1. Price indexes like the CPI are calculated using a base year. The term base year refers to:
a. the first year that the price data are available
b. any year in which inflation was higher than 5 percent
c. the most recent year in which the business cycle hit the trough
d. an arbitrarily chosen reference year
2. In the aggregate expenditures-output model, a decrease in government spending causesa
a. upward shift in the aggregate expenditures curve
b. downward shift in the aggregate expenditures curve
c. shift in the 45-degree line
d. rightward movement along the aggregate expenditures curve
e. leftward movement along the aggregate expenditures curve
3. Which one of the following factors will most likely cause an increase in aggregate demand?
a. an increase in net exports
b. an increase in the real interest rate
c. a decrease in net exports due to falling incomes abroad
d. a technological development that decreases the costs producing computer chips.
4. Assume the marginal propensity to consume (MPC) is 0.75 and the government cuts taxes by $250 billion. The aggregate demand curve will shift to the
a. right by 1,000 billion
b. right by 750 billion
c. left by 1,000 billion
d. left by 750 billion
5. In the U.S. economy, the effect on federal tax revenues and spending of a decrease in employment is to
a. cut tax revenues and raise expenditures
b. cut spending and raise tax revenues
c. raise both tax revenues and expenditures
d. cut both spending tax revenues
6. Which of the following policies is a supply-side policy?
a. Reduction in taxes
b. Reduction in regulation
c. Reduction in resource prices
d. Subsidles to produce technological advances
e. All of these
7. Since 1970, the composition of federal expenditures has
a. been virtually unchanged but federal spending as a share of GDP has declined substantially
b. been virtually unchanged, but federal spending as a share of GDP has increased sharply
c. shifted away from national defense and toward spending on income security.
d. Shifted away from income security income transfers and toward spending on national defense
8. A tax where wealthy people pay a larger percentage of their income than poor people is know as
a. excise tax
b. flat tax
c. proportional tax
d. progressive tax
e. regressive tax
9. Which of the following statements is true concerning the consumption function?
a. it slopes upward
b. its slope equal the MPC
c. it represents the direct (positive) relationship between consumption spending and the level of real disposable income.
d. If the consumption function lies above the 45-degree line then saving is positive
e. All of these
10. According to the classical economists, which of the following would make prolonged unemployment impossible?
a. Flexible prices, wages, and interest rates
b. Activist government policies
c. Stable investment demand
d. A steadily growing money supply.
11. If, for a given disposable income level, the disposable income line lies above the consumption curve, saving:
a. equals consumption
b. equals disposable income
c. is less than zero
d. is equal to zero
e. is greater than zero
12. The ratio of a change in consumption to a change in disposable income is the
a. consumption function
b. propensity to consume
c. average propensity to consume
d. extra propensity to consume
e. marginal propensity to consume
13. Which of the following will not shift the aggregate demand cure to the left?
a. consumers become more optimistic about the future
b. government spending decreases
c. business optimism decreases
d. consumers become pessimistic about the future
14. Which of the following are inherent in classical theory?
a. flexible prices
b. flexible wages
c. long-run full employment
d. all of these
15. If aggregate demand increases in the intermediate range of the aggregate supply curve then the
a. price level rises and real GDP falls
b. price level rises and real GDP rises
c. price level falls and real GDP falls
d. price level falls and real GDP rises
16. The consumption function expresses the
a. relation between consumption and dissaving
b. relation between consumption and disposable personal income
c. purposes of consumption
d. relation between consumption and dissaving
17. If consumption spending is larger than disposable income,
a. saving is positive
b. dissaving occurs
c. saving is exactly zero
d. a depression results
e. this cannot occur
18. The marginal propensity to consume (MPC) is computed as the change in:
a. consumption divided by the change in savings
b. consumption divided by the change in disposable personal
c. consumption divided by the change in GDP
d. none of these
19. The change in saving divided by the change in disposable income is the
a. Propensity to save
b. Saving function
c. Average propensity to save
d. Extra propensity to save
e. Marginal propensity to save
20. In the short-run Keynesian model, investment is..
a. autonomous in relation to the interest rate
b. upward sloping in relation to the price level
c. downward sloping in relation to disposable income
d. autonomous in relation to real GDP.
21. The investment demand curve as a function of various possible interest rates for the entire economy is assumed to be.
a. positively sloped
b. negatively sloped
c. rising, then falling
d. falling, then rising
22. A $1 million increase in investment spending will raise equilibrium output (real GDP) by
a. Less than $1 million
b. Exactly $1 million
c. Between $0.5 and $1.5 million
d. More than $1 million
23. The consumer price index is a number that measures movements in the average level of prices
24. The consumer price index is computed as the ratio of nominal GDP to real GDP.
25. People with fixed incomes fare best in an inflationary period
26. The consumption function has a negative slope
27. Real disposable income is held constant when constructing a consumption
28. In the aggregate expenditures-output model, if an economy operates below equilibrium GDP, there will be unplanned inventory accumulation
29. An increase in total spending in the economy will shift the aggregate demand
30. The classical economists believed there was no role for government to play in restoring full employment
31. If aggregate demand equals aggregate supply, macroeconomic equilibrium
32.Cost-push inflation is caused by supply shocks like higher oil prices and poor weather conditions
33. According to Keynesian economics, fiscal policy should be coordinated to create a surplus during economic expansions
34. Using the aggregate demand and supply model, expansionary fiscal policy will not affect the price level, but will restore full-employment GDP,
35. If the marginal propensity to consume is 0.80, the value of the spending multiplier will be 5.
36. The tax multiplier is greater than the spending multiplier regardless of the value of the marginal propensity to consume.
37. A simultaneous$10 million increase in both taxes and government spending will have no net effect on aggregate demand.