Econ 202 sample test 3

The economy experiences an increase in the price level and an increase in real domestic output. Which is a likely explanation?

Net exports have increased

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

If people expected that a fiscal policy in the form of a tax cut was temporary, then this policy's effect on the economy would tend to be

weaker

The practical significance of the multiplier is that it

magnifies initial changes in spending into larger changes in GDP.

Graphically, cost-push inflation is shown as a

leftward shift of the AS curve.

The economy is in a recession. The government enacts a policy to increase spending by $2 billion. The MPS is 0.2. What would be the full increase in real GDP from the change in government spending, assuming that the aggregate supply curve is horizontal across the range of GDP being considered?

10 Billion

14) The crowding-out effect suggests that A) high taxes reduce both consumption and saving. B) increases in government spending will close a recessionary expenditure gap. C) increases in consumption are always at the expense of saving. D) increases in government spending may reduce private investment.

D

If a government wants to pursue an expansionary fiscal policy, then a tax cut of a certain size will be more expansionary when the

economy's MPS is small

Prices and wages tend to be

flexible upward but inflexible downward.

If the MPC is 0.70 and investment increases by $3 billion, the equilibrium GDP will

increase by $10 billion

16) Assume there are no prospective investment projects (I) that will yield an expected rate of return (r) of 25 percent or more, but there are $5 billion of investment opportunities with an expected rate of return between 20 and 25 percent, an additional $5 billion between 15 and 20 percent, and so on. If the real interest rate is 15 percent in this economy, the aggregate amount of investment will be A) $25 billion. B) $10 billion. C) $15 billion. D) $20 billion

B

Public Debt equation

Treasury Bills + Treasury Notes + US Savings bond + Treasury Bonds

The multiplier applies to

investment, net exports, and government spending.

Graphically, demand-pull inflation is shown as a

rightward shift of the AD curve along an upsloping AS curve.

The APC can be defined as the fraction of a

specific level of total income that is consumed