Macroeconomics Exam 2
If an unintended increase in business inventories occurs at some level of GDP, then GDP A. entails a rate of aggregate expenditures in excess of the rate of aggregate production. B. may be either above or below the equilibrium output. C. is too low for equilibrium. D. is too high for equilibrium.
D. is too high for equilibrium.
Assume there are no investment projects that will produce an expected rate of return of 8 percent or more. There are, however, $2 billion worth of investment projects with an expected rate of return at 7 percent, an additional $2 billion for every drop of the interest rate by 1 percent. If the real interest rate is 3 percent in this economy, the cumulative amount of investment at the 3 percent or higher rate of return is: A. $10 billion B. $8 billion C. $6 billion D. $4 billion
A. $10 billion
Refer to the table. Exports might be ____ and imports ____. A. $10; $5 B. $10; $0 C. $0; $5 D. $5; 10
A. $10; $5
The following factors explain the inverse relationship between the price level and the total demand for output, except: A. A substitution effect B. A real-balances effect C. An interest-rate effect D. A foreign-purchases effect
A. A substitution effect
When the Federal government uses taxation and spending actions to stimulate the economy it is conducting: A. Fiscal policy B. Incomes policy C. Monetary policy D. Employment policy
A. Fiscal policy
If Congress passed new laws significantly increasing the regulation of business, this action would tend to: A. Increase per-unit production costs and shift the aggregate supply curve to the left B. Increase per-unit production costs and shift the aggregate supply curve to the right C. Increase per-unit production costs and shift the aggregate demand curve to the left D. Decrease per-unit production costs and shift the aggregate supply curve to the left
A. Increase per-unit production costs and shift the aggregate supply curve to the left
In an economy, the government wants to decrease aggregate demand by $48 billion at each price level to decrease real GDP and control demand-pull inflation. If the MPS is 0.25, then it could: A. Increase taxes by $16 billion B. Increase taxes by $24 billion C. Decrease government spending by $10 billion D. Decrease government spending by $16 billion
A. Increase taxes by $16 billion
Refer to the figure above. The economy is at equilibrium at point A. What fiscal policy would be most appropriate to control demand-pull inflation? A. Shift aggregate demand by increasing taxes B. Shift aggregate demand by decreasing taxes C. Shift aggregate supply by increasing taxes D. Shift aggregate demand by increasing government spending
A. Shift aggregate demand by increasing taxes
One timing problem in using fiscal policy to counter a recession is the "recognition lag" that occurs between the: A. Start of the recession and the time it takes to recognize that the recession has started B. Start of a predicted recession and the actual start of the recession C. Time fiscal action is taken and the time that the action has its effect on the economy D. Time the need for the fiscal action is recognized and the time that the action is taken
A. Start of the recession and the time it takes to recognize that the recession has started
A fall in labor costs will cause aggregate: A. Supply to increase B. Demand to increase C. Supply to decrease D. Demand to decrease
A. Supply to increase
In the Great Recession of 2007-2009, the stock market values shrank, causing a reverse: A. Wealth effect B. Real-balances effect C. Interest-rate effect D. Expectations effect
A. Wealth effect
In the aggregate expenditures model of the economy, a downward shift in aggregate expenditures can be caused by a A. decrease in government spending or an increase in taxes. B. decrease in taxes or an increase in government spending. C. decrease in interest rates or a decrease in taxes. D. decrease in saving or an increase in government spending.
A. decrease in government spending or an increase in taxes.
If the real interest rate falls, then the A. investment schedule will shift upward. B. investment schedule will shift downward. C. point moves along the investment schedule to the right. D. consumption schedule will shift downward.
A. investment schedule will shift upward.
A recessionary expenditure gap is A. the amount by which the full-employment GDP exceeds the level of aggregate expenditures. B. the amount by which equilibrium GDP falls short of the full-employment GDP. C. the amount by which investment exceeds saving at the full-employment GDP. D. the amount by which aggregate expenditures exceed the full-employment level of GDP.
A. the amount by which the full-employment GDP exceeds the level of aggregate expenditures.
In an economy, the government wants to increase aggregate demand by $50 billion at each price level to increase real GDP and reduce unemployment. If the MPS is 0.4, then it could increase government spending by: A. $10 billion B. $20 billion C. $31.25 billion D. $40.50 billion
B. $20 billion
Refer to the diagram for a private closed economy. The equilibrium level of GDP is A. $400. B. $300. C. $200. D. $100.
B. $300.
Refer to the consumption schedule above. The marginal propensity to consume is: Disposable Income: Consumption: $10,000 $12,000 18,000 18,000 26,000 24,000 34,000. 30,000 42,000 36,000 50,000. 42,000 A. .60 B. .75 C. .80 D. .20
B. .75
Refer to the above graph. What combination would most likely cause a shift from AD1 to AD2? A. An increase in taxes and an increase in government spending B. A decrease in taxes and an increase in government spending C. An increase in taxes and no change in government spending D. A decrease in taxes and a decrease in government spending
B. A decrease in taxes and an increase in government spending
The so-called ratchet effect refers to the characteristic in the economy where product prices, wages, and per-unit production cost are flexible when: A. AD decreases but not when AD increases B. AD increases but not when AD decreases C. AS increases but not when AS decreases D. AD shifts but not when AS shifts
B. AD increases but not when AD decreases
Which would most likely increase aggregate supply? A. An increase in the prices of imported products B. An increase in productivity C. A decrease in business subsidies D. A decrease in personal income taxes
B. An increase in productivity
Which of the following factors would decrease investment demand? A. A decrease in business taxes B. An increase in the cost of acquiring capital goods C. An increase in the rate of technological change D. A decrease in the stock of capital goods on hand
B. An increase in the cost of acquiring capital goods
The intent of contractionary fiscal policy is to: A. Increase aggregate demand B. Decrease aggregate demand C. Increase aggregate supply D. Decrease aggregate supply
B. Decrease aggregate demand
Given the expected rate of return on all possible investment opportunities in the economy, a(n): A. Increase in the real rate of interest will tend to increase the level of investment B. Decrease in the real rate of interest will tend to increase the level of investment C. Decrease in the real rate of interest will tend to decrease the level of investment D. Change in the real interest rate will have no impact on the level of investment
B. Decrease in the real rate of interest will tend to increase the level of investment
If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n): A. Supply-side fiscal policy B. Expansionary fiscal policy C. Contractionary fiscal policy D. Non-discretionary fiscal policy
B. Expansionary fiscal policy
Two basic determinants of investment spending are: A. Consumer spending and government spending B. Expected returns and real interest rates C. General price level and the level of output D. Domestic trade and international trade
B. Expected returns and real interest rates
A Federal budget deficit exists when: A. Federal government assets are less than liabilities in a given year B. Federal government spending exceeds tax revenues in a given year C. Federal government spending is increasing in a given year D. Federal government taxation is decreasing in a given year
B. Federal government spending exceeds tax revenues in a given year
The short-run version of aggregate supply assumes that product prices are: A. Fixed while resource prices are flexible B. Flexible while resource prices are fixed C. Both input and product prices are flexible D. Both input and product prices are fixed
B. Flexible while resource prices are fixed
The cyclically-adjusted budget deficit in an economy is zero. If this economy goes into recession, then the actual government budget will be: A. Balanced B. In deficit C. In surplus D. Expanding
B. In deficit
If the price of crude oil decreases, then this would most likely: A. Decrease aggregate supply in the U.S. B. Increase aggregate supply in the U.S. C. Increase aggregate demand in the U.S. D. Decrease aggregate demand in the U.S.
B. Increase aggregate supply in the U.S.
If the economy is in a recession and prices are relatively stable, then the discretionary fiscal policy or policies that would most likely be recommended to correct this macroeconomic problem would be: A. Increased government spending or increased taxation, or a combination of the two actions B. Increased government spending or decreased taxation, or a combination of the two actions C. Increased government spending or increased taxation, but not a combination of the two actions D. Decreased government spending or decreased taxation, or a combination of the two actions
B. Increased government spending or decreased taxation, or a combination of the two actions
An increase in personal income taxes would shift AD to the: A. Right because C will increase B. Left because C will decrease C. Right because G will increase D. Left because G will decrease
B. Left because C will decrease
Refer to the table. An increase in net exports of $10 would A. increase real GDP by $10. B. increase real GDP by $30 C. decrease real GDP by $10. D. decrease real GDP by $30.
B. increase real GDP by $30.
Refer to the table. If the full-employment real GDP is $40, the A. inflationary expenditure gap is $30. B. inflationary expenditure gap is $10. C. recessionary expenditure gap is $30. D. recessionary expenditure gap is $10.
B. inflationary expenditure gap is $10.
If the expected rate of return on investment decreases, then most likely the A. investment schedule will shift upward. B. investment schedule will shift downward. C. consumption schedule will shift upward. D. consumption schedule will shift downward.
B. investment schedule will shift downward.
Refer to the diagrams. Curve A A. is an investment schedule, and curve B is a consumption of fixed capital schedule. B. is an investment demand curve, and curve B is an investment schedule. C. and curve B are totally unrelated. D. shifts to the left when curve B shifts upward.
B. is an investment demand curve, and curve B is an investment schedule.
In the aggregate expenditures model, the equilibrium GDP is A. assumed to be equal to the potential GDP level. B. not necessarily equal to the full-employment GDP. C. always above the potential GDP level. D. always less than the full-employment GDP level.
B. not necessarily equal to the full-employment GDP.
If net exports decline from zero to some negative amount, the aggregate expenditures schedule would A. shift upward. B. shift downward. C. not move. (Net exports do not affect aggregate expenditures.) D. become steeper.
B. shift downward.
When aggregate expenditure is greater than GDP, then there will be an A. unplanned increase in inventories and GDP will increase. B. unplanned decrease in inventories and GDP will increase. C. unplanned increase in inventories and GDP will decrease. D. unplanned decrease in inventories and GDP will decrease.
B. unplanned decrease in inventories and GDP will increase.
The economy is in a recession. The government enacts a policy to increase spending by $2 billion. The MPS is 0.2. What would be the full increase in real GDP from the change in government spending assuming that the aggregate supply curve is horizontal across the range of GDP being considered? A. $6 billion B. $8 billion C. $10 billion D. $16 billion
C. $10 billion
Assume the MPC is 0.8. If government were to impose $50 billion of new taxes on household income, consumption spending would initially decrease by A. $100 billion. B. $90 billion. C. $40 billion. D. $50 billion.
C. $40 billion.
The table shows a consumption schedule. Refer to the data above. If disposable income is $550, we would expect consumption to be: Disposable Income Consumption $300 $310 350 340 400 370 450 400 500 430 A. $430 B. $450 C. $460 D. $470
C. $460
The table shows a consumption schedule. Refer to the data above. The marginal propensity to consume: Disposable Income Consumption $300 $310 350 340 400 370 450 400 500 430 A. .80 B. .75 C. .60 D. .40
C. .60
The public debt is the: A. Amount of U.S. paper currency in circulation B. Ratio of all past deficits to all past surpluses C. Accumulation of all past deficits minus all past surpluses D. Difference between current government expenditures and current tax revenues
C. Accumulation of all past deficits minus all past surpluses
Refer to the above figures with consumption schedules in figure (A) and saving schedules in figure (B), which correspond to each other across different levels of disposable income. If, in figure (A), line A2 shifts to A3 because of the so-called wealth effect, then in figure (B) line: A. B2 will shift to B3 B. B1 will shift to B2 C. B2 will shift to B1 D. B3 will shift to B2
C. B2 will shift to B1
The economy starts out with a balanced Federal budget. If the government then implements expansionary fiscal policy, then there will be a: A. Trade deficit B. Trade surplus C. Budget deficit D. Budget surplus
C. Budget deficit
If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n): A. Supply-side fiscal policy B. Expansionary fiscal policy C. Contractionary fiscal policy D. Non-discretionary fiscal policy
C. Contractionary fiscal policy
Without a change in discretionary fiscal policy, we would expect that if the economy goes into recession, then the: A. Cyclically-adjusted deficit and the actual deficit would both increase B. Cyclically-adjusted deficit and the actual deficit would both decrease C. Cyclically-adjusted deficit would stay the same while the actual deficit would increase D. Cyclically-adjusted deficit would increase while the actual deficit would stay the same
C. Cyclically-adjusted deficit would stay the same while the actual deficit would increase
You are given the following information about aggregate demand at the existing price level for an economy: (1) consumption = $500 billion; (2) investment = $50 billion; (3) government purchases = $100 billion; and (4) net export = $20 billion. If the full-employment level of GDP for this economy is $620 billion, then what combination of actions would be most consistent with closing the GDP-gap here? A. Increase government spending and taxes B. Decrease government spending and taxes C. Decrease government spending and increase taxes D. Increase government spending and decrease taxes
C. Decrease government spending and increase taxes
A decrease in government spending will cause a(n): A. Increase in the quantity of real output demanded B. Decrease in the quantity of real output demanded C. Decrease in aggregate demand D. Increase in aggregate demand
C. Decrease in aggregate demand
The United States is experiencing a recession and Congress decides to adopt an expansionary fiscal policy to stimulate the economy. In this case, the crowding-out effect suggests that investment spending would: A. Increase, thus partially offsetting the fiscal policy B. Increase, thus partially reinforcing the fiscal policy C. Decrease, thus partially offsetting the fiscal policy D. Decrease, thus partially reinforcing the fiscal policy
C. Decrease, thus partially offsetting the fiscal policy
The U.S. economy was able to achieve full employment with relative price level stability between 1996 and 2000 because aggregate: A. Demand increased B. Supply decreased C. Demand increased and aggregate supply increased D. Demand decreased and aggregate supply increased
C. Demand increased and aggregate supply increased
Demand-pull inflation is illustrated in the short run aggregate supply-aggregate demand model as a shift of the aggregate: A. Supply to the right B. Supply to the left C. Demand to the right D. Demand to the left
C. Demand to the right
When the Federal government takes budgetary action to stimulate the economy or rein in inflation, such policy is: A. Active Monetary Policy B. Automatic Fiscal Policy C. Discretionary Fiscal Policy D. Active Federal Policy
C. Discretionary Fiscal Policy
The real-balances effect on aggregate demand suggests that a: A. Lower price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending B. Lower price level will decrease the real value of many financial assets and therefore cause an increase in spending C. Lower price level will increase the real value of many financial assets and therefore cause an increase in spending D. Higher price level will increase the real value of many financial assets and therefore cause an increase in spending
C. Lower price level will increase the real value of many financial assets and therefore cause an increase in spending
Refer to the graph above. Assume that the economy is in a recession with a price level of P1 and output level Q1. The government then adopts an appropriate discretionary fiscal policy. What will be the most likely new equilibrium price level and output? A. P2 and Q4 B. P1 and Q1 C. P2 and Q2 D. P1 and Q3
C. P2 and Q2
The goal of expansionary fiscal policy is to increase: A. The price level B. Aggregate supply C. Real GDP D. Unemployment
C. Real GDP
The foreign purchases effect on aggregate demand suggests that a: A. Fall in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand B. Fall in our domestic price level will decrease our imports and increase our exports, thereby reducing the net exports component of aggregate demand C. Rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand D. Rise in our domestic price level will decrease our imports and increase our exports, thereby reducing the net exports component of aggregate demand
C. Rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the net exports component of aggregate demand
A decrease in aggregate supply means: A. Both the real domestic output and the price level would decrease B. The real domestic output would increase and rises in the price level would become smaller C. The real domestic output would decrease and the price level would rise D. Both the real domestic output and rises in the price level would become greater
C. The real domestic output would decrease and the price level would rise
If the real interest rate increases: A. The investment demand curve will shift to the right B. The investment demand curve will shift to the left C. There will be a movement upward along the investment demand curve D. There will be a movement downward along the investment demand curve
C. There will be a movement upward along the investment demand curve
One timing problem in using fiscal policy to counter a recession is the "operational lag" that occurs between the: A. Start of the recession and the time it takes to recognize that the recession has started B. Start of a predicted recession and the actual start of the recession C. Time fiscal action is taken and the time that the action has its effect on the economy D. Time the need for the fiscal action is recognized and the time that the action is taken
C. Time fiscal action is taken and the time that the action has its effect on the economy
A $1 increase in government spending on goods and services will have a greater impact on the equilibrium GDP than will a $1 decline in taxes because A. government spending is more employment intensive than is either consumption or investment spending. B. government spending increases the money supply and a tax reduction does not. C. a portion of a tax cut will be saved. D. taxes vary directly with income.
C. a portion of a tax cut will be saved.
An economy characterized by high unemployment is likely to be A. experiencing a high rate of economic growth. B. experiencing hyperinflation. C. having a recessionary expenditure gap. D. having an inflationary expenditure gap.
C. having a recessionary expenditure gap.
In the aggregate-expenditures model, the average price level is A. measured along the horizontal axis. B. measured along the vertical axis. C. not shown on the AE graphs. D. shown as a 45-degree line.
C. not shown on the AE graphs.
Refer to the diagram. If the full-employment level of GDP is B and aggregate expenditures are at AE3, the A. inflationary expenditure gap is BC. B. recessionary expenditure gap is BC. C. recessionary expenditure gap is ed. D. inflationary expenditure gap is ed.
C. recessionary expenditure gap is ed.
If an unintended increase in business inventories occurs, A. we can expect aggregate production to be unaffected. B. we can expect businesses to increase the level of production. C. we can expect businesses to lower the level of production. D. aggregate expenditures must exceed the domestic output.
C. we can expect businesses to lower the level of production
Refer to the consumption schedule above. If disposable income is $42,000, then saving is: Disposable Income: Consumption: $10,000 $12,000 18,000 18,000 26,000 24,000 34,000. 30,000 42,000 36,000 50,000. 42,000 A. $0 B. $2,000 C. $4,000 D. $6,000
D. $6,000
Refer to the consumption schedule above. If disposable income were $34,000, then the average propensity to save would be about: Disposable Income: Consumption: $10,000 $12,000 18,000 18,000 26,000 24,000 34,000. 30,000 42,000 36,000 50,000. 42,000 A. .75 B. .88 C. .25 D. .12
D. .12
If the MPC is 0.75, the multiplier will be: A. 2 B. 3 C. 3.5 D. 4
D. 4
Refer to the above figures with consumption schedules in figure (A) and saving schedules in figure (B), which correspond to each other across different levels of disposable income. If, in figure (A), line A2 shifts to A3 because of the so-called wealth effect, then in figure (B) line: A. A shift from line B2 to B3 B. A shift from line B2 to B1 C. A movement down along line B2 D. A movement up along line B2
D. A movement up along line B2
Collective bargaining agreements that prohibit wage cuts for the duration of the contract contribute to: A. A wealth effect B. A multiplier effect C. An increase in aggregate supply D. A price level that is inflexible downward
D. A price level that is inflexible downward
The multiplier effect relates: A. Changes in the price level to changes in real GDP B. Changes in the interest rate to changes in investment C. Changes in disposable income to changes in consumption D. Changes in spending to changes in real GDP
D. Changes in spending to changes in real GDP
The set of fiscal policies that would be most contractionary would be a(n): A. Increase in government spending and taxes B. Decrease in government spending and taxes C. Increase in government spending and a decrease in taxes D. Decrease in government spending and an increase in taxes
D. Decrease in government spending and an increase in taxes
In Year 1, the actual budget deficit was $200 billion and the cyclically-adjusted deficit was $150 billion. In Year 2, the actual budget deficit was $225 billion and the cyclically-adjusted deficit was $175 billion. It can be concluded that fiscal policy from Year 1 to Year 2 became more: A. Proportional B. Progressive C. Contractionary D. Expansionary
D. Expansionary
Refer to the diagram, which applies to a private closed economy. If gross investment is Ig1, the equilibrium GDP and the level of consumption will be A. H and HB, respectively. B. J and JI, respectively. C. J and JK, respectively. D. H and HF, respectively.
D. H and HF, respectively.
Which statement about the multiplier is correct? A. If a $20 billion increase in spending creates $20 billion of new income in the first round of the multiplier process and $15 billion in the second round, the multiplier in the economy is 5 B. If a $40 billion increase in spending creates $40 billion of new income in the first round of the multiplier process and $20 billion in the second round, the multiplier in the economy is 4 C. If a $60 billion increase in spending creates $60 billion of new income in the first round of the multiplier process and $50 billion in the second round, the multiplier in the economy is 5 D. If an $80 billion increase in spending creates $80 billion of new income in the first round of the multiplier process and $60 billion in the second round, the multiplier in the economy is 4
D. If an $80 billion increase in spending creates $80 billion of new income in the first round of the multiplier process and $60 billion in the second round, the multiplier in the economy is 4
Refer to the figure above. If AD1 shifts to AD2, then the equilibrium output: A. Increases from Q1 to Q3 while the price level falls from P2 to P1 B. Increases from Q1 to Q2 while the price level falls from P2 to P1 C. Increases from Q1 to Q3 while the price level rises from P1 to P2 D. Increases from Q1 to Q2 while the price level rises from P1 to P2
D. Increases from Q1 to Q2 while the price level rises from P1 to P2
A decrease in expected returns on investment will most likely shift the AD curve to the: A. Right because C will increase B. Left because C will decrease C. Right because Ig will increase D. Left because Ig will decrease
D. Left because Ig will decrease
The version of aggregate supply that allows for changes in both product prices and resource prices is the: A. Immediate short-run B. Short run C. Immediate long-run D. Long run
D. Long run
The economy experiences an increase in the price level and an increase in real domestic output. Which is a likely explanation? A. Interest rates have increased B. Business taxes have increased C. Wage rates have fallen D. Net exports have increased
D. Net exports have increased
A firm invests in a new machine that costs $5,000 a year but which is expected to produce an increase in total revenue of $5,200 a year. The current real rate of interest is 7 percent. The firm should: A. Undertake the investment because the expected rate of return of 10 percent is greater than the real rate of interest B. Undertake the investment because the expected rate of return of 8 percent is greater than the real rate of interest C. Not undertake the investment because the expected rate of return of 6 percent is less than the real rate of interest D. Not undertake the investment because the expected rate of return of 4 percent is less than the real rate of interest
D. Not undertake the investment because the expected rate of return of 4 percent is less than the real rate of interest
The following factors help explain the instability of investment, except: A. Business expectations can quickly change for unpredictable reasons B. Innovations in the economy occur quite irregularly C. Profits of firms are highly variable from one period to the next D. Purchases of capital goods are usually non-discretionary and cannot be postponed
D. Purchases of capital goods are usually non-discretionary and cannot be postponed
If businesses feel more optimistic about the state of the economy, then this change is likely to: A. Cause a movement up the investment demand curve B. Cause a movement down the investment demand curve C. Shift the investment demand curve to the left D. Shift the investment demand curve to the right
D. Shift the investment demand curve to the right
Fiscal policy is enacted through changes in: A. Interest rates and the price level B. The supply of money and foreign exchange C. Unemployment and inflation D. Taxation and government spending
D. Taxation and government spending
An investment demand curve shows the varying amounts of investment that would be undertaken at various levels of: A. The average price in the economy B. Consumer spending C. Personal saving D. The real interest rate
D. The real interest rate
The table shows a consumption schedule. Refer to the data above. At the $300 level of disposable income: Disposable Income Consumption $300 $310 350 340 400 370 450 400 500 430 A. The marginal propensity to save is .80 B. The average propensity to consume is .60 C. The average propensity to save is .30 D. There is a dissaving of $10
D. There is a dissaving of $10
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.
In a private closed economy, when aggregate expenditures exceed GDP, A. GDP will decline. B. business inventories will rise. C. saving will decline. D. business inventories will fall.
D. business inventories will fall.
Refer to the diagrams. Other things equal, curve B will shift upward when A. the level of GDP increases. B. the interest rate increases. C. curve A shifts to the left. D. curve A shifts to the right.
D. curve A shifts to the right.
Refer to the table. A decrease in government purchases of $5 would A. increase real GDP by $5. B. increase real GDP by $10. C. decrease real GDP by $5. D. decrease real GDP by $15.
D. decrease real GDP by $15.
If at some level of GDP the economy is experiencing an unintended decrease in inventories, A. the aggregate level of saving will decline. B. the price level will fall. C. the business sector will lay off workers. D. domestic output will increase.
D. domestic output will increase.
Refer to the diagram. If the full-employment level of GDP is B and aggregate expenditures are at AE2, the A. inflationary expenditure gap is ed. B. recessionary expenditure gap is BC. C. inflationary expenditure gap is eg. D. economy is in equilibrium, at full employment.
D. economy is in equilibrium, at full employment.
Other things equal, an increase in an economy's exports will A. lower the marginal propensity to import. B. have no effect on domestic GDP because imports will change by an offsetting amount. C. decrease its domestic aggregate expenditures and therefore decrease its equilibrium GDP. D. increase its domestic aggregate expenditures and therefore increase its equilibrium GDP.
D. increase its domestic aggregate expenditures and therefore increase its equilibrium GDP.
Refer to the diagram. If the full-employment level of GDP is B and aggregate expenditures are at AE1, the A. inflationary expenditure gap is BC. B. recessionary expenditure gap is BC. C. inflationary expenditure gap is zero. D. inflationary expenditure gap is ei.
D. inflationary expenditure gap is ei.
Refer to the diagrams. Other things equal, an interest rate decrease will A. shift curve A to the right and shift curve B upward. B. shift curve A to the left and shift curve B downward. C. leave curve A in place but shift curve B downward. D. leave curve A in place but shift curve B upward.
D. leave curve A in place but shift curve B upward.
Refer to the diagram for a private closed economy. The $400 level of GDP is A. that output at which saving is zero. B. too high because consumption exceeds investment. C. unsustainable because aggregate expenditures exceed GDP. D. unsustainable because aggregate expenditures are less than GDP.
D. unsustainable because aggregate expenditures are less than GDP.
