Question 1

In the United States, consumption is by far the largest component of aggregate demand.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following will cause an upward shift of the expenditure line?

Accepted Answer

A) A decrease in wealth 
B) A decrease in government purchases 
C) A decrease in taxes 
D) An increase in imports 
E) An increase in saving 
A) A decrease in wealth 
B) A decrease in government purchases 
C) A decrease in taxes 
D) An increase in imports 
E) An increase in saving

Question 3

The forward-looking model implies that the Keynesian multiplier is greater for a temporary tax cut than a permanent tax cut.

Accepted Answer

A) True 
 B)False

Question 4

Spending balance exists if

Accepted Answer

A) the economy is at potential GDP. 
B) income and spending are the same, and we are on the expenditure line. 
C) income and spending are the same. 
D) income and spending are the same, we are on the expenditure line, and we are at potential GDP. 
E) All of these 
A) the economy is at potential GDP. 
B) income and spending are the same, and we are on the expenditure line. 
C) income and spending are the same. 
D) income and spending are the same, we are on the expenditure line, and we are at potential GDP. 
E) All of these

Question 5

Which of the following does not occur when real GDP rises above potential GDP?

Accepted Answer

A) The unemployment rate falls below the natural unemployment rate. 
B) The capacity utilization rate increases. 
C) Firms increase their prices. 
D) The unemployment rate rises above the natural unemployment rate. 
E) Demand increases. 
A) The unemployment rate falls below the natural unemployment rate. 
B) The capacity utilization rate increases. 
C) Firms increase their prices. 
D) The unemployment rate rises above the natural unemployment rate. 
E) Demand increases.

Question 6

The slope of the consumption function is equal to

Accepted Answer

A) the nominal interest rate. 
B) the real interest rate. 
C) the marginal propensity to consume. 
D) the relative price of consumption. 
E) the marginal propensity to save. 
A) the nominal interest rate. 
B) the real interest rate. 
C) the marginal propensity to consume. 
D) the relative price of consumption. 
E) the marginal propensity to save.

Question 7

The 2008-09 recession proved to be mild and very short-lived.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following statements is true?

Accepted Answer

A) A change in income has no effect on consumption, but a change in consumption will cause income to change. 
B) A change in income will affect consumption, but a change in consumption will not affect income. 
C) A change in income has no effect on consumption, and a change in consumption has no effect on income. 
D) A change in income causes consumption to change, and a change in consumption will cause income to change. 
E) None of these 
A) A change in income has no effect on consumption, but a change in consumption will cause income to change. 
B) A change in income will affect consumption, but a change in consumption will not affect income. 
C) A change in income has no effect on consumption, and a change in consumption has no effect on income. 
D) A change in income causes consumption to change, and a change in consumption will cause income to change. 
E) None of these

Question 9

If government expenditures decrease, the expenditure line will

Accepted Answer

A) shift up in a parallel direction. 
B) stay constant. 
C) shift down in a parallel direction. 
D) pivot down to the right. 
E) pivot up to the left. 
A) shift up in a parallel direction. 
B) stay constant. 
C) shift down in a parallel direction. 
D) pivot down to the right. 
E) pivot up to the left.

Question 10

Define the marginal propensity to consume. Graphically, how is the marginal propensity to consume shown?

Accepted Answer

The MPC measures the change in consumpti

Question 11

What is meant by a conditional forecast, and what is it used for?

Accepted Answer

A conditional forecast is used to predic

Question 12

Between December 2007 and June 2009,

Accepted Answer

A) the United States economy was in recession and millions of jobs were lost. 
B) the United States economy moved upward and millions of jobs were created. 
C) the United States economy grew, but not many jobs were created. 
D) the United States economy moved downward, but still many jobs were created. 
E) the United States economy remained stationary. 
A) the United States economy was in recession and millions of jobs were lost. 
B) the United States economy moved upward and millions of jobs were created. 
C) the United States economy grew, but not many jobs were created. 
D) the United States economy moved downward, but still many jobs were created. 
E) the United States economy remained stationary.

Question 13

Why are most economists skeptical about the real business cycle theory of economic fluctuations?

Accepted Answer

They are skeptical because the

Question 14

The economy's long-term growth trend for GDP is known as real GDP and is determined by the available supply of capital, labor, and technology.

Accepted Answer

A) True 
 B)False

Question 15

To forecast real GDP, economic forecasters divide aggregate demand into its four key components: private sector, public sector, investment sector, and foreign sector.

Accepted Answer

A) True 
 B)False

Question 16

Exhibit 23-6  
-According to Exhibit 23-6, line abd shows the path of potential GDP. Suppose that the Year 2 spending balance has the economy at point b where real GDP equals potential GDP. Which of the following would cause the economy to be at point c in Year 3?

Accepted Answer

A) There is an increase in wealth. 
B) Firms decrease their optimism about the state of the economy. 
C) The marginal propensity to consume decreases. 
D) The quantity of imports increases. 
E) The government increases taxes. 
A) There is an increase in wealth. 
B) Firms decrease their optimism about the state of the economy. 
C) The marginal propensity to consume decreases. 
D) The quantity of imports increases. 
E) The government increases taxes.

Question 17

Which of the following statements is false?

Accepted Answer

A) The assumption that income is the only influence on consumption is a simplifying assumption. 
B) Assuming consumption spending responds to income will improve a forecast. 
C) The assumption that only consumption spending responds to income is a simplifying assumption. 
D) Consumption responds to changes in other factors besides income. 
E) The assumption that investment and net exports do not respond to changes in income is based on evidence from the U.S.economy. 
A) The assumption that income is the only influence on consumption is a simplifying assumption. 
B) Assuming consumption spending responds to income will improve a forecast. 
C) The assumption that only consumption spending responds to income is a simplifying assumption. 
D) Consumption responds to changes in other factors besides income. 
E) The assumption that investment and net exports do not respond to changes in income is based on evidence from the U.S.economy.

Question 18

When examining consumption behavior at the household level, it does not make a difference whether real household income or disposable income is used.

Accepted Answer

A) True 
 B)False

Question 19

The Keynesian multiplier will be higher if

Accepted Answer

A) the marginal propensity to consume is larger. 
B) the marginal propensity to import is larger. 
C) real GDP is higher. 
D) the expenditure line is higher. 
E) the liquidity constraint is greater. 
A) the marginal propensity to consume is larger. 
B) the marginal propensity to import is larger. 
C) real GDP is higher. 
D) the expenditure line is higher. 
E) the liquidity constraint is greater.

Question 20

The marginal propensity to consume is best defined as the change in consumption expenditure caused by a one-unit increase in income.

Accepted Answer

A) True 
 B)False

Exam 23: The Nature and Causes of Economic Fluctuations

In the United States, consumption is by far the largest component of aggregate demand.

Which of the following will cause an upward shift of the expenditure line?

The forward-looking model implies that the Keynesian multiplier is greater for a temporary tax cut than a permanent tax cut.

Spending balance exists if

Which of the following does not occur when real GDP rises above potential GDP?

The slope of the consumption function is equal to

The 2008-09 recession proved to be mild and very short-lived.

Which of the following statements is true?

If government expenditures decrease, the expenditure line will

Define the marginal propensity to consume. Graphically, how is the marginal propensity to consume shown?

What is meant by a conditional forecast, and what is it used for?

Between December 2007 and June 2009,

Why are most economists skeptical about the real business cycle theory of economic fluctuations?

The economy's long-term growth trend for GDP is known as real GDP and is determined by the available supply of capital, labor, and technology.

To forecast real GDP, economic forecasters divide aggregate demand into its four key components: private sector, public sector, investment sector, and foreign sector.

Exhibit 23-6 -According to Exhibit 23-6, line abd shows the path of potential GDP. Suppose that the Year 2 spending balance has the economy at point b where real GDP equals potential GDP. Which of the following would cause the economy to be at point c in Year 3?

Which of the following statements is false?

When examining consumption behavior at the household level, it does not make a difference whether real household income or disposable income is used.

The Keynesian multiplier will be higher if

The marginal propensity to consume is best defined as the change in consumption expenditure caused by a one-unit increase in income.

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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