Econ 2315 Test 3

the international trade effect states than an ____ in the price level will ____ net exports

increase, increase

the level of real GDP in the long run is

potential GDP

the long run aggregate supply curve shows the relationship between the ____ and _____

price level, quantity of real GDP supplied

according to the "wealth effect" when the ____ falls, the ____ rises

price level, the real value of household wealth

suppose the US GDP growth rate is slower relative to other countries GDP growth rates. this will

shift the aggregate demand curve to the right

the basic aggregate demand and aggregate supply curve model helps explain ____ fluctuations in real GDP and the price level

short term

Actual investment spending does not include

spending on consumer durable goods

spending on the war in Afghanistan is essentially categorized as govt purchases. How do increases in spending on the war affect the aggregate demand curve?

they will shift the aggregate demand curve to the right

The aggregate expenditure model focuses on the relationship between_____ and _____ in the short run, assuming ____, is constant

total spending, real GDP, the price level

in the long run

unemployment is at its natural rate

if the consumption function is defined as C=5500+.9Y, what is the value of the multiplier?

10

Figure 12-3, suppose the investment spending increases by $10million, shifting up the aggregate expenditure line and GDP increases from GDP1 to GDP2, if the MPC i s .09, then what is the change in GDP?

100million

Figure 13-2, ceteris paribus, a decrease in the expected price of an important natural resource would be represented by a movement from

SRAS1 to SRAS2

Figure 13-2, ceteris paribus, a decrease in the capital stock would be represented by a movement from

SRAS2 to SRAS1

the key idea of the aggregate expenditure model is that any particular year, the level of _____ is determined mainly by the level of aggregate expenditure

GDP

figure 12-1, is the economy is at point L what will happen?

Inventories have risen above their desired level, and firms decrease production

Figure 12-1, if the economy is in equilibrium, it is at a level of aggregate expenditure given by point

K

FIgure 12-3, suppose that govt soending increases, shifting up the aggregate expenditure line, GDP increases from GDP1 to GDP2, and this amount is $2billion. if the MPC is .8, then what is the distance between N and L or by how much did govt spending change?

40billion

if the consumption function is defined as C=5500+.9Y, what is the autnomous level of the consumption expenditure

5500

If inventories decline by more than analysts predict they will decline, this implies that

actual investment spending was less than planned investment spending

an unplanned decrease in inventories results in

actual investment that is less than planned investment

which of the following best describes the "interest rate effect"

an increase in the price level raises the interest rate and chokes off investment and consumption spending

________ consumption is consumption that does not depend upon the level of GDP

autonomous

equilibrium GDP is equal to

autonomous expenditure times the multiplier

in the aggregate expenditure model, _____ has both an autonomous component and an induced component

consumption spending

the ratio of the increase in ___ to the increase in ____ is called the multiplier

equilibrium real GDP, autonomous expenditure

an increase in aggregate demand results in an _____ in the _____

expansion, short run

In a small economy in 2013, aggregate expenditure was $800 million while GDP that year was $850million. which of the following can explain the difference between aggregate expenditure and GDP that year?

firm investment in inventories was greater than anticipated in 2013

Consumer spending ______ and investment spending_______

follows a smooth trend, is more volatile and subject to fluctuations

The increase in consumer spending as discussed in the article summary was due in part to an improving housing market. the reason for the increase in consumer spending is most closely related to which of the following variables that determine the level of consumption?

household wealth

figure 12-2, if the US economy is currently at point N, which of the following could cause it to move to point K?

households expect future income to decline

suppose there has been an increase in investment, as a result, real GDP will ___ in the short run, and ____ in the long run

increase, decrease to its initial value

a decrease in the price level results in an _____ in the quantity of real GDP, demanded because a lower price level ____ consumption, investment, and net exports

increase, increase

an increase in investment causes the price level to ____ in the short run and _____ in the long run

increase, increase further

how does a decrease in govt spending affect the aggregate expenditure line?

it shifts the aggregate expenditure downward

The increase in consumer spending discussed in the article summary is due in part to lower debt payments which have resulted in an increase in disposable income. the income in consumption resulting from the increase in disposable income caused a ____ the aggregate expenditure curve

movement up along

disposable income is defined as

national income+transfers-tax

On the 45 degree line diagram for points that lie below the 45 degree line

planned aggregate expenditure is less than GDP

Figure 13-2, ceteris paribus, an increase in the price level would be represented by a movement from

point A to point B

Figure 13-2, ceteris paribus, a decrease in the price level would be represented by a movement from

point B to point A

a negative supply shock in the short run causes

the aggregate supply curve to shift to the left

if planned aggregate expenditure is below potential GDP and planned aggregate expenditure equals GDP, then

the economy is in a recession

US net export spending falls when

the growth rate of the US GDP is faster than the growth rate of GDP in other countries

in technological changes occur in the economy

the long run aggregate supply curve will shift to the right

if an increase in investment spending of $20 million results in a $200 million increase in equilibrium real GDP, then

the multiplier is 10

if an increase in investment spending of $50 million results in a $400 million increase in equilibrium real GDP, then

the multiplier is 8

all of the following are true statements about the multiplier except

the multiplier is a value between zero and one

which of the following is a true statement about the multiplier?

the multiplier rises as the MPC rises

changes in _____ do not affect the level of aggregate supply in the long run

the price level

suppose the economy is at full employment and firms become more optimistic about the future profitability of new investment, which of the following will happen in the short run

unemployment will decline

consumption spending is $5million, planned investment spending is $8million, unplanned investment spending is $2 million, govt purchases are $10million, and net export spending is $2million. what is aggregate expenditure?

$25million

given the equations for C, I, G and NX what is the equilibrium level of GDP? C=2000+.9Y I=2500 G=3000 NX=400

$79000

Figure 12-3, suppose that investment spending decreases by $5million, decreasing aggregate expenditure and decreasing real GDP from GDP2 to GDP1. If the MPC is .8 then what is the change in GDP?

-25million

Equations fro C,I,G and NX are given below, if the equilibrium level of GDP is 21500, what is the marginal propensity to consume? C=1500+(MPC)Y I=1000 G=2000 NX=-200

.8

Consumption: $1200, $2100, 3000 Disposable income: 3000, 4000, 5000 give the consumption schedule above, the marginal propensity to save is

0.1

if disposable income increases by $100 million, and consumption increases by $90 million, then the marginal propensity to consume is

0.9

MPC+MPS=

1

a general formula for the multiplier is

1/MPS

the national restaurant association states the the restaurant industry has economic effect of more than $1.7 trillion annually in the US, with every dollar spent in restaurants generating an estimated total of $2.05 in spending in the economy. this indicates that the spending multiplier for the restaurant industry is equal to

2.05

Figure 13-1, ceteris paribus, a decrease in the value of the domestic currency relative to foreign currencies would be represented by a movement from

AD1 to AD2

Figure 13-1, ceteris paribus, an increase in personal income taxes would be represented by a movement from

AD2 to AD1

Figure 13-1, ceteris paribus, an increase in the value of the domestic currency relative to foreign currencies would be represented by a movement from

AD2 to AD1

Figure 13-1, ceteris paribus, and increase in the growth rate of domestic GDP relative to the growth rate of foreign GDP would be represented by a movement from

AD2 to AD1

Figure 13-3, which of the points in the above graph are possible short run equilibria but not long run equilibria? Assume Y1 represents potential GDP

B and D

National income=

Consumption+Savings+Taxes

Figure 12-1, according to the figure above at what point is aggregate expenditure greater than GDP?

J

Which of the following leads to an increase in real GDP?

a decrease in interest rates

all of the following would be considered a positive addition to household wealth except

a credit card balance

which of the following will decrease aggregate expenditure in the US?

a decrease in govt purchases

the ____ shows the relationship between the price level and quantity of real GDP demanded

aggregate demand curve

long run macroeconomic equilibrium occurs when

aggregate demand equals short run aggregate supply and they intersect at a point on the long run supply curve

interest rates in the economy have fallen, how will this affect aggregate demand and equilibrium in the short run

aggregate demand will rise, the equilibrium price level will rise, and the equilibrium level of GDP will rise

Consumption spending is $22million, planned investment spending is $7 million, actual investment spending is $7 million, government purchases are $9 million, and net export spending is $3 million. which of the following is true?

aggregate expenditure is equal to GDP

Firms in a small economy planned that inventories would grow over the past year by $300,000. Over that year, inventories actually grew by $400,000. this implies that

aggregate expenditure will be greater than GDP

if firms sell exactly what they expected to sell, all of the following will be true except

aggregate expenditure will be greater than GDP

A decrease in consumer confidence can put your job at risk if

aggregate expenditures fall

which of the following would cause the short run aggregate supply curve to shift to the left

an increase in inflation expectations

which of the following will shift the aggregate demand curve to the left

an increase in interest rates

figure 12-2, if the US economy is currently at point K, which of the following could cause it to move to point N?

congress passes investment tax incentives

Which of the following is one explanation as to why the aggregate demand curve slopes downward?

decreases in the price level raise real wealth and increase consumption spending

stagflation occurs when

inflation rises and GDP falls

When aggregate expenditure = GDP

macroeconomic equilibrium occurs

when the price level falls from 135 to 120, the aggregate level of GDP supplied falls from $140 billion to $125 billion. This ____ relationship represents the ___ relationship between GDP and the price level

positive, short run

workers expect inflation to fall from 4% to 1% next year as a result this should

shift the short run aggregate supply curve to the right

if, due to a recession, foreign workers begin to leave the US to search for temporary work in their home countries until the recession has ended, this will

shift the short-run aggregate supply curve of the home country to the left

Suppose the economy is at a short run equilibrium GDP that lies above potential GDP. which of the following will occur because of the automatic mechanism adjusting the economy back to potential GDP?

short run aggregate supply will shift to the left

if an increase in autonomous consumption spending of $25 million results in a $100 million increase in equilibrium real GDP then,

the MPC is .75

how do lower taxes effect aggregate demand?

they increase disposable income, consumption, and aggregate demand

john maynard keynes argued that if many house holds decide at the same time to increase saving and reduce spending

they may make themselves worse off by causing aggregate expenditure to fall, thereby pushing the economy into recession

why does the short run aggregate supply curve shift to the left in the long run following an increase in aggregate demand?

workers and firms adjust their expectations of wages and prices upward and they push for higher wages and prices