ECON 1110

Disposable personal income (DI) is equal to:

$15,225 billion.

Net domestic product (NDP )is equal to:

$18,625 billion.

Gross domestic product (GDP) is equal to:

$21,425 billion.

Equilibrium in this 2-sector model is at income equal to: $5,000. $3,000. $4,000. $6,000.

$5,000.

The economy is producing maximum possible output when:

- actual GDP is equal to potential GDP. - the economy is operating at a point on its production possibilities frontier. - available resources are fully employed and production is efficient.

Aggregate demand:

- is comprised of spending on domestic output by consumers, businesses, foreigners, and government. - reflects the inverse relationship between the price level and the quantity of real GDP demanded. - graphs as a curve that slopes downward to the right due to the real balance effect and the international trade effect.

At income equal to $3,000 in this 2-sector model:

- the economy is in disequilibrium. - aggregate expenditures exceed aggregate output (AE>Y) and businesses experience unplanned decreases in inventories. - businesses will increase production.

According to the international trade effect:

- when the domestic price level falls, exports become cheaper and imports become more expensive, ceteris paribus. - an increase in the domestic price level leads to a decrease in net exports, ceteris paribus. - the aggregate demand curve slopes downward to the right, ceteris paribus.

According to Keynes:

-short-term fluctuations in real GDP are a result of changes in aggregate demand. - opportunities for employment are limited by the extent of aggregate demand. - consumption spending is a function of current disposable income.

The MPC is________ and the MPS is ________.

0.75; 0.25

In the 2-sector Keynesian model, if equilibrium income decreases by $100 billion when investment spending falls by $10 billion, then the autonomous spending multiplier is equal to: 10. 1. 5 The value of the autonomous spending multiplier cannot be determined from the information given.

10.

The autonomous spending multiplier for this 2-sector model is: 1 3/4 3 4

4.

Which of the following will increase measured U.S. GDP for 2020? - A corporation buying back $10 million of its own stock in 2020 - A delivery service purchasing three 2018 used vans in 2020 - A Mexican company purchasing computers made in the U.S. in 2020 - An American consumer buying a new car in 2020 that was produced in the U.S. in 2019

A Mexican company purchasing computers made in the U.S. in 2020

The notion that the wealth of a nation is more likely to increase if individuals are allowed to pursue their own self-interest in a market economy was first put forth by:

Adam Smith in An Inquiry Into the Nature and Causes of the Wealth of Nations.

The algebraic form of the consumption function is: C = $1,000 + 0.25(Y - T) = $1,000 + 0.25(YD). C = $250 + 0.75(Y - T) = $250 + 0.75(YD). C = $1,000 + 0.75(Y - T) = $1,000 + 0.75(YD). C = $750 + 0.75(Y - T) = $750 + 0.75(YD).

C = $1,000 + 0.75(Y - T) = $1,000 + 0.75(YD).

A car produced in Canada in 2018 and sold in the U.S. in 2020 is counted in GDP for:

Canada in 2018.

Which of the following describes what happens if the economy depicted in the graph is self-regulating?

Labor market shortages lead to higher wages which increases costs of production, resulting in a leftward shift in short-run aggregate supply.

Which of the following statements is best associated with Keynesian theory?

Recessions are due to inadequate demand for goods and services throughout the economy.

The statement "supply creates its own demand" is commonly referred to as:

Say's Law.

Which of the following is not a point of difference between Keynes and classical economists?

The role of government in the economy; Keynes believed government should take a laissez-faire approach to managing the macroeconomy during economic downturns

Assuming nothing else changes, for a given money income, an increase in the domestic price level leads to:

a decrease in real income and a decrease in purchasing power.

The downward-sloping aggregate demand curve indicates that, ceteris paribus:

a decrease in the price level leads to an increase in the quantity demanded of real GDP.

In The General Theory of Employment, Interest, and Money, Keynes disagreed with the classical contention that:

a market economy is self-regulating and automatically moves to equilibrium at the full-employment level of real GDP.

The economy depicted in the graph is experiencing:

a recessionary gap because actual GDP is lower than potential GDP, and the GDP gap is positive.

An increase in government spending on infrastructure leads to:

an increase in AD and a rightward shift of the AD curve.

Ceteris paribus, aggregate demand will decrease (shift to the left) when there is:

an increase in interest rates.

The economy depicted in the graph is experiencing:

an inflationary gap because actual GDP is higher than potential GDP, and the GDP gap is negative.

Macroeconomic equilibrium occurs:

at the price level for which the quantity demanded of real GDP is equal to the quantity supplied of real GDP.

Economists who advocate a macroeconomic policy of laissez-faire:

believe the economy is self-regulating and will move to equilibrium at natural real GDP in the long run.

Ceteris paribus, in the 2-sector Keynesian model, a $50 billion increase in investment spending when the MPC = 0.80:

causes equilibrium income to increase by a maximum of $250 billion.

Ceteris paribus, an increase in aggregate demand:

could be caused by a decrease in personal taxes and is illustrated by a rightward shift from AD to AD*.

Ceteris paribus, when the short-run aggregate supply curve is upward sloping, an increase in interest rates:

decreases aggregate demand which leads to a new equilibrium at a lower level of output, a higher unemployment rate, and a lower price level.

In the simple Keynesian model, the amount of personal consumption spending depends on:

disposable income.

An increase in the amount of resources available for production and improved production technology lead to:

economic growth, which is best illustrated by a rightward shift of the LRAS curve.

The economy depicted in the graph is:

experiencing a recessionary gap.

The economy depicted in the graph is:

experiencing an inflationary gap.

According to the Classical model:

flexible prices, wages, and interest rates will eliminate shortages and surpluses in all markets.

The classical model assumes that:

flexible wages ensure that labor shortages and surpluses (unemployment) will be temporary.

In The General Theory of Employment, Interest and Money, John Maynard Keynes argued that:

government can use deficit spending to stimulate economic activity during a severe or prolonged economic downturn.

The most common measure of annual production for an economy is:

gross domestic product.

Ceteris paribus, when the short-run aggregate supply curve is upward sloping, an increase in aggregate demand leads to a new equilibrium at a:

higher level of output and a higher price level.

Ceteris paribus, when the short-run aggregate supply curve is upward sloping, an increase in short-run aggregate supply leads to a new equilibrium at a:

higher level of output and a lower price level.

If the economy depicted in the graph is a self-regulating economy:

higher wages will increase costs of production, resulting in a leftward shift in SRAS.

The majority of output in the U.S. is produced for purchase by:

households.

According to the real balance effect, the real value of a given amount of money:

increases as the price level decreases.

Ceteris paribus, when the short-run aggregate supply curve is upward sloping, a beneficial (positive) supply shock:

increases short-run aggregate supply which leads to a new equilibrium at a higher level of output, a lower unemployment rate, and a lower price level.

The Keynesian model:

is a short-run model that focuses on the demand-side of the economy.

Autonomous consumption:

is consumption spending at disposable income equal to zero.

A decrease in the price level:

is illustrated by a movement along the AD curve from point a to b, and leads to an increase in the quantity demanded of real GDP.

Gross domestic product for a country:

is the sum of spending by all sectors of the economy on final goods and services produced in that country in a year.

All of the following statements are associated with J.M. Keynes EXCEPT: - government can and should intervene when the economy is in a deep or long recession. - recessions are a result of insufficient aggregate demand. - the long run is not entirely relevant to the current period; in the long run we are all dead. - laissez-faire is the appropriate macroeconomic policy for a market economy, but not for a planned economy.

laissez-faire is the appropriate macroeconomic policy for a market economy, but not for a planned economy.

The vertical long-run aggregate supply implies that:

natural or full-employment real GDP does not depend on the price level in the long run.

The largest spending category in U.S. GDP is:

personal consumption spending, C.

Net investment is:

positive, so the amount of capital increased.

Businesses becoming more pessimistic about future sales and profits:

results in a shift of the AD curve to the left, such as going from point f on AD* to point a on AD.

If the price level is fixed, or constant, over a relatively large range of output:

the SRAS curve is horizontal, and an increase in AD leads to an increase in output with no change in the price level.

If real GDP for a country increased from $10 trillion to $10.5 trillion from year 1 to year 2, then: - the growth rate of output for the country is 5%. - the inflation rate for the country is 0%. - the unemployment rate for the country is less than the natural rate of unemployment. - the country is operating at potential GDP.

the growth rate of output for the country is 5%.

The additional spending by households that occurs as a result of an increase in current disposable income is determined by what Keynes calls:

the marginal propensity to consume.

Gross domestic product is:

the market value of all final goods and services produced in a country in a year.

Economic growth for year 2 is measured by:

the percentage change in real GDP from year 1 to year 2.

When a country has a trade surplus:

the value of exports exceeds the value of imports, and net exports are positive.

Only the value of final goods and services are included in GDP:

to avoid the problem of double-counting.

When aggregate expenditures are less than aggregate output, businesses experience:

unplanned increases in inventories and respond by decreasing production.

When the wage rate is below the equilibrium wage rate, the classical model argues that:

upward pressure on wages will eliminate the shortage in the labor market.

The long-run aggregate supply curve (LRAS) curve is:

vertical at the economy's natural (full employment) level of real GDP.