Econ 9 and 10 Part 3

In a mixed open economy, if aggregate expenditures exceed GDP: A.Ig +X+G=Ca. B.Ca +Ig +Xn +G<domesticoutput. C.Ig >S. D.Ig +X+G>Sa +M+T.

D

In a private closed economy, when aggregate expenditures exceed GDP: A. GDP will decline. B. business inventories will rise. C. saving will decline. D. business inventories will fall.

D

Other things equal, a decrease in the real interest rate will: A) shift the investment demand curve to the right. B) shift the investment demand curve to the left. C) move the economy upward along its existing investment demand curve. D) move the economy downward along its existing investment demand curve

D

Refer to the above diagram. At income level F the volume of saving is: A) BD. B) AB. C) CF-BF. D) CD.

D

Refer to the above graph. A movement from a to b along C1 might be caused by a: A) recession. B) wealth effect of an increase in stock market prices. C) increase in income tax rates. D) increase in real GDP.

D

The APC can be defined as the fraction of a: A) change in income that is not spent. B) change in income that is spent. C) specific level of total income that is not consumed. D) specific level of total income that is consumed.

D

The consumption schedule shows: A) that the MPC increases in proportion to GDP. B) that households consume more when interest rates are low. C) that consumption depends primarily on the level of business investment. D) the amounts households plan or intend to consume at various possible levels of aggregate income.

D

The size of the multiplier is equal to the: A) slope of the consumption schedule. B) reciprocal of the slope of the consumption schedule. C) slope of the saving schedule. D) reciprocal of the slope of the saving schedule.

D

In contrast to investment, consumption is: A) relatively stable. B) relatively unstable. C) measurable. D) unmeasurable.

A

In the aggregate expenditures model, a reduction in taxes may: A. increase saving. B. decrease real GDP. C. increase unemployment. D. reduce consumption.

A

The MPC can be defined as that fraction of a: A) change in income that is not spent. B) change in income that is spent. C) given total income that is not consumed. D) given total income that is consumed.

B

Which one of the following will cause a movement up along an economy's saving schedule? A) an increase in household debt outstanding B) an increase in disposable income C) an increase in stock prices D) an increase in interest rates

B

If an unintended increase in business inventories occurs: A. we can expect aggregate production to be unaffected. B. we can expect businesses to increase the level of production. C. we can expect businesses to lower the level of production. D. aggregate expenditures must exceed the domestic output.

C

If for some reason households become increasingly thrifty, we could show this by: A) a downshift of the saving schedule. B) an upshift of the consumption schedule. C) an upshift of the saving schedule. D) an increase in the equilibrium GDP.

C

In a private closed economy, when aggregate expenditures equal GDP: A. consumption equals investment. B. consumption equals aggregate expenditures. C. planned investment equals saving. D. disposable income equals consumption minus saving.

C

The inflationary expenditure gap in the United States in the late 1980s was caused by: A. a rapid decline of net exports. B. a major tax increase. C. rising aggregate expenditures. D. cost-push inflationary forces.

C

If the marginal propensity to save is 0.2 in an economy, a $20 billion rise in investment spending will increase: A) GDP by $120 billion. B) GDP by $20 billion. C) saving by $25 billion. D) consumption by $80 billion.

D

Which of the following would reduce GDP by the greatest amount? A) a $20 billion increase in taxes B) $20 billion increases in both government spending and taxes C) $20 billion decreases in both government spending and taxes D) a $20 billion decrease in government spending

D

The most important determinant of consumption and saving is the: A) level of bank credit. B) level of income. C) interest rate. D) price level.

B

(Last Word) Classical macroeconomics was dealt severe blows by: A. the Great Depression and Keynes's macroeconomic theory. B. the Second World War and the writings of Milton Friedman. C. Adam Smith and his idea of the invisible hand. D. the strong recovery after the Second World War and Alvin Hansen's stagnation thesis.

A

As disposable income increases, consumption: A) and saving both increase. B) and saving both decrease. C) decreases and saving increases. D) increases and saving decreases.

A

If a $200 billion increase in investment spending creates $200 billion of new income in the first round of the multiplier process and $160 billion in the second round, the multiplier in the economy is: A) 4. B) 5. C) 3.33. D) 2.5.

A

Refer to the above graph. A movement from b to a along C1 might be caused by a: A) recession. B) wealth effect of an increase in stock market prices. C) decrease in income tax rates. D) increase in saving.

A

The greater the marginal propensity to consume, the: A) smaller is the marginal propensity to save. B) higher is the interest rate. C) lower is the average propensity to consume. D) lower is the price level

A

The immediate determinants of investment spending are the: A) expected rate of return on capital goods and the real interest rate. B) level of saving and the real interest rate. C) marginal propensity to consume and the real interest rate. D) interest rate and the expected price level.

A

What do investment and government expenditures have in common? A. both represent injections to the circular flow B. both represent leakages from the circular flow C. neither is subject to the multiplier effect D. both represent a decline in indebtedness

A

1. Which of the following statements is incorrect? A. Given the economy's MPS, a $15 billion reduction in government spending will reduce the equilibrium GDP by more than would a $15 billion increase in taxes. B. Other things unchanged, a tax reduction of $10 billion will increase the equilibrium GDP by $25 billion when the MPS is 0.4. C. If the MPC is 0.8 and GDP has declined by $40 billion, this was caused by a decline in aggregate expenditures of $8 billion. D. A government surplus is anti-inflationary; a government deficit is expansionary.

B

2. A lump-sum tax means that: A. the tax only applies to one time period. B. the same amount of tax revenue is collected at each level of GDP. C. tax revenues vary directly with GDP. D. tax revenues vary inversely with GDP.

B

Assume that in a private closed economy consumption is $240 billion and investment is $50 billion, both at the $280 billion level of domestic output. Thus: A. saving is $10 billion. B. unplanned decreases in inventories of $10 billion will occur. C. the MPC is .80. D. unplanned increases in inventories of $10 billion will occur.

B

In contrast to investment, consumption is: A) relatively unstable. B) relatively stable. C) measurable. D) unmeasurable.

B

Refer to the above diagram. The average propensity to consume is 1 at point: A) F. B) A. C) D. D) B.

B

Refer to the above graph. A shift of the consumption schedule from C1 to C2 might be caused by a: A) recession. B) wealth effect of an increase in stock market prices. C) increase in income tax rates. D) increase in saving.

B

Refer to the above graph. A shift of the consumption schedule from C2 to C1 might be caused by a: A) increase in real GDP. B) reverse wealth effect, caused by a decrease in stock market prices. C) decrease in income tax rates. D) decrease in saving

B

Suppose that the level of GDP increased by $100 billion in a private closed economy where the marginal propensity to consume is 0.5. Aggregate expenditures must have increased by: A. $100 billion. B. $50 billion. C. $500 billion. D. $5 billion.

B

The consumption schedule shows: A) a direct relationship between aggregate consumption and accumulated wealth. B) a direct relationship between aggregate consumption and aggregate income. C) an inverse relationship between aggregate consumption and accumulated financial wealth. D) an inverse relationship between aggregate consumption and aggregate income.

B

The investment demand curve portrays an inverse (negative) relationship between: A) investment and real GDP. B) the real interest rate and investment. C) the nominal interest rate and investment. D) the price level and investment.

B

The most important determinant of consumption and saving is the: A) level of bank credit. B) level of income. C) interest rate. D) price level.

B

The multiplier effect: A) reduces the MPC. B) magnifies changes in spending into larger changes in output and income. C) promotes stability of the general price level. D) lessens upswings and downswings in business activity.

B

The real interest rate is: A) the percentage increase in money that the lender receives on a loan. B) the percentage increase in purchasing power that the lender receives on a loan. C) also called the after-tax interest rate. D) usually higher than the nominal interest rate.

B

.The investment demand slopes downward and to the right because lower real interest rates: A) expand consumer borrowing, making investments more profitable. B) boost expected rates of returns on investment. C) enable more investment projects to be undertaken profitably. D) create tax incentives to invest.

C

24. The multiplier is: A) 1/MPC. B) 1/(1 + MPC). C) 1/MPS. D) 1/(1 - MPS).

C

Dissaving occurs where: A) income exceeds consumption. B) saving exceeds consumption. C) consumption exceeds income. D) saving exceeds income.

C

If the MPS is .25 and the economy has a recessionary expenditure gap of $5 billion, then equilibrium GDP is: A. $5 billion below the full-employment GDP. B. $5 billion above the full-employment GDP. C. $20 billion below the full-employment GDP. D. $20 billion above the full-employment GDP.

C

If the United States wants to increase its net exports, it might take steps to: A) increase its GDP. B) reduce existing tariffs and import quotas. C) decrease the dollar price of foreign currencies. D) increase the dollar price of foreign currencies

C

If the nominal interest rate is 18 percent and the real interest rate is 6 percent, the inflation rate is: A) 18 percent. B) 24 percent. C) 12 percent. D) 6 percen

C

Other things equal, a 10 percent decrease in corporate income taxes will: A) decrease the market price of real capital goods. B) have no effect on the location of the investment-demand curve. C) shift the investment-demand curve to the right. D) shift the investment-demand curve to the left.

C

Refer to the above diagram. The marginal propensity to consume is equal to: A) AE/0E. B) CF/CD. C) CB/AB. D) CD/CF.

C

Suppose a family's consumption exceeds its disposable income. This means that its: A) MPC is greater than 1. B) MPS is negative. C) APC is greater than 1. D) APS is positive.

C

The investment demand curve will shift to the right as the result of: A) the availability of excess production capacity. B) an increase in business taxes. C) businesses becoming more optimistic about future business conditions. D) an increase in the real interest rate.

C

Which of the following is correct? A) Government expenditures and taxes both increase GDP. B) Government expenditures and taxes both decrease GDP. C) Government expenditures increase, but taxes decrease, GDP. D) Government expenditures decrease, but taxes increase, GDP.

C

Which of the following is correct? A. Government expenditures and taxes both increase GDP. B. Government expenditures and taxes both decrease GDP. C. Government expenditures increase, but taxes decrease, GDP. D. Government expenditures decrease, but taxes increase, GDP.

C

. If the MPC in an economy is .9, a $1 billion increase in government spending will ultimately increase consumption by: A. $1 billion. B. $.9 billion. C. $10 billion. D. $9 billion.

D

. If the dollar appreciates relative to foreign currencies, we would expect: A. the multiplier to decrease. B. a country's exports and imports to both fall. C. a country's net exports to rise. D. a country's net exports to fall.

D

12. Unintended changes in inventories: A. cause the economy to move away from the equilibrium GDP. B. are treated as components of consumption. C. bring actual investment and saving into equality only at the equilibrium level of GDP. D. bring actual investment and saving into equality at all levels of GDP.

D

An increase in taxes will have a greater effect on the equilibrium GDP: A. if the tax revenues are redistributed through transfer payments. B. the larger the MPS. C. the smaller the MPC. D. the larger the MPC.

D

If the dollar appreciates relative to foreign currencies, we would expect: A) the multiplier to decrease. B) a country's exports and imports to both fall. C) a country's net exports to rise. D) a country's net exports to fall

D

Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose, also, that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return on this tool is: A) 80 percent. B) 8 percent. C) 2 percent. D) 20 percent.

D

Suppose the economy is operating at its full-employment-noninflationary GDP and the MPC is 0.75. The Federal government now finds that it must increase spending on military goods by $21 billion in response to deterioration in the international political situation. To sustain full-employment-noninflationary GDP government must: A. reduce taxes by $28 billion. B. reduce transfer payments by $21 billion. C. increase taxes by $21 billion. D. increase taxes by $28 billion.

D

Which of the following would increase GDP by the greatest amount? A. a $20 billion reduction in taxes B. $20 billion increases in both government spending and taxes C. $20 billion decreases in both government spending and taxes D. a $20 billion increase in government spending

D