Question 1

The consumption function shows the relationship between consumption and

Accepted Answer

A) the interest rate. 
B) the money supply. 
C) the price level. 
D) potential GDP. 
E) income. 
A) the interest rate. 
B) the money supply. 
C) the price level. 
D) potential GDP. 
E) income.

Question 2

The marginal propensity to consume is best defined as

Accepted Answer

A) the change in consumption expenditure caused by an increase in the interest rate. 
B) the change in consumption expenditure caused by a one-unit increase in income. 
C) the change in real GDP caused by a change in consumption expenditure. 
D) the change in consumption expenditure caused by a change in some other spending category. 
E) total consumption divided by total income. 
A) the change in consumption expenditure caused by an increase in the interest rate. 
B) the change in consumption expenditure caused by a one-unit increase in income. 
C) the change in real GDP caused by a change in consumption expenditure. 
D) the change in consumption expenditure caused by a change in some other spending category. 
E) total consumption divided by total income.

Question 3

Which of the following statements is true?

Accepted Answer

A) A change in sales tax has no effect of disposable income. 
B) Interest and dividend payments are not included in disposable income. 
C) A decrease in transfer payments reduces disposable income. 
D) Household consumption is not sensitive to changes in disposable income. 
E) All of these 
A) A change in sales tax has no effect of disposable income. 
B) Interest and dividend payments are not included in disposable income. 
C) A decrease in transfer payments reduces disposable income. 
D) Household consumption is not sensitive to changes in disposable income. 
E) All of these

Question 4

Equilibrium output in the short run, as given by spending balance, can be above or below potential GDP.

Accepted Answer

A) True 
 B)False

Question 5

Suppose business executives become very pessimistic and reduce their investment spending. Sketch a diagram that illustrates how this change in opinion affects real GDP.

Accepted Answer

A pessimistic attitude by busi

Question 6

The Keynesian multiplier is the ratio of the change in spending to a given change in real GDP.

Accepted Answer

A) True 
 B)False

Question 7

Most short-term forecasts are based on expected changes in aggregate demand.

Accepted Answer

A) True 
 B)False

Question 8

Economic fluctuations are largely a result of changes in aggregate demand.

Accepted Answer

A) True 
 B)False

Question 9

Suppose that MPC = 0.7 and MPI = 0.2. According to the Keynesian multiplier, a decrease of $20 million in government purchases will

Accepted Answer

A) increase real GDP by $40 million. 
B) decrease real GDP by $40 million. 
C) increase real GDP by $100 million. 
D) decrease real GDP by $100 million. 
E) have no impact on real GDP. 
A) increase real GDP by $40 million. 
B) decrease real GDP by $40 million. 
C) increase real GDP by $100 million. 
D) decrease real GDP by $100 million. 
E) have no impact on real GDP.

Question 10

The 2008-09 recession was

Accepted Answer

A) longer lasting and much more severe than the 2001 recession. 
B) shorter than the 2001 recession, but much more severe. 
C) longer lasting than the 2001 recession, but less severe. 
D) the first recession of the 21st century in the United States. 
E) shorter and less severe than the 2001 recession. 
A) longer lasting and much more severe than the 2001 recession. 
B) shorter than the 2001 recession, but much more severe. 
C) longer lasting than the 2001 recession, but less severe. 
D) the first recession of the 21st century in the United States. 
E) shorter and less severe than the 2001 recession.

Question 11

Economic fluctuations have been common for at least 200 years, but they have diminished in frequency and severity in the United States and many other countries, particularly in the last 25 years.

Accepted Answer

A) True 
 B)False

Question 12

Suppose real GDP in 2015 is $15,500 billion, and the forecast for real GDP in 2016 is $15,950 billion, then the forecast of real GDP growth for the year 2016 was

Accepted Answer

A) 0.3 percent. 
B) 2.9 percent. 
C) 29 percent. 
D) 4.5 percent. 
E) 3.5 percent. 
A) 0.3 percent. 
B) 2.9 percent. 
C) 29 percent. 
D) 4.5 percent. 
E) 3.5 percent.

Question 13

The size of the Keynesian multiplier depends on

Accepted Answer

A) the location of the expenditure line. 
B) the level of spending. 
C) the level of income. 
D) the location of the 45-degree line. 
E) the marginal propensity to consume. 
A) the location of the expenditure line. 
B) the level of spending. 
C) the level of income. 
D) the location of the 45-degree line. 
E) the marginal propensity to consume.

Question 14

In real business cycle theories, changes in tastes are most frequently assumed to be the reason for changes in potential GDP.

Accepted Answer

A) True 
 B)False

Question 15

The permanent income model implies that

Accepted Answer

A) a permanent tax cut has a larger effect on consumption than does a temporary tax cut. 
B) a permanent tax cut has a smaller effect on consumption than does a temporary tax cut. 
C) tax cuts should not be used because consumers are not rational. 
D) both permanent and temporary tax cuts are effective in changing consumption. 
E) both permanent and temporary tax cuts have no effects on consumption. 
A) a permanent tax cut has a larger effect on consumption than does a temporary tax cut. 
B) a permanent tax cut has a smaller effect on consumption than does a temporary tax cut. 
C) tax cuts should not be used because consumers are not rational. 
D) both permanent and temporary tax cuts are effective in changing consumption. 
E) both permanent and temporary tax cuts have no effects on consumption.

Question 16

Potential GDP represents what firms would want to produce in "normal times," when the economy is in neither a recession nor a boom.

Accepted Answer

A) True 
 B)False

Question 17

The slope of the expenditure line is greater than 1.

Accepted Answer

A) True 
 B)False

Question 18

If real GDP is less than spending, output will rise.

Accepted Answer

A) True 
 B)False

Question 19

Answer the questions below:

Accepted Answer

The answer of Answer the questions below:
  
...

Question 20

Interest rates do not affect consumption.

Accepted Answer

A) True 
 B)False

Exam 23: The Nature and Causes of Economic Fluctuations

The consumption function shows the relationship between consumption and

The marginal propensity to consume is best defined as

Which of the following statements is true?

Equilibrium output in the short run, as given by spending balance, can be above or below potential GDP.

Suppose business executives become very pessimistic and reduce their investment spending. Sketch a diagram that illustrates how this change in opinion affects real GDP.

The Keynesian multiplier is the ratio of the change in spending to a given change in real GDP.

Most short-term forecasts are based on expected changes in aggregate demand.

Economic fluctuations are largely a result of changes in aggregate demand.

Suppose that MPC = 0.7 and MPI = 0.2. According to the Keynesian multiplier, a decrease of $20 million in government purchases will

The 2008-09 recession was

Economic fluctuations have been common for at least 200 years, but they have diminished in frequency and severity in the United States and many other countries, particularly in the last 25 years.

Suppose real GDP in 2015 is $15,500 billion, and the forecast for real GDP in 2016 is $15,950 billion, then the forecast of real GDP growth for the year 2016 was

The size of the Keynesian multiplier depends on

In real business cycle theories, changes in tastes are most frequently assumed to be the reason for changes in potential GDP.

The permanent income model implies that

Potential GDP represents what firms would want to produce in "normal times," when the economy is in neither a recession nor a boom.

The slope of the expenditure line is greater than 1.

If real GDP is less than spending, output will rise.

Answer the questions below:

Interest rates do not affect consumption.

The Central Idea

Observing and Explaining the Economy

The Supply and Demand Model

Subtleties of the Supply and Demand Model

The Demand Curve and the Behavior of Consumers

The Supply Curve and the Behavior of Firms

The Efficiency of Markets

Costs and the Changes at Firms Over Time

The Rise and Fall of Industries

Monopoly

Product Differentiation, Monopolistic Competition, and Oligopoly

Antitrust Policy and Regulation

Labor Markets

Taxes, Transfers, and Income Distribution

Public Goods, Externalities, and Government Behavior

Capital and Financial Markets

Macroeconomics: the Big Picture

Measuring the Production, Income, and Spending of Nations

The Spending Allocation Model

Unemployment and Employment

Productivity and Economic Growth

Money and Inflation

The Economic Fluctuations Model

Using the Economic Fluctuations Model

Fiscal Policy

Monetary Policy

Economic Growth Around the World

International Trade

International Finance

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