econ test 4

If the marginal propensity to save is 0.1 and government spending is raised by $5 billion, then total aggregate spending will rise by: A. $500 million. B. $5 billion. C. $10 billion. D. $50 billion.

$50 billion

Assume an MPC of 0.75. The change in total spending for the economy as a result of a $20 billion new government spending injection would be: A. $80 billion. B. $27 billion. C. $22 billion. D. $15 billion.

$80 billion

The marginal propensity to save is equal to: A. 1 - MPC. B. 1 - multiplier. C. 1 MPC. D. (Total savings) (total disposable income).

1 - MPC.

The aggregate demand curve is downward-sloping because, other things being equal: A. People buy more goods and services at lower average incomes. B. A lower average price level causes lower interest rates, which stimulate loan-financed purchases. C. A higher average price level will induce producers to offer more output than otherwise. D. People buy more goods and services at higher average prices.

A lower average price level causes lower interest rates, which stimulate loan-financed purchases

The various quantities of output that all market participants are willing and able to buy at alternative price levels in a given time period is: A. Market demand. B. Aggregate demand. C. Market supply. D. Aggregate supply.

Aggregate demand

At macro equilibrium: A. Exports equal imports. B. Money supply equals money demand. C. Population growth is stable. D. Aggregate demand equals aggregate supply

Aggregate demand equals aggregate supply

The total amount of output producers are willing and able to produce at alternative price levels in a given time period is known as: A. Aggregate demand. B. Aggregate supply. C. Real GDP. D. Macro equilibrium.

Aggregate supply

Fiscal policy includes: A. A decrease in immigration restrictions. B. A decrease in import barriers. C. An increase in government spending. D. An increase in the discount rate.

An increase in government spending

Fiscal stimulus is: A. An increase or decrease in government spending. B. An increase in government spending or a decrease in taxes. C. Achieved when government dollars are spent on consumer goods but not on military goods. D. The difference between equilibrium output and full-employment output.

An increase in government spending or a decrease in taxes

Fiscal stimulus includes all of the following except: A. Government spending for highways. B. Government purchase of military goods. C. An increase in saving. D. A tax cut

An increase in saving.

Fiscal policy includes: A. An increase in interest rates. B. An increase in taxes. C. A reduction in trade barriers.06 D. An increase in the minimum wage.

An increase in taxes

Say's Law is consistent with the _______ view of the economy. A. Classical B. Keynesian C. Monetarist D. Supply-side

Classical

Which theories of the economy lead to the assertion that markets "self-adjust" to deviations from their long-term growth trend? A. Keynesian theories B. Monetarist theories C. Classical theories D. Supply-side theories

Classical theories

Expenditure by households on final goods and services is referred to as: A. Investment. B. Disposable income. C. Consumption. D. Aggregate demand.

Consumption

During the Great Depression, classical theorists believed that: A. Wages would rise and full employment would be restored. B. Full employment was unlikely without government spending. C. Monetary policy was necessary to decrease interest rates. D. Decreases in production were temporary.

Decreases in production were temporary

Keynesian theory became important when classical economic theory did not adequately explain a prolonged period of: A. Inflation with low unemployment. B. Inflation with high unemployment. C. Deflation with low unemployment. D. Deflation with high unemployment.

Deflation with high unemployment

According to the real balances effect, when the price level: A. Falls, cash is worth less and therefore people buy less. B. Falls, cash is worth more and therefore people buy more. C. Rises, cash is worth less and therefore people buy more. D. Rises, cash is worth more and therefore people buy less.

Falls, cash is worth more and therefore people buy more

Which of the following relies on government taxes and spending to change macro outcomes? A. Fiscal policy B. Monetary policy C. Income policy D. Foreign-trade policy

Fiscal policy

A tax cut or government spending increase intended to shift aggregate demand to the right is known as: A. Aggregate demand excess. B. The GDP gap. C. Fiscal stimulus. D. Fiscal restraint.

Fiscal stimulus

According to Keynes: A. Small disturbances in prices and output are always short term. B. The economy is inherently stable. C. Government intervention in the economy is necessary at times. D. High unemployment is always a temporary situation.

Government intervention in the economy is necessary at times.

. Net exports in the United States are: A. Always positive. B. Greater than federal government expenditures as a percentage of GDP. C. Included in the calculation of GDP. D. The sum of exports and imports.

Included in the calculation of GDP

When calculating aggregate demand, government expenditure: A. Includes income transfers. B. Includes expenditures by the federal government but not state and local government. C. Represents the largest component of aggregate demand for the United States. D. Includes spending by federal, state, and local governments on goods and services.

Includes spending by federal, state, and local governments on goods and services.

All of the following represent government spending as a part of aggregate demand except for: A. Federal government spending on roads. B. State and local government spending on schools. C. Income transfers. D. National defense.

Income transfers

Which of the following is not a component of aggregate demand? A. Consumption B. Net exports C. Investment D. Income transfers

Income transfers

If consumers spend 79 cents out of every extra dollar received, the: A. Multiplier is 0.79. B. MPC is 0.79. C. MPS is 0.79. D. MPC is 0.21.

MPC is 0.79.

If consumers spend 98 cents out of every extra dollar received, the: A. MPC is 98. B. MPS is 1.02. C. MPC is 0.98. D. MPC is 0.02.

MPC is 0.98

If consumers save 8 cents out of every dollar received, the: A. MPC is 0.08. B. MPS is 0.08. C. Multiplier is 0.08. D. Multiplier is 0.92

MPS is 0.08.

If consumers save 15 cents out of every dollar received, the: A. Multiplier is 15. B. MPS is 0.85. C. MPS is 0.15. D. Multiplier is 0.15.

MPS is 0.15

The intersection of the aggregate demand and supply curves definitely establishes: A. Full-employment GDP. B. Macro equilibrium. C. An inflation rate of zero. D. An unemployment rate of zero.

Macro equilibrium

One explanation for why production costs tend to rise as output increases is that producers: A. May have to pay overtime wages to workers. B. May decide to lay-off workers. C. Will pay lower prices for necessary inputs. D. Will lower base wages to workers.

May have to pay overtime wages to workers

According to the foreign trade effect, when the U.S. price level decreases, U.S. consumers are likely to buy: A. More American-made products. B. Different American-made products. C. More foreign-made products. D. Less of all products, both American made and foreign made.

More American-made products

When the U.S. price level increases relative to the price level in foreign economies, U.S. consumers tend to buy: A. Fewer imported goods and fewer domestically produced goods, ceteris paribus. B. Fewer imported goods and more domestically produced goods, ceteris paribus. C. More imported goods and fewer domestically produced goods, ceteris paribus. D. More imported goods and more domestically produced goods, ceteris paribus.

More imported goods and fewer domestically produced goods, ceteris paribus

If consumers spend 75 cents out of every extra dollar received, the: A. MPS is 0.75. B. MPC is 0.25. C. Multiplier is 4. D. Multiplier is 7.5.

Multiplier is 4

Net exports for the United States are: A. Negative if American exports are less than imports. B. Negative if American exports are greater than imports. C. Zero if American exports are greater than imports. D. Positive if American exports are less than imports.

Negative if American exports are less than imports

. Which of the following is an explanation of why the aggregate supply curve slopes upward, assuming the price level increases? A. The purchasing power of money decreases and businesses buy fewer goods B. The costs of production increase in the short run and profits become smaller C. Production costs increase and producers charge higher prices for their goods D. The demand for loans decreases so interest rates decline and businesses borrow more money

Production costs increase and producers charge higher prices for their goods

The aggregate supply curve is positively sloped because as the price level increases: A. Profit margins increase in the short run. B. Costs of production decline in the short run. C. The purchasing power of money increases. D. The cost of borrowing declines.

Profit margins increase in the short run

Ceteris paribus, if the average price level falls, then the _____ effect will result in _____ in the purchases of goods and services. A. Real balances; an increase B. Foreign trade; a decrease C. Interest rate; a decrease D. Cost; an increase

Real balances; an increase

Aggregate demand: A. Refers to the collective behavior of all buyers. B. Reflects the total quantity of output produced. C. Increases when the price level increases. D. Is influenced directly by aggregate supply.

Refers to the collective behavior of all buyers

All of the following represent government spending as a part of aggregate demand except for: A. Flood control. B. National parks. C. Police and fire protection. D. Social Security checks.

Social Security checks

Say's Law states that: A. Increased prices lead to increased supply. B. Opportunity costs will always increase. C. Supply creates its own demand. D. High prices cause unemployment.

Supply creates its own demand.

The fraction of each additional dollar of disposable income not spent on consumption is referred to as: A. The money multiplier. B. The MPC. C. The MPS. D. Fiscal stimulus.

The MPS.

Which of the following is not a reason for the downward slope of the aggregate demand curve? A. The real balances effect B. The foreign trade effect C. The cost effect D. The interest rate effect

The cost effect

Say's Law implies that: A. The economy will not experience a long-term decrease in output. B. Economic instability requires government intervention. C. Flexible wages and prices require government intervention. D. The economy is unlikely to attain full employment.

The economy will not experience a long-term decrease in output.

The marginal propensity to consume is: A. Total consumption in a given period divided by total disposable income. B. The percentage of total disposable income spent on consumption. C. That part of the average consumer dollar that goes to the purchase of final goods. D. The fraction of each additional dollar of disposable income spent on consumption.

The fraction of each additional dollar of disposable income spent on consumption.

The marginal propensity to save is: A. Equal to (1 + MPC). B. The fraction of each additional dollar of saving that goes to the stock market. C. The fraction of each additional dollar of disposable income that goes to saving. D. (Total savings) (total disposable income).

The fraction of each additional dollar of disposable income that goes to saving

Which of the following suggests that lower average prices stimulate more borrowing? A. The cost effect B. The interest rate effect C. The real balances effect D. The profit effect

The interest rate effect

Which of the following is not an example of investment spending? A. Construction of a new factory B. The purchase of stock in the stock market C. Inventory expenditures D. New equipment

The purchase of stock in the stock market

Which of the following is an example of the real balances effect, assuming the U.S. price level decreases? A. The purchasing power of money increases and people buy more goods. B. U.S. goods are less expensive for foreigners to buy and exports increase. C. U.S. production costs stay constant and profits for businesses decrease. D. The demand for loans decreases so interest rates decline and loan-financed purchases increase.

The purchasing power of money increases and people buy more goods

The foreign trade effect states that, ceteris paribus: A. The quantity demanded of domestic goods falls when the domestic price level falls. B. The quantity demanded of imported goods falls when the price of imported goods falls. C. Foreign consumers have more incentive to buy American-made products when U.S. prices rise. D. The quantity demanded of domestic goods rises when the domestic price level falls.

The quantity demanded of domestic goods rises when the domestic price level falls

The short-run aggregate supply curve is: A. Vertical at all levels of output. B. Horizontal at all levels of output. C. Downward sloping to the right. D. Upward sloping to the right.

Upward sloping to the right.

. Say's Law implies that: A. Wages and prices are fixed. B. Full employment equilibrium is unlikely. C. Whatever is produced will be sold. D. Unemployment causes inflation.

Whatever is produced will be sold

Which of the following provides fiscal stimulus to the economy? A. Higher interest rates B. Increased imports C. More efficient employment of resources D. Increased government purchases

increased government purchases