Macroeconomics test 2
Suppose full employment real GDP is $13 trillion, current real GDP is $13.2 trillion, and the marginal propensity to consume is 0.5. The inflationary gap is:
$0.1 trillion
If the marginal propensity to consume is 0.85, the value of the spending multiplier will be:
6.67
Simultaneous recession and deflation can be explained by:
a decrease in aggregate demand
Which of the following will NOT shift the aggregate supply curve to the left?
a decrease in corporate taxes
The largest category of federal government spending in 2015 was:
social security
If $1,000 of additional spending occurs and the marginal propensity to consume is 0.8, the total effect on the economy is an increase of _____ in income or output.
$5,000
If the marginal propensity to consume is 0.9 and income increases from $10,000 to $11,000, by how much does consumption increase?
$900
If disposable income is $3,000 and saving is $1,200, how much is the average propensity to consume?
0.6
The slope of the saving schedule is:
1 minus the marginal propensity to consume
The 45-degree line in the Keynesian model represents:
AE=Y
_____ is the output of goods and services demanded at different price levels.
Aggregate demand
Which of the following illustrates the paradox of thrift?
Consumer uncertainty causes people to save more; consumption falls; equilibrium income and production falls; savings decreases because income is lower.
Suppose policymakers wish to use fiscal policy to fight inflation. Which statement, then, is MOST accurate?
Essentially, the way to lower the inflation rate is to decrease aggregate demand, causing a rise in unemployment.
Which of the following did classical economists believe would happen if the economy experienced a downturn?
The economy would self correct
Which of the following items is NOT public debt?
U.S. dollars
When workers lose their job, they file for unemployment benefits; therefore government spending on such programs naturally rises during recessions. As the economy recovers and people go back to work, spending on unemployment programs shrinks. Based on the given information, which of the following is correct?
Unemployment compensation is a form of an automatic stabilizer.
If a government collects $1,400 in tax revenue and spends $1,600, it has:
a deficit of $200.
What would cause the price level to decrease and employment to increase?
a shift to the right of the SRAS curve
After the acceptance of Keynesian analysis, the government:
actions toward macroeconomic policy grew significantly
The solution to simultaneous deflation and unemployment is to shift the:
aggregate demand curve to the right.
If the multiplier is 2 and investment spending falls by $5 billion, then equilibrium income:
decreases by $10 billion
The 45-degree line in the Keynesian model represents a set of points where _____ equals _____.
disposable income ; consumption
The long-run aggregate supply curve uses the classical assumptions that all variables are _____ in the long run and that long-run equilibrium occurs at _____.
flexible; full employment
In the Keynesian model, the principal determinant of saving is:
income
A rising aggregate price level _____ an economy's interest rates and therefore _____ output demanded.
increases; reduces
Which of the following policies do supply-side economists believe is the best for increasing the standard of living?
increasing investment in capital that boosts worker productivity
The largest source of federal government revenues is:
individual income taxes
An expansionary fiscal policy can result in:
inflation and higher GDP
The _____ lag is the time policymakers must wait for economic data to be collected, processed, and reported.
information
According to public choice theorists, deficit spending:
is undertaken as a politically palatable way of funding programs.
A stronger dollar will shift the U.S. aggregate demand curve to the _____ and _____ output demanded.
left; decrease
If aggregate expenditures equals $7,600 and aggregate income equals $8,000, businesses will produce:
less, lowering both employment and income
The focus of supply-side fiscal policies is on:
long-run economic growth.
The short-run aggregate supply curve is positively sloped because:
many input prices are slow to change in the short run
If the pound sterling appreciates against the U.S. dollar, England buys _____ U.S. goods, causing the U.S. aggregate demand curve to shift to the _____.
more; right
Which is a determinant of aggregate supply?
productivity
High taxes and/or heavy regulation:
raise costs of production so that the aggregate supply curve shifts to the left.
Which of the following is an example of contractionary fiscal policy?
reducing military spending
_____ government spending, _____ transfer payments, and _____ taxes are all examples of contractionary fiscal policy.
reducing; reducing; raising
If oil prices decline, the short-run aggregate supply curve shifts _____ and output supplied will _____.
right; increase
Increased consumer confidence will shift the aggregate demand curve to the _____ and _____ output demanded.
right; increase
The crowding-out effect recognizes that if the government sells bonds to finance spending, it can cause interest rates to _____ investment.
rise, thereby reducing
Fiscal policy that focuses on shifting the long-run aggregate supply curve to the right is:
supply-side fiscal policy.
If a government always balances its budget:
the effect of an increase in government spending on aggregate expenditures is weakened.
Firms decide how much to invest by comparing the rate of return on their projects with:
the interest rate
_____ is the change in consumption associated with a change in income.
the marginal propensity
Which of the following tends to make aggregate demand decrease by more than the amount that consumer spending decreases?
the multiplier effect
Cost-push inflation is a situation in which the:
the short-run aggregate supply curve shifts leftward.
