Macroeconomics Test 3

The economy experiences an increase in the price level and a decrease in real domestic output. Which of the following is a likely explanation?

Input prices have increased

An inverse relationship between the rate of interest and the level of:

Investment spending is suggested by the investment-demand curve

The best example of a "frictionally unemployed" worker is one who:

Is in the process of voluntarily switching jobs

. an increase in investment can cause GDP to change by a larger amount.

Multiplier Effect

. When changes to taxes and spending occur in the economy without explicit action by the Federal government, such policy is:

Nondiscretionary

. As the economy declines, the collection of personal income tax revenues automatically falls. This relationship best describes how the progressive income tax system:

Provides built-in stability for the economy

Generally speaking, the greater the MPS, the:

Smaller would be the increase in income which results from an increase in consumption spending

If a family's MPC is 0.7, it means that the family is

Spending seven-tenths of any increment to its income

Deflation is when the inflation rate turns negative T OR F

True

An increase in net exports will shift the:

aggregate expenditures curve upward and the aggregate demand curve rightward.

Inflation affects:

both the level and the distribution of income

The amount by which government expenditures exceed revenues during a particular year is the:

budget deficit.

A rightward shift of the investment demand curve might be caused by:

businesses planning to increase their stock of inventories

The multiplier is useful in determining the:

change in GDP resulting from a change in spending.

Fiscal policy refers to the:

manipulation of government spending and taxes to stabilize domestic output, employment, and the price level.

One can determine the amount of any level of total income that is consumed by:

multiplying total income by the APC.

If the real interest rate in the economy is i and the expected rate of return from additional investment is r, then more investment will be forthcoming when

r is greater than i.

The fear of unwanted price wars may explain why many firms are reluctant to:

reduce prices when a decline in aggregate demand occurs.

The natural rate of unemployment is

that rate of unemployment occurring when the economy is at its potential output.

The consumption schedule is such that

the MPC is constant and the APC declines as income rises

At the economy's natural rate of unemployment

the economy achieves its potential output.

If business taxes are reduced and the real interest rate increases:

the level of investment spending might either increase or decrease.

Which combination of factors would most likely increase aggregate demand?

An increase in consumer wealth and a decrease in interest rates

Which set of events would most likely decrease aggregate demand?

An increase in personal income tax rates

. Which would decrease investment demand?

An increase in the cost of acquiring capital goods

As disposable income decreases, consumption

And saving both decrease

As disposable income decreases, consumption:

And saving both decrease

Inflation caused by an increase in aggregate spending is referred to as

Demand Pull inflation

If the Congress passes legislation to cut taxes to counter the effects of a severe recession, then this would be an example of a:

Expansionary fiscal policy

1 + MPS = MPC T OR F

False

If households do not spend any extra income they receive but instead save the entire extra amount, then the multiplier will be zero. T OR F

False

Inflation means that the prices of all items in the economy are increasing T OR F

False

People who work part time, but desire to work full time, are considered to be officially unemployed. T OR F

False

Core inflation refers to the inflation picture after stripping away the:

Food and energy prices

A change in interest rates would shift the consumption schedule and the saving schedule ______; a change in taxes would shift these two schedules ______.

In opposite directions; in the same direction

An expected increase in the prices of consumer goods in the near future will:

Increase (or shift right) in aggregate demand now

The redistributive effects of inflation are arbitrary with respect to people and groups in society

Inflation def.

The economy experiences an increase in the price level and a decrease in real domestic output. Which is a likely explanation?

Input prices have increased

The annual rate of inflation can be found by subtracting

last year's price index from this year's price index and dividing the difference by last year's price index.

An increase in productivity will

Increase aggregate supply

A decline in the quantity of real output demanded along the aggregate demand curve is a result of a(n):

Increase in the price level

Graphically, cost-push inflation is shown as a:

leftward shift of the AS curve.

The slope of the immediate-short-run aggregate supply curve is based on the assumption that:

Both input and output prices are fixed

An MPC value of less than 1.0 indicates that as income increases

Consumption also increases, though not as much as income

An increase in household wealth that creates a wealth effect would shift the:

Consumption schedule upward and the saving schedule downward

tie wage increases to changes in the price level.

Cost-of-living adjustment clauses (COLAs):

When unanticipated deflation occurs

Debtors are hurt, but creditors benefit

If households in the economy save more of any extra income that they earn, then the multiplier effect will:

Decrease

An increase in personal income tax rates will cause a(n)

Decrease (or shift left) in aggregate demand

Real income can be determined by

deflating nominal income for inflation

The natural rate of unemployment is the

full-employment unemployment rate

The size of the MPC is assumed to be:

greater than zero, but less than one.

The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will:

increase U.S. imports and decrease U.S. exports

. If the cyclically-adjusted budget shows a deficit of about $100 billion and the actual budget shows a deficit of about $150 billion, it can be concluded that there is:

A cyclical deficit

With cost-push inflation in the short run, there will be:

A decrease real GDP

. Efficiency wages are associated with:

A price level that is inflexible downward

The foreign purchases, interest rate, and real-balances effects explain why the:

Aggregate demand curve is downward-sloping

A decrease in government spending will cause a(n)

Decrease in aggregate demand

The unemployed are those people who

Are not employed but are seeking work

The fraction, or percentage, of total income which is consumed is called the:

Average propensity to consume

The fraction, or percentage, of total income which is saved is called the:

Average propensity to save

Correct occurs when total spending in the economy is excessive

Demand Pull Inflation

A fall in the price of capital goods used in production will shift the aggregate:

Supply curve rightward

If at a particular price level, real domestic output from producers is greater than real domestic output desired by purchasers, there will be a:

Surplus and the price level will fall

Which measure of inflation would include consumer goods and capital goods

The GDP Price Index

The MPC can be defined as that fraction of a:

change in income that is spent.

A decline in the real interest rate will:

increase the amount of investment spending.

In contrast to investment, consumption is

relatively stable.

Graphically, demand-pull inflation is shown as a:

rightward shift of the AD curve along an upsloping AS curve