ECO 102 final exam part 1
1. What is the effect on the consumption function of a decrease in disposable income?
a. The consumption function shifts upward.
b. The consumption function shifts downward.
c. There is movement upward along the consumption function.
d. There is movement downward along the consumption function.
e. The consumption function becomes flatter.
2. Saving in our simple model
a. varies inversely with income
b. is determined primarily by the interest rate
c. is positive when a person spends less than her income
d. can never be negative because it is a stock
e. can never be negative because it is a flow
3. The difference between consumption spending and disposable income
a. decreases as income increases
b. stays proportionally the same as income increases
c. decreases if the interest rate increases
d. equals the amount of taxes paid
e. equals saving
4. If income increases by $100 and the MPS is 1/4, then the amount saved equals
5. A household that expects a decrease in disposable income in the future will
a. increase its current consumption spending
b. decrease its current consumption spending
c. maintain its current consumption spending
d. increase its current consumption spending, then increase spending when income falls
e. decrease its current consumption spending, then increase spending when income falls
6. At the equilibrium level of real GDP, unplanned inventory adjustment equals
a. planned investment
d. actual investment
7. The economy will contract (shrink) if
a. leakages exceed injections
b. injections exceed leakages
c. injections equal leakages
d. expenditures exceed output
e. investment exceeds saving
8. Which of the following is assumed constant along the aggregate expenditure line?
a. the price level
c. unintended inventory adjustment
d. actual investment
e. real GDP
9. The larger the marginal propensity to save, other things constant,
a. the smaller the marginal propensity to consume
b. the larger the marginal propensity to consume
c. the larger the multiplier
d. the steeper the consumption function
e. the flatter the saving function
10. If planned spending exceeds planned output, the result is
a. unintended inventory increases
b. a reduction in GDP
c. a decrease in imports
d. an increase in government purchases
e. unintended inventory reductions
11. If nominal wage rates increase by 2 percent per year and the price level increases by 5 percent per year, real wages will
a. increase by 3 percent per year
b. increase by 5 percent per year
c. increase by 2 percent per year
d. decrease by 5 percent per year
e. decrease by 3 percent per year
12. The real wage represents the
a. quantity of goods and services a worker can purchase in exchange for work time
b. dollar value of the goods and services a worker can purchase in exchange for working
c. nominal wage minus taxes paid on wages
d. actual amount of income a worker receives after deductions for such things as taxes, insurance, and the like
e. nominal wage times the price level
13. In constructing a short-run aggregate supply curve, we assume that the goal of business is to
a. maximize sales revenue
b. maximize profit
c. maximize growth in assets
d. maximize growth in sales
e. minimize cost
14. The situation in which actual output exceeds potential output
a. is impossible because all resources are employed to produce potential output
b. is possible only in times of high unemployment
c. is possible only if the unemployment rate is negative
d. is possible only in the long run
e. creates pressure for inflation
15. A nominal wage is
a. not above the legal minimum
b. always above the legal minimum
c. measured in terms of goods and services it can buy
d. measured in current dollars rather than in constant dollars
e. measured in constant dollars rather than in current dollars
16. If the short-run aggregate supply curve has a positive slope, effective fiscal policy to correct for an expansionary gap will
a. only reduce the price level
b. only reduce real GDP
c. only increase the price level
d. only increase real GDP
e. reduce both the price level and real GDP
17. In which of the following ways does government affect the consumption component of planned aggregate expenditures?
a. through net taxes, which change disposable income
b. by purchasing goods and services, which increase consumption
c. by using subsidies to encourage firms to invest
d. by using net taxes to encourage firms to invest
e. by producing public goods
18. If fiscal policy makers increase aggregate demand in an attempt to decrease the unemployment rate below the natural rate of unemployment, then
a. the potential GDP level will decrease
b. the potential GDP level will increase
c. the only lasting impact of the policy is a higher price level
d. the only lasting impact of the policy is greater real GDP
e. the only lasting impact of the policy is lower real GDP
19. The distinction between discretionary fiscal policy and the use of automatic stabilizers is that
a. only discretionary fiscal policy can stimulate the economy
b. only automatic stabilizers can stimulate the economy
c. discretionary fiscal policy, once adopted, is built into the structure of the economy
d. automatic stabilizers, once adopted, are built into the structure of the economy
e. only discretionary fiscal policy can be used by the federal government
20. According to Keynes,
a. fiscal policy should not be used to influence the economy
b. the economy eventually tends toward the potential output
c. to get the economy to potential output, the SRAS curve must shift to the right
d. the economy could be stuck at equilibrium below the potential output for a prolonged period
e. deviations from potential output are short-lived
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