ECON Unit 3 Exam

The size of the multiplier which is applied to a change in AD is dependent upon the ________.

MPC (MPS)

In the Classical stage of the figure below, a decrease in Aggregate Demand will only result in a movement _____________ along the Aggregate Supply line with a corresponding change in prices.

downward

Liberals tend to believe in more active _______ policy (government intervention) while conservatives believe in less government intervention.

fiscal

Assume there is an increase in Government spending of $10 and the aggregate MPC is 0.8. Of the $8 of income that is received in the second round, only _______ will be spent on Consumption.

$6.40

When __________ funds are set aside (idling the excess) and government does not spend the money nor apply it to past debt, this action does not cause expansion or contraction.

surplus

In the depression of the 1930's as more people lost their jobs and less income was earned, _____________ spending continued to fall which reduced economic activity even further.

Consumption

A Bathtub model of the start of the Great Depression would show the water level becoming lower with Investment inflow being less than Savings leakage and, therefore, quantity of AD being ______________ quantity of AS.

Less than

In the Great Depression, spending on U.S. _________was reduced by foreign countries as well as U.S. spending on their products which made the downward spiral even worse on a global basis.

Exports

According to the Classical Theory, the level of water in the "Bathtub" remains constant because the amount of injection of investment is equal to the leakage of ____________.

According to the Classical Theory, the level of water in the "Bathtub" remains constant because the amount of injection of investment is equal to the leakage of ____________.

Savings

Active (discretionary) fiscal policy has _______ critics.

Many

When tax rates are too high, a decrease in tax rates will cause a(n) _____________ in the tax revenue.

Increase

When the federal government operates at a deficit, the deficit must be financed by borrowing through selling _______ or creating (or "printing") more money.

Bonds (Treasury bonds ... risky for the buyer ?)

The ______________ is the average tendency to save income at a given income level.

APS

In this example of an "inflation cooling" tax increase, the economy was initially showing a price level of $__________ before taxes were raised.

2.34

In this example of the Keynesian adjustment process, the total number of unemployed people before the downward multiplier effects take place is _______ million.

5

Aggregate Demand (AD) is the total demand at various __________ levels for goods and services within the economy.

Price

The Keynesian Theory "Bathtub" is illustrated below. If Leakages (withdrawals) are less than the inflows, then employment, income and output (water level in the tub) will _________________ .

Decrease

The implementation of Keynesian countercyclical measures is criticized by neoclassical (new classical) economists who developed __________________ .

Public Choice Theory

In this example of the Classical adjustment process, the Real Production GDP of the Business sector _________ drop below the "full employment" level of $5000 billion.

Either C. or D. below

Classical Economics assumes there is neither __________ nor international trade involved with the economy.

Government

Future generations will normally ________ excessive burdens of debt shifted to them because of economic growth.

Not have

The __________ budget multiplier is the amount of magnification applied to economic activity when an equal change is made in G and T.

Balanced

If one consumes $8000 out of $10,000 of income, then the APC is ____________.

0.8

Adam Smith's explanations of national economic living standards became known as the ___________ Theory.

Classical

If there is a structural deficit at full employment then G is still __________________ .

Expansionary

A new school of Classical Theory called Monetarism was launched by _____________ in the late 1940's and expanded in the 1950's.

Milton Friedman

Both I (investment) and C (consumption) ___________ significantly (and in that order) at the start of the Great Depression.

Fell

The Classical Theory is based on the assumption that an economy has ______________ or, if nudged away, quickly returns to that condition.

Full employment

The government seeks to use fiscal policy to achieve economic goals which include growth and __________ as well as full employment.

Price stability

In the 1930's the self correcting mechanisms initially provided by flexible ________________ did not seem to restore the economy, but some economists thought they still could have with more time and less government intervention.

All of the above

In this example of the Keynesian adjustment process, the overall decline in Consumption Spending resulting from the multiplier effect is $ ___________ billion dollars.

400

Keynesian Theory assumptions are shown in the AS/AD graph below. AD can be increased in Stage ______ without inflation.

B. or C.

If MPC is 0.8, then the simple multiplier is __________ .

5

In this example of a Keynesian tax increase, the overall left-shift in Aggregate Demand resulting from the tax increase causes the Nominal GDP to slide back to $________ where it is once again balanced with the Real Production GDP at full employment.

5000

In the Classical Theory, if Households decrease their spending then Businesses will reduce product prices, but will also _____________ .

Decrease wages

Among the ideas put forth as an alternative to the Classical model in the 1930's, was the ____________ model being tried in the Soviet Union and Italy.

Planned (or Command)

If Savings (unspent income) is greater than Investment spending, then inventories will increase and businesses will ____________ employment and output.

Increase

Assuming no change in government spending, an decrease in taxes of $100 billion with an MPC of 0.80 will add a total of $_____________ billion to the economy after the multiplier effect

400

Keynes argued for ______________ government spending in a recession to increase AD (shift right).

Increasing

In this example of the Classical adjustment process, Output will tend to be maintained at the "full employment" level of _________ billion units.

2500