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22 Cards in this Set

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Suppose the marginal propensity to consume is 0.75 and taxes decrease by $50 billion, by how much does GDP change, assuming the short-run aggregate supply curve is positively sloped?


a)an amount more than $150 billion


b)$150 billion


c)an amount less than $150 billion


d)-$150 billion

c)an amount less than $150 billion

If the bank of Waterloo receives a $10,000 deposit, and the reserve requirement is 10 percent, by how much does the money supply change?


a) $90,000


b) $100,000


c)-$90,000


d)-$100,000

a)$90,000

An increase in real wealth causes an increase in ________ only in the short run, but causes an increase in ________ in both the short run and the long run


a)real GDP, the price level


b)the price level;the price level


c)the price level; real GDP


d)real GDP; real GDp

a)real GDP; the price level

Ceteris paribus, in the long run, a negative supply shock causes


a) the long-run aggregate supply curve to shift to the left


b)the price level to rise initially, and then return to its lower level


c)equilibrium real GDP to fall


d)unemployment to fall below its short-run level

b) the price level to rise initially, and then return to its lower level

If the economy is falling below potential real GDP, which of the following would be an appropriate fiscal policy to bring the economy back to long-run aggregate supply? An increase in


a)oil prices


b)the money supply and a decrease in interest rates


c)government purchases


d)taxes

c) government purchases

The use of fiscal policy to stabilize the economy is limited because


a)changes in government spending and tax rates have a small effect on interest rates


b)changes in government spending and tax rates have a small effect on aggregate demand


c) the IRS resists changes in tax rates because of all the changes they would have to make to the tax code


d) the legislative process can by slow, which means that it is difficult to make fiscal policy actions in a timely way.

d) the legislative process can by slow, which means that it is difficult to make fiscal policy actions in a timely way

For purposes of monetary policy, the Federal Reserve has targeted the interest rate known as the


a) Treasury bill rate


b) prime rate


c) discount rate


d) federal funds rate

d)Federal funds rate



A critical function of the government in facilitating the operation of a market economy is


a)setting up and enforcing private property rights


b)ensuring an equal distribution of income to all citizens


c) producing goods and services for low income households


d) controlling the market prices of food items

a)setting up and enforcing private property rights

Without technological advancement, how can a nation achieve economic growth?


a) through an increase in supplies of factors of production


b) by producing more high-value goods and fewer low-value goods


c)by decreasing the size of the labor force


d) by producting more low-value goods and fewer high-value goods

a) through an increase in supplies of factors of production

If the economy is currently in equilibrium at a level of GDP that is above potential GDP, which of the following would move the economy back to potential GDP?


a)a decrease in the value of the dollar relative to other currencies


b)a decrease in interest rates


c)an increase in business confidence


d) a decrease in wealth

d) a decrease in wealth

Foreign investment can give a low-income country


a) no hope to break the vicious cycle of poverty


b)the means to slow down growth


c)access to funds for investment and access to technology


d)a path to dependency and low growth

c) access to funds for investment and access to technology

You are an economic advisor to the president. You are asked to recommend a policy to promote long term economic growth in the economy. Which of the following policies would you chose?
a) a reduction in taxes on luxury yachts


b) a reduction in sales taxes


c) an investment tax credit


d)all of the above

c) an investment tax credit

According to new growth theory, the accumulation of _____ capital is subject to diminishing returns at the ____ level, but not at the level of the economy as a whole.


a) physical; production


b) physical; firm


c) knowledge; firm


d) technological; personal

c) knowledge; firm

U.S. net export spending rises when


a) the value of the US dollar increases relative to other currencies


b) the inflation rate is higher in the US relative to other countries


c) the price level in the US rises relative to the price level in other countries


d) the growth rate of US GDP is slower than the growth rate of GDP in other countries



d) the growth rate of US GDP is slower than the growth rate of GDP in other countries

What is investment in a closed economy if you have the following economic data?


Y= $16 trillion


C= $12 trillion


TR= $3 trillion


G= $2 trillion




a) $3 trillion


b) $2 trillion


c) cannot be determined


d) $5 trillion

b) $2 trillion

_______ consumption is consumption that depends upon the level of GDP and _____ consumption is consumption that does not depend upon the level of GDP.


a) autonomous; voluntary


b) autonomous; induced


c) voluntary; autonomous


d) induced; autonomous

d) induced; autonomous

The key factors in raising standards of living in low-income countries have been increases in


a) capital accumulation and the money supply


b) foreign aid and population


c) income and government ownership of resources


d) technology and knowledge

d) technology and knowledge

Suppose the marginal propensity to consume is 0.70 and investment spending increases by $100 billion, by how much does real GDP change?


a) $100 billion


b) $143 billion


c) $70 billion


d) $333 billion

d) $333 billion

When the economy reaches a peak in a business cycle, which of the following will occur?


a)Income, production, and employment will continue to rise


b) Income and production will fall, but employment will continue to rise


c) Income, production, and employment will begin to fall


d) Employment falls, but income and production will continue to rise

c) Income, production, and employment will begin to fall

If aggregate expenditure is greater than GDP, how will the economy reach macroeconomic equilibrium?


a)Inventories will decline, and GDP and employment will rise


b) Inventories will rise, and GDP and employment will rise


c) Inventories will rise, and GDP and employment will decline


d) Inventories will decline, and GDP and employment will decline

a) inventories will decline, and GDP and employment will rise

If technological change increases the profitability of new investment for firms, then the _____ curve for loanable funds will shift to the ____ and the equilibrium real interest rate will _______.


a) supply; left; rise


b)demand; left; fall


c)demand; right; rise


d) supply; right; fall

c) demand; right; rise

An explanation for the productivity slowdown from 1974 through 1995 is


a)measurement problems


b) an increase in labor quality


c) a decline in oil prices


d) creative destruction

a) measurement problems