Chapters 11, 12 & 13 Flashcards
If MPC = 0.5, a simultaneous increase in both taxes and government spending of $20 will
A) increase GDP by $40.
B) decrease GDP by $20.
C) decrease GDP by $40.
D) increase GDP by $20.
increase GDP by $20
The most basic premise of the aggregate expenditures model is that
A) the total output produced in the economy depends directly on the level of total spending.
B) the total output produced depends mostly on the total capacity of firms to produce.
C) the level of employment in the economy depends inversely on the real wage rate.
D) the unemployment level in the economy is inversely related to the inflation rate.
the total output produced in the economy depends directly on the level of total spending.
A tax cut will have a greater effect on equilibrium GDP if the
A) marginal propensity to save is larger.
B) average propensity to consume is larger.
C) marginal propensity to consume is smaller.
D) marginal propensity to save is smaller.
marginal propensity to save is smaller.
Assume that the marginal propensity to consume in an economy is 0.75. If the economy’s full-employment real GDP is $900 billion and its equilibrium real GDP is $800 billion, there is a recessionary expenditure gap of
A) $400 billion.
B) $133 billion.
C) $100 billion.
D) $25 billion.
$25 billion
If the dollar depreciates in value relative to foreign currencies, then aggregate
A) supply and aggregate demand decrease.
B) demand increases.
C) supply and aggregate demand increase.
D) demand decreases.
demand increases
The shape of the immediate-short-run aggregate supply curve implies that
A) output prices are flexible, but input prices are not.
B) government cannot bring an economy out of a recession by increasing spending.
C) increases in aggregate demand are inflationary.
D) total output depends on the volume of spending.
total output depends on the volume of spending.
The labels for the axes of the aggregate demand graph should be
A) real domestic output on the vertical axis and the price level on the horizontal axis.
B) quantity of a product on the vertical axis and the price of a product on the horizontal axis.
C) real domestic output on the horizontal axis and the price level on the vertical axis.
D) price of a product on the vertical axis and quantity of a product on the horizontal axis.
real domestic output on the horizontal axis and the price level on the vertical axis.
1-Government Spending 2-Consumer Expectations 3-Degree of Excess Capacity 4-Personal Income Tax Rates 5-Productivity 6-National Income Abroad 7-Business Taxes 8-Domestic Resource Availability 9-Prices of Imported Products 10-Profit Expectations on Investments Answer the question based on the accompanying list of items related to aggregate demand or aggregate supply. Changes in which two factors would most likely cause a change in aggregate demand?
A) 3 and 10
B) 1 and 5
C) 5 and 7
D) 8 and 9
3 and 10
The foreign purchases effect suggests that an increase in the U.S. price level relative to other countries will
A) decrease both U.S. imports and U.S. exports.
B) increase the amount of U.S. real output purchased.
C) increase both U.S. imports and U.S. exports.
D) increase U.S. imports and decrease U.S. exports.
increase U.S. imports and decrease U.S. exports.
In response to the Great Recession, the federal government engaged in significant deficit-funded spending, but it did not fully achieve the desired result. Which of the following best explains why the fiscal policy actions fell short of their objective?
A) Although the fiscal stimulus increased consumer spending significantly, it mostly went to purchase foreign-produced goods and services.
B) Monetary policy counteracted fiscal policy, keeping the unemployment rate from falling as much as intended.
C) The fiscal stimulus caused massive inflation that further disrupted economic activity.
D) Consumers did not respond to the fiscal stimulus as well as hoped, as they put more income into saving and repaying debt.
Consumers did not respond to the fiscal stimulus as well as hoped, as they put more income into saving and repaying debt.
If the dollar appreciates in value relative to foreign currencies,
A) aggregate demand decreases because C decreases.
B) aggregate demand increases because C increases.
C) aggregate demand decreases because net exports decrease.
D) aggregate demand increases because net exports increase.
aggregate demand decreases because net exports decrease.
When the Federal government uses taxation and spending actions to stimulate the economy, it is conducting
A) fiscal policy.
B) incomes policy.
C) employment policy.
D) monetary policy.
fiscal policy
When current government expenditures equal current tax revenues and the economy is achieving full employment,
A) nominal GDP and real GDP are equal.
B) the cyclically adjusted budget has neither a deficit nor a surplus.
C) fiscal policy is contractionary.
D) the cyclically adjusted budget may have either a deficit or a surplus.
the cyclically adjusted budget has neither a deficit nor a surplus.
Which of the following is an important real consequence of the public debt of the United States?
A) Its consequent higher interest rates lead to fewer incentives to bear risk and innovate.
B) It decreases the inequality in the distribution of income in the U.S.
C) It will threaten to bankrupt the Federal government.
D) It discourages saving among the general public.
Its consequent higher interest rates lead to fewer incentives to bear risk and innovate.
A public debt that is owed to foreigners can be burdensome because
A) the payment of interest will necessarily have a deflationary effect on prices in the paying nation.
B) the payment of interest reduces the volume of goods and services available for domestic uses.
C) foreign interest rates are persistently higher than domestic interest rates.
D) the payment of interest will conflict with a nation’s foreign aid programs.
the payment of interest reduces the volume of goods and services available for domestic uses.
