Macro Economics Chapter 11
Bank panic of 1907.
Spectacular economic growth during World War II.
Economic expansion of the 1920s.
Prices are fixed.
The economy is at full employment.
Prices are fully flexible.
Government spending policy has no ability to affect the level of output.
households, businesses, and government, but not international trade.
households, businesses, and international trade, but not government.
households and businesses, but not government or international trade.
declined by 27 percent; rose to 25 percent
increased by 21 percent; fell to 2 percent
declined by 21 percent; rose to 27 percent
declined by 40 percent; rose to 50 percent
automatically changes in response to changes in real GDP.
changes by less in percentage terms than changes in real GDP.
does not respond to changes in interest rates.
does not change when real GDP changes.
investment demand curve leftward.
investment demand curve rightward.
investment schedule upward.
investment schedule downward.
expenditures of consumers and businesses.
intersection of the saving schedule and the 45-degree line.
equality of the MPC and MPS.
intersection of the saving and consumption schedules.
consumption equals investment.
consumption equals aggregate expenditures.
planned investment equals saving.
disposable income equals consumption minus saving.
GDP will decline.
business inventories will rise.
saving will decline.
business inventories will fall.
entails a rate of aggregate expenditures in excess of the rate of aggregate production.
may be either above or below the equilibrium output.
is too low for equilibrium.
is too high for equilibrium.
actual GDP is less than potential GDP.
unplanned decreases in inventories occur.
aggregate expenditures are less than GDP.
unplanned increases in inventories occur.
leakages will exceed injections.
planned investment will exceed saving.
unplanned investment in inventories will occur.
saving will exceed planned investment.
C + Ig cuts the 45-degree line.
GDP is $180 billion.
GDP is $60 billion.
GDP is also zero.
aggregate expenditures and GDP are equal.
consumption is $200 and planned investment is $50.
saving exceeds planned investment.
consumption plus saving is $400.
downward and increase aggregate expenditures.
downward and decrease aggregate expenditures.
upward and increase aggregate expenditures.
upward and decrease aggregate expenditures.
the MPC must equal the APC.
the slope of the aggregate expenditures schedule equals the MPS.
aggregate expenditures and real GDP are equal.
planned saving and consumption are equal.
Saving equals planned investment only at the equilibrium level of GDP.
All levels of GDP where planned investment exceeds saving will be too high for equilibrium.
Planned and actual investment are identical at all possible levels of GDP.
Saving equals actual investment only at the equilibrium level of GDP
consumption minus saving.
planned investment less unintended increases in inventories.
unintended changes in inventories.
at all levels of GDP.
at all below-equilibrium levels of GDP.
at all above-equilibrium levels of GDP.
only at the equilibrium GDP.
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.
net exports may be either positive or negative.
imports will always exceed exports.
exports will always exceed imports.
exports and imports will be equal.
lower the marginal propensity to import.
have no effect on domestic GDP because imports will change by an offsetting amount.
decrease its domestic aggregate expenditures and therefore decrease its equilibrium GDP.
increase its domestic aggregate expenditures and therefore increase its equilibrium GDP.
reduce the rate of domestic inflation.
increase efficiency in the world economy.
increase domestic output and employment.
reduce domestic output and employment.
saving must be $300 billion.
net exports must be $300 billion.
S + C must equal $300 billion.
Ig + Xn must equal $300 billion.
is the ratio of the dollar volume of a nation’s exports to the dollar volume of its imports.
measures the interest rate ratios of any two nations.
is the amount that one nation must export to obtain $1 worth of imports.
is the price that the currencies of any two nations exchange for one another.
increase its GDP.
reduce existing tariffs and import quotas.
appreciate the dollar compared to foreign currencies.
depreciate the dollar compared to foreign currencies.
have no perceptible impact on the U.S. economy.
cause inflation in the U.S. economy.
depress real output and employment in the U.S. economy.
stimulate real output and employment in the U.S. economy.
Ca + Ig + Xn intersects the 45-degree line.
Ca + Ig = Sa + T + X.
Ca + Ig + Xn + G = GDP.
Ca + Ig + Xn = Sa + T.
Sa + M + T = Ig + X + G.
the 45-degree line and the saving schedule intersect.
Sa + X + G = Ig + T.
Sa + Ig + X = G + T.
decrease by $50 billion.
decrease by $150 billion.
remain unchanged since spending on military goods is unproductive and usually wasteful.
decrease by $25 billion.
the same as that associated with a change in taxes.
equal to that associated with a change in investment or consumption.
less than that associated with a change in investment.
greater than that associated with a change in investment.
government spending is more employment-intensive than is either consumption or investment spending.
government spending increases the money supply and a tax reduction does not.
a portion of a tax cut will be saved.
taxes vary directly with income.
the MPC is smaller in the private sector than it is in the public sector.
declines in government spending always tend to stimulate private investment.
disposable income will fall by some amount smaller than the tax increase.
some of the tax increase will be paid out of income that would otherwise have been saved.
a rightward shift in the investment demand schedule.
an $8 billion downshift in the consumption schedule.
a $4 billion upshift in the consumption schedule.
a $12 billion downshift in the consumption schedule.
A $20 billion reduction in taxes
$20 billion increases in both government spending and taxes
$20 billion decreases in both government spending and taxes
A $20 billion increase in government spending
A $20 billion increase in taxes.
$20 billion increases in both government spending and taxes.
$20 billion decreases in both government spending and taxes.
A $20 billion decrease in government spending.
MPS in this economy is .4.
MPC in this economy is .4.
multiplier does not apply in this economy.
multiplier is 3.
decrease real GDP.
decrease real GDP.
increase output and employment.
shift the aggregate expenditures schedule downward.
reduce the size of the inflationary gap.
the tax only applies to one time period.
the same amount of tax revenue is collected at each level of GDP.
tax revenues vary directly with GDP.
tax revenues vary inversely with GDP.
equal increases in government spending and taxes do not change the equilibrium GDP.
equal increases in government spending and taxes reduce the equilibrium GDP.
equal increases in government spending and taxes increase the equilibrium GDP.
taxes have a stronger effect upon equilibrium GDP than do government purchases.
the government’s attempt to control hyperinflation.
a major increase in personal and corporate taxes.
a rapid decline in investment spending.
a rapid increase in imports resulting from large tariff reductions.
reduced taxes and increased government spending.
imposed large tariffs on many imported goods to protect domestic jobs.
raised interest rates to encourage greater business investment.
avoided Keynesian policies because of the threat of inflation.
John Stuart Mill.
John Maynard Keynes.
the Great Depression and Keynes’s macroeconomic theory.
the Second World War and the writings of Milton Friedman.
Adam Smith and his idea of the invisible hand.
the strong recovery after the Second World War and Alvin Hansen’s stagnation thesis.
Adam Smith stated his idea of the invisible hand.
Thorstein Veblen poked fun at the leisure class.
John Maynard Keynes attacked the classical economist’s contention that recession or depression will automatically cure itself.
J. B. Say developed “Say’s law.”