Last year the Jones family earned 40,000 . This year their income is 42,000 . In an economy with an inflation rate of 10 percent, which of the following is correct?
a. The Jones' nominal income and real income have both fallen.
b. The Jones' nominal income and real income have both risen.
c. The Jones' nominal income has increased and their real income has fallen.
d. The Jones' nominal income has decreased and their real income has risen.
QUESTION 2The balanced budget multiplier is always equal to 1.
a. True
b. False
Indicate whether the statement is true or false
QUESTION 3The hypothesis that people use all available information to predict the future is known as:
a. rational expectations.
b. adaptive expectations.
c. lagged expectations.
d. trend expectations.
QUESTION 4Real income for a given year would be less than nominal income in that year if:
a. the consumer price index was less than 100 in that year.
b. nominal income in that year was greater than nominal income in the previous year.
c. nominal income in that year was less than nominal income in the previous year.
d. the consumer price index was greater than 100 in that year.
QUESTION 5Following Keynesian economics, and assuming a marginal propensity to consume (MPC) of 0.75, an increase in taxes of 100 billion would be expected to shift the aggregate demand curve by 300 billion to the left.
a. True
b. False
Indicate whether the statement is true or false
QUESTION 6The rational expectations theory indicates that expansionary policy will:
a. stimulate real output in the long run but not in the short run.
b. expand real output and employment if the public quickly anticipates the effects of the expansionary policy.
c. equalize real and nominal interest rates during lengthy periods of inflation.
d. fail to increase employment because individuals will anticipate it and take actions that will offset its impact.
QUESTION 7Which of the following is correct?
a. People whose nominal incomes rise faster than the rate of inflation gain purchasing power.
b. Real income equals nominal income divided by the CPI as a decimal.
c. The percentage change in real income equals the percentage change in nominal income minus the percentage change in CPI.
d. All of these.
QUESTION 8Contractionary fiscal policy is designed to combat demand-pull inflation and consists of a decrease in government spending and/or an increase in taxes.
a. True
b. False
Indicate whether the statement is true or false
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