ryans study guide

When consumer confidence falls in an economy, _____ will decrease which is going to be _____ by the spending multiplier.

• spending; unaffected

• 
  spending; magnified

• taxes; unaffected

• taxes; magnified

What does the "paradox of thrift" say?

• People who consume too much will go broke.

• Businesses that are greedy will make the most profit.

• An economy that saves too much can end up with lower total savings

• People who save too little are harming the economy.

How does the spending multiplier compare between a $1,000 increase in government spending and a $1,000 decrease in taxes collected?

• An increase in government spending has a greater spending multiplier than an equivalent tax decrease.

• An increase in government spending has a smaller spending multiplier than an equivalent tax decrease.

• An increase in government spending has the same spending multiplier as an equivalent tax decrease.

• Neither an increase in government spending nor a decrease in taxes generates any multiplier at all.

According to the balanced budget multiplier, an increase in government spending of $10,000 that is financed by an increase of $10,000 in taxes will have what effect on the economy when MPC is 0.80?

• Income will not change.

• Income will increase by $8,000.

• Income will increase by $10,000.

• Income will increase by $50,000.

If real GDP at full employment is $5 billion while current GDP is $6 billion, a(n) _____ gap exists and will require a(n) _____ in spending to bring the economy back to full employment.

• recessionary; increase

• recessionary; decrease

• inflationary; increase

• inflationary; decrease

The figure shows the aggregate expenditures line for an economy. Which is the proper sequence of events if income was originally at $100?

• Total spending exceeds income, firms reduce production, workers are laid off, and incomes fall until equilibrium is reached.

• Total income exceeds spending, firms expand production, workers are hired, and incomes rise until equilibrium is reached.

• Total spending exceeds income, firms expand production, workers are hired, and incomes rise until equilibrium is reached.

• Total income exceeds spending, firms reduce production, workers are laid off, and incomes fall until equilibrium is reached.

Suppose the marginal propensity to consume in Economia is 0.75. People feel increasing confidence in their economy and spend $5 billion more on vacations. Equilibrium income will rise by $:

• 75 billion.

• 4 billion.

• 5 billion.

• 20 billion.

If the marginal propensity to save is 0.20, the spending multiplier is:

• 10.00.

• 0.20.

• 5.

• 5.55

In the simple Keynesian model with no government and foreign sectors, assume that full employment occurs at an output level of $20,000. With a marginal propensity to save of 0.20 and equilibrium output at $15,000, by how much will investment spending have to increase to move the economy to full employment?

• 1000

• 5000

• 2500

• 2000

What occurs when spending is above the full employment level?

• inflationary gap

• depressionary gap

• recessionary gap

• contractionary gap