Economics Module 12 Flashcards
How does an increase in income in the U.S. affect the level of U.S. exports?
No change
How does an increase in income in the U.S. affect the level of U.S. imports?
Increase
If average income goes from $30,000 to $33,000 and consumption increases from $29,000 to $31,000, the marginal propensity to consume is ______________.
.67
If at an average salary of $ 33,000, consumption increases to $ 32,000 due to an increase in wealth, what has happened to the marginal propensity to consume?
No change
Compare the effects on this year’s consumption spending of:
(1) A permanent ten percent cut in income taxes versus
(2) A ten percent cut that will last only for one year.
The increase in consumption from (1) would be more than the increase from (2).
Suppose that in 2020 national income is equal to $20 trillion and consumption is $14.0 trillion. In 2019, with income of $20.8 trillion, consumption increased to $14.6 trillion. Calculate the marginal propensity to consume.
1.00
An increase in wealth ______________ autonomous consumption. A tax rate increase ______________ autonomous consumption.
increases; does not change
Which of the following is correct?
An increase in the tax on corporate profits may cause investment to decrease.
An increase in prices abroad while prices are stable here will cause our net exports to _______. In turn, this change in net exports will cause our real GDP to _______.
increase; increase
Let’s assume that the US and EU only trade with each other. U.S. prices are rising. If European prices are rising more rapidly than U.S. prices, we would expect U.S. net exports to change as follows:
Exports up; imports down
Which of the following is included in investment spending?
Inventories
In which of the following situations would spending on investment be encouraged?
Real GDP is rising.
Suppose U.S. prices increase more than foreign prices. U.S. exports would ______________. GDP would ______________.
decrease; decrease
Suppose that incomes in the U.S. rise and foreign incomes fall. U.S. exports will ______________. U.S. imports will ______________.
decrease; increase
An increase in government spending will have which of the following effects on real GDP?
GDP will increase if nothing else changes.
Given the following information, which level of output is the equilibrium level (in billions)?
$8600
If GDP decreased, what would be the most probable effect on the other components of GDP?
Consumption, investment, and imports would decrease.
An increase in income taxes will affect the marginal propensity to consume and the spending multiplier in which of the following ways? It will make the MPC ______________ and the spending multiplier ______________.
smaller; smaller
As we increase the marginal propensity to consume, the spending multiplier ________.
increases
Given the following table, which level of output is the equilibrium level?
$ 8,300
Referring to this table, if investment spending at each level of output increases by $120 billion, what will equilibrium output and income be?
$ 8,600
An increase in real GDP will be most likely to cause further increases in __________.
consumption and investment, but a decrease in net exports
If taxes are increased by $50 billion, the effect on the economy will be ___________.
an ultimate decrease in consumption spending of more than $50 billion
An increase in net exports will cause GDP to ______________. Assume that the marginal propensity to consume increases from .9 to .95. An increase in net exports will now have a ______________ effect on GDP.
increase; larger
An increase in the marginal propensity to consume will make the spending multiplier ______________. An increase in taxes as a portion of income will make the spending multiplier ______________.
larger; smaller
Given the following table, which shows income and consumption levels for periods 1 through 7, what is the marginal propensity to consume?
.6
Given the income and consumption data shown in the table below (same table as EOC 12.14), what is the spending multiplier?
2.5
From the following data, determine the equilibrium level of real GDP and the MPC.
$ 1,800; .67
Given the data shown in the table below, if planned investment increased by $100, the new equilibrium GDP would be approximately ________.
$ 2,100
If nothing else changes, an increase in interest rates will __________.
lower investment spending because it raises the opportunity cost of funds
What will an increase in the price of substitute goods produced in foreign countries do?
Raise the level of exports and lower the trade deficit
Even though I lost my job, causing my income to drop significantly, I still continued to pay my rent. This spending is an example of _____________.
autonomous consumer spending
What is the primary determinant of government spending?
Politics
If inventories are rising, we can assume that which of the following is true?
Production is greater than consumption and investment, suggesting output will fall
Which of the following would likely cause a decrease in consumption in the economy?
An increase in interest rates
A decrease in the savings rate will likely cause an ______________ in the slope of the consumption function in the income expenditure model.
increase
Which item is included in the calculation of U.S. GDP?
New housing construction
If aggregate expenditure is greater than real GDP, we could expect which of the following to occur?
Inventories to decline and real GDP to increase in the future
To boost the economy, the government may propose a reduction in the income tax, which will _____________.
increase the marginal propensity to consume, which will raise the consumption
What is the effect of an increase in investment spending on the overall price level in the income-expenditure model?
There is no effect because prices are not changing by assumption
Which of the following is not considered part of investment in the calculation of GDP?
Stock ownership in a company
What term refers to income after all taxes are paid?
Disposable income
An increase in autonomous investment spending will likely cause ___________.
a multiplied increase in equilibrium GDP due to the spending multiplier
Which statement most accurately represents the effect of rising stock prices on aggregate expenditure?
It increases consumption but has less of an effect than the change in marginal propensity to consume.
What will an increase in the tax rate cause?
A decrease in the spending multipliers
An increase in government spending will likely cause which of the following?
An increase in GDP that is greater than the increase in government spending
What will an increase in U.S. prices likely cause?
An increase in U.S. imports
An increase in the marginal propensity to save will cause all of the following except __________.
a parallel shift down in the aggregate expenditure curve
Investment is driven by all of the following except ____________.
the buying of stocks and bonds on the open market
An increase in the MPC from 75% to 80% implies all of the following except which of the following?
An increase in the spending multiplier to .2
Consumption spending increases as consumers become increasingly confident about their future. In which of the following instances will that increase have the smallest effect on overall spending in the economy?
People save relatively large portions of their incomes.
Assume an economy with significant amounts of international trade compared to most other countries increases its government spending. The multiplier effect on overall spending in this circumstance would be:
Relatively small compared to a situation with much less trade.
Based on the graph in Problem 1.4, how would you describe the new point of intersection on the spending = output line?
Spending and output increase by more than $2 trillion.
In February of 2009, President Barack Obama signed the American Recovery and Reinvestment Act, which allocated a certain amount in stimulus to the economy to help the economy recover from the recession. If we assume the marginal propensity to consume was .6 at that time, how much in stimulus would the US have to allocate to cover a $1.25 trillion output gap (the difference between the current level of output and full employment level) in the economy?
$0.5 trillion
Given the output and aggregate expenditure information below, if income is currently $1,800, we would expect:
Inventories to decline
Which component of GDP is not directly affected by a change in interest rates?
Government purchases
