Refer to the information provided in Figure 23.4 below to answer the question(s) that follow.
Figure 23.4Refer to Figure 23.4. Suppose the consumption function for C1 = 20 + 0.5Y, the consumption function that best fits C3 is
A. C3 = 20 + 0.4Y.
B. C3 = 20 + 0.8Y.
C. C3 = 40 + 0.4Y.
D. C3 = 40 + 0.5Y.
Answer: B
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An economy with an expansionary gap will, in the absence of stabilization policy, eventually experience a(n) ________ in the inflation rate, leading to a(n) ________ in output.
A. decrease; increase B. increase; increase C. decrease; decrease D. increase; decrease
If real GDP is increasing more rapidly than the population, then: a. interest rates must be falling
b. the economy must be experiencing inflation. c. per capita real GDP will be increasing. d. per capita real GDP will be decreasing.
Suppose that an individual has chosen not to work. Then a change in the wage rate:
A. creates a substitution effect, but no income effect. B. creates an income effect, but no substitution effect. C. creates both and income and substitution effect. D. creates neither an income effect nor a substitution effect.
Suppose that the Federal Reserve (Fed) wishes to implement an expansionary (loose) policy to increase economic growth in the U.S. economy. Which policy would the Fed most likely adopt?
Increase income taxes Increase interest rates Reduce interest rates and increase money supply reduce the money supply