1. Prices rise, output is unchanged from its initial value.

2. Prices fall, output is unchanged from its initial value.

3. Output rises, prices are unchanged from the initial value.

4. Output falls, prices are unchanged from the initial value.

5. Output and the price level are unchanged from their initial values.

19. An increase in government spending in the long run

1. Causes higher interest rates, which change the composition of output

2. Causes the nominal money supply to increase, which changes the composition of output

3. Causes the real money supply to increase, which changes the composition of output

4. Has no effect on the real money supply or the composition of output

5. Has no effect on the rate of interest or the composition of output

19. Suppose that you purchase a new home for $150,000 and move in. In the national income accounts:

(A) Consumption expenditures rise by $150,000.

(B) Consumption expenditures rise by $150,000 divided by the number of years you expect to live in

the house.

(C) Consumption expenditures rise by the imputed rent on the house, which is equal to what the

market rent would be if it were rented

(D) Consumption expenditures are unchanged

(E) Not enough information to answer

19. Which of the following is not a type of investment?

(A) Construction of new office

(B) Inventory reduction

(C) Housing construction

(D) Purchase of a common stock

(E) All of the above are considered investment

19. How is the purchase by a U.S. citizen of a $25,000 Mazda, which was produced in Japan, recorded in the U.S. GDP accounts?

(A) Net exports decreases by $25,000.

(B) Investment increases by $25,000 and net exports increases by $25,000.

(C) Consumption increases by $25,000 and net exports decreases by $25,000.

(D) Net exports increases by $25,000.

(E) There is no impact because this transaction does not involve domestic production.

36. When a suit is sewed but put away for later sale, this act is called:

(A) Waste.

(B) Consumption.

3. Saving.

4. Dissaving.

5. Investment.

37. The GDP Deflator differs from the CPI in that the GDP Deflator

(A) Is thought to slightly overestimate the inflation rate

(B) Uses base year quantities in its calculations

(C) Incorporates both current year prices and base year prices

(D) Incorporates current year quantities in its calculations

(E) Is the favored price index of the U.S. government

38. Assume that households experience a reduction in confidence that causes a reduction in autonomous consumption. This will cause

1. an increase in the level of saving

2. no change in output and no change in the final level of consumption

3. a reduction in output and a reduction in the level of saving

4. no change in output if the level of saving does not change

5. No change in the level of saving

39. Kate would spend $50 per week even if she made no income. Her weekly income is $1,000 and her marginal propensity to consume is 0.6. How much does Kate save per week?

(A) $500; (B) $350; (C) $530; (D)$50; (E) $300

39. When aggregate demand is greater than output, there is unplanned

(A) Government purchases

(B) Inventory reduction

(C) Saving

(D) Consumption

(E) All of the above.

39. When planned saving equals -$50+0.20Yd and planned investment is $60, the

equilibrium level of income is

(A) $110 (B) $300 (C) $550 (D) $1100 (E) $2600.

39. When aggregate supply is positively sloped and the marginal propensity to consume is 0.80, a $20 increase in investment spending will result in

1. A $20 increase in the equilibrium level of output,

2. A $80 increase in the equilibrium level of output,

3. A $100 increase in the equilibrium level of output,

4. An increase in the equilibrium level of output greater than $100,

5. An increase in the equilibrium level of output less than $100.

39. When equilibrium output exceeds full-employment output in the aggregate expenditure model/Keynesian cross,

(A) Injections exceed leakages

(B) A recessionary gap exists

(C) An inflationary gap exists

(D) Leakages exceed injections

(E) Keynes would call for an increase in government spending

39. Assume national output is at the full-employment level of output and the government budget is balanced. Under the lump-sum tax system in the absence of any policy measures taken, a reduction in business confidence would probably lead to

(A) A decline in output and a government budget deficit

(B) A decline in output and a government budget surplus

(C) A decline in output and no change in government budget

(D) An increase in output and a government budget deficit

(E) An increase in output and a government budget surplus

45. Built-in stabilizers are