macro 202

a. An increase in the real interest rate results in little increase in private saving by households. (1) b. A decrease in the real interest rate results in a substantial increase in spending on investment projects by businesses. (2) c. The federal government eliminates 401(k) retirement accounts. (3) d. The federal government reduces the tax on corporate profits (assume no change in the federal budget deficit or budget surplus).

(1) 4 (2) 1 (3) 2 (4) 3

Firms care about their after-tax rate of return on investment projects. The graph represents the market for loanable funds. The initial demand and supply curves are and D , respectively. 1 S1 What would be the effect of an increase in business taxes? (For simplicity, assume no change in the federal budget deficit or budget surplus). An increase in business taxes in the market for loanable funds will shift the (1) ____curve to the (2) ________. When business taxes increase, the equilibrium interest rate (3)_______ and the equilibrium quantity of loanable funds (4) _______. What will be the effect of an increase in business taxes on the quantity of investment by firms and the economy's capital stock in the future?

(1) demand (2) left (3) decreases (4) decreases A. The quantity of investment will decrease and the economy's future capital stock will decrease.

Consider the per-worker production function to the right. Equal increases in the quantity of capital per hour worked lead to (1) increases in output per hour worked. constant increasing diminishing

(1) diminishing

When potential real GDP is equal to 70, this economy is in (1) . The amount of the shortfall in planned aggregate expenditure is equal to A. the vertical distance between AE and the 45° line at the level of potential real GDP. B. the horizontal distance between potential real GDP and actual real GDP. C. the amount of potential real GDP. D. the amount of actual real GDP. equilibrium expansion recession

(1) recession A. the vertical distance between AE and the 45° line at the level of potential real GDP

Increases in government purchases will make the aggregate demand curve shift (1) . to the right to the left

(1) to the right

The aggregate expenditure model focuses on the relationship between ________ and ________ in the short run, assuming ________ is constant.

. B. total spending; real GDP; the price level

In a closed economy, the MPC is 0.50. Government spending changes by 200. The change in equilibrium GDP is _______

400

Consider the following data for a closed economy: Y = $ trillion 14 C = $ trillion 7 I = $ trillion 1 TR = $ trillion 2 T = $ trillion 3 Use the data to calculate the following. (Enter your responses as integers.) a. Private saving: $ trillion. b. Public saving: $ trillion. c. Government purchases: $ trillion. d. The government budget balance is $ trillion and as a result the government budget is in (1) .

6 − 5 6 − 5 (1) deficit

Consider the figure to the right. This economy is in macroeconomic equilibrium at what level of real GDP? $ billion. What is the level of planned investment? $ billion

80 10

6. What are the four main determinants of investment? A. Expectations of future profitability, interest rates, taxes and cash flow. B. Expectations of future profitability, interest rates, exchange rate and cash flow. C. Disposable income, interest rates, taxes and cash flow. D. Expectations of future profitability, interest rates, disposable income and cash flow. How would an increase in interest rates affect investment? .- A. Real investment spending may increase, decrease or remain the same depending on the rate of inflation. B. Real investment spending remains unchanged. C. Real investment spending declines. D. Real investment spending increases.

A. Expectations of future profitability, interest rates, taxes and cash flow. C. Real investment spending decline

What is the effect on inventories, GDP, and employment when aggregate expenditure (total spending) exceeds GDP?

A. Inventories decrease, GDP increases, and employment increases

Foreign investment can give a low income country −

A. access to funds for investment and access to technology

Often the multiplier formula is considered to be too simple because it ignores some real world complications. Which of the following is not such a reason? A. The formula ignores the impact of an increase in GDP on inflation. B. The formula ignores the impact of an increase in GDP on imports. C. The formula ignores the impact of an increase in GDP on consumption. D. The formula ignores the impact of an increase in GDP on the interest rate.

C. 1/1 − MPC C. The formula ignores the impact of an increase in GDP on consumption.

The figure shows average annual growth rates in real GDP per hour worked in the United States. Based on the data from the figure, which one of the following statements is false?

C. The growth rate of real GDP per hour worked has continually accelerated over time.

During the expansion phase of the business cycle,

production increases.

A good measure of the standard of living is

real GDP per capita.

From August 2009 to May 2017, the Standard & Poor's Index of 500 stock prices increased by more than 135 percent, while the consumer price index increased by less than 15 percent. These changes would have caused A. an increase in the real value of household wealth, which shifted the aggregate demand curve to the left. B. a decrease in the real value of household wealth, which shifted the aggregate demand curve to the left. C. an increase in the real value of household wealth, which shifted the aggregate demand curve to the right. D. a decrease in the real value of household wealth, which shifted the aggregate demand curve to the right.

C. an increase in the real value of household wealth, which shifted the aggregate demand curve to the right

Because of technological change, oil companies like Chevron were able to produce almost twice as much output from refineries in 2016 as in 1950 while using 60 percent fewer workers. This represents ________ in output per worker, which is also known as ________.

C. an increase; labor productivity

The long-run aggregate supply curve is vertical because in the long run, A. the price level does not change, but potential GDP changes its value. B. changes in the price level affect potential GDP via other variables, such as the size of the labor force, capital stock, and technology. C. changes in the price level do not affect potential GDP, as potential GDP depends on the size of the labor force, capital stock, and technology. D. changes in the size of the labor force, capital stock, and technology affect the price level but not potential GDP.

C. changes in the price level do not affect potential GDP, as potential GDP depends on the size of the labor force, capital stock, and technology.

In the long run, ________ differences in economic growth rates result in ________ differences in GDP per capita.

C. small; large

Refer to the diagram to the right. Based on the "catch up line", poorer countries are more likely to be at a point like ________, where growth in GDP is relatively ________, while richer countries are more likely to be at a point like ________, where growth in GDP is relatively ________. − A. A; low; B; high B. B; high; A; low C. B; low; A; high D. A; high; B; low

D. A; high; B; low

Consider the figure to the right. Why does the short-run aggregate supply curve (SRAS) slope upward? A. Contracts keep wages "sticky". B. Firms and workers fail to predict changes in the price level. C. Prices of final goods rise more quickly than the prices of inputs. D. All of the above. E. A and B only.

D. All of the above.

The total value of saving in the economy must equal the total value of investment. Assume a closed economy, where: I = Investment, S = S + S , private public S = Private Saving, private S = Public Saving, public C = Consumption Expenditure, G = Government Expenditure , , Y = GDP TR = Government Tranfers. Which one of the following expressions shows the investment-saving equality?

S = Y − C − G

Which of the following explains why fluctuations in real GDP have become less volatile in the United States since 1950?

Unemployment insurance and other government transfer programs are more prevalent since the 1950s.

During a recession, spending on ________ tends to fall more dramatically than spending on ________.

durable goods; nondurable goods

The financial system of a country is important for long-run economic growth because

firms need the financial system to acquire funds from households.

Inflation tends to ________ during the expansion phase of the business cycle and ________ during the recession phase of the business cycle.

increase; decrease

Which one of the following is not a determinant of consumption spending? A. The interest rate. B. Current disposable income. C. Household wealth. D. The growth rate in the United States relative to the growth rates in other countries. The most important determinant of consumption spending is A. expected future income. B. the interest rate. C. household wealth. D. current personal disposable income. A rise in stock prices and housing prices A. increases household wealth which in turn increases consumption and leads to an upward shift of the consumption function. B. increases household wealth which in turn increases consumption and leads to an upward movement along the consumption function. C. does not affect consumption because they do not have any direct impact on disposable income. D. reduces consumption due to increase in prices and causes the consumption function to shift downward.

. D. The growth rate in the United States relative to the growth rates in other countries. D. current personal disposable income. A. increases household wealth which in turn increases consumption and leads to an upward shift of the consumption function.

The multiplier effect is the process by which: A. an increase in real GDP leads to a larger increase in autonomous expenditure. B. an increase in real GDP or income leads to an increase in consumption. C. an increase in aggregate expenditure leads to an increase in inflation. D. an increase in autonomous expenditure leads to a larger increase in real GDP. The adjacent figure shows the effect of a reduction in equilibrium GDP when government purchases decline. Which of the following is not true about the multiplier effect of such a change in government purchases ? A. Real GDP falls by $5 billion in response to a $2 billion reduction in government purchases. B. The value of the multiplier is 2.5. C. As government purchases decline, the aggregate expenditure function shifts down from AE to 1 AE . 2 D. The value of the multiplier is − $5 billion.

. D. an increase in autonomous expenditure leads to a larger increase in real GDP. D. The value of the multiplier is − $5 billion.

t A change in the price level will cause the long-run aggregate supply curve to (1) . move along a stationary LRAS curve shift to the right

1) move along a stationary LRAS curve

Which of the following is not a main determinant of net exports? A. The exchange rate between the dollar and other currencies. B. The price level in the United States relative to price levels in other countries. C. The growth rate of GDP in the United States relative to the growth rates of GDP in other countries. D. Expectations of future profitability in the United States. How would an increase in the growth rate of GDP in the BRIC nations (Brazil, Russia, India, and China) affect U.S. net exports? An increase in the growth rate of GDP in the BRIC nations (Brazil, Russia, India, and China) will A. decrease U.S. net exports by increasing exports to these countries. B. increase U.S. net exports by decreasing imports from these countries. C. increase U.S. net exports by increasing exports to these countries. D. have no effect on U.S. net exports.

D. Expectations of future profitability in the United States. C. increase U.S. net exports by increasing exports to these countries.

If GDP per capita rises by 2% between 2017 and 2018, which of the following is necessarily true?

D. None of the above is necessarily true.

If the per worker production function shifts − up, A. it now takes more capital per hour worked to get the same amount of real GDP per hour worked.

D. an economy can increase its real GDP per hour worked without changing the level of capital per hour worked.

Consider the two aggregate demand curves in the graph at right. A movement from point A to point B on AD1 could be the result of a A. change in government policies. B. natural disaster. C. change in the cost of production D. change in the price level. A movement from point A to point C could be the result of a A. change in the expectations of households. B. change in the cost of production. C. change in the price level. D. natural disaster.

D. change in the price level. A. change in the expectations of households

Inventories refer to A. goods that are kept in storage to be shipped to foreign countries. B. goods that are a result of new inventions. C. outstanding orders that companies have for future production. D. goods that have been produced but have not yet been sold. Usually at the beginning of a recession, inventories (1)___, but at the beginning of an expansion, inventories (2)___ rise fall remain unchanged (2) rise fall remain unchanged

D. goods that have been produced but have not yet been sold. (1) rise (2) fall

Increasing growth rates of GDP per capita and sustaining these growth rates in an economy can

D. increase standards of living.

What would be the effect of on a graph showing aggregate demand and short-run aggregate supply that is initially in equilibrium? an unexpected decrease in the price of oil The effect of an unexpected decrease in the price of oil will be for the A. short-run aggregate supply curve to shift up. B. aggregate demand curve to shift down. C. aggregate demand curve to shift up. D. short-run aggregate supply curve to shift down. The new equilibrium will be where A. the original short-run aggregate supply curve intersects the original aggregate demand curve. B. the new short-run aggregate supply curve intersects the original aggregate demand curve. C. the new short-run aggregate supply curve intersects a new aggregate demand curve. D. the new short-run aggregate supply curve intersects the original short-run aggregate supply curve.

D. short-run aggregate supply curve to shift down. B. the new short-run aggregate supply curve intersects the original aggregate demand curve.

Consider the per-worker production function graph on the right. If there is an increase in capital per hour worked, holding technology constant, then If there is an increase in technology, holding constant the quantity of capital per hour worked, then .

D. there is a movement from A to B. A. there is a movement from A to C.