Macroeconomics CH 3
In a closed economy with fixed output, when government spending increases:
public saving decreases
If income is 4800, consumption is 3500, government spending is 1000 and taxes minus transfer are 800, private saving is equal to:
500
According to the model developed in Chapter 3, when government spending increases
consumption and investment both decrease
The demand for output in a closed economy is the sum of:
consumption, investment and government spending
(Exhibit: Saving, investment, and the Interest Rate 1) The economy begins in equilibrium at Point E, representing the real interest rate, r1, at which saving, S1, equals desired investment, I1. What will be the new equilibrium combination of real interest rate, saving, and investment if the government cuts spending, golding other factors constant?
Point B
In the neoclassical model with fixed income, if there is a decrease in taxes with no change in government spending, then public saving___and private saving___.
decreases; increases
A consumption function shows the relationship between consumption and:
disposable income
Private saving is:
disposable income minus consumption
public saving is:
either positive, negative, or zero
The government spending component of GDP includes all of the following except:
federal spending on transfer payments
In the classical model with fixed income, if the interest rate is too low, then investment is too___and the demand for output____the supply
high; exceeds
In a closed economy, Y-C-G equals:
national saving
In equilibrium, total incestment equals:
national saving
The supply of loanable funds is equivalent to:
national saving
Other things equal, an increase in the interest rate leads to:
a decrease in the quantity of investment goods demanded
Investment goods as measured in the GDP are purchased by:
business firms and households
According to the model developed in Chapter 3, when taxes are increased but government spending is unchanged, interest rates:
decrease
In the classical model with fixed income, if the demand for goods for goods and services is greater than the supply, the interest rate will:
decrease
Consumption depends positively on___ and investment depends negatively on ___.
disposable income; the real interest rate
The investment function slopes____because there are___ investment projects that are profitable as the interest rate decreases
downward; more
The government raises lump-sum taxes on income by $100 billion, and the neoclassical economy adjusts so that output does not change. If the marginal propensity to consume is .6, private saving:
falls by $40 billion
Public saving is:
government revenue minus government spending
National saving refers to:
income minus consumption minus government spending
According to the model developed in Chapter 3, when government spending increases but taxes are not raised, interest rates:
increase
In the classical model with fixed income, if the demand for goods and services is greater than the supply, the interest rate will:
increase
When government spending increases and taxes are increased by an equal amount, interest rates:
increase
In the classical model with fixed income, an increase in the real interest rate could be the result of a(n):
increase in government spending
Crowding out occurs when an increase in government spending____the interest rate and investment___:
increase; decrease
In the neoclassical model with fixed income, if there is a decrease in government spending with no change in taxes, then public saving___and private saving____.
increases; does not change
The demand for loanable funds is equivalent to:
investment
According to the model developed in Chapter 3. when government spending increases without a change in taxes:
investment decreases
In the neoclassical economy, assume that the government lowers both government spending and taxes by the same amount. By doing do:
investment rises and the interest rate falls
The demand for the economy's output:
is equal to consumption, investment, and government purchases
When the demand for loanable funds exceeds the supply of loanable funds, households want to save____than firms want to invest and the interest rate___
less;rises
Assume that an increase in consumer confidence raises consumers' expectations of future income and thus the amount they want to consume today for any given income. This shift, in a neoclassical economy, will:
lower investment and raise the interest rate
In the classical model with fixed income, a reduction in the government budget deficit will lead to a:
lower real interest rate
The marginal propensity to consume is:
normally expected to be between zero and one.
Consumption depends ___ on disposable income, and investment depends ___ on the real interest rate
positively; negatively
The government raises lump-sum taxes on income by $100 billion, and the neoclassical economy adjusts so that output does not change. If the marginal propensity to consume is .6, public saving:
rises by $100 billion
The government raises lump-sum taxes on income by $100 billion, and the neoclassical economy adjusts so that output does not change. If the marginal propensity to consume is .6, national saving:
rises by $60 billion
Disposable personal income is defined as income after payment of all:
taxes
The equation Y=C(Y-T)+I(r)+G may be solved for the equilibrium of.
the interest rate
In the classical model with fixed income, if households want to save more than firms want to invest, then:
the interest rate falls
If disposable income is 4000, consumption is 3500, government spending is 1000 and taxes minus transfer are 800, national saving is equal to:
300
In the classical model with fixed income, a decrease in the real interest rate could be the result of a(n):
increase in taxes
National saving is:
private plus public saving
The supply and demand for loanable funds determines the:
real interest rate
In the neoclassical economy, assume that the government lowers both government spending and taxes by $100 billion. If the marginal propensity to consume is .6, investment will:
rise $40 billion
The government raises lump-sum taxes on income by $100 billion, and the neoclassical economy adjusts so that output does not change. If the marginal propensity to consume is .6, investment:
rises by $60 billion
In the classical model with fixed output, the supply and demand for goods and services.
the interest rate
The factor that makes national saving equal investment, in equilibrium, is:
the interest rate
In a closed economy, private saving equals:
Y-T-C
If income is 4800, consumption is 3500, government spending is 1000 and taxes minus transfer are 800, public saving is equal to:
-200
Assume that a firm wants to build a factory that will cost $600,000 in one year and then can sell the used factory for its original cost. The rate of return on this investment would be:
12 percent
According to the model developed in Chapter 3, when taxes decrease without a change in government spending:
consumption increases and investment decreases
In examining the impact of fiscal policy, it is assumed that:
consumption, investment, and the interest rate are endogenous variables
The reduction in investment brought about by the increase in the interest rate caused by increased government spending is called:
crowding out.
(Exhibit: Saving, investment, and the Interest Rate 1) The economy begins in equilibrium at Point E, representing the real interest rate, r1, at which saving, S1, equals desired investment, I1. What will be the new equilibrium combination of real interest rate, saving, and investment if the government cuts taxes, holding other factors constant?
Point A
(Exhibit: Saving, investment, and the Interest Rate 1) The economy begins in equilibrium at Point E, representing the real interest rate, r1, at which saving, S1, equals desired investment, I1. What will be the new equilibrium combination of real interest rate, saving, and investment if the government increases spending, holing other factors constant?
Point A
(Exhibit: Saving, investment, and the Interest Rate 1) The economy begins in equilibrium at Point E, representing the real interest rate, r1, at which saving, S1, equals desired investment, I1. What will be the new equilibrium combination of real interest rate, saving, and investment if the government raises taxes, holing other factors constant?
Point B
In the classical model with fixed income, if the interest rate is too high, then investment is too___and the demand for output____the supply
low; falls short of