Econ final exam study guide

If the labor supply and demand curves cross at a wage of $20, a. a wage rate of $10 per hour would lead to an excess demand for labor b. a wage rate of $10 per hour would lead to an excess supply of labor c. that wage causes a high rate of cyclical unemployment d. employees are overpaid e. a wage rate of $10 per hour would mean there is a significant amount of structural unemployment

A

In the classical model, the loanable funds market will clear when saving a. equals investment plus government purchases minus net taxes b. equals net taxes c. equals investment d. equals investment plus government purchases e. minus taxes equals investment plus government purchases

A

In the short run, a. spending depends on income and income depends on spending b. spending depends on income, but income does not depend on spending c. income depends on spending, but spending does not depend on income d. spending and income are independent of one another e. spending is the only determinant of how much income an economy will produce

A

In the short-run macro model, if aggregate expenditure is less than GDP, output will a. decline as firms cut production to stop the buildup of inventories b. decline as firms increase their prices to stop the buildup of inventories c. increase as firms increase production to try to stop depletion of inventories d. increase as firms cut their prices to try to stop depletion of inventories e. remain unchanged indefinitely unless government takes action

A

Refer to Figure 7-1. If the real hourly wage rate was $6, what would be the effect? a. There would be a shortage of 40 million workers and the wage rate would rise. b. There would be a shortage of 20 million workers and the wage rate would rise. c. There would be a surplus of 40 million workers and the wage rate would fall. d. There would be a surplus of 20 million workers and the wage rate would fall. e. There would be unemployment.

A

The labor supply curve a. slopes upward to illustrate that more people will want to work as the real wage increases b. slopes upward to illustrate that changes in the real wage are directly proportional to changes in the nominal wage c. may slope either upward or downward, depending upon the real wage 2 d. slopes downward to illustrate that a decrease in the real wage decreases the number of individuals willing to work e. slopes downward to illustrate that the availability of workers is directly proportional to the real wage

A

What is the relationship between household saving and taxes? a. taxes = income - consumption - household saving b. household saving = income + taxes - consumption c. taxes = income - consumption + household saving 4 d. household saving = consumption + income - taxes e. taxes = household saving - income - consumption

A

Which of the following is a definition of the consumption function? a. a functional relationship between real consumption spending and real disposable income b. a functional relationship between real consumption spending and the interest rate c. a functional relationship between real consumption spending and wealth d. a functional relationship between real consumption spending and total spending e. a functional relationship between real consumption spending and net taxes

A

. If GDP is $5 trillion and aggregate expenditure is $4 trillion, a. GDP will rise b. GDP will fall c. GDP will remain the same d. investment will decrease e. the government will have to increase taxes

B

: A DIF: 2 TOP: The Labor Market 5. Refer to Figure 7-1. According to the graph, the equilibrium real hourly wage and quantity of labor employed, respectively, are a. $10, 110 million workers b. $8, 130 million workers c. $8, 150 million workers d. $6, 150 million workers e. $6, 130 million workers

B

Everything else equal, a higher interest rate a. increase consumption spending as people face increasing debt b. reduce consumption spending as people have a greater incentive to save c. not change consumption spending because consumption is only affected by income d. not change total consumption spending, but to change who does the spending e. reduce both consumption spending and saving as people face increased debt

B

If income increased by $20,000, government purchases are fixed at $10,000, investment spending is fixed at $5,000, net exports are fixed at $500, and aggregate expenditure increases by $15,000, what is the marginal propensity to consume (MPC)? a. 0.25 b. 0.75 c. 0.33 d. 0.50 e. 0.70

B

Suppose the MPC is 0.9. If autonomous consumption spending increases by $20 billion, equilibrium output will a. increase by $22.2 billion b. increase by $200 billion c. not change because the MPC only changes consumption when income changes 10 d. not change because the expenditures multiplier only applies to changes in investment spending and government purchases e. not change because the autonomous consumption multiplier is zero

B

What is the relationship between household saving and business investment spending in equilibrium? a. household saving = government spending - taxes - business investment b. planned investment = household saving - government spending + taxes c. planned investment = government spending - household saving - taxes d. household saving = business investment - government spending - taxes e. planned investment = taxes - household saving - government spending

B

What is the relationship between the government's budget deficit and its tax revenue? a. budget deficit = government spending + tax revenue b. budget deficit = government spending - tax revenue c. government spending = budget deficit - tax revenue d. tax revenue = government spending + budget deficit e. budget deficit = government spending ÷ tax revenue

B

Which of the following statements is true? a. When a change in income causes consumption to change, the consumption-income line shifts; however, when anything besides income changes, we move along the line. b. When a change in income causes consumption to change, we move along the consumption-income line; however, when anything besides income changes, the line shifts. c. When income or anything else affecting consumption changes, we move along the consumption-income line. d. When income or anything else affecting consumption changes, the consumption-income line shifts. 8 e. There is no way to determine, without more information, whether a change in income or anything else will shift the consumption line or cause movement along the consumption-income line

B

. A movement along the consumption-function line would most likely be caused by a(n) a. increase in net taxes b. decrease in net taxes c. increase in income d. decrease in productivity e. change in autonomous consumption

C

. If net taxes decrease, which of the following would occur? a. Disposable income decreases, consumption at any income level increases, and the consumption-income line shifts upward. b. Disposable income increases, consumption at any income level increases, and the consumption-income line shifts downward. c. Disposable income increases, consumption at any income level increases, and the consumption-income line shifts upward. d. Disposable income decreases, consumption at any income level decreases, and the consumption-income line shifts downward. e. Disposable income increases, consumption at any income level decreases, and the consumption-income line shifts downward.

C

. If the MPC is 0.75, what is the value of the tax multiplier? a. -1.33 b. 3.0 c. -3.0 d. 4.0 e. -4.0

C

. If the MPC is 0.8 and government expenditure increases by 100 billion while net taxes increase by $100 billion, what is the effect on equilibrium output? a. There is no effect; equilibrium output is not affected by a change in net taxes. b. Equilibrium output will fall by $100 billion. c. Equilibrium output will increase by $100 billion. d. Equilibrium output will increase by $500 billion. e. Equilibrium output will increase by $900 billion

C

. Refer to Figure 7-6. Suppose that a $1 trillion increase in government spending shifted the demand for funds curve from D1 to D2. What would happen to the sum of investment and consumption spending? That sum would a. remain unchanged b. rise by $0.6 trillion c. rise by $1 trillion d. fall by $1 trillion e. fall by $0.4 trillion

C

According to Keynesian economists, a. the economy will return quickly to full employment in most cases b. if output is below its potential, the economy will soon return to full employment c. production can be stuck below its full-employment level for extended periods of time d. the Great Depression proved that classical economics does a good job of explaining how the economy operates e. he economy will achieve full employment in the short run but, in the long run, GDP will fluctuate

C

If expectations of future income become more optimistic, which of the following would occur? a. Nothing would occur. b. The consumption-income line would shift downward. c. The consumption-income line would shift upward. d. There would be an upward movement along the consumption-income line. e. There would be a downward movement along the consumption-income line.

C

If real disposable income increased by $10,000 and real consumption spending increased by $7,500, what is the marginal propensity to consume (MPC)? a. 0.25 b. 1.0 c. 0.75 d. 1.75 e. 1.25

C

Use the table below to determine the marginal propensity to consume (MPC). Real Real Disposable Consumption Income Spending ($Billions) ($Billions) $ 0 $ 100 200 280 400 460 600 640 800 820 1,000 1,000 1,200 1,180 a. 0 b. 0.8 c. 0.9 d. 1.0 e. 1.8

C

Which of the following describes the relationship among income, disposable income, taxes, and transfer payments? a. taxes plus transfers equal income plus disposable income b. disposable income equals income divided by the sum of taxes and transfers c. disposable income equals income minus taxes plus transfers d. disposable income equals income plus taxes plus transfers e. taxes plus transfers equal disposable income minus income

C

Which of the following is an equilibrium condition of the short-run macro model? a. Taxes equal transfers. b. Imports equal exports. c. Aggregate expenditure equals output. d. Consumption spending equals autonomous consumption spending. e. Consumption spending equals investment spending plus government spending.

C

(3.0 pts) (D-2) Use the table below to find the marginal propensity to consume. Income Taxes Consumption ($Billions) ($Billions) ($ Billions) $1,000 $600 $ 400 2,000 600 1,000 3,000 600 1,600 a. the marginal propensity to consume cannot be determined from the information given b. 0.4 c. 0.5 d. 0.6 e. 0.8

D

. Refer to Figure 7-3. This figure is known as a. the classical aggregate production function b. the Keynesian aggregate production function c. the full-employment model d. the circular flow diagram e. Say's diagram

D

Aggregate expenditure is the sum of a. all types of spending by households b. spending and savings by households c. spending by households and governments on final goods and services d. spending by households, government, firms, and foreigners on final goods and services e. all spending and saving by households, firms, and governments

D

Assuming the economy was in equilibrium, use the following information to calculate the total value of leakages. Consumption Spending $3.5 trillion Net Taxes $2.7 trillion Household Saving $2.5 trillion Investment Spending $2.2 trillion Government Purchases $3.0 trillion Total leakages are a. $2.5 trillion b. $2.7 trillion c. $3.0 trillion d. $5.2 trillion e. $5.7 trillion

D

If an initial increase in investment spending of $30 caused equilibrium output to increase by $120, what is the value of the MPC? a. 0.25 b. 0.5 c. 0.6 d. 0.75 e. 0.8

D

If the MPC is 0.8 and net taxes increase by $100 billion, what is the effect on equilibrium output? a. There is no effect; equilibrium output is not affected by a change in net taxes. b. Equilibrium output will fall by $80 billion. c. Equilibrium output will fall by $125 billion. d. Equilibrium output will fall by $400 billion. e. Equilibrium output will fall by $500 billion.

D

If the government increases its spending or reduces its taxes in order to influence the level of economic activity, it is engaging in a. regulatory policy b. antitrust policy c. monetary policy d. fiscal policy e. supply-management policy

D

If the marginal propensity to consume is 0.5 and disposable income increases by $10,000, by how much will consumption spending increase? a. $10,000 b. $500 c. $6,000 d. $5,000 e. $0

D

If the marginal propensity to consume is 0.8, what is the value of the expenditure multiplier? a. 0.2 b. 0.8 c. 1.25 d. 5.0 e. 8.0

D

Net taxes are a. the total amount of taxes paid to the government b. total tax revenues of the federal government c. the amount of total income that is not spent on consumption goods d. total tax revenues minus transfer payments e. total tax revenues minus taxes paid by firms

D

Refer to Figure 10-7. If the economy is currently producing at point X, what does the short-run macro model predict will happen? a. Nothing will happen; the economy is in equilibrium. b. Prices will rise and firms will increase production. c. Prices will fall and firms will increase production. d. Inventories will shrink and firms will increase production. e. Inventories will accumulate and firms will cut production

D

Refer to Figure 7-4. Based on these graphs, what is the equilibrium quantity of loanable funds market? a. $0.8 trillion b. $1.0 trillion c. $1.4 trillion d. $1.8 trillion e. $2.2 trillion

D

The classical model a. relies on the equivalency of the labor, capital, and land resource markets b. includes a land market and a labor market c. focuses primarily on capital markets d. focuses primarily on labor markets e. focuses on labor, capital, and land markets

D

According to the classical model, an increase in government purchases will a. lead to a change in the interest rate that encourages consumers to spend more b. lead to a change in the interest rate that encourages private businesses to invest more c. discourage private spending by increasing the price level d. be partially offset by a decline in consumption and investment spending 6 e. leave total spending and output unchanged

E

Beginning from an equilibrium in which the government is running a budget surplus, a. an increase in government spending will increase the demand for loanable funds b. an increase in government spending will increase the supply of loanable funds c. the interest rate will rise d. an increase in government spending will have no effect on the economy e. an increase in government spending will leave total spending unchanged

E

Crowding out refers to a(n) a. decrease in the amount of goods produced after too many goods have crowded onto the market b. business tactic used to steal a competitor's customers c. increase in one sector's spending caused by an increase in another sector's spending d. decrease in the price level after too many goods have crowded onto the market e. decline in one sector's spending caused by an increase in another sector's spending

E

If the expenditure multiplier is 3.5 and investment spending increases by $2,000 billion, what will be the change in GDP? a. $2,000 billion b. -$7,000 billion c. -$2,000 billion d. $3,500 billion e. $7,000 billion

E

If the labor market is in equilibrium, there is no a. unemployment b. frictional unemployment c. structural unemployment d. seasonal unemployment e. cyclical unemployment

E

In the classical model, the quantity of loanable funds supplied is a. positively related to the level of income b. negatively related to the price level c. positively related to the price level 5 d. negatively related to the interest rate e. positively related to the interest rate

E

Refer to Figure 7-2. The economy's potential level of output on the graph a. cannot be determined with this information, only actual output can be found b. is rising c. exceeds $8 trillion d. is less than $8 trillion e. equals $8 trillion

E

Refer to Figure 7-4. Based on these graphs, what is the total quantity of loanable funds demanded at an interest rate of 5 percent? a. $0.8 trillion b. $1.0 trillion c. $1.4 trillion d. $1.8 trillion e. $2.2 trillion

E

The most important factor that influences total spending is a. the interest rate b. real wealth c. expectations regarding future income d. the income tax rate e. real disposable income

E

What key observation did the classical model attempt to explain? a. the economy performs well in the short run, but not so well in the long run b. business cycles are the most important economic problem c. over the short run, the economy performs rather poorly d. markets do not clear without government intervention e. over the long run, the economy performs rather well

E

Which of the following is not another way of describing the marginal propensity to consume? a. MPC b. the slope of the consumption function c. the change in real consumption spending divided by the change in real disposable income d. the amount by which real consumption spending rises when real disposable income increases by one dollar e. autonomous consumption spending

E

Which of the following would not increase autonomous consumption spending? a. expectations of greater future income b. a lower interest rate c. reduced consumer debt d. increased household wealth e. increased disposable income

E