CH. 5 ECON

The sector of the economy that purchases the most goods and services is the:

household sector.

Typically, when real GDP goes up over a period of, say, one year, the rate of:

unemployment tends to fall.

Government economic policy should stimulate the economy during:

Periods of high unemployment and restrain the economy during periods of severe inflation.

Which of the following is a leakage into the spending stream by households?

Saving.

Fiscal policy involves:

Taxes, transfer payments, and government purchases.

A business cycle is:

a recurring period of gowth and decline in an economy's real output.

Money received by a household from the government for which there is no work directly performed in return is:

a transfer payment.

A notable difference between household personal consumption expenditures and business investment spending is that personal consumption expenditures:

are relatively stable from year to year, while investment spending fluctuates widely.

The least stable type of spending in the economy is:

business investment spending.

The sequence of events in a recession can be categorized as:

decreased spending >> lower output >> lower employment >> higher output..

Injections will stimulate an economy:

during all phases of the business cycle.

Fiscal policy and monitary policy influence the level of spending in the economy by:

effecting leakages from, and injections into, the circular flow.

The foreigh sector will stimulate economy activity in a country when:

exports exceed imports, and net exports are positive.

The economic policy that focuses on changing the size of the spending stream by changing government taxes and/or expenditures is:

fiscal policy.

You would expect the increase in economic activity caused by a $10 billion increase in government purchases of goods and services to be:

greater than the increase in economic activity caused by a $10 billion increase in transfer payments.

Financial institutions:

help channel money from savers to users of funds; are organizations such as banks, insurance companies, and savings associations; perform various services for holders of money, stocks, and other financial instruments.

In macroeconomics, "income-determined spending" is:

household spending based on income earned from producing goods and services.

Which of the following is NOT nonincome-determined spending:

household spending from wages.

The sequence of events in an expansion can be categorized as:

increased spending >> higher output >> higher employment >> higher income.

The federal government attempts to control business cycles because:

increases in economic activity could lead to inflation; decreases in economic activity lead to reduced output; decreases in economic activity lead to higher unemployment.

If total spending increases and the economy is at full employment:

inflation will result.

Monitary policy is designed to effect the level of economic activity by:

influincing savings and borrowing through the economy's financial institutions.

Spending from borrowing, and saving from income are:

injections into, and leakages from, the spending stream, respectively.

Injections include:

investment spending, government purchases, expots, and transfer payments.

Total spending on newly produced goods and services:

is the main force determining the economy's levels of output, employment, and income. Will have a dampening effect on the economy when it falls, and an expansionary effect when it increases. Is made up of the combined spending, businesses, government units, and foreign buyers in the economy.

Government intervention during the recession phase of a business cycle is designed to minimize the effects of loss of:

jobs, output, and ability to spend

If the levels of output, income and employment have increased, there has been:

less leaked from the spending stream than has been injected.

You would expect economic activity to decrease if investment spending, spending from borrowing and transfer payments, government purchases, and exports were:

less than saving, taxes, and imports.

If the levels of output, income and employment have decreased, there has been:

more leaked from the spending stream than has been injected.

The larger change in total output that results from a change in nonincome-determined spending is caused by the:

multiplier effect

The multiplier effect on total output in the economy occurs because an initial change in:

nonincome-determined spending leads to further changes in income determined spending.

An increase in transfer payments would directly increase:

nonincome-determined spending.

Personal consumption expenditures is spending by households:

on new goods and services.

The phase of the business cycle where real GDP, or output, reaches its maximum is the:

peak.

Government transfer payments:

provide an injection into the spending stream.

The two main categories of government expenditures are:

purchaese of goods and purchases of services.

The phase of the business cycle where real GDP, or output, is contracting is the:

recession.

The phases of a business cycle are:

recovery, peak, recession, trough.

Since the late 1940s, the American economy has had:

relatively long periods of recovery as compared to periods of recession.

Personal consumption expenditures would likely incease if there were a decrease in:

saving by households.

Injections are spending from:

sources other than household earned income that leads to an increase in output, employment, and income.

Which of the following is an injection into the spending stream from the household sector?

spending based on borrowing.

You would expect the level of economic activity to decrease if there were an increase in government:

taxes on businesses and households.

Leakages include:

taxes, savings, and imports.

You would expect the level of investment spending by businesses to increase if:

the rate of interest on borrowed funds decreased.

An economy will expand when:

total leakages are less than total injections.

The level of activity in the economy as a whole will remain unchanged if:

total leakages equal total injections.

The basic factor causing changes in the level of economic activity is changes in the level of:

total spending.

The most important determinant of an economy's levels of total output, employment, and income is:

total spending.

An economy will contract when spending from:

transfers and borrowing decreases, and saving and taxes increase.

An economy will expand when spending from:

transfers and borrowing increases, and saving and taxes decrease.