Macro economics

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Quiz 3

The relationship between investment and GDP is shown by the:

investment schedule

In the aggregate expenditures model, it is assumed that investment:

Does not change when real GDP changes

All else equal, a large decline in the real interest rate will shift the:

Investment schedule upward

For a private closed economy, aggregate expenditures conist of:

C + Ig

Actual investment is $62 billion at an equilibrium output level of $620 billion in private closed economy. The average propensity to save at this level of output is:


In the aggregate expenditures model, equilibrium GDP in a private closed economy is indicated by:

All of the above

If the above economy was closed to international trade, the equilibrium GDP and the multliplier would be:

$350 and 5

For the open economy the equilibrium GDP and the multiplier are:

$400 and 5

If the multiplier in an economy is 5, a $20 billion increase is net exports will:

Increase GDP by $100 billion

An excahnge rate:

Is the price at that the curremcoes of any two nations exchange for one another

The level of government spending:

Is the same at all leves of GDP

A $1 increase in governemtn spending on goods and services will have a greater impact on the equilibrium GDP than will a $1 decline in taxes because:

A portion of a tax cut will be saved

When the public sector is added to the aggregate expenditured model:

We add a new leakage in the form of taxes and a new injection in the form of government spending

A lump-sum tax means that:

The same amount of tax revenue is collected at each level of the GDP

An inflationary expenditure gap is the amount by which:

Aggregate expenditures exceed the full-employment level of GDP

A recessionary expenditure gap is:

The amount by which the full-employment GDP exceeds the level of aggregate expenditures

Assume th current equilibrium level of income is $200 billion as compared to the full-employment income loevel of $240 billion. If the MPC is 0.625, what change in aggregate expenditures is needed to achieve a full emploment?

An increase of $15 billion

Cyclical unemployment in the US is essentially the consequence of:

A deficient level of aggregate expenditures

the aggregate demand curve:

Shows the amount of real output that will be purchased at each possible price level

The real-balances, interest-rate, and foreign purchases effects all help explain:

Why the aggregate demand curve is downsloping

The factors that affect the amounts that consumers, buisness, government, and foreignersw wish to purchase at each price level are the:

Determinants of aggregate demand

Other things equal, a decrease in the real interest rate will:

Expand investment and shift the AD curve to the right

An economy's aggregate demand curve shifts leftward or rightward by more than changes in initial spending because of the:

Muliplier effect

The economy's long-run aggregate supply curve:

Is vertical

The economy's long-run as curve assumes that wages and other resource prices:

Eventually rise and fall to match upward or downward changes in the price level

The aggregate supply curve (short-run) slopes upward and to the right because:

Wages and other resource prives adjust only slowly to changes in the price level

Other things equal, an improvement in productivity will:

Shift the aggregate supply curve to the right

The determinants of aggregate supply:

include resource prices and resource productivity

Other things equal, a reduction in personal and businesstaxes can be expected to:

Increase both aggregate demand and aggregate supply

The equilibrium price level and level of real output occur where:

The aggregate demand and supply curves intersect

Graphically, demand-pull inflation is shown as a:

Righward shift of the AD curve along an upsloping AS curve

Graphically, cost-push inflation is shown as a:

Leftward shift of AS curve

If aggregate demand decreases, and as a result, real output and employment decline but the price level remains unchanged, we can assume that:

The price level is inflexible downward and a recession has occured

If the dollar price of foreign courrencies falls (that is, the follar appreciates), we would expect:

Aggregate demand to decre3ase and aggregate supply to increase

We would expect a decline in personal and corporate income taxes to:

Shift the aggregate demand curve rightward

Prices and wages tend to be:

Flexible upward, but inflexible downward

When aggregate demand declines, wage rates may be inflexible downward, at least for a time, because of:

Wage contracts

When aggregate demand declines, the price level may remain constant, at least for a time, because of:

Firms individually fear that their price cut may set off a price war

The gourp of three economists appointed by the President to provide fiscal policy recommendations is the:

Council of Economic Advisers

Fiscal poliucy is carried out primarily by:

The Federal government

Discretionary fiscal policy refers to:

Changes in taxes and government expenditures made by Congress to stabilize the economy

Expansionary fiscal policy is so named because it:

Is designed to expand real GDP

Contractionary fiscal policy is so named because it:

Is aimed at reducing aggregate demand and thus achieving price stability

If the MPS in an economy is .1, governement could shift the aggregate demand curve rightward by $40 billion by:

Increaseing government spending by $4 billion

If the MPS in an economy is .8, government could shift the aggregate demand curve rightward by $100 billion by:

Decreasing taxes by $25 billion

An appropriate fiscal policy for a sever recession is:

A decrease in tax rates

An appropriate fiscal policy for sever demand-pull inflation is:

A tax rate increase

In an aggregate demand-aggregate supply diagram, equal decreases in government spending and taxes will:

Shift the AD curve to the left

A contactionary fiscal policy is shown as a:

Leftward shift in the economy's aggregate demand curve

Suppose the price level is fixed, the MPC is .5 and the GDP gap is a negative $8- billion. To achieve full-employment output (exactly), government should:

Reduce taxes by $80 billion

Which of the following best describes the built-in stabilizers as they function in the US?

Personal and corporate income tax collections automatically rise and transfers and subsidies automatically decline as GDP rises

Which of the following statements is CORRECT?

Built-in stability only partically offsets fluctuations in economic activity

The stadardized budget refers to:

The size of the Federal government's budgetary surplus or deficit when the economy is operating at full employment

If teh economy has a standardized budget suplus, this means that:

Tax revenues would exceed government expenditures if full employment were achieved

Suppose the government purposely changes the economy's standarized budget from a deficit of 0 percent of real GDP to a deficit of 3 percent of real GDP. The government is egagins in a(n):

Expansionary fiscal policy

Suppose the government cuts taxes to keep the economy's standardized bidget in balance when the economy is epanding. The government is engaging in a(n):

Neutral fiscal policy

The federal budget deficit is found by:

Subtracting government tax revenues from government spending in a particular year

The amount by which Federal tax revenues exceed Federal government expenditures during a particular year is the:

budget surplus

According to Congressional Budget Office projections made in March 2006, the Federal budget is expected to remain in deficit until when?


The true size of Federal budget deficits may be understated because:

Social security surpluses are included as government tax revenues in meausring the budget deficit

The Social Security trust fund currently is in:

Surplus and itd inclusion in the Federal budget reduced the stated size of the budget deficit

The tax cut passed by Congress and the Bush administration in 2001 was motivated primarily by:

Projections that actual budget surpluses would rise to $5 trillion by 2010

The political business cycle refers to the possibilty that:

Politiciand will manipulate the economy to enhance their changes of being reelected

The crowding-out effect of expansionary fiscal policy suggests that:

Increases in government spending financed through borrowing will increase the interest rate and thereby reduce investment

Appropriate government fiscal policy would be to:

Reduce taxes or increase government spending

If the economy's MPC is .8, X is $200 billion and full-employment real GDP Y is $300 billion, an apporpriate fiscal policy would be to reduce taxes by:

$25 billion

The US public dept:

Consists of the historical accumlation of all Federal government deficits less surpluses

The public dept is held as:

Treasury bills, Treasury notes, Treasury bondsw and US savings bonds

Which of the following is NOT a significant contributor to the US public dept?

Demand-pull inflation

Recessions have contributed to the public debt by:

Reducing natonal income and therefore tax revenues

In 2005, the US public dept was:

About a third as large as the GDP

In 2005, the public debt was about:

$7.9 trillion

What percentage of the US public debt is held by Federal agencies and the Federal Reserve?

51 percent

What percentage of the public debt is help by foreign individuals and intitutions?

25 percent

The most likely way the public debt burdens future generations, if at all, is by:

Reducing the current level of investment

Which of the following is NOT considered a legitmate concern of a large public debt?

Bankruptcy of the Federal government

Which of the following is considered a legitmate concern of a large public debt?

Crowding-out of private investment

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