question

Inflation means that: a. all prices are rising, but at different rates b. all prices are rising and at the same rate c. prices in the aggregate are rising, although some particular prices may be falling d. real incomes are rising

answer

C

question

IF the rate of inflation is 12% per year, the price level will double in about: a. 4 years b. 6 years. c. 10 years d. 12 years

answer

B

question

Demand pull inflation: a. occurs when prices of resources rise, pushing up costs and the price level. b. occurs when total spending exceeds the economy's ability to provide output at the existing price level c. occurs only when the economy has reached its absolute production capacity. d. is also called cost-push inflation

answer

B

question

Which of the following statements is correct? Unanticipated inflation: a. arbitrarily redistributes income and wealth b. increases the real value of savings c. increases the purchasing power of the dollar d. benefits creditors at the expense of debtors.

answer

A

question

As disposable income decreases, ceteris paribus: a. both consumption and saving rise b. consumption increases and saving falls c. consumption falls and saving rises d. both consumption and saving fall

answer

D

question

If the MPC is .8 and disposable income is $200, then a. consumption and saving cannot be determined from the information given b. saving will be $20 c. personal consumption expenditures will be $80 d. Saving will be $40

answer

A. need to have another DR

question

A decrease in the investment demand schedule would be a consequence of a decline in: a. the rate of interest b. the level of wages paid c. business taxes d. expected future sales

answer

D

question

If Sara Thomas' disposable income increases from $4,000 to $4,500 and her level of saving increase from $200 to $325, it may be concluded that her marginal propensity to: a. consume is .75 b. consume is .80 c. save is .30 d. consume is .60

answer

A

question

Assume the economy's consumption and saving schedules simultaneously shift downward. This must be the result of: a. an increase in disposable income b. an increase in household wealth c. an increase in personal taxes. d. the expectation of a recession

answer

C

question

On a graph, the equilibrium real GDP is found at the intersection of the 45-degree line and the: a. saving curve b. consumption curve c. investment demand curve d. aggregate expenditures line

answer

D

question

Compared with a closed economy, aggregate expenditures and GDP will: a. increase when net exports are positive b. fall when net exports are positive c. increase when net exports are negatived. d. decrease when net exports are zero

answer

A

question

The economy is operating at the full-employment level of output. A depreciation of the dollar most likely will result in: a. a decrease in exports b. an increase in imports c. a decrease in real GDP d. an increase in the price level

answer

D

question

The investment demand slopes downward and to the right because lower interest rates: a. expand consumer borrowing, making investments more profitable b. boost expected rates of returns on investment c. enable more investment projects to be undertaken profitably d. create tax incentives to invest

answer

C

question

If net exports rise from zero to some positive amount, the aggregate expenditures schedule would: a. shift upward b. shift downward c. not move (net exports do not affect aggregate expenditures) d. become steeper

answer

A

question

If government spending and taxes both rise by the same amount there would be: a. no effect on AE and hence on GDP b. a rise in AE and in GDP c. a fall in AE and in GDP d. a rise in AE and a fall in GDP

answer

B

question

If an unintended increase in business inventories occurs at some level of GDP, then GDP a. is too low for equilibrium b. is too high for equilibrium

answer

B

question

What was the wealth effect of 2008 discussed in the textbook and in class?

answer

Wealth disappeared because of the 1. the housing market 70% collapse 2. the stock market 45% collapse

question

The increase in income that results from an increase in investment spending would be smaller the: a. greater the MPS, b. greater the MPC

answer

A

question

If the value of the dollar drops, net exports will likely a. increase b. decrease

answer

A

question

An inflationary gap occurs when equilibrium GDP is ________ full employment. a. above b. below

answer

A

question

When diposable income rises, the resulting rise in consumption is a ________ the consumption function. a. shift of b. movement along

answer

B

question

Suppose a certain country has an MPC of .9 and a real GDP of $400 B. If its investment spending decrease by $4 B, what will its new level of equilibrium real GDP?

answer

MPS= .1 Multiplier = (1/.1)= 10 Decrease of $4 B X 10= ($40) Change in GDP from 400 to 360 New equilibrium level of GDP is 360

question

Taxes tend to reduce consumption at each level of real GDP by an amount equal to the taxes multiplied by the marginal propensity to: a. consume b. save

answer

A

question

a. List three factors that would shift the consumption schedule downward. Indicate which direction the variable would shift b. Describe the operation of one of these factors c. How would this shift the aggregate expenditure schedule. (up, or down) d. What would then happen to equilibrium GDP? (up or down)

answer

a. increase taxes, decrease saving, decrease wealth, increase interest rate, decrease borrowing b. a decrease in wealth leads to a increase in saving and leads to a decrease in consumption c. down d. down

question

List three factors that would shift the investment schedule downward. b. how would the shift the aggregate expenditure schedule? c. what would then happen to equilibrium GDP?

answer

a. decrease technology, increase taxes, decrease expectations, increase cost of capital equipment b. down c. down

question

If a person's nominal income increases by 8% while the price level increases by 10%, the person's real income: a. rises by 2% b. rises by 18% c. falls by 18% d. falls by 2%

answer

D (8-10)

question

Dissaving is

answer

Households are spending more than their current incomes

question

Equilibrium GDP is

answer

The total of expenditures = the sum of value of new production

question

Unplanned changes in inventories are

answer

changes in unsold goods caused by unexpected changes in aggregate expenditures

question

The investment schedule is:

answer

Investment spending shifts when the interest rate changes

question

increase in expected rate of return

answer

the cause is expected profits that would rise with an increase in new technology to produce

question

Multiplier

answer

change in equilibrium GDP/ change in AE OR 1/(1-MPC)

question

Leakage

answer

decrease of spending via saving, taxes paid, or imports

question

Marginal propensity to consume

answer

fraction of a change in DI that households spend

question

assume the MPC is .8. If government were to impose $50 Billion of new taxes on household income, consumption spending would decrease by: a. 100 billion b. $90 billion c. $40 billion d. $50 billion

answer

C

question

If at some level of GDP the economy is experiencing an unintended decrease in inventories: a. the aggregate level of saving will decline b. the price level will fall c. the business sector will lay off workers d. domestic output will increase

answer

D

question

In the aggregate expenditures model, a reduction in taxes may: a. increase saving b. decrease real GDP c. increase unemployment d. reduce consumption

answer

A

question

An increase in investment spending will have a greater effect on the equilibrium GDP: a. If the Royals win the World Series. b. the larger the MPS c. the smaller the MPC d. the larger the MPC

answer

D

question

If the marginal propensity to consume (MPC) is 0.67 and initial spending icrease by $25, equilibrium real GDP will: a. increase by a total of $75 b. decrease by a total of $75 c. increase by a total of $25 d. decrease by a total of $25

answer

A

question

As disposable income increases, ceteris paribus: a. both consumption and saving rise b. consumption increases and saving falls c. consumption falls and saving rises d. both consumption and saving fall

answer

A

question

Expectations of a recession are likely to lead households to: a. increase consumption and saving b. decrease consumption and saving c. increase consumption and decrease saving d. decrease consumption and increase saving

answer

D

question

Assume the economy's consumption and saving schedules simultaneously shift downward. This must be the result of: a. an increase in disposable income. b. an increase in household wealth. c. an increase in personal taxes d. the expectation of a recession

answer

C

question

Which would increase investment demand? a. increase in business taxes b. increase in the cost of acquiring capital goods c. sharp slowdown in the rate of technological change d. decrease in the stock of capital goods on hand

answer

d

question

Suppose that a new machine tool having a useful life of only one year costs $80,000. Suppose also that the net additional revenue resulting from buying this tool is expected to be $96,000. The expected rate of return on this tool is: a. 2% b. 20% c. 80% d. 8%

answer

B

question

All else equal, a large decline in the real interest rate will shift the: a. lower net exports b. raise government spending c. raise investment spending d. lower investment spending

answer

C

question

A burst stock market bubble might adversely affect the economy by: a. causing rapid inflation b. greatly reducing net exports c. causing a severe negative wealth effect and engendering pessimism about the economy's future d. raising interest rates

answer

C

question

With no inflation, a bank would be willing to lend a business firm $5 million at an annual interest rate of 6%. But, if the rate of inflation was anticipated to be 4%, the bank would most likely charge the firm an annual interest rate of: a. 2% b. 4% c. 6% d. 10%

answer

D

question

When unanticipated inflation occurs: a. both creditors and debtors benefit b. both creditors and debtors are hurt c. debtors are hurt, but creditors benefit d. Creditors are hurt, but debtors benefit

answer

D

question

We have to compute a particular variable to get a measure of inflation. What is this variable?

answer

CPI Consumer Price Index

question

Core inflation measurements exclude the prices of _______ and ________ . The reason we measure core inflation is that these goods are mostly produced abroad. T/F

answer

Food, Energy False

question

Distinguish between demand-pull inflation and Cost-push inflation. Give the cause of each

answer

Demand pull inflation is when the demand for a good falls short because the total output is not there. This usually happens in inflationary periods. The cause of it is less output than for the demand. Spending is greater than the ability to produce. AE is greater than GDP full employment. Cost push inflation is when raw materials are higher than the expectations. It deals with the price of resources. The cause is with the increase in the price of key resources, which affects all businesses, the product price increases.

question

Suppose your nominal income rises by 3%. Give an inflation rate which your real income will rise

answer

2%

question

a. what is the variable that causes movement along the consumption schedule or line? b. Name three non-income determinants of consumption spending c. for these three shifters give the direction of the change for them to shift the consumption schedule upward?

answer

a. Change in disposable income b. Expectations, borrowing, wealth c. increase wealth-> increase consumption increase borrowing-> increase consumption decrease expected recession-> increase consumption

question

a. What are three factors that might shift upward the investment demand curve? (name the factor and give the direction of the change) b. would these factors shift the investment schedule upward as well? c. give one example of investment spending.

answer

a. increase technology, decrease taxes, increase planned inventory b. yes c. increase capital goods

question

A depression abroad will tend to _________ our exports, which in turn will _____ net exports, which in turn will _______ equilibrium real GDP.

answer

Decrease, Decrease, Decrease

question

The durability of capital goods is one of the major reasons for the stability of investment spending. T/F

answer

False

question

If the value of the dollar drops in currency markets, net exports will likely a. increase b. decrease

answer

increase

question

An inflationary gap occurs when equilibrium GDP is ____ full employment GDP. a. above b. below

answer

Above

question

The simply GDP multiplier is (higher, lower) the smaller the MPC

answer

Lower

question

Give one reason why the complex (real world) GDP multiplier is smaller than the simple multiplier in our worksheets examples.

answer

We also buy imports and pay additional taxes. These are the leakages

question

Wealth effect

answer

Tendency for consumption to rise when their assets rise in value

question

Investment demand curve

answer

investment spending is inversely related to real interest rates

question

Expected rate of return

answer

the profit rate to be earned by the purchase of capital

question

balanced budget multiplier

answer

equal changes in government spending and taxes change GDP

question

45 degree line

answer

value of GDP = value of AE

question

deflation

answer

When this happens, a price index, such as the GDP deflator drops

question

unplanned changes in inventories

answer

changes in unsold goods caused by unexpected changes in aggregate expenditures

question

paradox of thrift

answer

the result is that consumption falls and hence GDP falls, hurting the economy

question

Which of the following would most likely be brought on by a supply shock, a huge decrease in the supply of a natural resource such as oil?? a. demand-pull inflation b. cost-push inflation c. structural inflation d. frictional inflation

answer

B

question

Suppose that a person's nominal income rises from $10,000 to $12,000, and the consumer price index rises from 100 to 105 the person's real income will: a. fall by about 20 percent b. fall by about 2% c. rise by about 15% d. rise by about 25%

answer

C

question

The most important determinant of consumer spending is: a. the level of household borrowing b. the level of income c. the stock of wealth d. consumer expectations

answer

B

question

A decline in disposable income: a. decreases consumption by moving downward along a specific consumption schedule. b. increases consumption because it shifts the consumption schedule upward c. increases consumption by moving upward along a specific consumption schedule d. decreases consumption because it shifts the consumption schedule downward.

answer

A

question

a decrease in investment demand would be a consequence of a decline in: a. the rate of interest b. the level of wages paid c. business taxes d. expected future sales

answer

D

question

Given the expected rate of return on all possible investment opportunities in the economy: a. an increase in the real rate of interest will reduce the level of investment b. a decrease in the real rate of interest will reduce the level of investment c. a change in the real interest rate will have no impact on the level of investment d. an increase in the real interest rate will increase the level of investment

answer

A

question

Capital Goods, because their purchases can be postponed like ______ consumer goods, tend to contribute to ________ in investment spending. a. nondurable; instability b. nondurable; stability c. durable; instability d. durable; stability

answer

C

question

If the marginal propensity to consume (MPC) is .67 and initial spending increase by $25, real GDP will: a. increase by a total of $75 b. decrease by a total of $75 c. increase by a total of $25 d. decrease by a total of $25

answer

A

question

On a graph, the equilibrium real GDP is found at the intersection of the 45-degree line and the: a. saving curve b. consumption curve c. aggregate expenditures line d. investment demand curve

answer

C

question

In the aggregate expenditures model, technological progress will shift the investment schedule: a. downward and increase aggregate expenditures b. downward and decrease aggregate expenditures c. upward and increase aggregate expenditures d. upward and decrease aggregate expenditures

answer

C

question

The increase in income that results from an increase in investment spending would be greater the: a. smaller the MPS b. Smaller the APC c. larger the MPS d. smaller the MPC

answer

A

question

The investment demand slopes downward and to the right because lower real interest rates: a. expand consumer borrowing, making investments more profitable b. boost expected rates of returns on investment c. enable more investment projects to be undertaken profitably d. create tax incentives to invest

answer

C

question

Other things equal, an increase in an economy's exports will: a. lower the marginal propensity to import b. have no effect on domestic GDP because imports will change by an offsetting amount c. decrease its domestic aggregate expenditures and therefore decrease its equilibrium GDP. d. increase its domestic aggregate expenditures and therefore increase its equilibrium GDP.

answer

D

question

Which of the following would increase GDP by the greatest amount? a. a $20 billion reduction in taxes b. $20 billion increase in both government spending and taxes c. $20 billion decrease in both government spending and taxes d. a $20 billion increase in government spending

answer

D

question

In an effort to stop the US recession of 2007-2009, the federal government: A. reduced taxes and increased government spending b. imposed large tariffs on many imported goods to protect domestic jobs c. raised interest rates to encourage greater business investment d. avoided Keynesian policies because of the threat of inflation

answer

A

question

Real interest:

answer

The interest rate after you adjust it for the inflation rate

question

expected rate of return:

answer

when there is strong recovery, the expected profit from purchasing productive capital goods will rise

question

45-degree line:

answer

along here AE= real GDP

question

nominal interest rate

answer

the interest rate the bank teller offers you when you open a savings account

question

wealth effect

answer

if the value of homes drops, spending by consumers drops

question

Unplanned changes in inventories

answer

occur when actual real GDP differs from equilibrium real GDP

question

Cost push inflation

answer

Results from an increase in resource costs (i.e. raw materials price) and hence raises per unit production costs

question

Marginal propensity to Save

answer

fraction of a change in DI that households save

question

IF a $100 billion decrease in investment spending causes income to decline $100 billion in the first round of the multiplier process and by $75 billion in the second round, income will eventually decline by: a. $500 billion b. $400 billion c. $300 billion d. $200 billion

answer

B

question

If an economy has experienced an inflation rate of 500% per year for several years, this economic condition would best be described as:

answer

hyper inflation

question

Lump sum taxes tend to reduce consumption at each level of real GDP by an amount equal to the taxes multiplied by the:

answer

MPC

question

Changes in stock market prices: a. do not greatly impact the macroeconomy and used alone are not reliable predictors of the future health of the economy b. greatly impact the macroeconomy but used alone are not reliable predictors of the future health of the economy c. greatly impact the macroeconomy and used alone are reliable predictors of the future health of the economy d. do not greatly impact the macroeconomy but used alone are reliable predictors of the future

answer

A

question

If the nominal interest rate is 8% and the real interest rate is 5%, the the inflation premium is 13% T/F

answer

False

question

The slope of the consumption schedule is measured by the MPC. T/F

answer

True

question

A specific investment will be undertaken if the expected rate of return, r, exceeds the interest rate, i. T/F

answer

True

question

Investment is highly stable; it increases over time at a very steady rate. T/F

answer

False

question

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

answer

True

question

Imports have the same effect on the current size of GDP as saving. T/F

answer

True

question

Assume that the economy is operating at less than the full employment level of output. A depreciation of the dollar most likely will result in a decrease in real GDP, all else equal. T/F

answer

False

question

An annual rate of inflation of 7 percent will double the price level in about 15 years. T/F

answer

False 10 years (rule of 70)

question

During the past ten years the annual rate of inflation in the United States has averaged less than 1%. T/F

answer

False

question

Unanticipated inflation benefits debtors at the expense of creditors. T/F

answer

True

question

a. In what phase of the business cycle does demand-pull inflation occur? b. Define demand pull inflation c. Give two traits of demand pull inflation

answer

a. Growth b. "too much spending chases too few goods", excess demand bids up the prices of the limited output c. high and rising AE near full employment GDP economy at high capacity

question

Give on example of what we mean by Investment spending in macroeconomics

answer

any newly produced capital good

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