Question 1

Investment increases by $200 million and the value of MPC is 0.75.What would be the total increase in spending?

Accepted Answer

A)  $200 million 
B)  $266 million 
C)  $750 million 
D)  $800 million 
A)  $200 million 
B)  $266 million 
C)  $750 million 
D)  $800 million

Question 2

When GDP decreases, consumption spending increases.

Accepted Answer

A) True 
 B)False

Question 3

If net exports are reduced, the expenditure schedule will shift

Accepted Answer

A)  downward and equilibrium real GDP will rise. 
B)  upward and equilibrium real GDP will rise. 
C)  downward and equilibrium real GDP will fall. 
D)  upward and equilibrium real GDP will fall. 
A)  downward and equilibrium real GDP will rise. 
B)  upward and equilibrium real GDP will rise. 
C)  downward and equilibrium real GDP will fall. 
D)  upward and equilibrium real GDP will fall.

Question 4

The effect throughout the entire economy of one individual's increase in spending will be

Accepted Answer

A)  less than the individual's spending. 
B)  equal to the individual's spending. 
C)  greater than the individual's spending. 
D)  offset by another individual's saving. 
A)  less than the individual's spending. 
B)  equal to the individual's spending. 
C)  greater than the individual's spending. 
D)  offset by another individual's saving.

Question 5

Figure 9-1
  
-In Figure 9-1, the economy is

Accepted Answer

A)  experiencing an inflationary gap, shown by the horizontal distance EB. 
B)  at full employment without inflation. 
C)  experiencing a recessionary gap, shown by the horizontal distance EB. 
D)  experiencing a recessionary gap, shown by the distance between EF. 
A)  experiencing an inflationary gap, shown by the horizontal distance EB. 
B)  at full employment without inflation. 
C)  experiencing a recessionary gap, shown by the horizontal distance EB. 
D)  experiencing a recessionary gap, shown by the distance between EF.

Question 6

In a simple, private economy, suppose that the MPC is .8 and investment rises by $20 million.At the new equilibrium, how much will saving have increased?

Accepted Answer

A)  $8 million 
B)  $16 million 
C)  $20 million 
D)  $80 million 
E)  $100 million 
A)  $8 million 
B)  $16 million 
C)  $20 million 
D)  $80 million 
E)  $100 million

Question 7

An inflationary gap will exist when the full employment level of GDP is

Accepted Answer

A)  equal to equilibrium GDP. 
B)  greater than equilibrium GDP. 
C)  less than equilibrium GDP. 
D)  greater than disposable income. 
A)  equal to equilibrium GDP. 
B)  greater than equilibrium GDP. 
C)  less than equilibrium GDP. 
D)  greater than disposable income.

Question 8

A given income-expenditure diagram always assumes a variable price level.

Accepted Answer

A) True 
 B)False

Question 9

A change in the price level will cause a shift in the expenditure schedule.

Accepted Answer

A) True 
 B)False

Question 10

If the economy is in equilibrium, it must be

Accepted Answer

A)  on the 45° line. 
B)  on the 60° line. 
C)  below the 45° line. 
D)  below the 60° line. 
A)  on the 45° line. 
B)  on the 60° line. 
C)  below the 45° line. 
D)  below the 60° line.

Question 11

In a simple economy (no government sector), the equilibrium level of GDP will be less than the full employment level of income if, at the full employment level of income, the

Accepted Answer

A)  saving that consumers want to do is less than investing that businesses want to do. 
B)  saving that consumers want to do is greater than investing that businesses want to do. 
C)  saving that consumers want to do is less than spending that consumers want to do. 
D)  inventories are being depleted. 
A)  saving that consumers want to do is less than investing that businesses want to do. 
B)  saving that consumers want to do is greater than investing that businesses want to do. 
C)  saving that consumers want to do is less than spending that consumers want to do. 
D)  inventories are being depleted.

Question 12

If inventory levels are decreasing, then we should expect business firms to

Accepted Answer

A)  decrease prices. 
B)  decrease output. 
C)  lay off workers. 
D)  increase output. 
A)  decrease prices. 
B)  decrease output. 
C)  lay off workers. 
D)  increase output.

Question 13

Investment spending is a leakage from the circular flow model.

Accepted Answer

A) True 
 B)False

Question 14

Figure 9-4
  
-In Figure 9-4, if the economy is in a recessionary gap, what must happen to reach potential GDP?

Accepted Answer

A)  The expenditure level must fall and/or the price level must rise. 
B)  The expenditure level must rise and/or the price level must fall. 
C)  The expenditure level must rise and/or the price level must rise. 
D)  The expenditure level must fall and /or the price level must fall. 
A)  The expenditure level must fall and/or the price level must rise. 
B)  The expenditure level must rise and/or the price level must fall. 
C)  The expenditure level must rise and/or the price level must rise. 
D)  The expenditure level must fall and /or the price level must fall.

Question 15

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

Accepted Answer

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

Question 16

If the MPC is .67, then the oversimplified multiplier is

Accepted Answer

A)  7.60. 
B)  6.70. 
C)  3.00. 
D)  33. 
A)  7.60. 
B)  6.70. 
C)  3.00. 
D)  33.

Question 17

Free markets coordinate economic activity in such a way as to eliminate the possibility of inflation or unemployment.

Accepted Answer

A) True 
 B)False

Question 18

The federal government could stimulate investment spending by

Accepted Answer

A)  phasing out the depreciation allowance on corporate income taxes. 
B)  enacting an investment tax credit. 
C)  reinstating the windfall profits tax. 
D)  reducing the tax rate on capital gains. 
E)  Both b and d are correct. 
A)  phasing out the depreciation allowance on corporate income taxes. 
B)  enacting an investment tax credit. 
C)  reinstating the windfall profits tax. 
D)  reducing the tax rate on capital gains. 
E)  Both b and d are correct.

Question 19

When constructing a basic macroeconomic model, several assumptions (not realistic, but necessary to simplify the analysis) are made.Which of the following are assumed to be constant?

Accepted Answer

A)  the price level 
B)  the rate of interest 
C)  the foreign exchange rate 
D)  the level of government spending 
E)  All of the above are held constant. 
A)  the price level 
B)  the rate of interest 
C)  the foreign exchange rate 
D)  the level of government spending 
E)  All of the above are held constant.

Question 20

When GDP is less than total spending, GDP will fall.

Accepted Answer

A) True 
 B)False

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

Investment increases by $200 million and the value of MPC is 0.75.What would be the total increase in spending?

When GDP decreases, consumption spending increases.

If net exports are reduced, the expenditure schedule will shift

The effect throughout the entire economy of one individual's increase in spending will be

Figure 9-1 -In Figure 9-1, the economy is

In a simple, private economy, suppose that the MPC is .8 and investment rises by $20 million.At the new equilibrium, how much will saving have increased?

An inflationary gap will exist when the full employment level of GDP is

A given income-expenditure diagram always assumes a variable price level.

A change in the price level will cause a shift in the expenditure schedule.

If the economy is in equilibrium, it must be

In a simple economy (no government sector), the equilibrium level of GDP will be less than the full employment level of income if, at the full employment level of income, the

If inventory levels are decreasing, then we should expect business firms to

Investment spending is a leakage from the circular flow model.

Figure 9-4 -In Figure 9-4, if the economy is in a recessionary gap, what must happen to reach potential GDP?

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

If the MPC is .67, then the oversimplified multiplier is

Free markets coordinate economic activity in such a way as to eliminate the possibility of inflation or unemployment.

The federal government could stimulate investment spending by

When constructing a basic macroeconomic model, several assumptions (not realistic, but necessary to simplify the analysis) are made.Which of the following are assumed to be constant?

When GDP is less than total spending, GDP will fall.

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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