Micro Exam 3 Study Sheet - Assignment Essays

Q: Graph Investments ($B) / Real Domestic Product ($B) l1g; lg

I'g is an investment schedule that assumes that the investment plans of business are independent of the current level of income, whereas Ig does not

question

The difference between the investment demand curve and the investment schedule is that the former shows:

answer

An inverse relationship between investment and interest rate, while the latter shows no correlation between investment and income

question

Graph Investments ($B) / Real Domestic Product ($B) l1g; lg

answer

I'g is an investment schedule that assumes that the investment plans of business are independent of the current level of income, whereas Ig does not

question

If the real interest rate falls, then the:

answer

Investment schedule will shift upward

question

If the stock of available capital in the economy is running too low, then the:

answer

Investment schedule will shift upward

question

In a private closed economy, there will be an unplanned increase in inventories when:

answer

GDP exceeds aggregate expenditures

question

Refer to the table above. If planned investment is $18 billion, then at the $660 billion level of disposable income, there will be an:

answer

Unplanned increase in inventories of $12 billion

question

Refer to the graph above for a private closed economy. The equilibrium level of GDP in this economy is:

answer

$450 billion

question

In the flow of income and spending, saving and investment are, respectively:

answer

A leakage and an injection

question

Saving is $15 billion at the $125 billion equilibrium level of output in a closed, private economy. Actual investment must be:

answer

Equal to $15 billion

question

Saving is $40 billion and planned investment is $28 billion at the $175 billion level of output in a private closed economy. At this level:

answer

Unplanned investment will be positive $12 billion

question

If the MPC in an economy is 0.75 and aggregate expenditures increase by $5 billion, then equilibrium GDP will increase by:

answer

$20 billion

question

Refer to the above graph for a private closed economy. The multiplier for the above economy is:

answer

question

If aggregate expenditures increase by $12 billion and equilibrium GDP consequently increases by $48 billion, then the marginal propensity to save in the economy must be:

answer

0.25

question

Other things being equal, a decrease in an economy's exports will:

answer

Decrease domestic aggregate expenditures and the equilibrium level of GDP

question

Refer to the above table. If net exports increased by $10 billion at each level of GDP, the equilibrium real GDP would be:

answer

$650

question

Which of the following statements is correct?

answer

An increase in exports will tend to increase, and an increase in imports will tend to decrease, the equilibrium GDP

question

In the aggregate expenditures model of the economy, a downward shift in aggregate expenditures can be caused by a:

answer

Decrease in government spending or an increase in taxes

question

In the above graph it is assumed that investment, net exports, and government expenditures:

answer

Are independent of GDP

question

Leakages from the income-expenditure stream are:

answer

Saving, taxes, and imports

question

A personal tax cut of $50 billion will affect income differently than an increase in government spending by $50 billion because:

answer

Households may save part of the additional income from the tax cut

question

In the aggregate expenditures model, the equilibrium GDP is

answer

Not necessarily equal to the full-employment GDP

question

The amount by which an aggregate expenditures schedule must shift upward to achieve the full-employment GDP is a(n):

answer

Recessionary expenditure gap

question

Assume that the marginal propensity to consume in an economy is 0.9. If the economy's full-employment real GDP is $500 billion and its equilibrium real GDP is $550 billion, there is an inflationary expenditure gap of:

answer

$50 billion

question

If the MPC is 0.80, all taxes are lump-sum taxes, and the equilibrium GDP is $25 billion below the full-employment GDP, then the size of the recessionary expenditure gap is:

answer

$5 billion

question

In an open mixed economy, the inflationary expenditure gap may be described as the:

answer

Excess of Ca + Ig + Xn + G at the full-employment GDP

question

If the expected rates of return from investment decrease in an economy, there would most likely be a downward shift in the investment schedule for that economy.

answer

True

question

A downward-sloping investment demand curve and a horizontal investment schedule indicate that investments are inversely related to interest rates but are not affected by the level of income.

answer

True

question

When there are unplanned increases in inventories, then actual investment ends up being less than planned investment.

answer

False

question

An increase in imports, other things constant, would tend to raise the equilibrium level of GDP.

answer

False

question

A decrease in taxes will have a larger effect on equilibrium GDP if the marginal propensity to consume is smaller.

answer

False

question

If the government increases its purchases by $200 billion but at the same time raises lump-sum taxes by $200 billion, then equilibrium GDP will remain constant.

answer

False

question

The aggregate demand curve shows the:

answer

Inverse relationship between the price level and the quantity of real GDP purchased

question

The following factors explain the inverse relationship between the price level and the total demand for output, except:

answer

A substitution effect

question

The foreign purchases, interest rate, and real-balances effects explain why the:

answer

Aggregate demand curve is downward-sloping

question

A decrease in interest rates caused by a change in the price level would cause a(n):

answer

Increase in the quantity of real output demanded (or movement down along AD)

question

An increase in aggregate demand is most likely to be caused by

answer

A decrease in the tax rates on household income

question

The expenditure multiplier concept of the aggregate-expenditures model:

answer

Magnifies the shifts of the aggregate demand curve

question

Which combination of factors would most likely increase aggregate demand?

answer

An increase in consumer wealth and a decrease in interest rates

question

Refer to the graph above. Which of the following factors will shift AD1 to AD3?

answer

A decrease in consumer wealth

question

The real-balance effect pertains to the effect of:

answer

Price-changes on aggregate demand, while the wealth effect refers to the impact of changes in wealth on aggregate demand

question

Answer the question based on the following list of factors that are related to the aggregate demand curve. Refer to the list above. Investment spending would most likely be influenced by changes in:

answer

5 and 10 (Profit Expand Degree of Excess Cap)

question

The slope of the immediate-short-run aggregate supply curve is based on the assumption that:

answer

Both input and output prices are fixed

question

The upward slope of the short-run aggregate supply curve is based on the assumption that:

answer

Wages and other resource prices do not respond to price level changes

question

The long-run aggregate supply curve is:

answer

vertical

question

The version of aggregate supply that allows for changes in both product prices and resource prices is the:

answer

Long run

question

If the price of crude oil decreases, then this would most likely:

answer

Increase aggregate supply in the U.S.

question

A decrease in business taxes will tend to:

answer

Increase aggregate demand and increase aggregate supply

question

Refer to the list above. Changes in which combination of factors best explain why the aggregate supply curve would shift?

answer

7 and 8 (Business Taxes and Domestic Resource Avail)_

question

Refer to the list above. A change in which factor is most likely to change both aggregate demand and aggregate supply?

answer

3 and 10 (Degree of Excess Cap and Profit Expect on Investments)

question

Refer to the graph above. It depicts an economy in the:

answer

Short run

question

Refer to the table above. At the price level of 150, there will be a general:

answer

Shortage in the economy, and output demanded will decrease as the price level rises

question

Refer to the graph above. The long-run aggregate supply curve would be represented by which line?

answer

4 (straight up-and-down)

question

A fall in the prices of inputs will shift the aggregate:

answer

Supply curve rightward

question

Refer to the figure above. If AD1 shifts to AD2, the full multiplier effect would be an increase in real GDP from:

answer

Q1 to Q3

question

Refer to the figure above. If the economy is operating at full employment when its aggregate demand curve is AD2, then a further increase in consumption and investment spending will cause:

answer

Demand-pull inflation, and the new equilibrium output will be more than Q2

question

With cost-push inflation in the short run, there will be

answer

A decrease real GDP

question

The economy experiences an increase in the price level and an increase in real domestic output. Which is a likely explanation?

answer

Net exports have increased

question

Disinflation refers to a situation where:

answer

The rate of inflation falls, but the price level does not

question

Wage contracts, efficiency wages, and the minimum wage are explanations for why:

answer

Wages tend to be inflexible downward

question

Refer to the graph above. The ratchet effect would suggest that:

answer

If AD1 shifts to AD2, the economy would move to point b

question

An increase in the price level reduces the real value of financial assets with fixed money values and, as a result, the holders of these assets decrease their spending.

answer

True

question

The shape of the short-run aggregate supply curve indicates that as the general price level rises, output will expand but not by much when the economy reaches full employment.

answer

True

question

When the economy is experiencing demand-pull inflation, its real GDP tends to be rising.

answer

True

question

Cost-push inflation can be described as a rightward shift of the aggregate supply curve.

answer

False

question

If the price level decreases, then the aggregate expenditures schedule will shift and this translates into a:

answer

Movement down along the aggregate demand curve

question

A decrease in consumer spending can be expected to shift the:

answer

Aggregate expenditures curve upward and the aggregate demand curve leftward

question

When the Federal government takes budgetary action to stimulate the economy or rein in inflation, such policy is:

answer

Discretionary Fiscal Policy

question

If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n):

answer

Contractionary fiscal policy

question

Refer to the above graph. What combination would most likely cause a shift from AD1 to AD2?

answer

A decrease in taxes and an increase in government spending

question

Refer to the figure above. The economy is at equilibrium at point A. What fiscal policy would be most appropriate to control demand-pull inflation?

answer

Shift aggregate demand by increasing taxes

question

The economy starts out with a balanced Federal budget. If the government then implements expansionary fiscal policy, then there will be a:

answer

Budget deficit

question

Refer to the graph above. Assume that the economy initially has a price level of P1 and output level Q1. If the government implements expansionary fiscal policy, and the full multiplier effect was felt, it would bring the economy to:

answer

P1 and Q3

question

A given reduction in government spending will dampen demand-pull inflation by a greater amount when the:

answer

Economy's aggregate supply curve is steep

question

Due to automatic stabilizers, when the nation's total income rises, government transfer spending:

answer

Decreases and tax revenues increase

question

Automatic stabilizers smooth fluctuations in the economy because they produce changes in the government's budget that:

answer

Help offset changes in GDP

question

Refer to the graph above. A budget surplus would be associated with GDP level:

answer

question

The more progressive the tax system, the:

answer

Greater is the built-in stability for the economy

question

The built-in stabilizers in the economy tend to:

answer

Dampen the irregular swings in real GDP

question

The cyclically-adjusted deficit as a percentage of GDP is 2 percent in Year 1. This cyclically-adjusted deficit becomes 1 percent of GDP in Year 2. It can be concluded from Year 1 to Year 2 that:

answer

Fiscal policy was more contractionary

question

The American Recovery and Reinvestment Act of 2009 is a clear example of:

answer

Discretionary fiscal policy that made the cyclically-adjusted budget become more negative

question

One timing problem in using fiscal policy to counter a recession is the "operational lag" that occurs between the:

answer

Time fiscal action is taken and the time that the action has its effect on the economy

question

The crowding-out effect suggests that:

answer

Increases in government spending may reduce private investment

question

The United States is experiencing a recession and Congress decides to adopt an expansionary fiscal policy to stimulate the economy. In this case, the crowding-out effect suggests that investment spending would:

answer

Decrease, thus partially offsetting the fiscal policy

question

Assume that if there was no crowding-out, an increase in government spending would increase GDP by $100 billion. If there had been partial crowding-out, however, then GDP would have:

answer

Increased by $100 billion

question

The public debt is the:

answer

Accumulation of all past deficits minus all past surpluses

question

A Federal budget deficit is financed by the:

answer

Government issuance or sale of Treasury securities

question

Refer to the above table. The budget deficit was $75 billion in:

answer

Year 5

question

A major reason that the public debt cannot bankrupt the Federal government is because:

answer

The public debt can be easily refinanced by issuing new bonds

question

A public debt which is owed to foreigners can be burdensome because:

answer

The payment of interest reduces the volume of goods and services available for domestic uses

question

Refer to the above graph. Private investments are initially at point 5 on curve B. The crowding-out effect would be illustrated by a movement from point 5 to point:

answer

question

Refer to the data in the table above. Assume that private investment spending is initially $78 billion. If the government finances a deficit and this action increases the interest rate by 2 percentage points, then the government financing would have potentially crowded out:

answer

$17 billion of investment spending

question

A decrease in taxes is one way to pursue a contractionary fiscal policy because it will make government revenues contract.

answer

False

question

Built-in stability is exemplified by the fact that with a progressive tax system, net tax revenues decrease when GDP decreases.

answer

True

question

Expansionary fiscal policy will tend to reduce the budget deficit.

answer

False

question

The key to assessing whether fiscal policy is expansionary or not is to observe the change in the cyclically-adjusted budget balance.

answer

True

question

The actual and cyclically-adjusted budgets will be equal when the economy is at full employment.

answer

True

question

It is possible for an increase in government spending to encourage, instead of crowding out, private investment.

answer

True

question

If the budget deficit becomes smaller, then it will cause the public debt to also become smaller.

answer

False

1 of 98

question

The difference between the investment demand curve and the investment schedule is that the former shows:

answer

An inverse relationship between investment and interest rate, while the latter shows no correlation between investment and income

question

Graph Investments ($B) / Real Domestic Product ($B) l1g; lg

answer

I'g is an investment schedule that assumes that the investment plans of business are independent of the current level of income, whereas Ig does not

question

If the real interest rate falls, then the:

answer

Investment schedule will shift upward

question

If the stock of available capital in the economy is running too low, then the:

answer

Investment schedule will shift upward

question

In a private closed economy, there will be an unplanned increase in inventories when:

answer

GDP exceeds aggregate expenditures

question

Refer to the table above. If planned investment is $18 billion, then at the $660 billion level of disposable income, there will be an:

answer

Unplanned increase in inventories of $12 billion

question

Refer to the graph above for a private closed economy. The equilibrium level of GDP in this economy is:

answer

$450 billion

question

In the flow of income and spending, saving and investment are, respectively:

answer

A leakage and an injection

question

Saving is $15 billion at the $125 billion equilibrium level of output in a closed, private economy. Actual investment must be:

answer

Equal to $15 billion

question

Saving is $40 billion and planned investment is $28 billion at the $175 billion level of output in a private closed economy. At this level:

answer

Unplanned investment will be positive $12 billion

question

If the MPC in an economy is 0.75 and aggregate expenditures increase by $5 billion, then equilibrium GDP will increase by:

answer

$20 billion

question

Refer to the above graph for a private closed economy. The multiplier for the above economy is:

answer

question

If aggregate expenditures increase by $12 billion and equilibrium GDP consequently increases by $48 billion, then the marginal propensity to save in the economy must be:

answer

0.25

question

Other things being equal, a decrease in an economy's exports will:

answer

Decrease domestic aggregate expenditures and the equilibrium level of GDP

question

Refer to the above table. If net exports increased by $10 billion at each level of GDP, the equilibrium real GDP would be:

answer

$650

question

Which of the following statements is correct?

answer

An increase in exports will tend to increase, and an increase in imports will tend to decrease, the equilibrium GDP

question

In the aggregate expenditures model of the economy, a downward shift in aggregate expenditures can be caused by a:

answer

Decrease in government spending or an increase in taxes

question

In the above graph it is assumed that investment, net exports, and government expenditures:

answer

Are independent of GDP

question

Leakages from the income-expenditure stream are:

answer

Saving, taxes, and imports

question

A personal tax cut of $50 billion will affect income differently than an increase in government spending by $50 billion because:

answer

Households may save part of the additional income from the tax cut

question

In the aggregate expenditures model, the equilibrium GDP is

answer

Not necessarily equal to the full-employment GDP

question

The amount by which an aggregate expenditures schedule must shift upward to achieve the full-employment GDP is a(n):

answer

Recessionary expenditure gap

question

answer

$50 billion

question

If the MPC is 0.80, all taxes are lump-sum taxes, and the equilibrium GDP is $25 billion below the full-employment GDP, then the size of the recessionary expenditure gap is:

answer

$5 billion

question

In an open mixed economy, the inflationary expenditure gap may be described as the:

answer

Excess of Ca + Ig + Xn + G at the full-employment GDP

question

If the expected rates of return from investment decrease in an economy, there would most likely be a downward shift in the investment schedule for that economy.

answer

True

question

A downward-sloping investment demand curve and a horizontal investment schedule indicate that investments are inversely related to interest rates but are not affected by the level of income.

answer

True

question

When there are unplanned increases in inventories, then actual investment ends up being less than planned investment.

answer

False

question

An increase in imports, other things constant, would tend to raise the equilibrium level of GDP.

answer

False

question

A decrease in taxes will have a larger effect on equilibrium GDP if the marginal propensity to consume is smaller.

answer

False

question

If the government increases its purchases by $200 billion but at the same time raises lump-sum taxes by $200 billion, then equilibrium GDP will remain constant.

answer

False

question

The aggregate demand curve shows the:

answer

Inverse relationship between the price level and the quantity of real GDP purchased

question

The following factors explain the inverse relationship between the price level and the total demand for output, except:

answer

A substitution effect

question

The foreign purchases, interest rate, and real-balances effects explain why the:

answer

Aggregate demand curve is downward-sloping

question

A decrease in interest rates caused by a change in the price level would cause a(n):

answer

Increase in the quantity of real output demanded (or movement down along AD)

question

An increase in aggregate demand is most likely to be caused by

answer

A decrease in the tax rates on household income

question

The expenditure multiplier concept of the aggregate-expenditures model:

answer

Magnifies the shifts of the aggregate demand curve

question

Which combination of factors would most likely increase aggregate demand?

answer

An increase in consumer wealth and a decrease in interest rates

question

Refer to the graph above. Which of the following factors will shift AD1 to AD3?

answer

A decrease in consumer wealth

question

The real-balance effect pertains to the effect of:

answer

Price-changes on aggregate demand, while the wealth effect refers to the impact of changes in wealth on aggregate demand

question

Answer the question based on the following list of factors that are related to the aggregate demand curve. Refer to the list above. Investment spending would most likely be influenced by changes in:

answer

5 and 10 (Profit Expand Degree of Excess Cap)

question

The slope of the immediate-short-run aggregate supply curve is based on the assumption that:

answer

Both input and output prices are fixed

question

The upward slope of the short-run aggregate supply curve is based on the assumption that:

answer

Wages and other resource prices do not respond to price level changes

question

The long-run aggregate supply curve is:

answer

vertical

question

The version of aggregate supply that allows for changes in both product prices and resource prices is the:

answer

Long run

question

If the price of crude oil decreases, then this would most likely:

answer

Increase aggregate supply in the U.S.

question

A decrease in business taxes will tend to:

answer

Increase aggregate demand and increase aggregate supply

question

Refer to the list above. Changes in which combination of factors best explain why the aggregate supply curve would shift?

answer

7 and 8 (Business Taxes and Domestic Resource Avail)_

question

Refer to the list above. A change in which factor is most likely to change both aggregate demand and aggregate supply?

answer

3 and 10 (Degree of Excess Cap and Profit Expect on Investments)

question

Refer to the graph above. It depicts an economy in the:

answer

Short run

question

Refer to the table above. At the price level of 150, there will be a general:

answer

Shortage in the economy, and output demanded will decrease as the price level rises

question

Refer to the graph above. The long-run aggregate supply curve would be represented by which line?

answer

4 (straight up-and-down)

question

A fall in the prices of inputs will shift the aggregate:

answer

Supply curve rightward

question

Refer to the figure above. If AD1 shifts to AD2, the full multiplier effect would be an increase in real GDP from:

answer

Q1 to Q3

question

Refer to the figure above. If the economy is operating at full employment when its aggregate demand curve is AD2, then a further increase in consumption and investment spending will cause:

answer

Demand-pull inflation, and the new equilibrium output will be more than Q2

question

With cost-push inflation in the short run, there will be

answer

A decrease real GDP

question

The economy experiences an increase in the price level and an increase in real domestic output. Which is a likely explanation?

answer

Net exports have increased

question

Disinflation refers to a situation where:

answer

The rate of inflation falls, but the price level does not

question

Wage contracts, efficiency wages, and the minimum wage are explanations for why:

answer

Wages tend to be inflexible downward

question

Refer to the graph above. The ratchet effect would suggest that:

answer

If AD1 shifts to AD2, the economy would move to point b

question

An increase in the price level reduces the real value of financial assets with fixed money values and, as a result, the holders of these assets decrease their spending.

answer

True

question

The shape of the short-run aggregate supply curve indicates that as the general price level rises, output will expand but not by much when the economy reaches full employment.

answer

True

question

When the economy is experiencing demand-pull inflation, its real GDP tends to be rising.

answer

True

question

Cost-push inflation can be described as a rightward shift of the aggregate supply curve.

answer

False

question

If the price level decreases, then the aggregate expenditures schedule will shift and this translates into a:

answer

Movement down along the aggregate demand curve

question

A decrease in consumer spending can be expected to shift the:

answer

Aggregate expenditures curve upward and the aggregate demand curve leftward

question

When the Federal government takes budgetary action to stimulate the economy or rein in inflation, such policy is:

answer

Discretionary Fiscal Policy

question

If the U.S. Congress passes legislation to raise taxes to control demand-pull inflation, then this would be an example of a(n):

answer

Contractionary fiscal policy

question

Refer to the above graph. What combination would most likely cause a shift from AD1 to AD2?

answer

A decrease in taxes and an increase in government spending

question

Refer to the figure above. The economy is at equilibrium at point A. What fiscal policy would be most appropriate to control demand-pull inflation?

answer

Shift aggregate demand by increasing taxes

question

The economy starts out with a balanced Federal budget. If the government then implements expansionary fiscal policy, then there will be a:

answer

Budget deficit

question

answer

P1 and Q3

question

A given reduction in government spending will dampen demand-pull inflation by a greater amount when the:

answer

Economy's aggregate supply curve is steep

question

Due to automatic stabilizers, when the nation's total income rises, government transfer spending:

answer

Decreases and tax revenues increase

question

Automatic stabilizers smooth fluctuations in the economy because they produce changes in the government's budget that:

answer

Help offset changes in GDP

question

Refer to the graph above. A budget surplus would be associated with GDP level:

answer

question

The more progressive the tax system, the:

answer

Greater is the built-in stability for the economy

question

The built-in stabilizers in the economy tend to:

answer

Dampen the irregular swings in real GDP

question

The cyclically-adjusted deficit as a percentage of GDP is 2 percent in Year 1. This cyclically-adjusted deficit becomes 1 percent of GDP in Year 2. It can be concluded from Year 1 to Year 2 that:

answer

Fiscal policy was more contractionary

question

The American Recovery and Reinvestment Act of 2009 is a clear example of:

answer

Discretionary fiscal policy that made the cyclically-adjusted budget become more negative

question

One timing problem in using fiscal policy to counter a recession is the "operational lag" that occurs between the:

answer

Time fiscal action is taken and the time that the action has its effect on the economy

question

The crowding-out effect suggests that:

answer

Increases in government spending may reduce private investment

question

answer

Decrease, thus partially offsetting the fiscal policy

question

Assume that if there was no crowding-out, an increase in government spending would increase GDP by $100 billion. If there had been partial crowding-out, however, then GDP would have:

answer

Increased by $100 billion

question

The public debt is the:

answer

Accumulation of all past deficits minus all past surpluses

question

A Federal budget deficit is financed by the:

answer

Government issuance or sale of Treasury securities

question

Refer to the above table. The budget deficit was $75 billion in:

answer

Year 5

question

A major reason that the public debt cannot bankrupt the Federal government is because:

answer

The public debt can be easily refinanced by issuing new bonds

question

A public debt which is owed to foreigners can be burdensome because:

answer

The payment of interest reduces the volume of goods and services available for domestic uses

question

Refer to the above graph. Private investments are initially at point 5 on curve B. The crowding-out effect would be illustrated by a movement from point 5 to point:

answer

question

answer

$17 billion of investment spending

question

A decrease in taxes is one way to pursue a contractionary fiscal policy because it will make government revenues contract.

answer

False

question

Built-in stability is exemplified by the fact that with a progressive tax system, net tax revenues decrease when GDP decreases.

answer

True

question

Expansionary fiscal policy will tend to reduce the budget deficit.

answer

False

question

The key to assessing whether fiscal policy is expansionary or not is to observe the change in the cyclically-adjusted budget balance.

answer

True

question

The actual and cyclically-adjusted budgets will be equal when the economy is at full employment.

answer

True

question

It is possible for an increase in government spending to encourage, instead of crowding out, private investment.

answer

True

question

If the budget deficit becomes smaller, then it will cause the public debt to also become smaller.

answer

False

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