If autonomous consumption (Ca) increases, the slope of the consumption function
becomes steeper.
Acquiring knowledge and skills by participating in the production process is called
“learning by doing.”
A larger labor force will allow the economy to produce more total output.
According to the accelerator theory, there is a tendency for investment to increase when
aggregate output increases, thus accelerating the growth of output.
In the final two decades of the 20th century, sub-Saharan African economies grew
rapidly.
Suppose a car is completely produced and assembled in Germany and is sold to the
United States. In this example, the country that imports the car is ________ while the
country that exports the car is ________.
A) the United States; Germany
B) Germany; the United States
C) Germany; Germany
D) the United States; the United States
Recall Application 1, “Beyond Purchasing Treasury Securities,” to answer the following
questions:
According to the application, which of the following was a way for the Fed to channel
more funds to banks to encourage bank lending?
A) The Fed owned all the banks.
B) The Fed held mortgage backed securities.
C) The Fed guaranteed all the loans that the banks made to large corporations.
D) All of the above are correct.
Figure 18.3
Refer to Figure 18.3. With an import ban, domestic production is:
A) 80.
B) 100.
C) 60.
D) 0.
Suppose that the marginal propensity to consume in Montavada is 0.75.
(a) If taxes were reduced by $1,000 in Montavada, by how much would equilibrium
output change?
(b) If government spending were increased by $1,000 in Montavada, by how much
would equilibrium output change?
(c) Explain why a tax cut of $1,000 would have less effect on the economy of
Montavada than an increase in government spending of $1,000.
Recall the Application about the Fed’s response to the collapse of the investment house
Bear Stearns as well as its handling of the 2008 financial crisis with respect to other
financial institutions to answer the following question(s).
According to this Application, the Fed increased its lending by hundreds of billions of
dollars to financial institutions as a response to the ongoing financial crisis. This
increase in loans to financial institutions increased the supply of money in the economy.
When the supply of money increases, the money supply curve will
A) shift to the right, increasing the interest rate.
B) shift to the right, decreasing the interest rate.
C) shift to the left, increasing the interest rate.
D) shift to the left, decreasing the interest rate.
When using the formula PV = K/(1+i)t to calculate the present value of a future
payment, a higher i implies:
A) a lower present value.
B) a higher future value.
C) a higher present value.
D) a lower future value.
The neoclassical theory of investment
A) suggests that a downturn in real GDP will lead to a sharp fall in investment, which
leads to further reductions in GDP through the multiplier.
B) links investment spending to stock prices.
C) emphasizes that current investment spending depends positively on the expected
future growth of GDP.
D) emphasizes the role of real interest rates and taxes as determinants of investment.
The total market value of all final goods and services produced within a country in a
given year is the:
A) gross domestic product.
B) gross national product.
C) net national product.
D) national income.
You are given the following income-expenditures model for the economy of Vulcan.
(a) What is the equilibrium level of income in Vulcan?
(b) At the equilibrium level of income, what is the amount of consumption?
(c) What is the value of the government spending multiplier in this economy?
(d) If government spending increases to 150, what is the new level of equilibrium
income?
Which of the following does NOT decrease aggregate demand in the United States?
A) a decrease in the price of oil
B) a decrease in GDP in Germany
C) a decrease in government spending
D) a decrease in the supply of money
Monetary neutrality:
A) definitely applies in the short run.
B) means that a change in the money supply will affect real GDP, but will not affect the
price level.
C) means that a change in the money supply will affect both real GDP and the price
level.
D) none of the above
Recall the Application about how the Fed kept the U.S. financial system in operation
following the attacks of September 11, 2001, to answer the following question(s). To
help prevent financial firms from defaulting on their debts, the Fed took several steps to
provide additional funds to the financial system, including allowing banks to borrow
more, increasing the difference between the credits and debits it extended while serving
as a clearinghouse for checks, purchasing government securities, and providing dollars
to foreign central banks. Together, these actions increased the credit extended by the
Fed by over $90 billion.
According to this Application, following the attacks of September 11, 2001, the Fed
effectively put an additional $20 billion into the banking system by increasing the
difference between the credits and debits it extended while serving as a clearinghouse
for checks. The difference between the credits and debits extended by the Federal
Reserve is called the
A) Federal Reserve balance sheet.
B) federal funds rate.
C) Federal Reserve float.
D) federal deficit.
Explain Say’s law from a classical economic perspective.
What is meant by the term “the natural rate of unemployment”?
Explain why there is a significant amount of delay in the implementation of a fiscal
policy after identifying that the U.S. economy is experiencing a recession.
The federal budget has three components. Name them.
Explain how the U.S. recession in 2007-2009 affected the demand for money. Be sure
to specify which demand for money decreases.
Farmer Bill grows corn on his 27-acre farm. To increase production, he puts more and
more fertilizer on the corn. What does the marginal principle say will happen?
Explain what the real business cycle theory is.
Explain the impact of a decrease in the required reserve ratio on money supply.