ECON-7-9

(Table) When disposable income increases from $1,000 to $1,200, what is the value of the marginal propensity to save?

0.5

If the Bureau of Economic Analysis reports that the annualized U.S. growth rate was 2.5% for the second quarter, then the actual growth rate from the first quarter to the second quarter was:

0.625%.

The slope of the saving schedule is:

1 minus the marginal propensity to consume.

The figure shows the aggregate demand (AD) curve, short-run aggregate supply (SRAS) curve, and long-run aggregate supply (LRAS) curve. In the figure, the economy is initially in equilibrium at full employment at point e. Assume aggregate demand declines by 300 units (shifts from AD0 to AD1). What is the new short-run macroeconomic equilibrium output?

2,600 units

_____ is the output of goods and services demanded at different price levels.

Aggregate demand

The recent global financial instability:

All of the answers are correct.

Which of the following illustrates the paradox of thrift?

Consumer uncertainty causes people to save more; consumption falls; equilibrium income and production falls; savings decreases because income is lower.

Which of these statements is true?

Cost-push inflation causes a decline in output, an increase in price level, and an increase in unemployment.

Energy independence has been a goal for many decades. But only in the past several years has the increased focus on renewable energy sources, such as solar, wind, and water, taken on greater significance. How does achieving energy independence contribute to labor productivity and economic growth?

Energy independence results in more jobs available for consumers and increases economic growth.

Which of the following is NOT a way in which today's economy differs from the economy during the Great Depression?

Our understanding of macroeconomics is worse today than it was in the 1930s.

The classical form of the production function states that:

Output = f(L, K)

The table gives the output corresponding to each price level in an economy. Use the table to answer the following question: What is the equilibrium output and price level?

Q = 600; P = 100

In 2016, a worldwide health scare resulted from the rapid spread of the mosquito-borne Zika virus, which was alleged to cause birth defects in infected pregnant women. Brazil, which also hosted the Summer Olympic Games that same year, was the epicenter of the epidemic. How did a health epidemic experienced in Brazil affect its aggregate demand?

The Zika virus decreased aggregate demand because fewer people traveled to Brazil for the Olympic Games, which resulted in a decline in consumer purchases from tourists.

Which of the following did classical economists believe would happen if the economy experienced a downturn?

The economy would self-correct.

What would cause the price level to decrease and employment to increase?

a shift to the right of the SRAS curve

Which of the following factors is NOT generally viewed by economists as critical to economic growth?

access to large amounts of natural resources

After the acceptance of Keynesian analysis, the government:

actions toward macroeconomic policy grew significantly.

One of the potential negative consequences of both economic and population growth is that the Earth's natural resources will eventually be exhausted. All of these might prevent the exhaustion of natural resources EXCEPT:

adding more electricity lines into cities.

(Figure: Predicting Aggregate Demand Shifts) Which of the following would shift the aggregate demand curve from AD2 to AD1?

an increase in interest rates

Developing countries can achieve higher productivity per unit of capital because they can use technologies developed by other countries. This is known as the:

catch-up effect.

All of these explain a change in long-run aggregate supply EXCEPT:

changes in government spending.

An increase in interest rates will cause:

consumers to purchase fewer goods and services.

All of these explain why investment cannot be expected to grow sufficiently to pull an economy out of a depression EXCEPT:

consumption rises in a depression.

The 45-degree line in the Keynesian model represents a set of points where _____ equals _____.

disposable income; consumption

The government decides to subsidize the development of a new communications network. It is acting in its role to promote economic growth by:

enhancing physical and human capital.

The ability to use physical resources in creative ways to produce goods and services is known as:

entrepreneurial ability, technology, and ideas.

According to the classical model, which of the following developments does NOT contribute to economic growth?

higher interest rates

The government helps build technology and ideas in all these ways EXCEPT by:

imposing taxes on students who benefit from education loans.

A stronger dollar will shift the U.S. aggregate demand curve to the _____ and _____ output demanded.

left; decrease

Developed nations tend to have:

limited labor supplies but lots of capital.

The short-run aggregate supply curve is positively sloped because:

many input prices are slow to change in the short run.

If the pound sterling appreciates against the U.S. dollar, England buys _____ U.S. goods, causing the U.S. aggregate demand curve to shift to the _____.

more; right

Which of these is TRUE?

multiplier = 1/1 - MPC

The relationship between economic freedom and per capita GDP is:

positive

Which is a determinant of aggregate supply?

productivity

High taxes and/or heavy regulation:

raise costs of production so that the aggregate supply curve shifts to the left.

Over the past century, when worker productivity rose:

real wages rose.

All of these are true of a stable financial system EXCEPT that it:

redistributes income from creditors to debtors.

If oil prices decline, the short-run aggregate supply curve shifts _____ and output supplied will _____.

right; increase

Increased consumer confidence will shift the aggregate demand curve to the _____ and _____ output demanded.

right; increase

A production function:

shows the output that is produced using different combinations of inputs combined with existing technology.

Which of the following would promote long-run economic growth?

technological advancement

What is the primary explanation for the rapid growth of the U.S. economy over the last century?

technological progress

If a country's population increases at a higher rate than the growth in its real GDP:

the standard of living in the country has declined.

All of these can improve a country's labor productivity EXCEPT:

the use of less capital and more labor.

If the marginal propensity to consume is 0.85, the value of the spending multiplier will be:

6.67.

Which of these statements is NOT true?

?

Which statement describes the difference between APC and MPC?

APC is total consumption divided by total income, whereas MPC is the change in consumption divided by the change in income

Which of these is NOT a reason why investment in human capital is good both for individuals and for the economy as a whole?

It increases the prices of goods, which makes businesses more profitable.

When the economy is hit with a supply shock, such as higher prices for energy, food, or raw materials, is this doubly disruptive and harmful to the economy?

It is doubly disruptive; it results in a leftward shift in the short-run aggregate supply (SRAS) curve leading to increased unemployment and a higher price level.

The aggregate expenditure table provides information on the amount of savings and consumption at different levels of income. What are the values of the MPC and the MPS?

The MPC is 0.6 and the MPS is 0.4.

_____ is the change in consumption associated with a change in income.

The marginal propensity to consume

Which is NOT an example of infrastructure?

Walmart stores

Some advocates have suggested that the United States should move to a universal health care plan paid for at the federal level like Medicare, which would be funded from general tax revenues. Such a plan, it is argued, would guarantee quality health care to all. Ignoring all the controversy surrounding such a plan, would the introduction of universal health care paid for from general revenues have an impact on short-run aggregate supply?

Yes, it would likely result in an increase in short-run aggregate supply.

A $100 reduction in taxes does not have the same impact on output and employment as a $100 increase in government spending because:

a part of the increased income, as a result of a reduction in taxes, is saved.

According to Malthus, a fixed quantity of land and a growing human population will eventually produce:

a stationary state in which growth will cease.

The long-run aggregate supply curve uses the classical assumptions that all variables are _____ in the long run and that long-run equilibrium occurs at _____.

flexible; full employment

Which of these factors will result in higher investment at existing interest rates?

improvements in business expectations

In the Keynesian model, the principal determinant of saving is:

income

A rising aggregate price level _____ an economy's interest rates and therefore _____ output demanded.

increases; reduces

(Figure: Consumption Spending) At point A in the graph provided:

saving is zero.

All of these are injections into an economy that affect its income and output EXCEPT:

savings

Suppose a new colony is created on the moon with the following production function: output = A × (L + K + H + N). If L, K, H, and N each equal 5 and technology (A) equals 3, how much output would this new colony produce?

60 units

When the economy is operating at full employment, why is an increase in aggregate demand (AD) NOT helpful to the economy?

?

Why does a small difference in the economic growth rate lead to big differences over time?

the power of compounding

If the multiplier is 2 and investment spending falls by $5 billion, then equilibrium income:

decreases by $10 billion.

Which of the following tends to make aggregate demand decrease by more than the amount that consumer spending decreases?

the multiplier effect

If $1,000 of additional spending occurs and the marginal propensity to consume is 0.8, the total effect on the economy is an increase of _____ in income or output.

$5,000

If the marginal propensity to consume is 0.9 and income increases from $10,000 to $11,000, by how much does consumption increase?

$900

The aggregate expenditure table provides information on the amount of savings and consumption at different levels of income. What is the value of the APS when income equals $2,800?

0.043

If disposable income is $3,000 and saving is $1,200, how much is the average propensity to consume?

0.6

The aggregate expenditure table provides information on the amount of savings and consumption at different levels of income. What is the value of APC when income equals $2,300?

1.035

The aggregate expenditure table provides information on the amount of savings and consumption at different levels of income. What is the value of the multiplier?

2.5

If an economy's GDP will double in 25 years, then its growth rate must be about:

2.8%.

In late 2015, Congressional House Speaker Paul Ryan helped pass a major budget bill signed by President Obama that eliminated many of the "sequester" provisions, or automatic spending cuts, that were implemented in 2013 after a significant political gridlock. Many economists applauded the elimination of the spending cuts because they felt the cuts increased the risk of another recession. Using the AD/AS model and what you know about the spending multiplier, explain why economists would come to this conclusion.

Government spending represents a large portion of spending in the economy. A decrease in spending shifts the aggregate demand curve to the left and causes a large change in the multiplier.

Per capita income (or output) is the general measure used to compare the standards of living between countries. Which statement, then, is true?

If a country's population growth is higher than its economic growth, the country's per capita income decreases.

Unemployment can be caused by a reduction in aggregate demand or short-run aggregate supply. Both changes are represented by a leftward shift of the curves. Which of these statements is true about shifts in aggregate demand and short-run aggregate supply?

If aggregate demand shifts left, the result will be a lower price level.

Which of the following explains how imports and exports affect aggregate demand?

Imports decrease aggregate demand and exports increase aggregate demand.

Finland consistently ranks very high in global rankings of educational achievement in science and math. This was a result of a transformation in Finland's public education system to one that focuses on small class sizes and highly trained teachers for primary and secondary education, and teaching is considered a highly prestigious profession. At the college level, many countries fully subsidize college tuition, and in Saudi Arabia, the King Abdullah Scholarship Program offers to send its citizens to study at many of the world's prestigious universities for free. How could government investment in education pay for itself in the long run?

In the long-run, consumers seeking higher education will result in increasing productivity, thereby contributing to economic growth.

Which statement is true?

Innovations of the past have paved the way for innovations of the present and future.

Which of the following may be an explanation for the shift in aggregate demand from line A to line B?

Interest rates fall and boost investments.

As the Japanese yen appreciated in value during the 1980s and 1990s, more Japanese automotive companies built manufacturing plants in other parts of Asia and in the United States. What impact did this have on net exports for the United States?

Japanese investment in the United States increased exports, which increases net exports.

The simple aggregate expenditures model argues that one form of spending is just as good as any other. This implies that increases in all types of spending leads to equal increases in income. Which of these statements is true in this regard?

Private investment typically leads to future increases in productive capacity and is therefore at times considered comparatively better for the economy than government spending.

The table gives the output corresponding to each price level in an economy. Use the table to answer the following question: Assume aggregate demand grows by 100% (doubles, so that output doubles at each price level). What is the new equilibrium output and price level?

Q = 800; P = 125

(Figure: Determining SRAS Shifts) If there are advances in technology, the short-run aggregate supply curve will shift from SRAS0 to _____ and the price level will shift to _____.

SRAS1; P1

In recent years, banks have encouraged their customers to save by giving incentives to join programs that automatically transfer money from checking accounts to savings accounts. For example, a bank might offer to round debit transactions to the nearest dollar, transferring the change to one's savings account, and then boost this amount with a match of a certain amount. Although these programs were intended to encourage customers to save, some economists are not very enthusiastic about these programs. Which of these describe why the economists would be concerned?

Some economists believe the automatic transfers could lead to overdrafts.

The Affordable Care Act (a.k.a. "Obamacare") is one of the largest government programs to be implemented in recent years, and involves the use of government subsidies to increase the percentage of Americans with health insurance. How will the increase in government spending lead to a multiplier effect?

The increase in government spending will cause the multiplier to grow. The increased government spending will lead to the creation of more jobs, which leads to more spending.

There is little doubt that computers and the Internet have changed the economy. Information technology (IT) can boost efficiency in nearly everything: Markets are more efficient, and IT improves the design, manufacture, and supply chain of products produced. How would the impact of IT on the aggregate demand and aggregate supply curves of the economy be represented?

The long-run aggregate supply curve would shift to the right.

The European Union faced many challenges in recent years, especially with disparities in economic growth among member countries, even leading citizens of the United Kingdom to vote whether they wished to remain in the union. In 2015, average real GDP growth in the European Union was 1.5%, while the top three fastest growing members, the United Kingdom, Ireland, and Poland, achieved average growth of 3.3%. Is the effect of a 3.3% growth rate much different from that of 1.5%?

Yes, because of the rule of 70, a small increase over time can impact GDP and economic growth in later years.

Simultaneous recession and deflation can be explained by:

a decrease in aggregate demand.

Which of the following will NOT shift the aggregate supply curve to the left?

a decrease in corporate taxes

Foreign investment results in all of these in a developing economy EXCEPT:

eradication of poverty in the economy.

Higher levels of savings and investment lead to greater rates of economic growth. All of these government measures result in higher savings and investment EXCEPT:

placing high regulations on business activities.

All of these influence an individual's marginal propensity to consume EXCEPT:

savings

Cost-push inflation is a situation in which the:

short-run aggregate supply curve shifts leftward.

Firms decide how much to invest by comparing the rate of return on their projects with:

the interest rate.

The aggregate supply curve is positively sloped in the short run for all of these reasons EXCEPT:

wages adjust completely to a change in the price level.