Macroeconomics - Exam 3

An economy is employing 2 units of capital, 5 units of raw materials, and 8 units of labor to produce its total output of 640 units. Each unit of capital costs $10; each unit of raw materials, $4; and each unit of labor, $3. The per-unit cost of production in this economy is

$0.10

Refer to the diagram. The equilibrium price and quantity in this market will be

$1.00 and 200.

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

$2

The relationship between quantity supplied and price is _____, and the relationship between quantity demanded and price is _____.

direct; inverse

The aggregate demand curve is

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

Suppose that at prices of $1, $2, $3, $4, and $5 for product Z, the corresponding quantities supplied are 3, 4, 5, 6, and 7 units, respectively. Which of the following would increase the quantities supplied of Z to, say, 6, 8, 10, 12, and 14 units at these prices?

improved technology for producing Z

In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to

increase aggregate demand.

The aggregate supply curve (short run)

is steeper above the full-employment output than below it.

An effective price ceiling will

result in a product shortage.

An effective price floor on wheat will

result in a surplus of wheat.

Refer to the diagram, in which S1 and D1 represent the original supply and demand curves and S2 and D2 the new curves. In this market the indicated shift in supply may have been caused by

the development of more efficient machinery for producing this commodity.

The investment demand curve portrays an inverse (negative) relationship between

the real interest rate and investment.

The MPC for an economy is

the slope of the consumption schedule or line.

A shift of the consumption schedule from C1 to C2 might be caused by a

wealth effect of an increase in stock market prices.

The real-balances, interest-rate, and foreign purchases effects all help explain

why the aggregate demand curve is downsloping.

The equilibrium price level will be (when output and input equal each other)

$200

The table gives information about the relationship between input quantities and real domestic output in a hypothetical economy. The level of productivity in the economy is Total Output/ Total Input

2

Marginal Propensity to Consume Consumption (225-205)= 20 Disposable Income (225-200) = 25 Chg. in consumption/ chg. in income

20/25 = 0.8

The multiplier in this economy is Chg. in Saving/ Chg. in Income

20/4 = 5

Which of the following is correct? A) APC + APS = 1. B) APC + MPS = 1. C) APS + MPC = 1. D) APS + MPS = 1.

A

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. A recession is depicted by

A and B

Suppose a family's consumption exceeds its disposable income. This means that its

APC is greater than 1.

Refer to the diagrams, in which AD1 and AS1 are the "before" curves and AD2 and AS2 are the "after" curves. Cost-push inflation is depicted by

B

Shift the AD curve

C, I, G, Xn

Shift the AS curve

Change in resource prices, productivity and legal-institutional environment

If disposable income was $325, we would expect consumption to be

Disposable Income (300+25) = $325 Consumption (285+20) = $305

Qf

Full employment level of output

Shift to dotted line: then whole shift

Initial change in spending: multiplier effect

If the saving schedule is a straight line, the

MPS must be constant.

AD curve and what causes the downward shape

Real balances, real interest rate and foreign purchases

Ratchet effect

The Price Level does not decrease easily

Which of the following would not shift the aggregate supply curve?

an increase in the price level

Productivity =

Total Output/Total Input

Per Unit production Costs =

Total input cost/Total output

True or False? The slope of the consumption schedule is measured by the MPC.

True

If demand increases and supply simultaneously decreases, equilibrium price will rise.

True.

If two goods are complements,

a decrease in the price of one will increase the demand for the other.

Refer to the diagram. If the aggregate supply curve shifted from AS0 to AS1 and the aggregate demand curve remains at AD0, we could say that

aggregate supply has decreased, equilibrium output has decreased, and the price level has increased.

The multiplier effect means that

an increase in investment can cause GDP to change by a larger amount.

A rightward shift of the AD curve in the very steep upper part of the short-run AS curve will

increase the price level by more than real output.

If investment decreases by $20 billion and the economy's MPC is 0.5, the aggregate demand curve will shift

leftward by $40 billion at each price level.

Refer to the diagram. A decrease in quantity demanded is depicted by a

move from point y to point x.

Other things equal, a decrease in the real interest rate will

move the economy downward along its existing investment demand curve.

The demand curve shows the relationship between

price and quantity demanded.

The construction of demand and supply curves assumes that the primary variable influencing decisions to produce and purchase goods is

price.

The law of supply indicates that, other things equal,

producers will offer more of a product at high prices than at low prices.

Refer to the table. In relation to column (3), a change from column (1) to column (2) would mostly likely be caused by

reduced taste for the good.

At the point where the consumption schedule intersects the 45-degree line,

saving is zero.

The greater is the marginal propensity to consume, the

smaller is the marginal propensity to save.

A leftward shift of a product supply curve might be caused by

some firms leaving an industry.

The equilibrium price level and level of real output occur where

the aggregate demand and supply curves intersect.

The consumption schedule shows

the amounts households intend to consume at various possible levels of aggregate income.

A market

is an institution that brings together buyers and sellers.