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ECO 121 LC (Macroeconomics)

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Test 3: ECO 121 LC (Macroeconomics);Do any 40 of the 50 questions. Use the Answer Sheet;1.;If disposable income is $900 billion when the average propensity to consume is 0.9, it can be concluded that;A.;The marginal propensity to consume is also 0.9;B.;The marginal propensity to save is 0.1;C.;Consumption is $900 billion;D.;Saving is $90 billion;2.;The MPC can be defined as the;A.;Change in consumption divided by the change in income;B.;Change in income divided by the change in consumption;C.;Ratio of income to saving;D.;Ratio of saving to consumption;3.;An MPC value of less than 1.0 indicates that as income increases;A.;Consumption also increases, and by more than the increase in income;B.;Consumption also increases, and at the same rate as the increase in income;C.;Consumption will go in the opposite direction and decrease;D.;Consumption also increases, though not as much as income;4.;Assume that an increase in a household's disposable income from $40,000 to $48,000 leads to an increase in;consumption from $35,000 to $41,000, then the;A.;Marginal propensity to consume is;C.;Marginal propensity to save is.20;.75;D.;Marginal propensity to consume is.6;B.;Average propensity to consume is.75;5.;Dissaving occurs when;A.;Income is greater than saving;B.;Income is less than consumption;C.;D.;Saving is greater than consumption;Saving is greater than the interest rate;6.;A firm invests in a new machine that costs $5,000 a year but which is expected to produce an increase in total;revenue of $5,200 a year. The current real rate of interest is 7 percent. The firm should;A.;Undertake the investment because the expected rate of return of 10 percent is greater than the real rate;of interest;B.;Undertake the investment because the expected rate of return of 8 percent is greater than the real rate;of interest;C.;Not undertake the investment because the expected rate of return of 6 percent is less than the real rate;of interest;D.;Not undertake the investment because the expected rate of return of 4 percent is less than the real rate;of interest;7.;Which of the following factors would decrease investment demand?;A.;A decrease in business taxes;B.;An increase in the cost of acquiring capital goods;C.;An increase in the rate of technological change;D.;A decrease in the stock of capital goods on hand;8.;If businesses feel more optimistic about the state of the economy, then this change is likely to;A.;Cause a movement up the investment demand curve;B.;Cause a movement down the investment demand curve;C.;Shift the investment demand curve to the left;D.;Shift the investment demand curve to the right;ECO 121 (Macroeconomics);Test 3 (110614);9.;The multiplier effect relates;A.;Changes in the price level to changes in real GDP;B.;Changes in the interest rate to changes in investment;C.;Changes in disposable income to changes in consumption;D.;Changes in spending to changes in real GDP;10.;Generally speaking, the greater the MPS, the;A.;Smaller would be the increase in GDP which results from an increase in consumption spending;B.;Larger would be the increase in GDP which results from an increase in consumption spending;C.;Larger would be the increase in GDP which results from a decrease in consumption spending;D.;Smaller would be the increase in GDP which results from a decrease in consumption spending;11.;Assume the marginal propensity to consume is 0.8. If consumer spending increases by $20 billion, then real;GDP will;A.;Increase by $100 billion;C.;Increase by $16 billion;B.;Decrease by $100 billion;D.;Will not change;12.;When the general price level in our economy increases, the following effects occur except;A.;The purchasing power of people's savings will increase;B.;The interest rate will also tend to increase;C.;Foreign buyers will buy less of our output, and we tend to import more;D.;Our net exports will tend to decrease;13.;The foreign purchases effect on aggregate demand suggests that a;A.;Fall in our domestic price level will increase our imports and reduce our exports, thereby reducing the;net exports component of aggregate demand;B.;Fall in our domestic price level will decrease our imports and increase our exports, thereby reducing;the net exports component of aggregate demand;C.;Rise in our domestic price level will increase our imports and reduce our exports, thereby reducing the;net exports component of aggregate demand;D.;Rise in our domestic price level will decrease our imports and increase our exports, thereby reducing;the net exports component of aggregate demand;14.;An increase in personal income tax rates will cause a(n);A.;Decrease (or shift left) in aggregate demand;B.;Increase (or shift right) in aggregate demand;C.;Decrease in the quantity of real output demanded (or movement up along AD);D.;Increase in the quantity of real output demanded (or movement down along AD);15.;An increase in expected future income will;A.;Increase aggregate demand and aggregate supply;B.;Decrease aggregate demand and aggregate supply;C.;Increase aggregate supply;D.;Increase aggregate demand;16.;The expenditure multiplier concept of the aggregate-expenditures model;A.;Is not at all relevant in the AD-AS model;B.;Magnifies the shifts of the aggregate demand curve;C.;Explains movement up or down the aggregate demand curve;D.;Reverses the shift of the aggregate demand curve;17.;The upward slope of the short-run aggregate supply curve is based on the assumption that;A.;Wages and other resource prices do not respond to price level changes;B.;Wages and other resource prices do respond to price level changes;C.;Prices of output do not respond to price level changes;D.;Prices of inputs flexible while prices of outputs are fixed;ECO 121 (Macroeconomics);Test 3 (110614);18.;The version of aggregate supply that allows for changes in both product prices and resource prices is the;A.;Immediate short-run;C.;Immediate long-run;B.;Short run;D.;Long run;19.;A fall in the prices of inputs will shift the aggregate;A.;Demand curve leftward;B.;Demand curve rightward;C.;D.;Supply curve rightward;Supply curve leftward;20.;Which would most likely increase aggregate supply?;A.;An increase in the prices of imported products;B.;An increase in productivity;C.;A decrease in business subsidies;D.;A decrease in personal income taxes;21.;If the price of crude oil decreases, then this would most likely;A.;Decrease aggregate supply in the U.S.;B.;Increase aggregate supply in the U.S.;C.;Increase aggregate demand in the U.S.;D.;Decrease aggregate demand in the U.S.;22.;Suppose that an economy produces 300 units of output, employing the 50 units of input, and the price of the;input is $9 per unit. The level of productivity and the per-unit cost of production are, respectively;A.;1.50 and $6.00;C.;5 and $6.00;B.;6 and $1.50;D.;5 and $1.50;23.;Suppose that an economy produces 2400 units of output, employing the 60 units of input, and the price of the;input is $30 per unit. If productivity increased such that 3000 units are now produced with the quantity of;inputs and the price of inputs remaining the same, then per-unit production costs would;A.;Decrease and aggregate supply would decrease;B.;Decrease and aggregate supply would increase;C.;Increase and aggregate supply would decrease;D.;Remain unchanged and aggregate supply would remain unchanged;Answer the next two questions based on the information in the graph below.;24.;A shift from AD1 shifts to AD2 would be consistent with what economic event in U.S. history?;A.;Demand-pull inflation in the late 1960s;B.;Cost-push inflation in the mid-1970s;C.;Full-employment in the late 1990s;D.;Recession in 2007-09;ECO 121 (Macroeconomics);Test 3 (110614);25.;A shift from AD2 shifts to AD1 would be consistent with what economic event in U.S. history?;A.;World War II in the 1940s;C.;Demand-pull inflation in the late;B.;Cost-push inflation in the mid-1970s;1960s;D.;Great Recession of 2007-2009;26.;The economy experiences an increase in the price level and an increase in real domestic output. Which is a;likely explanation?;A.;Interest rates have increased;C.;Wage rates have fallen;B.;Business taxes have increased;D.;Net exports have increased;27.;The economy experiences a decrease in the price level and an increase in real domestic output. Which is a;likely explanation?;A.;Consumer incomes and the quantity of labor have decreased;B.;Business costs and wage rates have decreased;C.;The prices of imported resources have increased;D.;National income abroad has increased;Answer the next three questions based on the information in the graph below.;28.;If aggregate supply shifts from AS1 to AS2, then the price level will;A.;Increase and real domestic output will increase;B.;Decrease and real domestic output will increase;C.;Increase and real domestic output will decrease;D.;Decrease and real domestic output will decrease;29.;When output increases from Q1 and the price level decreases from P1, this change will;A.;Be caused by a shift in the aggregate supply curve from AS1 to AS2;B.;Be caused by a shift in the aggregate supply curve from AS1 to AS3;C.;Result in a movement along the aggregate demand curve from e1 to e2;D.;Result in a movement along the aggregate demand curve from e3 to e1;30.;A shift from AS1 to AS2 would be consistent with what economic event in U.S. history?;A.;Demand-pull inflation in the late;C.;Full-employment in the late 1990s;1960s;D.;Great Recession in 2007-2009;B.;Cost-push inflation in the mid-1970s;31.;Disinflation refers to a situation where;A.;Price level falls, but the rate inflation does not;B.;Price level rises, but the rate of inflation does not;C.;The rate of inflation falls, but the price level does not;D.;The rate of inflation rises, but the price level does not;ECO 121 (Macroeconomics);Test 3 (110614);32.;Aggregate demand decreases and real output falls but the price level remains the same. Which of the following;factors most likely contributes to downward price inflexibility in the immediate short run?;A.;The multiplier effect;C.;Fear of price wars;B.;The wealth effect;D.;Business taxes;Use the information in the graphs below to answer the next 5 questions;33.;Graph A is constructed on the basic assumption that;A.;The price level is not flexible;B.;Nominal wages are unresponsive to price-level changes;C.;Real output is unresponsive to price-level changes;D.;Unemployment is unresponsive to price-level changes;34.;In Graph A, an increase in the price level from P1 to P2 will cause;A.;The nation's unemployment rate to be greater than the natural rate of unemployment;B.;The nation's unemployment rate to be less than the natural rate of unemployment;C.;Product prices to decrease;D.;Profits to decrease;35.;In Graph A, a decrease in the price level from P1 to P3 will lead to;A.;A decrease in profits, an increase in real output, and a decrease in the unemployment rate;B.;A decrease in profits, a decrease in real output, and a decrease in the unemployment rate;C.;A decrease in profits, a decrease in real output, and an increase in the unemployment rate;D.;An increase in profits, an increase in real output, and a decrease in the unemployment rate;36.;In Graph B, assume that the economy is initially in equilibrium at point x1 but then there is an increase in the;price level from P1 to P2. In the long run, this change will lead to;A.;Lower nominal wages and a shift in the short-run aggregate supply curve from AS1 to AS2;B.;Higher nominal wages and a shift in the short-run aggregate supply curve from AS1 to AS2;C.;Lower nominal wages and a movement from equilibrium point x1 to equilibrium point x2;D.;Higher nominal wages and a movement from equilibrium point x1 to equilibrium point x2;ECO 121 (Macroeconomics);Test 3 (110614);37.;In Graph B, assume that the economy is initially in equilibrium at point x1 but then there is an increase in the;price level from P1 to P2. This change will lead to;A.;A movement from x1 to x2 in the short run, and the unemployment rate decreases, followed by a shift;from x2 to y1 as nominal wages rise in the long run;B.;A movement from x1 to x3 in the short run, and the unemployment rate decreases, followed by a shift;from x3 to x1 as output rises in the long run;C.;A movement from x1 to y1 in the short run, and back to x1 in the long run;D.;No change in the short run, but a shift from x1 to y1 in the long run;38.;The short-run aggregate supply curve intersects the long-run aggregate supply curve at;A.;A constant price level;B.;The potential level of real output;C.;The equilibrium level of aggregate demand;D.;The point where real GDP equals nominal GDP;39.;In the long run, demand-pull inflation;A.;Starts out with a shift in the AS curve, but no shift of the AD curve;B.;Starts out with a rightward shift in the AD curve, followed by a resulting leftward shift of the shortrun AS curve;C.;Starts out with a leftward shift in the AD curve, followed by a resulting rightward shift of the shortrun AS curve;D.;Involves a shift of the AD curve only, with no shift of the AS curve;40.;The traditional Phillips Curve shows the;A.;Direct correlation between the rate of inflation and the unemployment rate;B.;Inverse correlation between the rate of inflation and the rate of unemployment;C.;Direct correlation between the short-run and long-run aggregate supply;D.;Inverse correlation between the short-run and long-run aggregate supply;41.;Which event probably contributed to the stagflation of the 1970s?;A.;Worldwide agricultural surpluses;B.;An improvement in productivity of resources;C.;An appreciation in the dollar;D.;A sharp rise the price of oil;42.;Which factor contributed to the demise of stagflation during the 1982-1989 period?;A.;A lessening of foreign competition;B.;The decline of the monopoly power of OPEC;C.;An increase in the per-unit cost of production;D.;An increase in regulation of airline and trucking industries;43.;Which is a basic proposition of supply-side economics?;A.;The Federal Reserve should target the Federal funds rate rather than the money supply;B.;Tax-hikes on business reduce productivity and output and reduce aggregate supply;C.;Low marginal tax rates reduce incentives to work, saving, and investment;D.;Transfer payments increase incentives to work;44.;Supply-side economists contend that the system of taxation in the United States;A.;Creates incentives to save and invest;B.;Creates dis-incentives to work;C.;Generates maximum tax revenue;D.;Reduces the effects of cost-push inflation;45.;An appropriate fiscal policy for severe inflation is;A);a decrease in government spending.;B);a decrease in tax rates.;C);appreciation of the dollar.;D);an increase in interest rates.;ECO 121 (Macroeconomics);Test 3 (110614);46.;The full-employment (or standardized) budget refers to;A);the inflationary impact that the automatic stabilizers have in a full-employment economy.;B);the size of the Federal government's budgetary surplus or deficit when the economy is operating at;full employment.;C);that portion of a full-employment GDP that is not consumed in the year it is produced.;D);the number of workers who are underemployed when the level of unemployment is 4 to 5 percent.;47.;You are given the following information about aggregate demand at the existing price level for an economy;(1) consumption = $400 billion, (2) investment = $40 billion, (3) government purchases = $90 billion, and (4);net export = $25 billion. If the full-employment level of GDP for this economy is $500 billion, then what;combination of actions would be most consistent with the goal of achieving full employment?;A.;Increase government spending and taxes;B.;Decrease government spending and taxes;C.;Decrease government spending and increase taxes;D.;Increase government spending and decrease taxes;48.;Assume that the economy is in a recession and there is a budget deficit. A strict balanced-budget amendment;that would require the Federal government to balance its budget during a recession would be;A.;Expansionary and worsen the effects of the recession;B.;Contractionary and counter the effects of the recession;C.;Contractionary and worsen the effects of the recession;D.;Expansionary and counter the effects of the recession;49.;To understand the quantitative significance of the public debt relative to the economy, it should be;A.;Divided by the social security trust fund;B.;Multiplied by the size of the population;C.;Compared to the value of imports and exports;D.;Measured as a percentage of GDP;50.;The crowding-out effect suggests that;A);consumer and investment spending always vary inversely.;B);tax increases are paid primarily out of saving and therefore are not an effective fiscal device.;C);it is very difficult to have excessive aggregate spending in the U.S. economy.;D);increases in government spending financed through borrowing will increase the interest rate and;thereby reduce business investment.;ECO 121 (Macroeconomics);Test 3 (110614);View Full Attachment;Additional Requirements

 

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