Gay

Question 1

What is the study of aggregate economic activity for the economy as a whole?

Answer 1

C. macroeconomics.

Question 2

The laissez-faire view of government involvement in the economy is most consistent with?

Answer 2

A. classical theory.

Question 3

According to classical economists, market-driven economies are?

Answer 3

A. are typically self-adjusting.

Question 4

Who believed that small disturbances in output, prices, or unemployment were likely to be magnified by the invisible hand of the marketplace?

Answer 4

A. President Herbert Hoover

B. Adam Smith

Question 5

Alternating periods of economic growth and contraction in real GDP define?

Answer 5

B. business cycles.

Question 6

Which of the following is true about business cycles in the United States?

Answer 6

B. They vary greatly in length, frequency, and intensity.

Question 7

What are changes in real GDP best used to measure?

Answer 7

C. business cycles.

Question 8

What is a decline in total real output for two or more consecutive quarters called?

Answer 8

B. a recession.

Question 9

What do external shocks include?

Answer 9

All of the following except A. population growth.

Question 10

What are alternating periods of economic growth and contraction indicative of?

Answer 10

They are indicative of recurrent shifts of aggregate demand and aggregate supply.

Question 11

According to Keynes, what is the result of alternating periods of economic growth and contraction?

Answer 11

The result of government intervention.

Question 12

What do classical economists believe about alternating periods of economic growth and contraction?

Answer 12

They believe it is indicative of an unstable economy and requires government intervention.

Question 13

Are alternating periods of economic growth and contraction typical of the U.S. economy?

Answer 13

No, they are not typical of the U.S. economy.

Question 14

What does an increase in government spending do to aggregate demand?

Answer 14

It increases aggregate demand, thereby shifting the curve to the right.

Question 15

In the figure, what is the change from point A when government spending increases?

Answer 15

A to point B.

Question 16

At what price level does equilibrium occur?

Answer 16

The equilibrium price level corresponds to the point along the vertical axis where the AS and AD curves intersect.

Question 17

What does an improvement in technology represent in terms of real output?

Answer 17

An improvement in technology leads to an increase in the production of real output, thereby shifting the AS curve to the right.

Change from point C to point B.

Question 18

What does an increase in the cost of an input in the production process represent?

Answer 18

An increase in input costs leads to a decrease in the amount of output produced by suppliers, thereby shifting the AS curve to the left.

Change from point A to point C.

Question 19

What is fiscal policy?

Answer 19

Fiscal policy is the use of government spending and taxes to alter macroeconomic outcomes.

None.

Question 20

What is aggregate demand?

Answer 20

Aggregate demand is the total quantity of output demanded at alternative price levels in a given time period.

Question 21

What are the components of aggregate demand?

Answer 21

The components of aggregate demand are consumption, government spending, net exports, and investment.

Question 22

What do consumption expenditures account for?

Answer 22

Consumption expenditures account for over two-thirds of total spending.

Question 23

What does the MPC indicate?

Answer 23

The fraction of an additional dollar of disposable income that will be spent.

Options: A. saved, B. spent, C. total income saved, D. total income spent.

Question 24

What is likely the result of an increase in personal spending?

Answer 24

An increase in income.

Options: A. increase in saving, B. increase in income, C. increase in taxes, D. decrease in economic growth.

Question 25

What is the change in total spending from additional income called?

Answer 25

MPC. ## Footnote Options: A. MPC, B. MPS, C. APC, D. APS.

Question 26

What must the MPC + MPS always equal?

Answer 26

1. ## Footnote The MPC + MPS must always equal 1.

Question 27

How is the marginal propensity to consume (MPC) calculated?

Answer 27

MPC is equal to the change in consumption divided by the change in disposable income. ## Footnote Example: (210-50) ÷ 200 = 0.80

Question 28

What is the marginal propensity to consume if given the options?

Answer 28

0.80 ## Footnote Refer to the table for calculation.

Question 29

When does dissaving occur?

Answer 29

Whenever current consumption exceeds current income. ## Footnote This indicates that individuals are spending more than they earn.

Question 30

If wealth rises, what happens along the AD curve?

Answer 30

B. there will be a movement to the right along the AD curve. ## Footnote This indicates increased demand.

Question 31

If the availability of credit increases, what happens along the AD curve?

Answer 31

B. there will be a movement to the right along the AD curve. ## Footnote This suggests that more credit leads to higher demand.

Question 32

If tax policies become less favorable, what happens to the AD curve?

Answer 32

C. the AD curve will shift to the left. ## Footnote This indicates a decrease in demand due to unfavorable tax policies.

Question 33

Which of the following is not considered to be an important determinant of investment?

Answer 33

A. current disposable income ## Footnote Options include: A. current disposable income, B. expectations, C. interest rates, D. technological change.

Question 34

A rise in interest rates will cause?

Answer 34

A. a decline in investment spending. ## Footnote Options include: A. a decline in investment spending, B. a rise in investment spending, C. investment spending to remain constant, D. investment spending to be eliminated from the economy.

Question 35

The investment demand curve will shift to the left because of?

Answer 35

B. expectations of a recession. ## Footnote Options include: A. the discovery of more efficient production methods, B. expectations of a recession, C. higher interest rates, D. a lower current income level for the economy.

Question 36

What is a leakage in the economy?

Answer 36

C. income not spent directly on domestic output but instead diverted from the circular flow

Question 37

What is an addition of spending to the circular flow of income?

Answer 37

A. an injection

Question 38

Why is disposable income less than GDP?

Answer 38

C. taxes by governments and income held back as saving by businesses

Question 39

What does investment represent in the circular flow?

Answer 39

C. an injection into the circular flow, similar to government spending.

Question 40

When the economy is at equilibrium, what must be true?

Answer 40

A. leakages equal injections.

Question 41

What happens if leakages exceed injections?

Answer 41

C. the economy is contracting.

Question 42

What happens if injections exceed leakages?

Answer 42

C. the economy will expand.

Question 43

What effect does a decrease in sales expectations have on the AD curve?

Answer 43

A. left, causing more undesired investment.

Question 44

What will retail managers do when unwanted inventories pile up?

Answer 44

B. unemployment.

Question 45

Which of the following can cause a shift from AD0 to AD1, ceteris paribus?

Answer 45

A decrease in investment, an increase in exports, an increase in consumer confidence, or an increase in consumption.

Question 46

Which of the following can cause a shift from AD0 to AD1, ceteris paribus?

Answer 46

An increase in consumer confidence, a decrease in interest rates, a decrease in government spending on education, or an increase in exports.

Question 47

If actual investment exceeds desired investment, then what can happen?

Answer 47

A recession can develop, leakages are greater than injections, an inflationary spiral can develop, or leakages are equal to injections.

Question 48

What does an economic expansion refer to?

Answer 48

An economic expansion refers to an increase in the volume of goods and services produced. ## Footnote A. True

Question 49

What happens to real output during a recession?

Answer 49

During a recession, real output falls. ## Footnote A. True

Question 50

Is government spending the largest component of aggregate spending?

Answer 50

The largest component of aggregate spending is government spending. ## Footnote B. False

Question 51

The largest component of aggregate spending is government spending.

Answer 51

A. True ## Footnote This statement is true.

Question 52

The four components of aggregate spending are consumption, saving, imports, and taxes.

Answer 52

B. False ## Footnote The correct components are consumption, investment, government spending, and net exports.

Question 53

Equilibrium occurs when the aggregate demand curve intersects the aggregate supply curve.

Answer 53

A. True ## Footnote This statement is true.