ECO231 Chapter 9 -12
If the marginal propensity to consume is equal to 0.70 and income rises by $20 billion in an economy, then consumption spending will increase by:
$14 billion
The table given below shows the disposable income and consumption of a household. In the table below, the level of saving at a disposable income of $1,200 is:
$240
For the aggregate demand and aggregate supply listed in schedule #2 of the table given below, the equilibrium output level and price level are:
$6.5 and 120, respectively.
Which of the following best describes aggregate expenditure?
C + I + G + (X − M)
Which of the following best illustrates the use of discretionary fiscal policy?
Congress passing a bill authorizing $2 billion in additional spending when it receives news of a deepening recession
Which of the following macroeconomic variables would likely be affected by a fiscal policy?
Employment
_____ is the reward savers earn for deferring consumption.
Interest
Which of the following is true of the short-run aggregate supply curve?
It shows the relation between the price level and the quantity of aggregate output firms supply, other things constant.
Which of the following countries hold the most U.S. Treasury securities?
Japan and China
A decrease in disposable income will:
cause a downward movement along the consumption function.
An expansionary gap in the short-run results in:
cost-push inflation in the long run
When an economy produces its potential output, _____ is zero.
cyclical unemployment
Stagflation is defined as:
decreased output accompanied by a higher price level.
The consumption function relates consumption spending to _____.
disposable income
A(n) _____ provides guaranteed benefits for those who qualify under government transfer programs such as Social Security or Medicare.
entitlement program
The difference between consumption spending and disposable income _____.
equals saving
If the spending multiplier is greater than 1.0, a $200 billion increase in autonomous investment will cause:
equilibrium real GDP demanded to increase by more than $200 billion
The potential output of an economy is the level of output produced when the:
expected price level equals the actual price level.
The consumption function assumes that:
factors other than disposable income affect consumption, but those are held constant along the consumption function.
Suppose the real wage of a worker remains unchanged between Year 1 and Year 2 but the nominal wage decreases from $20 in Year 1 to $18 in Year 2. This implies that the price level has:
fallen by 10 percent.
A federal budget deficit occurs when:
federal government purchases exceed net taxes
The budget of an economy is said to be in deficit when:
federal outlays exceed revenues.
If the price level in the current year is much higher than the expected price level in an economy, _____.
firms will increase production beyond the economy's potential level
A budget philosophy using fiscal policy to achieve the economy's potential GDP, rather than balancing budgets either annually or over the business cycle, is termed:
functional finance.
The U.S. federal income tax is progressive, which means that _____.
high-income individuals are taxed at a higher rate than low-income individuals
An increase in net wealth will:
increase consumption and decrease saving at each level of income.
The figure below shows equilibrium in an aggregate demand-aggregate supply model. The shift from AS to AS' in this figure represents a(n):
increase in short-run aggregate supply
A tax is considered to be independent of:
real GDP
An increase in the market interest rate, other things equal, will _____.
reduce the amount invested because the opportunity costs of investing will be higher
Historically, consumption spending in the United States has _____.
remained approximately constant as a percentage of income
The short run is a period of time during which:
resource buyers and sellers cannot adjust fully to changes in the price level.
A higher interest rate will:
shift the consumption function downward
A possible budget reform involves:
simplifying the budget document by concentrating only on major groupings and eliminating line items.
Supply-side economics emphasized government policies to:
stimulate real GDP by improving incentives to work.
The federal budget is:
submitted by the President to Congress and contains spending proposals.
Net taxes are:
taxes minus transfer payments.
Increasing U.S. trade deficits result in:
the accumulation of dollars overseas.
The fraction of a change in disposable income that is consumed is called _____.
the marginal propensity to consume
When the economy's actual price level exceeds the expected price level in the short run, __________.
the real wages of workers decline
The effectiveness of any stimulus program depends on:
the size of the tax and spending multipliers
Government outlays equal:
the sum of government purchases and transfer payments.
The natural rate of unemployment is:
the unemployment rate at which the economy is producing its potential GDP.
The real wage is equal to the:
wage measured in terms of the quantity of goods and services it buys.
A biennial budget:
would encourage cabinet members to focus more on running their agencies rather than being involved in budget deliberations.
_____ is contrary to a laissez-faire economic system.
Active government intervention in all economic decisions
Which of the following components of aggregate expenditure is most subject to crowding out?
Investment spending
The U.S. government's fiscal year extends from:
October of one year to September of the next year.
Which of the following is a component of aggregate demand?
Purchases by government
Which of the following is true of the federal budget?
The federal budget is a plan for federal government outlays and revenues for a specified period, usually a year.
Which of the following was a successful application of fiscal policy in the United States?
The tax cut of 1964
The debt ceiling is:
a limit on the total amount of money the federal government can legally borrow.
A(n) _____ is a budget philosophy that was followed prior to the Great Depression that aimed at matching annual revenues with outlays, except during war time.
annually balanced budget
A _____ is a congressional agreement about total outlays, spending by major category, and expected revenues, which guides spending and revenue decisions by the many congressional committees and subcommittees.
budget resolution
A technological change that positively affects business expectations will:
cause a rightward shift of the investment demand curve
One lesson of the Great Depression was that potential GDP could _____.
exceed equilibrium GDP
Political business cycles result:
from the economic fluctuations that occur when discretionary policy is manipulated for political gain.
Fiscal policy is concerned with _____.
government spending and taxation
If incomes in the United States increase, other things equal, then U.S. _____.
imports increase and exports remain constant
If the marginal propensity to consume, MPC, is less than 1 and a household's disposable income increases by $2,000, the household's consumption will _____.
increase by less than $2,000
The fact that some resource prices are fixed by contracts help explain why firms:
increase output in the short run when the price level increases.
A decrease in net taxes
increases GDP less than an equal increase in government purchases.
A decrease in net taxes:
increases GDP less than an equal increase in government purchases.
The national debt:
is a stock variable measuring the net accumulation of past deficits.
The short-run aggregate supply curve:
is positively sloped.
The most important determinant of a household's consumption spending is:
its disposable income
The federal budget deficit becomes _____ during recessions because _____.
larger; transfer payments increase and tax revenues decline
The effect of automatic stabilizers on the business cycle is to:
make both upswings and downswings smaller.
The fraction of an increase in income that is saved is referred to as the _____.
marginal propensity to save
If government purchases increase and net taxes decrease, _____.
output and employment will increase
A decrease in the price level will _____.
shift the consumption function upward
The passage of the Employment Act of 1946 assigned:
the federal government the responsibility for promoting full employment and price stability.
The amount by which actual output falls short of potential output is called:
an recessionary gap.
The Budget of the United States Government is officially submitted by:
: the President to Congress and contains spending and revenue proposals for the upcoming fiscal year.
Which of the following will not shift the consumption function?
A change in household disposable income
Which of the following is least likely to cause a shift of the consumption function?
A change in investment spending
Which of the following would increase aggregate demand?
A deficit in the government budget
Which of the following is most likely to cause the long-run aggregate supply curve to shift rightward?
A technological breakthrough with widespread practical applications
The figure given below depicts the long-run equilibrium in an aggregate demand-aggregate supply model. Which of the following is indicated by the arrow given in this figure?
An increase in long-run aggregate supply
The rate of unemployment that occurs when the economy is producing its potential GDP _____.
b. is called the natural rate of unemployment
When a budget is not approved in time, _____.
agencies operate on the basis of continuing resolutions
Fiscal policy focuses on manipulating _____.
aggregate demand to smooth out business fluctuations
Given the desire of politicians to get reelected, they might try in the short run to use _____.
an expansionary fiscal policy
An increase in aggregate demand in the long run will most likely result in:
an increase in the price level but no change in the output level.
Discretionary fiscal policy is a policy that _____.
is an intentional change in taxation or government spending
The marginal propensity to consume:
is the change in consumption relative to a change in disposable income.
If a household's income rises from $46,000 to $46,700 and its consumption spending rises from $35,800 to $36,400, then its:
marginal propensity to consume is 0.86.
If a household's income falls from $20,000 to $17,000 and its consumption spending falls from $18,000 to $15,000, then its:
marginal propensity to save is 0.
The nominal wage is:
measured in current dollars rather than in constant dollars
Suppose the government expenditure increases by $200 and the simple spending multiplier equals 5. The final increase in output will be:
more than $200
Problems with the federal government budget process include:
most of the expenditures being for entitlement programs.
If a government runs a cyclically balanced budget, its revenue will equal its expenditure:
over the course of the business cycle.
When actual output exceeds potential output, _____.
prices tend to increase.
