Macro Unit 14 Quiz

5. The government's budget is balanced when: a. G = T b. G < T c. G > T d. Y < T

a. G=T

12. Central bank (or government) actions aimed at influencing economic activity through changing interest rates or the prices of financial assets is called monetary policy. a. True b. False

a. true

13. The marginal propensity to import reduces the size of the multiplier. a. True b. False

a. true

2. The multiplier process is a mechanism through which the direct and indirect effect of a change in autonomous spending affects aggregate output. a. True b. False

a. true

1. In the multiplier model, will production ever adjust to demand? a. Yes b. No

a. yes

10. Does aggregate demand = consumption + investment? a. Yes b. No

a. yes

6. The aggregate attempt to increase savings leads to a fall in aggregate income. This is also called: a. The fallacy of composition b. The paradox of thrift c. The failure of the consumption function d. The rate of aggregate demand on the production function

b. The paradox of thrift

3. Which of the following statements is correct regarding household wealth? a. A household's material wealth is its financial wealth plus the value of its house. b. The total broad wealth equals material wealth plus expected future earnings. c. A household adjusts its precautionary saving in response to changes in its target wealth. d. If the household's target wealth is above its expected wealth, then it will decrease savings and increase consumption.

b. The total broad wealth equals material wealth plus expected future earnings.

9. This is the total of the components of spending in the economy added to get GDP: Y = C + I + G + X - M. a. The multiplier b. Aggregate demand c. The GDP ratio d. Deficit spending

b. aggregate demand

4. Does government spending change in a systematic way with changes in income? a. Yes b. No

b. no

11. This is an equation that shows how investment spending in the economy as a whole depends on other variables, namely, the interest rate and profit expectations. a. The aggregate consumption function b. The marginal propensity to consume function c. The aggregate investment function d. The multiplier model function

c. The aggregate investment function

8. How much people spend that is independent of their income is: a. A bonus b. Taxes c. Autonomous consumption d. Marginal propensity to consume

c. autonomous consumption

14. The increase in unemployment above equilibrium unemployment caused by a fall in aggregate demand associated with the business cycle is: a. Low unemployment b. High unemployment c. Cyclical unemployment d. Static unemployment

c. cyclical unemployment

7. Which of the following statements is correct? a. Maintaining fiscal balance in a recession helps to stabilize the economy. b. Automatic stabilizers refer to the fact that economic shocks are partly offset by households smoothing their consumption in the face of variable income. c. The multiplier on a fiscal stimulus is higher when the economy is functioning at full capacity. d. A fiscal stimulus can be implemented by raising spending to directly increase demand, or by cutting taxes to increase private sector demand.

d. A fiscal stimulus can be implemented by raising spending to directly increase demand, or by cutting taxes to increase private sector demand.