Econ connect quiz questions -->April 6, 2018

If the MPC is 0.8, what change in investment spending is required to effect a total change in income by $60 billion? Multiple Choice $12 billion $15 billion $20 billion $25 billion

12 billion

If net exports decline from zero to some negative amount, the aggregate expenditures schedule would shift upward. shift downward. not move. (Net exports do not affect aggregate expenditures.) become steeper.

shift downward.

The wealth effect is shown graphically as a shift of the consumption schedule. movement along an existing consumption schedule. shift of the investment schedule. movement along an existing investment schedule.

shift of the consumption schedule.

If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n) supply-side fiscal policy. expansionary fiscal policy. contractionary fiscal policy. nondiscretionary fiscal policy.

contractionary fiscal policy.

A tax reduction of a specific amount will be more expansionary the smaller is the economy's MPC. larger is the economy's MPC. smaller is the economy's multiplier. less is the economy's built-in stability.

larger is the economy's MPC.

One of the potential consequences of the public debt is that it may make income distribution more equitable. increase the debt burden of foreign creditors. lead to additional future taxes that reduce economic incentives. decrease interest rates and increase investment spending.

lead to additional future taxes that reduce economic incentives.

Domestic Output or Income (GDP=DI) Consumption $540 $540 560 555 580 570 600 585 620 600 640 615 660 630 The table gives data for a private closed economy. All figures are in billions of dollars. The MPC and multiplier are, respectively, Multiple Choice 0.80 and 5. 0.75 and 4. 0.75 and 1.33. 0.80 and 1.25.

.75 and 4

Skip to main contentQuiz 2 Submitted 14out of/25 Total points awarded Help opens in a new window Exit Item12 1/1 points awarded Item Scored Item 12 Item 12 1 of 1 points awarded Item Scored Gross Domestic Product Consumption $100 $120 200 180 300 240 400 300 500 360 Expected Rate of Return Amount of Investment 25% $0 20 20 15 40 10 60 5 80 Refer to the tables of information for a private closed economy. The multiplier for this economy is Multiple Choice 2. 2.5. 3. 4.

2.5

Assume that MPS is 0.4. If spending increases by $8 billion, then real GDP will increase by Multiple Choice $8 billion. $13.3 billion. $15 billion. $20 billion.

20billion

In a private closed economy where MPC = 0.8, if consumers reduce their spending by $10 billion and firms cut investments by $5 billion, then equilibrium GDP will decrease by Multiple Choice $75 billion. $25 billion. $18.8 billion. 15 billion

75

A rightward shift of the AD curve in the very steep upper part of the short-run AS curve will A.) increase the price level by more than real output. B.) reduce real output by more than the price level. C.)reduce the price level by more than real output. D.) increase real output by more than the price level.

A

If investment increases by $10 billion and the economy's MPC is 0.8, the aggregate demand curve will shift A.) rightward by $50 billion at each price level. B.) rightward by $10 billion at each price level. C.) leftward by $40 billion at each price level. D.) leftward by $50 billion at each price level.

A

Last Word) In response to the Great Recession, the federal government engaged in significant deficit-funded spending, but it did not fully achieve the desired result. Which of the following best explains why the fiscal policy actions fell short of their objective? A.) Although the fiscal stimulus increased consumer spending significantly, it mostly went to purchase foreign-produced goods and services. B.) Monetary policy counteracted fiscal policy, keeping the unemployment rate from falling as much as intended. C.) Consumers did not respond to the fiscal stimulus as well as hoped, as they put more income into saving and repaying debt. D.)The fiscal stimulus caused massive inflation that further disrupted economic activity.

C

Other things equal, an improvement in productivity will A.) shift the aggregate demand curve to the left. B.) increase the price level. C.) shift the aggregate supply curve to the right. D.) shift the aggregate supply curve to the left.

C

Which of the following is a true statement? A. An initial increase in aggregate demand may cause a further increase in aggregate demand because higher prices mean higher incomes. B.As the price level increases, interest rates will rise and therefore consumption and investment spending will also rise. C. A decline in aggregate demand will primarily affect real output and employment if prices are inflexible downward. D. Firms and resource suppliers generally find it easier to reduce prices than to raise them

C

An increase in net exports will shift the AD curve to the A.)left by the same amount as the change in net exports. B.) left by a multiple of the change in net exports. C.) right by the same amount as the change in net exports. D.)right by a multiple of the change in net exports.

D

Graphically, cost-push inflation is shown as a A.) rightward shift of the AS curve. B.) rightward shift of the AD curve. C.) leftward shift of the AD curve. D.) leftward shift of the AS curve.

D

If the dollar price of foreign currencies falls (that is, the dollar appreciates), we would expect A.) both aggregate demand and aggregate supply to increase. b.) both aggregate demand and aggregate supply to decrease. C.) aggregate demand to increase and aggregate supply to decrease. D.) aggregate demand to decrease and aggregate supply to increase.

D

In which of the following sets of circumstances can we confidently expect inflation? A.) Aggregate supply increases and aggregate demand decreases. B.) Aggregate supply and aggregate demand both increase. C.) Aggregate supply and aggregate demand both decrease. D.) Aggregate supply decreases and aggregate demand increases.

D

Suppose that nominal wages fall and productivity rises in a particular economy. Other things equal, the aggregate A.) expenditures curve will shift downward. B.) supply curve will shift leftward. C.) demand curve will shift leftward. D.) supply curve will shift rightward.

D

The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will A.) increase both U.S. imports and U.S. exports. B.) increase the amount of U.S. real output purchased. C.)decrease both U.S. imports and U.S. exports. D.) increase U.S. imports and decrease U.S. exports.

D

Which of the following will not cause the consumption schedule to shift? a sharp increase in the amount of wealth held by households a change in consumer incomes the expectation of a recession a growing expectation that consumer durables will be in short supply

a change in consumer incomes

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

a country's net exports to fall.

An inflationary expenditure gap is the amount by which equilibrium GDP falls short of the full-employment GDP. aggregate expenditures exceed any given level of GDP. saving exceeds investment at the full-employment GDP. aggregate expenditures exceed the full-employment level of GDP.

aggregate expenditures exceed the full-employment level of GDP.

The multiplier effect means that consumption is typically several times as large as saving. a change in consumption can cause a larger increase in investment. an increase in investment can cause GDP to change by a larger amount. a decline in the MPC can cause GDP to rise by several times that amount.

an increase in investment can cause GDP to change by a larger amount.

In the aggregate expenditures model of the economy, a downward shift in aggregate expenditures can be caused by a decrease in government spending or an increase in taxes. decrease in taxes or an increase in government spending. decrease in interest rates or a decrease in taxes. decrease in saving or an increase in government spending.

decrease in government spending or an increase in taxes.

The actual multiplier effect in the U.S. economy is less than the multiplier effect in the text examples because the real-world MPS is larger than the MPS in the examples. in addition to saving, households use some of any increase in income to buy imported goods and to pay additional taxes. the gap between the nominal interest rate and the real interest rate widens as the economy expands or contracts. the MPC in the United States is greater than 1.

in addition to saving, households use some of any increase in income to buy imported goods and to pay additional taxes.

The actual multiplier effect in the U.S. economy is less than the multiplier effect in the text examples because the real-world MPS is larger than the MPS in the examples. in addition to saving, households use some of any increase in income to buy imported goods and to pay additional taxes. the gap between the nominal interest rate and the real interest rate widens as the economy expands or contracts. the MPC in the United States is greater than 1.

in addition to saving, households use some of any increase in income to buy imported goods and to pay additional taxes.

If the multiplier in an economy is 5, a $20 billion increase in net exports will increase GDP by $100 billion. reduce GDP by $4 billion. decrease GDP by $100 billion. increase GDP by $20 billion.

increase GDP by $100 billion.

If the MPC is 0.70 and investment increases by $3 billion, the equilibrium GDP will increase by $10 billion. increase by $2.10 billion. Incorrect decrease by $4.29 billion. increase by $4.29 billion.

increase by $10 billion.

A rightward shift of the AD curve in the very steep upper part of the short-run AS curve will increase real output by more than the price level. increase the price level by more than real output. reduce real output by more than the price level. reduce the price level by more than real output.

increase the price level by more than real output.

The crowding-out effect of expansionary fiscal policy suggests that tax increases are paid primarily out of saving and therefore are not an effective fiscal device. increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment. it is very difficult to have excessive aggregate spending in the U.S. economy. consumer and investment spending always vary inversely.

increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment.

Generally speaking, the greater the MPS, the smaller would be the increase in income which results from an increase in consumption spending. larger would be the increase in income which results from an increase in consumption spending. larger would be the increase in income which results from a decrease in consumption spending. smaller would be the increase in income which results from a decrease in consumption spending.

smaller would be the increase in income which results from an increase in consumption spending.

An economist who favors smaller government would recommend tax cuts during recession and reductions in government spending during inflation. tax increases during recession and tax cuts during inflation. tax cuts during recession and tax increases during inflation. increases in government spending during recession and tax increases during inflation.

tax cuts during recession and reductions in government spending during inflation.

One timing problem in using fiscal policy to counter a recession is the "operational lag" that occurs between the start of the recession and the time it takes to recognize that the recession has started. start of a predicted recession and the actual start of the recession. time fiscal action is taken and the time that the action has its effect on the economy. time the need for the fiscal action is recognized and the time that the action is taken.

time fiscal action is taken and the time that the action has its effect on the economy.

Which of the following would most likely reduce aggregate demand (shift the AD curve to the left)? A.) a reduced amount of excess capacity B.)increased consumer optimism regarding future economic conditions C.) an appreciation of the U.S. dollar D.)increased government spending on military equipment

C

Which of the following would most likely shift the aggregate demand curve to the right? A.) a reduction in household borrowing because of tighter lending practices b.) an increase in personal income tax rates C.) an increase in stock prices that increases consumer wealth D.) increased fear that a recession will cause workers to lose their jobs

C

In the aggregate expenditures model, the equilibrium GDP is assumed to be equal to the potential GDP level. not necessarily equal to the full-employment GDP. always above the potential GDP level. always less than the full-employment GDP level.

not necessarily equal to the full-employment GDP.

Other things equal, appreciation of the dollar A. increases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources. B. increases aggregate demand in the United States and may decrease aggregate supply by reducing the prices of imported resources. C. decreases aggregate demand in the United States and may increase aggregate supply by reducing the prices of imported resources. D. decreases aggregate demand in the United States and may reduce aggregate supply by increasing the prices of imported resources.

C

Which one of the following would not shift the aggregate demand curve? A.) an increase in personal income tax rates B.) a decline in the interest rate at each possible price level C.) a change in the price level D.) depreciation of the international value of the dollar

C

The upward shift of the aggregate expenditures schedule from (C + Ig)1 to (C + Ig)2 reflects Multiple Choice an increase in investment expenditures. a decrease in consumption expenditures. an increase in the MPC. an increase in the APS.

an increase in investment expenditures.

The multiplier is useful in determining the full-employment unemployment rate. level of business inventories. change in the rate of inflation from a change in the interest rate. change in GDP resulting from a change in spending.

change in GDP resulting from a change in spending.

The multiplier is defined as 1 − MPS. change in GDP × initial change in spending. change in GDP/initial change in spending. change in GDP − initial change in spending.

change in GDP/initial change in spending.

Fiscal policy refers to the deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level. deliberate changes in government spending and taxes to achieve greater equality in the distribution of income. altering of the interest rate to change aggregate demand. fact that equal increases in government spending and taxation will be contractionary.

deliberate changes in government spending and taxes to stabilize domestic output, employment, and the price level.

In a recessionary expenditure gap, the equilibrium level of real GDP is less than planned aggregate expenditures. greater than planned aggregate expenditures. greater than full-employment GDP. less than full-employment GDP.

less than full-employment GDP.

In annual percentage terms, investment spending in the United States is Multiple Choice less variable than real GDP. less variable than consumption spending. less variable than the price level. more variable than real GDP.

more variable than real GDP.

If personal taxes were decreased and resource productivity increased simultaneously, the equilibrium output would necessarily rise. output would necessarily fall. price level would necessarily fall. price level would necessarily rise.

output would necessarily rise.

The simple multiplier 1/MPS understates the actual multiplier because it includes leakages in domestic spending from the purchase of imports or the paying of taxes. understates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes. overstates the actual multiplier because it includes leakages in domestic spending from the purchase of imports or the paying of taxes. overstates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes.

overstates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes.

From the perspective of classical macroeconomic theory, if aggregate spending was temporarily less than output, product price would increase, but resource prices would decrease. product price would decrease, but resource prices would increase. product and resource prices would decrease, so that aggregate spending would rise, expanding output. product and resource prices would increase, so that aggregate spending would equal output.

product and resource prices would decrease, so that aggregate spending would rise, expanding output.

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

shift the investment demand curve to the right.

if aggregate demand increases and aggregate supply decreases, the price level will decrease, but real output may increase, decrease, or remain unchanged. will increase, but real output may increase, decrease, or remain unchanged. and real output will both increase. and real output will both decrease.

will increase, but real output may increase, decrease, or remain unchanged.

The investment demand curve suggests that changes in the real interest rate will not affect the amount invested. there is an inverse relationship between the real rate of interest and the level of investment spending. an increase in business taxes will tend to stimulate investment spending. there is a direct relationship between the real rate of interest and the level of investment spending.

there is an inverse relationship between the real rate of interest and the level of investment spending.

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 Multiple Choice 4. 5. 3.33. 2.5.

5

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 Multiple Choice $100 billion. $50 billion. $500 billion. $5 billion.

50 billion

Graphically, demand-pull inflation is shown as a A.) rightward shift of the AD curve along an up-sloping AS curve. b.) leftward shift of the AS curve along an upsloping AD curve. C.) leftward shift of the AS curve along a downsloping AD curve. D.) rightward shift of the AD curve along a downsloping AS curve.

A

Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S. A.) aggregate demand curve would shift to the left B.) aggregate demand curve would shift to the right. C.) aggregate supply curve would shift to the left. D.) aggregate supply curve would shift to the right.

B

Amount of Real Output Demanded $200 300 400 500 600 Price Level (Index Value) 300 250 200 150 100 Amount of Real Output Supplied 500 450 400 300 200 The table gives aggregate demand and supply schedules for a hypothetical economy. The equilibrium price level will be A. 150 B, 300 C. 200 D. 250

C

Other things equal, a decrease in the real interest rate will A.) expand investment and shift the AD curve to the left. B.) reduce investment and shift the AD curve to the left. C.)expand investment and shift the AD curve to the right. D.) reduce investment and shift the AD curve to the right.

C

The size of the multiplier associated with an initial increase in spending will be A.) diminished if inflation occurs. B.) enhanced if inflation occurs. C.) the same whether or not inflation occurs. D.) zero if any increase in the price level occurs.

A

In which of the following sets of circumstances can we confidently expect inflation? Aggregate supply and aggregate demand both increase. Aggregate supply and aggregate demand both decrease. Aggregate supply decreases and aggregate demand increases. Aggregate supply increases and aggregate demand decreases.

Aggregate supply decreases and aggregate demand increases.

Other things equal, a reduction in personal and business taxes can be expected to A.) decrease aggregate demand and increase aggregate supply. B.) increase both aggregate demand and aggregate supply. C.) increase aggregate demand and decrease aggregate supply. D.) decrease both aggregate demand and aggregate supply.

B

if aggregate expenditures increase by $12 billion and equilibrium GDP consequently increases by $48 billion, then the marginal propensity to save in the economy must be Multiple Choice 0.75. 0.25. 0.8. 0.2.

0.25

(Advanced analysis) Assume the consumption schedule for a private closed economy is C = 40 + 0.75Y, where C is consumption and Y is gross domestic product. The multiplier for this economy is Multiple Choice 3. 4. 5. 10.

4

If aggregate demand increases and aggregate supply decreases, the price level A.) will increase, but real output may increase, decrease, or remain unchanged. B.) and real output will both increase. C.) and real output will both decrease. D.) will decrease, but real output may increase, decrease, or remain unchanged.

A