in the price level
fiscal policy is rarely used today. This is because
all of the above
if the required reserve ratio decreases from 20% to 10%
all of the above
the FED uses monetary policy to
alter the money supply
what would incresse the number of dollars that a euro could buy
an increase in UD demand for European goods and services
Which of the following would reduce equilibrium RGDP
an increase in the prices of domestic goods and services
the slop of the AE line is equal to:
b, which is the MPC from the consumption function
With b equal to MPC, the tax multiplies is equal to:
b/(1-b)
why did the US savings and loan failures in the early 1980s create a large problem
because deposits and savings and loans were insured by the FSLIC
in general, the MPC is
between .85 and .95
An important similarity between the Keynesian model and the AD/AS model is that
both models allow for government intervention in the short run
in the section of the aggregate supply cube with a somewhat gently upward slope (the middle of the curve), when aggregate demand increases:
both real GDP and the price level rise.
if interest rates fall and the money supply remains constant, what will happen?
both velocity and NGDP will decrease
money in what type of account is included in all 3 measures of the money stock?
checking account
which of the following is not one of the main operating arms of the FED
congress
The only component of the agrrgete expenditures that depends on income is
consumption
what is an example of contractionary fiscal policy
cuts in government spending
Economic news leads U.S. households to expect a recession. What happens to the AD/AS model in the short term as a result of this news?
decrease in AD
Economic news leads U.S. households to expect a recession. What is one of the effects of the decrease in AD that results from the news of the recession.
decrease in nominal wages
Economic news leads U.S. households to expect a recession What is the short run effect of this news
decrease in price level
as interest rate increases
decrease the quantity of money demanded
why does the FED rarely use the RRR as a policy tool
decreasing the RRR in a time of recession makes banks less secure
Keynes believed that
demand creates supply
the US savings and loan crisis of the 1970s and the 1980s in an example of
disintermediation
the consumption function shows the relationship between consumption and
disposable income
True or false: f the MPC (b) is less than 1, the spending multiplier is also less than 1
false
when graphing the aggregate expenditures function, the axes are:
income and aggregate expenditures
what are politicians likely to want to fo to improve their chances of reelection
increase government spending
if the FED is following an expansionary monetary policy, it wants to
increase money supply
one of the ways the FED could implement a contractionary monetary policy is to:
increase the RRR
one of the ways the fed could implement a contractionary monetary policy is to:
increase the discount rate
to induce a 3% growth rate in the economy, monetarists believe that the money supply should be:
increased by 3% per year
what is the short run effect of an expansionary fiscal policy
increased inflation
When the economy is at full employment, an increase in net exports
increases in the price level in the AD/AS model, but does not change it in Keynesian model
If the economy is near full employment, AD/AS analysis says expansionary fiscal policy will cause
inflation
the Philips curve represents a tradeoff between
inflation and unemployment
If people have adaptive expectations, they'll change their expected rate of inflation under what condition
inflation is low for several years
the AD/AS model says that prices
influence the equilibrium level of production
what happens in the credit market when the fed buys bonds
interest rates fall
what happens when investment is elastic and the fed sells bonds
investment decreases a lot
the basic keynesian model is particularly applicable to situations in which the economy
is below the full employment level
the government borrows money by
issuing loans in the form of T-bonds
how large is the effect of a tax break on the economy
it depends on people perceptions of whether it is permanent or temporary decrease in taxes
what happens to the consumption function when marginal propensity to consume (MPC) increases
it gets steeper
What happens to the consumption function when the autonomous consumption decreases?
it shifts downward
What happens to the consumption function when taxes decrease?
it shifts upward
what will happen to investment of future expectations worsen and interest rates rise at the same time
it will decrease
M2 included all the following except
large time deposits
which of these would lead to an increase in unemployment
less government spending
what happens when the FED sells bonds
money supply decreases
what happens when the FED buys bonds
money supply increases
expansionary monetary policy might increase AS bc the lower interest rate would lead to
more investment and capital
which of the following variables included a money component
nominal GDP
which of the 3 tools of monetary policy is the preferred tool for changing the money supply
open market operations.
suppose the economy is operating below full employment. According to Keynesian theory, if government spending increases
output will increase without any significant change in prices
An expansionary fiscal policy:
raises GS and/or lowers taxes
regulating banks and savings and loans differently causes
savings and loans to have competitive advantage
what can the FED do to pursue a contractionary monetary policy
sell bonds
which of these is a type of commodity money
spanish gold doubloons
when there is hyperinflation and prices rise very quickly, which function does money fail to fulfill
store of value
which of the following is not one of the tool of monetary policy
tariffs and quotas
what would happen i fthe british governemnt increased the number of airplanes it buys from american
the # of dollar that a British pound could buy would decrease
what is ultimalry resposiabe for the size of the money supply
the FED
disposable income is
the after-tax income
what will happen to investment if future expectations improve and interest rates rise at the same time?
the answer is indeterminate
according to the quantity theory of money
the fed has no control over the level of production
when a firm decided to invest in new capital, it looks at
the interest rate and the return on investment
Keynes disagreed with the proposition that
the interest rate is the major determinant of savings
why is long run phillips curve vertical
the long run Phillips curve is vertical bc any level of inflation can occur at the full employment rate of unemployment in the long run
what happens when people have low inflationary expectations
the phillips curve shifts downward, going policy makers better options.
a reduction in tax rates may not stimulate the economy if
the tax cut is temporary and does not change permanent disposable income
At all points along a given consumption curve, the MPC is constant
true
True or false: According to Keynes, equilibrium occurs when aggregate expenditures equal total income
true
true or false: as income increases, aggregate expenditures also increase.
true
who would be hurt if the US places high tariff on sugar imported from Brazil
us sugar consumers
classical economics argues that
wages and prices adjust to create equilibrium.
when is monetary policy more effective
when money demand is inelastic and investment demand is elastic
when will a small change in the money supply have the biggest effect on interest rates
when the money demand curve is steep
when do people have the transaction motive to hold money
when they want to buy goods and services.