- Description
ECO 372T Wk 3 – Practice: Knowledge Check
- Government Spending
- Consumer Expectations
- Degree of Excess Capacity
- Personal Income Tax Rates
- Productivity
- National Income Abroad
- Business Taxes
- Domestic Resource Availability
- Prices of Imported Products
- Profit Expectations on Investments
Answer the question based on the accompanying list of items related to aggregate demand or aggregate supply. Changes in which combination of factors best explain why the aggregate supply curve would shift?
Multiple Choice
- 1 and 2
- 2 and 10
- 3 and 6
- 7 and 8
GDP Consumption
$440 $450
490 490
540 530
590 570
640 610
Refer to the accompanying consumption schedule in an economy. All figures are in billions of dollars. If gross investment is $34 billion, net exports are zero, and there is a lump-sum tax of $30 billion at all levels of GDP, then the after-tax equilibrium level of GDP will be
Multiple Choice
- $490 billion.
- $540 billion.
- $590 billion.
- $640 billion.
The graph shows the relationship between consumption and income. The ratio LM/PL would be a measure of the
Multiple Choice
- marginal propensity to consume.
- marginal propensity to save.
- average propensity to consume.
- average propensity to save.
Unintended changes in inventories
Multiple Choice
- cause the economy to move away from the equilibrium GDP.
- are treated as components of consumption.
- bring actual investment and saving into equality only at the equilibrium level of GDP.
- bring actual investment and saving into equality at all levels of GDP.
The simple multiplier 1/MPS
Multiple Choice
- understates the actual multiplier because it includes leakages in domestic spending from the purchase of imports or the paying of taxes.
- understates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes.
- overstates the actual multiplier because it includes leakages in domestic spending from the purchase of imports or the paying of taxes.
- overstates the actual multiplier because it excludes leakages in domestic spending from the purchase of imports or the paying of taxes.
Amount of Real Output Demanded Price Level (Index Value) Amount of Real Output Supplied
$200 300 $500
300 250 450
400 200 400
500 150 300
600 100 200
The table gives aggregate demand and supply schedules for a hypothetical economy. If the price level is 250 and producers supply $450 of real output,
Multiple Choice
- a shortage of real output of $150 will occur.
- a shortage of real output of $100 will occur.
- a surplus of real output of $150 will occur.
- neither a shortage nor a surplus of real output will occur.
Refer to the given diagram, which shows consumption schedules for economies A and B. We can say that the
Multiple Choice
- MPC is greater in B than in A.
- APC at any given income level is greater in B than in A.
- MPS is smaller in B than in A.
- MPC is greater in A than in B.
If actual investment exceeds planned investment in a private closed economy, then
Multiple Choice
- real GDP will decrease.
- real GDP will increase.
- saving exceeds planned investment.
- there is an unplanned decrease in inventories.
As disposable income goes up, the
Multiple Choice
- average propensity to consume falls.
- average propensity to save falls.
- volume of consumption declines absolutely.
- volume of investment diminishes.
In a private closed economy, the two components of aggregate expenditures are
Multiple Choice
- consumption and government spending.
- consumption and net exports.
- consumption, investment, and net exports.
- consumption and investment.
The $787 billion stimulus package enacted by the Federal government in 2009 to try to deal with the Great Recession was intended to
Multiple Choice
- shift the aggregate expenditures schedule down.
- close an inflationary expenditures gap.
- bring inflation down.
- push the aggregate expenditures schedule upward.
Suppose that an economy produces 500 units of output. It takes 10 units of labor at $15 a unit and 4 units of capital at $50 a unit to produce this amount of output. The per unit cost of production is
Multiple Choice
- $1.42.
- $1.24.
- $0.70.
- $0.40.
The long-run aggregate supply analysis assumes that
Multiple Choice
- input prices are fixed, while product prices are variable.
- input prices are variable, while product prices are fixed.
- both input and product prices are variable.
- both input and product prices are fixed.
The consumption and saving schedules reveal that the
Multiple Choice
- MPC is greater than zero but less than one.
- MPC and APC are equal at the point where the consumption schedule intersects the 45-degree line.
- APS is positive at all income levels.
- MPC is equal to or greater than one at all income levels.
When a consumption schedule is plotted as a straight line, the slope of the consumption line is
Multiple Choice
- vertical.
- horizontal.
- greater than the slope of the 45° line.
- less than the slope of the 45° line.
Real GDP Consumption (after taxes) Gross Investment Net Exports Government Purchases
$0 −$20 $10 $+5 $15
10 0 10 +5 15
40 20 10 +5 15
70 40 10 +5 15
100 60 10 +5 15
130 80 10 +5 15
160 100 10 +5 15
Refer to the table. If the full-employment real GDP is $100, the
Multiple Choice
- inflationary expenditure gap is $30.
- inflationary expenditure gap is $10.
- recessionary expenditure gap is $30.
- recessionary expenditure gap is $10.
(Advanced analysis) Assume the consumption schedule for a private closed economy is C = 40 + 0.75Y, where C is consumption and Y is gross domestic product. The multiplier for this economy is
Multiple Choice
- 3.
- 4.
- 5.
- 10.
(1) (2) (3)
DI C DI C DI C
$0 $4 $0 $65 $0 $2
10 11 80 125 20 20
20 18 160 185 40 38
30 25 240 245 60 56
40 32 320 305 80 74
50 39 400 365 100 92
Refer to the given consumption schedules. DI signifies disposable income and C represents consumption expenditures. All figures are in billions of dollars. A $2 billion increase in consumption at each level of DI could be caused by
Multiple Choice
- a decrease in consumer wealth.
- new expectations of higher future income.
- an increase in taxation.
- an increase in saving.
Which one of the following would increase per-unit production cost and therefore shift the aggregate supply curve to the left?
Multiple Choice
- a reduction in business taxes
- production bottlenecks occurring when producers near full plant capacity
- an increase in the price of imported resources
- deregulation of industry
The consumption schedule is such that
Multiple Choice
- both the APC and the MPC increase as income rises.
- the APC is constant and the MPC declines as income rises.
- the MPC is constant and the APC declines as income rises.
- the MPC and the APC must be equal at all levels of income.