Macroeconomics

The multiplier effect of changes in government transfers is:

less than the multiplier effect of a change in government spending.

The cyclically adjusted budget deficit fluctuates _____ the actual budget deficit, because large budget deficits tend to occur when the economy has a large _____ gap.

less than; recessionary

Because of lags associated with stabilization policy, attempts to use monetary or fiscal policy can:

make the economy less stable.

The government budget balance equals taxes _____ purchases _____ transfers

minus; minus

If the price level falls and consumer demand changes, this means:

movement along the aggregate demand curve.

During the 1970s, the U.S. economy experienced a _____ shock because of disruptions in oil supplies.

negative supply

In Neverlandia, the average price of a house has doubled because of a large increase in the demand for houses and a large decrease in the supply. Which is MOST likely to occur?

the aggregate demand curve will shift to the right

The multiplier is the ratio of:

the change in real GDP to the change in autonomous spending.

Because of _____, an increase in government spending results in a larger increase in real GDP.

the multiplier

The budget balance is _____ government savings.

the same as

Assuming everything else remains constant, as the aggregate price level increases:

this reduces the purchasing power of a given amount of money.

When the economy is producing output above the potential, it has:

an inflationary gap

In the long run, the price level _____ aggregate supply.

has no effect on

If the average retirement age decreases:

implicit liabilities will increase.

The long run in macroeconomic analysis is a period:

in which prices and nominal wages are flexible.

Suppose that the economy is in a recessionary gap. A $100 billion _____ is likely to increase real GDP by the LARGEST amount.

increase in government purchases

Refer to Figure: Shift of the Aggregate Demand Curve. A movement from point A on AD1 to point C on AD2 could have resulted from a(n):

increase in the total quantity of consumer goods and services demanded.

A decrease in energy prices will:

increase short-run aggregate supply.

Table: Monetary Aggregates Refer to Table: Monetary Aggregates. The value of M2 is:

$3,355 billion.

A producer wants to determine if it should produce more units of output. It currently sells each unit for $30 and the production per unit is $25, giving them a profit of $_____ .

$5

A producer sees that aggregate prices have increased by $3. It currently makes a $4 profit on each unit of output. Its new profit per unit will be $ _____.

$7

If potential output is $10 trillion and actual output is $12 trillion, then there is an output gap of _____%.

+20

If income is $15 trillion, disposable income is $12 trillion, and taxes are $4 trillion, then transfers are $_____ trillion.

1

The multiplier effect of changes in government purchases of goods and services is equal to:

1 / (1 - MPC).

If the marginal propensity to consume is 0.75 and government spending increases by $100 billion, then real GDP will increase by $_____ billion.

400

If the marginal propensity to consume (MPC) = 0.8, then the government spending multiplier is:

5.

If income is $10 trillion, taxes are $3 trillion, and transfers are $2 trillion, then disposable income is $_____ trillion.

9

A government begins the year with $6 trillion of public debt. During the year, it collects taxes of $4 trillion and spends $7 trillion on transfers and government purchases of goods and services. The public debt at the end of the year would be:

9 Trillion

Which macro curve(s) represents the negative relationship between the aggregate price levels and the corresponding real GDP levels households are ready, willing, and able to purchase?

Aggregate demand

_____ acts like automatic expansionary fiscal policy when the economy is in a recession.

An automatic stabilizer

In the figure, if the economy is at long-run equilibrium at point A and experiences a negative supply shock, the new short-run equilibrium will be at point:

B

_____ are the currency that banks hold in their vaults plus their deposits at the Federal Reserve.

Bank Reserves

Assume the marginal propensity to consume is 0.8 and potential output is $800 billion. If actual real GDP is $700 billion, which of the following policies would bring the economy to potential output?

Decrease taxes by $25 billion.

In the United States, the money supply is determined by the

Federal Reserve.

____ money is a medium of exchange whose value derives entirely from its official status as a means of payment

Fiat

Which of the following is an accurate statement of the changing aggregate price level and the corresponding change in planned aggregate spending?

If the aggregate price level increases, planned aggregate spending will shift downward.

is the program that covers the cost of health care for residents of the United States with low incomes.

Medicaid

If the costs of health insurance paid by employers rises, then the economy will experience a _____ shock.

Negative supply

Do economists believe that the budget should be balanced each fiscal year?

No, a budget should be balanced only on average; it can be in a deficit during a recession and offset by surpluses when the economy is doing well.

If a consumer has $3,000 in the bank and the aggregate price level increases 20%, can he or she afford something that previously cost $2,700?

No, because the new cost of that item will be more than $3,000.

_____ policy refers to the use of government policy to reduce the severity of recessions and rein in excessively strong expansions.

Stabilization

Refer to Figure: Inflationary and Recessionary Gaps. Which equation measures an inflationary gap?

Y3 - Y2

Refer to Figure: Fiscal Policy Options. If the aggregate demand curve is AD'':

a contractionary fiscal policy may be warranted.

Refer to Figure: The Multiplier. If this economy is at Y1 and the price level decreases:

a downward movement along the AD1 will take place, reflecting a decrease in the price level.

Suppose an economy is initially in long-run equilibrium and then there is an increase in people's wealth in this economy. What policy is the government most likely to use to keep an inflationary gap from opening up?

a monetary policy like increasing interest rates

A negative demand shock can cause:

a recessionary gap.

If _____, expansionary fiscal policy is most likely to crowd out private spending.

aggregate income is $500 billion above its potential level

The aggregate demand curve shows the relationship between the aggregate price level and the quantity of _____ demanded by households, businesses, government, and the rest of the world.

aggregate output

Which would be considered contractionary fiscal policy?

an increase in taxes

Which of the following would MOST likely cause a positive demand shock?

an increasing optimism in the stock market

Governments usually finance deficits by:

borrowing.

Included in M1 are

checkable bank deposits.

Macroland is initially in long-run equilibrium and then it faces a positive supply shock. In response, the central bank of Macroland increases the money supply. In the short run, this policy action MOST likely will:

continue to worsen the inflation that has already begun.

Refer to Figure: Short- and Long-Run Equilibrium II. If the economy is at equilibrium at E1, the government should use _____ fiscal policy to shift the aggregate demand curve to the _____.

contractionary; left

Which asset is the MOST liquid?

currency

The debt-GDP ratio is the government's:

debt divided by the nation's GDP.

If the marginal propensity to consume (MPC) is 0.8, and transfers decrease by $200 billion, then GDP will:

decrease by less than $1,000 billion.

When the price level decreases, firms in imperfectly competitive markets will:

decrease output and decrease the price.

If policy makers want to decrease real GDP by $100 billion and the marginal propensity to consume is 0.6, they should _____ government purchases of goods and services by _____.

decrease; $40 billion

Funding for Social Security and Medicare comes from:

dedicated taxes on wages (payroll taxes)

If tax revenues are $10 trillion, transfers are $2 trillion, and government spending on goods and services is $9 trillion, then the budget balance is a:

deficit of $1 trillion.

If tax revenues are $2 trillion, transfers are $0.5 trillion, and government spending on goods and services is $3 trillion, then the budget balance is a _____ trillion.

deficit of $1.5

The aggregate demand curve slopes:

downward in part because as the price level falls, the ability of households and firms to borrow cheaply increases.

The U.S. dollar is defined as:

fiat money, because it was established as money by an act of law.

The cyclically balanced budget _____ the actual budget.

fluctuates less than

Aggregate demand will shift to the RIGHT if:

government purchases increase.

An increase in _____ is expansionary fiscal policy.

government transfers

Consumer spending will likely rise if:

government transfers rise.

Suppose the equilibrium aggregate price level and the equilibrium level of real GDP are both rising. This is probably the effect of a(n) _____ in aggregate _____.

increase; demand

An expansionary fiscal policy either _____ government spending or _____ taxes.

increases; decreases

If potential output is $10 trillion and actual output is $12 trillion, then there is a _____ gap.

inflationary

In the figure, if the economy is at point B, then there is a(n) _____ gap.

inflationary

Contractionary fiscal policy should be used to close a(n):

inflationary gap.

In the long run, the aggregate price level has:

no effect on the quantity of aggregate output.

The intersection of an economy's aggregate demand and long-run aggregate supply curves:

occurs at the economy's potential output in long-run equilibrium.

Changes in the budget balance are _____ the result of fiscal policy.

often

A producer has raised employee wages across the board. This will likely decrease its profit per unit UNLESS:

other costs of output have decreased and price per unit has increased.

The aggregate supply curve shows the relationship between the aggregate price level and the aggregate:

output supplied.

If the costs of health insurance paid by employers decrease, then the economy will experience a _____ shock.

positive supply

The United States experienced a _____ between 1995 and 2000 due to the increasing use of the internet.

positive supply shock

The aggregate demand curve shows the relationship between the aggregate price level and (the) aggregate:

quantity of output demanded by households, businesses, the government, and the rest of the world.

When the economy expands, income tax receipts will:

rise, and sales tax revenues will rise.

Suppose that the budget deficit of a country remains level for five years. The federal debt will:

rise.

Assuming that prices remain constant, suppose that consumer assets and wealth lose value. The aggregate demand curve will undergo a:

shift to the left

A decrease in government transfers will cause the aggregate demand schedule to:

shift to the left in the model, all other things remaining equal.

If the price of oil rises, then the:

short-run aggregate supply curve shifts to the left.

If actual output is less than potential output, then the:

short-run aggregate supply curve will shift to the right.

If the price of oil decreases, then the:

short-run aggregate supply curve will shift to the right.

If the economy is operating well below potential output, the cyclically adjusted budget balance deficit is _____ than the actual budget balance.

smaller than

If there is a large recessionary gap, then the cyclically adjusted budget deficit would be _____ the actual budget deficit.

smaller than

In the short run, wages and some prices are considered to be:

sticky.

A natural disaster that destroys part of a country's infrastructure is a type of negative _____ shock and therefore shifts the _____ curve to the _____.

supply; short-run aggregate supply; left

If tax revenues are $3 trillion, transfers are $0.5 trillion, and government spending is $2 trillion, then the budget balance is a _____ trillion

surplus of $0.5

If tax revenues are $6 trillion, transfers are $2 trillion, and government spending on goods and services is $3 trillion, then the budget balance is a:

surplus of $1 trillion.

Contractionary fiscal policy shifts the aggregate demand curve:

to the left.

Government payments to households for which no good or service is provided in return are called:

transfer payments

If actual output is greater than potential output, then:

unemployment is relatively low.

"Tuition at State University this year is $8,000." Which function of money does this statement best illustrate?

unit of account

Producing a short-run level of aggregate output that exceeds the economy's potential output results in a(n) _____ adjustment in _____.

upward; nominal wages