Macroeconomics Final Exam

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

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1

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

true

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2

a decrease in government spending will cause a:

decrease in aggregate demand

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3

an increase in personal income tax rates will cause a:

decrease (shift left) in aggregate demand

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4

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

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5

an increase in expected future income will:

increase aggregate demand

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6

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

false

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7

if the dollar appreciates relative to foreign currencies, then:

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

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8

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

aggregate demand curve is downward sloping

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9

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

both real output and the price level

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10

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

reduce prices when a decline in aggregate demand occurs

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11

an increase in net exports will shift the:

aggregate expenditures curve upward and the aggregate demand curve rightward

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12

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

left because Ig will decrease

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13

an increase in personal income tax rates will cause a:

decrease (left shift) in aggregate demand

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14

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)

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15

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

true

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16

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

decrease aggregate demand and increase aggregate supply

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17

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

wages tend to be inflexible downward

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18

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

reduce prices when a decline in aggregate demand occurs

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19

an increase in productivity will:

increase aggregate supply

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20

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

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21

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

input prices have increased

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22

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

aggregate demand curve is downward-sloping

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23

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

true

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24

if the dollar appreciates in value relative to foreign currencies:

aggregate demand decreases because net exports decrease

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25

graphically, demand-pull inflation is shown as a:

rightward shift of the AD curve along an upsweeping AS curve

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26

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

reduce prices when a decline in aggregate demand occurs

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27

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

aggregate demand curve is downward-sloping

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28

what combination of factors would most likely increase aggregate demand?

an increase in consumer wealth and a decrease in interest rates

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29

a decrease in government spending will cause a:

decrease in aggregate demand

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30

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

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31

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

true

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32

an increase in productivity will:

increase aggregate supply

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33

graphically, cost-push inflation is shown as a:

leftward shift of the AS curve

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34

if the dollar appreciates in value relative to foreign currencies:

aggregate demand decreases because net exports decrease

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35

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)

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36

prices and wages tend to be:

flexible upward, but inflexible downward

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37

an increase in productivity will:

increase aggregate supply

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38

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

a decrease real GDP

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39

if the dollar appreciates relative to foreign currencies, then:

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

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40

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

false

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41

an increase in expected future income will:

increase aggregate demand

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42

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

decrease

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43

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

average propensity to save

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44

the MPC can be defined as that fraction of a:

change in income that is spent

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45

as disposable income decreases, consumption:

and saving both decrease

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46

personal saving is equal to:

disposable income minus consumption

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47

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

true

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48

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

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49

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

$6 billion

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50

as disposable income decreases, the:

average propensity to consume increases

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51

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

a change in consumer incomes

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52

with an MPS of 0.3, the MPC will be:

1 - 0.3

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53

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

spending 7/10s of any increment to its income

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54

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

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55

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

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56

if the real interest rate increases:

there will be a movement upward along the investment demand curve

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57

which of the following would shift the saving schedule upward?

a decrease in wealth

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58

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

true

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59

the consumption schedule shows:

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

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60

the most important determinant of consumption and saving is the:

level of income

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61

if the MPC is 0.75, the multiplier will be:

4

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62

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

average propensity to consume

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63

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

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64

crowding out is a decrease in private investment caused by:

increased borrowing by the government

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65

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

false

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66

discretionary fiscal policy refers to:

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

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67

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

false

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68

the intent of contractionary fiscal policy is to:

decrease aggregate demand

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69

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

larger in the economy's MPC

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70

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

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71

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

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72

an expansionary fiscal policy is shown as a:

rightward shift in the economy's aggregate demand curve

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73

a budget surplus means that:

government revenues are greater than expenditures in a given year

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74

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

true

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75

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

refinancing and taxation

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76

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

decreases and tax revenues increase

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77

how is the public debt calculated?

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

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78

the interest rate

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

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79

why hold money?

-transactions demand

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80

-assest demand

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81

interest rate and bond prices

-inversely related

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82

-lower bond price will raise the interest rate

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83

major policy tools of the Federal Reserve System

-the required reserve ratio

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84

-the discount rate

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85

-open market operations

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86

-term auction

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87

the most important determinant of consumer spending is:

the level of income

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88

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

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89

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

1.0 minus .4

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90

the MPC can be defined as that fraction of a:

change in income that is spent

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91

the consumption schedule is such that:

the MPC is constant and the APC declines as income rises

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92

the relationship between consumption and disposable income is such that:

a direct and relatively stable relationship between consumption and income

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93

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

consumption and saving cannot be determined from the information given

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94

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

spend eight-tenths of any increase in his disposable income

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95

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

0.1

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96

the wealth effect is shown graphically as a:

shift of the consumption schedule

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97

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

move the economy downward along its existing investment demand curve

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98

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

22 percent

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99

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

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100

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

expand investment and shift the AD curve to the right

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