FINANCE

In Exhibit 14-8, if aggregate demand shifts from AD3 to AD4, real GDP will: A) rise from $7.0 to $8.0, and the price level will rise from 120 to 140. B) rise from $7.0 to $8.0, and the price level will rise from 120 to 170. C) rise from $7.0 to $8.0, and the price level will rise from 100 to 140. D) not change, and the price level will rise from 120 to 140. E) rise from $4.0 to $8.0, and the price level will rise from 120 to 140. 6. The marginal propensity to consume (MPC) is computed as the change in consumption divided by the change in: A) GDP. B) income. C) saving. D) none of the above 7. Which of the following is not a component of the aggregate demand curve? A) Government spending (G). B) Investment (I). C) Consumption (C). D) Net exports (X – M). E) Saving. 8. Find the tax multiplier if the MPC is 0.75. A) -4. B) -3. C) 0.33. D) 3. E) 4. 9. Exhibit 14-2 Aggregate supply and demand curves nar001-1.jpg In Exhibit 14-2, the change in equilibrium from E1 to E2 represents: A) cost-push inflation. B) demand-pull inflation. C) price-push inflation. D) wage-push inflation. 10. If the marginal propensity to consume (MPC) is 0.50, the value of the spending multiplier is: A) 5. B) 1. C) 2. D) 5. 11. The nation has its own MPC. When national income increases from $300 billion to $400 billion, national consumption increases from $300 billion to $360 billion. At Y = $400 billion, the MPC is: A) 0.2. B) 0.5. C) 0.6. D) 0.67. E) 1.33. 12. A rightward shift in the aggregate demand curve can be caused by an increase in: A) the price level. B) business investment spending. C) taxes. D) production costs. 13. After 1970, the share of federal spending allocated to national defense: A) declined sharply, while the share allocated to income security increased substantially. B) rose sharply, while the share allocated to income security declined substantially. C) was relatively constant, while the share allocated to income security declined modestly. D) declined modestly, while the share allocated to income security was relatively constant. 14. If a person is taxed $1,000 on an income of $10,000, taxed $2,000 on an income of $20,000, and taxed $3,000 on an income of $30,000, this person is paying a (an): A) progressive tax. B) regressive tax. C) proportional tax. D) poll tax. E) excise tax. 15. If an inflationary boom exists, the appropriate fiscal policy is to: A) increase the budget deficit. B) increase government spending and hold taxes constant. C) decrease government spending and/or raise taxes. D) hold government spending constant and decrease taxes. 16. The aggregate supply curve reflects the relationship between the price: A) of a particular good and the quantity supplied by all firms producing that good. B) of a particular good and the quantity supplied by the aggregate economy. C) level and the quantity supplied of all goods in the economy. D) level and the quantity of all goods purchased in the economy. 17. Automatic stabilizers are government programs that: A) exaggerate the ups and downs in aggregate demand without legislative action. B) bring expenditures and revenues automatically into balance without legislative action. C) shift the budget toward a deficit when the economy slows but shift it toward a surplus during an expansion. D) increase tax collections automatically during a recession. 18. A decrease in aggregate supply will cause the price level to: A) rise and GDP to fall. B) rise and GDP to rise. C) rise and the unemployment rate to fall. D) fall and GDP to rise. E) fall and the unemployment rate to rise. 19. Exhibit 14-3 Aggregate supply and demand curves nar002-1.jpg The shift from AS1 to AS2 in Exhibit 14-3 could be caused by a (an): A) sudden increase in the price of oil. B) increase in input prices for most firms. C) increase in workers’ wages. D) all of the above. 20. The interest-rate effect is the impact on real GDP caused by the relationship between the price level and the interest rate. A) direct B) independent C) linear D) inverse 21. The Keynesian analysis of fiscal policy argues that: A) fiscal policy should generally be expansionary except during periods of economic recession. B) fiscal policy should generally be restrictive except during inflationary booms. C) the federal budget should be balanced annually except during war. D) the federal budget should be used to maintain aggregate demand at a level consistent with full employment. 22. The real balances effect predicts that higher prices: A) make people worse off by reducing the value of their wealth, leading them to save more and spend less. B) make people worse off by reducing the value of their wealth, leading them to save less and spend more. C) make people better off by increasing the value of their wealth, leading them to save less and spend more. D) increase borrowing, leading to higher interest rates and less investment. E) make domestic goods relatively more expensive, increasing the demand for domestic goods and decreasing the demand for foreign goods. 23. When households’ marginal propensity to consume (MPC) increases, the size of the spending multiplier: A) also increases. B) decreases. C) remains unchanged. D) reacts unpredictably.

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