Macroeconomics Exam 3

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1. What is Say's Law? Supply creates demand
2. What is autonomous consumption? The amount of money a household will spend completely independent of their disposable income. (necessities)
3. Consumption function is comparing... ... price levels and consumer expenditures
4. Above the break even disposable income for the consumption function what occurs? Saving
5. What would produce an upward shift the in consumption function? An increase in consumer wealth
6. The investment demand curve is a relationship between which two components? Business spending for investment goods and saving
7. What would produce a leftward shift in the investment demand curve? An increase in business taxes
8. What does the aggregate expenditures function represent? The consumption function, the investment demand curve, and the autonomous consumption
9. When will there be unplanned inventory investment accumulation? When aggregate output exceeds aggregate expeditures
10. The multiplier effect can correct the economy. An increase in equilibrium output is created by: An increase in investment and an increase in spending
11. What is the spending multiplier? 1 / (1-MPC)
12. If the value of the MPC is .5 what is the value of the spending multiplier? 2
13. If the MPC is .8 what is the spending multiplier? 5
14. If MPC is .75 a 50 billion dollar decrease in government spending would cause equilibrium output to: Decrease by 200 million
15. If the MPC is .9, a 100 billion dollar increase in planned investment expenditure, other things being equal, will cause an increase in equilibrium output of: 1,000 billion
16. According to Keynes, the multiplier effect will restore an economy to full employment if: Government spending were increased
17. Equilibrium level of real GDP = 1000 billion. Full employment of real GDP is 1250 billion. MPC is .6. Full employment can be reached if government spending is increased by: 100 billion. 1/ (1-.6) x (1250-1000)
18. Define aggregate demand curve The real GDP purchased at different price levels
19. When the supply of credit is fixed, an increase in the price level stimulates demand for credit, which then reduces consumption and investment spending. What is this called? Interest-rate effect
20. The real balance effect occurs because a higher price level reduces the real value of peoples ________ Financial assets
21. The net exports effect is the inverse relationship between _____ and _____ Net exports and price level
22. What would shift the aggregate demand curve to the left? An increase in government spending
23. What would NOT sift the aggregate demand curve to the left? Consumers become more optimistic about the future
24. What theory emphasizes the fact that the economy will correct itself? Classical economics
25. Which theory believes that price system automatically adjusts the economy to full employment in the long run? Classical economics
26. Classical, Keynsian, Intermediate, Monetary. Which is not a range on the eclectic or general view of the aggregate supply curve? Monetary
27. When does macroeconomic equilibrium occur? When aggregate demand equals aggregate supply
28. Along the classical or vertical range of the aggregate supply curve, a decrease in the aggregate demand will increase what? Only the price level
29. If a decrease in resource prices occurs, it will shift the _____ to the _____ Aggregate supply curve . . . right
30. Assuming a fixed aggregate demand curve, a leftward shift in the aggregate supply curve causes a . . .  . . . increase in price level and a decrease in real GDP
31. An increase in the price level caused by a rightward shift of the demand curve is called what? Demand-pull inflation
32. Workers become pessimistic about their future employment, and start to save more. The economy is on the intermediate range of the aggregate supply curve. What will happen? Real GDP and the price level will fall
33. What is the assumption of the short run aggregate supply curve? Wages are fixed
34. What is the assumption on the long run aggregate supply curve? Both the price level and nominal incomes change by the same percentage
35. Graphically, long run macro equilibrium occurs at the ________ intersection of the aggregate demand, short and long run aggregate supply curves
36. An increase in nominal incomes of workers results in the what? Short run aggregate supply curve shifting to the left
37. An increase in the aggregate demand in the long run will result in _____ in full employment real GDP and _______ in the price level No change; an increase
38. Contracting government spending means: the government  spending is decreased
39. What is the spending multiplier? 1/ (1-MPC)
40. Tax multiplier is: 1- the spending multiplier
41. Who is the main person when talking about supply side economics? Ronald Reagan
42. MPS = what? 1-MPC