Econ 201 - Study Questions (Ch. 10-13)
How will the situation affect the investment demand curve? to lessen the fiscal deficit, Congress increases corporate taxes
investment demand decreases
How will the situation affect the investment demand curve? A new type of engine is developed that is more fuel-efficient
investment demand increases
How will the situation affect the investment demand curve? a firm decides to increase its current inventory levels
investment demand increases
a contractionary fiscal policy is shown as a
leftward shift in the economy's aggregate demand curve
what is a private closed economy
no government and no net exports (international trade)
How will the situation affect the investment demand curve? unplanned inventories rise to new highs
not going to shift investment demand
the three reasons gives for a the downward slope of the aggregate demand curve
real balances effect, real interest rate effect, foreign purchases effect
the aggregate demand curve is downsloping because of the
real interest-rate effect, real-balances effect, and foreign purchases effects
A major advantage of the built-in or automatic stabilizers is that they
require no legislative action by Congress to be made effective
the multiplier process suggests that any initial increase in....
aggregate expenditures will cause a larger increase in GDP
The 45-degree line on a graph relating consumption and income shows
all the points in which consumption and income are equal
As disposable income increases, consumption:
and saving both increase
if investment increases by $10 billion and the economy's MPC is 0.8, the aggregate demand curve will shift
rightward by $50 billion at each price level 1/1-0.8 = 1/0.2 = 5 → 5*10 = 50
The aggregate supply curve shifts to the left as the price of inputs _____, causing _____ output, ____ unemployment, and _____ inflation possible.
rises, lower, higher, higher
if aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, we can assume that
the price level is inflexible downward and a recession has occured
in the short run, input prices are ____ and output prices are ____
fixed, flexible
calculate the multiplier when the MPS is (a) 0.5 (b) 0.25
(a) 1/0.5 = 2 (b) 1/0.25 = 4
If the MPS is 0.25 and the economy has a expenditure recessionary gap of $5 billion, then the equilibrium GDP is
$20 billion below the full-employment GDP 1/0.25 = 4 → 4 (multiplier) * $5 = 20
with an MPS of 0.4, the MPC will be
1.0 minus 0.4 = 0.6
multiplier
1/(1-MPC)
if the MPC is 0.63, the multiplier is
1/0.37
if the equation for the consumption schedule is C=20+0.8Y, where C is consumption and Y is disposable income, then the average propensity to consume is 1 when disposable income is:
100 y=20+0.8y → .2y=20 → 20/.2 = 100 → y = 100
at equalibrium real GDP in a private closed economy
aggregate expenditure and real GDP are equal
if the interest rate rises
Investment spending will decrease
cost-push inflation
When prices rise due to an increase in the cost of production.
an appropriate fiscal policy for a severe recession is
a decrease in tax rates
which one of the following would not shift the aggregate demand curve a. a change in the prive level b. depreciation of the international value of the dollar c. a decline in the interest rate at each possible price level d. an increase in personal income tax rates
a. a change in the price level wages causes shifts not the change in the price level
saving is always equal to
actual investment
the determines of aggregate demand
explain shifts in the aggregate demand curve
list four things that could cause a shift in the investment demand curve
change in acquisition, change in taxes, change in technology., change in planned inventories.
MPC =
change in consumption/change in income
MPS =
change in saving/change in income
List four factors that could shift the consumption schedule
change in wealth, change in borrowing, change in interest rates, expectations
discretionary fiscal policy refers to
changes in taxes and government expenditures made by Congress to stabilize the economy
what will be the effect on the consumption and saving schedules? congress officially approves the President's plan for tax cuts
consumption and saving increases
what will be the effect on the consumption and saving schedules? A weakening of the housing market lowers home values
consumption decreases, saving increases
what will be the effect on the consumption and saving schedules? concern grows over rising prices
consumption decreases, saving increases
what will be the effect on the consumption and saving schedules? credit card companies increase the interst-free periods on their cards to compete for customers
consumption increase, saving decrease
what will be the effect on the consumption and saving schedules? real interest rates fall
consumption increases, saving decreases
APC =
consumption/income
Three factors which can shift the Aggregate Demand curve to the left.
decrease in government expenditures, decrease in money supply, increase in tax rates
the greatest expansionary impact of a budget deficit will occur when the
economy is operating in the intermediate range of its aggregate supply curve
How will a decrease in the real interest rate affect the AD curve and investment
expand investment and shift the AD curve to the right
the greatest anti-inflationary impact of a budget surplus will occur when the federal government
impounds the surplus funds and lets them stand idle
Three factors which can shift the Aggregate Demand curve to the right.
increase in government expenditure, increase in money supply, decrease in tax rates
a decline in the real interest rate will
increase the amount of investment spending
demand-pull inflation
increases in the price level (inflation) resulting from an excess of demand over output at the existing price level, caused by an increase in aggregate demand
the aggregate supply curve shifts to the right as productivity ___ and the price of input _____. Causing _____ inflation, ______ output, and ______ unemployment.
increases, falls. lower, higher, lower
APS =
saving/income
income falls in several countries that trade heavily with the U.S
shift left
the wealth effect is shown graphically as a
shift of the consumption schedule.
What effect would the following have on the aggregate demand curve a boost in research and development by computer companies produces more powerful and efficient computers and equipment
shift right
after a budget surplus, Congress moves to cut persoanl income taxes
shift right
in an aggregate expenditures diagram, a lump-sum tax (T) will
shift the C+Ig+Xn line downward by an amount equal to T * MPC
other things equal, an improvement in productivity will
shift the aggregate supply curve to the right
If Margy's MPC is 0.9, this means that she will
spend 90 cents out of every additional dollar of disposable income
When an economy experiences stagnant growth and high inflation at the same time it is referred to as
stagflation
the consumption scheduele shows
the amount households plan or intend to consume at various possible levels of aggregate income.
what is the investment-demand curve?
the inverse relationship between interest rates and quantity of investment
the larger the MPC
the larger the multiplier
the most important determinant of consumer spending is
the level of income
