ECON 305 Chapter Notes -Fiscal Policy, Is–Lm Model, Monetary Policy

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emeraldcrab303

11 Mar 2014

School

University of Maryland

Department

Economics

Course

ECON 305

Professor

Dr.Neri

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Document Summary

The intersection of the is and lm curve determines the level of national income. How fiscal policy shifts the is curve and change sr equilibrium. Changes in fiscal policy change planned expenditure (is) Changes in government purchases: an increase in g, raises income at any interest rate (key cross) and therefore shifts the is curve to the right. Increase g, increases purchase of goods and services, increases planned expenditure, and stimulates production of goods and services, income rises. Raises income and interest rates: higher income causes higher demand, causing higher interest rates at same supply, when ir rises firms cut back on investment. Changes in taxes: effect expenditure through consumption instead, a decrease in taxes shifts the is curve to the right, consumers spend more, increases pe. Interest rates depress investment and the increase is smaller for the is curve than for the key cross. How monetary policy shifts the lm curve and changes sr equilibrium.

Related Questions

10,A change in the price levelâ ________ the AE curve andâ ________ the AD curve.

âshifts; shifts

has no effectâ on; results in a movement along

results in a movementâ along; results in a movement along

results in a movementâ along; shifts

âshifts; results in a movement along

17,When the price levelâ falls, the aggregate planned expenditure curve shiftsâ ________, equilibrium expenditureâ ________ and there is a movementâ ________ along the aggregate demand curve.

âupward; increases; upward

âdownward; decreases; downward

âupward; decreases; downward

âupward; increases; downward

âdownward; increases; upward

21,Which of the following increases the size of the expenditureâ multiplier?

an increase in autonomous spending

a decrease in the marginal propensity to consume

a decrease in the marginal propensity to import

an increase in the marginal income tax rate

an increase in investment

23,If the quantity of real GDP demanded is greater than the quantity of real GDPâ supplied, then

the price level falls and firms decrease production.

aggregate demand changes to restore equilibrium.

the economy must be producing at potential GDP.

the price level falls to restore the macroeconomic equilibrium

the price level rises and firms increase production.

24, ________ can trigger an expansion.

Equality between aggregate expenditure and real GDP

A decrease in induced expenditure

A downward shift of the AE line

An increase in autonomous expenditure

A decrease in autonomous expenditure

greyarmadillo136

Question 1

Which of the following describes the relationship between the change in inventories and aggregate expenditure?

A.	Aggregate expenditure equals the change in inventories minus GDP.
B.	The change in inventories equals GDP divided by aggregate expenditures.
C.	Aggregate expenditures equals GDP divided by the change in inventories.
D.	Aggregate expenditures equals GDP minus the change in inventories.
E.	The change in inventories equals GDP multiplied by aggregate expenditure.

1 points

Question 2

Suppose the marginal propensity to consume is 0.80 and taxes decrease by $10 billion. Which of the following is true?

A.	Disposable income and consumption fall by $10 billion
B.	Disposable income and consumption rise by $10 billion
C.	Disposable income rises by $10 billion and consumption rises by $8 billion
D.	Disposable income falls by $10 billion and consumption falls by $8 billion
E.	Disposable income rises by $10 billion and consumption falls by $8 billion

1 points

Question 3

If aggregate expenditure at a particular level of income is less than output,

A.	output will increase
B.	output will decrease
C.	output will remain the same
D.	output will rise slightly and then level off
E.	we cannot determine what will happen to output

1 points

Question 4

The consumption function

A.	illustrates the relationship between real disposable income and real consumption spending
B.	illustrates the relationship between the price level and real consumption spending
C.	is the relationship between productivity and real consumption spending
D.	shows how real consumption increases when real disposable income decreases
E.	illustrates the relationship between real consumption spending and employment

1 points

Question 5

The focus of the short-run macro model is on the role of

A.	spending in explaining economic fluctuations
B.	labor in explaining economic fluctuations
C.	financial markets in explaining economic fluctuations
D.	output in explaining economic fluctuations
E.	resources in explaining economic fluctuations.

1 points

Question 6

If the output level is such that the aggregate expenditure line lies below the 45-degree line, which of the following is true?

A.	Aggregate expenditure is greater than output, so inventories will increase and output will be raised.
B.	Aggregate expenditure is greater than output, so inventories will decrease and output will be increased.
C.	Aggregate expenditure is less than output, so inventories will decrease and output will be raised.
D.	Aggregate expenditure is less than output, so inventories will increase and output will be lowered.
E.	Aggregate expenditure is greater than output, so inventories will increase and output will be lowered.

1 points

Question 7

If the marginal propensity to consume is 0.7, the expenditure multiplier is

A.	7.0
B.	0.7
C.	3.0
D.	3.3
E.	not determinable without additional information.

1 points

Question 8

Aggregate expenditure is the sum of

A.	all types of spending by households and firms
B.	spending and savings by households
C.	spending by households and governments on final goods and services
D.	spending by households, government, firms, and foreigners on final goods and services
E.	all spending and saving by households, firms, and governments

1 points

Question 9

If the marginal propensity to consume is 0.5 and disposable income increases by $10,000, by how much will consumption spending increase?

A.	$10,000
B.	$500
C.	$50
D.	$5,000
E.	$9,524

1 points

Question 10

When real consumption expenditure is plotted against real disposable income the resulting relationship is

A.	very weak.
B.	virtually flat .
C.	positive and very close to linear.
D.	negative and very close to linear.

indigognu668

The economy is in equilibrium, TP = TE, and Real GDP is $4,555 billion. The MPC is 0.80, the multiplier is operative, and idle resources exist at each expenditure round. Government purchases rise by $10 billion. As a result, the __________ curve shifts __________, inventory levels unexpectedly __________, business firms ___________ the quantity of goods and services they produce, and Real GDP __________ by __________.

TE; downward; fall; increase; rises; $10 billion.

TP; rightward; fall; decrease; falls; $50 billion

TE; upward; fall; increase; rises; $50 billion

TE; downward; rise; increase; rises, $50 billion

Bank A has checkable deposits of $900,000 and total reserves of $112,000. If the required reserve ratio is 8 percent, the bank has excess reserves of

$40,000.

$72,000.

$13,440.

$4,000

A tariff is imposed on strawberries. The tariff will ___________ the price of strawberries in the domestic market, _____________ the quantity of strawberries imported in the domestic market, and ____________ consumersâ surplus.

raise; lower; lower

lower; raise; lower

raise; lower; raise

lower; lower; raise

The economy is in a recessionary gap, wages are inflexible downward, and there is complete crowding out. Which of the following is consistent with this state of affairs?

The economy will soon self-regulate and produce Natural Real GDP.

Expansionary fiscal policy will be effective at removing the economy from the recessionary gap.

If expansionary fiscal policy is implemented, the AD curve will shift to the right, and eventually the price level and Real GDP will rise.

b and c

none of the above

When Bank A obtains a loan from the Fed, the

discount rate is probably higher than the federal funds rate.

bankâs reserves increase.

simple deposit multiplier decreases.

b and c

none of the above

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ECON 305 Chapter Notes -Fiscal Policy, Is–Lm Model, Monetary Policy

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