INTRODUCTION TO MACROECONOMICS, economics homework help

1.

The marginal propensity to consume for an individual is:

A)

the percentage of total income that the person consumes.

B)

the percentage that the person consumes out of additional dollar income.

C)

the change in the person’s consumption divided by the change in person’s income.

D)

( A) and (C) above.

2.

Classical economists believe that in the long-run the economy is:

A)

not cabable of reaching full employment.

B)

self-correcting and will reach full employment equilibrium on its own..

C)

naturally unfair.

D)

all of the above..

3.

According to the Classical economists the most important factor in determining how much people will save and how much businesses invest is:

A)

expectation about the future.

B)

government regulations.

C)

interest rate.

D)

all of the above.

4.

The consumption function will shift as a result of:

A)

change in expectation about the future.

B)

change in income.

C)

change in liquidity.

D)

all of the above.

5.

Economically speaking, the decision to build more aircraft carriers to keep employment high is an example of:

A)

prudent defense spending.

B)

expansionary fiscal policy.

C)

neutral fiscal policy.

D)

being prepared to defend the country.

6.

Automatic stabilizers are government policies (spending and taxation) that:

A)

make bad economic situation worse and good economic situation better.

B)

cause recessions and inflation to disappear.

C)

Require constant government intervention.

D)

Always move in the opposite direction of the general economic situation..

7.

The MPS plus the MPC must equal:

A)

zero.

B)

one.

C)

total income.

D)

total saving.

8.

According to the Classical economists, in the long run, inflationary and recessionary gaps are corrected by the market due to:

A)

flexibility of interest rate in the money market.

B)

flexibility of wages in the labor market.

C)

flexibility of prices in the commodity market.

D)

all of the above.

9.

An economy experiences a recessionary gap when:

A)

full employment GDP is below equilibrium GDP.

B)

full employment GDP is greater than equilibrium GDP.

C)

full employment GDP is equal to equilibrium GDP.

D)

any of the above.

10.

A Balanced Budget Amendment would:

A)

increase the power of the Federal government to influence the economy.

B)

increase the effectiveness of Fiscal policy.

C)

has no effect on the power of the Federal government to influence the economy.

D)

reduces the power of the Federal government to influence the government.

11.

To close an inflationary gap employing fiscal policy, the government could:

A)

reduce budget allocations to interstate highway maintenance.

B)

increase federal subsidies to state universities.

C)

lower the corporate income tax rate.

D)

raise the average amount awarded for a disability pension.

12.

Contractionary fiscal policy would include:

A)

increased government spending.

B)

decrease government spending.

C)

increased taxes.

D)

decrease taxes.

13.

According to Keynes, the most important determinant of consumer spending is:

A)

the government budget deficit or surplus.

B)

the price of gasoline.

C)

the trade deficit.

D)

disposable income.

14.

The life-cycle hypothesis and Permanent Income Hypothesis theories of consumption:

A)

are attempts to discredit the Keynesian consumption theory.

B)

believe that consumers do not have any autonomous consumption.

C)

assert that consumption is a necessity of life and does not depend on income.

D)

all of the above.

15.

Helen’s consumption function may be stated as $1,000 + 0.75 × Y_D .  Her autonomous consumption is:

A)

0.75.

B)

0.25.

C)

$750

D)

$1000.

16.

Helen’s consumption function may be stated as $1,000 + 0.75 × Y_D.  If her income is $50,000, her consumption will be:

A)

37,500.

B)

$51,000.

C)

$1,000.

D)

$38,500.

17.

If Bijouxville’s current equilibrium GDP is $700 billion:

A)

there is an inflationary gap $100 billion..

B)

there is a recessionary gap of $100 billion.

C)

the economy is in long-run equilibrium.

D)

The economy is at full employment equilibrium.

18.

If Bijouxville’s current equilibrium GDP is $700 billion which of the following policies would bring the economy to full employment level?

A)

Increase government spending by $25 billion.

B)

Increase government spending by $100 billion.

C)

Increase government spending by $20 billion.

D)

Decrease government spending by $100 billion.

19.

If Bijouxville’s current equilibrium GDP is $850 billion:

A)

there is an inflationary gap of $150 billion.

B)

there is a recessionary gap of $150 billion.

C)

the economy is in long-run equilibrium.

D)

taxes should be decreased.

20.

If Bijouxville’s current equilibrium GDP is $850, which of the following policies would bring the economy to potential output?

A)

Decrease government spending by $50 billion.

B)

Increase government spending by $50 billion.

C)

Decrease government transfers by $50 billion.

D)

Decrease government spending by $10 billion.

21.

If Bijouxville’s current equilibrium GDP is $700 billion, which of the following policies would bring the economy to full employment level?

A)

Decrease taxes by $100 billion.

B)

Increase taxes by $100 billion.

C)

Decrease taxes by $25 billion.

D)

Decrease government transfers by $25 billion.

22.

If Bijouxville’s current equilibrium GDP is $850, which of the following policies would bring the economy to potential output?

A)

Increase taxes by $50 billion.

B)

Increase taxes by $10 billion.

C)

Increase taxes by $12.5 billion.

D)

Increase transfers by $12.5 billion.

23.

A cut in taxes will have a greater impact on aggregate demand if it is given to  :

A)

people with a low MPC.

B)

people with a high MPC.

C)

everyone in the economy.

D)

Those who hold a large amount of wealth.

24.

Discretionary fiscal policy refers to:

A)

any changes in interest rates.

B)

any change in money supply.

C)

changes in government spending or taxes to close a recessionary or inflationary gap.

D)

changes in taxes to account for externalities and control pollution.

25.

Sometimes when a large number of people in a society decide to increase their savings, the national savings actually decreases.  This is known as:

A)

discretionary fiscal policy.

B)

contractionary fiscal policy.

C)

Paradox of Nature.

D)

Paradox of Thrift.