econ ch 9
Government policies intended to increase aggregate spending and output are called ______ policies.
expansionary
In the long run, output gaps are eliminated by:
price changes
The changing age structure of the U.S. population and more efficient labor markets are both possible explanations for the decline in the natural rate of unemployment. the increase in the cyclical rate of unemployment. the 2001 recession. the stagnation of real wages.
the decline in the natural rate of unemployment.
If the marginal propensity to consume is 0.75, then a $100 increase in disposable income leads to a(n) ______ increase in consumption. $13.33 $25 $75 $133
$75
After-tax Income Consumption Spending $ 9,000 $ 18,100 $ 14,000 $ 22,600 $ 19,000 $ 27,100 $ 24,000 $ 31,600 Based on these data, the Adam Smith family has a marginal propensity to consume equal to 0.9. 0.8. 0.75. 0.6.
.9 From row to row, the increase in after-tax (or disposable) income is $5,000. For each of these $5,000 increases in after-tax income, consumption spending increases by $4,500. The marginal propensity to consume, therefore, is $4,500/$5,000 = 0.9.
If consumption increases by $9 when disposable income increases by $10, the marginal propensity to consume (mpc) equals
.9 9/10
If the natural rate of unemployment equals 4 percent and the actual rate of unemployment equals 6 percent, then cyclical unemployment equals
2 percent
(A). Jan 1980 6,837.6 (B). July 1980. 6,688.8 (C). July 1981. 6,978.1 (D). Nov 1982. 6,794.9 (E). July 1990. 9,398.5 which are turning points?
A C E
Contrary to behavior that would be required to eliminate output gaps, many firms in the economy intentionally set prices below equilibrium prices in order to create shortages. adjust their prices only periodically. have fully-flexible prices that change constantly. only change the amount of output they produce in the long run, not in the short run.
adjust their prices only periodically.
Changes in autonomous consumption could be the result of changes in disposable income. changes in inflation. changes in the mpc. changes in disposable income. changes in inflation. changes in the mpc. changes in housing prices.
changes in disposable income. changes in inflation. changes in the mpc. changes in housing prices.
Changes in government purchases affect spending only when there is an expansionary gap. autonomously. directly. indirectly.
directly
The consumption function is relationship between consumption and aggregate expenditure. total spending. investment. disposable income.
disposable income
For an economy starting at potential output, an increase in one or more of the components of aggregate expenditure in the short run results in a(n) expansionary output gap. recessionary output gap. increase in potential output. decrease in potential output.
expansionary output gap.
The basic Keynesian model is built on the key assumption that
firms meet the demand for their products at preset prices
The basic Keynesian model is built on the key assumption that menu costs are not significant. firms meet the demand for their products at preset prices. firms price their products so as to see a preset quantity of output. prices are prevented from changing frequently by government regulations.
firms meet the demand for their products at preset prices.
If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, potential output (Y*) equals 11,000, then government purchases must ______ to eliminate any output gap. increase by 200 increase by 1,000 increase by 5,000 decrease by 200
increase by 200 If the multiplier is 5, a 200-unit increase in government purchases results in a 1,000-unit increase in output. This closes the recessionary output gap of 1,000. 5 x 200= 1000
A fiscal policy action to close a recessionary gap is to increase taxes. decrease transfer payments. increase government purchases. increase the marginal propensity to consume.
increase government purchases
In the basic Keynesian model, a increase in government purchases
increases short-run equilibrium output
Changes in taxes and transfers affect spending only when there is an expansionary gap. autonomously. directly, by changing induced expenditures. indirectly, by changing disposable income and, consequently, consumption.
indirectly, by changing disposable income and, consequently, consumption.
The larger the mpc, the ______ the income-expenditure multiplier and the ______ the effect of a change in autonomous spending on short-run equilibrium output.
larger, larger
The larger the mpc, the ______ the income-expenditure multiplier and the ______ the effect of a change in spending on short-run equilibrium output. larger; larger larger; smaller smaller; smaller smaller; larger
larger, larger
When there is a recessionary gap, capital and labor resources are not being fully utilized. decreasing in number. misallocated. producing beyond their capacity.
not being fully utilized
The duration of a recession is measured from peak to trough through to peak peak to peak though to through
peak to though
In the Keynesian model, it is assumed that, when demand for a firm's product changes, the firm changes prices to meet the demand. production levels to meet the demand. prices and production levels to meet demand. prices, but holds production levels constant, to meet the demand.
production levels to meet the demand.
when actual output is less than potential output there is a
recessionary gap
Wasted capital and labor resources are a problem associated with a(n) _____ gap. Increased inflation is a problem associated with a(n) _____ gap. recessionary; expansionary recessionary; recessionary expansionary; expansionary expansionary; recessionary
recessionary; expansionary
In the basic Keynesian model, a decrease in government purchases
reduces short-run equilibrium output
When prices are predetermined, the level of output that equals aggregate expenditure is called ______ output. the natural rate of potential short-run equilibrium induced
short-run equilibrium
The smaller the mpc, the ______ the income-expenditure multiplier and the ______ the effect of a change in autonomous spending on short-run equilibrium output.
smaller, smaller
Expansionary policies are government stabilization policies intended to increase population. unemployment. average labor productivity. spending.
spending
Government policies that are used to affect aggregate expenditure, with the objective of eliminating output gaps, are called ______ policies. structural cyclical productivity stabilization
stabilization
The natural rate of unemployment is equal to the unemployment rate when there is only structural and cyclical unemployment. frictional unemployment. cyclical unemployment. structural and frictional unemployment.
structural and frictional unemployment.
The income-expenditure multiplier leads to greater than one-for-one changes in output when spending changes because the direct changes in spending change the income of producers which leads to additional changes in spending. multiple deposits are generated when new reserves are produced through fractional reserve banking. real output continues to adjust until it equals nominal output. change the income of producers leads to additional tax revenue for the government, which will changes their level of spending.
the direct changes in spending change the income of producers which leads to additional changes in spending.
The effect on short-run equilibrium output of a one-unit increase in expenditure is called the marginal propensity to consume. average labor productivity. Say's law. the income-expenditure multiplier.
the income-expenditure multiplier.
an informal definition of a recession is at least --- consecutive quarters of declining real GDP two four six eight
two
frictional unemployment
unemployment that occurs when people take time to find a job
structural unemployment
unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one
cyclical unemployment
unemployment that rises during economic downturns and falls when the economy improves