Chapter 12 Study Guide

Question 1

when the amount of output produced exceeds the amount of spending, what happens to inventories? future orders will blank. Manufacturers will blank output. Will GDP increase or decrease? Unemployment?

Answer 1

when the amount of output produced exceeds the amount of spending
inventories rise
future orders will fall 
manufactures will decrease output 
GDP will decrease 
Unemployment will rise

Question 2

what is disposable income

Answer 2

disposable income = gross income - taxes + transfers

Question 3

which of the following will increase household consumption?

Answer 3

home values rise

Question 4

which of the following will decrease household consumption?

Answer 4

stock market index falls
expected future income falls
the price level rises
interest rates rise

Question 5

suppose disposable income rises by 3000 and spending rises by 600. What is the MPC?

Answer 5

MPC = spending/disposable income
MPC = 600/ 3000

Question 6

Suppose disposable income falls by 2000 and consumption falls by 1500. What is the MPS?

Answer 6

MPC + MPS = 1
MPC = spending/ income
MPC = 1500/2000
MPC = 15/20
MPS = 5/20 
MPC + MPS = 1

Question 7

marginal propensity to consume

Answer 7

MPC

Question 8

marginal propensity to save

Answer 8

MPS

Question 9

which of the following will increase business investment?

Answer 9

businesses expect future profits to rise

interest rates fall

Question 10

which of the following decrease business investment?

Answer 10

corporate taxes rise

cash flow declines

Question 11

net exports in the US have been negative since the year blank. this means that imports blank exports.

Answer 11

Net Exports (NX) have been negative since 1982. This means that imports exceed exports. ***

Question 12

when net exports are positive this means that imports blank exports?

Answer 12

When Net Exports (NX) are positive this means that exports exceed imports or imports do NOT exceed exports

Question 13

when the US enters a recession, we expect net exports (NX) to blank

Answer 13

when the US enters a recession, we expect net exports, NX, to increase

Question 14

What will increase US net exports?

Answer 14

US has lower inflation rate than other countries

The US is in a recession; other countries are in expansion

Question 15

What will decrease US net exports?

Answer 15

The US dollar has appreciated versus other currencies

Question 16

A strong dollar means that $1 buys blank units of foreign currency.

Answer 16

A strong dollar buys more units of foreign currency.

Question 17

A strong dollar will blank US exports

Answer 17

A strong dollar will decrease, reduce US exports.

Question 18

Suppose the US goes into a deep recession, while other countries prosper. What do we expect to happen to US imports?

Answer 18

US in Recession
Other Countries Expansion
US imports decrease

Question 19

Suppose the US goes into a deep recession, while other countries prosper. What do we expect to happen to US imports? to the US trade balance?

Answer 19

US Recession
Other Countries Expansion
US imports decrease
US trade balance increase