Question 1

In the United States, local, state, and federal government purchases of goods and services add up to about

Accepted Answer

A)  20% of GDP. 
B)  50% of GDP. 
C)  75% of GDP. 
D)  40% of GDP. 
A)  20% of GDP. 
B)  50% of GDP. 
C)  75% of GDP. 
D)  40% of GDP.

Question 2

Household disposable income

Accepted Answer

A)  is equal to the income that household throw out. 
B)  is equal to income minus savings. 
C)  is equal to income minus net taxes. 
D)  is equal to savings plus net taxes. 
A)  is equal to the income that household throw out. 
B)  is equal to income minus savings. 
C)  is equal to income minus net taxes. 
D)  is equal to savings plus net taxes.

Question 3

The four components of total spending are

Accepted Answer

A)  consumption spending, savings, government purchases, net exports. 
B)  consumption spending, investment spending, government purchases, gross exports. 
C)  consumption spending, investment spending, tax revenue, net exports. 
D)  consumption spending, investment spending, government purchases, net exports. 
A)  consumption spending, savings, government purchases, net exports. 
B)  consumption spending, investment spending, government purchases, gross exports. 
C)  consumption spending, investment spending, tax revenue, net exports. 
D)  consumption spending, investment spending, government purchases, net exports.

Question 4

The flexible-price assumption means most importantly

Accepted Answer

A)  that supply equals demand in the labor market. 
B)  that the economy reaches an equilibrium at which there is unemployment. 
C)  that there is always excess demand in the labor market. 
D)  that wages are always decreasing. 
A)  that supply equals demand in the labor market. 
B)  that the economy reaches an equilibrium at which there is unemployment. 
C)  that there is always excess demand in the labor market. 
D)  that wages are always decreasing.

Question 5

A typical firm's profit is found by the following formula:

Accepted Answer

A)  P x L - W x Y 
B)  P x W - L x Y 
C)  P x MPL - W 
D)  P x Y - W x L 
A)  P x L - W x Y 
B)  P x W - L x Y 
C)  P x MPL - W 
D)  P x Y - W x L

Question 6

The marginal propensity to consume (MPC, Cy)

Accepted Answer

A)  is the amount by which consumption spending changes in response to a $1 change in total income. 
B)  is the amount households would spend on consumption goods if they had no income at all. 
C)  is the amount by which consumption spending changes in response to a $1 change in disposable income. 
D)  is the amount by which consumption spending would change in response to a $1 change in household wealth. 
A)  is the amount by which consumption spending changes in response to a $1 change in total income. 
B)  is the amount households would spend on consumption goods if they had no income at all. 
C)  is the amount by which consumption spending changes in response to a $1 change in disposable income. 
D)  is the amount by which consumption spending would change in response to a $1 change in household wealth.

Question 7

Fluctuations in economy-wide investment spending have two sources:

Accepted Answer

A)  changes in interest rates and changes in business managers' confidence. 
B)  changes in tax rates and changes in interest rates. 
C)  changes in regulations and changes in tax rates. 
D)  changes in stock prices and changes in interest rates. 
A)  changes in interest rates and changes in business managers' confidence. 
B)  changes in tax rates and changes in interest rates. 
C)  changes in regulations and changes in tax rates. 
D)  changes in stock prices and changes in interest rates.

Question 8

One's transitory income is

Accepted Answer

A)  the average level that you expect your level of income to be in the future. 
B)  the temporary fluctuations in income that occur. 
C)  income that never changes. 
D)  income that is permanently given to you. 
A)  the average level that you expect your level of income to be in the future. 
B)  the temporary fluctuations in income that occur. 
C)  income that never changes. 
D)  income that is permanently given to you.

Question 9

Some of the variables on which net exports depend are

Accepted Answer

A)  the domestic real interest rate, foreign real GDP, and domestic real GDP. 
B)  the real exchange rate, foreign real interest rates, and domestic real GDP. 
C)  the real exchange rate, foreign real GDP, and domestic real GDP. 
D)  all of the above. 
A)  the domestic real interest rate, foreign real GDP, and domestic real GDP. 
B)  the real exchange rate, foreign real interest rates, and domestic real GDP. 
C)  the real exchange rate, foreign real GDP, and domestic real GDP. 
D)  all of the above.

Question 10

The investment function is

Accepted Answer

A)  I0 + Ir x r 
B)  I0 - Ir x YD 
C)  I0 - Ir x r 
D)  I0 + Ir x YD 
A)  I0 + Ir x r 
B)  I0 - Ir x YD 
C)  I0 - Ir x r 
D)  I0 + Ir x YD

Question 11

Each of the following is a key question which chapter 6 seeks to answer except

Accepted Answer

A)  What determines the level of net exports? 
B)  What determines the level of consumption spending? 
C)  What determines the inflation rate? 
D)  What determines the level of investment spending? 
A)  What determines the level of net exports? 
B)  What determines the level of consumption spending? 
C)  What determines the inflation rate? 
D)  What determines the level of investment spending?

Question 12

The flexible-price assumption means that

Accepted Answer

A)  prices and wages don't change very quickly in response to excess demand or supply. 
B)  prices and wages are flexible enough for markets to clear. 
C)  prices are flexible enough for markets to clear but wages are not. 
D)  output will adjust in response to excess demand or supply. 
A)  prices and wages don't change very quickly in response to excess demand or supply. 
B)  prices and wages are flexible enough for markets to clear. 
C)  prices are flexible enough for markets to clear but wages are not. 
D)  output will adjust in response to excess demand or supply.

Question 13

The Classical assumptions of the macroeconomy include each of the following except

Accepted Answer

A)  wages and prices are fully flexible. 
B)  expectations are consistent with full employment. 
C)  the labor market is always in equilibrium with full employment. 
D)  shocks to aggregate demand will change the composition and the level of GDP. 
A)  wages and prices are fully flexible. 
B)  expectations are consistent with full employment. 
C)  the labor market is always in equilibrium with full employment. 
D)  shocks to aggregate demand will change the composition and the level of GDP.

Question 14

The value of Cy, the MPC,

Accepted Answer

A)  is generally less than 0. 
B)  is generally greater than 1. 
C)  is usually between 0 and 1. 
D)  generally increases as income increases. 
A)  is generally less than 0. 
B)  is generally greater than 1. 
C)  is usually between 0 and 1. 
D)  generally increases as income increases.

Question 15

Net exports will ________ if _________ increase(s).

Accepted Answer

A)  increase; domestic real GDP 
B)  increase; domestic real interest rates 
C)  decrease; domestic real GDP 
D)  decrease; foreign real interest rates 
A)  increase; domestic real GDP 
B)  increase; domestic real interest rates 
C)  decrease; domestic real GDP 
D)  decrease; foreign real interest rates

Question 16

Governments seeking to boost investment spending

Accepted Answer

A)  can try to induce the country's central bank to raise real interest rates. 
B)  can try to induce the country's central bank to lower real interest rates. 
C)  can try to encourage expenditures on imports. 
D)  can try to lower the baseline level of investment spending by encouraging private decision makers. 
A)  can try to induce the country's central bank to raise real interest rates. 
B)  can try to induce the country's central bank to lower real interest rates. 
C)  can try to encourage expenditures on imports. 
D)  can try to lower the baseline level of investment spending by encouraging private decision makers.

Question 17

The present value of an investment project ________ if the real interest rate _______.

Accepted Answer

A)  decreases; decreases 
B)  decreases; increases 
C)  increases; increases 
D)  stays the same; increases 
A)  decreases; decreases 
B)  decreases; increases 
C)  increases; increases 
D)  stays the same; increases

Question 18

In the Classical Model, if the quantity of labor demanded at current wages and prices is less than the quantity of labor supplied

Accepted Answer

A)  unemployment will result. 
B)  the real wage will increase. 
C)  the real wage will not change. 
D)  the real wage will decrease. 
A)  unemployment will result. 
B)  the real wage will increase. 
C)  the real wage will not change. 
D)  the real wage will decrease.

Question 19

If investment spending changes by $500 billion when the real interest rate changes by 5 percentage points, then Ir is equal to

Accepted Answer

A)  $100 billion. 
B)  $10000 billion. 
C)  $2500 billion. 
D)  $25 billion. 
A)  $100 billion. 
B)  $10000 billion. 
C)  $2500 billion. 
D)  $25 billion.

Question 20

A lower interest rate leads to higher investment spending because

Accepted Answer

A)  higher interest rates lower the appropriately discounted return and make more investment projects profitable. 
B)  lower interest rates lower the appropriately discounted return and make more investment projects profitable. 
C)  higher interest rates lower the appropriately discounted return and make fewer investment projects profitable. 
D)  lower interest rates increase the appropriately discounted return and make fewer investment projects profitable. 
A)  higher interest rates lower the appropriately discounted return and make more investment projects profitable. 
B)  lower interest rates lower the appropriately discounted return and make more investment projects profitable. 
C)  higher interest rates lower the appropriately discounted return and make fewer investment projects profitable. 
D)  lower interest rates increase the appropriately discounted return and make fewer investment projects profitable.

In the United States, local, state, and federal government purchases of goods and services add up to about

Household disposable income

The four components of total spending are

The flexible-price assumption means most importantly

A typical firm's profit is found by the following formula:

The marginal propensity to consume (MPC, C_y)

Fluctuations in economy-wide investment spending have two sources:

One's transitory income is

Some of the variables on which net exports depend are

The investment function is

Each of the following is a key question which chapter 6 seeks to answer except

The flexible-price assumption means that

The Classical assumptions of the macroeconomy include each of the following except

The value of C_y, the MPC,

Net exports will if _ increase(s).

Governments seeking to boost investment spending

The present value of an investment project __ if the real interest rate _.

In the Classical Model, if the quantity of labor demanded at current wages and prices is less than the quantity of labor supplied

If investment spending changes by $500 billion when the real interest rate changes by 5 percentage points, then I_r is equal to

A lower interest rate leads to higher investment spending because

Introduction to Macroeconomics

Measuring the Macroeconomy

Thinking Like an Economist

The Theory of Economic Growth

The Reality of Economic Growth: History and Prospect

Equilibrium in the Flexible-Price M Odel

Money, Prices, and Inflation

The Sticky-Price Income-Expenditure Framework: Consumption and the Multiplier

Investment, Net Exports, and Interest Rates: The Is Curve

The Money Market and the LM Curve

The Phillips Curve, Expectations, and Monetary Policy

Stabilization Policy

Budget Balance, National Debt, and Investment

International Economic Policy

Changes in the Macroeconomy and Changes in Macroeconomic Policy

The Future of Macroeconomics

Epilogue

Filters

Exam 6: Building Blocks of the Flexible-Price Model

In the United States, local, state, and federal government purchases of goods and services add up to about

Household disposable income

The four components of total spending are

The flexible-price assumption means most importantly

A typical firm's profit is found by the following formula:

The marginal propensity to consume (MPC, Cy)

Fluctuations in economy-wide investment spending have two sources:

One's transitory income is

Some of the variables on which net exports depend are

The investment function is

Each of the following is a key question which chapter 6 seeks to answer except

The flexible-price assumption means that

The Classical assumptions of the macroeconomy include each of the following except

The value of Cy, the MPC,

Net exports will ________ if _________ increase(s).

Governments seeking to boost investment spending

The present value of an investment project ________ if the real interest rate _______.

In the Classical Model, if the quantity of labor demanded at current wages and prices is less than the quantity of labor supplied

If investment spending changes by $500 billion when the real interest rate changes by 5 percentage points, then Ir is equal to

A lower interest rate leads to higher investment spending because

Introduction to Macroeconomics

Measuring the Macroeconomy

Thinking Like an Economist

The Theory of Economic Growth

The Reality of Economic Growth: History and Prospect

Equilibrium in the Flexible-Price M Odel

Money, Prices, and Inflation

The Sticky-Price Income-Expenditure Framework: Consumption and the Multiplier

Investment, Net Exports, and Interest Rates: The Is Curve

The Money Market and the LM Curve

The Phillips Curve, Expectations, and Monetary Policy

Stabilization Policy

Budget Balance, National Debt, and Investment

International Economic Policy

Changes in the Macroeconomy and Changes in Macroeconomic Policy

The Future of Macroeconomics

Epilogue

Filters

The marginal propensity to consume (MPC, C_y)

The value of C_y, the MPC,

Net exports will if _ increase(s).

The present value of an investment project __ if the real interest rate _.

If investment spending changes by $500 billion when the real interest rate changes by 5 percentage points, then I_r is equal to