Assignment:
Read the articles:
If this link does not work, your instructor can provide a pdf. file with this article.
1) "Wait, Is Saving Good or Bad? The Paradox of Thrift" by E. Katarina Vermann
https://learn.umuc.edu/d2l/le/content/112021/viewContent/4691450/View
2) The paradox of thrift - for real
https://krugman.blogs.nytimes.com/2009/07/07/the-paradox-of-thrift-for-real/?_r=0
3) Interest Rates, Aggregate Demand, and the Paradox of Thrift
https://muddywatermacro.wustl.edu/interest-rates-aggregate-demand-paradox-of-thrift
In your initial response to the topic you have to answer all 3 questions.
You are expected to make your own contribution in a main topic as well as respond with value added comments to at least two of your classmates as well as to your instructor.
1. What is the paradox of thrift? Is Saving Good or Bad?Is it real?
2. Give an example of the paradox pf thrift.
3. What is the reverse paradox of thrift?
Part 1
Question 1
Changes in the price level of the different components of aggregate demand are reflected in the AD/ASAD/AS macroeconomic model by a ________________________.
a) downward sloping AD curve
b) longer distance to equilibrium point
c) shorter distance to equilibrium point
d) flatter top portion of AD curve
Question 2
The _________________ means that a higher price level leads to lower real wealth.
a) employment effect
b) foreign price effect
c) wealth effect
d) interest rate effect
Question 3
When prices of outputs in an economy become sufficiently high causing production to exceed potential GDP, the resulting:
a) lower prices will lead to a lower quantity of demand.
b) hyper-intense production will be unsustainable in the long run.
c) downward slope in aggregate supply curve will be short run.
d) higher wages will encourage workers to produce more at high prices
Question 4
In an AD/AS model, the point where the economy has excess capacity is called the:
a) crossing point of the potential GDP line
b) Keynesian zone of the AS curve
c) intermediate zone of the AS curve
d) neoclassical zone of the AS curve
Question 5
Why is productivity growth considered to be the most important factor in the AD/ASAD/AS model?
a) it shifts the AD curve in the short-term
b) it shifts the AD curve in the long-term
c) it shifts the AS curve in the long-term
d) it shifts the AS curve in the short-term
Question 6
The maximum quantity that an economy can produce, given its existing levels of labor, physical capital, technology, and institutions, is called:
a) real GDP.
b) potential GDP.
c) aggregate supply.
d) aggregate demand.
Question 7
As the aggregate price level in an economy decreases,
a) imports decrease.
b) investment decreases.
c) consumer demand decreases.
d) interest rates decrease.
Question 8
In an AD/ASAD/AS model:
a) the GDP deflator is shown on the vertical axis.
b) real GDP is shown on the horizontal axis.
c) the potential GDP always slopes downwards.
d) the Consumer Price Index always slopes upwards.
Question 9
When the aggregate demand curves slope downwards because the price of a good increases, people will
a) consume less and save more.
b) expect a wage increase.
c) substitute and buy other goods instead.
d) buy at the higher price.
Question 10
The term "full employment GDP" is synonymous with which of the following?
a) aggregate GDP
b) potential GDP
c) Keynesian zone
d) macroeconomic equilibrium
Question 11
Refer to the graph above. A government creating economic policy in these circumstances should be most concerned about:
unemployment but not inflation.
inflation but not unemployment.
inflation and unemployment.
neither inflation nor unemployment.
Question 12
The following table shows the aggregate supply and demand data for a country.
Price Level Aggregate Demand Aggregate Supply
100 10,000 4,000
200 9,000 5,000
300 8,000 5,000
400 7,000 7,000
500 6,000 8,500
600 5,000 9,000
700 4,000 9,500
What is the equilibrium output?
a) 4,000
b) 9,000
c) 8,000
d) 7,000
Question 13
35. Which of the following data would be analyzed to determine whether any shift in the MPI has occurred over the course of the past 5 year period?
a) exchange rates
b) interest rates
c) foreign income
d) MPS
Question 14
In macroeconomics, a _________________ is used to show the relationship between output and the input price level.
a) A. Phillips curve
b) microeconomic model
c) Keynesian framework
d) expenditure-output model
Question 15
Aggregate demand is more likely to _________________ than aggregate supply in the short run.
a) shift substantially
b) increase slightly
c) remain unchanged
d) . decrease substantially
Question 16
Which of the following will cause the multiplier to be smaller and cause changes in investor confidence to have a smaller effect in an economy?
a) decreased trade
b) bigger leakages
c) smaller leakages
d) increased trade
Question 17
When an economy is experiencing higher real interest rates, business firms will most likely be discouraged from investing in:
a) mechanical devices.
b) specialized services.
c) computer or other technologies.
d) tangible and/or intangible capital.
Question 18
In a Keynesian cross diagram, what name is given to the distance between an output level that is below potential GDP and the level of potential GDP?
a) inflationary gap
b) recessionary gap
c) national income (Y)
d) expenditure-output
Question 19
According to the Keynesian framework, ____________________________ will not help reduce inflation, but may help a country get out of a recession.
a) increased consumer tax rate
b) decreased military spending
c) increased taxes on business investments
d) increased spending by the government on health care
Question 20
____________________ will not cause a shift of the AS curve in a Keynesian framework.
a) Changes in input prices
b) Changes in output prices
c) Prices of inputs
d) Changes in inputs
Question 21
If a Keynesian expenditure-output model shows that aggregate demand for both goods and labor has shifted to the left to D1, while wages remained at w0 and prices remained at P0, what will be the result?
a) coordinated wage reductions
b) depression
c) excess supply
d) natural rate of unemployment
Question 22
Consumption, investment, government spending, exports, and imports are:
a) all complementary elements of a market-orientated economy.
b) some of the building blocks of Keynesian analysis.
c) all components of aggregate demand.
d) some of the opposing elements found in a market-orientated economy.
Question 23
Refer to the graph shown below. At point B:
a) businesses may raise prices.
b) economic growth it low or even negative.
c) output is expanding.
d) unemployment is very low.
Question 24
When the economy is in a recession, the government will want to increase output. If the multiplier equals 2.5 and the government increases spending by 200, how much will output increase by?
a) 500
b) 900
c) 300
d) 100
Question 25
Suppose that out of the original 100 increase in government spending, 33 will be recycled back into purchases of domestically produced goods and services in the second round and 10.89 is spent in the third round. Following this multiplier effect, what value would be recycled in the fourth round of this cycle?
a) 3.37
b) 9.89
c) 5.23
d) 3.59
Part;2
Question 1:
a) the GDP deflator is shown on the vertical axis.
b) the potential GDP always slopes downwards.
c) real GDP is shown on the horizontal axis.
d) the Consumer Price Index always slopes upwards
Question 2
Economic production has fallen to less than full potential due to inadequate incentives for firms to produce. The duration of this economic condition will likely be:
a) long-term
b) short-term
c) indefinite
d) unknown
Question 3
The term "full employment GDP" is synonymous with which of the following?
a) aggregate GDP
b) Keynesian zone
c) potential GDP
d) macroeconomic equilibrium
Question 4
Whether the economy is in a recession is illustrated in the AD/AS model by how close the _____________________ is to the potential GDP line.
a) AS curve
b) equilibrium
c) AD curve
d) AS and AD curve
Question 5
Why is productivity growth considered to be the most important factor in the AD/ASAD/AS model?
a) it shifts the AD curve in the long-term
b) it shifts the AS curve in the long-term
c) it shifts the AS curve in the short-term
d) it shifts the AD curve in the short-term
Question 6
The ____________ describes a situation where sufficient credit is available, but the economy experiences a reduction in consumption and investment.
a) wealth effect
b) inflation rate effect
c) price effect
d) interest rate effect
Question 7
In macroeconomics, _____________________ denotes the relationship between the total quantity of goods and services and the price level for output.
a) aggregate demand (AD)
b) macroeconomic equilibrium
c) aggregate supply (AS)
d) potential GDP
Question 8
The ____________________ in an AD/AS diagram is most relevant to Say's Law.
a) steep portion of the AS curve
b) AD curve
c) AS curve
d) flat portion of the AS curve
Question 9
42. The __________________ in an AD/AS diagram is most relevant to Keynes's Law.
a) steep portion of the AS curve
b) AD curve
c) AS curve
d) flat portion of the AS curve
Question 10
In an AD/AS model, the point where the economy has excess capacity is called the:
a) neoclassical zone of the AS curve
b) Keynesian zone of the AS curve
c) intermediate zone of the AS curve
d) crossing point of the potential GDP line
Question 11
The following table shows the aggregate supply and demand data for a country.
Price Level Aggregate Demand Aggregate Supply
100 10,000 4,000
200 9,000 5,000
300 8,000 5,000
400 7,000 7,000
500 6,000 8,500
600 5,000 9,000
700 4,000 9,500
What is the equilibrium output?
a) 8,000
b) 7,000
c) 9,000
d) 4,000
Question 12
The graph above reflects a significant increase in world oil prices. What will the impact on aggregate supply most likely lead to?
a) a decrease in the natural unemployment rate
b) an increase in input prices
c) an increase in economic growth
d) less inflationary pressures
Question 13
Which of the following will cause the multiplier to be smaller and cause changes in investor confidence to have a smaller effect in an economy?
a) bigger leakages
b) increased trade
c) decreased trade
d) smaller leakages
Question 14
If a Phillips curve shows that unemployment is high and inflation is low in the economy, then that economy:
a) is producing at a point where output is more than potential GDP.
b) is producing at a point where output is less than potential GDP.
c) is producing at its equilibrium point.
d) is producing at its potential GDP.
Question 15
The onset of a trade deficit is most likely supported by a country's:
a) strong economic growth.
b) existing trade surplus.
c) increased consumption function.
d) reduction in the balance of trade
Question 16
35. Which of the following data would be analyzed to determine whether any shift in the MPI has occurred over the course of the past 5 year period?
a) foreign income
b) interest rates
c) exchange rates
d) MPS
Question 17
If a Keynesian expenditure-output model shows that aggregate demand for both goods and labor has shifted to the left to D1, while wages remained at w0 and prices remained at P0, what will be the result?
a) depression
b) excess supply
c) natural rate of unemployment
d) coordinated wage reductions
Question 18
In macroeconomics, a _________________ is used to show the relationship between output and the input price level.
a) Keynesian framework
b) expenditure-output model
c) A. Phillips curve
d) microeconomic model
Question 19
The Keynesian economic framework is based on an assumption that:
a) prices and wages are sticky and do not adjust rapidly.
b) an increase in government spending will cause the aggregate demand curve to shift to the left.
c) people can afford a high level of government services.
d) an increase in government spending will cause the aggregate demand curve to shift to the left.
Question 20
The sum of all the income received for contributing resources to GDP is called ___________________.
a) national revenue (Y)
b) marginal revenue (X)
c) marginal income (X)
d) national income (Y)
Question 21
According to the Keynesian framework, ________________ in __________________ may cause inflation, but not a recession.
a) an increase; domestic investment
b) a decrease; a major trading partner's export prices
c) an increase; a major trading partner's economy
d) decrease; interest rates
Question 22
Keynesian economics focuses on explaining why recessions and depressions occur, as well as offering a ______________________ for minimizing their effects.
a) policy prescription
b) macro-economic model
c) pricing strategy
d) set of menu costs
Question 23
The equilibrium quantity of labor and the equilibrium wage level decrease when:
a) labor supply shifts to the right, if wages are flexible.
b) labor demand shifts to the left, if wages are flexible.
c) labor supply shifts to the left, if wages are flexible.
d) labor demand shifts to the right, if wages are flexible.
Question 24
Suppose that out of the original 100 increase in government spending, 33 will be recycled back into purchases of domestically produced goods and services in the second round and 10.89 is spent in the third round. Following this multiplier effect, what value would be recycled in the fourth round of this cycle?
a) 5.23
b) 3.59
c) 3.37
d) 9.89
Question 25
When the economy is in a recession, the government will want to increase output. If the multiplier equals 2.5 and the government increases spending by 200, how much will output increase by?
a) 500
b) 300
c) 900
d) 100