Question 1

Changes in spending behavior shift the expenditure line and help explain economic fluctuations.

Accepted Answer

A) True 
 B)False

Question 2

The text defines economic fluctuations as

Accepted Answer

A) the rise and fall of real GDP. 
B) periods of time when there is excessive GDP volatility. 
C) periods of time when the economy is in either a recession or a boom. 
D) departure of the economy from its long-term growth trend. 
E) the rise and fall of unemployment. 
A) the rise and fall of real GDP. 
B) periods of time when there is excessive GDP volatility. 
C) periods of time when the economy is in either a recession or a boom. 
D) departure of the economy from its long-term growth trend. 
E) the rise and fall of unemployment.

Question 3

Suppose that MPC = 0.8 and MPI = 0. According to the Keynesian multiplier, an increase of $20 million in government purchases will

Accepted Answer

A) increase real GDP by $16 million. 
B) decrease real GDP by $16 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 $16 million. 
B) decrease real GDP by $16 million. 
C) increase real GDP by $100 million. 
D) decrease real GDP by $100 million. 
E) have no impact on real GDP.

Question 4

Changes in T, I, G, and X affect only the intercept of the expenditure line.

Accepted Answer

A) True 
 B)False

Question 5

Changes in aggregate demand occur when

Accepted Answer

A) foreign countries are experiencing recession. 
B) the government changes the tax laws. 
C) the government reduces military spending. 
D) consumers become more optimistic about the future and increase their spending. 
E) All of these 
A) foreign countries are experiencing recession. 
B) the government changes the tax laws. 
C) the government reduces military spending. 
D) consumers become more optimistic about the future and increase their spending. 
E) All of these

Question 6

Economic forecasters seldom differ in their one-year-ahead forecasts of real GDP.

Accepted Answer

A) True 
 B)False

Question 7

If foreigners decide to increase their purchases of U.S.-made goods by $15 million, real GDP will

Accepted Answer

A) remain unchanged. 
B) increase by more than $15 million. 
C) increase by less than $15 million. 
D) increase by $15 million. 
E) decrease by more than $15 million. 
A) remain unchanged. 
B) increase by more than $15 million. 
C) increase by less than $15 million. 
D) increase by $15 million. 
E) decrease by more than $15 million.

Question 8

Evidence from the effect of the 2008 Stimulus Act on consumption supports the permanent income hypothesis.

Accepted Answer

A) True 
 B)False

Question 9

Answer the questions below:

Accepted Answer

The answer of Answer the questions below:
  
...

Question 10

Suppose consumption is $2,700 million when income equals $2,000 million, and consumption increases to $3,125 million when income equals $2,500. What is the marginal propensity to consume?

Accepted Answer

A) 425 
B) 0.85 
C) 0.15 
D) 850 
E) None of these 
A) 425 
B) 0.85 
C) 0.15 
D) 850 
E) None of these

Question 11

Exhibit 23-2  
-Given the data in Exhibit 23-2, what is the marginal propensity to consume?

Accepted Answer

A) 0.80 
B) 0.90 
C) 0.75 
D) 1.25 
E) 0.60 
A) 0.80 
B) 0.90 
C) 0.75 
D) 1.25 
E) 0.60

Question 12

Which of the following statements is false?

Accepted Answer

A) Economic fluctuations include recessions and rapid expansions. 
B) Economic fluctuations seem to have diminished in severity. 
C) Economic fluctuations are an important subject in the study of economics. 
D) Economic fluctuations did not occur until the twentieth century. 
E) Economic fluctuations are departures from the long-run growth trend. 
A) Economic fluctuations include recessions and rapid expansions. 
B) Economic fluctuations seem to have diminished in severity. 
C) Economic fluctuations are an important subject in the study of economics. 
D) Economic fluctuations did not occur until the twentieth century. 
E) Economic fluctuations are departures from the long-run growth trend.

Question 13

Suppose consumption increases by $250 million when income increases by $300. What is the marginal propensity to consume?

Accepted Answer

A) 0.833 
B) 83.3 
C) 250 
D) 50 
E) None of these 
A) 0.833 
B) 83.3 
C) 250 
D) 50 
E) None of these

Question 14

The following table shows the relationship between income and consumption in an economy.   Assume that investment (I) is $5 billion, government purchases (G) are $4 billion, and net exports (X) are $1 billion.

Accepted Answer

The answer of The following table shows the relationship between...

Question 15

If the marginal propensity to consume increases,

Accepted Answer

A) firms will increase production. 
B) spending will remain above output until interest rates increase and equilibrium is restored. 
C) the expenditure line will shift upward in a parallel fashion. 
D) investment will have to fall to restore equilibrium. 
E) too much output is being produced, and firms will cut production until equilibrium is restored. 
A) firms will increase production. 
B) spending will remain above output until interest rates increase and equilibrium is restored. 
C) the expenditure line will shift upward in a parallel fashion. 
D) investment will have to fall to restore equilibrium. 
E) too much output is being produced, and firms will cut production until equilibrium is restored.

Question 16

Which of the following best explains why the expenditure line intersects the 45-degree line?

Accepted Answer

A) The slopes of both lines are the same. 
B) The slope of the expenditure line is greater than the slope of the 45-degree line. 
C) The slope of the 45-degree line is greater than the slope of the expenditure line. 
D) The slope of the expenditure line is greater than 1. 
E) The slope of the expenditure line is negative. 
A) The slopes of both lines are the same. 
B) The slope of the expenditure line is greater than the slope of the 45-degree line. 
C) The slope of the 45-degree line is greater than the slope of the expenditure line. 
D) The slope of the expenditure line is greater than 1. 
E) The slope of the expenditure line is negative.

Question 17

The consumption function describes

Accepted Answer

A) the negative relationship between consumption and government spending. 
B) the positive relationship between consumption and income. 
C) the negative relationship between consumption and the interest rate. 
D) the negative relationship between consumption and income. 
E) the positive relationship between consumption and the interest rate. 
A) the negative relationship between consumption and government spending. 
B) the positive relationship between consumption and income. 
C) the negative relationship between consumption and the interest rate. 
D) the negative relationship between consumption and income. 
E) the positive relationship between consumption and the interest rate.

Question 18

Why are most short-term forecasts based on expected changes in aggregate demand?

Accepted Answer

Most short-run movem

Question 19

According to the permanent income model, the marginal propensity to consume is larger in the case of a permanent change in income than a temporary change in income.

Accepted Answer

A) True 
 B)False

Question 20

If firms decide to decrease their purchases of U.S.-produced goods,

Accepted Answer

A) the decrease in investment will have no effect on U.S.income or consumption. 
B) the decrease in investment will cause U.S.income to increase, which will cause consumption to increase. 
C) the decrease in investment will cause U.S.income to decrease, which will cause consumption to decrease. 
D) real GDP will increase by the same amount that investment spending decreased. 
E) real GDP will decrease by the same amount that investment spending decreased. 
A) the decrease in investment will have no effect on U.S.income or consumption. 
B) the decrease in investment will cause U.S.income to increase, which will cause consumption to increase. 
C) the decrease in investment will cause U.S.income to decrease, which will cause consumption to decrease. 
D) real GDP will increase by the same amount that investment spending decreased. 
E) real GDP will decrease by the same amount that investment spending decreased.

Exam 23: The Nature and Causes of Economic Fluctuations

Changes in spending behavior shift the expenditure line and help explain economic fluctuations.

The text defines economic fluctuations as

Suppose that MPC = 0.8 and MPI = 0. According to the Keynesian multiplier, an increase of $20 million in government purchases will

Changes in T, I, G, and X affect only the intercept of the expenditure line.

Changes in aggregate demand occur when

Economic forecasters seldom differ in their one-year-ahead forecasts of real GDP.

If foreigners decide to increase their purchases of U.S.-made goods by $15 million, real GDP will

Evidence from the effect of the 2008 Stimulus Act on consumption supports the permanent income hypothesis.

Answer the questions below:

Suppose consumption is $2,700 million when income equals $2,000 million, and consumption increases to $3,125 million when income equals $2,500. What is the marginal propensity to consume?

Exhibit 23-2 -Given the data in Exhibit 23-2, what is the marginal propensity to consume?

Which of the following statements is false?

Suppose consumption increases by $250 million when income increases by $300. What is the marginal propensity to consume?

The following table shows the relationship between income and consumption in an economy. Assume that investment (I) is $5 billion, government purchases (G) are $4 billion, and net exports (X) are $1 billion.

If the marginal propensity to consume increases,

Which of the following best explains why the expenditure line intersects the 45-degree line?

The consumption function describes

Why are most short-term forecasts based on expected changes in aggregate demand?

According to the permanent income model, the marginal propensity to consume is larger in the case of a permanent change in income than a temporary change in income.

If firms decide to decrease their purchases of U.S.-produced goods,

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