Question 1

Why is it relevant to study economic fluctuations?

Accepted Answer

Studying economic fluctuations

Question 2

The expenditure line

Accepted Answer

A) is steeper than the 45-degree line. 
B) slopes upward because consumption depends positively on income. 
C) slopes upward because the MPC is less than 1. 
D) slopes upward because consumption and investment depend positively on income. 
E) shows the relationship between consumption spending and income. 
A) is steeper than the 45-degree line. 
B) slopes upward because consumption depends positively on income. 
C) slopes upward because the MPC is less than 1. 
D) slopes upward because consumption and investment depend positively on income. 
E) shows the relationship between consumption spending and income.

Question 3

Exhibit 23-5  
-If output was at the level corresponding to point E in Exhibit 23-5, then

Accepted Answer

A) income would increase. 
B) aggregate output would decrease. 
C) it would be in equilibrium. 
D) the marginal propensity to consume would decrease. 
E) spending would decrease. 
A) income would increase. 
B) aggregate output would decrease. 
C) it would be in equilibrium. 
D) the marginal propensity to consume would decrease. 
E) spending would decrease.

Question 4

Which of the following would a real business cycle theorist emphasize as a primary cause of economic fluctuations?

Accepted Answer

A) Changes in the weather that severely impact the agricultural sector 
B) Changes in investment spending 
C) Changes in technology 
D) Changes in taxes 
E) Changes in government spending 
A) Changes in the weather that severely impact the agricultural sector 
B) Changes in investment spending 
C) Changes in technology 
D) Changes in taxes 
E) Changes in government spending

Question 5

The rational expectations assumption implies that anticipated tax changes have no impact on consumption at all.

Accepted Answer

A) True 
 B)False

Question 6

According to the spending balance model, a change in spending causes a change in income, which causes further changes in spending and income.

Accepted Answer

A) True 
 B)False

Question 7

Spending balance occurs when people consume according to the consumption function.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is true about the marginal propensity to consume and the marginal propensity to import?

Accepted Answer

A) The marginal propensity to import is typically smaller than the marginal propensity to consume because when income rises, not all goods we consume are imported. 
B) The marginal propensity to import is always larger than the marginal propensity to consume because when income rises, not all goods we consume are imported. 
C) The marginal propensity to import is always the same as the marginal propensity to consume because when income rises, not all goods we import are consumed. 
D) The sum of the marginal propensity to import and the marginal propensity to consume is always equal to one because when income rises, we either consume or import. 
E) The marginal propensity to import is sometimes larger and sometimes smaller than the marginal propensity to consume because when income rises, all goods we consume are imported. 
A) The marginal propensity to import is typically smaller than the marginal propensity to consume because when income rises, not all goods we consume are imported. 
B) The marginal propensity to import is always larger than the marginal propensity to consume because when income rises, not all goods we consume are imported. 
C) The marginal propensity to import is always the same as the marginal propensity to consume because when income rises, not all goods we import are consumed. 
D) The sum of the marginal propensity to import and the marginal propensity to consume is always equal to one because when income rises, we either consume or import. 
E) The marginal propensity to import is sometimes larger and sometimes smaller than the marginal propensity to consume because when income rises, all goods we consume are imported.

Question 9

If the economy is growing along the same path as potential GDP, the expenditure line will not shift over time.

Accepted Answer

A) True 
 B)False

Question 10

A macroeconomic theory that stresses the fact that shifts in potential GDP are a primary cause of fluctuations in real GDP is known as

Accepted Answer

A) potential GDP theory. 
B) real business cycle theory. 
C) economic cycle theory. 
D) perennial growth theory. 
E) None of these 
A) potential GDP theory. 
B) real business cycle theory. 
C) economic cycle theory. 
D) perennial growth theory. 
E) None of these

Question 11

According to the forward-looking model, consumption

Accepted Answer

A) reacts mostly to a permanent change in income. 
B) reacts mostly to a temporary change in income. 
C) reacts equally to permanent or temporary changes in income. 
D) is always subject to a liquidity constraint. 
E) does not react to either temporary or permanent changes in income. 
A) reacts mostly to a permanent change in income. 
B) reacts mostly to a temporary change in income. 
C) reacts equally to permanent or temporary changes in income. 
D) is always subject to a liquidity constraint. 
E) does not react to either temporary or permanent changes in income.

Question 12

Which of the following would not shift the expenditure line?

Accepted Answer

A) An increase in government spending to finance a war 
B) An increase in investment 
C) A decrease in net exports brought about by an appreciation of the dollar 
D) of these would shift the expenditures curve. 
A) An increase in government spending to finance a war 
B) An increase in investment 
C) A decrease in net exports brought about by an appreciation of the dollar 
D) of these would shift the expenditures curve.

Question 13

Because it represents a completely separate section of the economy, government purchases do not often affect the other elements of aggregate demand: consumption, investment, and net exports.

Accepted Answer

A) True 
 B)False

Question 14

The notion of the consumption function originated with

Accepted Answer

A) Edmund Phelps. 
B) John Maynard Keynes. 
C) Robert Lucas. 
D) Milton Friedman. 
E) Joseph Schumpeter. 
A) Edmund Phelps. 
B) John Maynard Keynes. 
C) Robert Lucas. 
D) Milton Friedman. 
E) Joseph Schumpeter.

Question 15

A conditional forecast is based on what is likely to happen.

Accepted Answer

A) True 
 B)False

Question 16

Exhibit 23-2  
-Given the data in Exhibit 23-2, what is the level of consumption if income increases to 400?

Accepted Answer

A) 480 
B) 450 
C) 515 
D) 465 
E) 470 
A) 480 
B) 450 
C) 515 
D) 465 
E) 470

Question 17

Exhibit 23-3  
-Refer to the data in Exhibit 23-3.

Accepted Answer

The answer of Exhibit 23-3  
-Refer to the data...

Question 18

Disposable income is the income that households

Accepted Answer

A) save for entertainment purposes and vacations. 
B) receive in wages, dividends, and interest payments minus taxes they pay to the government and minus mortgage payments. 
C) have available for saving, once the necessary living expenses have been subtracted from the wages, dividends, and interest payments they receive. 
D) receive in wages, dividends, and interest payments plus transfers they may receive from the government minus any taxes they pay to the government. 
E) None of these 
A) save for entertainment purposes and vacations. 
B) receive in wages, dividends, and interest payments minus taxes they pay to the government and minus mortgage payments. 
C) have available for saving, once the necessary living expenses have been subtracted from the wages, dividends, and interest payments they receive. 
D) receive in wages, dividends, and interest payments plus transfers they may receive from the government minus any taxes they pay to the government. 
E) None of these

Question 19

Along the 45-degree line spending and income are equal.

Accepted Answer

A) True 
 B)False

Question 20

The forward-looking model predicts that the marginal propensity to consume is constant over time.

Accepted Answer

A) True 
 B)False

Exam 23: The Nature and Causes of Economic Fluctuations

Why is it relevant to study economic fluctuations?

The expenditure line

Exhibit 23-5 -If output was at the level corresponding to point E in Exhibit 23-5, then

Which of the following would a real business cycle theorist emphasize as a primary cause of economic fluctuations?

The rational expectations assumption implies that anticipated tax changes have no impact on consumption at all.

According to the spending balance model, a change in spending causes a change in income, which causes further changes in spending and income.

Spending balance occurs when people consume according to the consumption function.

Which of the following is true about the marginal propensity to consume and the marginal propensity to import?

If the economy is growing along the same path as potential GDP, the expenditure line will not shift over time.

A macroeconomic theory that stresses the fact that shifts in potential GDP are a primary cause of fluctuations in real GDP is known as

According to the forward-looking model, consumption

Which of the following would not shift the expenditure line?

Because it represents a completely separate section of the economy, government purchases do not often affect the other elements of aggregate demand: consumption, investment, and net exports.

The notion of the consumption function originated with

A conditional forecast is based on what is likely to happen.

Exhibit 23-2 -Given the data in Exhibit 23-2, what is the level of consumption if income increases to 400?

Exhibit 23-3 -Refer to the data in Exhibit 23-3.

Disposable income is the income that households

Along the 45-degree line spending and income are equal.

The forward-looking model predicts that the marginal propensity to consume is constant over time.

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