macro

To achieve a $500 billion increase in AD, if the MPC is 0.8, what increase in government purchases would be called for? $625 billion $500 billion $400 billion $100 billion

$100 billion

If government increases its purchases by $20 billion and the MPC = 0.9, the resulting increase in the consumption component of AD is: $2 billion. $18 billion. $180 billion. $200 billion.

$180 billion

A given change in disposable income would have the smallest effect on consumption with which of the following marginal propensities to consume?

0.2

If the marginal propensity to consume is 0.8, the marginal propensity to save is: 0.8 0.4 0.2 0.3

0.2

Among the following MPC values, which one would have the highest multiplier effect? 1/3 2/3 3/4 2/5

3/4

If the marginal propensity to consume is 4/5, the multiplier is: 20. 5. 1. 1/5.

5

A reduction in the price level will cause the aggregate demand curve to shift to the left. True False

False

A change that shifted the long-run aggregate supply curve to the right would also shift the short-run aggregate supply curve to the right. True False

True

A technological advance may come in either the form of a product or a process innovation. True False

True

When the economy is at the full employment level of real GDP, expansionary fiscal policy will not increase the economy's total output in the long run.

True

The Malthusian prospect of starvation of the population could be prevented by: increasing the amount of land available for agriculture. investing in research and development of new technologies. expanding food production on available land. all of the above

all of the above

In Exhibit 14-2, which curve represents aggregate demand? a) A b) B c) C d) none of the above

c

Education would be considered investments in: physical capital financial capital human capital all of the above

human capital

A $100 billion increase in government purchases would: increase AD by $500 billion if MPC = 0.8. decrease AD by $300 billion if MPC = 2/3. decrease AD by $200 billion if MPC = 0.9. decrease AD by $40 billion if MPC = 0.4.

increase AD by $500 billion if MPC = 0.8.

The federal government funds deficit spending by: issuing bonds. redeeming bonds. increasing taxes. providing and selling government services.

issuing bonds.

In the long run, an increase in the price level: a) increases output prices relative to input prices. b) increases the profit margins of many producers. c) increases RGDP supplied. d) Does none of the above.

Does none of the above.

The SRAS curve is vertical at the natural level of real output. True False

False

If government policy makers were worried about the inflationary potential of the economy, which of the following would not be a correct fiscal policy change? Increase consumption taxes. Increase government purchases of goods and services. Reduce transfer payments. Increase the budget deficit.

Increase government purchases of goods and services.

In an open economy, the real level of U.S. exports and the quantity of RGDP demanded ______ the price level. a) Move in the same direction as b) Move in the opposite direction from c) Are not affected by d) Have an indeterminate relationship with

Move in the opposite direction from

Other things constant, what is the outcome of expansionary fiscal policies on employment, inflation, real output, and deficits in the short-run?

The expansionary policy will lead to an increase in AD which will lead to an increase in real output, a decrease in unemployment, and an increase in inflation. Ceteris paribus, the increase in government spending and/or decrease in taxes will lead to an increase in the deficit.

A change in taxes of a given amount affects an individual's consumption spending by less than that amount, because the marginal propensity to consume is less than 1.

True

According to the "misperception effect" explanation of short-run aggregate supply, firms increase output as the price level rises because they mistake the increase in overall prices for an increase in the relative price of their own output. True False

True

The Kuznets curve shows the pattern of income inequality: income inequality first increases, peaks, and then decreases as countries develop. True False

True

The aggregate supply curves show how much a nation's businesses are willing and able to produce at each price level. True False

True

The economy is in long-run equilibrium only when the short run aggregate supply curve intersects the aggregate demand curve along the long run aggregate supply curve. True False

True

The four major components of aggregate demand are consumption, investment, government purchases of goods and services, and net exports. True False

True

The real wealth and the real interest rate effects are both causes of the downward slope of the aggregate demand curve. True False

True

The short run aggregate supply curve refers to a period in which input prices have not yet had time to adjust to changes in aggregate demand. True False

True

Thomas Piketty's book, "Capital in the Twenty Century," argues that rate of returns from investment is higher than the rate of income growth. True False

True

In Exhibit 14-2, which curve represents long-run aggregate supply? a) A b) B c) C d) none of the above

a

Which of the following affect the growth in real GDP per capita? the total production of final goods in the economy. the population. the production of final services in the economy. all of the above

all of the above

Rapid population increase in which of the following economies may threaten and deter economic growth the most? highly industrialized countries an agriculture based economy developed economies a technology driven economy

an agriculture based economy

Other things equal, contractionary fiscal policy will lead to: an increased budget deficit (assuming an initial budget deficit). a reduced budget surplus (assuming an initial budget surplus). an expanded budget surplus (assuming an initial budget surplus). increased government purchases.

an expanded budget surplus (assuming an initial budget surplus).

Growth in a production possibilities curve diagram is shown as: a movement along the curve to the southeast. a movement along the curve to the southwest. an outward shift of the curve. an inward shift of the curve.

an outward shift of the curve.

Technology can enable producers to economize on: labor. capital. land. any of the above.

any of the above.

In Exhibit 14-2, which curve represents short-run aggregate supply? a) A b) B c) C d) none of the above

b

Based on the situation depicted in the graph below, which of the following would be an appropriate fiscal policy response? increase taxes decrease taxes decrease government purchases both (a) and (c).

both (a) and (c).

An increase in the stock of capital: causes a movement from a point on an economy's production possibilities curve to a point inside the curve. causes an economy's production possibilities curve to shift inward over time. causes an economy's production possibilities curve to shift outward over time. has no effect on the position of an economy's production possibilities curve over time.

causes an economy's production possibilities curve to shift outward over time.

Allowing free trade can lead to greater output because of the principle of: absolute advantage. rule of 70. comparative advantage. scarcity.

comparative advantage.

An increase in taxes will do which of the following in the long run? increase unemployment decrease the price level decrease real output None of the above.

decrease the price level

Over the last several decades, the amount of government investment in U.S. infrastructure in real terms has: remained the same. decreased. increased marginally. increased substantially.

decreased.

According to the interest rate effect, as the price level decreases, households and firms' holdings of money ____, interest rates ____, investments ____, and the quantity RGDP demanded ____. a) increases, decrease, increase, decreases b) increases, increase, increase, decreases c) decreases, decrease, increase, increases d) increases, increase, decrease, decreases

decreases, decrease, increase, increases

Along the long-run aggregate supply curve, the level of RGDP supplied ____ with increases in the price level. a) does not change b) increases c) decreases slightly d) decreases dramatically

does not change

If the marginal propensity to consume is 0.60, the marginal propensity to save will be:

equal to 0.40

Budget surpluses exist when: government spending exceeds its tax revenues. government tax revenues exceed its spending. government spending equals its tax revenues. expansionary fiscal policies increase real GDP and the price level.

government tax revenues exceed its spending.

If real GDP per capita is increasing, real output is: growing less rapidly than the population. growing more rapidly than the population. growing at the same rate as the population. growing more rapidly than are prices.

growing more rapidly than the population.

Expansionary fiscal policy will result in a ____ price level and ____ employment in the short run. higher; higher. higher; lower. lower; higher. lower; lower.

higher; higher.

An increase in the U.S. price level will: a) increase U.S. exports. b) increase U.S. imports. c) increase the quantity of RGDP demanded in the United States. d) both (a) and (c)

increase U.S. imports.

Expansionary fiscal policy, other things being equal, will tend to: increase interest rates. increase investment. increase net exports. all of the above

increase interest rates.

Typically, the budget deficit is financed by: printing money. issuing debt. raising taxes. both a. and c.

issuing debt.

Which of the following tax changes would a supply-side economist be most likely to favor? eliminating an investment tax credit an increase in the capital gain tax lower marginal income tax rates an increase in the personal income tax rate for high-income individuals

lower marginal income tax rates

Enforcement of property rights is likely to result in: more incentives to invest. lower rates of economic growth. political instability. corruption.

more incentives to invest.

Which of the following is an appropriate fiscal policy response to high inflation? increase interest rates increase government purchases increase transfer payments none of the above

none of the above

The short-run aggregate supply curve: a) has the same slope as the LRAS. b) shifts only when the LRAS shifts in the same direction. c) normally slopes upward to the right because the costs of labor and other inputs are relatively fixed in the short run. d) normally has a slope of zero, meaning the curve is horizontal.

normally slopes upward to the right because the costs of labor and other inputs are relatively fixed in the short run.

If real GDP is increasing more rapidly than the population, then: interest rates must be falling. the economy must be experiencing inflation. per capita real GDP will be increasing. per capita real GDP will be decreasing.

per capita real GDP will be increasing.

If the ____ is/are fixed, a change in nominal income is equivalent to a change in real income. price level interest rates tastes and preferences future expectations

price level

Holding all other things constant, when the price level rises, interest rates: a) rise and firms want to borrow more for new plants and equipment and households want to borrow less for homebuilding. b) rise and firms will want to borrow less for new plants and equipment and households will want to borrow less for homebuilding. c) fall and firms want to borrow more for new plants and equipment and households want to borrow more for homebuilding. d) all of the above

rise and firms will want to borrow less for new plants and equipment and households will want to borrow less for homebuilding.

Output per capita will tend to increase if the labor force participation rate in a country ____ or if workers put in ____ hours. rises; longer. rises, shorter. falls; longer. falls; shorter

rises; longer.

The government's fiscal policy is its plan to regulate aggregate demand by manipulating: the money supply. taxation and spending. the treasury. the energy department.

taxation and spending

New growth theorists believe that increased economic growth is primarily driven by: higher level of savings. higher level of capital investments. increased foreign investment. technological innovation and ideas.

technological innovation and ideas.

How much a country's economy will produce at its potential output is also called: the trough of the business cycle. its economic welfare. the trend line. the natural rate of output.

the natural rate of output.

In the nearly 200 years since Malthus wrote An Essay on the Principle of Population, what has happened to population growth rates as nations have become increasingly industrialized? they have generally increased they have averaged zero they have generally fallen they have done exactly as Malthus forecast, outstripping the production of output

they have generally fallen

Which of the following would not be considered an investment in human capital? education training programs transportation infrastructure literacy programs

transportation infrastructure

AD will shift to the left, other things being equal, when: the government budget surplus increases because government purchases fell. the government budget surplus increases because taxes rose. the government budget surplus increases because transfer payments fell. under any of the above circumstances.

under any of the above circumstances.

he SRAS is ____; the LRAS is ____. a) upward sloping; upward sloping b) upward sloping; vertical c) vertical; upward sloping d) vertical; vertical

upward sloping; vertical

The LRAS curve is ____ with real output levels that ____. a) upward sloping; vary positively with the price level b) upward sloping; vary negatively with the price level c) vertical; are equal to the maximum level of real output without causing inflation d) vertical; can be either greater than or less than the natural level of real output

vertical; are equal to the maximum level of real output without causing inflation

If there was no profit effect or misperception effect in the short run, then SRAS is ____ and LRAS is ____. a) upward sloping; upward sloping b) upward sloping: vertical c) vertical; upward sloping d) vertical; vertical

vertical; vertical

If MPC = 0.75, a $40 billion decrease in government purchases would have what size effect on the "first round" of induced added consumption? $30 billion $40 billion $120 billion $160 billion

$30 billion

What is the impact of a $10 billion tax cut on consumer spending, if MPC is equal to 0.8? $50 billion $40 billion $10 billion $20 billion

$40 billion

If Pat's income increased from $250,000 to $500,000 and his consumption increased from $200,000 to $300,000, what was his marginal propensity to consume?

0.4

Growth Rate (%). Years to Double Economy Nation A ? 14 Nation B 10 ? Nation C ? 35 Nation D 7 ? Refer to Exhibit 20-1. Nation B is expected to double its output in: 5 years. 7 years. 10 years. 14 years.

7 years

If there is initially a federal budget deficit, and government purchases and transfer payments both rise: AD increases and the budget deficit increases. AD increases and the budget deficit decreases. AD decreases and the budget deficit increases. AD decreases and the budget deficit decreases.

AD increases and the budget deficit increases.

An increase in business tax rates, combined with a decrease in consumer confidence, would have what effect on aggregate demand? a) AD would increase. b) AD would decrease. c) AD would stay the same. d) AD could either increase or decrease, depending on which change was of a greater magnitude.

AD would decrease.

Which of the following combinations of changes would have a contractionary effect on aggregate demand? An increase in government purchases and an increase in transfer payments. An increase in taxes and an increase in transfer payments. A decrease in taxes and an increase in transfer payments. An increase in taxes and a decrease in government purchases.

An increase in taxes and a decrease in government purchases.

Assume that the government is considering plans to increase aggregate demand in order to reduce unemployment. Which of the following would be effective? Increase government purchases of goods and services. Decrease taxes. Increase transfer payments. Any of the above.

Any of the above.

Bill's disposable income goes from $100,000 in 2010 to $200,000 in 2011, and his consumption spending goes from $80,000 in 2010 to $140,000 in 2011. Which of the following statements about Bill is true?

Bill's MPC is equal to 0.6.

Why don't governments avoid budget deficits under all circumstances?

Budget deficits can be important because they provide the federal government with the flexibility to respond appropriately to changing economic circumstances. The government may run deficits during special emergencies. The government may also use a budget deficit to avert an economic downturn.

If government policy makers were worried about the inflationary potential of the economy, which of the following would be a correct fiscal policy change? Decrease consumption taxes. Decrease government purchases of goods and services. Increase transfer payments. Increase the budget deficit.

Decrease government purchases of goods and services.

Which of the following statements is not correct? Economic growth is best measured by the annual percentage change in nominal GDP per capita. An economy producing along the production possibilities curve is operating at its potential output. Economic growth is a crucial determinant of people's well-being. If the quality of labor improves, an economy's production possibilities curve will shift outward.

Economic growth is best measured by the annual percentage change in nominal GDP per capita.

According to Claudia Goldin and Lawrence Katz in their book, "Race between Technology and Education," technology is a driving force to the U.S. economic growth until 1970s. True False

False

According to Claudia Goldin and Lawrence Katz, income inequality narrows when technology wins the race against education. True False

False

If inflation was the most significant issue in the economy, an appropriate fiscal policy response would be to decrease taxation.

False

If the educational attainment of a nation's population increases, the economy's production possibilities curve shifts inward. False True

False

If the overall price level decreases, then the aggregate demand curve will shift to the right. True False

False

If the price level in the United States decreases, domestic goods will become relatively cheaper than foreign goods, the demand for U.S.-made goods will increase, and the U.S. aggregate demand curve will shift to the right. True False

False

If there is currently an inflationary gap, an increase in aggregate demand will make the inflationary gap smaller, but a decrease in aggregate demand would make the inflationary gap larger. True False

False

The World Bank's 1993 report, "the East Asian Miracle," does not attribute the development of the nations to the government policy. True False

False

The interest rate effect helps explain why a lower price level will reduce the quantity of real goods and services demanded as an economy moves down along its aggregate demand curve. True False

False

Typically, the budget deficit is financed by simply printing money.

False

Which of the government policies below is not likely to encourage per capita economic growth? High taxes on companies that spend a lot on capital formation The use of tax revenues for investment and capital formation Special subsidies for capital-intensive forms of production Promotion of education and training programs for workers

High taxes on companies that spend a lot on capital formation

Which of the following propositions would a proponent of supply-side economics be most likely to stress? Higher marginal tax rates will lead to a reduction in the budget deficit and lower interest rates, because they expand government revenues. Higher marginal tax rates promote economic inefficiency and thereby retard aggregate output, because they encourage investors to undertake low-productivity projects with substantial tax-shelter benefits. Income redistribution payments will exert little impact on real aggregate supply, since they do not consume resources directly. A tax reduction will increase the disposable income of households. Thus the primary impact of a tax reduction on aggregate supply will stem from the influence of the tax change on the size of the budget deficit or surplus.

Higher marginal tax rates promote economic inefficiency and thereby retard aggregate output, because they encourage investors to undertake low-productivity projects with substantial tax-shelter benefits.

Which of the following is correct? An increase in the quantity of labor always leads to economic growth. Increased education adds to the stock of human capital, not unlike building factories adds to the stock of physical capital. A decrease in the productivity of labor leads to economic growth. Japan and Hong Kong are rich in natural resources.

Increased education adds to the stock of human capital, not unlike building factories adds to the stock of physical capital.

Which of the following is false? Accepting a reduction in current income to acquire education and training can increase future earning ability, which can raise the standard of living. Improvements in literacy stimulate economic growth by reducing barriers to the flow of information and raising labor productivity. One problem of providing enough education in poorer countries is that since children in developing countries are an important part of the labor force at a young age, there is a higher opportunity cost of education in terms of foregone contribution to family income. Investment alone guarantees economic growth per capita.

Investment alone guarantees economic growth per capita

Which of the following did not result in economic growth? Installing a network of irrigation ditches and pumping stations in order to grow fruits and vegetables in parts of southern California Cyrus McCormack inventing a threshing machine for harvesting grains After World War II, the U.S. instituting the GI bill, which provided education subsidies to soldiers being released from service duty Many citizens emigrating from a nation when a politically repressive regime takes office

Many citizens emigrating from a nation when a politically repressive regime takes office

Which of the following is true? The Rule of 70 says that the number of years necessary for a nation to double its output is approximately equal to the nation's growth rate divided by 70. Economic growth is usually measured by the annual percent change in the nominal output of goods and services per capita. An increase in labor input necessarily increases output per capita. Neither the initial development process nor the sustained growth of an economy is dependent on a large natural resource base.

Neither the initial development process nor the sustained growth of an economy is dependent on a large natural resource base.

Would companies and individuals invest as much in significant research and development if a system of patents were not available? Yes they would, because they could still hope to monopolize the market. Yes they would, because firms are civic-minded and highly motivated to introduce innovations that improve the standard of living. No they would not, because if they made a significant investment in the development, they would be unable to protect the innovations or discoveries long enough to be sufficiently compensated for their efforts. No they would not, because the benefits to society of engaging in research and development would be less than the costs to society.

No they would not, because if they made a significant investment in the development, they would be unable to protect the innovations or discoveries long enough to be sufficiently compensated for their efforts.

Is it possible to have economic growth with no opportunity cost? Yes, economic growth requires no current sacrifices-only the passage of time. No, but economic growth is always worth whatever sacrifice is required. No, because growth depletes the stock of knowledge so that more growth today means less growth tomorrow. No, because growth requires the sacrifice of consumption goods in order to invest in such things as capital formation and research and development.

No, because growth requires the sacrifice of consumption goods in order to invest in such things as capital formation and research and development.

Will the national debt have to be paid off (i.e., reduced to zero) in the future? No, it can continually be refinanced. Yes, if it is not paid off, the U.S. Treasury will have to file for bankruptcy. No, technically, it is not a contractual obligation of the federal government. Yes, but since most of the debt is held by Federal Reserve Bank, its re-payment would merely involve an accounting transaction between the Fed and the Treasury.

No, it can continually be refinanced.

Which of the following is false? Generally speaking, higher levels of saving will lead to higher levels of investment and capital formation and, therefore, to greater economic growth. Economic growth rates tend to be higher in countries where the government enforces property rights. Investment alone does not guarantee economic growth, which hinges importantly on the quality and the type of investment as well. None of the above are false; all are true.

None of the above are false; all are true.

Which of the following decreases U.S. aggregate demand? a) a lower price level, increasing citizen's real wealth b) a lower price level, reducing interest rates c) a lower price level, increasing exports and decreasing imports d) None of the above decrease U.S. aggregate demand.

None of the above decrease U.S. aggregate demand.

Malthus's gloomy economic outlook for humankind is based on the following principle: Population, when unchecked, increases at a faster pace than the production of output. Population grows at a slower pace than the production of output. Resources grow faster than humankind can reproduce itself. Therefore, humankind can never take full advantage of available resources. Resources and population grow at constant percentage rates, but political divisions prevent an equitable division of world output.

Population, when unchecked, increases at a faster pace than the production of output.

Which policy would a supply-sider prefer, an across-the-board tax reduction in income tax rates or a package of tax-relief measures that would give every household a $200 tax rebate and allow them to deduct the interest they pay on credit card purchases?

Supply-siders would prefer an across-the-board tax cut since they believe it would stimulate aggregate supply and aggregate demand. According to supply-side proponents, tax cuts not only give workers more take-home pay, but lower taxes give workers and investors greater incentive to work, save, and invest. These things shift the aggregate demand and the aggregate supply curves to the right. The other alternative gives taxpayers more disposable income, but it only serves to increase consumption. There's no supply-side effect with rebates and interest deductions. In fact, consumers are likely to save even less if they can deduct credit card interest.

Which of the following is true about time lags and fiscal policy? Changes in federal taxes can be implemented easily by the President without the approval of Congress. Changes in fiscal policy that involves changes in government spending on public works projects do not involve significant time lags. Once an appropriate fiscal policy has been determined it can be implemented quickly. The lag time between when a fiscal policy is needed and when it is actually implemented is considerable.

The lag time between when a fiscal policy is needed and when it is actually implemented is considerable.

Which of the following is true? The multiplier effect from government spending is larger than the multiplier effect from tax cut. The government cannot stimulate consumer spending through tax cuts. The multiplier effect from government spending is smaller than the multiplier effect from tax cut. The government can stimulate consumer spending through decreases in transfer payments.

The multiplier effect from government spending is larger than the multiplier effect from tax cut.

An increase in disposable income would tend to shift aggregate demand right. True False

True

Hong Kong and Japan have achieved relatively high incomes per capita despite lacking an abundance of natural resources. True False

True

If input prices adjusted just as quickly as output prices, the profit effect leading to an increase in RGDP supplied would disappear. True False

True

If net exports are negative, then aggregate demand will be less than the sum of consumption, investment, and government purchases. True False

True

If the overall price level increases, it will cause a decrease in the quantity of real goods and services demanded but not a change in aggregate demand curve. True False

True

If there is currently a recessionary gap, a decrease in aggregate demand would make the recessionary gap larger. True False

True

Imports are not included in GDP because they do not reflect output produced within the domestic economy. True False

True

In his book, "Capital in the Twenty Century," Thomas Piketty proposes redistribution through a higher tax rate on the returns from investment. True False

True

The higher opportunity cost of obtaining an education in developing countries is one of the reasons that school enrollments are lower. True False

True

The real wealth effect is one reason for the negative slope of the aggregate demand curve. True False

True

Ultimately, productivity growth is the major determinant of a country's standard of living True False

True

Which of the following is true when there is a recessionary gap? a) Real output exceeds the natural level of real output. b) Unemployment exceeds the natural rate of unemployment. c) Employment exceeds full employment. d) All of the above are true when there is a recessionary gap.

Unemployment exceeds the natural rate of unemployment.

Will MPC plus MPS always equal one? Explain why or why not.

Yes, MPC plus MPS will always equal one. The reason is that there are only two things that an individual can do with income - spend it or save it. As such, for each dollar of additional income, a certain percentage will be used for consumption and the remaining percentage will be devoted to saving.

Which of the following will cause consumption, and as a result, aggregate demand, to decrease? a) a tax cut b) a decrease in consumer confidence c) increased population d) an optimistic forecast of future income growth

a decrease in consumer confidence

Given a constant rate of growth of real GDP, what would lead to an increasing real GDP per capita? a rate of population growth that is less than the rate of growth of real GDP a rate of population growth that is greater than the rate of growth of real GDP an increase in the size of the labor force an increase in the capital stock

a rate of population growth that is less than the rate of growth of real GDP

Which of the following will not increase the rate of growth in an economy? a reduction in the rate of savings an increase in the productivity of labor technological progress higher rates of investment

a reduction in the rate of savings

Which one of the following will not cause the production possibilities curve to shift outward? improvements in the stock of land increased educational opportunities a very low birth rate increased entrepreneurial activity

a very low birth rate

Which of the following factors contribute to economic growth? growth in physical capital technological advances an increase in the productivity of labor all of the above

all of the above

Which one of the following will cause the production possibilities curve to shift outward? improved public education improved health care systems larger budgets for research, development, and exploration all of the above

all of the above

Which one of the following will determine the size of the production possibilities curve? amount of labor amount of capital entrepreneurship all of the above

all of the above

According to the rule of 70, if a country is growing at 14% per year, its output will double in approximately 5 years. if a country is growing at 10% per year, its output will double in approximately 7 years. if a country is growing at 2% per year, its output will double in approximately 35 years. all of the above are true.

all of the above are true.

Refer to Exhibit 14-1. Which of the following would be illustrated by a shift in aggregate demand from AD0 to AD2? a) an increase in government purchases, combined with a decrease in investment b) an increase in consumption, combined with an increase in exports c) an increase in business tax rates, combined with a decrease in consumer confidence d) faster growth rates by a major trading partner, combined with an increase in stock market wealth

an increase in business tax rates, combined with a decrease in consumer confidence

Which of the following would lead to an increase in aggregate demand? a) an increase in consumer confidence b) a decrease in the overall price level c) an increase in input prices d) all of the above

an increase in consumer confidence

Refer to Exhibit 14-1. Which of the following would be illustrated by a shift in aggregate demand from AD0 to AD1? a) an increase in government purchases, combined with a decrease in investment b) an increase in consumption, combined with an increase in exports c) an increase in business tax rates, combined with a decrease in consumer confidence d) faster growth rates by a major trading partner, combined with a decrease in stock market wealth

an increase in consumption, combined with an increase in exports

In a fully employed economy, invention and discovery: are automatic. are achieved through sacrifices in current consumption. have negative opportunity costs. All of the above are correct.

are achieved through sacrifices in current consumption.

If population is expanding at a faster rate than a country's real output is expanding: real per capita output would increase. real per capita output would decrease. the production possibilities curve for the country as a whole will be shifting outward. both (b) and (c) would be true.

both (b) and (c) would be true.

The rule of 70 which predicts the time required for the economy of a nation to double, is based on the mechanism of: compound interest. capital formation. labor force productivity. capital investments.

compound interest.

Which of the following is the primary determinant of aggregate demand in the simplest Keynesian expenditure model? consumption spending net exports investments government purchases

consumption spending

The short-run aggregate supply curve: a) Is a schedule showing the relationship between the price level and the quantity of real GDP supplied. b) Is typically upward sloping. c) reflects output prices changing relative to input prices. d) all of the above

d

A $100 billion decrease in government purchases would: increase AD by $500 billion if MPC = 0.8. decrease AD by $300 billion if MPC = 2/3. increase AD by $200 billion if MPC = 0.5. decrease AD by $40 billion if MPC = 0.4.

decrease AD by $300 billion if MPC = 2/3.

Based on the situation depicted in the graph below, which of the following would be an appropriate fiscal policy response? increase taxes decrease taxes decrease government purchases all of the above

decrease taxes

In an open economy, as the price level increases, a(n) ____ in demand in the quantity of domestic goods results in a(n) ____ in the quantity of RGDP demanded. a) increase, decrease b) increase, increase c) decrease, decrease d) decrease, increase

decrease, decrease

Contractionary fiscal policy consists of: increased government purchases, increased taxes, increased transfer payments. decreased government purchases, decreased taxes, decreased transfer payments. decreased government purchases, increased taxes, decreased transfer payments. increased government purchases, decreased taxes, increased transfer payments.

decreased government purchases, increased taxes, decreased transfer payments.

When observing economic growth and literacy rates, it is clear that: economic growth causes higher literacy rates. economic growth may be a consequence of improved education. improved levels of education may be the result of increasing economic growth. all of the above are likely to be true.

economic growth may be a consequence of improved education.

Holding all other things constant, when the price level falls, interest rates: a) rise and firms want to borrow more for new plants and equipment and households want to borrow more for homebuilding. b) rise and firms want to borrow more for new plants and equipment and households want to borrow less for homebuilding. c) falls and firms want to borrow less for new plants and equipment and households want to borrow more for homebuilding. d) falls and firms want to borrow more for new plants and equipment and households want to borrow more for homebuilding.

falls and firms want to borrow more for new plants and equipment and households want to borrow more for homebuilding.

If real GDP per capita is decreasing, real output is: growing less rapidly than the population. growing more rapidly than the population. growing at the same rate as the population. growing more rapidly than are prices.

growing less rapidly than the population.

In an open economy as the price level decreases, a(n) ____ in demand for domestic goods relative to foreign goods results in a(n) ____ in the quantity of RGDP demanded. a) increase, decrease b) increase, increase c) decrease, decrease d) decrease, increase

increase, increase

If people began to retire at a later age and there was an increase in the capital stock, real GDP growth would ____ and real GDP growth per capita would ____. increase; increase. increase; be indeterminate. decrease; decrease. decrease; be indeterminate

increase; increase.

If there was an increase in technology other things equal, real GDP growth would ____ and real GDP growth per capita would ____. increase; increase. increase; be indeterminate. decrease; decrease. decrease; be indeterminate

increase; increase.

Which of the following is not considered a factor that contributes to economic growth? increased labor productivity increased infant mortality rates technological advances the migration of resources from areas of low productivity to areas of high productivity

increased infant mortality rates

Along the long-run aggregate supply curve, the price level ____ with increases in aggregate demand. a) does not change b) increases c) decreases slightly d) decreases dramatically

increases

The crowding-out effect implies that: increases in government purchases will lower interest rates and stimulate investment spending. higher taxes reduce both consumption and saving. fiscal policy effects on interest rates will be offset by monetary policy. increases in government purchases increase income and the demand for loanable funds which will choke off some private spending.

increases in government purchases increase income and the demand for loanable funds which will choke off some private spending.

According to the interest rate effect, as the price level increases, households and firms' holdings of money ____, interest rates ____, investments ____, and the quantity RGDP demanded ____. a) increases, decrease, increase, decreases b) increases, increase, increase, decreases c) decreases, decrease, decrease, increases d) increases, increase, decrease, decreases

increases, increase, decrease, decreases

The government does not have to repay the national debt, in the sense that it must reduce the debt to zero, because: it is owed to foreigners who have no legal recourse if the debt is not repaid. it can constantly refund the debt by issuing new bonds. it owes nearly 100 percent of the debt to state and local governments. it owes nearly 100 percent of the debt to itself.

it can constantly refund the debt by issuing new bonds.

Rapid population growth can threaten sustained economic growth if it: leads to diminishing marginal returns in production. remains unmonitored by government agencies. enables economies of scale in production to be exploited. leads to increased capital formation.

leads to diminishing marginal returns in production.

Automatic stabilizers lead to: a decrease in taxes collected by the government during an economic expansion. a decrease in unemployment compensation during a recession. Congressional action on changing the tax codes. none of the above

none of the above

Country A and Country B initially have the same real GDP per capita. Country A experiences no economic growth, while Country B grows at a sustained rate of 5 percent. In 14 years, Country A's GDP will be approximately ____ that of Country B. one-fourth one-half double triple

one-half

In the 1700s, Reverend Thomas Malthus predicted that: per capita economic growth would not change very much since humans were already content with their standards of living. per capita economic growth would tend to rise as modern birth control techniques caused the rate of population growth to decline. per capita economic growth would eventually become negative since population growth would tend to outstrip production. per capita economic growth would tend to rise in the future because technological advances in production would outpace population growth.

per capita economic growth would tend to rise as modern birth control techniques caused the rate of population growth to decline.

The per-worker production function is ____ sloped and ____ at a(n) ____ rate. negatively; decreases; diminishing negatively; decreases; increasing positively; increases; increasing positively; increases; diminishing

positively; increases; diminishing

To achieve a high standard of living, a nation should: increase welfare payments to the poor. use less capital and more labor in the production process. promote economic growth. increase the tax deduction for child dependents.

promote economic growth

The prosperity of a nation today is typically measured by its: total output or gross national product. real output per capita. gold reserves. proportionate share of international trade.

real output per capita

AD will shift to the right, other things being equal, when: the government budget deficit increases because government purchases rose. the government budget deficit decreases because taxes rose. the government budget deficit decreases because transfer payments fell. under any of the above circumstances.

the government budget deficit increases because government purchases rose.

As the price level decreases, other things being equal, a) aggregate demand increases. b) the quantity of real gross domestic product demanded increases. c) the quantity of real gross domestic product demanded decreases. d) real gross domestic product supplied increases.

the quantity of real gross domestic product demanded increases.

Ben N. Jerry prefers to keep his $10,000 retirement savings buried in the backyard. After an increase in the price level, Ben reduces the amount of goods and services he wants to purchase. Ben's rationalization, that now his retirement savings won't buy as much, is consistent with which explanation of the aggregate demand curve's negative slope? a) the interest rate effect b) the open economy effect c) the inflation effect d) the real wealth effect

the real wealth effect

The primary benefit of the automatic stabilizers is: they provide public assistance through legislative decision making. they require no new legislative action, so there is no legislative lag before these tools respond to fluctuations in the business cycle. they require legislative action, so there is a lag in response to these tools to fluctuations in the business cycle, and there is time to identify the spillover effects. none of the above.

they require no new legislative action, so there is no legislative lag before these tools respond to fluctuations in the business cycle.

Which of the following is not considered a significant factor contributing to economic growth by economists today? work effort is less intense in the heat of the tropics an increase in the quantity of physical capital increased use of land inputs greater division of labor and specialization

work effort is less intense in the heat of the tropics