Econ final

The multiplier is:

1 / (1 - MPC)

13. (Figure: Short-Run Equilibrium) Look at the figure Short-Run Equilibrium. Appropriate fiscal policy action is: A) a decrease in transfer payments. B) an increase in government purchases. C) a decrease in tax rates. D) an increase in transfer payments.

A) a decrease in transfer payments.

Government spending will NOT crowd out private spending if: A) all of the resources in the economy are employed. B) aggregate income is at its potential level. C) there is an inflationary gap. D) there is a recessionary gap.

A) all of the resources in the economy are employed

An upward shift in the consumption function can be caused by: A) an increase in consumer wealth. B) a drop in consumer wealth. C) pessimistic expectations. D) an increase in disposable personal income.

A) an increase in consumer wealth.

11. Social insurance programs are: A) government programs intended to protect families against economic hardships. B) private insurance policies to protect families from hardships caused by government actions. C) private insurance policies that cover gaps in government-provided health care. D) programs to help unemployed people have a social life.

A) government programs intended to protect families against economic hardships.

A contractionary fiscal policy either _____ government spending or _____ taxes. A) increases; increases B) decreases; increases C) increases; decreases D) decreases; decreases

B) decreases; increases

A bank run occurs when: A) too many people are trying to borrow more at one time. B) many bank depositors are trying to withdraw their funds from the bank. C) interest rates start to increase. D) interest rates are higher than inflation rates

B) many bank depositors are trying to withdraw their funds from the bank.

Social insurance programs are: A) government programs intended to protect families against economic hardships. B) private insurance policies to protect families from hardships caused by government actions. C) private insurance policies that cover gaps in government-provided health care. D) programs to help unemployed people have a social life.

B) reveals an inflationary gap compared with Yp

Medicaid, Medicare, and Social Security are examples of: A) unilateral payments. B) transfer payments. C) monetary policy. D) taxes.

B) transfer payments.

The discretionary fiscal policy entails: A) changing the money supply to influence interest rates and investment spending. B) using government spending or tax policy to affect aggregate demand. C) lifting trade barriers on imports. D) setting a policy to raise the natural rate of unemployment

B) using government spending or tax policy to affect aggregate demand.

Money is: A) paper money and coins but not checks. B) currency and stocks. B) currency and stocks C) anything that can easily be used to buy goods and services. D) None of the answers is correct.

C) anything that can easily be used to buy goods and services.

If the current equilibrium output lies above potential output, then an appropriate fiscal policy would be to _____, which will shift the AD curve to the _____. A) decrease government purchases; right B) increase government purchases; left C) decrease government purchases; left D) raise tax rates; right

C) decrease government purchases; left

According to the accelerator principle, a _____ rate of growth in real GDP leads to _____. A) lower; lower unplanned inventory investment B) higher; higher inventory investment C) higher; higher planned investment spending D) lower; higher inventory investment

C) higher; higher planned investment spending

1. The _____ multiplier is equal to _____. A) reserve; the required reserve ratio B) bank loan; the required reserve ratio divided by 1 C) money; 1 divided by the required reserve ratio D) excess reserve; change in reserves divided by the change in deposits

C) money; 1 divided by the required reserve ratio

The marginal propensity to consume equals the: A) proportion of consumer spending as a function of aggregate disposable income. B) change in savings divided by the change in aggregate disposable income. C) ratio of the change in consumer spending to the change in aggregate disposable income. D) change in savings divided by the change in consumer spending.

C) ratio of the change in consumer spending to the change in aggregate disposable income.

If the marginal propensity to consume is 0.9, then the government spending multiplier is: A) 0.1. B) 1.11. C) 9. D) 10.

D) 10.

Besides consumption, the component(s) of aggregate demand is (are) A) investment expenditures. B) investment expenditures and government expenditures. C) investment expenditures and net exports. D) investment expenditures, government expenditures, and net exports.

D) investment expenditures, government expenditures, and net exports.

The tool of monetary policy with which the Federal Reserve buys and sells government bonds is called: A) moral suasion. B) reserve requirements. C) the discount rate. D) open-market operations

D) open-market operations.

Look at the table The Economy of Albernia. What is the consumption function for Albernia? A) C = 600 + 0.3 ¥ YD B) C = 600 + 0.75 ¥ YD C) C = 400 + 0.6 ¥ YD D) C = 400 + 0.75 ¥ YD

c= a + MPC x yd C) C = 400 + 0.6 ¥ YD

How to find MPC

change in consumption/change in income

explain c= a+MPC x yd

consumption function c= households consumer spending a= constant consumer spending(what is spent at 0) yd= household disposable income MPC= marginal propensity to consume

The negative relationship between the aggregate price level and aggregate output demanded gives the aggregate demand curve a _____ slope. A) upward B) vertical C) horizontal D) downward

downward

Suppose the marginal propensity to consume equals 0.9 and investment spending increases by $50 billion. Assuming no taxes and no trade, real GDP will _____ by _____. A) increase; $450 billion B) increase; $90 billion C) increase; $500 billion D) decrease; $500 billion

increase, $500 billion

the aggregate price level

measure of overall levels of prices in the economy

Suppose that consumer expectations improve. The aggregate demand curve will undergo a A) shift to the left. B) movement upward. C) shift to the right. D) movement downward.

shift to the right

What equation is used for this? Suppose the marginal propensity to consume equals 0.9 and investment spending increases by $50 billion. Assuming no taxes and no trade, real GDP will _____ by _____.

the change in gdp (y) = 1/1-MPC x change in Total aggregate spending

what does the aggregate demand curve represent?

the total quantity of all goods and services demanded by the economy at different price levels