Econ Test 3 Chapter 11, 12, And 13 Homework

Front 1

Homer Simpson wins a lottery prize. As a result, the Simpson family increases its consumption by $1,000 at each level of after-tax income. (“Income” does not include the prize money.) How does this change affect the graph of their consumption function?How does it affect their marginal propensity to consume?

Back 1

Their consumption function shifts upward. Their marginal propensity to consume does not change

Front 2

Find the effect on short-run equilibrium output of:a. An increase in government purchases by 100 from 1,500 to 1,600.

Back 2

Short-run equilibrium output will increase

Front 3

Find the effect on short-run equilibrium output of:A decrease in tax collections from 1,500 to 1,400 (leaving government purchases at their original value of 1,500).

Back 3

Short-run equilibrium output will increase

Front 4

Find the effect on short-run equilibrium output of:A decrease in planned investment spending by 100 from 1,000 to 900 (leaving government purchases and taxes unchanged at their original values of 1,500).

Back 4

Short-run equilibrium output will decrease

Front 5

Suppose that the government’s budget is initially in balance, with government spending equal to taxes collected. A balanced-budget law forbids the government from running a deficit. Is there anything that fiscal policymakers could do to restore full employment in this economy, assuming they do not want to violate the balanced-budget law?

Back 5

Increase both government spending and taxes by the same amount, which will result in a net increase in autonomous expenditure without offsetting the balanced budget.

Front 6

Which of the following best describes the tendency of recessions and expansions to spread across countries?

Back 6

Lower planned aggregate spending in a nation means less imports of foreign goods, thereby reducing the short-term equilibrium output of its trading partners through lower net export (NX) values in those nations.

Front 7

The Keynesian model is built on the crucial assumption that:

Back 7

firms meet the demand for their products at preset prices in the short run.

Front 8

What would you expect to happen to the money demand curve during the Christmas season?

Back 8

Money demand would shift to the right

Front 9

If the Fed took no action, what would happen to nominal interest rates around Christmas?

Back 9

Nominal interest rates would rise

Front 10

In fact, nominal interest rates do not change significantly in the fourth quarter of the year, due to deliberate Fed policy. Explain and show graphically how the Fed can ensure that nominal interest rates remain stable around Christmas.

Back 10

The Fed can ensure that nominal interest rates remain stable by increasing the money supply

Front 11

Competition among brokers forces down the commission charge for selling holdings of bonds or stocks.

Back 11

The demand for money will decrease

Front 12

Grocery stores begin to accept credit cards in payment.

Back 12

The demand for money will decrease

Front 13

Financial investors become concerned about increasing riskiness of stocks.

Back 13

The demand for money will increase

Front 14

The worst banking panics ever experienced in the United States occurred during the early stages of the Great Depression, between 1930 and 1933. During this period, approximately one-third of the banks in the United States were forced to close. This near-collapse of the banking system was probably an important reason that the Depression was so severe. Which of the following is a possible effect of the banking panic?

Back 14

The nation's money supply suffered a huge decline during that period.

Front 15

The Federal Reserve controls the nation's money supply by using various tools that it has at its disposal. Which of the following is not a tool used by the Fed to change the money supply?

Back 15

The federal funds rate

Front 16

An increase in consumer confidence leads to higher consumption spending.

Back 16

Aggregate demand shifts to the right

Front 17

The government reduces income taxes.

Back 17

Aggregate demand shifts to the right

Front 18

The Fed increases the money supply.

Back 18

Aggregate supply is unchanged

Front 19

Oil prices drop sharply.

Back 19

Aggregate supply shifts to the right

Front 20

The Fed raises its target rate of inflation.

Back 20

Benefit: Output increases and unemployment falls correct.Cost: The price level increases

Front 21

The Fed does not change its target rate of inflation and follows its current monetary policy rule.

Back 21

Benefit: In long-run equilibrium correct, the economy will be at potential output with a lower price level correct.Cost: In short-run equilibrium correct, the economy will be at a recessionary gap with a higher unemployment rate correct.

Front 22

Suppose the economy is initially in long-run equilibrium. Now, due to a decline in house prices, consumers reduce their consumption spending.a. How does the decline in consumer spending affect the AD curve?

Back 22

The AD curve will shift to the left

Front 23

Which of the following is true about an economy’s self-correcting tendency?

Back 23

The more slowly the economy adjusts, the more likely it is that stabilization policy will be useful. correct

Front 24

A negative demand shock, such as the recent downturn in the stock market, will cause the aggregate:

Back 24

demand curve to shift to the left.

Front 25

Aggregate supply decreases due to:

Back 25

rising oil prices.

Front 26

In modern industrial economies, inflation tends to remain roughly constant as long as output equals potential output and there are no external shocks. This phenomenon is known as:

Back 26

inflation inertia.