macro

When consumer confidence falls in an economy, what will decrease which is going to be magnified by the spending multiplier?

Spending will decrease.

What does the "paradox of thrift" say?

An economy that saves too much can end up with lower total savings.

How does the spending multiplier compare between a $1,000 increase in government spending and a $1,000 decrease in taxes collected?

An increase in government spending has a greater spending multiplier than an equivalent tax decrease.

According to the balanced budget multiplier, what is the effect on the economy when government spending increases by $10,000 and taxes also increase by $10,000 with an MPC of 0.80?

Income will increase by $10,000.

If real GDP at full employment is $5 billion while current GDP is $6 billion, what type of gap exists?

An inflationary gap exists and will require a decrease in spending.

What is the sequence of events if total spending exceeds income?

Total spending exceeds income, firms expand production, workers are hired, and incomes rise until equilibrium is reached.

If the marginal propensity to consume in Economia is 0.75, how much will equilibrium income rise if people spend $5 billion more?

Equilibrium income will rise by $20 billion.

If the marginal propensity to save is 0.20, what is the spending multiplier?

The spending multiplier is 5.

With a marginal propensity to save of 0.20 and equilibrium output at $15,000, how much will investment spending have to increase to achieve full employment at $20,000?

Investment spending will have to increase by $1,000.

What occurs when spending is above the full employment level?

An inflationary gap occurs.

If the GDP is $600 billion and full employment is at $500 billion, what should the government do?

The government should reduce spending by $25 billion.

Potential GDP is what in relation to the price level?

Potential GDP is independent of the price level.

What is the average propensity to consume when disposable income is $5,400 and consumption is $4,200?

The average propensity to consume is 0.78.

What does the short run aggregate supply curve show?

It shows the relationship between the quantity of real GDP supplied and the price level.

If the cost of production increases, what happens to aggregate supply?

There is a decrease in aggregate supply and the SRAS curve shifts leftward.

What happens to the aggregate supply curve if there is a significant decrease in the price of oil?

The SRAS curve shifts rightward.

What happens when aggregate demand expands so much that equilibrium output exceeds full employment output?

Demand-pull inflation occurs.

What happens in the short-run if there is a drastic increase in the price of oil?

It will cause a leftward shift to the SRAS curve.

What would cause inflation and employment to increase?

A rightward shift of the AD curve.

What occurs when a supply shock shifts the short-run aggregate supply curve to the right?

Cost-push inflation does not occur in this case; it's the opposite.

If the federal government reduces its purchases of goods by 50%, which curve shifts and in which direction?

Aggregate demand shifts left.

If people's expectations about future income improve, what happens to the AD curve?

The AD curve will shift rightward because people will increase spending.

The 'sticky-wage' hypothesis explains what in economics?

It explains the slope of the short-run aggregate supply curve.

What is the definition of autonomous consumption?

It is the level of consumption that occurs when disposable income is zero.

Public debt owned by U.S. banks and individuals is called what type of debt?

Internally held debt.

If interest rates rise, what happens to the burden of a nation's public debt?

The burden will rise and it will be more difficult to service its debt.

According to the crowding-out effect, what can happen if the government sells bonds to finance spending?

Consumption and investment can eventually fall.

What is an example of an expansionary fiscal policy tool?

Increasing government spending and decreasing taxes.

Which item below is NOT considered mandatory spending?

National defense.

What would expansionary fiscal policy do in a recession?

Shift AD to the right.

What is a recessionary gap?

A situation where the actual level of output is below the potential level of output.

If fiscal policy aimed at aggregate supply is successful, what happens to the aggregate price level and output?

Aggregate price level decreases; aggregate output increases.

What is an example of an automatic stabilizer?

Unemployed workers claiming unemployment benefits during a recession.

If the national debt is $6 million and this year's deficit is $5 million, what would the new national debt be?

The new national debt would be $11 million.

If the economy is at full employment, what happens with increases in government spending?

They are primarily absorbed by price increases.

What is stagflation in economics?

A period of economic recession with rising prices.

Which item is NOT one of the limitations to the effectiveness of discretionary fiscal policy?

Estimating potential GDP.