AP MACRO

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a household pays $5,000 in taxes and has an autonomous consumption of $10,000 and a marginal propensity to consume of .8. How much will that household consume if its income is $80,000?

$70,000

the government debt had been steadily growing since 1980. By 1996, it had grown to:

5 trillion

which equation shows how the actual reserve ratio is calculated

ARR= RRR+ERR

Legal changes that weaken the bargaining power of labor unions are made in the US. What happens to the AD/AS model in the short term

AS shifts to the right

One justification for a personal income tax cut is to increase the labor supply. Given that this policy will increase aggregate demand and supply, there will be an inflationary pressure if

Aggregate demand grows more rapidly than aggregate supply

When finding the Keynesian equilibrium, we began by drawing a 45-degree line. What does this line represent?

All points where aggregate expenditures equal GDP

Fiscal policy that increased RGDP is called

Expansionary

If the quantity of capital goods unused by firms decreases, what will happen to the amount of new investment that firms will undertake?

It will increase

What model of the economy most accurately reflects what happened during the Great Depression?

Keynesian

Keynes asserted that as disposable income rises, people are more likely to increase their consumption expenditures:

Less than the increase in their income

which equation shows how the money multiplier is calculated when banks hold no excess reserves

M = 1/RRR

Which of the following does not characterize the classical view of the economy

Prices and wages do not automatically adjust in the short run

Legal changes that weaken the bargaining power of labor unions are made in the US. Which of these takes place when wages are reduced?

RGDP increases and price levels fall

If government spending is increases by 100$ billion and taxes are raised by the same amount, the Keynesian model predicts that:

RGDP will increase by the amount of the government spending increase

Aggregate expenditures include expenditures from each of the 4 sectors the economy. Which of the following is not one of these expenditures?

Savings

The MPC represents the:

Share of any additional disposable income spent on consumption

according to Keynes:

Wages and prices are not flexible and do not adjust easily to changes in the economy.

Legal changes that weaken the bargaining power of labor unions are made in the US. What is the short term effect of these legal changes?

Wages are reduced

which of the following assets is the most liquid

a 20$ bill

which of these is a short run effect of contractionary monetary policy

a decrease in the price level

fiscal policy is rarely used today. This is because

all of the above

if the required reserve ratio decreases from 20% to 10%

all of the above

the FED uses monetary policy to

alter the money supply

what would incresse the number of dollars that a euro could buy

an increase in UD demand for European goods and services

Which of the following would reduce equilibrium RGDP

an increase in the prices of domestic goods and services

the slop of the AE line is equal to:

b, which is the MPC from the consumption function

With b equal to MPC, the tax multiplies is equal to:

b/(1-b)

why did the US savings and loan failures in the early 1980s create a large problem

because deposits and savings and loans were insured by the FSLIC

in general, the MPC is

between .85 and .95

An important similarity between the Keynesian model and the AD/AS model is that

both models allow for government intervention in the short run

in the section of the aggregate supply cube with a somewhat gently upward slope (the middle of the curve), when aggregate demand increases:

both real GDP and the price level rise.

if interest rates fall and the money supply remains constant, what will happen?

both velocity and NGDP will decrease

money in what type of account is included in all 3 measures of the money stock?

checking account

which of the following is not one of the main operating arms of the FED

congress

The only component of the agrrgete expenditures that depends on income is

consumption

what is an example of contractionary fiscal policy

cuts in government spending

Economic news leads U.S. households to expect a recession. What happens to the AD/AS model in the short term as a result of this news?

decrease in AD

Economic news leads U.S. households to expect a recession. What is one of the effects of the decrease in AD that results from the news of the recession.

decrease in nominal wages

Economic news leads U.S. households to expect a recession What is the short run effect of this news

decrease in price level

as interest rate increases

decrease the quantity of money demanded

why does the FED rarely use the RRR as a policy tool

decreasing the RRR in a time of recession makes banks less secure

Keynes believed that

demand creates supply

the US savings and loan crisis of the 1970s and the 1980s in an example of

disintermediation

the consumption function shows the relationship between consumption and

disposable income

True or false: f the MPC (b) is less than 1, the spending multiplier is also less than 1

false

when graphing the aggregate expenditures function, the axes are:

income and aggregate expenditures

what are politicians likely to want to fo to improve their chances of reelection

increase government spending

if the FED is following an expansionary monetary policy, it wants to

increase money supply

one of the ways the FED could implement a contractionary monetary policy is to:

increase the RRR

one of the ways the fed could implement a contractionary monetary policy is to:

increase the discount rate

to induce a 3% growth rate in the economy, monetarists believe that the money supply should be:

increased by 3% per year

what is the short run effect of an expansionary fiscal policy

increased inflation

When the economy is at full employment, an increase in net exports

increases in the price level in the AD/AS model, but does not change it in Keynesian model

If the economy is near full employment, AD/AS analysis says expansionary fiscal policy will cause

inflation

the Philips curve represents a tradeoff between

inflation and unemployment

If people have adaptive expectations, they'll change their expected rate of inflation under what condition

inflation is low for several years

the AD/AS model says that prices

influence the equilibrium level of production

what happens in the credit market when the fed buys bonds

interest rates fall

what happens when investment is elastic and the fed sells bonds

investment decreases a lot

the basic keynesian model is particularly applicable to situations in which the economy

is below the full employment level

the government borrows money by

issuing loans in the form of T-bonds

how large is the effect of a tax break on the economy

it depends on people perceptions of whether it is permanent or temporary decrease in taxes

what happens to the consumption function when marginal propensity to consume (MPC) increases

it gets steeper

What happens to the consumption function when the autonomous consumption decreases?

it shifts downward

What happens to the consumption function when taxes decrease?

it shifts upward

what will happen to investment of future expectations worsen and interest rates rise at the same time

it will decrease

M2 included all the following except

large time deposits

which of these would lead to an increase in unemployment

less government spending

what happens when the FED sells bonds

money supply decreases

what happens when the FED buys bonds

money supply increases

expansionary monetary policy might increase AS bc the lower interest rate would lead to

more investment and capital

which of the following variables included a money component

nominal GDP

which of the 3 tools of monetary policy is the preferred tool for changing the money supply

open market operations.

suppose the economy is operating below full employment. According to Keynesian theory, if government spending increases

output will increase without any significant change in prices

An expansionary fiscal policy:

raises GS and/or lowers taxes

regulating banks and savings and loans differently causes

savings and loans to have competitive advantage

what can the FED do to pursue a contractionary monetary policy

sell bonds

which of these is a type of commodity money

spanish gold doubloons

when there is hyperinflation and prices rise very quickly, which function does money fail to fulfill

store of value

which of the following is not one of the tool of monetary policy

tariffs and quotas

what would happen i fthe british governemnt increased the number of airplanes it buys from american

the # of dollar that a British pound could buy would decrease

what is ultimalry resposiabe for the size of the money supply

the FED

disposable income is

the after-tax income

what will happen to investment if future expectations improve and interest rates rise at the same time?

the answer is indeterminate

according to the quantity theory of money

the fed has no control over the level of production

when a firm decided to invest in new capital, it looks at

the interest rate and the return on investment

Keynes disagreed with the proposition that

the interest rate is the major determinant of savings

why is long run phillips curve vertical

the long run Phillips curve is vertical bc any level of inflation can occur at the full employment rate of unemployment in the long run

what happens when people have low inflationary expectations

the phillips curve shifts downward, going policy makers better options.

a reduction in tax rates may not stimulate the economy if

the tax cut is temporary and does not change permanent disposable income

At all points along a given consumption curve, the MPC is constant

true

True or false: According to Keynes, equilibrium occurs when aggregate expenditures equal total income

true

true or false: as income increases, aggregate expenditures also increase.

true

who would be hurt if the US places high tariff on sugar imported from Brazil

us sugar consumers

classical economics argues that

wages and prices adjust to create equilibrium.

when is monetary policy more effective

when money demand is inelastic and investment demand is elastic

when will a small change in the money supply have the biggest effect on interest rates

when the money demand curve is steep

when do people have the transaction motive to hold money

when they want to buy goods and services.


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