Question 1

Suppose that MPC = 0.5 and MPI = 0, the Keynesian multiplier equals

Accepted Answer

A)  50. 
B)  5. 
C)  10. 
D)  2.5. 
E)  2. 
A)  50. 
B)  5. 
C)  10. 
D)  2.5. 
E)  2.

Question 2

If there is an increase in government purchases, real GDP will

Accepted Answer

A) increase by more than the amount of the purchases. 
B) increase by less than the amount of the purchases. 
C) not change. 
D) increase by the amount of the purchases. 
E) decrease by less than the amount of the purchases. 
A) increase by more than the amount of the purchases. 
B) increase by less than the amount of the purchases. 
C) not change. 
D) increase by the amount of the purchases. 
E) decrease by less than the amount of the purchases.

Question 3

Suppose the information in the following table describes the economic situation in the United States at the end of 2017:

Accepted Answer

The answer of Suppose the information in the following table...

Question 4

Is it possible for economic fluctuations to occur for reasons not associated with changes in aggregate demand? Explain.

Accepted Answer

Yes. Some economists believe t

Question 5

Explain the connection between fluctuations in the unemployment rate around the natural rate of unemployment and fluctuations in real GDP around potential GDP.

Accepted Answer

Real GDP rises above potential GDP when

Question 6

Proponents of real business cycle theories argue that economic fluctuations are a response to changes in

Accepted Answer

A) money velocity. 
B) the money supply. 
C) potential GDP. 
D) real GDP. 
E) aggregate demand. 
A) money velocity. 
B) the money supply. 
C) potential GDP. 
D) real GDP. 
E) aggregate demand.

Question 7

The actual unemployment rate will fall below the natural unemployment rate when real GDP rises above potential GDP.

Accepted Answer

A) True 
 B)False

Question 8

Economic fluctuations in the United States have occurred more and more frequently as time has passed.

Accepted Answer

A) True 
 B)False

Question 9

Sketch the 45-degree line and the expenditure line on a diagram. Use this diagram to show what happens to the level of income if government purchases decline. Does income decrease by more or by less than the downward shift in government purchases? Explain.

Accepted Answer

As shown in the diagram below, a decline

Question 10

Other things being equal, the forecast for real GDP is likely higher if government purchases increase by a sizable amount.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following relationships do forecasters use to make their one-year-ahead predictions for real GDP?

Accepted Answer

A) Real GDP is the sum of consumption, investment, government purchases, and net exports. 
B) Real GDP is determined by the amount of capital, labor, and technology employed in the economy. 
C) Real GDP is determined by the capital and labor employed in the economy. 
D) Real GDP in any year should equal real GDP in the previous year. 
E) Real GDP equals nominal GDP during the base year. 
A) Real GDP is the sum of consumption, investment, government purchases, and net exports. 
B) Real GDP is determined by the amount of capital, labor, and technology employed in the economy. 
C) Real GDP is determined by the capital and labor employed in the economy. 
D) Real GDP in any year should equal real GDP in the previous year. 
E) Real GDP equals nominal GDP during the base year.

Question 12

Marginal propensity to consume measures

Accepted Answer

A) how much consumption changes for a given change in income. 
B) the amount of consumption at a given income level. 
C) how much is saved as income increases. 
D) the amount needed for food and shelter. 
E) how much real GDP changes for a given change in consumption. 
A) how much consumption changes for a given change in income. 
B) the amount of consumption at a given income level. 
C) how much is saved as income increases. 
D) the amount needed for food and shelter. 
E) how much real GDP changes for a given change in consumption.

Question 13

If adding net exports to C + I + G causes the expenditure line to shift up in a parallel way, it implies that

Accepted Answer

A) imports and exports are not sensitive to changes in income. 
B) both exports and imports are sensitive to changes in income. 
C) exports are sensitive to changes in income. 
D) imports are sensitive to changes in income. 
E) imports and exports have an uncertain effect on income. 
A) imports and exports are not sensitive to changes in income. 
B) both exports and imports are sensitive to changes in income. 
C) exports are sensitive to changes in income. 
D) imports are sensitive to changes in income. 
E) imports and exports have an uncertain effect on income.

Question 14

When spending is equal to output and the economy has reached spending balance, inventory investment must equal zero. Please answer true or false, and explain.

Accepted Answer

A) True 
 B)False

Question 15

If the marginal propensity to consume declines, then

Accepted Answer

A) for any given change in income, there will be a smaller change in saving. 
B) nothing will happen to the consumption function. 
C) for any given change in income, there will be a larger change in consumption. 
D) for any given change in consumption, there will be a smaller change in income. 
E) for any given change in income, there will be a smaller change in consumption. 
A) for any given change in income, there will be a smaller change in saving. 
B) nothing will happen to the consumption function. 
C) for any given change in income, there will be a larger change in consumption. 
D) for any given change in consumption, there will be a smaller change in income. 
E) for any given change in income, there will be a smaller change in consumption.

Question 16

The consumption function is a straight-line relationship between consumption and income.

Accepted Answer

A) True 
 B)False

Question 17

The Keynesian multiplier relies on the assumption that people are forward looking.

Accepted Answer

A) True 
 B)False

Question 18

Only changes in consumption spending will shift the expenditure line.

Accepted Answer

A) True 
 B)False

Question 19

The slope of the 45-degree line

Accepted Answer

A) equals zero. 
B) equals one. 
C) equals infinity. 
D) depends on the level of income. 
E) undefined. 
A) equals zero. 
B) equals one. 
C) equals infinity. 
D) depends on the level of income. 
E) undefined.

Question 20

During economic fluctuations

Accepted Answer

A) changes in the interest rate are the major factor affecting consumption. 
B) income has little effect on consumption. 
C) wealth is the major factor affecting consumption. 
D) changes in income have a large effect on consumption. 
E) there is little movement in consumption. 
A) changes in the interest rate are the major factor affecting consumption. 
B) income has little effect on consumption. 
C) wealth is the major factor affecting consumption. 
D) changes in income have a large effect on consumption. 
E) there is little movement in consumption.

Exam 23: The Nature and Causes of Economic Fluctuations

Suppose that MPC = 0.5 and MPI = 0, the Keynesian multiplier equals

If there is an increase in government purchases, real GDP will

Suppose the information in the following table describes the economic situation in the United States at the end of 2017:

Is it possible for economic fluctuations to occur for reasons not associated with changes in aggregate demand? Explain.

Explain the connection between fluctuations in the unemployment rate around the natural rate of unemployment and fluctuations in real GDP around potential GDP.

Proponents of real business cycle theories argue that economic fluctuations are a response to changes in

The actual unemployment rate will fall below the natural unemployment rate when real GDP rises above potential GDP.

Economic fluctuations in the United States have occurred more and more frequently as time has passed.

Sketch the 45-degree line and the expenditure line on a diagram. Use this diagram to show what happens to the level of income if government purchases decline. Does income decrease by more or by less than the downward shift in government purchases? Explain.

Other things being equal, the forecast for real GDP is likely higher if government purchases increase by a sizable amount.

Which of the following relationships do forecasters use to make their one-year-ahead predictions for real GDP?

Marginal propensity to consume measures

If adding net exports to C + I + G causes the expenditure line to shift up in a parallel way, it implies that

When spending is equal to output and the economy has reached spending balance, inventory investment must equal zero. Please answer true or false, and explain.

If the marginal propensity to consume declines, then

The consumption function is a straight-line relationship between consumption and income.

The Keynesian multiplier relies on the assumption that people are forward looking.

Only changes in consumption spending will shift the expenditure line.

The slope of the 45-degree line

During economic fluctuations

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

Filters