question
If consumption is $500 and that the marginal propensity to consume is 0.6. If disposable income increases by $1,000, consumption spending will increase by
answer
$600
question
an increase in taxes on business will most likely cause aggregate demand and aggregate supply to change in which of the following ways in the short run?
answer
aggregate demand will not change and aggregate supply will decrease
question
which of the following would cause the short-run aggregate supply curve to shift to the left?
answer
an increase in the wage rate
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all of the following changes will shift the investment demand curve to the left EXCEPT
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a decrease in the real interest rate
question
assume that an economy is currently in the long-run equilibrium and the short-run aggregate supply curve is upward sloping. A positive supply shock, such as a drop in oil prices, will most likely cause which of the following to the economy in the short run?
answer
a decrease in the price level and an increase in employment level
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what best explains the increase in national income that results from equal increases in government spending and taxes?
answer
consumers do not reduce their spending by the full amount of the tax increase
question
assume that an initial change in spending of $20 billion results in a rightward shift in aggregate demand that increases real GDP by $40 billion... the multiplier is
answer
2
question
the aggregate demand curve is downward sloping because an increase in the general price level will cause the demand for money, interest rates, and investment to change in which of the following ways?
answer
demand for money will increase, interest rates will increase, and investment will decrease
question
if the federal government decreases its expenditures on goods and services by $20 billion and decreases taxes on personal incomes by $20 billion, which of the following will occur in the short run?
answer
aggregate demand will decrease by up to $20 billion
question
what would be the initial impact on an economy if worker productivity were to increase more than wages
answer
the short-run aggregate supply curve would shift to the right, decreasing the price level
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what would shift the aggregate demand curve to the left?
answer
an increase in interest rates caused by a tightening of monetary policy
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stagflation is most likely to be caused by
answer
a decrease in aggregate supply
question
Jasmine's income has increased by $5,000. She is going to spend $4.500 of it on gifts for her teachers, and saves $500 for college. What is her marginal propensity to save?
answer
0.10
question
the government attempts to fight a recession by increasing spending on roads by $300 billion. MPC is 0.75. How much is GDP going to rise?
answer
$1,200 billion
question
a firm believes that it will earn $600 additional dollars this year if it purchases a $500 machine (that will last for one year). The interest rate is 8%. Should it buy the machine?
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yes
question
what would explain a shift in the aggregate supply curve to the right?
answer
a technological breakthrough
question
what would result from the reluctance of firms to fire and hire after economic changes?
answer
sticky wages
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an increase in which of the following would cause the AD curve to shift to the left?
answer
income taxes
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what is not a reason that the aggregate demand curve slopes downward?
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the substitution effect
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what would cause a shift to the left in aggregate supply?
answer
an increase in oil prices
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what is the equation for the spending multiplier?
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1/(1-MPC)
question
during a time of stagflation...
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GDP goes down and prices rise
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a decrease in labor productivity will shift...
answer
the AS curve to the left
question
what is associated with a higher average propensity to consume?
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lower income
question
what could sift the demand curve for loanable funds to the left?
answer
increased taxes on businesses
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if the government reduces spending, we should expect all of the following and not expect...
answer
should expect: a reduction in GDP, increased unemployment, a decrease in AD... should NOT EXPECT inflation
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what is the typical effect of a positive demand shock?
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GDP increases, employment increases
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a positive demand shock wont cause inflation...
answer
over the horizontal portion of the AS curve
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Bob's MPC is 0.8. His income goes up by $500. How much will the save?
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$100
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The MPS is 0.2. The government increases spending by $3. It also raises taxes by $3.
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GDP will rise by $3
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over the intermediate portion of the AS curve
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the multiplier effect will be weakened by inflation
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an increase in AD over the vertical portion of the AS curve will cause
answer
demand pull inflation
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what IS and IS NOT an explanation for "sticky" wages?
answer
explanations for sticky wages: efficiency wages, minimum wage, wage contracts... NOT AN EXPLANATION: rising input costs
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What does "r" stand for in the market for loanable funds?
answer
rate of return
question
a decrease in U.S prices relative to those in other countries
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will lead to an increase in net exports
question
what is the biggest factor in determining overall spending by consumers?
answer
income
question
stagflation is most likely caused by a...
answer
decrease in aggregate supply
question
businesses will purchase capital according to what formula?
answer
r is greater than or equal to i
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