Econ 202 Quiz questions: Chapters 9-15
If the CPI in 2015 was 104.5 and the CPI in 2016 was 110.5, then the rate of inflation between 2015 and 2016 was
5.7%
The multiplier applies to
investment, net exports, and government spending.
Discretionary fiscal policy is so named because it
involves specific changes in taxes and government spending undertaken expressly for stabilization at the option of Congress.
Refer to the diagram, in which Qf is the full-employment output. Expansionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at
AD 0.
Refer to the diagram, in which Qf is the full-employment output. Contractionary fiscal policy would be most appropriate if the economy's present aggregate demand curve were at
AD 3.
Which of the following is correct?
APC + APS = 1.
Which of the following statements is correct?
Built-in stability only partially offsets fluctuations in economic activity.
Chapter 9 Quiz
CHAPTER 9 QUIZ
ch 12
Ch. 12
Chapter 10
Chapter 10
Chapter 11
Chapter 11
Chapter 13
Chapter 13
Chapter 14 and 15
Chapter 14 and 15
The group of three economists who provide fiscal policy recommendations to the president is the
Council of Economic Advisers.
The consumption and saving schedules reveal that the
MPC is greater than zero but less than one.
Which of the following best describes the built-in stabilizers as they function in the United States?
Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises.
Refer to the diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD 0, it is experiencing
a negative GDP gap.
Technological progress should lead to
a rightward shift in the investment function.
Money functions as
a store of value, a unit of account, and a medium of exchange.
An appropriate fiscal policy for severe demand-pull inflation is
a tax rate increase.
If you are estimating your total expenses for school next semester, you are using money primarily as
a unit of account
Refer to the diagram. Assume that G and T 1 are the relevant curves, the economy is currently at B, and the full-employment GDP is A. This economy has a(n)
actual budget surplus.
If Inventory investment is higher than firms planned
actual investment is greater than planned investment.
The foreign purchases, interest rate, and real-balances effects explain why the
aggregate demand curve is downward sloping.
The interest rate effect on aggregate demand indicates that a(n)
decrease in the price level will decrease the demand for money, decrease interest rates, and increase consumption and investment spending.
A decline in disposable income
decreases consumption by moving downward along a specific consumption schedule.
If the MPC in an economy is 0.8, government could shift the aggregate demand curve rightward by $100 billion by
decreasing taxes by $25 billion.
Contractionary fiscal policy is so named because it
is aimed at reducing aggregate demand and thus achieving price stability.
If the price level decreases, then the aggregate expenditures schedule will shift. This translates into a
movement down along the aggregate demand curve.
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.
One can determine the amount of any level of total income that is consumed by
multiplying total income by the APC.
The saving schedule is drawn on the assumption that as income increases,
saving will increase absolutely and as a percentage of income.
The wealth effect is shown graphically as a
shift of the consumption schedule.
The change in consumption divided by the change in income is equal to
the MPC.
If the consumption schedule shifts upward and the shift was not caused by a tax change, the saving schedule
will shift downward.
Higher interest rates are likely to
decrease consumer spending and increase consumer saving.
Uncertainty about the future is likely to
decrease current spending.
An upward shift of the saving schedule suggests
that the APC has decreased and the APS has increased at each GDP level.
Suppose that an economy produces 2,400 units of output, employing 60 units of input, and the price of the input is $30 per unit. The per-unit cost of production is
$0.75.
Assume the MPC is 2/3. If investment spending increases by $2 billion, the level of GDP will increase by
$6 billion.
In the accompanying graph, which line might represent an immediate-short-run aggregate supply curve?
1
Assuming there is no government or foreign sector, the formula for the multiplier is
1/(1 - MPC).
If Logan received a $2,500 bonus and his MPS is 0.20, his consumption rises by $________ and his saving rises by $________.
2,000; 500
If the MPC is 0.6, the multiplier will be
2.5
If the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is
22 percent.
Suppose that an economy produces 300 units of output, employing 50 units of input, and the price of the input is $9 per unit. The level of productivity and the per-unit cost of production are
6 and $1.50, respectively.
Which of the diagrams for the U.S. economy best portrays the effects of declines in the prices of imported resources?
A
For you to be considered not in the labor force, you can be
Any of the above: a full-time volunteer. a full-time retiree. a full-time student.
At the point where the consumption schedule intersects the 45-degree line,
the APC is 1.00.
In equilibrium, real GDP is equal to
C + I + G + X.
Using the saving/investment approach to equilibrium, the equilibrium condition can be written as
C + I = C + S.
Which of the diagrams for the U.S. economy best portrays the effects of a substantial reduction in government spending?
D
Dean borrows $400 from Tim. Tim wants to make a 10% real return on his money, so they both agree on a 10% interest rate paid next year. Dean and Tim did not anticipate any inflation, yet the actual inflation turned out to be 4% next year. In this case
Dean is better off.
Money market deposit accounts are included in
M2 only
The group that sets the Federal Reserve System's policy on buying and selling government securities (bills, notes, and bonds) is the
Federal Open Market Committee (FOMC).
In the U.S. economy, the money supply is controlled by the
Federal Reserve System.
In the accompanying figure, if AD 1 shifts to AD 2, the full multiplier effect would be an increase in real GDP from
Q 1 to Q 3.
Which one of the following is true about the U.S. Federal Reserve System?
There are 12 regional Federal Reserve Banks.
Which of the following represents the most expansionary fiscal policy?
a $10 billion increase in government spending
Which of the following represents the most contractionary fiscal policy?
a $30 billion decrease in government spending
Which of the following will not cause the consumption schedule to shift?
a change in consumer incomes
In the accompanying graph, which of the following factors will shift AS 1 to AS 2?
a decrease in business taxes
Which one of the following will cause a movement down along an economy's consumption schedule?
a decrease in disposable income
With cost-push inflation, there will be
a decrease in real GDP.
An appropriate fiscal policy for a severe recession is
a decrease in tax rates.
The relationship between the aggregate demand curve and the aggregate expenditures model is derived from the fact that
a decrease in the price level shifts the aggregate expenditures schedule upward and increases equilibrium GDP.
The real-balances effect indicates that
a higher price level will decrease the real value of many financial assets and therefore reduce spending.
When economists say that money serves as a medium of exchange, they mean that it is
a means of payment.
If you write a check on a bank to purchase a used Honda Civic, you are using money primarily as
a medium of exchange.
When economists say that money serves as a unit of account, they mean that it is
a monetary unit for measuring and comparing the relative values of goods.
The 45-degree line on a graph relating consumption and income shows
all the points at which consumption and income are equal.
Which of the following would increase the level of planned real investment?
an expectation of higher future profits
Which one of the following will cause a movement up along an economy's saving schedule?
an increase in disposable income
Refer to the graph. Which of the following factors will shift AD 1 to AD 2?
an increase in national incomes abroad
Which would most likely increase aggregate supply?
an increase in productivity
Which of the following would not shift the aggregate supply curve?
an increase in the price level
The interest-rate effect suggests that
an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.
Given the expected rate of return on all possible investment opportunities in the economy,
an increase in the real rate of interest will reduce the level of investment.
If for some reason households become increasingly thrifty, we could show this by
an upward shift of the saving schedule.
As disposable income increases, consumption
and saving both increase.
Refer to the graph. The equilibrium for this economy is
at price level P 2 and output Q 2.
As disposable income goes up, the
average propensity to consume falls.
Refer to the graph. When output increases from Q 1 and the price level decreases from P 1, this change will
be caused by a shift in the aggregate supply curve from AS 1 to AS 3.
The slope of the immediate-short-run aggregate supply curve is based on the assumption that
both input and output prices are fixed.
The amount by which government expenditures exceed revenues during a particular year is the
budget deficit.
The amount by which federal tax revenues exceed federal government expenditures during a particular year is the
budget surplus.
A rightward shift of the investment demand curve might be caused by
businesses planning to increase their stock of inventories.
Over which component of investment do firms have the least amount of control?
changes in inventories
In the United States, the money supply (M1) includes
coins, paper currency, and checkable deposits.
If the consumption function is above the 45-degree line
consumption exceeds income and saving is negative.
If the consumption function is below the 45-degree line
consumption is less than income and saving is positive.
In a simple economy with no government, aggregate expenditure is
consumption plus investment.
Without the government or the foreign sector in the income-expenditure model, planned aggregate expenditure equals
consumption plus planned investment.
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.
The consumption schedule directly relates
consumption to the level of disposable income.
Which of the following is the basic economic policy function of the Federal Reserve Banks?
controlling the supply of money
Refer to the graph. A shift from AS 1 to AS 2 would be consistent with what economic event in U.S. history?
cost-push inflation in the early 1970s
The economy is in a recession and the housing market is in a slump. As a result of this, a real estate firm lays off half of its real estate agents. This is an example of
cyclical unemployment.
The economy is in an expansion and the housing market is growing. As a result of this, a home builder doubles his sales force. This would be best described as an example of a reduction in
cyclical unemployment.
When an individual quits his/her job and decides to stay at home for a while, the labor-force participation rate
decrease
Discretionary fiscal policy will likely cause budget
deficits during recessions and surpluses during periods of demand-pull inflation.
With the expenditures programs and the tax system shown in the diagram,
deficits will occur at income levels below K, and surpluses above K.
Fiscal policy refers to
deliberate changes in government spending and taxes to promote economic growth, full employment, and price level stability.
Refer to the figure. If the economy is operating at full employment when its aggregate demand curve is AD 2, then a further increase in consumption and investment spending will cause
demand-pull inflation, and the new equilibrium output will be more than Q 2.
Inflation that is caused solely by an increase in aggregate demand is called
demand-pull inflation.
Excess reserves refer to the
difference between actual reserves and required reserves.
Refer to the diagram, in which Qf is the full-employment output. If aggregate demand curve AD 2 describes the current situation, appropriate fiscal policy would be to
do nothing since the economy appears to be achieving full-employment real output.
The aggregate demand curve is
downsloping because of the interest-rate, real-balances, and foreign purchases effects.
Suppose the government purposely changes the economy's cyclically adjusted budget from a deficit of 0 percent of real GDP to a deficit of 3 percent of real GDP. The government is engaging in a(n)
expansionary fiscal policy.
The immediate determinants of investment spending are the
expected rate of return on capital goods and the real interest rate.
An increase in the MPC, reduces the multiplier.
false
The larger the MPC, the smaller the multiplier.
false
A man is fired from his job because he was late for work too many times. While he is searching for another job he would be classified as
frictionally unemployed.
When an economics professor quits his/her job at a university and starts looking for a better job in another university, he/she is
frictionally unemployed.
The crowding-out effect of expansionary fiscal policy suggests that
government spending increases at the expense of private investment.
Cheryl graduated from college a month ago and is now without work. She accepted a job that will start next month. Today, Cheryl is
in the labor force
Checkable deposits are
included in M1.
The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will
increase U.S. exports and decrease U.S. imports.
The consumption schedule is drawn on the assumption that as income increases, consumption will
increase absolutely but decline as a percentage of income.
A decrease in business taxes will tend to
increase aggregate demand and increase aggregate supply.
Refer to the graph. If aggregate supply shifts from AS 1 to AS 2, then the price level will
increase and real domestic output will decrease.
If the MPC is 0.70 and investment increases by $3 billion, the equilibrium GDP will
increase by $10 billion.
Refer to the graph, which shows an aggregate demand curve. If the price level decreases from 200 to 100, the real output demanded will
increase by $200 billion.
Lower interest rates are likely to
increase consumer spending and decrease consumer saving.
Suppose the price level is fixed, the MPC is 0.8, and the GDP gap is a negative $200 billion. To achieve full-employment output (exactly), government should
increase government expenditures by $40 billion.
Suppose the price level is fixed, the MPC is 0.5, and the GDP gap is a negative $100 billion. To achieve full-employment output (exactly), government should
increase government expenditures by $50 billion.
Refer to the diagram, in which Qf is the full-employment output. If the economy's current aggregate demand curve is AD 0, it would be appropriate for the government to
increase government expenditures or reduce taxes.
Refer to the diagram. If the full-employment level of GDP is D, then it would be appropriate fiscal policy for government to
increase spending and decrease taxes.
A decline in the real interest rate will
increase the amount of investment spending.
The saving schedule is such that as aggregate income increases by a certain amount, saving
increases, but by a smaller amount.
If the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $40 billion by
increasing government spending by $4 billion.
Firms react to unplanned inventory reductions by
increasing output.
The consumer price index is the index most often used to measure
inflation
Cost-push inflation is
inflation caused by decreases in aggregate supply that are not matched by decreases in aggregate demand.
Discretionary fiscal policy refers to
intentional changes in taxes and government expenditures made by Congress to stabilize the economy.
The value of money varies
inversely with the price level.
The Federal Reserve System
is basically an independent agency.
The amount of money reported as M2
is larger than the amount reported as M1.
In macroeconomics, the point at which planned aggregate expenditures equals aggregate output
is the equilibrium point.
The effect of contractionary fiscal policy is shown as a
leftward shift in the economy's aggregate demand curve.
The most important determinant of consumption and saving is the
level of income.
Compared to consumption spending, investment historically has tended to be
more variable.
Discouraged workers are
not considered as part of the labor force.
An increase in planned investment causes
output to increase.
Inflation is an increase in
overall price level
A checking account entry is money because it
performs the functions of money.
In macroeconomics, equilibrium is defined as that point at which
planned aggregate expenditure equals aggregate output.
If unplanned inventory investment is positive, then
planned aggregate spending must be less than aggregate output.
A decrease in the interest rate will cause
planned investment spending to increase.
The 45-degree reference line indicates all points at which
planned real consumption expenditures and real GDP are equal.
Structural unemployment is the
portion of unemployment that is due to changes in the structure of the economy that result in a significant loss of jobs in certain industries.
An aggregate supply curve represents the relationship between the
price level and the production of real domestic output.
The aggregate demand curve or schedule shows the relationship between the total demand for output and the
price level.
The short-run version of aggregate supply assumes that
product prices are flexible, while resource prices are fixed.
The labor force participation rate is the
ratio of the labor force to the total population 16 years old or older.
In which of the following conditions is the inflation rate likely to fall and the unemployment rate likely to rise?
recession
Refer to the diagram, in which Qf is the full-employment output. If aggregate demand curve AD 1 describes the current situation, appropriate fiscal policy would be to
reduce taxes and increase government spending to shift the aggregate demand curve from AD 1 to AD 2.
Firms react to unplanned increases in inventories by
reducing output.
A major advantage of the built-in or automatic stabilizers is that they
require no legislative action by Congress to be made effective.
The effect of expansionary fiscal policy is shown as a
rightward shift in the economy's aggregate demand curve.
At the point where the consumption schedule intersects the 45-degree line,
saving is zero.
The aggregate demand curve
shows the amount of real output that will be purchased at each possible price level.
When 100 people who had previously stopped looking for jobs now decide to look for jobs, the
size of the labor force increases.
If you place a part of your summer earnings in a savings account, you are using money primarily as a
store of value.
An auto worker in Ohio who loses her job because the company relocated the plant to another country represents an example of
structural unemployment.
A textile firm closes a plant in Massachusetts and transfers production to a plant in South Carolina, where the firm can take advantage of cheaper labor. The plant supervisor at the Massachusetts plant is given the opportunity to move to South Carolina to become the plant supervisor at that plant. He turns down this opportunity because of family obligations. While he is searching for a new job he would be classified as
structurally unemployed.
The natural rate of unemployment is generally thought of as the
sum of frictional unemployment and structural unemployment.
A fall in labor costs will cause aggregate
supply to increase.
Dissaving means
that households are spending more than their current incomes.
The MPC is
the change in consumption divided by the change in income.
The MPS is
the change in saving divided by the change in income.
When current government expenditures exceed current tax revenues and the economy is achieving full employment,
the cyclically adjusted budget has a deficit.
When current government expenditures equal current tax revenues and the economy is achieving full employment,
the cyclically adjusted budget has neither a deficit nor a surplus.
Refer to the diagram. If equilibrium real output is Q 2, then
the equilibrium price level is P 2.
Which of the following will not tend to shift the consumption schedule upward?
the expectation of a future decline in the consumer price index
If business people become more pessimistic about the future, we would expect that
the investment curve would shift inward to the left.
The difference between M1 and M2 is that
the latter includes small-denominated time deposits, noncheckable savings accounts, money market deposit accounts, and money market mutual fund balances.
The most important determinant of consumer spending is
the level of income.
Assuming no government or foreign sector, [1 / MPS] represents
the multiplier.
The number of people unemployed equals
the number of people employed divided by the labor force.
Deflation is a decrease in
the overall price level.
Which of the following is a cost associated with recessions and unemployment?
the psychological harm done to the unemployed
Which of the following is an investment?
the purchase of a new printing press by a business
Which of the following is not considered investment?
the purchase of government bonds
A decrease in aggregate supply means
the real domestic output will decrease and the price level will rise.
The investment function would shift outward to the right if
there was a decrease in business taxes.
Checkable deposits are classified as money because
they can be readily used in purchasing goods and paying debts.
Per-unit production cost is
total input cost divided by units of output.
When the economy is operating at the equilibrium level of GDP, we know that
total planned real expenditures equal real GDP.
The larger the MPC, the smaller the MPS.
true
Cyclical unemployment is the
unemployment that occurs during recessions and depressions.
If aggregate output is greater than planned spending, then
unplanned inventory investment is positive.
Firms would increase output as a reaction to
unplanned inventory reductions.
Built-in stability means that
with given tax rates and expenditures policies, a rise in domestic income will reduce a budget deficit or produce a budget surplus, while a decline in income will result in a deficit or a lower budget surplus.
If you save $80 when you experience a $400 rise in your income
your MPC is 0.80.