Macroeconomics Final Exam

when the economy is experiencing demand-pull inflation, its real GDP tends to be rising. T/F?

true

a decrease in government spending will cause a:

decrease in aggregate demand

an increase in personal income tax rates will cause a:

decrease (shift left) in aggregate demand

the real-balance effect on aggregate demand suggests that a:

lower price will increase the real value of many financial assets and therefore cause an increase in spending

an increase in expected future income will:

increase aggregate demand

minimum wage laws tend to make the price level more flexible rather than less flexible. T/F?

false

if the dollar appreciates relative to foreign currencies, then:

foreign buyers will find U.S. goods to become more expensive

the foreign purchases, interest rates, and real-balance effects explain why the:

aggregate demand curve is downward sloping

a decrease in aggregate demand in the short run will reduce:

both real output and the price level

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

reduce prices when a decline in aggregate demand occurs

an increase in net exports will shift the:

aggregate expenditures curve upward and the aggregate demand curve rightward

a decrease in expected returns on investment will most likely shift the AD curve to the:

left because Ig will decrease

an increase in personal income tax rates will cause a:

decrease (left shift) in aggregate demand

a decrease in intereste rates caused by a change in the price level would cause an:

increase in the quantity of real output demanded (movement down along AD)

when the economy is experiencing demand-pull inflation, its real GDP tends to be rising. T/F?

true

if the U.S. dollar appreciates in value relative to foreign currencies, then this will:

decrease aggregate demand and increase aggregate supply

wage contracts, efficiency wages, and the minimum wage are explanations for why:

wages tend to be inflexible downward

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

reduce prices when a decline in aggregate demand occurs

an increase in productivity will:

increase aggregate supply

a sharp rise in the real value of stock prices, which is independent of and change in the price level, would best be an example of:

a change in real value of consumer wealth

the economy experiences an increase in the price level and a decrease in real domestic output. explain.

input prices have increased

the foreign purchases, interest rate, and real-balance effect explain why the:

aggregate demand curve is downward-sloping

a change in business taxes and regulation can affect production costs and aggregate supply. T/F?

true

if the dollar appreciates in value relative to foreign currencies:

aggregate demand decreases because net exports decrease

graphically, demand-pull inflation is shown as a:

rightward shift of the AD curve along an upsweeping AS curve

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

reduce prices when a decline in aggregate demand occurs

the foreign purchases, interest rate, and real-balance effects explains why the:

aggregate demand curve is downward-sloping

what combination of factors would most likely increase aggregate demand?

an increase in consumer wealth and a decrease in interest rates

a decrease in government spending will cause a:

decrease in aggregate demand

a sharp rise in the real value of stock prices, which is independent of a change in the price level, would best be an example of:

a change in real value of consumer wealth

when the economy is experiencing demand-pull inflation, its real GDP tends to be rising. T/F?

true

an increase in productivity will:

increase aggregate supply

graphically, cost-push inflation is shown as a:

leftward shift of the AS curve

if the dollar appreciates in value relative to foreign currencies:

aggregate demand decreases because net exports decrease

a decrease in interest rates caused by a change in the price level would cause an:

increase in the quantity of real output demanded (movement down along AD)

prices and wages tend to be:

flexible upward, but inflexible downward

an increase in productivity will:

increase aggregate supply

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

a decrease real GDP

if the dollar appreciates relative to foreign currencies, then:

foreign buyers will find U.S. goods to become more expensive

minimum wage laws tend to make the price level more flexible rather than less flexible. T/F?

false

an increase in expected future income will:

increase aggregate demand

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

decrease

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

average propensity to save

the MPC can be defined as that fraction of a:

change in income that is spent

as disposable income decreases, consumption:

and saving both decrease

personal saving is equal to:

disposable income minus consumption

the greater the MPC, the greater the multiplier. T/F?

true

assume a machine that has a useful life of only one year costs $2,000. assume, also, that net of such operating costs as power, taxes, and so forth, the additional revenue from the output of this machine is expected to be $2,300. The expected rate of return on this machine is:

15 percent

assume the MPC is 2/3. If investment spending increases by $2 billion, the level of GDP will increase by:

$6 billion

as disposable income decreases, the:

average propensity to consume increases

which of the following will not cause the consumption schedule to shift?

a change in consumer incomes

with an MPS of 0.3, the MPC will be:

1 - 0.3

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

spending 7/10s of any increment to its income

if Matt's disposable income increases from $4,000 to $4,500 and his level of saving increases from $200 to $325, it may be concluded that his marginal propensity to:

consume is .75

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

false

if the real interest rate increases:

there will be a movement upward along the investment demand curve

which of the following would shift the saving schedule upward?

a decrease in wealth

an increase in taxes will shift both the consumption schedule and the saving schedule down. T/F?

true

the consumption schedule shows:

the amounts households intend to consume at various possible levels of aggregate income

the most important determinant of consumption and saving is the:

level of income

if the MPC is 0.75, the multiplier will be:

4

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

average propensity to consume

if the MPS in an economy is .1, government could shift the aggregate demand curve rightward by $40 billion by:

increasing government spending by $4 billion

crowding out is a decrease in private investment caused by:

increased borrowing by the government

a decrease in government spending and a cut in taxes would be a pair of fiscal policies that reinforce each other. T/F?

false

discretionary fiscal policy refers to:

intentional changes in taxes and government expenditures made by congress to stabilize the economy

demand-pull inflation can be restrained by increasing government spending and reducing taxes. T/F?

false

the intent of contractionary fiscal policy is to:

decrease aggregate demand

a tax reduction of a specific amount will be more expansionary the:

larger in the economy's MPC

an economy is experiencing a high rate of inflation. the government wants to reduce consumption by $36 billion to reduce inflationary pressure. the MPC is 0.75. by how much should the government raise taxes to achieve its objective?

$12 billion

a major reason that the public debt cannot bankrupt the Federal government is because:

the public debt can be easily refinanced by issuing new bonds

an expansionary fiscal policy is shown as a:

rightward shift in the economy's aggregate demand curve

a budget surplus means that:

government revenues are greater than expenditures in a given year

built-in stability is exemplified by the fact that with a progressive tax system, net tax revenues decrease when GDP decreases. T/F?

true

the 2 reasons why bankruptcy is a false concern about the public debt are:

refinancing and taxation

due to automatic stabilizers, when the nation's total income rises, government transfer spending:

decreases and tax revenues increase

how is the public debt calculated?

by cumulating the annual difference between tax revenues and government spending over the years

the interest rate

the price paid for the use of money; determined by the money supply and money demand

why hold money?

-transactions demand

-assest demand

interest rate and bond prices

-inversely related

-lower bond price will raise the interest rate

major policy tools of the Federal Reserve System

-the required reserve ratio

-the discount rate

-open market operations

-term auction

the most important determinant of consumer spending is:

the level of income

if Carol's disposable income increases from $1,200 to $1,700 and her level of saving increases from minus $100 to a plus $100, her marginal propensity to:

consume is three-fifths

with a marginal propensity to save of .4, the marginal propensity to consume will be:

1.0 minus .4

the MPC can be defined as that fraction of a:

change in income that is spent

the consumption schedule is such that:

the MPC is constant and the APC declines as income rises

the relationship between consumption and disposable income is such that:

a direct and relatively stable relationship between consumption and income

if the MPC is .8 and disposable income is $200, then:

consumption and saving cannot be determined from the information given

if Trent's MPC is .80, this means that he will:

spend eight-tenths of any increase in his disposable income

if the marginal propensity to consume in.9, then the marginal propensity to save must be:

0.1

the wealth effect is shown graphically as a:

shift of the consumption schedule

other things equal, a decrease in the real interest rate will:

move the economy downward along its existing investment demand curve

if the inflation rate is 10 percent and the real interest rate is 12 percent, the nominal interest rate is:

22 percent

the interest-rate effect suggests that:

an increase in the price level will increase the demand for money, increase interest rates, and decrease consumption and investment spending

other things equal, a decrease in the real interest rate will:

expand investment and shift the AD curve to the right