Weeks #4 Quiz

The change in real GDP resulting from an initial change in spending can be calculated by

multiplying the multiplier by the initial change in spending.

If aggregate expenditures exceed GDP in a private closed economy,

planned investment will exceed saving

An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the

multiplier effect

At the equilibrium GDP for a private open economy,

net exports may be either +/-

In an economy, for every $10 million increase in disposable income, saving increases by $2 million. It can be concluded that the

Slope of the consumption schedule is 0.8

If investment increases by $10 billion and the economy's MPC is 0.8, the aggregate demand curve will shift

rightward by $150 billion at each price level

Imports have the same effect on the current size of GDP as

saving

The saving schedule is drawn on the assumption that as income increases,

saving will increase absolutely and as a percentage of income.

If net exports decline from zero to some negative amount, the aggregate expenditures schedule would

shifts downward

The investment demand curve suggests that

there is an inverse relationship between the real rate of interest and the level of investment spending.

If the real interest rate increase,

there will be a movement upward along the investment demand curve

If the MPC is 0.75, the multiplier will be

4

When investment remains the same at each level of GDP in a private closed economy, the slope of the aggregate expenditures schedule

= MPC

The size of the MPC is assumed to be

> 0 but < 1

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

APC + APS = 1

Which of the following is a correct statement of the effects of a lump-sum tax?

Disposable income will decline by the amount of the tax, and consumption at each level of GDP will decline by the amount of the tax multiplied by the MPC

Which of the following is CORRECT? A. MPC + MPS = APC + APS. B. APC + MPS = APS + MPC. C. APC + MPC = APS + MPS. D. APC −APS = MPC − MPS.

MPC + MPS = APC + APS

Which of the following will not tend to happen if the U.S. dollar depreciates against the euro? A. Europeans will find U.S. goods become less expensive in euro terms. B. Americans will find European goods become more expensive in dollar terms. C. Many Americans will switch and buy domestic goods instead of imports from Europe. D. Many Europeans will switch and buy their own products instead of imports from the U.S.

Many Europeans will switch and buy their own products instead of imports from the U.S.

The relationship between consumption and disposable income is such that

a direct and relatively stable relationship exists between consumption and income.

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 portion of a tax cut will be saved.

Government actions that were taken in order to stimulate the economy during the Great Recession of 2007-09 included the following, except

a sharp increase in the natural rate of unemployment.

Planned investment plus unintended increases in inventories equals

actual investment

At equilibrium real GDP in a private closed economy,

aggregate expenditures and real GDP are equal.

Which combination of factors would most likely increase aggregate demand?

an increase in consumer wealth and a decrease in interest rates

If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to

consume is 3/5

If the MPC is 0.8 and disposable income is $200, then

consumption and saving cannot be determined from that information

Tessa's break-even income is $10,000, and her MPC is 0.75. If her actual disposable income is $16,000, her level of

consumption spending will be $14,500.

If personal income taxes and business taxes increase, then this will

decrease aggregate demand and aggregate supply

Other things equal, a serious recession in the economies of U.S. trading partners will

depress real output and employment in the U.S. economy.

The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the

determinants of aggregate demand

In the aggregate expenditures model, it is assumed that investment

does not change when real GDP changes.

The level of aggregate expenditures in the private closed economy is determined by the

expenditures of consumers and businesses.

A change in which one of the following factors would shift the aggregate supply curve in the short run?

government regulation

The investment demand curve is drawn with the amt of investment on the

horizontal axis and the expected rate of return and interest rate on the vertical axis.

A private closed economy includes

households and businesses, but not government or international trade.

An increase in productivity will

increase aggregate supply

Assume the marginal propensity to consume is 0.8. If consumer spending increases by $20 billion, then real GDP will

increase by $100 billion

Other things equal, an increase in an economy's exports will

increase its domestic aggregate expenditures and therefore increase its equilibrium GDP.

A decline in investment will shift the AD curve to the

left by a multiple of the change in investment

The most important determinant of consumption and saving is the

level of income

The simple multiplier 1/MPS

overstates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes.

In a private closed economy, when aggregate expenditures equal GDP,

planned investment = savings

If Trent's MPC is 0.80, this means that he will

spend 8/10 of any increase in his disposable income

(Consider This) During the Great Recession of 2007-2009, both real interest rates and investment spending declined. This suggests that

the investment demand curve shifted inward

The slope of the consumption schedule between two points on the schedule is

the ratio of the change in consumption to the change in disposable income between those two points.

In the aggregate expenditures model, technological progress will shift the investment schedule

upward and increase aggregate expenditures

If an unintended increase in business inventories occurs,

we can expect businesses to lower the level of production.

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.

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.

The nominal rate of interest is 8.5 percent, and the real rate is 5 percent. The expected rate of return on an investment is 8 percent. The firm should

The nominal rate of interest is 8.5 percent, and the real rate is 5 percent. The expected rate of return on an investment is 8 percent. The firm should