Question 1

In a graph with output on the x- axis and expenditures on the y- axis, a 45- degree line starting from the origin represents the locus of:

Accepted Answer

A)  negative inventory changes. 
B)  autonomous consumption levels. 
C)  equilibrium output levels. 
D)  positive inventory changes. 
A)  negative inventory changes. 
B)  autonomous consumption levels. 
C)  equilibrium output levels. 
D)  positive inventory changes.

Question 2

Assume that the consumption function is C = 200 + 0.8Y. When Y equals $200, then C equals _______.

Accepted Answer

A)  $160 
B)  $200 
C)  $360 
D)  $400 
A)  $160 
B)  $200 
C)  $360 
D)  $400

Question 3

Assume that C = 150 + 0.9Y and I = 50. The government spending multiplier is:

Accepted Answer

A)  8. 
B)  4. 
C)  6. 
D)  10 
A)  8. 
B)  4. 
C)  6. 
D)  10

Question 4

A decrease in the price level will:

Accepted Answer

A)  decrease consumption and increase output demand. 
B)  decrease consumption and decrease output demanded. 
C)  increase consumption and decrease output demanded. 
D)  increase consumption and increase output demanded. 
A)  decrease consumption and increase output demand. 
B)  decrease consumption and decrease output demanded. 
C)  increase consumption and decrease output demanded. 
D)  increase consumption and increase output demanded.

Question 5

When the consumption function is expressed as C = Ca + b (1- t)y, income taxes act as an automatic stabilizer because:

Accepted Answer

A)  when the economy experiences a large increase in GDP, the government's tax collection increases without the approval from Congress, increasing disposable income and consumption. 
B)  when the economy experiences a large increase in GDP, the government's tax collection decreases without government action, decreasing disposable income and consumption. 
C)  when the economy experiences a large increase in GDP, the government's tax collection increases without government action, decreasing disposable income and consumption. 
D)  when the economy experiences a large increase in GDP, the government's tax collection increases without government action, increasing disposable income and consumption. 
A)  when the economy experiences a large increase in GDP, the government's tax collection increases without the approval from Congress, increasing disposable income and consumption. 
B)  when the economy experiences a large increase in GDP, the government's tax collection decreases without government action, decreasing disposable income and consumption. 
C)  when the economy experiences a large increase in GDP, the government's tax collection increases without government action, decreasing disposable income and consumption. 
D)  when the economy experiences a large increase in GDP, the government's tax collection increases without government action, increasing disposable income and consumption.

Question 6

An increase in the marginal propensity to save will tend to cause:

Accepted Answer

A)  the demand line to become flatter and a given change in investment to have a smaller effect on output. 
B)  the demand line to become steeper and a given change in investment to have a smaller effect on output. 
C)  the demand line to become flatter and a given change in investment to have a greater effect on output. 
D)  none of the above 
A)  the demand line to become flatter and a given change in investment to have a smaller effect on output. 
B)  the demand line to become steeper and a given change in investment to have a smaller effect on output. 
C)  the demand line to become flatter and a given change in investment to have a greater effect on output. 
D)  none of the above

Question 7

An increase in the marginal propensity to save will

Accepted Answer

A)  cause the consumption function to be flatter. 
B)  cause the consumption function to be steeper. 
C)  shift the consumption function downwards. 
D)  shift the consumption function upwards. 
A)  cause the consumption function to be flatter. 
B)  cause the consumption function to be steeper. 
C)  shift the consumption function downwards. 
D)  shift the consumption function upwards.

Question 8

Assume that consumption is represented by the following: C = 200 + 0.9Y. Also assume that planned investment (I) equals 300.
(a) Now, suppose the level of income is equal to 4,000. What is the level of aggregate expenditures at this level of income? What is the value of any unplanned changes in inventories?
(b) Given the information, calculate the equilibrium level of income.
(c) Given the information, calculate the level of consumption and saving that occurs at the equilibrium level of income.
(d) Suppose planned investment falls by 100. Calculate the new level of equilibrium income.

Accepted Answer

(a) Total expenditure = 4,100.

Question 9

When we graph the 45 degree line, what are the labels on the x- axis and the y- axis?

Accepted Answer

A)  output on the x- axis and expenditures on the y- axis 
B)  income on the x- axis and interest rates on the y- axis 
C)  expenditures on the x- axis and output on the y- axis 
D)  output on the x- axis and income on the y- axis 
A)  output on the x- axis and expenditures on the y- axis 
B)  income on the x- axis and interest rates on the y- axis 
C)  expenditures on the x- axis and output on the y- axis 
D)  output on the x- axis and income on the y- axis

Question 10

-Refer to Table 11.5. The equilibrium income in this economy is:

Accepted Answer

A)  2400. 
B)  1600. 
C)  1500. 
D)  2000. 
A)  2400. 
B)  1600. 
C)  1500. 
D)  2000.

Question 11

In a closed economy without a government, planned expenditures equal:

Accepted Answer

A)  I+G. 
B)  NX + I. 
C)  C+I. 
D)  C+I+G. 
A)  I+G. 
B)  NX + I. 
C)  C+I. 
D)  C+I+G.

Question 12

Midwest State University in Nebraska is trying to convince Nebraska taxpayers that the tax dollars spent at Midwest State University are well spent. One of the university's arguments is that for every $1 spent by Midwest State University, an additional $5 of expenditures are generated within Nebraska. Midwest State University is arguing that the multiplier for their expenditures is:

Accepted Answer

A)  .2. 
B)  4. 
C)  1. 
D)  5. 
A)  .2. 
B)  4. 
C)  1. 
D)  5.

Question 13

When the government collects taxes as a lump sum, or as a fixed nominal amount (e.g.,
$500 per individual), will this tax collection system operate as an automatic stabilizer?

Accepted Answer

No. This is not an automatic stabilizer

Question 14

If the marginal propensity to import is 0.2, then a $1,000 decrease in income will:

Accepted Answer

A)  decrease net exports by 2000. 
B)  increase net exports by 200. 
C)  increase net exports by 1000. 
D)  decrease net exports by 200. 
A)  decrease net exports by 2000. 
B)  increase net exports by 200. 
C)  increase net exports by 1000. 
D)  decrease net exports by 200.

Question 15

Assuming there is no government or foreign sector, the formula for the multiplier is:

Accepted Answer

A)  1/(1 + MP
C) . 
B)  1/(1 - MP
C) . 
C)  1 - MPC. 
D)  1/MPC. 
A)  1/(1 + MP
C) . 
B)  1/(1 - MP
C) . 
C)  1 - MPC. 
D)  1/MPC.

Question 16

The output level where planned expenditures equals GDP is called the:

Accepted Answer

A)  natural output. 
B)  optimum output. 
C)  full employment. 
D)  equilibrium output. 
A)  natural output. 
B)  optimum output. 
C)  full employment. 
D)  equilibrium output.

Question 17

If the economy finds itself at a point where planned spending is less than output, then we will expect to see:

Accepted Answer

A)  an equilibrium level of output. 
B)  a decrease in planned spending. 
C)  a decrease in inventories. 
D)  an increase in inventories. 
A)  an equilibrium level of output. 
B)  a decrease in planned spending. 
C)  a decrease in inventories. 
D)  an increase in inventories.

Question 18

-Refer to Table 11.3. The equilibrium level of aggregate output equals:

Accepted Answer

A)  $2,000 million. 
B)  $2,500 million. 
C)  $3,000 million. 
D)  $3,500 million. 
A)  $2,000 million. 
B)  $2,500 million. 
C)  $3,000 million. 
D)  $3,500 million.

Question 19

If the government collects taxes using a constant income tax rate t, then a recession will make T- G smaller because:

Accepted Answer

A)  taxes collected decreases as Y increases. 
B)  taxes collected increases as Y increases. 
C)  taxes collected decreases as Y decreases. 
D)  taxes collected increases as Y decreases. 
A)  taxes collected decreases as Y increases. 
B)  taxes collected increases as Y increases. 
C)  taxes collected decreases as Y decreases. 
D)  taxes collected increases as Y decreases.

Question 20

If the tax multiplier is - 6 and taxes are reduced by $100 billion, output:

Accepted Answer

A)  falls by $100 billion. 
B)  increases by $100 billion. 
C)  increases by $600 billion. 
D)  falls by $600 billion. 
A)  falls by $100 billion. 
B)  increases by $100 billion. 
C)  increases by $600 billion. 
D)  falls by $600 billion.

In a graph with output on the x- axis and expenditures on the y- axis, a 45- degree line starting from the origin represents the locus of:

Assume that the consumption function is C = 200 + 0.8Y. When Y equals $200, then C equals _______.

Assume that C = 150 + 0.9Y and I = 50. The government spending multiplier is:

A decrease in the price level will:

When the consumption function is expressed as C = Ca + b (1- t)y, income taxes act as an automatic stabilizer because:

An increase in the marginal propensity to save will tend to cause:

An increase in the marginal propensity to save will

When we graph the 45 degree line, what are the labels on the x- axis and the y- axis?

-Refer to Table 11.5. The equilibrium income in this economy is:

In a closed economy without a government, planned expenditures equal:

When the government collects taxes as a lump sum, or as a fixed nominal amount (e.g., $500 per individual), will this tax collection system operate as an automatic stabilizer?

If the marginal propensity to import is 0.2, then a $1,000 decrease in income will:

Assuming there is no government or foreign sector, the formula for the multiplier is:

The output level where planned expenditures equals GDP is called the:

If the economy finds itself at a point where planned spending is less than output, then we will expect to see:

-Refer to Table 11.3. The equilibrium level of aggregate output equals:

If the government collects taxes using a constant income tax rate t, then a recession will make T- G smaller because:

If the tax multiplier is - 6 and taxes are reduced by $100 billion, output:

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters

Exam 11: The Income-Expenditure Model

In a graph with output on the x- axis and expenditures on the y- axis, a 45- degree line starting from the origin represents the locus of:

Assume that the consumption function is C = 200 + 0.8Y. When Y equals $200, then C equals _______.

Assume that C = 150 + 0.9Y and I = 50. The government spending multiplier is:

A decrease in the price level will:

When the consumption function is expressed as C = Ca + b (1- t)y, income taxes act as an automatic stabilizer because:

An increase in the marginal propensity to save will tend to cause:

An increase in the marginal propensity to save will

When we graph the 45 degree line, what are the labels on the x- axis and the y- axis?

-Refer to Table 11.5. The equilibrium income in this economy is:

In a closed economy without a government, planned expenditures equal:

When the government collects taxes as a lump sum, or as a fixed nominal amount (e.g., $500 per individual), will this tax collection system operate as an automatic stabilizer?

If the marginal propensity to import is 0.2, then a $1,000 decrease in income will:

Assuming there is no government or foreign sector, the formula for the multiplier is:

The output level where planned expenditures equals GDP is called the:

If the economy finds itself at a point where planned spending is less than output, then we will expect to see:

-Refer to Table 11.3. The equilibrium level of aggregate output equals:

If the government collects taxes using a constant income tax rate t, then a recession will make T- G smaller because:

If the tax multiplier is - 6 and taxes are reduced by $100 billion, output:

Introduction: What Is Economics

The Key Principles of Economics

Exchange and Markets

Demand, Supply, and Market Equilibrium

Measuring a Nations Production and Income

Unemployment and Inflation

The Economy at Full Employment

Why Do Economies Grow

Aggregate Demand and Aggregate Supply

Fiscal Policy

Investment and Financial Markets

Money and the Banking System

The Federal Reserve and Monetary Policy

Modern Macroeconomics: From the Short Run to the Long Run

The Dynamics of Inflation and Unemployment

Macroeconomic Policy Debates

International Trade and Public Policy

The World of International Finance

Filters