Econ midterm three study set

An increase in exports of $10,000 caused income to increase by $25,000. Based on this information the value of the multiplier is ___. A. 2.5 B. 40.0 C. 0.25 D. 0.4

A

Assume the economy follows the simple aggregate expenditure model. What is the equilibrium GDP in this economy? (look at diagram) A. 3000 B. 2500 C. 3500 D. 2000

A

In a diagram of aggregate expenditures, an increase in the mpc would cause the AE line to ___. A. become steeper B. shift up C. shift down D. become less steep

A

Suppose the government has tax revenues of $3 billion and expenditures of $4 billion. The government will have a budget A. deficit of $1 billion. B. deficit of $4 billion. C. surplus of $1 billion. D. surplus of $4 billion

A

When faced with an inflationary gap, a discretionary or stabilization policy would ___. A. attempt to decrease aggregate demand B. wait for price expectations to decrease the aggregate supply C. wait for price expectations to increase the aggregate supply D. attempt to increase aggregate demand

A

Which of the following is NOT true? A. Generally, a tax multiplier is larger than a spending multiplier. B. If marginal propensity to consume (MPC) is 0.75, then an additional $100 spending induces $400 growth in income. C. When the amounts of government spending and taxation are equal, a balanced budget multiplier is always 1. D.A tax multiplier is obtained by -MPC / (1-MPC).

A

Assume the economy is currently operating at its full-employment level of output. All else equal, an increase in imports will ___ in the long run. A. reduce both price and production B. reduce price, but not production C. raise both price and production D. not affect either price or production

B

Crowding out occurs when A. an increase in saving causes a decrease in net taxes. B. an increase in government spending causes a decrease in business investment. C. an increase in the money supply causes a decrease in net exports. D. an increase in net taxes causes a decrease in consumption.

B

In the aggregate expenditure model, expenditures will rise if ___. A. the interest rate rises B. disposable income rises C. saving increases D. taxes increase

B

In the following diagram, a decrease in income would cause a move from point Q to ___. (look at diagram) A. point R B. point T C. point S D. point U

B

Increases in the foreign exchange value of the dollar will ___. A. raise both production and employment B. lower both production and employment C. lower production and raise employment D. raise production and reduce employment

B

The price level has fallen from 210 to 200. The Keynesian model would explain this change in the price level as the result of a ___. A. decrease in aggregate supply B. decrease in aggregate demand C. increase in aggregate supply D. increase in aggregate demand

B

When real GDP is $35,000, what is the level of disposable income? (look at table) A. $20,400 B. $32,000 C. $26,400 D. $38,000

B

You observe that production and employment are both falling, but the price level is rising. Which of the following would explain these changes? A. a decrease in aggregate demand B. a decrease in the short-run aggregate supply C. an increase in aggregate demand D. an increase in the short-run aggregate supply

B

Assume the economy begins at point A and there is a decrease in the interest rate. If the government does not respond with a policy change, the economy will end up at ____ in the long run. (look at diagram) A. point D B. point A C. point C D. point B

C

Based on this table, what is the marginal propensity to consume?(look at table) A. 0.75 B. 0.65 C. 0.70 D. 0.30

C

Households decide to save more. In the long run, if the government does not intervene, the price level will ___ and employment will ___. A. rise, not change B. fall, fall C. fall, not change D. rise, rise

C

Which of the following is an example of an automatic stabilizer? A. A one-time tax increase to combat inflation. B. Maintaining a balanced budget as the economy expands beyond its potential GDP. C. A rise in unemployment compensation when the economy is in a recession. D. A decrease in the money supply to return the economy to full employment.

C

According to Keynes, the major factor determining household spending and saving is ___. A. interest rates B. the price level C. wealth D. disposable income

D

Assume the economy begins at point 1 in the diagram. A tariff has unexpectedly raised the price of steel (an input) imported from foreign producers. In the short run, this would cause a shift from point 1 to point ___. (look at diagram) A. 5 B. 2 C. 7 D. 4

D

Assume the economy begins at point 1 in the diagram. A tariff unexpectedly raised the price of steel (an input) imported from foreign producers. If the government intervenes to restore full employment, in the long run the economy will move from point 1 to point ___.(look at diagram) A. 4 B. 7 C. 6 D. 3

D

Assume the economy begins at point A and there is a decrease in the interest rate. If the government policy makers decide they want to intervene with counter-cyclical policy, they should ____. (look at diagram) A. lower taxes B. raise government spending and taxes by the same amount C. raise government spending D. do none of the following options

D

Assume the economy begins at point A and there is a decrease in the interest rate. In the short run, we would predict the decrease in the interest rate will ___. (look at diagram) A. lower both the real GDP and the price level B. lower the real GDP and raise the price level C. raise the real GDP and lower the price level D. raise both the real GDP and the price level

D

If we assume that wages and prices are "sticky", the aggregate supply curve is ____. A. downward sloping B. downward sloping over part of its length and upward sloping over part of its length C. vertical D. upward sloping

D

Suppose the mpc is .90. If the government wanted to increase income by $90,000, it could ___ taxes by ___. A. raise, $9,000 B. lower, $9,000 C. raise, $10,000 D. lower, $10,000

D

The national debt A. has a benefit in that it reduces the trade deficit. B. can be eliminated by balancing the budget each year. C. is the difference between government spending and tax revenues for any given year. D. is the accumulation of deficits over time.

D

Using fiscal policy to stabilize the economy is a challenge because of several lags associated with its implementation. Which of the following is NOT true for the fiscal policy timing lags? A. Recognition lag: the time it takes for policymakers to confirm that the economy is in a recession. B. Information lag: the time it takes for macroeconomic data to become available. C. Decision lag: the time it takes Congress and the administration to decide on a policy. D. Implementation lag: the time it takes for banks and financial markets to react to the policy change.

D

When considering fiscal policy, automatic stabilizers ____. A. are likely to over-compensate for changes in aggregate demand B. are programs that are renewed each year by Congress unless a vote is taken to not renew them C. mean that discretionary policy choices by policy makers are not needed to restore full employment D. reduce concerns about the recognition policy lag

D

Which of the following would cause the shift shown in the diagram? (look at diagram) A. an increase in the interest rate B. a decrease in government spending C. an increase in household saving D. a decrease in the price level

D

Why will an increase in government spending lead to a lower increase in equilibrium real GDP than the government purchases multiplier would suggest? A. An increase in government spending decreases private aggregate demand components through an increase in interest rates B. Households save a portion of the income that they receive through the increase in government spending C. The increase in aggregate demand from the increase in government spending will increase the price level, an effect not accounted for in the multiplier calculation D. Both options "An increase..." and "The increase..." are correct

D