Question 1

When spending balance is achieved, the economy has reached a long-run equilibrium.

Accepted Answer

A) True 
 B)False

Question 2

Assume initially that real GDP is equal to potential GDP. Explain carefully whether each of the following would cause real GDP to rise above or fall below potential GDP.

Accepted Answer

The answer of Assume initially that real GDP is equal...

Question 3

At the end of a recession

Accepted Answer

A) real GDP is greater than potential GDP. 
B) potential GDP is greater than real GDP. 
C) potential GDP is less than real GDP. 
D) real GDP is falling. 
E) potential GDP equals real GDP. 
A) real GDP is greater than potential GDP. 
B) potential GDP is greater than real GDP. 
C) potential GDP is less than real GDP. 
D) real GDP is falling. 
E) potential GDP equals real GDP.

Question 4

To understand how a change in government purchases affects real GDP in the short run, we need to focus on

Accepted Answer

A) the identity between real GDP and income and the identity between real GDP and potential GDP. 
B) the consumption function and the identity between real GDP and income. 
C) the identity between real GDP and income and the identity between disposable income and real GDP. 
D) the consumption function and the identity between real GDP and disposable income. 
E) the consumption function and the identity between real GDP and potential GDP. 
A) the identity between real GDP and income and the identity between real GDP and potential GDP. 
B) the consumption function and the identity between real GDP and income. 
C) the identity between real GDP and income and the identity between disposable income and real GDP. 
D) the consumption function and the identity between real GDP and disposable income. 
E) the consumption function and the identity between real GDP and potential GDP.

Question 5

An increase in lump-sum taxes results in

Accepted Answer

A) both the intercept and the slope of the expenditure line increasing. 
B) the intercept of the expenditure line getting larger. 
C) the intercept of the expenditure line decreasing. 
D) the slope of the expenditure line decreasing. 
E) the slope of the expenditure line getting larger. 
A) both the intercept and the slope of the expenditure line increasing. 
B) the intercept of the expenditure line getting larger. 
C) the intercept of the expenditure line decreasing. 
D) the slope of the expenditure line decreasing. 
E) the slope of the expenditure line getting larger.

Question 6

Suppose most European economies are in a recession. How would you expect this to affect the European demand for American goods? What happens to net exports? Sketch a diagram that illustrates how this change in net exports affects real GDP in the United States.

Accepted Answer

The recession in Europe result

Question 7

Suppose that MPC = 0.9 and MPI = 0.1, the Keynesian multiplier equals

Accepted Answer

A)  1. 
B)  1.25. 
C)  2.5. 
D)  5. 
E)  10. 
A)  1. 
B)  1.25. 
C)  2.5. 
D)  5. 
E)  10.

Question 8

An increase in the marginal propensity to consume leads to an increase in the Keynesian multiplier.

Accepted Answer

A) True 
 B)False

Question 9

The components that make up aggregate expenditures are

Accepted Answer

A) consumption and government purchases. 
B) investment, government purchases, and net exports. 
C) consumption, investment, government purchases, and net exports. 
D) income and consumption. 
E) consumption and investment. 
A) consumption and government purchases. 
B) investment, government purchases, and net exports. 
C) consumption, investment, government purchases, and net exports. 
D) income and consumption. 
E) consumption and investment.

Question 10

If the expenditure line is steeper, the Keynesian multiplier will be larger.

Accepted Answer

A) True 
 B)False

Question 11

All else being equal, a higher propensity to import leads to a larger Keynesian multiplier.

Accepted Answer

A) True 
 B)False

Question 12

Suppose that the expenditure line initially intersects the 45-degree line at a point where potential GDP is equal to real GDP. Now, suppose over the next year the economy goes into a boom. Draw a graph showing what happens to the expenditure line as the economy moves into a boom.

Accepted Answer

Initially, the expenditure line is at E₁

Question 13

Real business cycle theories focus on changes in potential GDP as the source of economic fluctuations.

Accepted Answer

A) True 
 B)False

Question 14

Exhibit 23-5  
-If spending was equal to the amount corresponding to point B in Exhibit 23-5,

Accepted Answer

A) aggregate output would increase. 
B) aggregate output would decrease. 
C) spending is too high, and the expenditure line will shift down. 
D) the economy would be in equilibrium. 
E) the marginal propensity to consume would increase. 
A) aggregate output would increase. 
B) aggregate output would decrease. 
C) spending is too high, and the expenditure line will shift down. 
D) the economy would be in equilibrium. 
E) the marginal propensity to consume would increase.

Question 15

Real GDP and real disposable income behave in similar ways.

Accepted Answer

A) True 
 B)False

Question 16

Each of the four spending components depends on income.

Accepted Answer

A) True 
 B)False

Question 17

The type of forecast that describes what real GDP will be under alternative assumptions about the components of spending is commonly known as

Accepted Answer

A) a conditional forecast. 
B) a prudential forecast. 
C) an alternatives forecast. 
D) a sensible forecast. 
E) None of these 
A) a conditional forecast. 
B) a prudential forecast. 
C) an alternatives forecast. 
D) a sensible forecast. 
E) None of these

Question 18

An increase in investment results in

Accepted Answer

A) a downward shift of the expenditure line. 
B) a steeper expenditure line. 
C) a flatter expenditure line. 
D) an upward shift of the expenditure line. 
E) both the intercept and the slope of the expenditure line increasing. 
A) a downward shift of the expenditure line. 
B) a steeper expenditure line. 
C) a flatter expenditure line. 
D) an upward shift of the expenditure line. 
E) both the intercept and the slope of the expenditure line increasing.

Question 19

The expenditure line will shift if government spending increases, but not if it decreases.

Accepted Answer

A) True 
 B)False

Question 20

The sum of the four spending components depends on income.

Accepted Answer

A) True 
 B)False

Exam 23: The Nature and Causes of Economic Fluctuations

When spending balance is achieved, the economy has reached a long-run equilibrium.

Assume initially that real GDP is equal to potential GDP. Explain carefully whether each of the following would cause real GDP to rise above or fall below potential GDP.

At the end of a recession

To understand how a change in government purchases affects real GDP in the short run, we need to focus on

An increase in lump-sum taxes results in

Suppose most European economies are in a recession. How would you expect this to affect the European demand for American goods? What happens to net exports? Sketch a diagram that illustrates how this change in net exports affects real GDP in the United States.

Suppose that MPC = 0.9 and MPI = 0.1, the Keynesian multiplier equals

An increase in the marginal propensity to consume leads to an increase in the Keynesian multiplier.

The components that make up aggregate expenditures are

If the expenditure line is steeper, the Keynesian multiplier will be larger.

All else being equal, a higher propensity to import leads to a larger Keynesian multiplier.

Suppose that the expenditure line initially intersects the 45-degree line at a point where potential GDP is equal to real GDP. Now, suppose over the next year the economy goes into a boom. Draw a graph showing what happens to the expenditure line as the economy moves into a boom.

Real business cycle theories focus on changes in potential GDP as the source of economic fluctuations.

Exhibit 23-5 -If spending was equal to the amount corresponding to point B in Exhibit 23-5,

Real GDP and real disposable income behave in similar ways.

Each of the four spending components depends on income.

The type of forecast that describes what real GDP will be under alternative assumptions about the components of spending is commonly known as

An increase in investment results in

The expenditure line will shift if government spending increases, but not if it decreases.

The sum of the four spending components depends on 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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