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If no fiscal policy changes are made, suppose the current aggregate demand curve will
increase horizontally by $1,000 billion and cause inflation. If the marginal propensity to
consume (MPC) is 0.80, federal policymakers could follow Keynesian economics and
restrain inflation by decreasing:
a. government spending by $200 billion.
b. taxes by $100 billion.
c. taxes by $1,000 billion.
d. government spending by $1,000 billion.
If the marginal propensity to consume (MPC) is 0.75, a $50 decrease in government
spending, other things being equal, would cause equilibrium real GDP to:
a. increase by $50.
b. decrease by $50.
c. increase by $200.
d. decrease by $200.
The view that decision-maker expectations are based on actual outcomes observed
during the recent past is called the:
a. rational expectations hypothesis.
b. adaptive expectations hypothesis.
c. permanent income theory.
d. recognition lag.
A basic problem with the infant-industry argument is that:
a. most industries need protection when they are mature, not when they are first
established.
b. the amount of the tariff is unlikely to have much impact on the success of an infant
industry.
c. political pressure will likely prevent the withdrawal of the tariff when the industry
matures.
d. domestic consumers will continue to buy the foreign products anyway, regardless of
the tariff.
If the marginal propensity to consume = 0.75, then:
a. the marginal propensity to save = 0.75.
b. the marginal propensity to save = 1.33.
c. the marginal propensity to save = 0.20.
d. the marginal propensity to save = 0.25.
e. since the marginal propensity to save and the marginal propensity to consume are
unrelated, we cannot determine the marginal propensity to save from the information
given.
Exhibit 8-4 Consumption function
As shown in Exhibit 8-4, saving
occurs:
a. at 0 disposable income.
b. between $0 and $2 trillion disposable income.
c. at $2 trillion disposable income.
d. at a disposable income greater than $2 trillion.
Find the size of the civilian labor force from the following data: frictional
unemployment = 150, structural unemployment = 200, cyclical unemployment = 225,
discouraged workers = 25, underemployed workers = 75, fully employed workers =
850, total population = 2,000.
a. 1,425
b. 1,450
c. 1,500
d. 1,525
e. 2,000
Exhibit 8-5 Aggregate expenditures function
As shown in Exhibit 8-5,
the marginal propensity to save (MPS) is:
a. 0.33.
b. 0.50.
c. 0.67.
d. 0.75.
The market value of all final goods and services in an economy produced by resources
owned by people of that economy is:
a. personal income.
b. national income.
c. capital income.
d. gross national product.
e. gross domestic product.
The three components of personal consumption expenditures are:
a. durable goods, nondurable goods, and services.
b. durable goods, food, and housing.
c. durable goods, nondurable goods, and housing.
d. durable goods, services, and food.
e. durable goods, services, and transportation.
In Europe during the 14th century, the Black Plague killed 24 million people or close to
37 percent of the population. How would this affect the production possibilities curves
for the countries of Europe at that time?
a. The production possibilities curves for these countries would have shifted outward.
b. The production possibilities curves for these countries would have shifted inward.
c. The production possibilities curves for these countries would have been unaffected.
d. This would have been illustrated by a movement along the production possibilities
curves for these countries, but it would not have shifted them.
Which financial statement would you refer to in order to determine whether a company
owed funds to creditors?
a. Balance Sheet
b. Statement of Retained Earnings
c. Income Statement
d. Statement of Public Accounting
Demand-pull inflation is typically caused by rapidly rising costs of production.
The vicious circle of poverty is the trap in which the LDC is too poor to save and
therefore it cannot invest and remains poor.
An opportunity cost is the highest valued alternative foregone whenever one chooses an
alternative.
A special interest group cannot impose its will on the majority because the perceived
costs and benefits from government programs are the same for both groups.
The greater the marginal propensity to consume (MPC) in the economy, the greater the
spending multiplier.
A traditional system solves basic economic questions by long-standing customs.
Cost-benefit analysis cannot be applied to collective or public choice decision-making.
The aggregate demand curve shifts due to changes in consumption expenditures,
investment expenditures government spending, and net exports.
The process of identifying, measuring, and communicating economic information to
various users is called
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