unit 3

Assume that Jane's marginal propensity to consume equals 0.8, and that in 2004 Jane spent $36,000 from her disposable income of $40,000. If her disposable income in 2005 increased to $50,000, her consumption spending increased by:

$8,000

Which of the following relationships is illustrated by a short-run Phillips curve?

A decrease in the rate of inflation is accompanied by an increase in the rate of unemployment

A high marginal propensity to consume implies which of the following?

A low marginal propensity to save

According to the Keynesian model, which of the following would increase aggregate demand?

An increase in autonomous investment

An increase in net investment leads to faster economic growth because capital per worker and output per worker will change in which of the following ways?

Capital Per Worker: Increase Output Per Worker: Increase

Which of the following best explains the increase in national income that results from equal increases in government spending and taxes?

Consumers do not reduce their spending by the full amount of the tax increase

According to Keynesian theory, decreasing taxes and increasing government spending will most likely change consumption expenditures and unemployment in which of the following ways?

Consumption Expenditures:Increase Unemployment:Decrease

If the economy is in a severe recession, which of the following is the fiscal policy most effective in stimulating production?

Government spending increases

According to the short-run Phillips curve, lower inflation rates are associated with:

Higher unemployment rates

If the Federal Reserve wishes to use monetary policy to reinforce Congress' fiscal policy changes, it should:

Increase the money supply when government spending is increased

Current equilibrium output equals $2,500,000, potential output equals $2,600,000, and the marginal propensity to consume equals 0.75. Under these conditions, a Keynesian economist is most likely to recommend?

Increasing government spending by $25000

Which of the following individuals is considered officially unemployed?

Pat, who recently left a job to look for a different job in another town

In the short run, an expansionary monetary policy would most likely result in which of the following changes in the price level and real gross domestic product (GDP)?

Price Level: Increase Real GDP: Increase

Which of the following are the most likely short-run effects of an increase in government expenditures?

Unemployment Rate: Decrease Inflation Rate: Increase Real Gross Domestic Product: Increase

With an upward-sloping short-run aggregate supply curve, an increase in government expenditure will most likely

increase real gross domestic product

If a country's economy is operating below the full-employment level of output at a very low inflation rate, the central bank of the country is most likely to?

lower the discount rate and buy bonds on the open market to generate an increase in output

In the narrowest definition of money, M1, savings accounts are excluded because they are?

not a medium of exchange

An increase in which of the following will increase the value of the spending money multiplier?

the marginal propensity to consume

In an economy at full employment, a presidential candidate proposes cutting the government debt in half in four years by increasing income tax rates and reducing government expenditures. According to Keynesian theory, implementation of these policies is most likely to increase

unemployment

An inflationary gap could be reduced by:

An increase in the income tax rate