ECON Ch. 3 Exam Practice Questions
Refer to the diagram for a private closed economy. The equilibrium level of GDP is - $100. - $200. - $300. - $400.
$300.
Possible Levels of Domestic Output and Income (GDP = DI)Consumption The table gives data for a private closed economy. If gross investment is $12 billion, the equilibrium level of GDP will be - $350. - $380. - $370. - $360.
$360.
Refer to the diagram for a private closed economy. At the equilibrium level of GDP, investment and saving are both - $100. - $40. - $20. - $50.
$50.
With a marginal propensity to save of 0.4, the marginal propensity to consume will be - 1.0 minus 0.4 - the reciprocal of the MPS. - 0.4 minus 1.0 - 0.4
1.0 minus 0.4
Possible Levels of Domestic Output and Income (GDP = DI)Consumption The table gives data for a private closed economy. The MPS is - 7/10. - 2/5. - 3/5. - 3/10.
3/10.
Which of the following is correct? - APS + MPS = 1. - APC + MPS = 1. - APS + MPC = 1. - APC + APS = 1.
APC + APS = 1.
The group of three economists who provide fiscal policy recommendations to the president is the - Bureau of Economic Analysis. - Federal Reserve Board of Governors. - Joint Economic Committee. - Council of Economic Advisers.
Council of Economic Advisers.
Which of the following statements is accurate about most economies? - Economies experience a positive growth trend over the short run but experience significant variability in the long run. - Economies experience a positive growth trend over the long run but experience significant variability in the short run. - Economies experience positive and stable growth over both the long run and short run. - Economies experience little long-run growth in output but can experience significant growth in the short run.
Economies experience a positive growth trend over the long run but experience significant variability in the short run.
John Maynard Keynes created the aggregate expenditures model based primarily on what historical event? - Great Depression - economic expansion of the 1920s - bank panic of 1907 - spectacular economic growth during World War 2
Great Depression
Why are economists concerned about inflation? - Inflation lowers the standard of living for people whose income does not increase as fast as the price level. - Inflation generally causes unemployment rates to rise. - Real GDP is necessarily falling when there is inflation. - Inflation increases the value of people's savings and encourages overspending on goods and services.
Inflation lowers the standard of living for people whose income does not increase as fast as the price level.
Refer to the diagram, which applies to a private closed economy. If aggregate expenditures are C + Ig2, the amount of saving at income level J is - LK. - KD. - JD. - KN.
KN.
The consumption and saving schedules reveal that the - MPC and APC are equal at the point where the consumption schedule intersects the 45-degree line. - APS is positive at all income levels. - MPC is equal to or greater than one at all income levels. - MPC is greater than zero but less than one.
MPC is greater than zero but less than one.
If the prices of all goods and services rose, but the quantity produced remained unchanged, what would happen to nominal and real GDP? - Nominal and real GDP would both rise. - Real GDP would rise, but nominal GDP would be unchanged. - Nominal and real GDP would both be unchanged. - Nominal GDP would rise, but real GDP would be unchanged.
Nominal GDP would rise, but real GDP would be unchanged.
The aggregate expenditures model is built upon which of the following assumptions? - Prices are fully flexible. - Government spending policy has no ability to affect the level of output. - The economy is at full employment. - Prices are fixed.
Prices are fixed.
Suppose that the economy is in the midst of a recession. Which of the following policies would most likely end the recession and stimulate output growth? - Reductions in agricultural subsidies and veterans' benefits. - Reductions in federal tax rates on personal and corporate income. - A congressional proposal to incur a federal surplus to be used for the retirement of public debt. - Postponement of a highway construction program.
Reductions in federal tax rates on personal and corporate income.
Why are high rates of unemployment of concern to economists? - Higher rates of unemployment generally lead to higher inflation rates. - There is lost output that could have been produced if the unemployed had been working. - All of these options are reasons why economists are concerned about high unemployment rates. - Environmental destruction is more prevalent when unemployment rates are high.
There is lost output that could have been produced if the unemployed had been working.
Which of the following is incorrect? - When the price level increases, real balances increase and businesses and households find themselves wealthier and therefore increase their spending. - Given aggregate demand, an increase in aggregate supply increases real output and, assuming downward-flexible prices, reduces the price level. - As the U.S. price level rises, U.S. goods become relatively more expensive so that U.S. exports fall and U.S. imports rise. - As the price level falls, the demand for money declines, the interest rate declines, and interest-rate-sensitive spending increases.
When the price level increases, real balances increase, and businesses, and households find themselves wealthier and therefore increase their spending.
Which of the following represents the most expansionary fiscal policy? - a $10 billion tax cut - a $10 billion tax increase - a $10 billion increase in government spending - a $10 billion decrease in government spending
a $10 billion increase in government spending
Which one of the following would not shift the aggregate demand curve? - a change in the price level - a depreciation of the international value of the dollar - a decline in the interest rate at each possible price level - an increase in personal income tax rates
a change in the price level
An appropriate fiscal policy for a severe recession is - a decrease in tax rates. -an increase in interest rates. - appreciation of the dollar. - a decrease in government spending.
a decrease in tax rates.
The relationship between consumption and disposable income is such that - the two are usually equal. - a direct and relatively stable relationship exists between consumption and income. - a direct, but very volatile, relationship exists between consumption and income. - an inverse and stable relationship exists between consumption and income.
a direct and relatively stable relationship exists between consumption and income.
The consumption schedule shows - an inverse relationship between aggregate consumption and accumulated financial wealth. - a direct relationship between aggregate consumption and aggregate income. - a direct relationship between aggregate consumption and accumulated wealth. - an inverse relationship between aggregate consumption and the price level.
a direct relationship between aggregate consumption and aggregate income.
Inflation is defined as - the growth phase of the business cycle. - a general increase in the price level. - the rate of growth in nominal GDP. - a situation where all prices in the economy rise simultaneously.
a general increase in the price level.
The real-balances effect indicates that - an increase in the price level will increase the demand for money, increase interest rates, and reduce consumption and investment spending. - a lower price level will decrease the real value of many financial assets and therefore reduce spending. - a higher price level will decrease the real value of many financial assets and therefore reduce spending. - a higher price level will increase the real value of many financial assets and therefore increase spending.
a higher price level will decrease the real value of many financial assets and therefore reduce spending.
Unemployment describes the condition where - a person does not have a job, regardless of whether or not he or she wants one. - equipment and machinery are going unused. - a person cannot get a job but is willing to work and is actively seeking work. - any resource sits idle.
a person cannot get a job but is willing to work and is actively seeking work.
An appropriate fiscal policy for severe demand-pull inflation is - a reduction in interest rates. - depreciation of the dollar. - a tax rate increase. - an increase in government spending.
a tax rate increase.
Other things equal, if the national incomes of the major trading partners of the United States were to rise, the U.S. - aggregate supply curve would shift to the right. - aggregate demand curve would shift to the right. - aggregate demand curve would shift to the left. - aggregate supply curve would shift to the left.
aggregate demand curve would shift to the right.
The 45-degree line on a graph relating consumption and income shows - all the points at which saving and income are equal. - all the points where the MPC is constant. - the amounts households will plan to save at each possible level of income. - all the points at which consumption and income are equal.
all the points at which consumption and income are equal.
Assume the economy is at full employment and that investment spending declines dramatically. If the goal is to restore full employment, government fiscal policy should be directed toward - an excess of government expenditures over tax receipts. - a reduction of subsidies and transfer payments and an increase in tax rates. - an excess of tax receipts over government expenditures. - an equality of tax receipts and government expenditures.
an excess of government expenditures over tax receipts.
The interest-rate effect suggests that - an increase in the price level will increase the demand for money, reduce interest rates, and decrease consumption and investment spending. - an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending. - a decrease in the supply of money will increase interest rates and reduce interest-sensitive consumption and investment spending. - an increase in the price level will decrease the demand for money, reduce interest rates, and increase consumption and investment spending.
an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending.
As disposable income increases, consumption - and saving both increase. - increases and saving decreases. - and saving both decrease. - decreases and saving increases.
and saving both increase
As disposable income goes up, the - average propensity to consum falls. - volume of investment diminishes. - average propensity to save falls. - volume of consumption declines absolutely.
average propensity to consume falls.
The MPC can be defined as that fraction of a - given total income that is not consumed. - change in income that is spent. - given total income that is consumed. - change in income that is not spent.
change in income that is spent.
If Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to - consume is three-fifths. - save is three-fifths. - consume is one-half. - consume is two-fifths.
consume is three-fifths.
If the MPC is 0.8 and disposable income is $200, then - consumption and saving cannot be determined from the information given. - personal consumption expenditures must be $160. - saving will be $40. - saving will be $20.
consumption and saving cannot be determined from the information given.
The APC is calculated as - change in income/change in consumption. - change in consumption/change in income. - income/consumption. - consumption/income.
consumption/income.
Refer to the diagrams. Other things equal, curve B will shift upward when - curve A shifts to the right. - the level of GDP increases. - curve A shifts to the left. - the interest rate increases.
curve A shifts to the right.
In the United States from 1929 to 1933, real GDP _____________ and the unemployment rate ________________. - declined by 21 percent; rose to 27 percent. - declined by 40 percent; rose to 50 percent. - increased by 21 percent; fell to 2 percent. - declined by 27 percent; rose to 25 percent.
declined by 27 percent; rose to 25 percent.
A decline in disposable income - decreases consumption because it shifts the consumption schedule downward. - increases consumption by moving upward along a specific consumption schedule. - decreases consumption by moving downward along a specific consumption schedule. - increases consumption because it shifts the consumption schedule upward.
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. - increasing government spending by $25 billion. - decreasing taxes by $100 billion. - increasing government spending by $80 billion.
decreasing taxes by $25 billion.
Discretionary fiscal policy will stabilize the economy most when - budget surpluses are continuously incurred. - the budget is balanced each year. - deficits are incurred during inflations and surpluses during recessions. - deficits are incurred during recessions and surpluses during inflations.
deficits are incurred during recessions and surpluses during inflations.
Fiscal policy refers to - fact that equal increases in government spending and taxation will be contractionary. - deliberate changes in government spending and taxes to promote economic growth, full employment, and price level stability. - altering of the interest rate to change aggregate demand. - deliberate changes in government spending and taxes to achieve greater equality in the distribution of income.
deliberate changes in government spending and taxes to promote economic growth, full employment, and price level stability.
The factors that affect the amounts that consumers, businesses, government, and foreigners wish to purchase at each price level are the - determinants of aggregate supply. - determinants of aggregate demand. - real-balances, interest-rate, and foreign purchases effects. - sole determinants of the equilibrium price level and the equilibrium real output.
determinants of aggregate demand.
In the aggregate expenditures model, it is assumed that investment - does not change when real GDP changes. - changes by less in percentage terms than changes in real GDP. - does not respond to changes in interest rates. - automatically changes in response to changes in real GDP.
does not change when real GDP changes.
The aggregate demand curve is - downsloping because of the interest-rate, real-balances, and foreign purchases effects. - vertical under conditions of full employment. - horizontal when there is considerable unemployment in the economy. - downsloping because production costs decrease as real output rises.
downsloping because of the interest rate, real-balances, and foreign purchases effects.
Other things equal, a decrease in the real interest rate will - expand investment and shift the AD curve to the right. - expand investment and shift the AD curve to the left. - reduce investment and shift the AD curve to the right. - reduce investment and shift the AD curve to the left.
expand investment and shift the AD curve to the right.
The determinants of aggregate demand - demonstrate why real output and the price level are inversely related. - include input prices and resource productivity. - explain shifts in the aggregate demand curve. - explain why the aggregate demand curve is downsloping.
explain shifts in the aggregate demand curve.
The size of the MPC is assumed to be - two or more. - greater than one. - greater than zero but less than one. - less than zero.
greater than zero but less than one.
Higher rates of unemployment are linked with - higher crime rates, as the unemployed seek to replace lost income. - improvements in overall health, as the unemployed have more leisure time to be physically active. - greater political stability because the employed tend to be more politically active. - lower rates of heart disease, as the unemployed have eliminated job stress.
higher crime rates, as the unemployed seek to replace lost income.
A private closed economy includes - households, businesses, and government, but not international trade. - households, businesses, and international trade, but not government. - households only. - households and businesses, but not government or international trade.
households and businesses, but not government or international trade.
The foreign purchases effect suggests that a decrease in the U.S. price level relative to other countries will - shift the aggregate supply curve leftward. - decrease U.S. exports and increase U.S. imports. - shift the aggregate demand curve leftward. - increase U.S. exports and decrease U.S. imports.
increase U.S. exports and decrease U.S. imports.
The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will - increase both U.S. imports and U.S. exports. - increase the amount of U.S. real output purchased. - decrease both U.S. imports and U.S. exports. - increase U.S. imports and decrease U.S. exports.
increase U.S. imports and decrease U.S. exports.
The consumption schedule is drawn on the assumption that as income increases, consumption will - increase absolutely but decline as a percentage of income. - increase absolutely but remain constant as a percentage of income. - be unaffected. - increase both absolutely and as a percentage of income.
increase absolutely but decline as a percentage of income.
In a certain year, the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $120 billion. To obtain price-level stability under these conditions, the government should - discourage personal saving by reducing the interest rate on government bonds. - encourage private investment by reducing corporate income taxes. - increase government expenditures. - increase tax rates and/or reduce government spending.
increase tax rates and/or reduce government spending.
Harry's Pizza Parlor produced 10,000 large pizzas last year that sold for $10 each. This year Harry's produced 11,000 large pizzas (identical to last year's pizzas) but sold them for $12 each. Based on this information, we can conclude that Harry's production of large pizzas - increased nominal GDP from last year, but real GDP was unaffected. - increased real GDP from last year, but nominal GDP was unaffected. - did not change either nominal or real GDP from last year. - increased both nominal and real GDP from last year.
increased both nominal and real GDP from last year.
Harry's Pepperoni Pizza Parlor produced 10,000 large pepperoni pizzas last year that sold for $10 each. This year Harry's again produced 10,000 large pepperoni pizzas (identical to last year's pizzas) but sold them for $12 each. Based on this information, we can conclude that Harry's production of large pepperoni pizzas this year - increased nominal GDP by $120,000 but left real GDP unchanged. - increased nominal GDP by $120,000 and increased real GDP by $100,000. - increased nominal GDP by $20,000 but left real GDP unchanged. - left nominal GDP unchanged but increased real GDP by $20,000.
increased nominal GDP by $20,000 but left real GDP unchanged.
Harry's Pepperoni Pizza Parlor produced 10,000 large pepperoni pizzas last year that sold for $10 each. This year Harry's again produced 10,000 large pepperoni pizzas (identical to last year's pizzas) but sold them for $12 each. Based on this information, we can conclude that Harry's production of large pepperoni pizzas - did not change either nominal or real GDP from last year. - increased nominal GDP from last year, but real GDP was unaffected. - increased real GDP from last year, but nominal GDP was unaffected. - increased both nominal and real GDP from last year.
increased nominal GDP from last year, but real GDP was unaffected.
If the MPS in an economy is 0.1, government could shift the aggregate demand curve rightward by $40 billion by - increasing taxes by $4 billion. - decreasing taxes by $4 billion. - increasing government spending by $4 billion. - increasing government spending by $40 billion.
increasing government spending by $4 billion.
Discretionary fiscal policy refers to - the changes in taxes and transfers that occur as GDP changes. - the authority that the president has to change personal income tax rates. - any change in government spending or taxes that destabilizes the economy. - intentional changes in taxes and government expenditures made by Congress to stabilize the economy.
intentional changes in taxes and government expenditures made by Congress to stabilize the economy.
Refer to the diagrams. The location of curve B depends on the - interest rate only. - level of real GDP. - location of curve A only. - interest rate together with the location of curve A.
interest rate together with the location of curve A.
All else equal, a large decline in the real interest rate will shift the - investment demand curve rightward. - investment demand curve leftward. - investment schedule upward. - investment schedule downward.
investment schedule upward.
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. - occurs automatically as the nation's level of GDP changes. - is undertaken at the option of the nation's central bank. - is invoked secretly by the Council of Economic Advisers.
involves specific changes in taxes and government spending undertaken expressly for stabilization at the option of Congress.
Contractionary fiscal policy is so named because it - is aimed at reducing aggregate demand and thus achieving price stability. - involves a contraction of the nation's money supply. - necessarily reduces the size of government. - is expressly designed to expand real GDP.
is aimed at reducing aggregate demand and thus achieving price stability.
Refer to the diagrams. Curve A - is an investment demand curve, and curve B is an investment schedule. - and curve B are totally unrelated. - shifts to the left when curve B shifts upward. - is an investment schedule, and curve B is a consumption of fixed capital schedule.
is an investment demand curve, and curve B is an investment schedule.
Expansionary fiscal policy is so named because it - is aimed at achieving greater price stability. - involves an expansion of the nation's money supply. - necessarily expands the size of government. - is designed to expand real GDP.
is designed to expand real GDP.
A tax reduction of a specific amount will be more expansionary the - less is the economy's built-in stability. - smaller is the economy's multiplier. - smaller is the economy's MPC. - larger is the economy's MPC.
larger is the economy's MPC.
Refer to the diagrams. Other things equal, an interest rate increase will - leave curve A in place but shift curve B upward. - shift curve A to the left and shift curve B downward. - leave curve A in place but shift curve B downward. - shift curve A to the right and shift curve B upward.
leave curve A in place but shift curve B downward.
Refer to the diagrams. Other things equal, an interest rate decrease will - leave curve A in place but shift curve B upward. - shift curve A to the left and shift curve B downward. - leave curve A in place but shift curve B downward. - shift curve A to the right and shift curve B upward.
leave curve A in place but shift curve B upward.
A decline in investment will shift the AD curve to the - left by a multiple of the change in investment. - left by the same amount as the change in investment. - right by a multiple of the change in investment. - right by the same amount as the change in investment.
left by a multiple of the change in investment.
If investment decreases by $20 billion and the economy's MPC is 0.5, the aggregate demand curve will shift - rightward by $40 billion at each price level. - leftward by $20 billion at each price level. - rightward by $20 billion at each price level. - leftward by $40 billion at each price level.
leftward by $40 billion at each price level.
The foreign purchases effect - moves the economy along a fixed aggregate demand curve. - shifts the aggregate demand curve leftward. - shifts the aggregate demand curve rightward. - shifts the aggregate supply curve rightward.
moves the economy along a fixed aggregate demand curve.
Which of the following is most closely related to recessions? - falling rates of unemployment - negative real growth in output - rapid growth in the price level - positive long-run economic growth
negative real growth in output
Real GDP is preferred to nominal GDP as a measure of economic performance because - nominal GDP uses current prices and thus may over or understate true changes in output. - nominal GDP only includes goods and excludes services. - nominal GDP is not adjusted for population changes. - real GDP accounts for changes in the quality of goods and services produced.
nominal GDP uses current prices and thus may over or understate true changes in output.
Refer to the diagram for a private closed economy. Unplanned changes in inventories will be zero - at all levels of GDP. - only at the $200 level of GDP. - only at the $300 level of GDP. - only at the $400 level of GDP.
only at the $300 level of GDP.
The term "recession" describes a situation where - inflation rates exceed normal levels. - an economy's ability to produce is destroyed. - government takes a less active role in economic matters. - output and living standards decline.
output and living standards decline.
Modern economic growth refers to countries that have experienced an increase in - output per person. - nominal GDP over time. - real output spread evenly across all sectors of the economy. - real GDP over time.
output per person.
Before the period of modern economic growth, - most economies realized high rates of growth in output per person. - rates of population growth virtually matched rates of output growth. - output and population growth were stagnant. - only civilizations such as the Roman Empire experienced economic growth.
rates of population growth virtually matched rates of output growth.
The three statistics that are the main focus for those measuring macroeconomic health are - real GDP, nominal GDP, and unemployment. - nominal GDP, unemployment, and inflation. - real GDP, inflation, and unemployment. - real GDP, nominal GDP, and inflation.
real GDP, inflation, and unemployment.
In a certain year the aggregate amount demanded at the existing price level consists of $100 billion of consumption, $40 billion of investment, $10 billion of net exports, and $20 billion of government purchases. Full-employment GDP is $200 billion. To obtain full employment under these conditions, the government should - reduce tax rates and/or increase government spending. - decrease government expenditures. - encourage personal saving by increasing the interest rate on government bonds. - discourage private investment by increasing corporate income taxes.
reduce tax rates and/or increase government spending.
Suppose the price level is fixed, the MPC is 0.5, and the GDP gap is a negative $80 billion. To achieve full-employment output (exactly), government should - reduce government expenditures by $40 billion. - reduce taxes by $80 billion. - reduce taxes by $40 billion. - increase government expenditures by $80 billion.
reduce taxes by $80 billion.
A major advantage of the built-in or automatic stabilizers is that they - simultaneously stabilize the economy and reduce the absolute size of the public debt. - automatically produce surpluses during recessions and deficits during inflations. - guarantee that the federal budget will be balanced over the course of the business cycle. - require no legislative action by Congress to be made effective.
require no legislative action by Congress to be made effective.
An increase in net exports will shift the AD curve to the - right by the same amount as the change in net exports. - left by the same amount as the change in net exports. - right by a multiple of the change in net exports. - left by a multiple of the change in net exports.
right by a multiple of the change in net exports.
If investment increases by $10 billion and the economy's MPC is 0.8, the aggregate demand curve will shift - rightward by $10 billion at each price level. - leftward by $50 billion at each price level. - rightward by $50 billion at each price level. - leftward by $40 billion at each price level.
rightward by $50 billion at each price level.
Refer to the diagrams. Other things equal, an interest rate reduction coupled with a rightward shift in curve A will - shift curve B upward. - reduce GDP. - have no effect on curve B. - shift curve B downward.
shift curve B upward.
The two topics of primary concern in macroeconomics are - short-run fluctuations in output and employment and long-run economic growth. - unemployment and wage rates in labor markets. - monopoly power of corporations and small business profitability. - oil prices and housing markets.
short-run fluctuations in output and employment and long-run economic growth.
The business cycle depicts - short-run fluctuations in output and employment. - the evolution of technology over time. - fluctuations in the general price level. - the phases a business goes through from when it first opens to when it finally closes.
short-run fluctuations in output and employment.
The aggregate demand curve - shows the amount of expenditures required to induce the production of each possible level of real output. - is downsloping because production costs decline as real output increases. - shows the amount of real output that will be purchased at each possible price level. - is upsloping because a higher price level is necessary to make production profitable as production costs rise.
shows the amount of real output that will be purchased at each possible price level.
The APC can be defined as the fraction of a - specific level of total income that is consumed. - change in income that is spent. - specific level of total income that is not consumed. - change in income that is not spent.
specific level of total income that is consumed.
The consumption schedule is such that - both the APC and the MPC increase as income rises. - the APC is constant and the MPC declines as income rises. - the MPC is constant and the APC declines as income rises. - the MPC and the APC must be equal at all levels of income.
the MPC is constant and the APC declines as income rises.
The consumption schedule shows - that households consume more when interest rates are low. - that consumption depends primarily on the level of business investment. - that the MPC increases in proportion to GDP. - the amounts households intend to consume at various possible levels of aggregate income.
the amounts households intend to consume at various possible levels of aggregate income.
Macroeconomics is mostly focused on - only the largest industries in the economy. - the economy as a whole. - why specific businesses fail. - the individual markets within an economy.
the economy as a whole.
If the price level increases in the United States relative to foreign countries, then American consumers will purchase more foreign goods and fewer U.S. goods. This statement describes - the foreign purchases effect. - the shift-of-spending effect. - the real-balances effect. - the output effect.
the foreign purchases effect.
The most important determinant of consumer spending is - consumer expectations. - the level of income. - the stock of wealth. - the level of household borrowing.
the level of income.
An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the - the multiplier effect. - wealth effect. - real-balances effect. - net export effect.
the multiplier effect.
Refer to the diagram for a private closed economy. The $400 level of GDP is - too high because consumption exceeds investment. - unsustainable because aggregate expenditures exceed GDP. - that output at which saving is zero. - unsustainable because aggregate expenditures are less than GDP.
unsustainable because aggregate expenditures are less than GDP.
Refer to the figure. The consumption schedule indicates that - up to a point, consumption exceeds income but then falls below income. - consumers will maximize their satisfaction where the consumption schedule and 45° line intersect. - households consume as much as they earn. - the MPC falls as income increases.
up to a point, consumption exceeds income but then falls below income.
Real GDP measures the - total dollar value of all goods and services consumed within the borders of a country, corrected for price changes. - total dollar value of all goods and services produced within the borders of a country using current prices. - value of all goods and services produced in the world, using current prices. - value of final goods and services produced within the borders of a country, adjusted for price changes.
value of final goods and services produced within the borders of a country, adjusted for price changes.
The real-balances, interest rate, and foreign purchases effects all help explain - shifts in the aggregate demand curve. - why the aggregate demand curve is downsloping. - shifts in the aggregate supply curve. - why the aggregate supply curve is upsloping.
why the aggregate demand curve is downsloping.
Built-in stability means that - an annually balanced budget will offset the procyclical tendencies created by state and local finance and thereby stabilize the economy. - government expenditures and tax receipts automatically balance over the business cycle, though they may be out of balance in any single year. - Congress will automatically change the tax structure and expenditure programs to correct upswings and downswings in business activity. - 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.
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.
