Questions and Answers
Which of the following was not characteristic of the U.S. economy during the Great Depression?
External shocks include all of the following except:
According to classical economists, market-driven economies:
Which of the following is not considered a macro outcome?
Signup and view all the answers
Based upon a Keynesian viewpoint, to stimulate the economy the government should do all of the following except:
Signup and view all the answers
Which of the following is generally considered a desirable outcome of government intervention when expanding the economy?
Signup and view all the answers
According to Keynes, unemployment results from:
Signup and view all the answers
Individual employment and training programs are levers most likely to be advocated by:
Signup and view all the answers
A positively sloped aggregate supply curve reflects:
Signup and view all the answers
The profit effect occurs because, in the short run, resource costs typically do not increase as rapidly as the price of goods and services.
Signup and view all the answers
The marginal propensity to consume can be found by dividing:
Signup and view all the answers
The four components of aggregate spending are consumption, saving, imports, and taxes.
Signup and view all the answers
If an increase in disposable income causes consumption to increase from $4,000 to $10,000 and causes saving to increase from $1,000 to $5,000, then it can be inferred that the MPS equals:
Signup and view all the answers
Given that autonomous consumption equals $1,000, disposable income equals $20,000, and the MPC equals 0.80, the level of:
Signup and view all the answers
If wealth rises:
Signup and view all the answers
If tax policies become less favorable, then:
Signup and view all the answers
Gross exports depend on the behavior of foreign businesses and consumers.
Signup and view all the answers
If the MPC is 0.60 and disposable income increases from $20,000 billion to $22,000 billion, consumption will increase by:
Signup and view all the answers
If the MPC is 0.8 and the APC is 0.9, the MPS equals:
Signup and view all the answers
Which of the following will cause the investment demand curve to shift to the right?
Signup and view all the answers
Suppose lower expectations lead to a decrease of $240 in desired investment in the economy and the marginal propensity to consume is 0.75. What is the multiplier in this instance?
Signup and view all the answers
If the government purchases multiplier is 4 and a change in government spending leads to a $500 million decrease in aggregate demand, we can conclude that:
Signup and view all the answers
To eliminate an AD shortfall of $100 billion when the economy has an MPC of 0.50, the government should increase spending by:
Signup and view all the answers
Given a $500 billion AD shortfall and an MPC of 0.75, the desired fiscal stimulus would be:
Signup and view all the answers
Jack has an MPC of 0.82 and Jill has an MPC of 0.78. Ceteris paribus, if the government transfers income from people who behave like Jack to people who behave like Jill,:
Signup and view all the answers
Assume the MPC is 0.75, taxes increase by $100 billion, and government spending increases by $100 billion. Aggregate demand will:
Signup and view all the answers
Assume the economy is at full employment and prices are reasonably stable. If the government wants to increase spending for public schools, which of the following policies will have the least inflationary impact?
Signup and view all the answers
Study Notes
Great Depression Characteristics
- Unemployment peaked at approximately 25%, contrary to a claim of 50%.
- Significant economic impacts included farm losses, declines in automobile production, and the stock market crash.
External Shocks
- External shocks that influence macroeconomic outcomes include natural disasters, terrorist attacks, and wars.
- Population growth is classified as an internal market force, affecting macro outcomes.
Classical Economic Theory
- Classical economists believe market-driven economies are typically self-adjusting, favoring a laissez-faire approach.
- They argue against government intervention, asserting markets can operate without external controls.
Macro Outcomes
- Key macroeconomic outcomes include unemployment levels, average prices, and year-to-year productive capacity expansions.
- External shocks can influence these outcomes but are not classified as outcomes themselves.
Keynesian Economic View
- To stimulate the economy, Keynesians advocate for increased government spending, employment initiatives, and availability of money, but oppose raising taxes.
- Raising taxes would reduce aggregate demand, potentially leading to higher unemployment and lower production.
Government Intervention
- Desirable outcomes of government intervention, especially in economic expansion, include job creation.
- Keynes emphasized that unemployment is a result of insufficient spending by consumers, businesses, and government.
Employment and Training Programs
- Keynesians advocate for workforce training programs aimed at enhancing worker productivity and increasing supply.
Aggregate Supply Curve
- A positively sloped aggregate supply curve indicates rising costs and inflationary pressures as production increases.
Profit Effect
- In the short run, resource costs may not rise at the same pace as the prices of goods/services, leading to increased profits for firms.
Marginal Propensity to Consume (MPC)
- MPC measures the change in consumption relative to changes in disposable income, found by dividing the change in total consumption by the change in disposable income.
Aggregate Spending Components
- The four components of aggregate spending are consumption, investment, government expenditures, and net exports, not saving and taxes.
Changes in Disposable Income
- As disposable income rises, consumption and saving can both increase, with changes reflecting the MPC.
Shifts in Aggregate Demand (AD)
- Wealth increases can shift the AD curve to the right due to increased consumer confidence and spending.
- Unfavorable tax policies typically shift the AD curve to the left, reducing consumption and business spending.
Macro Implications of Export Behavior
- Gross exports depend on foreign economic conditions; U.S. exports fluctuate based on overseas consumer and business performance.
Investment Demand Curve
- Improvements in technology typically shift the investment demand curve right, enhancing production efficiency and encouraging investments.
Fiscal Policy Multiplier Effects
- The multiplier effect illustrates the relationship between government spending, aggregate demand, and fiscal stimulus required to address economic shortfalls.
Changes in Taxes and Spending
- A balanced budget (equal tax increase and spending increase) results in a net increase in aggregate demand, underscoring the balanced budget multiplier principle.
Income Transfer Impact
- Transferring income from high to low MPC individuals may reduce overall aggregate demand due to varying consumption behaviors between the two groups.
Inflationary Impact of Tax Changes
- To minimize inflationary effects when increasing government spending, tax increases should exceed spending increases in magnitude.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
Test your knowledge on key concepts from Macro Economics, especially during significant historical events like the Great Depression. These flashcards cover crucial information about the U.S. economy, external shocks, and various related terms. Great for exam preparation and enhancing your understanding of macroeconomic principles.
