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Exam 11: Financial Markets and International Capital Flows

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Question 31

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If consumption increases by $9 when after-tax disposable income increases by $10, the marginal propensity to consume (mpc) equals:

A) 0.1.
B) 0.9.
C) 1.0.
D) 9.0.

E) A) and C)
F) All of the above

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Question 32

Multiple Choice

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The recession of 2007-2009 happened in part because, after the housing bubble burst in 2006, disruptions in the financial market made it difficult:

A) for government to finance deficit spending.
B) to fight inflation.
C) for businesses and consumers to borrow money.
D) to shift the PAE line downward.

E) A) and B)
F) A) and C)

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Question 33

Multiple Choice

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A decrease in stock prices alters the consumption function by:

In the short-run Keynesian model, if the mpc equals 0.8, then to increase planned aggregate spending by $20 billion at any output level, government spending must be increased by ______ or net taxes must be decreased by _____.

Government policies that are used to affect planned aggregate expenditure, with the objective of eliminating output gaps, are called ______ policies.

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*) equals 9,000, then transfers must be ______ by approximately ______ to eliminate any output gap.

In the short-run Keynesian model, to close a recessionary gap of $1 billion dollars government purchases must be:

If short-run equilibrium output equals 10,000, the income-expenditure multiplier equals 5, the mpc equals 0.8, and potential output (Y*) equals 9,000, then taxes must be ______ by approximately ______ to eliminate any output gap.

In the short-run Keynesian model, to close an expansionary gap of $10 billion dollars government purchases must be:

If planned aggregate expenditure (PAE) in an economy equals 2,000 + 0.8Y and potential output (Y*) equals 11,000, then this economy has:

When real output increases, planned aggregate expenditures increase because:

An economic recession in the U.S. ______ the demand for exports from Canada resulting in a reduction in Canadian autonomous expenditures and a(n) ______ output gap in Canada.

In Econland autonomous consumption equals 700, the marginal propensity to consume equals 0.80, net taxes are fixed at 50, planned investment is fixed at 100, government purchases are fixed at 100, and net exports are fixed at 40. Autonomous expenditure equals:

The decision whether to change prices frequently or infrequently is an application of the:

In the short run with predetermined prices, when output is less than planned aggregate expenditure, firms will:

In the short run with predetermined prices, when output is greater than planned aggregate expenditure:

Suppose that the owner of a local ice cream store, knowing that demand for ice cream is higher when the weather is warmer, always charges a price in cents for a scoop of ice cream that is equal to two times the current outdoor temperature, measured in Fahrenheit (so that if it is 90 degrees outside, the ice cream is $1.80 per scoop) . This type of behavior is ______.

Menu costs are the costs of:

In the basic Keynesian model, a decrease in transfer payments:

The bursting of the housing bubble in 2006 caused ______ to cut back on their spending, thereby shifting the PAE line _____.