Economics Exam 3

(Advanced analysis) Assume the following consumption schedule: C = 20 + 0.9Y, where C is consumption and Y is disposable income. At an $800 level of disposable income, the level of saving is Multiple Choice$180.$740.$60.Correct$18.

$60

If MPC = 0.5, a simultaneous increase in both taxes and government spending of $20 will Multiple Choicedecrease GDP by $20.decrease GDP by $40.increase GDP by $20.increase GDP by $40.

increase GDP by $20.

An increase in aggregate expenditures resulting from a decrease in the price level is equivalent to a Multiple Choicerightward shift of the aggregate demand curve.Incorrectleftward shift of the aggregate demand curve.movement downward along a fixed aggregate demand curve.Correctdecrease in aggregate supply.

movement downward along a fixed aggregate demand curve.Correct

The table gives data for a private closed economy. All figures are in billions of dollars. The MPC and multiplier are, respectively, Multiple Choice0.80 and 5.0.75 and 4.0.75 and 1.33.0.80 and 1.25.

0.75 and 4.

An increase in spending of $25 billion increases real GDP from $600 billion to $700 billion. The marginal propensity to consume must be Multiple Choice0.25, and the multiplier is 4.0.50, and the multiplier is 2.0.75, and the multiplier is 4.Correct0.80, and the multiplier is 5.

0.75, and the multiplier is 4.

(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 Choice3.4.Correct5.10.

4

The group of three economists who provide fiscal policy recommendations to the president is the Multiple ChoiceCouncil of Economic Advisers.CorrectJoint Economic Committee.Bureau of Economic Analysis.Federal Reserve Board of Governors.Incorrect PrevQuestion 50 of 50 Total50 of 50Visit question mapThis is the last question in the assignment. To submit, use Alt + S. To access other questions, proceed to the question map button.Next

Council of Economic Advisers.Correct

The consumption and saving schedules reveal that the Multiple ChoiceMPC is greater than zero but less than one.MPC and APC are equal at the point where the consumption schedule intersects the 45-degree line.APS is positive at all income levels.MPC is equal to or greater than one at all income levels.

MPC is greater than zero but less than one.

Which of the following represents the most expansionary fiscal policy? Multiple Choicea $10 billion tax cuta $10 billion increase in government spendinga $10 billion tax increasea $10 billion decrease in government spending

a $10 billion increase in government spendingCorrect

Which of the following would shift the saving schedule upward? Multiple Choicea decrease in wealtha decrease in real interest ratesconsumer expectations of rising prices of productsincreased optimism about future incomes

a decrease in wealth

Investment spending in the United States tends to be unstable because Multiple Choiceexpected profits are highly variable.capital goods are durable.innovation occurs at an irregular pace.all of the factors mentioned in other answers contribute to the instability.

all of the factors mentioned in other answers contribute to the instability.Correct

The investment demand curve will shift to the left as a result of Multiple Choicean increase in the excess production capacity available in industry.a decrease in business taxes.increased business optimism with respect to future economic conditions.a decrease in labor costs.

an increase in the excess production capacity available in industry.

The given figure suggests that Multiple Choiceconsumption would be $60 billion even if income were zero.saving is zero at the $120 billion income level.as income increases, consumption decreases as a percentage of income.Correctas income increases, consumption decreases absolutely.

as income increases, consumption decreases as a percentage of income.Correct

Refer to the diagram. The sizes of the multipliers associated with changes in investment and government spending in this economy are Multiple Choice2.5 and 1.5, respectively.3 and 2, respectively.both 2.5.2 and 3, respectively.

both 2.5.

In a private closed economy, when aggregate expenditures exceed GDP, Multiple ChoiceGDP will decline.business inventories will rise.saving will decline.business inventories will fall.

business inventories will fall.

A rightward shift of the investment demand curve might be caused by Multiple Choicean increase in the price level.a decline in the real interest rate.businesses planning to increase their stock of inventories.an increase in business taxes.

businesses planning to increase their stock of inventories.

If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to Multiple Choicesave is three-fifths.consume is one-half.consume is three-fifths.consume is two-fifths.

consume is three-fifths.

The intent of contractionary fiscal policy is to Multiple Choiceincrease aggregate demand.decrease aggregate demand.increase aggregate supply.decrease aggregate supply.

decrease aggregate demand.

Suppose that an economy produces 2,400 units of output, employing 60 units of input, and the price of the input is $30 per unit. If productivity increased such that 3,000 units are now produced with the quantity of inputs still equal to 60, then per-unit production costs would Multiple Choicedecrease and aggregate supply would decrease.decrease and aggregate supply would increase.Correctincrease and aggregate supply would decrease.remain unchanged and aggregate supply would remain unchanged.

decrease and aggregate supply would increase.Correct

The table shows a private closed economy. All figures are in billions of dollars. An increase in the real interest rate from 2 percent to 6 percent will 37 Multiple Choicedecrease the equilibrium level of GDP by $200 billion.decrease the equilibrium level of GDP by $300 billion.decrease the equilibrium level of GDP by $400 billion.increase the equilibrium level of GDP by $400 billion.

decrease the equilibrium level of GDP by $400 billion.Correct

Discretionary fiscal policy will stabilize the economy most when Multiple Choicedeficits are incurred during recessions and surpluses during inflations.Correctthe budget is balanced each year.deficits are incurred during inflations and surpluses during recessions.budget surpluses are continuously incurred.

deficits are incurred during recessions and surpluses during inflations.

The determinants of aggregate demand Multiple Choiceexplain why the aggregate demand curve is downsloping.explain shifts in the aggregate demand curve.demonstrate why real output and the price level are inversely related.include input prices and resource productivity.

explain shifts in the aggregate demand curve.Correct

A personal tax cut of $50 billion will affect income differently than an increase in government spending by $50 billion because Multiple Choicethe increase in government spending will produce a political business cycle.the increase in government spending is less expansionary than the increase in taxes.households may save part of the additional income from the tax cut.households may consume more than the additional income from the tax cut.

households may save part of the additional income from the tax cut.

The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will Multiple Choiceshift the aggregate demand curve leftward.shift the aggregate supply curve leftward.decrease U.S. exports and increase U.S. imports.increase U.S. exports and decrease U.S. imports.

increase U.S. exports and decrease U.S. imports.

If the price of crude oil decreased, then this would most likely Multiple Choicedecrease aggregate supply in the U.S.increase aggregate supply in the U.S.increase aggregate demand in the U.S.decrease aggregate demand in the U.S.

increase aggregate supply in the U.S.

Refer to the graph, which shows an aggregate demand curve. If the price level decreases from 200 to 100, the real output demanded will

increase by $200 billion.

A decrease in interest rates caused by a change in the price level would cause a(n) Multiple Choicedecrease (or shift left) in aggregate demand.Incorrectincrease (or shift right) in aggregate demand.decrease in the quantity of real output demanded (or movement up along AD).increase in the quantity of real output demanded (or movement down along AD).Correct

increase in the quantity of real output demanded (or movement down along AD).Correct

In a certain year, the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $120 billion. To obtain price-level stability under these conditions, the government should Multiple Choiceincrease tax rates and/or reduce government spending.discourage personal saving by reducing the interest rate on government bonds.increase government expenditures.encourage private investment by reducing corporate income taxes.

increase tax rates and/or reduce government spending.Correct

Discretionary fiscal policy refers to Multiple Choiceany change in government spending or taxes that destabilizes the economy.the authority that the president has to change personal income tax rates.intentional changes in taxes and government expenditures made by Congress to stabilize the economy.Correctthe changes in taxes and transfers that occur as GDP changes.

intentional changes in taxes and government expenditures made by Congress to stabilize the economy.Correct

When deriving the aggregate demand (AD) curve from the aggregate expenditures model, an increase in U.S. product prices would cause an increase in Multiple Choicethe value of household wealth and lower consumption expenditures.interest rates and lower investment expenditures.exports and imports.U.S. resource prices and an increase in aggregate supply.

interest rates and lower investment expenditures.

The relationship between the real interest rate and investment is shown by the Multiple Choiceinvestment demand schedule.consumption of fixed capital schedule.saving schedule.aggregate supply curve.

investment demand schedule.

Discretionary fiscal policy is so named because it Multiple Choiceis undertaken at the option of the nation's central bank.occurs automatically as the nation's level of GDP changes.involves specific changes in taxes and government spending undertaken expressly for stabilization at the option of Congress.is invoked secretly by the Council of Economic Advisers.

involves specific changes in taxes and government spending undertaken expressly for stabilization at the option of Congress.

The real-balances effect on aggregate demand suggests that a Multiple Choicelower price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending.lower price level will decrease the real value of many financial assets and therefore cause an increase in spending.lower price level will increase the real value of many financial assets and therefore cause an increase in spending.higher price level will increase the real value of many financial assets and therefore cause an increase in spending.

lower price level will increase the real value of many financial assets and therefore cause an increase in spending.Correct

he expenditure multiplier concept of the aggregate expenditures model Multiple Choiceis not at all relevant in the AD-AS model.magnifies the shifts of the aggregate demand curve.Correctexplains movement up or down the aggregate demand curve.Incorrectreverses the shift of the aggregate demand curve.

magnifies the shifts of the aggregate demand curve.Correct

In the aggregate expenditures model, the equilibrium GDP is Multiple Choiceassumed 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.

(Last Word) Art Buchwald's article, "Squaring the Economic Circle," is a humorous description of what would happen to total income if Multiple Choiceprices of products started falling significantly.people bought consumer goods instead of investment goods.consumers bought imported goods instead of domestic products.people and firms stopped buying from one another.

people and firms stopped buying from one another.Correct

The goal of expansionary fiscal policy is to increase Multiple Choicethe price level.aggregate supply.real GDP.unemployment.

real GDP

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

rightward by $50 billion at each price level.Correct

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

shift downward.

If at a particular price level, real output from producers is greater than real output desired by purchasers, then there will be a general surplus and the price level will rise. surplus and the price level will fall. shortage and the price level will rise. shortage and the price level will fall.

surplus and the price level will fall.

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

the Great Depression and Keynes's macroeconomic theory.

Consumption is $141 billion, planned investment is $15 billion, and saving is $15 billion in a private, closed economy. At this level, Multiple Choiceactual investment does not equal planned investment.there will be unplanned increases in inventories.there will be unplanned decreases in inventories.the economy is in equilibrium.

the economy is in equilibrium.

Ig = 80 S = −80 + 0.4Y (Advanced analysis) The equations refer to a private closed economy, where Ig is gross investment, S is saving, and Y is gross domestic product (GDP). In equilibrium, consumption will be Multiple Choice$400.$280.$320.$360.

$320.

Refer to the graph. If this economy was an open economy without a government sector, the level of GDP would be Multiple Choice$100 billion.$200 billion.$300 billion.$400 billion.

$300 billion.

Refer to the accompanying figures, with consumption schedules in figure (A) and saving schedules in figure (B), which correspond to each other across different levels of disposable income. If, in figure (A), consumption shifts from A2 to A3 because of a change in taxes, then in figure (B) line Multiple ChoiceB2 will shift to B3.B1 will shift to B2.B2 will shift to B1.B3 will shift to B2.

B2 will shift to B3.