macro exam #3
when changes in taxes and government purchases occur in the economy without explicit action by Congress, such changes are referred to as
automatic stabilizers
C+I+G+NX equals
consumption
an increase in personal income tax rates would tend to reduce
consumption
the largest component of aggregate expenditure
consumption
when the consumption schedule is plotted on a graph
consumption is on the vertical axis and disposable income is on the horizontal axis
the four components of of aggregate expenditure are
consumption, government spending, investment, and net exports
If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n):
contractionary fiscal policy
fiscal policy is usually initiated on the advice of the presidents
council of economic advisers (CEA)
the process by which an increase in government borrowing results in less borrowing by businesses and consumers for private investment is called
crowding out
when the federal government cuts taxes and increases purchases to stimulate the economy during a period of recession such actions are designed to be
expansionary
If Congress passes legislation to increase government spending to counter the effects of a recession, then this would be an example of a(n):
expansionary fiscal policy
refer to the graph above. if aggregate supply shifts from AS1 to AS2, then the price level will
increase and real domestic output will decrease
if the price level decreases from 200 to 100, the real output demanded will
increase by $200 billion
what would most likely increase aggregate supply
increase in productivity
as disposable income increases, consumption
increases
the labels for the axes of an aggregate supply curve should be
real domestic output for the horizontal axis and price level for the vertical axis
the amount by which an aggregate expenditures schedule must shift upward to achieve the full employment real Gdp is an
recessionary expenditures gap
the time that elapses between the beginning of a recession or an inflationary episode and the identification of the macroeconomic problem is
recognition lag
the MPC can be defined as the
the change in consumption divided by the change in income
the multiplier can be calculated by dividing
the change in real GDP by the initial change in spending
in the aggregate demand-aggregate supply model, the economy's price level is assumed to be
variable, unlike in the aggregate expenditures model
the long run aggregate supply curve is
vertical
the relationship between the MPS and the MPC is such that
1-MPC=MPS
refer to the graph above in the diagram, the economy's short run AS curve is line ___ and its long run AS curve is line____
2;1
the aggregate demand curve shows the
Inverse relationship between the price level and the quantity of real GDP purchased
refer to the graph above if AD1 shifts to AD2, then the equilibrium output increases to
Q1 to Q2 while the price level rises from P1 to P2
fiscal policy is enacted through changes in
Taxation and government purchases
the foreign purchases, interest rate, and real balances effects explains why the
aggregate demand curve is downward sloping
the intent of contractionary fiscal policy is to
decrease aggregate demand
as disposable income decreases, consumption
decreases
when the federal government changes purchases and/or taxes to stimulate the economy or rein inflation, such policy is
discretionary fiscal policy
the consumption function is the relationship between consumption and
disposable income
the slope of the consumption function
equals the MPC.
the level of output (real gdp) that equals aggregate expenditure is called the ___ level of of real gdp
equilibrium
John Maynard Keynes developed the aggregate expenditures model in order to understand the
great depression
refer to the graph above a shift from AD2 shifts from AD1 would be consistent with what economic event in US history?
great recession of 2007-2009
in an inflationary expenditure gap, the equilibrium level of real Gdp is
greater than full-employment gdp
automatic stabilizers smooth fluctuations in the economy because they produce changes in the governments budget that
help offset changes in GDP
when crowding out occurs, interest rates typically
increase
an increase in expected future income will
increase aggregate demand
an increase in productivity will
increase aggregate supply
in the aggregate expenditure model, which of the following variables is assumed to be independent of real Gdp
investment
a decrease in expected returns on investment will most likely shift the AD curve to the
left because Ig will decrease
the lag between the time that the need for fiscal action is recognized and the time action is actually referred to as the
legislative lag
in a recessionary expenditure gap, the equilibrium level of real gdp
less than full-employment gdp
refer to the graph above the economy is at point C and the price level increases by 100, then the real balances, interest rate foreign purchases effect will
move the economy to point A
one of the potential downsides of expansionary fiscal policy is that it often increases
national debt
refer to the graph above the short-run equilibrium for this economy is at
point g
which of the following would not shift the aggregate demand curve
productivity rate
One timing problem with fiscal policy to counter a recession is a "recognition lag" that occurs between the:
start of the recession and the time it takes to recognize that the recession has started
a decrease in labor costs will cause aggregate ___
supply to increase
if at a particular price level, real output from producers is greater than real output desired by purchasers, then there will be a general
surplus and the price level will fall
refer to the graph above. Which of the following factors does not explain a movement along the AD curve
the expenditure multiplier effect
which of the following is graphed as a horizontal line across levels of real Gdp in the aggregate expenditures model
the investment schedule
An investment demand curve shows the varying amounts of investment that would be undertaken at various levels of
the real interest rate
Using fiscal policy to stabilize the economy is difficult because:
there are time lags in fiscal policy
One timing problem with fiscal policy to counter a recession is a "implementation lag" that occurs between the:
time fiscal action is taken and the time that the action has its effect on the economy
one timing problem in using fiscal policy to counter a recession is the "legislative lag" that occurs between the
time the need for the fiscal action is recognized and the time that the action is taken