One possible result of a fall in aggregate demand coupled with a stableshort-run aggregate supply is

A.

a rise in the stock market.

B.

a recession.

C.

an increase in employment levels.

D.

an economic expansion.

Cost-push inflation occurs

A.

when the aggregate demand curve shifts to theleft, while aggregate supply remains stable.

B.

when the aggregate supply curve shifts to theleft, while aggregate demand remains stable.

C.

when the aggregate supply curve shifts to theright, while aggregate demand remains stable.

D.

when the aggregate demand curve shifts to theright, while aggregate supply remains stable.

The difference between"saving" and"savings" is that

A.

saving is undertaken as a precaution against unemployment and savings are undertaken to increase investment spending.

B.

saving is done by households and savings by businesses.

C.

savings are cumulation of past and current saving.

D.

saving is placed in financial institutions such asbanks, while savings are kept at home by people.

At thebreak-even point for the consumption function

A.

saving is negative.

B.

saving is zero.

C.

the marginal propensity to consume equals l.

D.

saving is positive.

Refer to the figure at right. If real disposable income is$30,000, saving is

A.

$6,000.

B.

$4,000.

C.

$0.

D.

$5,000.

010203040010203040RealDisposableIncomeperYear($thousands)PlannedRealConsumptionperYear($thousands)CADE13B

f the average propensity to consume is0.80, then the average propensity to save is

A.

1.20.

B.

0.20.

C.

0.80.

D.

1.25.

All of the following shift the consumption function upward EXCEPT

A.

an increase in income.

B.

a decrease in the rate of interest.

C.

an expectation of better economic conditions.

D.

an increase in wealth.

What happens as the interest raterises?

A.

The number of profitable investment opportunities declines.

B.

Planned investment spending remains constant since it depends on profit projections not interest rates.

C.

The opportunity cost of using retained earnings to finance investment spending rises.

D.

Planned investment spending also rises.

The relationship between planned real investment spending and the interest rate is

A.

positive.

B.

inverse.

C.

constant.

D.

direct.

In the Keynesianmodel, whenever planned saving exceeds plannedinvestment,

A.

there will be unplanned inventory depletion.

B.

there will be unplanned inventory accumulation.

C.

the interest rate will remain unchanged.

D.

real GDP will not be influenced.

n the figure atright, the equilibrium level of real GDP per year is

A.

$4.0 trillion.

B.

$1.0 trillion.

C.

$2.0 trillion.

D.

$3.0 trillion.

012345012345RealGDPperYear($trillions)PlannedRealExpendituresperYear($trillions)

45

CC+I+G+X

If the marginal propensity to consume is0.75, what is the value of themultiplier?

A.

2.0

B.

1.0

C.

3.0

D.

4.0

If the multiplier in the economy is3, the marginal propensity to save(MPS) must be

A.

1.

B.

3.

C.

0.67.

D.

0.33.

A higher price level causes

A.

the aggregate demand curve to shift to the right.

B.

the C+ I+ G+ X curve to shift down.

C.

the aggregate demand curve to shift to the left.

D.

the C+ I+ G+ X curve to shift up.

Refer to the figure at right. If the economy is currently operating at pointC, then there is

A.

an inflationary gap.

B.

a recessionary gap.

C.

unemployment.

D.

deflation.

RealGDPperYearPriceLevelBALRASSRASADC

Which of the following is an example of fiscalpolicy?

A.

a reduction inlump-sum taxes.

B.

an increase in the government deficit due to more military spending in wartime.

C.

a reduction in the federal funds rate.

D.

a reduction in the money supply.

Expansionary fiscal policy is used to

A.

encourage private saving.

B.

make businesses more efficient.

C.

fight recessions.

D.

fight inflation.

Suppose the government decreaseslump-sum taxes. This causes

A.

disposable income toincrease, which causes consumption spending to increase and aggregate demand to increase.

B.

disposable income todecrease, which causes aggregate supply to decrease.

C.

consumption spending to decrease and spending on imports to increase. The effect on aggregate demand depends on whether domestic spending or spending on imports decreased the most.

D.

government spending todecrease, which causes aggregate demand to decrease.