Midterm 10-17

Question 1

Equation for savings

Answer 1

Saving = disposable income - consumption

Question 2

How is consumption related to disposable income?

Answer 2

Directly (positively)

Question 3

Amount by which actual consumption in any year falls short of the 45 degree line

Answer 3

Savings

Question 4

Income level at which households plan to consume their entire incomes

Answer 4

Break even income

Question 5

The fraction, or percentage, of total income that is consumed is the

Answer 5

Average propensity to consume

Question 6

The fraction of total income that is saved is the

Answer 6

Average propensity to save

Question 7

The proportion, or fraction, of any change in income consumed is

Answer 7

Marginal propensity to consume

Question 8

The fraction of any change in income saved is

Answer 8

Marginal propensity to save

Question 9

The dollar amount of all the assets that it owns minus the dollar amount of its liabilities

Answer 9

A households wealth

Question 10

What is money?

Answer 10

Money is a medium of exchange, unit of account, and store of value

Question 11

Equilibrium GDP is where:

Answer 11

C + Ig = GDP

Question 12

Withdrawal of spending from the economy’s circular flow of income and expenditures.

Answer 12

Leakage (savings)

Question 13

The purchases of capital goods

Answer 13

Injection (investment)

Question 14

Multiplier equation:

Answer 14

Change in real GDP divided by initial change in spending

Question 15

A tax of a constant amount or, more precisely, a tax yielding the same amount of tax revenue at each level of GDP.

Answer 15

Lump-sum tax

Question 16

The amount by which aggregate expenditures at all the full-employment GDP fall short of those required to achieve the full-employment GDP.

Answer 16

Recessionary expenditure gap

Question 17

Amount by which an economy’s aggregate expenditures at the full-employment GDP exceed those just necessary to achieve the full employment level of GDP.

Answer 17

Inflationary expenditure gap

Question 18

A schedule or a curve that shows the amount of a nations output that buyers collectively desire to purchase at each possible price level.

Answer 18

Aggregate demand

Question 19

A change in the price level produces a

Answer 19

Real-balances effect

Question 20

The aggregate demand curve also slopes downward because of the

Answer 20

Interest-rate effect

Question 21

The downward slope of the aggregate demand curve can be explained by

Answer 21

Real balanced effect
Interest rate effect
Foreign purchases effect

Question 22

A schedule or curve that shows the amount of a nations output (real GDP) that buyers collectively desire to purchase at each possible price level

Answer 22

Aggregate Demand

Question 23

Change in government expenditures and tax collection to promote FE, price stability and economic growth is

Answer 23

Discretionary fiscal policy

Question 24

What does the crowding out effect do to expansionary fiscal policy

Answer 24

Increase the interest rate and reduce investment spending

Question 25

What did the TARP do in 2008

Answer 25

Emergency loans from the US treasury to US financial firms

Question 26

Interest rate paid on overnight loans is called

Answer 26

Federal funds rate

Question 27

What are two reasons that people demand money

Answer 27

Asset and transaction purposes