3.1 & 3.2 - Aggregate Demand and Multipliers

3.1 & 3.2 - Aggregate Demand and Multipliers

Multiple Choice

Which of the following will shift the aggregate demand curve to the right?

• A report that corporate earnings were lower than expected

• An increase in interest rates caused by a tightening of monetary policy

• Increased imports caused by appreciation of the dollar

• Increased spending by businesses on computers

• An increase in the government’s budget surplus

Multiple Choice

Which of the following will most likely result from a decrease in government spending?

• An increase in output

• An increase in the price level

• An increase in employment

• A decrease in aggregate supply

• A decrease in aggregate demand

Multiple Choice

Which of the following statements best describes the impact of a decrease in Japanese income on aggregate demand in the United States?

• There will be no change in aggregate demand because United States aggregate demand depends only on the income of United States consumers.

• Aggregate demand will decrease because the demand for United States exports decreases.

• Aggregate demand will decrease because the value of the United States dollar decreases relative to the Japanese yen.

• Aggregate demand will increase because a decrease in income in Japan causes an increase in income in the United States.

• Aggregate demand will increase because interest rates in the United States decrease.

Multiple Choice

Which of the following changes would cause an economy’s aggregate demand curve to shift to the right?

• An increase in spending on imports

• An increase in autonomous consumption spending

• An increase in interest rates

• A decrease in the money supply

• A decrease in the overall price level in the economy

Multiple Choice

Under which of the following conditions would consumer spending most likely increase?

• Consumers have large unpaid balances on their credit cards.

• Consumers’ wealth is increased by changes in the stock market.

• The government encourages consumers to increase their savings.

• Social security taxes are increased.

• Consumers believe they will not receive pay increases next year.

Multiple Choice

Which of the following will result in the greatest increase in aggregate demand?

• A $100 increase in taxes

• A $100 decrease in taxes

• A $100 increase in government expenditures

• A $100 increase in government expenditures, coupled with a $100 increase in taxes

• A $100 increase in government expenditures, coupled with a $100 decrease in taxes

Multiple Choice

Which of the following is true about the marginal propensity to consume?

• It is the percentage of total income that is spent on consumption.

• It determines the size of the simple spending multiplier.

• It increases as incomes increase because increases in income cause people to spend more.

• It is the same as the money multiplier.

• It is equal to the average propensity to consume for people with low incomes.

Multiple Choice

Which of the following changes will have the smallest expansionary effect on aggregate demand in the short run?

• An increase in exports of $100

• An increase in government spending of $100

• A decrease in taxes of $100

• A decrease in imports of $100

• A decrease in savings of $100

Multiple Choice

Which of the following best explains why equilibrium income will rise by more than $100 in response to a $100 increase in government spending?

• Incomes will rise, resulting in a tax decrease.

• Incomes will rise, resulting in higher consumption.

• The increased spending raises the aggregate price level.

• The increased spending increases the money supply, lowering interest rates.

• The higher budget deficit reduces investment.

Multiple Choice

Which of the following best explains the increase in national income that results from equal increases in government spending and taxes?

• Consumers do not reduce their spending by the full amount of the tax increase.

• The government purchases some goods that consumers would have purchased on their own anyway.

• Consumers believe all tax cuts are transitory.

• The increase in government spending causes a decrease in investment.

• Consumers are aware of tax increases but not of increases in government spending.

Multiple Choice

Which of the following will result in a rightward shift of the aggregate demand curve?

• An increase in the income tax rate

• An increase in exports

• A decrease in the price level

• A decrease in household income

• A decrease in government spending

Multiple Choice

Assume the marginal propensity to consume is 0.8. How will a decrease in taxes of $100 billion and a decrease in government spending of $100 billion affect aggregate demand?

• Aggregate demand will decrease by $900 billion.

• Aggregate demand will decrease by $500 billion.

• Aggregate demand will decrease by $400 billion.

• Aggregate demand will decrease by $100 billion.

• Aggregate demand will not change.

Multiple Choice

• The marginal propensity to save is 0.2.

• The marginal propensity to save is 0.9.

• When disposable income is $12,000, consumption is $10,000.

• The marginal propensity to consume is 0.1.

• The marginal propensity to consume is 0.9.

Multiple Choice

• The tax multiplier is -.1 and the spending multiplier is 0.9.

• The tax multiplier is 0.2 and the spending multiplier is -.8

• The tax multiplier is -9 and the spending multiplier is 10.

• The tax multiplier is 10 and the spending multiplier is -1

• The tax multiplier is -2 and the spending multiplier is 8.

Multiple Choice

If the marginal propensity to consume is 0.75, then a $100 increase in investment will result in a maximum increase in equilibrium real gross domestic product of

• $40.00

• $100.00

• $133.33

• $400.00

• $500.00

Multiple Choice

With an MPS of 0.2, an increase in government spending of $240 m will result in the equilibrium level of income rising by

• $1200m
• $480m
• $960m
• $2400m

Multiple Choice

Consumers spending $120 from a wage increase of $200 implies:

• an MPS of 0.8 and a multiplier of 5
• an MPS of 0.4 and a multiplier of 2.5
• an MPS of 0.6 and a multiplier of 2
• an MPS of 0.4 and a multiplier of 3.5

Multiple Choice

If Jet's disposable income increases from $500 to $550 and his level of personal consumption expenditures increases from $380 to $420, you may conclude that his marginal propensity to

• consume is .8

• consume is .4

• consume is .25

• save is .8

• save is .25

Multiple Choice

An economy is in macroeconomic equilibrium. If Y = 200, C =100, I =30, G=40 and M =30, what is the value of exports?

• 60

• 40

• 90

• 50

Multiple Choice

How much is MPS in an economy when MPC is .8?

• .2
• 3
• 1.6
• .8

Multiple Choice

Unemployment is high and GDP is declining. To improve conditions, the government increases spending by $5B. If the MPC is .75, by how much will GDP rise?

• $5B

• $10B

• $15B

• $20B

Multiple Choice

If the MPC is .7 and gross investment spending increase by $3 billion, GDP will

• increase by $10 billion
• increase by 2.1 billion
• decrease by $4.29 billion
• increase by $4.29 billion

Multiple Choice

Assume MPC is 2/3.  If investment spending increases by $2 billion, GDP will increase by

• $3 billion
• $2/3 billion
• $6 billion
• $2 billion

Multiple Choice

The multiplier is:

• 1/MPC
• 1/1+MPC
• 1/MPS
• 1/1-MPS

Multiple Choice

Assume that current real GDP falls short of full-employment output by $400 billion and the marginal propensity to consume is 0.8. What is the minimum increase in government spending that could bring about full employment?

• $40 billion

• $80 billion

• $400 billion

• $320 billion

Multiple Choice

An increase in the marginal propensity to save clearly causes a decrease in which of the following?

• Aggregate supply

• Marginal propensity to consume

• Simple spending multiplier

• Exports

Multiple Choice

According to classical economists, which of the following will occur to move this economy to long-run equilibrium

• Autonomous consumption will cause aggregate demand to increase

• Consumer spending will increase shifting aggregate demand to the right

• Deficit government spending should be used to shift aggregate demand to the right

• Wages will decrease causing aggregate supply to increase

Multiple Choice

Assume an economy is at full-employment equilibrium when a negative supply shock occurs. All the following will occur in the short-run except

• A decrease in aggregate demand

• Stagflation

• A decrease in real output

• An increase in unemployment

Multiple Choice

Refer to the graph above. Assume this economy is currently producing at Q1 with a price level of PL1. Which of the following will most likely occur as the economy adjusts to long-run equilibrium?

• Aggregate supply will shift left since workers will be laid off

• Aggregate supply will shift left as wages increase

• Aggregate demand will shift left as consumer spending fall due to inflation

• Aggregate demand will shift left as government spending decreases

Multiple Choice

An increase in the wealth of consumers will likely cause price level and unemployment to change in which of the following ways?

NOTE: 1ST PART OF ANSWER IS PRICE LEVEL, 2ND PART IS UNEMPLOYMENT

• INCREASE INCREASE

• INCREASE DECREASE

• INCREASE STAY THE SAME

• DECREASE DECREASE

Multiple Choice

A change in which of the following would increase the short-run aggregate supply curve?

I. An increase in consumer spending

II. A decrease in the price of resources

III. A decrease in labor productivity

IV. An increase in capital stock

• II only

• III only

• II and IV

• II, III, and IV

Multiple Choice

The multiplier effect shows

• How spending is magnified in the economy

• How much consumers can spend from their paychecks

• How much the government can spend from their budget

• How often the economy can survive recessions

Multiple Select

Expansionary fiscal policy includes

• Decreasing government spending

• Tax increases

• Tax decreases

• Increasing government spending

Multiple Select

Contractionary fiscal policy includes

• Decreasing government spending

• Tax increases

• Tax decreases

• Increasing government spending

Multiple Choice

Assume the economy is in long run equilibrium and the government increases spending on healthcare

• AD will shift right and an inflationary gap will result

• AD will shift left and a recessionary gap will result

• AS will shift right and an inflationary gap will result

• AS will shift left and a recessionary gap will result

• No change will result

Multiple Choice

The long run aggregate supply curve is also known as

• The natural rate of unemployment

• Full-employment

• The natural rate of employment

• Cyclical unemployment