Question 1

The basic idea behind the multiplier is that an increase in

Accepted Answer

A)  GDP brings about an additional, larger increase in GDP. 
B)  consumer spending causes a larger increase in investment spending. 
C)  government spending causes a larger increase in tax revenues. 
D)  spending will cause an even larger increase in equilibrium GDP. 
A)  GDP brings about an additional, larger increase in GDP. 
B)  consumer spending causes a larger increase in investment spending. 
C)  government spending causes a larger increase in tax revenues. 
D)  spending will cause an even larger increase in equilibrium GDP.

Question 2

Leakages are offset by investment and government spending in the circular flow model.

Accepted Answer

A) True 
 B)False

Question 3

The amount by which equilibrium real GDP exceeds full-employment GDP is known as

Accepted Answer

A)  stagflation. 
B)  employment. 
C)  a recessionary gap. 
D)  an inflationary gap. 
A)  stagflation. 
B)  employment. 
C)  a recessionary gap. 
D)  an inflationary gap.

Question 4

In the basic 45-degree line model, what is the effect of an increase in the price level?

Accepted Answer

A)  There will be movement to the left on the expenditure line. 
B)  There will be movement to the right on the expenditure line. 
C)  The expenditure line will shift downward. 
D)  The expenditure line will shift upward. 
A)  There will be movement to the left on the expenditure line. 
B)  There will be movement to the right on the expenditure line. 
C)  The expenditure line will shift downward. 
D)  The expenditure line will shift upward.

Question 5

Which of the following shows the relationship between national income (GDP) and total spending?

Accepted Answer

A)  Demand schedule 
B)  Consumption curve 
C)  Expenditure schedule 
D)  Balance schedule 
A)  Demand schedule 
B)  Consumption curve 
C)  Expenditure schedule 
D)  Balance schedule

Question 6

The expenditure schedule includes the consumption function.

Accepted Answer

A) True 
 B)False

Question 7

In a simple macroeconomic model, only one component of expenditures is allowed to change:

Accepted Answer

A)  investment. 
B)  consumption. 
C)  net exports. 
D)  government spending. 
E)  transfer payments. 
A)  investment. 
B)  consumption. 
C)  net exports. 
D)  government spending. 
E)  transfer payments.

Question 8

If the economy automatically tends toward full employment, then government stabilization policy

Accepted Answer

A)  must be constantly in force. 
B)  will be necessary only in recessions. 
C)  will be necessary only in inflationary periods. 
D)  will not be necessary. 
A)  must be constantly in force. 
B)  will be necessary only in recessions. 
C)  will be necessary only in inflationary periods. 
D)  will not be necessary.

Question 9

If saving exceeds investment, then the level of GDP will

Accepted Answer

A)  increase. 
B)  remain constant. 
C)  decrease. 
D)  rise above potential GDP. 
A)  increase. 
B)  remain constant. 
C)  decrease. 
D)  rise above potential GDP.

Question 10

At the equilibrium level of income it must be true that total

Accepted Answer

A)  income equals total spending. 
B)  product equals total output. 
C)  output equals total inventory. 
D)  income equals total saving. 
A)  income equals total spending. 
B)  product equals total output. 
C)  output equals total inventory. 
D)  income equals total saving.

Question 11

Figure 9-5
  
-In Figure 9-5, if the second round effect of an increase in autonomous spending of $100,000 is $75,000, then the multiplier is

Accepted Answer

A)  400,000. 
B)  6. 
C)  4. 
D)  4/5. 
A)  400,000. 
B)  6. 
C)  4. 
D)  4/5.

Question 12

If total spending is greater than current output, GDP will rise.

Accepted Answer

A) True 
 B)False

Question 13

If total spending exceeds total output, then

Accepted Answer

A)  inventory levels will rise. 
B)  inventory levels will remain constant. 
C)  inventory levels will fall. 
D)  output will eventually decrease. 
A)  inventory levels will rise. 
B)  inventory levels will remain constant. 
C)  inventory levels will fall. 
D)  output will eventually decrease.

Question 14

Figure 9-3
  
-In Figure 9-3, saving at equilibrium GDP is.

Accepted Answer

A)  $1,200 billion. 
B)  $1,000 billion. 
C)  $800 billion. 
D)  $600 billion. 
E)  $400 billion. 
A)  $1,200 billion. 
B)  $1,000 billion. 
C)  $800 billion. 
D)  $600 billion. 
E)  $400 billion.

Question 15

A recessionary gap exists when potential GDP

Accepted Answer

A)  falls short of equilibrium GDP. 
B)  exceeds equilibrium GDP. 
C)  equals equilibrium GDP. 
D)  All of the above are correct. 
A)  falls short of equilibrium GDP. 
B)  exceeds equilibrium GDP. 
C)  equals equilibrium GDP. 
D)  All of the above are correct.

Question 16

The recessionary gap is the

Accepted Answer

A)  amount of unemployment compensation required during a recession. 
B)  budget deficit encountered during a recession. 
C)  amount of government spending needed to end a recession. 
D)  distance between the equilibrium level of output and the full employment level of output. 
A)  amount of unemployment compensation required during a recession. 
B)  budget deficit encountered during a recession. 
C)  amount of government spending needed to end a recession. 
D)  distance between the equilibrium level of output and the full employment level of output.

Question 17

According to Baumol and Blinder, the real-world multiplier will be smaller than 1/(1 - MPC) because the 1/(1 - MPC) measure is based on

Accepted Answer

A)  a model that ignores inflation associated with the expansion of income. 
B)  a model that ignores taxes that tend to change as income changes. 
C)  a model that ignores the effects of international trade. 
D)  all of the above. 
A)  a model that ignores inflation associated with the expansion of income. 
B)  a model that ignores taxes that tend to change as income changes. 
C)  a model that ignores the effects of international trade. 
D)  all of the above.

Question 18

To avoid a coordination failure, the intentions of savers and investors must be both

Accepted Answer

A)  increasing. 
B)  at their planned levels. 
C)  more than full employment GDP. 
D)  at levels set by the government. 
A)  increasing. 
B)  at their planned levels. 
C)  more than full employment GDP. 
D)  at levels set by the government.

Question 19

Inventory reductions caused by strong demand are signals to retailers to order more products.

Accepted Answer

A) True 
 B)False

Question 20

The multiplier can be expressed as the ratio of the change in Y over the change in I.

Accepted Answer

A) True 
 B)False

Exam 26: Demand-Side Equilibrium: Unemployment or Inflation?

The basic idea behind the multiplier is that an increase in

Leakages are offset by investment and government spending in the circular flow model.

The amount by which equilibrium real GDP exceeds full-employment GDP is known as

In the basic 45-degree line model, what is the effect of an increase in the price level?

Which of the following shows the relationship between national income (GDP) and total spending?

The expenditure schedule includes the consumption function.

In a simple macroeconomic model, only one component of expenditures is allowed to change:

If the economy automatically tends toward full employment, then government stabilization policy

If saving exceeds investment, then the level of GDP will

At the equilibrium level of income it must be true that total

Figure 9-5 -In Figure 9-5, if the second round effect of an increase in autonomous spending of $100,000 is $75,000, then the multiplier is

If total spending is greater than current output, GDP will rise.

If total spending exceeds total output, then

Figure 9-3 -In Figure 9-3, saving at equilibrium GDP is.

A recessionary gap exists when potential GDP

The recessionary gap is the

According to Baumol and Blinder, the real-world multiplier will be smaller than 1/(1 - MPC) because the 1/(1 - MPC) measure is based on

To avoid a coordination failure, the intentions of savers and investors must be both

Inventory reductions caused by strong demand are signals to retailers to order more products.

The multiplier can be expressed as the ratio of the change in Y over the change in I.

What Is Economics?

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Demand and Elasticity

Production, Inputs, and Cost: Building Blocks for Supply Analysis

Output, Price, and Profit: The Importance of Marginal Analysis

Securities: Business Finance, and the Economy: The Tail that Wags the Dog?

The Firm and the Industry under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: The Price System

The Shortcomings of Free Markets

The Market's Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

An Introduction to Macroeconomics

The Goals of Macroeconomic Policy

Economic Growth: Theory and Policy

Aggregate Demand and the Powerful Consumer

Bringing in the Supply Side: Unemployment and Inflation?

Managing Aggregate Demand: Fiscal Policy

Money and the Banking System

Monetary Policy: Conventional and Unconventional

The Financial Crisis and the Great Recession

The Debate over Monetary and Fiscal Policy

Budget Deficits in the Short and Long Run

The Trade-Off between Inflation and Unemployment

International Trade and Comparative Advantage

The International Monetary System: Order or Disorder?

Exchange Rates and the Macroeconomy

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