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Review 1 Economics

4. a.
CPI = sum of [(current prices) x (fixed market basket quantities)] * 100
sum of [(base year prices) x (fixed market basket quantities)]
1994 CPI (1987 = 100)= [(5*30 + 3*20 + 4*6) / (5*14 + 3*10 + 4*5)] * 100
= (234 / 120) * 100
= 195
5. DI = Y – taxes.
DI = 100 = 120 – taxes: 20.
C=85. Saving= investment= 15. Exports=2
120 = 85+15+G+2
a) False
b) False
c) False
d) False
1. If energy prices decrease, it will most likely have which of the following short-turn effects
on the price level and output?
Price Level Output
a. Decrease No effect
b. Decrease Increase
c. Increase Increase
d. Increase Decrease
e. No effect No effect
The spending multiplier:
a. When divided by consumption spending equals saving
b. Is defined as one divided by the marginal propensity to save
c. Is defined as one divided by the marginal propensity to consume
d. Is equal to the MPS plus the MPC
Is equal to the MPS divided by the MPC
3. If government expenditures and taxes are increased by the same amount, which of the
following will occur?
a. Aggregate supply will increase
b. Aggregate supply will decrease
c. Aggregate demand will be unaffected
d. Aggregate demand will decrease
e. Aggregate demand will increase
4. A change in which of the following will cause the short-run aggregate supply curve to
i. The price level
ii. Government spending
iii. The cost of all inputs
a. i only
b. ii only
c. iii only
d. i and ii only
e. i, ii, and iii
5. The value of the spending multiplier decreases when
a. Tax rates are reduced
b. Exports decline
c. Imports decline
d. Government spending increases
e. The marginal propensity to save increases
6. In an economy with a vertical aggregate supply curve, an increase in government
spending will cause output and the price level to change in which of the following ways?
Price Level
a. Decrease
b. Increase
c. Increase
No change
d. No change
e. No change
No change
7. The short-run aggregate supply curve is likely to shift to the left when there is an
increase in
a. The cost of productive resources
b. Productivity
c. Exports
d. The federal budget deficit
e. Imports
The aggregate demand curve is downward sloping because as the price level increases
a. Purchasing power of wealth decreases
b. Demand for imports decreases
c. Demand for interest-sensitive expenditures increases
d. Demand for domestically produced substitute goods increases
e. Real value of fixed assets increases
Which of the following events will most likely cause an increase in both price level and real
gross domestic product?
a. The interest rates increase
Exports increase
c. Income taxes increase
Crude oil prices decrease
e. Inflationary expectations decrease
If an economy’s aggregate supply curve is upward sloping, an increase in government
spending will most likely result in a decrease in the
a. Real level of output
b. Price level
c. Interest rate
d. Unemployment rate
e. Government’s budget deficit
If Maria’s disposable income increases from $600 to $650 and her level of personal
consumption expenditures increases from $480 to $520, you may conclude that her marginal
propensity to
a. Consume is 0.8
b. Consume is 0.4
c. Consume is 0.25
d. Save is 0.8
e. Save is 0.25
Assuming an upward sloping short-run aggregate supply curve, an increase in net exports
will cause the price level, output and the unemployment rate to change in which of the following
Price Level
a. Increase Increase
b. Increase Increase
c. Increase Decrease
d. Increase Decrease
13. The intersection of the aggregate supply curve and the aggregate demand curve occurs at the
economy’s equilibrium level of
a. Real investment and the interest rate
b. Real disposable income and unemployment
c. Real domestic output and the price level
Government expenditures and taxes
Imports and exports
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