Pearson my lab Econ ch. 11

1.) What happens to U.S. GDP when foreign countries experience​ prosperity? A. It decreases because the foreign countries will now buy more of their own products. B. It does not change because U.S. GDP is not affected by other​ countries' prosperity. C. It increases because the United States will export more product to those countries. D. It decreases because the foreign countries will be able to export more at a lower cost. 2.) What happens to U.S. GDP when the marginal propensity to import​ falls? A. It decreases because the MPC for spending on domestic goods rises. B. It increases because the MPC for spending on domestic goods rises. C. It increases because the MPC for spending on domestic goods falls. D. It decreases because the MPC for spending on domestic goods falls.

1.) C.) It increases because the United States will export more product to those countries. 2.) B.) It increases because the MPC for spending on domestic goods rises.

1.) Although John Maynard Keynes is best known today for his book The General Theory of​ Employment, Interest, and Money​, he made other important contributions as well. Keynes A. calculated the payments that Germany was required to make to the Allies B. negotiated at the Versailles Peace Conference on behalf of India C. condemned peace treaty negotiators for payments that Germany was required to make to the Allies D. praised peace treaty negotiators for requiring Germany to make payments to the Allies 2.) and

1.) C.) condemned peace treaty negotiators for payments that Germany was required to make to the Allies 2.) And played a prominent role in the bretton woods conference which established the post-war world currency

1.) Use the simple​ income-expenditure model to analyze the following scenarios. a. Suppose clothing stores anticipate a good fashion season and add substantially to inventories in their stores. As a result of​ this, A. GDP will not increase until the inventories are sold. B. GDP will not be affected since inventories are not part of production or expenditures. C. GDP will decrease because of the accumulation of inventories. D. GDP will increase since planned increases in inventory adds to planned expenditures. 2.) Suppose economists see that inventories are suddenly increasing. Which of the following may be causing this increase in​ inventories? A. Increase in demand for goods and services. B. Decrease in demand for goods and services. C. Increase in price of goods and services. D. Decrease in price of goods and services.

1.) D.) GDP will increase since planned increases in inventory adds to planned expenditures. 2.) B.) Decrease in demand for goods and services.

Suppose the wealth effect is very​ small, that​ is, a large fall in prices will not increase consumption by very much. In this​ case, the aggregate demand curve will have a steep slope because the slope of the aggregate demand curve is A. ΔPΔy​, and the Δy is​ small, making the slope steep. B. ΔPΔy​, and the Δy is​ large, making the slope steep. C. ΔyΔP​, and the Δy is​ small, making the slope steep. D. ΔyΔP​, and the Δy is​ large, making the slope steep.

A. ΔPΔy​, and the Δy is​ small, making the slope steep.

Two​ households, A and​ B, have the same level of total​ wealth, which is divided into bank accounts and retirement savings. ​However, household B has relatively more wealth in retirement accounts​ (and less in bank​ accounts) than household A. If both households experience a temporary fall in their​ income, which household would most likely reduce consumption by​ more? A. Household​ B, since it has less liquid assets and is more likely to have to adjust consumption spending to current income. B. Household​ A, since it currently has less invested in retirement savings and would need to save more for retirement. C. Both households would reduce consumption equally since they have the same level of total wealth. D. Both households would maintain their current consumption levels since the fall in their income is temporary.

A.) Household​ B, since it has less liquid assets and is more likely to have to adjust consumption spending to current income.

In the simple​ income-expenditure model, the consumption function is given to be C​ = 200 ​+ 0.80y. Initially the level of investment is ​$150. Which of the following statements is not true if investment increases by ​$100​? A. New equilibrium income is ​$1,850. B. New equilibrium income is ​$2,250. C. Investment multiplier is 5. D. At new​ equilibrium, y​ = C​ + I.

A.) New equilibrium income is ​$1,850.

Households who recently purchased a new home might have larger marginal propensities to consume than households who did not recently buy homes. Do you agree with this​ statement? Explain your answer. A. ​Yes, households who recently purchased a new home may have little savings and thus consume all of their disposable income. B. ​Yes, households who recently purchased a new home will spend more on retirement funds and other saving funds. C. ​No, the marginal propensity to consume is only affected by things like consumer confidence or changes in taxes. D. ​No, since new home buyers tend to live​ day-by-day on what they currently​ earn, they would have smaller marginal propensities to consume.

A.) Yes, households who recently purchased a new home may have little savings and thus consume all of their disposable income.

Seen and Not Seen. Another way to describe the broken windows fallacy is to say that we often concentrate on what we see and not on what we do not see. How does this way of expressing the fallacy relate to government public works in a classical​ world? In the classical​ world, government public works will A. crowd out private expenditures if the economy is at full employment. B. increase production if the economy is at full employment. C. always stimulate​ output, even though the impacts​ can't be seen. D. not stimulate​ output, just raise taxes.

A.) crowd out private expenditures if the economy is at full employment.

If the MPC increases​, the slope of the consumption function will

A.) increase

Using the aggregate demand and the long run aggregate supply​ curve, what is the government multiplier in the very long​ run? A. zero B. 0.50 C. one D. indeterminate

A.) zero

When the stock market rose sharply in​ 2017, many people near retirement found that the balances in their accounts had increased. According to the​ text, increases in the stock market will lead to ▼ a decreasean increaseno change in autonomous consumption. Do you think this holds true for people near​ retirement? A. ​Uncertain, since people near retirement may fear that stock prices will go back down and not change their spending. B. ​No, regardless of​ age, it is not possible to gauge consumer spending behavior based on increases in the stock market. C. ​No, autonomous consumption is dependent on the level of income and cannot be affected by factors like changes in the stock market. D. ​Yes, an increase in consumer wealth regardless of age will always increase autonomous consumption.

An increase, A.) Uncertain, since people near retirement may fear that stock prices will go back down and not change their spending.

If the MPC is 0.80​, the marginal propensity to save​, MPS​, must be equal to A. 5.00. B. 0.20. C. 1.25. D. 1.80.

B. 0.20

A simple consumption function is equal to​ ___________, where Ca is autonomous​ consumption, b is the​ MPC, and y is the level of income. A. Caby B. Ca+by C. Ca+by D.

B.) Ca+by

A fall in exports will lead to A. a smaller decrease in GDP because of imports. B. a larger reduction in GDP due to the multiplier effect. C. a larger increase in GDP due to the multiplier effect. D. no change in GDP since increases in exports tend to be offset by increases in imports.

B.) a larger reduction in GDP due to the multiplier effect.

If the MPC decreases​, the value of the multiplier will A. increase. B. decrease. C. be zero. D. stay unchanged.

B.) decrease

When Hurricane Sandy hit the East Coast in​ 2012, houses were destroyed and later many were rebuilt. Immediately after the​ hurricane, total wealth A. ​increased, and after​ rebuilding, the level of income increased further. B. ​decreased, but after​ rebuilding, the level of income increased. C. ​decreased, and after​ rebuilding, the level of income decreased further. D. ​increased, but after​ rebuilding, the level of income decreased.

B.) decreased, but after​ rebuilding, the level of income increased.

When housing prices​ rose, some households took out a larger loan on their homes and used the additional funds they borrowed to finance purchases of consumer durables. This option is not available when housing prices fall. The wealth effect might be larger for increases in housing prices than decreases in housing prices because A. it is easier to decrease spending than it is to increase spending. B. it is easier to increase spending than it is to decrease spending. C. when the housing prices​ decreased, recent home purchasers actually owed more than their homes were worth. D. higher housing prices made everything more expensive.

B.) it is easier to increase spending than it is to decrease spending.

At any point below the 45 degree​ line, planned expenditures are A. unrelated to output. B. less than output or income. C. equal to output or income. D. greater than output or income.

B.) less than output or income.

A higher level of autonomous consumption but no change in MPC will A. shift the entire conusmption function downward and parallel to its original position. B.) shift the entire consumption function upward and parallel to its original position. C. cause a change in the slope of the consumption function. D. None of the above.

B.shift the entire consumption function upward and parallel to its original position.

Which of the follwing statements is​ false? A. An increase in government spending will increase total planned expenditures for goods and services. B. Cutting taxes will increase the​ after-tax income of consumers and will also lead to an increase in planned expenditures for goods and services. C. If policymakers wanted to not affect the federal​ budget, government spending must increase more than taxes. D. Policymakers need to take into account the multipliers for government spending and taxes as they develop policies.

C.) If policymakers wanted to not affect the federal​ budget, government spending must increase more than taxes.

During the financial​ crisis, several countries that had high ratios of taxes to GDP did not engage in discretionary spending to end the recession. Other countries with lower levels of taxes did use discretionary fiscal policy more aggressively. Which of the following statements explains the​ difference? A. With a higher tax​ rate, there is more dynamic stabilization. This may have been substituted for an​ active, discretionary fiscal policy. B. With a higher tax​ rate, there is less automatic stabilization. This may have prevented policy makers from pursuing an​ active, discretionary fiscal policy. C. With a higher tax​ rate, there is more automatic stabilization. This may have been substituted for an​ active, discretionary fiscal policy. D. With a higher tax​ rate, there is less dynamic stabilization. This may have prevented policy makers from pursuing an​ active, discretionary fiscal policy.

C.) With a higher tax​ rate, there is more automatic stabilization. This may have been substituted for an​ active, discretionary fiscal policy.

Planned expenditures in the most basic model are equal to A. investment and government spending. B. consumption and government spending. C. consumption and investment. D. consumption and net exports.

C.) consumption and investment planned expenditures equal, planned expenditures

The aggregate demand curve will shift to the left​, and equilibrium income will decrease​, if A. taxes decrease. B. oil prices decrease. C. government expenditures decrease. D. the price level decreases.

C.) government expenditures decrease.

Suppose foreign countries grow less rapidly than anticipated and U.S. exports to these countries also fall. As a​ result, A. planned expenditures and income in the U.S. will decrease as predicted by the​ income-expenditures model, but since prices are​ fixed, aggregate demand will not be affected. B. aggregate demand curves of the foreign countries that are experiencing slow growth will shift to the left​, but the U.S. aggregate demand curve will shift to the right. C. income of the United States decreases​, which leads to a leftward shift of the U.S. aggregate demand curve. D. aggregate demand curves of the foreign countries that are experiencing slow growth will shift to the left​, but the U.S. aggregate demand curve will not be affected.

C.) income of the United States decreases​, which leads to a leftward shift of the U.S. aggregate demand curve.

If planned expenditures are currently lower than​ output, then inventories must be A.zero. B.unchanged. C.increasing. D.decreasing.

C.) increasing

According to the paradox of​ thrift, when investment is autonomous and independent of income or​ output, if people wish to save​ more, equilibrium aggregate savings in the​ economy: A. fall short of investment. B. may exceed or fall below the level of investment depending on the value of the marginal propensity to save. C. remain unchanged. D.exceed investment.

C.) remain unchanged

With the savings​ function, A. savings increases as autonomous consumption increases. B. savings decreases as the level of GDP increases. C. savings will increase with the level of GDP. D. the level of savings in the economy is fixed.

C.) savings will increase with the level of GDP.

If housing prices fall​, you would expect the consumption function to A. shift upward. B. not shift. C. shift downward. D. get steeper.

C.) shift downward

If consumer confidence increases​, then the consumption function will A. not shift. B. get steeper. C. shift upward. D. shift downward.

C.) shift upward

According to the paradox of​ thrift, when investment is autonomous and independent of​ income, policy makers cannot increase aggregate savings by affecting​ citizens' savings​ rates, because A. usually incomes from savings are taxed at a very high rate. B. citizens are independent minded. C. savings are not very sensitive to interest rates. D. at​ equilibrium, aggregate savings must be equal to aggregate investment.

D.) at​ equilibrium, aggregate savings must be equal to aggregate investment.

Many countries believe that they need to increase exports in order to grow. Some of this belief is based on​ long-run considerations, as competing in export markets may induce their firms to innovate. But some countries also focus on the​ short-run benefits. These benefits include A. improvements in labor productivity and wages. B. higher capital use and foreign investment. C. more competition which results in more production and innovation. D. increased​ short-run GDP and employment which multiplies throughout the economy.

D.) increased​ short-run GDP and employment which multiplies throughout the economy.

The tax multiplier is A. smaller than the government spending multiplier because an increase in taxes first increases disposable income of households and with an MPC less than​ one, the increase in consumer spending is more than the increase in taxes. B. larger than the government spending multiplier because a decrease in taxes first increases disposable income of households and with an MPC less than​ one, the increase in consumer spending is more than the decrease in taxes. C. larger than the government spending multiplier because an increase in taxes first reduces disposable income of households and with an MPC less than​ one, the decrease in consumer spending is more than the increase in taxes. D. smaller than the government spending multiplier because an increase in taxes first reduces disposable income of households and with an MPC less than​ one, the decrease in consumer spending is less than the increase in taxes.

D.) smaller than the government spending multiplier because an increase in taxes first reduces disposable income of households and with an MPC less than​ one, the decrease in consumer spending is less than the increase in taxes.

Automatic stabilizers prevent consumption from falling as much in bad times and from rising as much in good times because A. tax rates raise the multiplier and make the economy less susceptible to shocks. B. raising the tax rate increases the MPC adjusted for taxes and decreases the slope of the spending​ (C + I​ + G) line. C. raising the tax rate increases the MPC adjusted for taxes and increases the slope of the spending​ (C + I​ + G) line. D. tax rates lower the multiplier and make the economy less susceptible to shocks.

D.) tax rates lower the multiplier and make the economy less susceptible to shocks.

In the​ income-expenditure model, the equilibrium level of output is A. where aggregate demand equals aggregate supply. B. the level of GDP where unemployment equals zero. C. where demand equals supply. D. the level of GDP at which planned expenditure equals the amount that is produced.

D.) the level of GDP at which planned expenditure equals the amount that is produced.

in the tax rate will __________the government spending multiplier.

Decrease

1.) During the​ 1970s, President Ford proposed a tax cut combined with a decrease in government spending by the same​ amount, so as not to increase the budget deficit. a. If taxes and government spending are both reduced by the same​ amount, GDP will_________________________________ 2.) President Ford was worried that a tax cut would increase the budget deficit.​ Thus, he matched the tax cut by an equal cut in government spending. Although the budget deficit did not​ worsen, the economy experienced ▼ no change an expansion a contraction in spite of a tax​ cut, and GDP_____________________

Decrease by same amount, contraction, fell by the amount of the tax cut

Equilibrium output occurs where planned output equals planned expenditures. T or F

False

in government spending and taxes by the same amount will___________________

Increased GDP by the same amount

Since World War​ II, continuous use of automatic stabilizers has ____________.This has led the U.S. economy to become ____________stable over the past 60 years.

Increased, more

Suppose a government believed that the economy was going into a recession. To reduce the severity of the​ recession, the government increased its spending. Outside observers noticed that government spending was increasing while the economy was slowing down and argued that the multiplier was negative. This argument is not persuasive because government spending was increased in response to a falling economy. The multiplier can be measured only when the increase in spending_____________________

Is not related to the state of the economy

The​ income-expenditure model is most appropriate for____________________

Short-run analysis

At any price​ level, the​ income-expenditure model determines the level of equilibrium output and the corresponding point on the_____________________

aggregate demand curve

Refer to the figure above. Which diagram illustrates the effect of an increase in the income tax​ rate?

b.) solid down touching dash graph

Which of the following appropriately describes the intercept of the consumption​ function? A. Marginal propensity to consume. B. Marginal propensity to save. C. Autonomous consumption. D. Average propensity to consume.

c.) Autonomous consumption, ( slope is marginal propensity to consume.)

in the marginal propensity to import will ▼ increase not change decrease the multiplier for investment spending.

decrease

The government spending multiplier is _____________ the tax multiplier.

greater than

in the price level will increase GDP and thereby move the economy up the aggregate demand curve.

increase up

If the economy were producing at a level of output higher than the equilibrium​ level, planned expenditures would be ______than total output or​ production, inventories would _______ and firms would react by __________ production. If the economy were producing at a level of output lower than the equilibrium​ level, planned expenditures would be _________ than total​ output, inventories would _______, and firms would react by ____________ production.

less, accumulate, decreasing, more, deplete, increasing

in the price level will cause ▼ a shift in a movement along no change in the aggregate demand curve.

movement along

As the price level​ falls, the planned expenditures line ▼ shifts right horizontally shifts up vertically shifts down vetrically shifts left horizontally ​, which increases the equilibrium level of output. The ▼ income expenditure model aggregate demand curve shows the combination of prices and equilibrium output. Increases in planned expenditures that are not directly caused by changes in price will cause a ▼ movement along shift of the aggregate demand curve to the ▼ left right .

shifts up vertically, income expedeniture model, shift of, right

As the marginal propensity to import​ increases, the multiplier for investment spending also increases. This statement is t or f

true

If Japan decides to buy more goods from the United​ States, the demand line will shift ▼ up vertically down vertically by the increase in exports. This will ▼ decrease increase equilibrium income. The ▼ increase decrease in income will be ▼ smaller larger than the increase in exports because of the ▼ export multiplier foreign trade effect.

up vertically, increase, increase, large, multiplier

Zero lower than the multiplier near full employment because in the short run the multiplier is smaller than in the long run.. If we think of recessions as the short​ run, and full employment as the long​ run, this result can explain the intuition that the multiplier during recessions is A. higher than the multiplier near full employment because in the short run the multiplier is smaller than in the long run. B. lower than the multiplier near full employment because in the short run the multiplier is larger than in the long run. C. lower than the multiplier near full employment because in the short run the multiplier is smaller than in the long run.. D. higher than the multiplier near full employment because in the short​ run, the multiplier is larger than in the long run.

zero, D.) higher than the multiplier near full employment because in the short​ run, the multiplier is larger than in the long run.