ECON102 Lecture Notes - Lecture 4: Government Budget Balance, Loanable Funds, Interest

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raspberrygnu289

25 Aug 2016

School

University of Waterloo

Department

Economics

Course

ECON102

Professor

Maryann Vaughan

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ECON102 Full Course Notes

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The value of all things that people own. = y (income)-t (net taxes)-c ( expenditure), what remains of your income after paying taxes and consumption expenditures. Saving is the amount of income that is not paid in taxes or spent on consumption goods and services. Wealth also increases when the market value of assets rises called capital gains and decreases when the market value of assets falls called capital losses. = value of assets value of liabilities. Banks give loans to firms by using the money that the people have saved in the banks. Household borrow to buy big-ticket consumption goods ( high-valued items such as home appliances, cars etc) and new homes. The issuer promises to make payments on specified dates. There are a variety of types and conditions. Firm often issue a bond to get paid for their sales before the buyer is able to pay them.

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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

1. Menu costs are:

A) the costs of materials.

B) the cost of changing prices.

C) particularly low when inflation is high.

D) a reason that the inflation rate typically underestimates true price level changes.

2. A market basket costs $150 to buy in the base year and $60 to buy in year X.

A. the price index for year X is 250.

B. Year X probably occurred after the base year.

C. Year X is the base year.

D. the price index for year X is .4 or 40%.

3. A traditional expansionary gap is created when the aggregate demand curve moves to the:

A. right of the natural rate of output; inflation rises and unemployment falls.

B. left of the natural rate of output; inflation falls and unemployment rises.

C. right of the natural rate of output; inflation falls and unemployment rises.

D. left of the natural rate of output; inflation rises and unemployment falls.

4. Consumers change their purchases and move ALONG the same consumption function when:

A) Their income changes

B) Their tastes change

C) The price level changes

D) All of the above.

5. If MPC is .75 then if consumer income rises by $10,000 we would predict that consumption will:

A. rise by $7500 while savings fall by $2500.

B. fall by $2500 while savings rise by $7500.

C. rise by $7500 while savings rise by $2500.

D. fall by $2500 while savings fall by $7500.

6. Autonomous consumption is

A. that part of consumption that rises or falls with changes in disposable income.
B. the minimum that people will spend even if disposable income is zero.
C. the amount people will spend when the C line crosses the 45-degree line.
D. the amount people will spend when income is equal to consumption.

7. A low rate of investment could be explained by a

A. low rate of saving and low-interest rates.
B. low rate of saving and high-interest rates.
C. high rate of saving and low-interest rates.
D. high rate of saving and high-interest rates.

8. Mr. A makes $40,000 a year; Ms. B makes $20,000 a year. Mr. A pays $6,000 in taxes while Ms. B pays $4,000 in taxes. Which of the following is true?

A. Taxes are progressive because Mr. A pays a higher dollar amount in taxes than Ms. B

B. Taxes are neutral because Mr. A makes more money before and after taxes than Ms. B.

C. Taxes are regressive because Mr. A pays a lower tax rate than Ms. B.

D. Taxes are progressive because Ms. B pays a lower dollar amount in tax.

9. The 45 degree line in the full AE model represents

A. all points where C = Y.

B. all points where AE = Y

C. all points where C + I = G + Xn

D. all points where C = I + G + Xn

10. International trade:

A. Allows countries to specialize in the goods at which they are best at producing.

B. can increase the goods and services both trading partners have.

C. can be unbalanced where one partner exports more to the other than the other way around.

D. all of the above.

11. If AD rises in the short run:

A. it pushes up the price level.

B. it decreases national output.

C. increases full employment.

D. all of the above.

12. We cut down trees and sell the timber for $8000. The timber is sawn up into lumber that sells for $18,000. The lumber is used to build furniture that sells to consumers for $30,000.

A. $30,000 goes into GDP.

B. $4000 goes into GDP.

C. $56,000 goes into GDP.

D. $22,000 goes into GDP.

13. The long-run annual growth rate of the U.S. economy tends to be about:

A. 1% or less.

B. 2%

C. 5%

D. 10% or more.

coffeemuskrat250

1. Which of the following both increase the money supply?

an increase in the discount rate and an increase in the interest rate on reserves
an increase in the discount rate and a decrease in the interest rate on reserves
a decrease in the discount rate and an increase in the interest rate on reserves
a decrease in the discount rate and a decrease in the interest rate on reserves

2. In the U.S., the average adult holds about $3,700 in

currency.
wealth.
M1.
M2.

3. The measure of the money stock called M1 includes

wealth held by people in their checking accounts.
wealth held by people in their savings accounts.
wealth held by people in money market mutual funds.
everything that is included in M2 plus some additional items

4. When the Fed decreases the discount rate, banks will

5. Reserve requirements are regulations concerning

the amount banks are allowed to borrow from the Fed.
the amount of reserves banks must hold against deposits.
reserves banks must hold based on the number and type of loans they make.
the interest rate at which banks can borrow from the Fed.

6. When we say that trade is roundabout we mean that

people sometimes trade goods for goods.
trades require a double coincidence of wants.
currency is accepted primarily to make further trades.
people must spend time searching for the products they wish to purchase.

7. Values of Assets

Asset	Amount in $Billions
Small-time deposits	780
Large time deposits	1,700
Demand deposits	450
Other checkable deposits	370
Savings deposits	4950
Traveller's checks	5
Money market mutual funds	740
Currency	880
Miscellaneous categories of M2	50

Refer to Value of Assets. What is the value of M1 in billions of dollars?

1705
2485
6295
7075

8. In 1991, the Federal Reserve lowered the reserve requirement from 12 per cent to 10 per cent. Other things the same this should have

increased both the money multiplier and the money supply.
decreased both the money multiplier and the money supply.
increased the money multiplier and decreased the money supply.
decreased the money multiplier and increased the money supply.

9. Consider four survivors on an island.

Rupert	has machete	wants fishing spear
Amber	has cooking pot	wants fishing spear
Rob	has fishing spear	wants machete
Tom	has cooking pot	wants machete

Which of the following pairs of survivors has a double-coincidence of wants?

Rupert with Amber, and Rob with Tom
Amber with Tom
Rupert with Rob
None of the above is correct.

10. Economists use the term money to refer to

all wealth.
all assets, including real assets and financial assets.
all financial assets, but not real assets.
those types of wealth that are regularly accepted by sellers in exchange for goods and services.

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ECON102 Lecture Notes - Lecture 4: Government Budget Balance, Loanable Funds, Interest

ECON102 Full Course Notes

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