241 final exam - TOPICS 10. Investment, Saving, and Real...

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TOPICS 10. Investment, Saving, and Real interest rate 11. The Monetary System 12. Money, Interest and Inflation 13. AD-AS, Business cycle, AE Practice exercise for final exam (with selected answers) 1. Stagflation is defined as a period when real GDP ________ and the price level ________. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases E) is constant; rises rapidly 2. If the federal government has a budget deficit, then it is definitely the case that A) tax receipts exceed government expenditures. B) tax receipts and government expenditures are equal. C) tax receipts are falling and government expenditures are rising. D) government expenditures exceed tax receipts. E) tax receipts are rising and government expenditures are falling. 3. The relationship between disposable income and consumption is A) positive. B) negative. C) nonexistent. D) U-shaped. E) not stable because it depends on whether the economy is in equilibrium or not. 1
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4. In the figure above, the economy is at an equilibrium with real GDP of $10 trillion and a price level of 110. At this point there is A) an inflationary gap. B) a recessionary gap. C) price stability. D) a full-employment equilibrium. E) a below full-employment equilibrium. 5. If the government reduces expenditure on goods and services by $30 billion, then aggregate demand A) decreases and real GDP decreases. B) decreases and potential GDP decreases. C) increases and real GDP increases. D) increases and potential GDP increases. E) increases and potential GDP decreases. 6. A figure depicting the consumption function shows that the consumption function A) is parallel to the 45° line. B) is always above the 45° line. C) is always below the 45° line. D) starts below and then crosses to above the 45° line. E) starts above and then crosses to below the 45° line. 7. In the figure above, the economy is at an equilibrium with real GDP of $10 trillion and a price level of 110. As the economy moves toward its ultimate equilibrium, the ________ curve will shift ________. A) aggregate supply; leftward B) aggregate supply; rightward C) aggregate demand; rightward D) aggregate demand; leftward E) potential GDP; rightward 8. In a recession, government spending ________ and induced taxes ________. A) increases; increase B) increases; decrease C) decreases; increase D) decreases; decrease E) increase; do not change 2
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9. The slope of the consumption function is A) equal to the MPC and is less than 1. B) equal to the MPC and is greater than 1. C) equal to the MPC and is equal to 1. D) not equal to the MPC and is equal to 1. E) not equal to the MPC and is less than 1. 10. The aggregate supply curve illustrates that the A) higher the price level, the greater the quantity of real GDP supplied. B) higher the price level, the smaller the quantity of real GDP supplied.
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This note was uploaded on 03/02/2010 for the course MGMT 421-1234 taught by Professor Person during the Spring '10 term at Aarhus Universitet.

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241 final exam - TOPICS 10. Investment, Saving, and Real...

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