question
Consumption spending is $5 million, planned investment spending is $8 million, unplanned investment spending is $2 million, government purchases are $10 million, and net export spending is $2 million. What is aggregate expenditure?
answer
$25 million
question
Refer to the Article Summary. An increase in consumer spending, boosted by a strong job market, helped lead to an increase in GDP in 2019. The increase in consumption resulting from the increase in disposable income will cause a(n) ________ the aggregate expenditure curve.
answer
Movement up along
question
Investment spending increases during ________, and decreases during ________.
answer
An expansion; a recession
question
If the MPC is 0.95, then a $10 million increase in disposable income will
answer
increase consumption by $9.5 million
question
The difference between GDP and disposable income is
answer
net taxes
question
Refer to the diagram to the right. Potential GDP equals $100 billion. The economy is currently producing
GDP1 which is equal to $90 billion. If the MPC is 0.8, then how much must autonomous spending change for the economy to move to potential GDP?
GDP1 which is equal to $90 billion. If the MPC is 0.8, then how much must autonomous spending change for the economy to move to potential GDP?
answer
$2 billion
question
Which of the following best describes the "wealth effect"?
answer
When the price level falls, the real value of the household wealth rises.
question
Higher personal income taxes
answer
decrease aggregate demand
question
Full-employment GDP is also known as
answer
potential GDP
question
The long-run aggregate supply curve will shift to the right if the economy
answer
experiences technological change
question
In 2005, Hurricane Katrina destroyed oil and natural gas refining capacity in the Gulf of Mexico which subsequently drove up natural gas, gasoline, and heating oil prices. Three years later, once the refining capacity was restored, these prices came back down. The restoration of refining capacity should
answer
shift the short-run aggregate supply curve to the right.
question
In the new short-run equilibrium, the unemployment rate is _____________ the unemployment rate in the initial equilibrium prior to the increase in the price of oil.
answer
Higher than
question
Which of the following best explains how and why the economy will adjust back to long-run equilibrium?
answer
Short-run aggregate supply will increase (shift rightward) as the recession makes firms and workers willing to accept lower wages and prices.
question
When the economy returns to long-run equilibrium again,
answer
real GDP, the unemployment rate, and the price level will be the same as the initial equilibrium values prior to the increase in the price of oil.
question
During and following the recession of
2007-2009,
both President Bush and President Obama received approval from Congress to increase federal spending and cut taxes in order to increase aggregate demand. These actions were examples of ________ aimed at increasing real GDP and employment.
2007-2009,
both President Bush and President Obama received approval from Congress to increase federal spending and cut taxes in order to increase aggregate demand. These actions were examples of ________ aimed at increasing real GDP and employment.
answer
discretionary fiscal policy
question
The increase in the amount the government collects in taxes when the economy expands and the decrease in the amount the government collects in taxes when the economy goes into a recession is an example of
answer
automatic stabilizers
question
Which of the following is an appropriate discretionary fiscal policy if equilibrium real GDP falls below potential real GDP?
answer
an increase in government purchases
question
Contractionary fiscal policy to prevent real GDP from rising above potential real GDP would cause the inflation rate to be ________ and real GDP to be ________.
answer
lower; lower
question
Crowding out will be greater
answer
the more sensitive investment spending is to changes in the interest rate.
question
Economists who believe the supply side effects of tax cuts are small essentially believe that
answer
tax cuts mainly affect aggregate demand.
question
Which of the following is a reason why we should consider the federal national debt a problem?
answer
If the debt drives up interest rates, crowding out will occur.
question
Suppose that real GDP is currently
$13.3 trillion and the potential real GDP is $14.0 trillion, or a gap of $700
billion. The government purchases
multiplier is 3.3, and the tax multiplier is 2.3.
Gov't spending will need to be increased by __________ billion.
Taxes will need to be cut by __________ billion.
$13.3 trillion and the potential real GDP is $14.0 trillion, or a gap of $700
billion. The government purchases
multiplier is 3.3, and the tax multiplier is 2.3.
Gov't spending will need to be increased by __________ billion.
Taxes will need to be cut by __________ billion.
answer
$212, $304
question
Consumption spending is $22 million, planned investment spending is $7 million, actual investment spending is $7 million, government purchases are $9 million, and net export spending is $3 million. Based on this information, which of the following is true?
answer
Aggregate expenditure is equal to GDP.
question
An increase in Social Security payments will
answer
increase consumption spending
question
If firms are more pessimistic and believe that future profits will fall and remain weak for the next few years, then
answer
investment spending will fall
question
During a(n) ________ many firms experience increased profits, which increases ________ and investment spending.
answer
expansion; cash flow
question
Potential GDP equals $500 billion. The economy is currently producing GDP1 which is equal to $450 billion. If the MPC is 0.8, then how much must autonomous spending change for the economy to move to potential GDP?
answer
$10 billion
question
The international trade effect states that
answer
an increase in the price level will lower net exports
question
If aggregate demand just increased, which of the following may have caused the increase?
answer
an increase in gov't purchases
question
What is potential GDP?
answer
the level of real GDP in the long run
question
If stricter immigration laws are imposed and many foreign workers in the United States are forced to go back to their home countries,
answer
the long-run aggregate supply curve will shift to the left
question
Workers and firms both expect that prices will be 2.5% higher next year than they are this year. As a result,
answer
the short-run aggregate supply curve will shift to the left as wages increase.
question
To combat a recession with discretionary fiscal policy, Congress and the president should
answer
decrease taxes to increase consumer disposable income.
question
For the federal deficit to be lowered,
answer
the federal gov't expenditures must be lower than its tax revenue
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