Macro Mcgraw Hill Final

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 $100 billion. $50 billion. $500 billion. $5 billion.

$50 billion.

Refer to the diagram, in which T is tax revenues and G is government expenditures. All figures are in billions. This diagram portrays the idea of progressive taxation. built-in stability. the multiplier. discretionary fiscal policy.

built-in stability.

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. The level of productivity is 20. 10. 5. 2.

2

Suppose that real domestic output in an economy is 20 units, the quantity of inputs is 10, and the price of each input is $4. The per-unit cost of production in the economy described is $0.50. $1. $2. $5.

$2

C = 40 + 0.8Y Ig = 40 X = 20 M = 30 (Advanced analysis) The equations give information for a private open economy. The letters Y, C, Ig, X, and M stand for GDP, consumption, gross investment, exports, and imports, respectively. Figures are in billions of dollars. In equilibrium, saving is $20. $30. $40. $50.

$30.

Ca = 25 + 0.75 (Y - T) Ig = 50 Xn = 10 G = 70 T = 30 (Advanced analysis) The accompanying equations are for a mixed open economy. The lettersY,Ca,Ig,Xn,G, andTstand for GDP, consumption, gross investment, net exports, government purchases, and net taxes, respectively. Figures are in billions of dollars. If the economy's tax schedule wasT= 0.2Yrather thanT= 30, the equilibrium GDP would be $387.5. $518.5. $316. $412.

$387.5.

C = 40 + 0.8Y Ig = 60 − 2i i = 10 (Advanced analysis) The equations are for a private closed economy, where C is consumption, Y is the gross domestic product, Ig is gross investment, and i is the interest rate. The equilibrium level of GDP in this economy is $240. $300. $360. $400.

$400.

(Advanced analysis) The table gives data for a private closed economy. The letters Y, C, S, and I are used to represent real GDP, consumption, saving, and investment, respectively. The equation representing the consumption schedule for the economy is C = Y − 0.6S. Y = C + S. C = 60 + 0.4Y. C = 60 + 0.6Y.

C = 60 + 0.6Y.

(Advanced analysis) The table gives data for a private closed economy. The letters Y, C, S, and I are used to represent real GDP, consumption, saving, and investment, respectively. The equation representing the investment schedule for the economy is I = 0.3Y. I = 80 − 0.3Y. I = 30 + 0.1Y. I = I0 = 30.

I = 30 + 0.1Y.

Refer to the figure. Suppose that the economy is currently operating at the intersection of AS and AD2 and that the full-employment level of output is Y. If contractionary fiscal policy and accompanying multiplier effects move aggregate demand from AD2 to AD1, what will be the effect on real GDP and the price level? Real GDP will fall to Y and the price level will fall to P0, assuming inflexible prices. Real GDP will fall to X and the price level will remain unchanged, assuming prices are inflexible downward. Real GDP will fall to X and the price level will fall to P0, assuming inflexible prices. Real GDP will fall to Y and the price level will remain unchanged, assuming inflexible prices.

Real GDP will fall to X and the price level will remain unchanged, assuming prices are inflexible downward.

The relationship between the aggregate demand curve and the aggregate expenditures model is derived from the fact that a decrease in the price level shifts the aggregate expenditures schedule downward and decreases equilibrium GDP. a decrease in the price level shifts the aggregate expenditures schedule upward and increases equilibrium GDP. an increase in the price level shifts the aggregate expenditures schedule upward and increases equilibrium GDP. an increase in the price level shifts the aggregate expenditures schedule downward and increases equilibrium GDP.

a decrease in the price level shifts the aggregate expenditures schedule upward and increases equilibrium GDP.

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

a higher price level will decrease the real value of many financial assets and therefore reduce spending.

S = −20 + 0.4Y Ig = 25 − 3i (Advanced analysis) The equations refer to a private closed economy, where S is saving, Ig is gross investment, i is the real interest rate, and Y is GDP. If the real interest rate is 5 (percent), investment will be a)$10 and the equilibrium GDP will be $75. b)$15 and the equilibrium GDP will be $100. c)$10 and the equilibrium GDP will be $120. d)$15 and the equilibrium GDP will be $180.

a)$10 and the equilibrium GDP will be $75.

At the equilibrium level of GDP, investment and saving are both a)$50. b)$100. c)$20. d)$40.

a)$50.

Which two aggregate expenditure schedules AE in the diagram for a private closed economy have the same MPC, assuming investment is the same at each level of income? a)AE1 and AE2 b)AE2 and AE3 c)AE1 and AE4 d)AE3 and AE4

a)AE1 and AE2

As it relates to Federal Reserve activities, the acronym FOMC describes the a)Federal Open Market Committee. b)Federal Options Market Committee. c)Federal Organization for Monetary Control. d)Federal Organization for Money Creation.

a)Federal Open Market Committee.

When consumption and saving are graphed relative to real GDP, an increase in personal taxes will shift a)both the consumption and saving schedules downward. b)both the consumption and saving schedules upward. c)the consumption schedule upward and the saving schedule downward. d)the consumption schedule downward and the saving schedule upward.

a)both the consumption and saving schedules downward.

Refer to the given graph. A movement from b to a along C1 might be caused by a(n) (a is lower on line than b) a)recession. b)wealth effect of an increase in stock market prices. c)decrease in income tax rates. d)increase in saving.

a)recession

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

a)shift of the consumption schedule

The crowding-out effect is a)strongest when the economy is at full employment. b)strongest when the economy is in a deep recession. c)weakest when there is demand-pull inflation. d)equally strong, regardless of the state of the macroeconomy.

a)strongest when the economy is at full employment.

A decrease in consumer spending can be expected to shift the aggregate expenditures curve downward and the aggregate demand curve leftward. aggregate expenditures curve upward and the aggregate demand curve leftward. aggregate expenditures curve downward and the aggregate demand curve rightward. aggregate expenditures curve upward and the aggregate demand curve rightward.

aggregate expenditures curve downward and the aggregate demand curve leftward.

An increase in investment and government spending can be expected to shift the aggregate expenditures curve downward and the aggregate demand curve leftward. aggregate expenditures curve upward and the aggregate demand curve leftward. aggregate expenditures curve downward and the aggregate demand curve rightward. aggregate expenditures curve upward and the aggregate demand curve rightward.

aggregate expenditures curve upward and the aggregate demand curve rightward.

Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward an equality of tax receipts and government expenditures. an excess of tax receipts over government expenditures. an excess of government expenditures over tax receipts. a reduction of subsidies and transfer payments and an increase in tax rates.

an excess of government expenditures over tax receipts.

Which of the following fiscal policy actions is most likely to increase aggregate supply? an increase in personal income tax rates a reduction in interest rates that encourages consumers to purchase more durable goods an increase in transfer payments to unemployed workers an increase in government spending on infrastructure that increases private sector productivity

an increase in government spending on infrastructure that increases private sector productivity

Refer to the diagram for a private closed economy. The upward shift of the aggregate expenditures schedule from (C + Ig)1 to (C + Ig)2 reflects 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 interest-rate effect suggests that a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending. an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending. an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending. an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending.

an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.

If government increases the size of its cyclically adjusted surplus, we can assume that government is causing interest rates to rise. not determine government's impact on the economy without also knowing the status of the actual budget. assume that government is having a contractionary effect on the economy. assume that government is having an expansionary effect on the economy.

assume that government is having a contractionary effect on the economy.

Refer to the diagram, in which T is tax revenues and G is government expenditures. All figures are in billions. The budget will entail a deficit at all levels of GDP. at any level of GDP above $400. at any level of GDP below $400. only when GDP is stable.

at any level of GDP below $400.

Ca = 25 + 0.75 (Y - T) Ig = 50 Xn = 10 G = 70 T = 30 (Advanced analysis) The accompanying equations are for a mixed open economy. The letters Y, Ca, Ig, Xn, G, and T stand for GDP, consumption, gross investment, net exports, government purchases, and net taxes, respectively. Figures are in billions of dollars. The equilibrium level of GDP for this economy is a)$600. b)$530. c)$415. d)$400.

b)$530.

Refer to the tables of information for a private closed economy. The multiplier for this economy is a)2. b)2.5 c).3. d)4.

b)2.5

(Advanced analysis) The given equations describe consumption and investment (in billions of dollars) for a private closed economy. C = 60 + 0.6Y I = I0 = 30 In this economy, the equilibrium level of income (Y) is a)360. b)225. c)200. d)135.

b)225.

(saving is y-axis, disposable income x-axis, s2 is steeper and above S1, the lines cross) Suppose the economy's saving schedule shifts from S1 to S2, as shown in the given diagram. We can say that its a)MPC has increased. b)MPS has increased. c)APS has increased at all levels of disposable income. d)APS has decreased at all levels of disposable income.

b)MPS has increased.

Which of the following will not cause the consumption schedule to shift? a)a sharp increase in the amount of wealth held by households b)a change in consumer incomes c)the expectation of a recession d)a growing expectation that consumer durables will be increasing in price soon

b)a change in consumer incomes

In the accompanying graph, which of the following would shift the investment demand curve from ID2 to ID1? (line pointing down and ID! is bottom, real interest rates are y-axis, and investment is x-axis) a)rising real interest rates b)increasing business taxes c)lower acquisition cost of capital goods d)higher expected rates of return on investment

b)increasing business taxes

(Consumption y axis, income is x-axis, C1 is below C2) Refer to the given graph. A shift of the consumption schedule from C2 to C1 might be caused by a(n) a)increase in real GDP b)reverse wealth effect, caused by a decrease in stock market prices. c)decrease in income tax rates d)decrease in saving.

b)reverse wealth effect, caused by a decrease in stock market prices.

(Consider This) The Paradox of Thrift highlights the idea that a)saving more is good for the economy in the short run. b)saving more can be bad for the economy during a recession. c)in spending more, households will end up saving less. d)in spending more, workers may end up losing their jobs.

b)saving more can be bad for the economy during a recession.

Which of the following will not tend to shift the consumption schedule upward? a)a currently small stock of durable goods in the possession of consumers b)the expectation of a future decline in the consumer price index c)a currently low level of household debt d)the expectation of future shortages of essential consumer goods

b)the expectation of a future decline in the consumer price index

Classical economists held the view that in the economy, a)demand creates its own supply. b)unemployment is temporary and is soon eliminated. c)there is an imbalance between saving and investment. d)it is difficult for an economy to adjust because wages and prices are inflexible.

b)unemployment is temporary and is soon eliminated.

(C1 is below C2, consumption is y axis, income is x-axis) Refer to the given graph. A shift of the consumption schedule from C1 to C2 might be caused by a(n) a)recession. b)wealth effect of an increase in stock market prices. c)increase in income tax rates. d)increase in saving.

b)wealth effect of an increase in stock market prices.

The immediate-short-run aggregate supply curve represents circumstances where both input and output prices are fixed. both input and output prices are flexible. input prices are fixed, but output prices are flexible. input prices are flexible, but output prices are fixed.

both input and output prices are fixed.

S = −20 + 0.4Y Ig = 25 − 3i (Advanced analysis) The equations refer to a private closed economy, where S is saving, Ig is gross investment, i is the real interest rate, and Y is GDP. In equilibrium, the level of consumption will be a)$80. b)$95. c)$65. d)$70.

c)$65.

Refer to the tables of information for a private closed economy. In this economy, a 3 percentage point decrease in the interest rate will a)increase equilibrium GDP by $200. b)increase equilibrium GDP by $50 c).increase equilibrium GDP by $100. d)decrease equilibrium GDP by $50.

c).increase equilibrium GDP by $100.

Refer to the diagram for a private closed economy. Aggregate saving in this economy will be zero when a)C + Ig cuts the 45-degree line. b)GDP is $180 billion. c)GDP is $60 billion d).GDP is also zero.

c)GDP is $60 billion

The so-called Paradox of Thrift that became quite obvious in the Great Recession of 2007-2009 does not refer to which of the following? a)Saving may be virtuous for the individual, but it could be bad for the economy as a whole. b)Consumers becoming thriftier may help long-term growth but, ironically, reduces current output. c)In trying to spend less now, consumers will end up spending more later on. d)As individuals try to save more, the whole group may end up saving less as total income declines.

c)In trying to spend less now, consumers will end up spending more later on.

(Y axis is consumption, x axis is disposable income, C1 shifts up to C2) Suppose an economy's consumption schedule shifts from C1 to C2, as shown in the diagram. We can say that its a)MPC has increased, but its APC at each income level is unchanged. b)APC at each income level is increased, but its MPC is unchanged. c)MPC and APC at each income level have both increased. d)MPC and APC at each income level have both decreased.

c)MPC and APC at each income level have both increased.

(ID1 is lowest with ID3 being highest, real interest rates is y-axis, and investment is x-axis) In the accompanying graph, which of the following would shift the investment demand curve from ID2 to ID3? a)greater inventories of capital goods b)higher business taxes on capital goods c)a more rapid rate of technological progress d)lower expected rates of return on investment in capital goods

c)a more rapid rate of technological progress

Assume the economy's consumption and saving schedules simultaneously shift downward. This must be the result of a) an increase in disposable income. b)an increase in household wealth. c)an increase in personal taxes. d)the expectation of a recession.

c)an increase in personal taxes.

If for some reason households become increasingly thrifty, we could show this by a)a downshift of the saving schedule. b)an upward shift of the consumption schedule. c)an upward shift of the saving schedule. d)a movement down along a stable consumption function.

c)an upward shift of the saving schedule.

(real interest rate is on y-axis, investment is on x-axis, ID1 is lowest and ID3 is highest) In the accompanying graph, which of the following would shift the investment demand curve from ID2 to ID1? a)a falling real interest rate b)a rising real interest rate c)increasing operating costs for capital goods d)decreasing operating costs for capital goods

c)increasing operating costs for capital goods

A major advantage of the built-in or automatic stabilizers is that they a)simultaneously stabilize the economy and reduce the absolute size of the public debt. b)automatically produce surpluses during recessions and deficits during inflations. c)require no legislative action by Congress to be made effective. d)guarantee that the federal budget will be balanced over the course of the business cycle.

c)require no legislative action by Congress to be made effective

In the late 1990s, the U.S. stock market boomed, causing U.S. consumption to rise. Economists refer to this outcome as the a)Keynes effect. b)interest-rate effect. c)wealth effect. d)multiplier effect.

c)wealth effect.

If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule a)will not shift. b)may shift either upward or downward. c)will shift downward. d)will also shift upward.

c)will shift downward.

Refer to the diagram. The degree of built-in stability in the economy could be increased by reducing government purchases so that the purchases line shifts downward but parallel to its present position. changing the tax system so that the tax line is shifted downward but parallel to its present position. changing the tax system so that the tax line has a greater slope. altering the government expenditures line so that it has a positive slope.

changing the tax system so that the tax line has a greater slope.

Increased government spending for investments such as highways or harbors financed by increasing the public debt would most likely crowd out future public investment. reduce the economy's future productive capacity. complement private investment. crowd out private investment.

complement private investment.

The Social Security program is designed to pay current retirees, using funds from their past contributions. current retirees, using funds from current contributions. the lower-income groups, using funds collected from high-income groups. older current workers, using funds from younger current workers.

current retirees, using funds from current contributions.

Economists refer to a budget deficit that exists when the economy is achieving full employment as a cyclical deficit. cyclically adjusted deficit. natural deficit. nonrecurring deficit.

cyclically adjusted deficit.

The Federal Reserve System consists of which of the following? a)Federal Open Market Committee and Office of Thrift Supervision b)Federal Deposit Insurance Corporation and Controller of the Currency c)U.S. Treasury Department and Bureau of Engraving and Printing d)Board of Governors and the 12 Federal Reserve Banks

d)Board of Governors and the 12 Federal Reserve Banks (correct)

John Maynard Keynes expressed his ideas about the macroeconomy and attacked classical economics in his book, The a)Affluent Society. b)Wealth of Nations. c)Theory and Practice of Economics in Capitalism. d)General Theory of Employment, Interest, and Money.

d)General Theory of Employment, Interest, and Money.

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

d)aggregate expenditures exceed the full-employment level of GDP.

The members of the Federal Reserve Board a)serve seven-year terms. b)are appointed by the American Economic Association. c)are elected by votes of the 12 presidents of the Federal Reserve Banks. d)are appointed for 14-year terms.

d)are appointed for 14-year terms.

John Maynard Keynes developed the ideas underlying the aggregate expenditures model a)in the 1960s. b)in the 1980s c).as a reinforcement of Say's Law. d)as a critique of classical economics.

d)as a critique of classical economics.

In the accompanying graph, which of the following would shift the investment demand curve from ID2 to ID3? a)a lower real interest rate b)rising maintenance costs of investment goods c)increasing business taxes d)falling stock of capital resources while output is high

d)falling stock of capital resources while output is high

Refer to the diagram for a private closed economy. In this economy, aggregate expenditures a)do not change as GDP increases. b)increase by $2 for every $5 increase in GDP c).increase by $2 for every $4 increase in GDP. d)increase by $2 for every $3 increase in GDP.

d)increase by $2 for every $3 increase in GDP.

(C1 is below C2, consumption is y-axis, income is y-axis, a is below b) Refer to the given graph. A movement from a to b along C1 might be caused by a(n) a)recession. b)wealth effect of an increase in stock market prices. c)increase in income tax rates. d)increase in real GDP.

d)increase in real GDP.

An upward shift of the saving schedule suggests a)nothing with respect to changes in the APC and APS; only that the MPS has changed. b)that the APC and APS have both decreased at each GDP level. c)that the APC and APS have both increased at each GDP level. d)that the APC has decreased and the APS has increased at each GDP level.

d)that the APC has decreased and the APS has increased at each GDP level.

An increase in the price level in the aggregate expenditures model would decrease aggregate expenditures and shift the AD curve to the left. increase aggregate expenditures and shift the AD curve to the right. decrease aggregate expenditures but would not shift the AD curve. increase aggregate expenditures but would not shift the AD curve.

decrease aggregate expenditures but would not shift the AD curve.

With the expenditures programs and the tax system shown in the diagram, the public budget will be expansionary at all GDP levels above K and contractionary at all GDP levels below K. the public budget will be a destabilizing force at all levels of GDP. deficits will occur at income levels below K, and surpluses above K. deficits will occur at income levels below H, and surpluses above H.

deficits will occur at income levels below K, and surpluses above K.

The aggregate demand curve is vertical under conditions of full employment. horizontal when there is considerable unemployment in the economy. downsloping because of the interest-rate, real-balances, and foreign purchases effects. downsloping because production costs decrease as real output rises.

downsloping because of the interest-rate, real-balances, and foreign purchases effects.

A movement upward along a given aggregate demand curve is equivalent to a(n) increase in aggregate supply. increase in aggregate demand. upward shift in the aggregate expenditures schedule. downward shift in the aggregate expenditures schedule.

downward shift in the aggregate expenditures schedule.

If Congress adjusted the U.S. tax system so that the MPC was reduced, the economy would become more inflation prone. economy would become less stable. stability of the economy would be unaffected. economy would become more stable.

economy would become more stable.

The immediate-short-run aggregate supply curve is downsloping. upsloping. vertical. horizontal.

horizontal

The American Recovery and Reinvestment Act of 2009 created a $700 billion rescue package for financial institutions. cut taxes by $152 billion, distributed primarily as rebate checks to taxpayers. implemented a $787 billion package of tax cuts and government expenditure increases. substantially lowered interest rates in an attempt to stimulate investment spending.

implemented a $787 billion package of tax cuts and government expenditure increases.

The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will shift 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.

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

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

An effective expansionary fiscal policy will reduce a cyclical deficit but necessarily increase the actual deficit. reduce the cyclically adjusted deficit. increase the cyclically adjusted deficit but reduce the actual deficit. always result in a balanced actual budget once full employment is achieved.

increase the cyclically adjusted deficit but reduce the actual deficit.

An increase in the aggregate expenditures schedule increases aggregate demand by the amount of the increase in aggregate expenditures only. increases aggregate demand by the amount of the initial increase in aggregate expenditures times the multiplier. decreases aggregate demand by the amount of the increase in aggregate expenditures. decreases aggregate demand by the amount of the initial increase in aggregate expenditures times the multiplier.

increases aggregate demand by the amount of the initial increase in aggregate expenditures times the multiplier.

The short-run aggregate supply curve represents circumstances where both input and output prices are fixed. both input and output prices are flexible. input prices are fixed, but output prices are flexible. input prices are flexible, but output prices are fixed.

input prices are fixed, but output prices are flexible.

The economy's long-run aggregate supply curve slopes upward and to the right. is vertical. is horizontal. slopes downward and to the right.

is vertical.

An increase in the public debt and its subsequent repayment will tend to mildly reduce the income inequality in the United States. mildly increase the income inequality in the United States. have no impact on the income distribution in the United States. make the income distribution more equitable in the United States.

mildly increase the income inequality in the United States.

If the price level decreases, then the aggregate expenditures schedule will shift. This translates into a movement down along the aggregate demand curve. shift in aggregate demand to the right. shift in aggregate demand to the left. movement up along the aggregate demand curve.

movement down along the aggregate demand curve.

The foreign purchases effect shifts the aggregate demand curve rightward. shifts the aggregate demand curve leftward. shifts the aggregate supply curve rightward. moves the economy along a fixed aggregate demand curve.

moves the economy along a fixed aggregate demand curve.

Refer to the diagrams. Suppose that government undertakes fiscal policy designed to increase aggregate demand from AD1 to AD2 and thereby to increase GDP from X to Z. In terms of graph B, which of the following might explain why GDP increases to Y rather than to Z? inflation an increase in stock prices offsetting state and local finance a ratchet effect

offsetting state and local finance

Increases in the federal budget deficit from 2007 to 2009 were caused exclusively by the loss of tax revenue due to recession. exclusively by expansionary fiscal policy, as shown through growth in the cyclically adjusted deficit. primarily by a combination of recession and expansionary fiscal policy. primarily by increased outlays to a rapidly growing number of Social Security recipients.

primarily by a combination of recession and expansionary fiscal policy.

The cyclically adjusted budget deficit for the United States rose to −7.6 percent of potential GDP in 2009 but has since declined. was zero in 2009, but the cyclical deficit created by the recession was −7.6 percent of potential GDP. changed to a surplus in 2009. rose to −10.1 percent of potential GDP in 2009 but has since declined.

rose to −7.6 percent of potential GDP in 2009 but has since declined.

The aggregate demand curve is upsloping because a higher price level is necessary to make production profitable as production costs rise. is downsloping because production costs decline as real output increases. shows the amount of expenditures required to induce the production of each possible level of real output. shows the amount of real output that will be purchased at each possible price level.

shows the amount of real output that will be purchased at each possible price level.

The aggregate supply curve is explained by the interest rate, real-balances, and foreign purchases effects. gets steeper as the economy moves from the top of the curve to the bottom of the curve. shows the various amounts of real output that businesses will produce at each price level. is downsloping because real purchasing power increases as the price level falls.

shows the various amounts of real output that businesses will produce at each price level.

The aggregate supply curve (short run) slopes downward and to the right. graphs as a vertical line. slopes upward and to the right. graphs as a horizontal line.

slopes upward and to the right.

The American Recovery and Reinvestment Act of 2009 was implemented primarily to reduce inflationary pressure caused by oil price increases. curb the overspending by households that contributed to the Great Recession. bring the federal budget back into balance. stimulate aggregate demand and employment.

stimulate aggregate demand and employment.

The federal budget deficit is found by subtracting government tax revenues plus government borrowing from government spending in a particular year. subtracting government tax revenues from government spending in a particular year. cumulating the differences between government spending and tax revenues over all years since the nation's founding. subtracting government revenues from the noninvestment-type government spending in a particular year.

subtracting government tax revenues from government spending in a particular year.

When the economy is at full employment, one cannot generalize in comparing the actual and the cyclically adjusted budgets. the cyclically adjusted budget will show a surplus and the actual budget will show a deficit. the actual budget will show a surplus and the cyclically adjusted budget will show a deficit. the actual and the cyclically adjusted budgets will be equal.

the actual and the cyclically adjusted budgets will be equal.

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

the amount by which the full-employment GDP exceeds the level of aggregate expenditures.

Refer to the diagram, in which T is tax revenues and G is government expenditures. All figures are in billions. If GDP is $400, there will be a budget deficit. there will be a budget surplus . the budget will be balanced. the macroeconomy will necessarily be in equilibrium.

the budget will be balanced.

When current government expenditures exceed current tax revenues and the economy is achieving full employment, the cyclically adjusted budget has neither a deficit nor a surplus. the cyclically adjusted budget has a deficit. fiscal policy is contractionary. the cyclically adjusted budget has a surplus.

the cyclically adjusted budget has a deficit.

When current tax revenues exceed current government expenditures and the economy is achieving full employment, the cyclically adjusted budget has neither a deficit nor a surplus. the cyclically adjusted budget may have either a deficit or a surplus. the cyclically adjusted budget has a surplus. the government is engaging in an expansionary fiscal policy.

the cyclically adjusted budget has a surplus.

If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes the output effect. the foreign purchases effect. the real-balances effect. the shift-of-spending effect.

the foreign purchases effect.

A major concern with the Social Security trust fund is that surpluses for Social Security are too large. the Federal government buys too many government securities. costs for administering the fund are greater than the current revenue. the fund will be exhausted in a couple of decades.

the fund will be exhausted in a couple of decades.

Refer to the diagram. Discretionary fiscal policy designed to expand GDP is illustrated by the shift of curve T1 to T2. the shift of curve T2 to T1. a movement from a to c along curve T2. a movement from d to b along curve T1.

the shift of curve T1 to T2.

Refer to the diagram. Discretionary fiscal policy designed to slow the economy is illustrated by the shift of curve T1 to T2. the shift of curve T2 to T1. a movement from a to c along curve T2. a movement from d to b along curve T1.

the shift of curve T2 to T1.

The real-balances, interest-rate, and foreign purchases effects all help explain why the aggregate demand curve is downsloping. why the aggregate supply curve is upsloping. shifts in the aggregate demand curve. shifts in the aggregate supply curve.

why the aggregate demand curve is downsloping.

Built-in stability means that an annually balanced budget will offset the procyclical tendencies created by state and local finance and thereby stabilize the economy. with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus, while a decline in income will result in a deficit or a lower budget surplus. Congress will automatically change the tax structure and expenditure programs to correct upswings and downswings in business activity. government expenditures and tax receipts automatically balance over the business cycle, though they may be out of balance in any single year.

with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus, while a decline in income will result in a deficit or a lower budget surplus.