Macroeconomics 11-15

Front 1

A downward shift in the consumption function can be caused by:

Back 1

a decrease in wealth.

Front 2

All of the following factors determine investment spending EXCEPT:

Back 2

expectations about future disposable income

Front 3

You and a coworker have been trying to develop a linear equation that describes the local household consumption function. Your co-worker has sent you a very short email that simply says he has finished the project and the consumption function is: C = 100 + 0.75(YD). Your job is to explain this result to your supervisor. According to this consumption function, what is the marginal propensity to consume?

Back 3

0.75

Front 4

Scenario: Consumption SpendingSuppose that the consumption function is: C = $500 + 0.8 × YD, where YD is disposable income.Reference: Ref 11-5(Scenario: Consumption Spending) Autonomous consumption is:

Back 4

$500.

Front 5

If overall inventories rise in a month because of unplanned inventory investment, one can conclude that:

Back 5

the economy is slowing down.

Front 6

Scenario: Consumption SpendingSuppose that the consumption function is: C = $500 + 0.8 × YD, where YD is disposable income.Reference: Ref 11-5(Scenario: Consumption Spending) If disposable income is $1,000, saving is:

Back 6

–$300.

Front 7

An increase in the wealth of households, all other things unchanged, will result in _______ the aggregate consumption function.Selected

Back 7

an upward shift in

Front 8

Scenario: Consumption SpendingSuppose that the consumption function is: C = $500 + 0.8 × YD, where YD is disposable income.Reference: Ref 11-5(Scenario: Consumption Spending) The marginal propensity to consume is:

Back 8

0.8

Front 9

Which one of the following accurately describes actual investment spending?

Back 9

Actual investment = planned investment + unplanned investment

Front 10

Suppose the marginal propensity to consume changes from 0.75 to 0.9. How will this affect the consumption function?

Back 10

The slope will get steeper.

Front 11

You and a coworker have been trying to develop a linear equation that describes the local household consumption function. Your co-worker has sent you a very short email that simply says he has finished the project and the consumption function is: C = 100 + 0.75(YD). Your job is to explain this result to your supervisor. According to this consumption function, how much consumption spending would occur if a household had disposable income of $1,000?

Back 11

$850

Front 12

Income–expenditure equilibrium GDP is:

Back 12

the level of GDP at which GDP equals planned aggregate spending.

Front 13

Scenario: Consumption SpendingSuppose that the consumption function is: C = $500 + 0.8 × YD, where YD is disposable income.Reference: Ref 11-5(Scenario: Consumption Spending) The marginal propensity to save is:

Back 13

0.2.

Front 14

Scenario: Consumption SpendingSuppose that the consumption function is: C = $500 + 0.8 × YD, where YD is disposable income.Reference: Ref 11-5(Scenario: Consumption Spending) If income increases by $2,000, consumption will increase by:

Back 14

$1,600

Front 15

If the multiplier equals 4, then the marginal propensity to save must be equal to:Selected

Back 15

1/4.

Front 16

When the aggregate price level increases, the purchasing power of many assets falls, causing a decrease in consumer spending. This is known as the _____ effect and is a reason why the _____ curve slopes _____.

Back 16

wealth; aggregate demand; downward

Front 17

In the long run, the economy is:

Back 17

self-correcting as prices of goods that are sticky in the short run become very flexible in the long run and thus move the economy to full employment.

Front 18

Suppose the equilibrium aggregate price level is rising and the equilibrium level of real GDP is falling. Which of the following most likely caused these changes?

Back 18

a decrease in aggregate supply

Front 19

A positive demand shock leads to:

Back 19

higher prices and higher employment.

Front 20

Suppose the economy is operating in long-run equilibrium. If a positive demand shock hits the economy, we would expect:

Back 20

a short-run increase in real GDP and the price level, and a long-run decrease in real GDP and an increase in the price level.

Front 21

According to the aggregate demand curve, when the aggregate price level _________, the quantity of _________

Back 21

rises; aggregate output demanded falls

Front 22

The short-run aggregate supply curve is positively sloped because:

Back 22

wages are sticky or don't readily adjust to changes in economic conditions in the short run.

Front 23

Suppose that a presidential candidate who promised large personal income tax cuts is elected. Which of the following is most likely to occur?

Back 23

an increase in aggregate demand

Front 24

Suppose that consumer expectations about the future improve. How will this affect the aggregate demand curve?Selected

Back 24

The aggregate demand curve shifts to the right.

Front 25

The aggregate supply curve shows the relationship between

Back 25

the aggregate price level and the quantity of aggregate output supplied.

Front 26

According to the interest rate effect, an increase in the price level causes people to:

Back 26

increase their money holdings, which increases interest rates and decreases investment spending

Front 27

Suppose that the stock market crashes. Which of the following is most likely to occur?

Back 27

the aggregate demand curve shifts to the left

Front 28

Stagflation may result from:

Back 28

an increase in the price of imported oil.

Front 29

A negative demand shock can cause:

Back 29

a recessionary gap.

Front 30

In the long run, the aggregate price level has:

Back 30

no effect on the quantity of aggregate output

Front 31

The _____ curve shows the negative relationship between the aggregate price level and the quantity of aggregate output demanded in the economy.

Back 31

aggregate demand

Front 32

A rise in labor productivity will most likely result in:

Back 32

an increase in aggregate supply.

Front 33

The 2009 American Recovery and Reinvestment Act was an example of:

Back 33

an expansionary fiscal policy.

Front 34

A cut in taxes ________, therefore shifting the aggregate demand curve to the ________.

Back 34

increases disposable income and consumption; right

Front 35

The government has a budget deficit if:

Back 35

its total revenues are less than its total expenditures.

Front 36

Which of the following is a government transfer?

Back 36

Social Security payments to retired auto workers

Front 37

The difference between a budget deficit and government debt is that:

Back 37

a deficit is the amount by which government spending exceeds tax revenues, whereas debt is the amount the government owes.

Front 38

Holding everything else constant, the government's budget balance during an expansion will:

Back 38

increase.

Front 39

Social insurance programs are:

Back 39

government programs intended to protect families against economic hardships.

Front 40

If the marginal propensity to consume is 0.9, then the tax multiplier will be:

Back 40

less than 10

Front 41

Government spending and taxation changes that cause fiscal policy to be expansionary when the economy contracts and contractionary when the economy expands are known as:

Back 41

automatic stabilizers

Front 42

The budget balance is calculated as:

Back 42

T-G-TR

Front 43

Consumer spending will rise if:

Back 43

government transfers rise

Front 44

If the current level of real GDP lies below potential GDP, then an appropriate fiscal policy would be to _____, which will shift the _____ curve to the _____.

Back 44

increase governement purchases, AD; right

Front 45

Expansionary fiscal policy:

Back 45

increases aggregate demand

Front 46

An increase in government transfers is an example of ________ because it ________.

Back 46

expansionary fiscal policy; shifts the aggregate demand curve to the right, increasing aggregate output

Front 47

Suppose the Federal Reserve wants to increase the supply of money. How could the Federal Reserve's tools of monetary policy achieve this goal?

Back 47

The Federal Reserve could lower the reserve requirement. This policy would allow banks to lend a larger fraction of total checkable deposits and the money supply would multiply. The Federal Reserve could lower the spread between the discount rate and the federal funds rate. This would make borrowing from the Federal Reserve less expensive for commercial banks, so banks would increase lending to customers and the money supply would increase. The Federal Reserve could buy Treasury bills from commercial banks. These open market operations would inject money into the banks' reserves, and the banks would proceed to lend these reserves to customers, thus increasing the money supply.

Front 48

Which of the following would NOT fit the economist's definition of money?

Back 48

bonds

Front 49

When you are using money to purchase a new MP3 player, money is serving as a:

Back 49

medium of exchange

Front 50

The U.S. dollar in your pocket today is best described as:

Back 50

flat money

Front 51

Which of the following is true concerning the monetary aggregates?

Back 51

M2 includes M1

Front 52

Among the liabilities of banks are:

Back 52

deposits

Front 53

Suppose that initially a bank has excess reserves of $800 and the reserve ratio is 20%. Then Andy deposits $1,000 of cash into his checking account and the bank lends $600 to Molly. That bank can lend an additional:

Back 53

$1,000

Front 54

Scenario: Money CreationThe reserve requirement is 20%, and Leroy deposits the $1,000 check he received as a graduation gift in his checking account. The bank does NOT want to hold excess reserves.Reference: Ref 14-5

(Scenario: Money Creation) Which of the following is an accurate description of the bank's balance sheet immediately after the deposit?

Back 54

Reserves increase by $1,000, and demand deposits increase by $1,000

Front 55

Scenario: Money CreationThe reserve requirement is 20%, and Leroy deposits the $1,000 check he received as a graduation gift in his checking account. The bank does NOT want to hold excess reserves.Reference: Ref 14-5(Scenario: Money Creation) How much of the $1,000 deposit is the bank required to keep in reserves?

Back 55

$200

Front 56

Scenario: Money CreationThe reserve requirement is 20%, and Leroy deposits the $1,000 check he received as a graduation gift in his checking account. The bank does NOT want to hold excess reserves.Reference: Ref 14-5(Scenario: Money Creation) How much money can the bank lend based on the $1,000 deposit?

Back 56

$800

Front 57

If the Federal Reserve wants to increase the money supply, it will:

Back 57

lower the reserve requirement

Front 58

Eli receives $200 in cash for his birthday and deposits the money in his checking account at River Town Bank.a. How does this deposit initially change the T-account of River Town Bank? How does it affect the money supply?b. If the bank maintains a reserve ratio of 15%, how will River Town respond to the new deposit?c. If every time River Town makes a loan, the loan results in a new checkable deposit in a different bank equal to the amount of the loan, by how much could the money supply in the economy expand in total?

Back 58

a. On the asset side of the T-account, reserves rise by $200. On the liability side of the T-account, checkable deposits rise by $200. There has been no change in the money supply as currency in circulation is now a checkable deposit and both fall into the definition of M1.b. The bank will hold $30 as reserves (15% of $200) and lend the remaining $170 to borrowers.c. The money supply could expand by $200 / 0.15 – $200 = $1,133.33. Note: We subtract the initial cash deposit of $200 because that was money already in the money supply.