ECON 1010 Lecture Notes - Investment Goods, Aggregate Demand, Sterling Price

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29 Apr 2013

School

University of Manitoba

Department

Economics

Course

ECON 1010

Professor

Sarrah Vakili

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ECON 1010 Full Course Notes

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Normally, as domestic incomes rise we expect to see an increased demand for imports. This can come from both consumers and firms. The extent to which imports rise when incomes grow is shown by the income elasticity of demand for imports. In the diagram below, spending on imports is assumed to be directly linked to the level of national income. The higher the marginal propensity to consume the steeper will be the gradient of the import function. Exports are assumed to be exogenous of the level of domestic national income. If the marginal propensity to import is high then imports will rise quickly when the economy experiences economic growth. Unless there is a corresponding rise in the volume of exports sold overseas, the balance of trade will worsen. A common misconception is that balance of payments deficits are always bad for the economy.

Related Questions

1. The multiplier helps explain

A. why a decrease in taxes causes real Gross Domestic Product (GDP) to fall by more than the amount of the decrease in taxes.

B. why a fall in investment cause real Gross Domestic Product (GDP) to rise by more than the amount of the decrease in investment.

C. why a rise in government expenditures causes real Gross Domestic Product (GDP) to rise by more than the amount of the increase in government spending.

D. why an increase in disposable income causes real Gross Domestic Product (GDP) to rise by less than the amount of the increase in disposable income.

2. If the marginal propensity to save (MPS) increases, the multiplier

A. decreases.

B. can either increase or decrease, depending on what happens to the marginal propensity to consume (MPC).

C. stays the same.

D. increases.

QUESTION 60

The investment function will shift when there is a change in

		A. the opportunity cost of retained earnings.
		B. firms' profit expectations.
		C. the cost of borrowing.
		D. the interest rate.

1.43 points

QUESTION 61

In the Keynesian model, whenever planned saving exceeds planned investment,

		A. there will be unplanned inventory accumulation.
		B. real GDP will not be influenced.
		C. the interest rate will remain unchanged.
		D. there will be unplanned inventory depletion.

1.43 points

QUESTION 62

In the Keynesian model, whenever planned saving is less than planned investment,

		A. there will be unplanned inventory depletion.
		B. the interest rate will remain unchanged.
		C. there will be unplanned inventory accumulation.
		D. real GDP will not be influenced.

1.43 points

QUESTION 63

Government purchases

		A. are determined by the political process.
		B. are determined by the public.
		C. are influenced by interest rates.
		D. are determined by suppliers.

1.43 points

QUESTION 64

If, at some level of output, total planned real expenditures are less than real Gross Domestic Product (GDP),

		A. real GDP will either fall or remain unchanged, depending on the MPC.
		B. real GDP will rise.
		C. real GDP remains unchanged.
		D. unplanned inventories will increase and real GDP will fall.

1.43 points

QUESTION 65

When the economy is operating at the equilibrium level of GDP, we know that

		A. total planned real expenditures equal real GDP.
		B. real net exports equal inventory changes.
		C. planned real investment spending equals real net exports of zero.
		D. total planned real consumption expenditures equal real GDP.

1.43 points

QUESTION 66

One divided by the marginal propensity to save (MPS) is the formula for

		A. the inverse of the multiplier.
		B. the multiplier.
		C. one minus the multiplier.
		D. autonomous consumption.

QUESTION 67

Thinking like an economist would, which is true of investment?

		A. Investment represents spending on capital goods.
		B. Investment is a stock concept.
		C. Investment is putting money into stocks and bonds.
		D. It is the portion of disposable income that is not used for consumption or saving.

QUESTION 68

Other things being equal, if input prices rise in a country, then there would be

		A. cost-push inflation.
		B. demand-pull inflation.
		C. cost-pull deflation.
		D. more production and a lower price level.

QUESTION 69

In the short run, if the price level rises, then the overall economy can temporarily produce beyond its nominal capacity. One reason for this is that

		A. existing capital equipment can be used more intensively.
		B. wage rates rise almost simultaneously with the price level.
		C. the unemployment rate usually rises dramatically along with the price level.
		D. workers can be switched from counted to uncounted production.

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2.) In a simple economy (assume there are no taxes; thus, Y is disposable income), the consumption is C=50+0.80 Y. The current level of real GDP is $3000.

At this level of real GDP, consumption will be $___, and savings will be $___. If GDP were to increase by $1000, consumption would increase by $___. (Round off response to nearest dollar.)

At a real GDP level of $3000, the average propensity to conumer is $___, and the average propensity to save is ___. (Round off response to nearest dollar.)

11.) In the short run, if the economy has a recessionary gap, an increased government deficit resulting from higher government spending or lower taxes is most likely to :

a) increase aggregate demand, which will move the economy toward full employment real GDP

b) have no effect on aggregate demand or real GDP after direct and indirect offsets are counted

c) increase aggregate demand, raising prices and creatring an inflationary gap

d) decrease aggregate demand, reducing prices and increasin the recessionary gap

14.) The Federal reserve purchases $9 million in uS Treasury bonds from a bond dealer, and the dealer's bank credits the dealer's account. The required reserve ratio is 17 percent , and the bank typically lends any excess reserves immediately. Assuming that no currency leakage occurs, calculate how much much will the bank be able to lend to its customers following the fed's purchase. $ __ million. (round off to 2 decimal points)

18.) According to the quantity theory of money, the prices, a -3% change in the money supply, holding other variables constant leads to a

a) -3% changee in real GDP

b) -3% change in the interest rate

c) -3% change in the price level

d) a greater than -3% in real GDP

24. Over the course of a year, a nation tracked its foreign transactions and arrived at the following amounts:

Merchandise exports 500

service exports 75

net unilateral transfers 10

domestic assets abraod (capital outflows) -200

foreign assets at home (Capital inflows) 300

changes in official reserves -35

merchandise imports 600

service imports 50

This nations' blance of trade is ______

Its current account balance is ______

The nation's capital account balance is _____

27. Major discoveries of the highest-quality dia-monds ever found occur in Russia andCentralAsia, causing a significant decline in purchases ofSouth African diamonds. Moreover, assume a floating exchange rate.

Describe how the market for the rand is impacted by this event. Will demand shift to the left? Will supply remain the same? Or will supply change?

48. In order to be classified officially as unemployed, a personmust
a. Be out of work and available for work, need not be activelylooking for work
b. Be out of work, actively looking for work, and currentlyavailable for work
c. Only be out of work
d. Have been out of work for over 3 months

49. If exports rise and imports fall, (ceteris paribus)
a. Aggregate expenditure falls
b. Aggregate expenditure rises
c. Aggregate expenditure remains the same
d. Net exports are irrelevant when considering aggregateexpenditure

50. Over the past 25 years, the U.S. has had a net trade____________; which means
the U.S. has exported _________ it has imported.
a..Deficit; less than
b. Balance; the same amount as
c. Deficit; more than
d. Surplus; more than

43. If our economy was experiencing inflation, which of thefollowing would move us
back toward macro equilibrium?
a. Lower Taxes
b. Increase Investment
c. Reduce Net Exports
d. Increase Consumer Spending

42. If our economy slumped into a recession, which of the followingwould help move us back toward macro equilibrium?:
a. Reduce Taxes
b. Reduce Investment
c. Reduce Net Exports
d. Reduce Government Purchases

34. Economists consider that we are at full employment whenthe
a. Officially reported unemployment rate is at the naturalunemployment rate, about 5%
b. Natural unemployment rate is equal to 10 %.
c. Officially reported unemployment rate is zero.
d. Natural unemployment rate is equal to 0 percent.

35. Beginning at macro equilibrium, inflation occurs becauseaggregate
a. supply increases more rapidly than aggregate demand.
b. supply and aggregate demand increase at the same rate.
d. supply and aggregate demand decrease at the same rate.
c. demand increases more rapidly than aggregate supply.

36. If the U.S. government decreases significantly its expenditureon defense, then, ceteris paribus, the aggregate
a. demand curve shifts rightward.
b. demand curve shifts leftward.
c. supply curve shifts rightward.
d. supply curve shifts leftward.

37. According to Keynesian economics, which of the following ismost likely to raise the unemployment rate?
a. Aggregate demand increases.
b. Aggregate demand decreases.
c. Aggregate supply increases.
d. None of the above is likely to raise the unemploymentrate.

38. If a government has a budget deficit, it must
a. raise the real interest rate.
b. borrow in the financial market.
c. decrease taxes.
d. Increase spending

39. The U.S. gross public debt is approximately ________________which is
approximately ______________ % of U.S. GDP.

40. Under the U.S. Constitution, the ultimate power for determiningfiscal policy is:
e. The President
f. The Congress
g. The Council of Economic Advisors
h. The State governments

32. The Marginal Propensity to Consume (MPC) is:
e. The rate at which consumption changes over time
f. The percentage of an additional dollar of disposable income thatwill go toward additional consumption
g. The average percentage of total income one consumes
h. The average percentage of total income one saves

ECON 1010 Lecture Notes - Investment Goods, Aggregate Demand, Sterling Price

ECON 1010 Full Course Notes

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